EDENOR 2Q 2018 Filing Summary
Business Context and Reporting Period
This Form 6-K filing covers the second quarter ended June 30, 2018, for Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR), Argentina's largest electricity distributor. The company serves approximately 8.5 million people in the greater Buenos Aires area. All financial figures are presented in Argentine Pesos (ARS) in accordance with IFRS.
Key Financial Metrics
| Metric (2Q 2018) | Value (ARS Millions) | YoY Change |
|---|---|---|
| Revenue from Sales | 10,254.6 | +78.3% |
| Gross Margin | 4,467.7 | +80.5% |
| Net Operating Income | 1,268.1 | +324.5% |
| Net Income (Loss) | (197.6) | (275.6%) |
| Adjusted EBITDA | 1,583.9 | +370% |
| Capital Expenditures | 1,387.1 | +42.2% |
| Cash and Equivalents (End of Period) | 745.4 | +800% (vs 82.9) |
| Net Debt (USD) | 18.2 million | N/A |
Operational Data: Energy sales volume decreased 0.3% to 5,344 GWh. Energy loss rates increased to 18.6% from 17.2% in the prior year.
Material Changes vs. Prior Period
- Revenue Growth: Driven primarily by tariff updates (VAD) and Own Distribution Cost (CPD) adjustments mandated by the regulator (ENRE), offsetting a slight decline in energy volume.
- Cost Increases: Energy purchase costs rose 76.6% due to higher reference seasonal prices. Operating expenses increased 46.2%, driven by a 22.8% salary increase, higher third-party service fees for market discipline works, and significant regulatory penalties.
- Financial Results: Net income turned negative (loss of ARS 197.6 million) compared to a loss of ARS 52.6 million in 2Q 2017. This deterioration was caused by a 253.6% increase in net financial losses, primarily due to the depreciation of the Argentine Peso against the USD.
- Energy Losses: Physical losses increased by 116 GWh, attributed to lower temperatures increasing residential demand and higher incentives for fraud due to price hikes.
Outlook, Risks, and Unusual Items
- Regulatory Updates: ENRE approved a 15.89% CPD update effective August 1, 2018, to be implemented in two stages. The company expects recoverable revenue differences to be paid in six installments.
- Penalties and Disputes: The company faces penalties for deviating from investment plans and service quality indicators (SAIDI/SAIFI). Management disputes these penalties as non-compliant with the regulatory framework and is evaluating legal steps.
- Share Repurchase: The Board terminated its share repurchase program early after acquiring 645,891 ADRs for USD 28.4 million.
- Rating Change: S&P Global Ratings changed Edenor's rating to 'raA+' from 'raAA-' due to a change in correlation tables, not a credit downgrade.
- Debt Hedging: The company entered a hedge transaction to lock the variable interest rate on its USD 50 million ICBC loan through October 2020.
Investor Verification Checklist
- Verify the impact of the 15.89% CPD update on future cash flows and the timeline for the two-stage implementation.
- Assess the magnitude of regulatory penalties (ARS 450.8 million in 2Q) and the likelihood of successful legal challenges.
- Monitor the trend in energy loss rates (currently 18.6%) and the effectiveness of market discipline actions to reduce fraud.
- Review the exposure to Argentine Peso devaluation, which significantly impacted financial results in the quarter.
- Confirm the status of the USD 226.4 million outstanding principal debt and the effectiveness of the new interest rate hedge.