EDENOR 20-F Annual Report Summary (Fiscal Year Ended Dec 31, 2014)
Business Context and Reporting Period
Company: Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR)
Reporting Period: Fiscal year ended December 31, 2014
Accounting Standards: International Financial Reporting Standards (IFRS)
Business Overview: Edenor is the largest electricity distribution company in Argentina, holding an exclusive 95-year concession to distribute electricity in the northwestern part of the Greater Buenos Aires metropolitan area and the northern part of the City of Buenos Aires. As of December 31, 2014, the company served approximately 2.8 million customers.
Key Financial Metrics
| Metric (in millions) | 2014 (US$) | 2014 (Ps.) | 2013 (Ps.) |
|---|---|---|---|
| Revenue from Sales | 420.8 | 3,598.4 | 3,440.7 |
| Operating Loss | (29.6) | (253.1) | 1,314.6 (Profit) |
| Net Loss for the Year | (91.2) | (779.7) | 772.7 (Profit) |
| Net Cash from Operating Activities | 180.9 | 1,547.9 | 1,436.6 |
| Cash and Cash Equivalents (End of Year) | 20.9 | 179.1 | 243.5 |
| Total Debt (Borrowings) | 190.9 | 1,632.4 | 1,350.5 |
| Accrued Fines and Penalties | N/A | 1,102.8 | 923.8 |
| Commercial Debt with CAMMESA | N/A | 2,257.1 | N/A |
Note: US$ amounts are translated at the year-end rate of Ps. 8.551 to US$ 1.00. The 2013 operating profit included a significant non-recurring recognition of higher costs (Ps. 2,933.1 million) under SE Resolution 250/13, which was not repeated in 2014.
Material Changes vs. Prior Period
- Profitability Reversal: The company swung from a net profit of Ps. 772.7 million in 2013 to a net loss of Ps. 779.7 million in 2014. This was primarily driven by a Ps. 661.2 million decrease in the recognition of retroactive cost adjustments (CMM) compared to 2013, and a significant increase in operating expenses.
- Operating Expenses: Transmission and distribution expenses increased 37.5% to Ps. 2,825.1 million, largely due to mandatory salary increases (totaling 32% in 2014) and increased outsourcing costs. Administrative expenses rose 53.0%.
- Energy Losses: Total energy losses increased to 14.3% in 2014 from 13.0% in 2013, exceeding the 10% loss factor allowed for reimbursement under the concession, thereby increasing unrecoverable costs.
- Liquidity: While operating cash flow remained positive (Ps. 1,547.9 million), it was heavily reliant on an increase in debt with CAMMESA (the wholesale electricity market administrator) of Ps. 3,455.5 million. Cash and cash equivalents decreased by Ps. 69.5 million.
Guidance, Outlook, Risks, and Contingencies
- Tariff Structure and RTI: The company's financial sustainability depends on the completion of the Integral Tariff Revision (RTI). While the Argentine Secretariat of Energy (SE) issued Resolution No. 32/15 in March 2015 granting temporary income increases retroactive to February 1, 2015, management warns this may be insufficient if inflation trends continue. Fourteen requested Cost Monitoring Mechanism (CMM) adjustments totaling 176.8% have been recognized by the regulator but not yet incorporated into tariffs.
- Capital Stock Reduction: Due to losses exceeding 100% of reserves and 50% of capital stock, the company is subject to mandatory capital stock reduction under Argentine law. However, shareholders decided in April 2015 not to proceed immediately, pending better results in subsequent quarters.
- Debt and Liquidity Risks: The company owes approximately Ps. 2,257.1 million to CAMMESA. Failure to negotiate a payment plan or secure tariff adjustments could lead to liquidity shortfalls, debt restructuring, or voluntary reorganization proceedings (concurso preventivo).
- Regulatory and Political Risks: Significant risks include the Argentine government's ability to access international capital markets, exchange controls limiting dividend payments, high inflation, and potential expropriation or foreclosure of Class A shares by the government if fines exceed 20% of gross sales or if concession terms are breached.
- Going Concern: The 2014 financial statements were prepared on a going concern basis, contingent on the implementation of Resolution No. 32/15 and the expectation of future tariff adjustments.
Key Facts for Investor Verification
- Resolution No. 32/15 Implementation: Verify the actual disbursement of funds from CAMMESA under this resolution and whether it has stabilized the company's cash flow as projected for 2015.
- RTI Progress: Monitor the status of the Integral Tariff Revision negotiations with the ENRE to determine if a permanent tariff structure covering real cost increases will be approved.
- CAMMESA Debt Settlement: Confirm the terms of the payment plan for the outstanding Ps. 2.25 billion debt with CAMMESA and whether the company can service this debt without further government financing.
- Energy Loss Reduction: Assess the company's ability to reduce energy losses from 14.3% back toward the 10% reimbursable threshold to improve gross margins.
- Capital Stock Status: Watch for future shareholder meetings regarding the mandatory capital stock reduction required by Argentine Corporations Law if losses persist.