EDENOR S.A. Form 6-K Summary
Business Context and Reporting Period
Company: EDENOR S.A. (Empresa Distribuidora y Comercializadora Norte S.A.)
Reporting Period: Six months ended June 30, 2015 (Interim)
Business: Distribution and sale of electricity in Argentina under a concession agreement.
Parent Company: EASA (Electricidad Argentina S.A.) holds 51.54% of capital stock.
Regulatory Environment: Operations are heavily influenced by the Energy Secretariat (SE) and the National Regulatory Authority for the Distribution of Electricity (ENRE). The period was defined by the implementation of SE Resolution 32/15, which granted temporary income increases to cover costs and investments.
Key Financial Metrics (Six Months Ended June 30, 2015)
| Metric | Amount (ARS '000s) | YoY Change |
|---|---|---|
| Revenue | 1,868,010 | +6.6% |
| Operating Profit | 1,131,137 | Turnaround from Loss |
| Net Profit | 724,743 | Turnaround from Loss |
| EPS (Basic & Diluted) | 0.81 | vs. (0.81) Loss |
| Operating Cash Flow | 1,488,567 | +137% |
| Total Assets | 10,749,478 | +24.6% |
| Total Liabilities | 9,639,734 | +16.9% |
| Shareholders' Equity | 1,109,744 | +188% |
| Cash & Equivalents | 107,134 | -40.2% |
Note: All figures are in thousands of Argentine Pesos (ARS). The significant increase in equity is primarily due to the reversal of accumulated losses.
Material Changes vs. Prior Period
- Profitability Reversal: The company reported a net profit of ARS 724.7 million, compared to a net loss of ARS 722.8 million in the same period of 2014. This turnaround is almost entirely attributable to regulatory adjustments rather than organic operational growth.
- Regulatory Income Recognition: A one-time income recognition of ARS 2,388.7 million was recorded under "Income recognition on account of the RTI - SE Resolution 32/15." This resolution provided a temporary tariff increase effective February 1, 2015.
- Debt Restructuring Gains: The company recorded a positive financial result of ARS 254.4 million following an agreement with CAMMESA (wholesale market administrator) to restructure outstanding debts, and a gain of ARS 447.4 million from the cancellation of "Loans for consumption" (mutuums) related to salary costs.
- Asset Growth: Total assets increased by ARS 2.1 billion, driven by a rise in "Financial assets at fair value through profit or loss" (money market funds and government bonds) and Property, Plant, and Equipment (PPE).
Guidance, Outlook, Risks, and Contingencies
- Outlook & Guidance: Management believes financial resources will be available to cover operating costs, debt interest, and part of investment plans for fiscal year 2015, contingent on the payment plan with CAMMESA and continued government assistance. However, the long-term sustainable recovery depends on a permanent Tariff Structure Review (RTI) that has not yet been finalized.
- Working Capital Deficit: Despite the interim profit, the company maintains a working capital deficit of approximately ARS 1.9 billion as of June 30, 2015.
- Regulatory Risk: The outcome of the RTI remains uncertain regarding timing and final form. The company notes that without a permanent solution, the economic and financial equation of the public service will continue to deteriorate.
- Legal Contingencies:
- Government Litigation: EDENOR is suing the Federal Government for breach of the 2006 Adjustment Agreement. A provisional remedy for economic assistance was rejected by the courts in 2014.
- TERI Fees: The company faces a claim of ARS 49.9 million from the City of Buenos Aires for public space fees, which management contests as inapplicable.
- Going Concern: The financial statements are prepared on a going concern basis, assuming SE Resolution 32/15 provides sufficient certainty for 2015 operations.
Key Facts for Investor Verification
- Quality of Earnings: Verify the sustainability of the ARS 2.4 billion regulatory income recognized; this is a non-recurring, government-mandated adjustment, not organic revenue growth.
- CAMMESA Settlement: Confirm the status of the payment plan agreement with CAMMESA for remaining balances, which is critical for resolving the ARS 1.9 billion working capital deficit.
- Future Tariff Adjustments: Monitor the progress of the Tariff Structure Review (RTI). The current temporary measures (Resolution 32/15) are not guaranteed to continue beyond 2015.
- Currency Exposure: Assess the impact of Argentine Peso devaluation on the company's USD-denominated borrowings (approx. ARS 1.7 billion non-current) and the effectiveness of hedging strategies.
- Investment Plan Funding: Verify if the "Loans for consumption" (mutuums) from the government will continue to fund the extraordinary investment plan required to maintain service quality.