Business Context and Reporting Period
Company: Empresa Distribuidora y Comercializadora Norte S.A. (Edenor)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2015
Accounting Standards: International Financial Reporting Standards (IFRS)
Business Overview: Edenor is the largest electricity distribution company in Argentina, holding an exclusive concession to distribute electricity in the northwestern part of the Greater Buenos Aires metropolitan area and the northern part of the City of Buenos Aires. As of December 31, 2015, the company served approximately 2.84 million customers.
Key Financial Metrics
| Metric | 2015 (US$ Millions) | 2015 (Ps. Millions) | 2014 (Ps. Millions) |
|---|---|---|---|
| Revenue from Sales | 291.6 | 3,802.2 | 3,598.4 |
| Operating Profit | 171.9 | 2,241.7 | (253.1) |
| Net Profit (Loss) for the Year | 87.6 | 1,142.4 | (779.7) |
| Net Cash Flows from Operating Activities | 246.7 | 3,217.0 | 1,548.0 |
| Net Cash Flows from Investing Activities | (238.0) | (3,103.3) | (1,461.7) |
| Net Cash Flows from Financing Activities | (13.3) | (172.9) | (155.7) |
| Cash and Cash Equivalents (End of Period) | 9.9 | 129.0 | 179.1 |
| Total Assets | 995.4 | 12,980.9 | 8,630.0 |
| Total Liabilities | 878.5 | 11,455.9 | 8,245.0 |
| Shareholders' Equity | 116.9 | 1,525.0 | 385.0 |
Note: US Dollar amounts are translated at the selling exchange rate of Ps. 13.04 to US$ 1.00 as of December 31, 2015.
Material Changes vs. Prior Period
- Turnaround to Profitability: Edenor recorded a net profit of Ps. 1,142.4 million in 2015, reversing a net loss of Ps. 779.7 million in 2014. This improvement was primarily driven by the recognition of Ps. 5,025.1 million in income under Resolution No. 32/15 of the Secretariat of Energy (SE), which provided temporary funding to cover costs and investments.
- Revenue Growth: Revenue increased 5.7% to Ps. 3,802.2 million, driven by a 5.1% increase in energy sales volume (22,402 GWh vs. 21,312 GWh in 2014) and higher pole lease revenues.
- Expense Increases: Transmission and distribution expenses rose 11.6% to Ps. 3,153.7 million, largely due to a Ps. 486.5 million increase in salaries and social security taxes. Selling and administrative expenses also increased significantly (26.6% and 42.1%, respectively) due to compensation adjustments.
- Energy Losses: Total energy losses increased to 14.9% in 2015 from 14.3% in 2014, exceeding the 10% loss factor allowed under the concession, which impacts gross margins.
- Working Capital: Despite profitability, the company maintained negative working capital of Ps. 1,811 million as of year-end, heavily influenced by debt owed to CAMMESA (the national electricity market administrator).
Guidance, Outlook, Risks, and Contingencies
- Tariff Revision (RTI): The company is engaged in an Integral Tariff Revision (RTI) process with the regulator (ENRE), expected to conclude by December 31, 2016. Resolution No. 7/16 implemented a new tariff schedule effective February 1, 2016, intended to improve income and allow for necessary investments.
- Debt to CAMMESA: As of December 31, 2015, Edenor owed approximately Ps. 1,808.6 million (plus interest) to CAMMESA. A repayment plan was submitted in November 2015, but negotiations for a final schedule were ongoing at the time of filing. Failure to secure favorable terms could lead to liquidity shortfalls.
- Regulatory and Political Risks: The filing highlights significant risks related to the Argentine economy, including high inflation, currency devaluation (the Peso lost ~52% of its value in 2015), and the uncertainty of the new Macri administration's economic policies. The company faces risks regarding the ability to recover costs through tariffs and the potential for government intervention.
- Fines and Penalties: Accrued fines and penalties totaled Ps. 1,253.1 million as of year-end. New regulations (ENRE Note No. 120,151) issued in April 2016 may require these fines to be valued based on current remuneration rates and accrue interest, potentially increasing the liability significantly.
- Capital Expenditures: The company invested Ps. 2,518.2 million in 2015, focusing on network infrastructure to meet growing demand and quality standards.
Key Facts for Investor Verification
- RTI Outcome: Verify the final terms of the Integral Tariff Revision (RTI) expected to conclude in late 2016 and whether the new tariff structure adequately covers operating costs and inflation.
- CAMMESA Debt Resolution: Confirm the status of negotiations regarding the repayment schedule for the Ps. 1.8+ billion debt owed to CAMMESA and whether a formal agreement has been reached.
- Impact of New Fines Regulation: Assess the financial impact of ENRE Note No. 120,151 on the valuation of accrued fines and penalties, specifically regarding potential interest accruals and revaluation based on current tariffs.
- Currency Exposure: Monitor the exchange rate volatility of the Argentine Peso, as the company's revenues are in Pesos while a portion of its financial debt is denominated in US Dollars.
- Energy Loss Reduction: Track progress in reducing energy losses (currently 14.9%) toward the 10% concession limit to improve gross margins.