EDENOR Form 6-K Summary: Condensed Interim Financial Statements
Business Context and Reporting Period
Company: Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR)
Reporting Period: Six and three months ended June 30, 2017
Business: Distribution and sale of electricity in the northern area of Buenos Aires, Argentina, under a regulated concession agreement.
Regulatory Environment: The company operates under a new Tariff Structure Review (RTI) implemented via ENRE Resolution No. 63/17 effective February 1, 2017. This resolution established definitive electricity rate schedules and cost reviews, aiming to restore the company's economic and financial equation after years of negative results due to delayed rate adjustments and rising costs.
Key Financial Metrics (Six Months Ended June 30, 2017)
All figures in thousands of Argentine Pesos (ARS), unless otherwise noted.
| Metric | Value (6 Months 2017) | Value (6 Months 2016) |
|---|---|---|
| Revenue | 11,118,263 | 5,707,145 |
| Operating Profit | 1,115,399 | (1,213,647) |
| Net Profit (Loss) | 368,774 | (1,185,465) |
| Net Financial Expense | (587,519) | (677,912) |
| Cash Flow from Operating Activities | 982,709 | 1,578,620 |
| Cash and Cash Equivalents (End of Period) | 72,719 | 312,169 |
| Total Assets | 20,826,189 | 18,933,530 |
| Total Liabilities | 20,087,816 | 18,571,698 |
| Total Equity | 738,373 | 361,832 |
| Basic EPS (ARS) | 0.41 | (1.32) |
Material Changes vs. Prior Period
- Turnaround to Profitability: The company reported a net profit of ARS 368.8 million for the six months ended June 30, 2017, a significant improvement from a net loss of ARS 1.19 billion in the same period of 2016. This reversal is primarily attributed to the implementation of the new tariff structure (RTI) in February 2017.
- Revenue Growth: Revenue increased by approximately 95% year-over-year, driven by higher electricity sales volumes and tariff adjustments.
- Working Capital Deficit: Despite profitability, the company maintains a working capital deficit of approximately ARS 3.8 billion. This includes a significant outstanding balance owed to CAMMESA (the wholesale electricity market administrator) of ARS 4.1 billion (principal plus accrued interest).
- Equity Recovery: Total equity more than doubled from ARS 361.8 million to ARS 738.4 million, reducing the accumulated deficit. Consequently, the company is no longer subject to the mandatory share capital reduction previously required under Argentine law.
- Cash Position: Cash and cash equivalents decreased by ARS 183.8 million during the period, largely due to significant investing activities (capital expenditures of ARS 1.6 billion) and a reduction in cash balances from the prior year.
Guidance, Outlook, Risks, and Contingencies
- Outlook: Management is optimistic that the new regulatory framework (RTI) will allow the company to cover operating costs, fund investment plans, and service debt. The Board expects the new rates to restore the economic and financial equation gradually.
- Regulatory Risks:
- Deferred Tariff Increases: Approximately ARS 2.3 billion of recognized tariff increases from the RTI were not recognized in the financial statements due to regulatory limitations on the immediate increase in the Average Distribution Value (VAD). These amounts are to be billed in installments starting February 2018.
- Adjustment Agreement: The definitive treatment of remaining balances and obligations from the 2006 Adjustment Agreement (including CAMMESA settlements and investment plan funding) remains pending resolution by the Ministry of Energy and Mining (MINEM).
- Penalties: New penalty determination mechanisms were implemented in 2017. Unpaid penalties accrue interest, and late payments may incur fines equivalent to twice the penalty amount.
- Contingencies:
- ICSID Arbitration: The arbitration proceeding initiated by EDF International and EASA in 2003 regarding the Concession Agreement was discontinued in March 2017, fulfilling a condition of the Adjustment Agreement.
- Merger Process: The parent company, EASA, is in the process of merging with IEASA into CTLL. This process is pending regulatory approval.
- Unusual Items: The company recognized revenue of ARS 203 million related to the Framework Agreement for electricity supply to low-income neighborhoods and shantytowns for the period January 2015 to June 2017.
Key Facts for Investor Verification
- CAMMESA Debt Settlement: Verify the status of the payment plan proposal submitted to CAMMESA for the ARS 4.1 billion outstanding balance and any response received.
- Deferred Revenue Recognition: Monitor the implementation of the billing schedule for the ARS 2.3 billion of deferred tariff increases starting in February 2018.
- Regulatory Resolution of Adjustment Agreement: Track the MINEM's determination regarding pending obligations from the 2006 Adjustment Agreement, which could impact future cash flows and liabilities.
- Share Capital Reduction: Confirm whether the Board will call an Extraordinary Shareholders' Meeting to address the mandatory share capital reduction if financial conditions deteriorate in future quarters.
- Merger Approval: Verify the regulatory approval status of the EASA-IEASA-CTLL merger process.