EDENOR 3Q20 Financial Summary
Business Context and Reporting Period
Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR) is Argentina's largest electricity distributor by customer count and sales volume. This Form 6-K reports results for the third quarter ended September 30, 2020. All financial figures are presented in Argentine Pesos (ARS) at constant purchasing power, prepared in accordance with IFRS, except for the Statements of Comprehensive Income which are expressed at historical values.
Key Financial Metrics
| Metric (3Q20 vs 3Q19) | 3Q20 (ARS Mn) | 3Q19 (ARS Mn) | Change % |
|---|---|---|---|
| Revenue from Sales | 23,033 | 30,469 | (24.4%) |
| Adjusted EBITDA | 2,227 | 5,014 | (55.6%) |
| Net Income | 101 | 353 | (71.3%) |
| Capital Expenditures | 2,802 | 2,976 | (5.8%) |
| Operating Expenses | 7,964 | 7,198 | 11.0% |
| Financial Losses (Net) | (2,436) | (4,436) | (45.0%) |
Liquidity and Debt: As of September 30, 2020, cash and cash equivalents totaled ARS 9,002 million. Dollar-denominated financial debt stood at USD 111 million (USD 98.3 million in Corporate Bonds and USD 12.5 million in a bank loan). The company reported a net cash position of USD 3.1 million. Trade payables increased significantly to ARS 32,133 million in current liabilities.
Material Changes vs. Prior Period
- Revenue Decline: Revenue dropped 24% primarily due to a tariff freeze on Distribution Value Added (VAD) and seasonal prices in an inflationary environment. This prevented real-term revenue growth despite a 1.3% increase in sales volumes.
- Volume Mix Shift: Residential consumption rose 12.4% due to COVID-19 lockdowns, while commercial and industrial consumption fell 12.1% due to business closures.
- Margin Compression: Gross margin decreased 22% to ARS 8,726 million. Operating expenses rose 11%, driven by a higher allowance for bad debts (ARS 429 million increase) due to uncollectibility risks during the pandemic.
- Financial Results: Net financial losses improved by 45% compared to 3Q19, largely due to lower exchange rate losses from reduced peso devaluation in 3Q20 and profits from bond repurchases.
Outlook, Risks, and Contingencies
- Tariff Freeze Impact: Management notes that the lack of predictability from the tariff freeze and demand drops may force a slowdown in the investment plan, though service quality indicators will be monitored.
- Debt Regularization: The 2021 Budget Law Project (pending Senate approval) proposes a regularization regime for debts owed to CAMMESA (wholesale market operator). As of Sept 30, 2020, Edenor owed ARS 14,411 million to CAMMESA before interest.
- Rating Actions: S&P Global downgraded Edenor's global rating to CCC- and domestic rating to raCCC+ with a negative outlook, citing reduced financial flexibility. Moody's Local issued an A.ar (local) and A- (foreign) rating with a negative outlook, while Moody's Investors Service changed the global outlook from negative to stable.
- Bond Cancellation: Edenor canceled USD 78 million of its own bonds in September 2020; USD 98 million remains outstanding.
- Service Quality: Despite financial headwinds, service quality improved, with SAIDI and SAIFI indicators 45.4% and 35.6% lower than regulatory requirements.
Investor Verification Checklist
- Verify the status of the 2021 Budget Law regarding the regularization of CAMMESA debts and the specific terms of the payment plan.
- Confirm the timeline for the recovery of ARS 552 million in revenue from meter reading estimates, as payments were suspended pending ENRE instructions.
- Monitor the impact of the tariff freeze on future cash flows and the potential for further investment slowdowns.
- Assess the sustainability of the allowance for bad debts given the continued economic uncertainty and collection challenges.
- Track the execution of the USD 98 million bond maturity in 2022 and the company's ability to service remaining foreign debt under current exchange controls.