EDENOR S.A. Form 6-K Summary
Business Context and Reporting Period
Company: Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR)
Reporting Period: Third Quarter and Nine Months ended September 30, 2009
Filing Date: November 9, 2009
Business Overview: Argentina's largest electricity distributor, serving the northwestern zone of the Greater Buenos Aires metropolitan area and the northern part of the Autonomous City of Buenos Aires. Operations are regulated by the National Regulatory Authority for the Distribution of Electricity (ENRE).
Currency: Financial statements are prepared in Argentine Pesos (ARS) per Argentine GAAP. USD translations provided at a rate of Ps. 3.843 per USD (as of Sept 30, 2009).
Key Financial Metrics
| Metric (Millions ARS) | 3Q 2009 | 3Q 2008 | 9M 2009 | 9M 2008 |
|---|---|---|---|---|
| Net Sales | 518.1 | 482.9 | 1,578.2 | 1,395.4 |
| Gross Margin | 273.2 | 258.7 | 814.1 | 730.7 |
| Net Operating Income | 48.3 | 74.0 | 166.6 | 185.7 |
| Net Income | 9.0 | (11.5) | 85.97 | 46.11 |
| Capital Expenditures | 103.7 | 67.2 | 291.9 | 235.2 |
| Outstanding Debt (USD) | $190.3 million (Net of held notes) |
Note: Net Income for 3Q 2008 was a loss of Ps. 11.5 million.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 7.3% in 3Q 2009 and 13.1% for the nine-month period, driven primarily by the application of a new tariff scheme implemented in October 2008.
- Operating Income Decline: Net Operating Income decreased 34.8% in 3Q 2009 (Ps. 48.3M vs. Ps. 74.0M) and 10.3% for the nine-month period. This was caused by significant increases in operating expenses that outpaced gross margin growth.
- Expense Increases:
- Transmission & Distribution: Increased 12.0% (3Q) due to salary hikes and higher outsourcing costs.
- Selling Expenses: Increased 48.7% (3Q) due to salary increases and outsourcing costs.
- Administrative Expenses: Increased 34.5% (3Q) due to salary hikes and computer service costs.
- Net Income Turnaround: Despite lower operating income, Net Income swung from a loss of Ps. 11.5M in 3Q 2008 to a gain of Ps. 9.0M in 3Q 2009 (178.2% increase). This was driven by financial results, specifically holding gains from note repurchases, valuation of hedging contracts, and reduced exchange losses.
- Energy Volume: Volume of energy sold remained flat (4,817 GWh in 3Q 2009 vs. 4,802 GWh in 3Q 2008).
Guidance, Outlook, and Risks
- Tariff Structure: The Revision of the Company Tariff Structure (RTI) was expected to take effect in February 2009 but had not been resolved as of the filing date. Regulatory uncertainty remains regarding the application of new rate schedules.
- Legal and Regulatory Risks:
- Ombudsman Injunction: A preliminary injunction prohibits Edenor from cutting power for non-payment of bills issued with recent rate hikes until a final ruling is issued.
- Consumer Complaints: A complaint filed in October 2009 by consumer associations seeks to declare recent electricity rate resolutions null and unconstitutional.
- Environmental Litigation: An appeal regarding alleged PCB environmental pollution is pending before the Federal Supreme Court, though lower courts have acquitted company officials.
- Debt Management: The company actively repurchased debt in the secondary market (US$2.0 million in 3Q 2009) to reduce financial interest expenses and exchange losses. As of Sept 30, 2009, outstanding USD debt was $190.3 million.
- Capital Expenditures: 9M 2009 CapEx was Ps. 291.9 million, focused on new connections, network maintenance, and legal requirements.
Investor Verification Checklist
- Tariff Resolution Status: Verify the current status of the Revision of the Company Tariff Structure (RTI) and any new regulatory resolutions affecting the October 2008 rate hikes.
- Legal Proceedings: Monitor the outcome of the Ombudsman injunction and the consumer association complaint regarding rate constitutionality.
- Debt Repurchase Strategy: Assess the sustainability of the strategy to repurchase debt in the secondary market to offset operating margin compression.
- Operating Expense Trends: Review the trajectory of salary and outsourcing costs, which are significantly eroding operating income despite revenue growth.
- Currency Exposure: Evaluate the impact of Argentine Peso volatility on USD-denominated debt obligations and the effectiveness of current hedging contracts.