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 months ended June 30, 2018 (Interim)
Business: Distribution and sale of electricity in the Greater Buenos Aires area under a concession agreement.
Accounting Basis: IFRS. The filing notes that Argentina is considered a hyperinflationary economy under IAS 29 effective July 1, 2018; however, these statements for the period ended June 30, 2018, were prepared without applying hyperinflationary restatement criteria.
Key Financial Metrics (Six Months Ended June 30, 2018)
| Metric | Amount (ARS '000s) |
|---|---|
| Revenue | 21,265,937 |
| Operating Profit | 3,857,842 |
| Net Financial Expense | (2,041,469) |
| Profit Before Taxes | 1,816,373 |
| Net Profit for the Period | 1,253,234 |
| Earnings Per Share (Basic & Diluted) | 1.40 ARS |
| Total Assets | 32,685,070 |
| Total Liabilities | 31,151,414 |
| Total Equity | 1,533,656 |
| Cash and Cash Equivalents | 745,395 |
| Net Operating Cash Flow | 4,941,069 |
Material Changes vs. Prior Comparable Period
- Revenue Growth: Revenue increased 91% year-over-year (from 11.1B to 21.3B ARS), driven by tariff adjustments and inflation.
- Profitability Surge: Net profit rose from 369M ARS in the prior period to 1.25B ARS. Operating profit increased from 1.12B to 3.86B ARS.
- Financial Expenses: Net financial expense increased significantly to 2.04B ARS (from 588M ARS). This was primarily due to a net loss on exchange differences of 1.44B ARS caused by the 43% devaluation of the Argentine Peso against the USD in Q2 2018.
- Balance Sheet: Total assets grew 29% to 32.7B ARS. Trade receivables increased to 7.46B ARS, reflecting higher billing volumes and collection cycles.
- Share Repurchase: The company repurchased 12.9M Class B shares for 728M ARS, recorded as treasury stock.
Outlook, Risks, and Management Commentary
- Regulatory Framework:
- Tariffs: ENRE Resolution No. 208/18 approved new rates effective August 1, 2018. 50% of the inflation-related adjustment for the Feb-Aug period is deferred to 2019 installments.
- Penalties: The company recognized 87M ARS in compensation for service interruptions affecting residential customers. New penalty systems for investment plan deviations were approved.
- Hyperinflation Accounting: Management concluded Argentina is a hyperinflationary economy. Restatement under IAS 29 will apply to periods ending July 1, 2018, and thereafter. Current statements do not reflect this restatement.
- Currency Risk: The company holds significant USD-denominated debt. The rapid devaluation of the peso resulted in substantial exchange losses. The company maintains a policy of keeping the majority of debt at fixed rates.
- Contingencies: No significant changes in lawsuits or contingencies reported compared to December 31, 2017.
Investor Verification Checklist
- IAS 29 Application: Verify the impact of the upcoming hyperinflationary restatement on future financial statements and comparability.
- Exchange Rate Exposure: Assess the sensitivity of future earnings to further peso devaluation given the net USD liability position.
- Regulatory Settlements: Monitor the resolution of the "Transition Period" obligations and the impact of deferred tariff adjustments on cash flow.
- Receivables Quality: Review the allowance for impairment of trade receivables (668M ARS) in the context of rising inflation and potential collection delays.
- Debt Covenants: Confirm continued compliance with debt covenants, particularly regarding indebtedness ratios, following the share repurchase program.