EDENOR Form 6-K Summary: Third Quarter 2016
Business Context and Reporting Period
Company: Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR)
Reporting Period: Third Quarter ended September 30, 2016 (Q3 2016)
Business: Argentina's largest electricity distributor, serving the northwestern zone of Greater Buenos Aires and northern Buenos Aires City.
Currency: Figures reported in Argentine Pesos (ARS) with USD translations at ARS 15.31/USD.
Key Financial Metrics
| Metric (Q3 2016) | Value (ARS Millions) | Value (USD Millions) |
|---|---|---|
| Revenue from Sales | 3,410.2 | 222.8 |
| Electricity Power Purchase | (1,996.3) | (130.4) |
| Net Operating Income (Loss) | (723.0) | (47.2) |
| Net Income (Loss) | (656.8) | (42.9) |
| Adjusted EBITDA | (535.7) | (35.0) |
| Capital Expenditures (Q3) | 668.9 | 43.7 |
| Cash and Cash Equivalents (Sep 30) | 91.4 | 6.0 |
| Total Debt (USD Denominated) | - | 176.4 |
Note: Total debt consists of US$ 176.4 million in Senior Notes due 2022. Senior Notes due 2017 were fully redeemed in July 2016.
Material Changes vs. Prior Period
- Revenue: Increased 226.9% to ARS 3,410.2 million (from ARS 1,043.2 million in Q3 2015). Driven by tariff increases effective Feb 1, 2016, partially offset by ARS 592.2 million in lost sales due to court injunctions in La Matanza and Pilar.
- Volume: Energy sold decreased 3.3% to 5,729 GWh (from 5,922 GWh), primarily due to a 5.9% drop in Industrial and Wheeling System demand.
- Costs: Electricity power purchases surged 264.4% to ARS 1,996.3 million due to a 282% increase in average purchase prices. Operating expenses rose 69.7%, driven by ARS 319.2 million in accrued fines/penalties and an 11.1% retroactive salary increase.
- Profitability: Net operating income swung from a profit of ARS 552.0 million in Q3 2015 to a loss of ARS 723.0 million. Net income turned from a profit of ARS 214.1 million to a loss of ARS 656.8 million.
- Energy Losses: Increased to 18.9% from 16.5% in the prior year period.
Guidance, Outlook, and Risks
- Tariff Revision (RTI): The Company submitted a tariff proposal for 2017-2021 to the regulator (ENRE) on September 5, 2016. A public hearing was held on October 28, 2016. The Company is awaiting a final decision.
- Legal Contingencies:
- Provisional Remedies: Courts in La Matanza and Pilar suspended tariff increases. The Company is waiting for ENRE instructions to record margin effects.
- Fernández Issue: A court declared new tariffs inapplicable to small-demand customers (T1). The regulator and Ministry of Energy filed an appeal, suspending the judgment pending Appellate Court decision.
- Abarca Issue: The Supreme Court revoked a remedy that had suspended tariffs for the whole province, reestablishing the current tariff scheme.
- Forward-Looking Statements: Management notes that future results depend on regulatory decisions, economic conditions, and the resolution of legal disputes regarding tariffs.
Investor Verification Checklist
- Regulatory Resolution: Monitor the final outcome of the Integral Tariff Revision (RTI) process for the 2017-2021 period.
- Legal Exposure: Track the status of the "Fernández" appeal and the final resolution of injunctions in La Matanza and Pilar, which impact revenue recognition.
- Cost Structure: Verify the sustainability of operating expenses, specifically the impact of the 11.1% salary increase and the ARS 319.2 million in regulatory fines.
- Liquidity: Assess cash flow stability given the negative operating cash flow trends and the reduction in cash equivalents to ARS 91.4 million.
- Debt Profile: Confirm the status of the remaining US$ 176.4 million Senior Notes due 2022 and any refinancing needs.