EDENOR 2Q2019 Financial Summary
Business Context and Reporting Period
Company: EDENOR (Empresa Distribuidora y Comercializadora Norte S.A.)
Reporting Period: Second Quarter ended June 30, 2019 (2Q19)
Business: Argentina's largest electricity distributor by customer count and energy sales, serving the northwestern zone of Greater Buenos Aires and northern Buenos Aires City.
Currency: Figures presented in Argentine Pesos (ARS) of constant purchasing power, unless otherwise noted.
Key Financial Metrics
| Metric (Million ARS) | 2Q 2019 | 2Q 2018 | Variance |
|---|---|---|---|
| Revenue from Sales | 18,245 | 15,079 | +21.0% |
| EBITDA | 2,619 | 1,890 | +38.6% |
| Adjusted EBITDA | 2,936 | 2,355 | +24.7% |
| Net Income | 10,684 | 149 | +7,144.3% |
| Capital Expenditures | 2,206 | 1,897 | +16.3% |
| Net Debt (USD) | 127 | N/A | N/A |
| Cash & Equivalents | 1,139 | 1,160 | -1.8% |
Note: Net Debt as of June 30, 2019, was USD 127 million (Total Debt USD 201 million). Cash and cash equivalents were ARS 1,139 million.
Material Changes vs. Prior Period
- Revenue Growth: Driven by a 21.0% increase due to higher seasonal electricity prices, adjustments to Own Distribution Costs (CPD), and recognition of receivables from the Federal Government for low-income consumption and social tariff caps. This was partially offset by a 9.3% decline in physical sales volumes (4,849 GWh vs. 5,344 GWh) due to higher temperatures reducing residential demand and economic recession impacting commercial/industrial sectors.
- Profit Surge: Net income jumped from ARS 149 million to ARS 10.684 billion. This is primarily attributable to a one-time gain of ARS 13.066 billion from the "Liabilities Regularization Agreement" with the Federal Government, which settled reciprocal claims from the 2006-2016 Tariff Transition Period.
- Cost Pressures: Energy purchases rose 18.9% due to a 29.7% real-term increase in average purchase prices, despite lower volumes. Operating expenses increased 17.6%, driven by higher depreciation, service fees, supplies, and penalties for commercial service quality.
- Financial Results: Net financial losses improved by 66.6% (from ARS 2,688 million to ARS 898 million) due to favorable exchange rate movements (peso appreciation vs. USD) compared to the prior year's devaluation.
Outlook, Risks, and Unusual Items
- Liabilities Regularization Agreement: A significant unusual item. The agreement terminated pending claims with the Federal Government, involving disbursements of approx. ARS 7.6 billion in exchange for offsetting liabilities of approx. ARS 6.9 billion. This resulted in a one-time profit recognition.
- Share Buyback Termination: The Board terminated the share buyback program early on June 12, 2019. The company acquired 1.9 million Series B shares for ARS 74 million. Total treasury stock now represents 3.5% of capital.
- Credit Rating: Moody's affirmed the corporate rating at "B1" but changed the outlook from stable to negative on July 16, 2019, reflecting the sovereign debt outlook and domestic operating environment risks.
- Service Quality: SAIDI (outage duration) and SAIFI (outage frequency) improved by 29.8% and 20.7% respectively, exceeding regulatory targets.
- Energy Losses: Loss rates increased from 18.6% to 19.2% due to the drop in demand from large users (who have lower loss rates) and increased fraud incentives during the economic recession.
Investor Verification Checklist
- One-Time Gain Sustainability: Verify the non-recurring nature of the ARS 13.066 billion gain from the Liabilities Regularization Agreement and its impact on future earnings baselines.
- Volume vs. Price Mix: Monitor the trend of physical sales volumes (down 9.3%) against tariff adjustments to ensure revenue growth is not solely price-driven in a recessionary environment.
- Energy Loss Rates: Track the effectiveness of "Market Discipline" actions and meter installations in reversing the 19.2% loss rate increase.
- Debt Servicing: Confirm the status of the USD 201 million debt (Corporate Bonds and ICBC loan) and the impact of the agreement on future interest charges with CAMMESA.
- Regulatory Risk: Assess the implications of Moody's negative outlook and the transfer of jurisdiction to the Province of Buenos Aires on future tariff approvals and government receivables.