EDENOR Q3 2014 Financial Summary
Business Context and Reporting Period
Company: Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR)
Reporting Period: Third Quarter ended September 30, 2014 (Nine-month period also provided)
Business: Argentina's largest electricity distributor, serving the northwestern zone of Greater Buenos Aires and northern Buenos Aires City.
Currency: Figures reported in Argentine Pesos (AR$) and translated to U.S. Dollars (US$) at AR$ 8.33/US$.
Key Financial Metrics
| Metric (Q3 2014) | Value (AR$ Million) | Value (US$ Million) |
|---|---|---|
| Revenue from Sales | 995.0 | 119.4 |
| Net Operating Loss (before CMM) | (587.5) | (70.5) |
| Net Loss (Q3) | (720.9) | (86.5) |
| Net Loss (9 Months) | (1,443.7) | (173.3) |
| Adjusted EBITDA (Q3) | (388.7) | (46.7) |
| Capital Expenditures (Q3) | 395.1 | 47.4 |
| Capital Expenditures (9 Months) | 1,039.0 | 124.7 |
| Net Debt (as of 9/30/14) | - | 149.5 |
| Total Debt (as of 9/30/14) | - | 197.8 |
| Cash and Equivalents (as of 9/30/14) | 104.5 | 12.5 |
| Shareholders' Equity (as of 9/30/14) | (267.4) | (32.2) |
Material Changes vs. Prior Period
- Revenue: Increased 9.1% to AR$ 995.0 million (Q3 2013: AR$ 911.7 million), driven by the removal of winter subsidies for certain tariff categories.
- Volume: Energy sales volume decreased 5.6% to 5,558 GWh. Residential sales dropped 11.8% due to higher temperatures, partially offset by a 9.4% increase in industrial sales.
- Costs: Electricity power purchases decreased 14.4% to AR$ 504.4 million due to lower mobile generation costs. However, operating expenses surged, with salaries increasing significantly (7% in Jan, 15% in May, 10% in July 2014).
- Profitability: Net loss widened to AR$ 720.9 million in Q3 2014 from AR$ 512.9 million in Q3 2013. The nine-month net loss was AR$ 1,443.7 million compared to a net profit of AR$ 792.0 million in the same period of 2013.
- Equity: The company recorded negative shareholders' equity of AR$ 267.4 million as of September 30, 2014.
Outlook, Risks, and Unusual Items
- Tariff Recognition (CMM): The company has requested 13 tariff increases under the Cost Monitoring Mechanism (CMM) retroactive to May 2008. While recognized by the regulator (ENRE) via Resolution 250/13 and subsequent notes, these have not yet been incorporated into the tariff structure, causing a disconnect between recognized costs and cash inflows.
- Note 486/14 Impact: Issued in October 2014, this note partially recognized costs owed under the CMM for April-August 2014. It allows for debt reduction with CAMMESA (AR$ 682.2 million) and PUREE (AR$ 187.7 million) but does not generate immediate positive cash flow. If applied retroactively to Q3, equity would have been positive (AR$ 602.5 million) and the loss reduced to AR$ 573.8 million.
- Financing Agreements: The company secured Mutuum agreements with CAMMESA to cover salary increases (AR$ 162 million outstanding as of 9/30/14) and an Extraordinary Investment Plan (AR$ 500 million initial amount).
- Energy Losses: Increased to 15.2% in Q3 2014 from 14.1% in Q3 2013.
- Forward-Looking Risks: Management notes risks related to general economic conditions, industry conditions, and the timing of tariff adjustments. There is no guarantee that expected events will occur.
Investor Verification Checklist
- Equity Status: Verify the implications of negative shareholders' equity (AR$ 267.4 million) on the company's solvency and ability to meet debt covenants.
- Cash Flow vs. Accounting Profit: Confirm the timing of cash inflows from the recognized CMM adjustments (Note 486/14) versus the accounting recognition of revenue.
- Debt Structure: Review the terms of the Mutuum agreements with CAMMESA and the repayment schedule for the US$ 197.8 million outstanding debt.
- Tariff Implementation: Monitor the regulatory timeline for incorporating the 13 pending CMM tariff increases into the actual billing structure.
- Operational Efficiency: Investigate the drivers behind the increase in energy losses to 15.2% and the impact on future margins.