EDENOR First Quarter 2016 Financial Summary
Business Context and Reporting Period
This Form 6-K filing covers the first quarter ended March 31, 2016, for Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR), Argentina's largest electricity distributor. The company serves approximately 7 million people in the greater Buenos Aires metropolitan area. Financial figures are presented in Argentine Pesos (AR$) and translated to U.S. Dollars (US$) at a rate of AR$ 14.70 per US$.
Key Financial Metrics
| Metric (AR$ Millions) | Q1 2016 | Q1 2015 | Variation |
|---|---|---|---|
| Revenue from Sales | 2,990.1 | 968.6 | +208.7% |
| Electricity Power Purchase | (1,317.3) | (523.0) | +151.9% |
| Net Operating Income | 238.3 | 916.0 | -74.0% |
| Net Income (Loss) | (125.0) | 469.9 | -126.6% |
| Adjusted EBITDA | 337.8 | 365.7 | -7.6% |
| Capital Expenditures | 628.8 | 334.3 | +88.1% |
| Cash and Equivalents (Ending) | 171.3 | 126.1 | +35.8% |
Debt and Liquidity: Outstanding dollar-denominated financial debt totaled US$ 191.2 million (US$ 14.8 million due 2017; US$ 176.4 million due 2022). Total assets were AR$ 14,701.3 million (US$ 1,000.1 million) as of March 31, 2016.
Material Changes vs. Prior Period
- Revenue Surge: Revenue increased 208.7% primarily due to a tariff increase effective February 1, 2016, and a 2.0% increase in energy volume sold (5,671 GWh vs. 5,567 GWh).
- Profitability Decline: Despite higher revenue, Net Operating Income fell 74.0% and the company reported a Net Loss of AR$ 125.0 million compared to a profit of AR$ 469.9 million in Q1 2015.
- Expense Inflation: Operating expenses rose 81.8%. This was driven by an 88% increase in transmission and distribution expenses, largely due to accrued fines and penalties (AR$ 585.4 million vs. AR$ 58.5 million) resulting from regulatory changes (ENRE Note No. 120,151).
- Financial Costs: Net financial expenses increased significantly due to the devaluation of the Argentine Peso against the US Dollar.
- Energy Losses: Technical and commercial energy losses increased to 14.5% from 13.9% in the prior year.
Outlook, Risks, and Management Commentary
- Regulatory Developments:
- ENRE Note No. 120,151: Issued April 15, 2016, this note mandates that future fines be valued based on KWh values at the time of the event, with accrued interest. The company registered AR$ 129.0 million for accrued interest under this rule.
- Customer Compensation: Resolution No. 31/2016 requires AR$ 73 million in compensation to small residential customers for outages in February 2016.
- Tariff Revision (RTI): Resolution 55/16 approved the 2016 Integral Tariff Revision Program. Management expects this process to address distribution costs, quality standards, asset base revisions, and the settlement of outstanding debts with CAMMESA.
- Capital Allocation: Capital expenditures increased to AR$ 628.8 million, focused on grid enhancements (AR$ 482.3 million) and network maintenance.
- Corporate Governance: New permanent and alternate members of the Board of Directors and Audit Commission were appointed on April 28, 2016.
- Risks: The filing highlights risks related to the RTI process, currency devaluation, regulatory penalties, and the timing of tariff adjustments.
Investor Verification Checklist
- Verify the impact of ENRE Note No. 120,151 on future penalty accruals and interest calculations.
- Monitor the progress of the 2016 Integral Tariff Revision (RTI) process and its effect on future revenue recognition.
- Assess the sustainability of the 14.5% energy loss rate and management's plan to reduce it.
- Review the settlement status of outstanding debts with CAMMESA and the treatment of "mutuums" (loans for consumption).
- Confirm the company's ability to service US$ 191.2 million in dollar-denominated debt amidst currency volatility.