EDENOR Form 6-K Summary: Fiscal Year 2018
Business Context and Reporting Period
This Form 6-K, filed on March 28, 2019, contains the Annual Report and Financial Statements for Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR) for the fiscal year ended December 31, 2018. EDENOR is an Argentine foreign private issuer providing electricity distribution and sales services in the City of Buenos Aires and the Province of Buenos Aires. The reporting period covers the company's 26th fiscal year, characterized by high inflation, currency devaluation, and significant regulatory changes in the Argentine electricity market.
Key Financial Metrics
Financial results are presented in inflation-adjusted constant currency (ARS) due to hyperinflation exceeding 100% over the triennial period.
- Net Profit: ARS 4.3 billion (down 15% from ARS 5.1 billion in 2017).
- Revenue from Sales: ARS 55.9 billion (up 41% from 2017).
- Operating Profit: ARS 3.9 billion (up from ARS 2.4 billion in 2017).
- Energy Purchases: ARS 31.9 billion (up 53% from 2017).
- Net Financial Expense: ARS 6.3 billion (up 174% from ARS 2.3 billion in 2017).
- Investments: ARS 8.5 billion in constant currency (a record level, exceeding the regulatory plan by ARS 1.6 billion).
- Operating Cash Flow: ARS 9.6 billion.
- Customer Base: 3.04 million customers.
Material Changes vs. Prior Period
While revenue and operating profit increased nominally, the net profit decline was driven by specific macroeconomic and regulatory factors:
- Financial Losses: Net financial expenses surged due to exchange rate losses on dollar-denominated debt and higher interest rates on commercial debt with CAMMESA.
- Penalties: Regulatory penalties increased by 420% (from ARS 520 million to ARS 2.7 billion) due to new penalty criteria and valuation date changes, despite improved service metrics.
- Energy Losses: Total losses increased from 17.1% to 18.2%, driven by electricity theft in shantytowns and lower consumption by large users.
- Accounting Adjustment: Without the "Result of exposure to the changes in the purchasing power of the currency" (RECPAM) gain of ARS 8.5 billion, the company would have reported a loss of ARS 128 million.
Outlook, Risks, and Management Commentary
Management Commentary: The Chairman highlighted that despite regulatory and government non-compliances (unpaid social tariff discounts and low-income area consumption totaling over ARS 2 billion), the company achieved record investments and improved service quality (99.74% network availability). No dividends have been distributed in 18 years; all funds are reinvested.
Regulatory Risks: A significant uncertainty exists regarding Law No. 27,467, which instructs the transfer of EDENOR's jurisdiction from the Federal Government to the City and Province of Buenos Aires. This transfer, agreed upon in February 2019, creates complexities regarding regulatory integration, pending claims, and financing agreements.
Operational Risks: Continued challenges with electricity theft (non-technical losses) and the impact of high inflation on household incomes, leading to increased delinquent payments (up 88.9% in pesos).
Investor Verification Checklist
- Verify the impact of the jurisdictional transfer (Federal to Provincial/City) on future regulatory stability and tariff setting.
- Monitor the resolution of government non-compliances regarding unpaid social tariff discounts and low-income area consumption.
- Assess the sustainability of the 18.2% energy loss rate and the effectiveness of new anti-fraud measures (MIDE meters).
- Review the exposure of dollar-denominated debt to further Argentine peso devaluation.
- Confirm the status of the ARS 2 billion in receivables from the Federal Government and Regulatory Authority.