Pampa Energía S.A. — FY2019 Form 20-F
Reporting period: Year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter filing. The audited consolidated financial statements use IFRS as issued by the IASB and are presented in U.S. dollars. Pampa changed its functional and presentation currency from pesos to U.S. dollars effective January 1, 2019; comparative 2018 figures were inflation-restated under IAS 29 and translated at the December 31, 2018 exchange rate, limiting direct comparability.
Business context and financial performance
Pampa is an integrated Argentine energy company with electricity generation and distribution, oil and gas, petrochemicals, and interests in gas transportation and electricity transmission. Its principal distribution subsidiary, Edenor, served approximately 3.1 million customers. Pampa reported installed generation capacity of approximately 4,751 MW at year-end.
| Consolidated metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | US$2.836 billion | US$2.920 billion |
| Gross profit / margin | US$804 million / 28.4% | US$953 million / 32.6% |
| Operating income / margin | US$751 million / 26.5% | US$670 million / 22.9% |
| Profit for the year | US$800 million | US$287 million |
| Profit attributable to Pampa shareholders | US$692 million | US$224 million |
| Net cash from operating activities | US$802 million | US$610 million |
| Net cash used in investing activities | US$369 million | Net cash provided: US$19 million |
| Net cash used in financing activities | US$390 million | US$470 million |
| Cash and cash equivalents at year-end | US$225 million | US$241 million |
| Total borrowings | US$1.947 billion | US$2.177 billion |
Current assets were US$1.362 billion and current liabilities US$854 million, a current ratio of approximately 1.59. Net debt using cash alone was approximately US$1.722 billion. Management’s leverage measure, which also offsets certain current financial assets, was 41.45%, down from 52.85%. Capital expenditures were US$611 million, versus US$665 million in 2018. No dividends were declared for 2019.
Material changes versus prior periods
- Revenue declined 2.9%, while gross profit fell 15.6%; higher cost of sales outpaced the revenue change. Operating income increased 12.1%, but included a significant one-time gain from Edenor’s regularization agreement.
- Net income rose sharply, but should not be read as solely reflecting recurring operating improvement. FY2019 included US$285 million from Edenor’s agreement settling historical obligations and claims; 2018 included a US$629 million gain on net monetary position, compared with US$187 million in 2019. The change to U.S.-dollar functional currency also materially affected foreign-exchange results and comparability.
- Generation revenue increased to US$819 million from US$606 million, supported by fuel self-supply accounting and new wind farms. Higher gas purchases reduced the benefit: gross margin fell to 43% from 55%, while operating income was broadly flat at US$273 million.
- Edenor revenue edged up to US$1.502 billion, but gross profit declined to US$277 million from US$348 million as energy-purchase costs increased. Its reported operating income rose to US$342 million from US$103 million, including the US$285 million regularization gain.
- Oil and gas revenue declined to US$444 million from US$521 million, and operating income fell to US$71 million from US$250 million. The filing attributes the revenue decline principally to lower average prices, partly offset by higher gas sales volumes.
- Petrochemicals revenue fell to US$321 million from US$338 million, but the segment returned to operating profit of US$5 million from a US$62 million loss, including a US$32 million impairment recorded in 2018.
Outlook, commentary, risks and unusual items
Projects: Pampa reported 471 MW of committed capacity additions: 176 MW from the CTGEBA combined-cycle project, 15 MW at CTLL, and 280 MW from the planned CTEB combined-cycle conversion. The filing anticipated CTGEBA completion around the third quarter of 2020, with CTEB targeted for 2022. These are plans and estimates, not guarantees.
Regulation and Argentina exposure: The December 2019 Social Solidarity and Productive Reactivation Law froze federal energy tariffs for up to 180 days and authorized tariff reviews and intervention of regulators. Pampa warned that tariff-setting, generation remuneration, foreign-exchange controls, inflation, sovereign-debt developments and restrictions on access to foreign currency could affect earnings, collections, investment and debt service. The peso depreciated approximately 59% against the U.S. dollar during 2019; reported annual CPI inflation was 53.8%.
COVID-19, a subsequent event: The filing, approved April 29, 2020, said the pandemic’s full effect could not yet be quantified. Management reported electricity demand down an average 26% after lockdown began, gas demand down about 30%, and lower hydrocarbon and petrochemical demand. CAMMESA collections and payments were delayed, increasing liquidity pressure across the power sector. The CTGEBA project schedule was expected to slip from the second to the third quarter of 2020; management also warned prolonged restrictions could lead to asset impairments or renegotiation of commercial and financial maturities. Management nevertheless expected to meet financial commitments over the next 12 months, while acknowledging uncertainty.
Other notable items and exposures: Pampa recognized US$62 million of property, plant and equipment impairment in 2019. Edenor’s energy losses rose to 19.9% from 18.2%, and accrued fines and penalties were US$121 million at year-end. CAMMESA payment delays and government subsidy dependence create collection risk. Pampa’s proved oil and gas reserves were 135.4 million barrels of oil equivalent, up 4% from 2018, with 52% developed; reserves estimates remain sensitive to production, price and development assumptions. The auditor gave unqualified opinions on the financial statements and internal control, while identifying critical audit matters involving reserves, the functional-currency change, the CTEB acquisition and impairment testing.
Most important facts for investors to verify
- How much of FY2019’s earnings and operating-cash conversion is recurring, particularly the US$285 million Edenor agreement gain and the effects of monetary-position and foreign-exchange accounting?
- Whether frozen or revised tariffs and the peso-denominated generation remuneration scheme allow Pampa and Edenor to recover rising costs; confirm the implementation and duration of relevant regulatory measures.
- Whether CAMMESA payment delays, Edenor’s collection trends and energy losses, and any limits on foreign-currency transfers affect liquidity or debt-service capacity.
- Progress, funding, costs and commissioning dates for CTGEBA, CTLL and CTEB, including the impact of pandemic-related delays and any contractual penalties or guarantees.
- Whether oil and gas prices, domestic demand, reserves revisions and exploration results support the company’s production and investment assumptions; assess the sensitivity of impairment estimates to these assumptions.