EDENOR Q2 2017 Financial Summary
Business Context and Reporting Period
Company: Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR)
Reporting Period: Second Quarter ended June 30, 2017 (Q2 2017) and Six Months ended June 30, 2017 (H1 2017).
Business: Argentina's largest electricity distributor, serving the northwestern zone of Greater Buenos Aires and northern Buenos Aires City.
Currency: Figures in Argentine Pesos (ARS) per IFRS; USD translations at ARS 16.63/USD.
Key Financial Metrics
| Metric (Q2 2017) | Value (ARS Millions) | Metric (H1 2017) | Value (ARS Millions) |
|---|---|---|---|
| Revenue from Sales | 5,751.6 | Revenue from Sales | 11,118.3 |
| Gross Margin | 2,474.7 | Gross Margin | 5,307.7 |
| Net Operating Income | 298.8 | Net Operating Income | 1,115.4 |
| Net Income (Loss) | (52.6) | Net Income (Loss) | 368.8 |
| Adjusted EBITDA | 424.4 | Capital Expenditures | 1,721.1 |
| Cash & Equivalents (End) | 72.7 | USD Debt Outstanding | 176.4 |
Material Changes vs. Prior Period
- Revenue Growth: Q2 revenue surged 111.7% YoY (ARS 5,751.6M vs. ARS 2,717.0M) driven by the first stage of the Integral Tariff Review (RTI) effective Feb 1, 2017. H1 revenue grew 94.8%.
- Profitability Turnaround: Q2 Net Operating Income improved from a loss of ARS 1,451.9M in 2016 to a profit of ARS 298.8M. H1 2017 recorded a net profit of ARS 368.8M compared to a loss of ARS 1,185.5M in H1 2016.
- Volume Decline: Energy sales volume decreased 6.8% YoY (5,330 GWh vs. 5,719 GWh), primarily due to a 12.0% drop in residential demand caused by warmer weather and a 6.7% drop in small/medium commercial demand.
- Cost Dynamics: Energy purchase costs rose 125.6% due to a 176% increase in average purchase prices. However, operating expenses fell 21.1% YoY, largely due to an ARS 809.8M reduction in regulatory penalties.
- Financial Results: Net financial losses widened 88.1% to ARS 427.4M due to accelerated currency depreciation impacting USD-denominated debt.
Outlook, Risks, and Management Commentary
- Regulatory Recognition: Approximately ARS 2,315.5M in deferred revenues (VAD adjustments) are not yet recognized in financial statements but are expected to be incorporated into costs starting February 2018.
- Government Agreements: An extension to the Framework Agreement recognized ARS 203M in revenue for low-income distribution (2015-2017). The company submitted a damages report regarding government breaches of the Adjustment Agreement.
- Investment Plan: Capital expenditures increased to ARS 962M in Q2 (vs. ARS 711.3M in 2016). The 2017-2021 investment plan is being executed despite revenue deferrals.
- Energy Losses: Loss rates improved to 17.2% from 18.2% in 2016. A Market Discipline Plan was launched to combat theft and irregular connections.
- Risks: Significant exposure to foreign exchange fluctuations on USD debt; reliance on regulatory resolutions for revenue recognition; and economic activity affecting commercial demand.
Investor Verification Checklist
- Verify the timeline and certainty of the ARS 2,315.5M deferred revenue recognition scheduled for February 2018.
- Monitor the status of the damages claim submitted to the National Government regarding the Adjustment Agreement.
- Assess the impact of continued ARS depreciation on financial interest charges and USD debt servicing.
- Review the effectiveness of the Market Discipline Plan in further reducing energy loss rates below 17.2%.
- Confirm the sustainability of the 21.1% reduction in operating expenses, specifically regarding regulatory penalties.