EDENOR Form 6-K Summary: Third Quarter 2010 Results
Business Context and Reporting Period
Company: Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR)
Reporting Period: Third Quarter (Q3) and Nine Months ended September 30, 2010
Filing Date: November 12, 2010
Business Overview: Argentina's largest electricity distributor, serving the northwestern zone of Greater Buenos Aires and northern Buenos Aires City (approx. 7 million people).
Accounting Basis: Argentine GAAP. Figures in Argentine Pesos (Ps.) with USD translations at Ps. 3.96/USD.
Key Financial Metrics
| Metric (in millions Ps.) | Q3 2010 | Q3 2009 | 9M 2010 | 9M 2009 |
|---|---|---|---|---|
| Net Sales | 561.0 | 518.1 | 1,652.0 | 1,578.2 |
| Electric Power Purchases | (281.2) | (244.9) | (807.5) | (764.2) |
| Gross Margin | 279.8 | 273.2 | 844.5 | 814.1 |
| Net Operating Income | 34.0 | 55.9 | 126.3 | 191.1 |
| Net Income (Loss) | (1.8) | 9.0 | (3.1) | 86.0 |
| Capital Expenditures | 88.8 | 103.7 | 282.0 | 291.9 |
Liquidity & Debt:
- Cash & Equivalents (9M 2010): Ps. 298.1 million (USD 75.3 million).
- Net Cash Flow from Operating Activities (9M 2010): Ps. 475.6 million (USD 120.1 million).
- Total Liabilities (Sept 30, 2010): Ps. 2,423.3 million.
- Shareholders' Equity (Sept 30, 2010): Ps. 2,179.1 million.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 8.3% in Q3 2010, driven by a 6.0% increase in energy volume sold (5,105 GWh vs. 4,817 GWh). This was due to a 3.5% rise in average consumption per customer and a 2.4% increase in customer count.
- Cost Pressures: Electric power purchases rose 14.8% due to higher demand and retroactive price adjustments. Transmission and distribution expenses increased 13.8% (mainly salaries and outsourcing), and selling expenses rose 21.6% (driven by a Ps. 5.7 million increase in allowance for doubtful accounts).
- Profitability Decline: Net Operating Income fell 39.2% in Q3 2010. The company reported a net loss of Ps. 1.8 million in Q3 2010 compared to a profit of Ps. 9.0 million in Q3 2009. The loss was primarily caused by increased operating expenses and a decrease in financial results (hedging contract valuations).
- Energy Losses: Increased to 12.9% in Q3 2010 from 12.1% in Q3 2009.
Guidance, Outlook, and Risks
Debt Restructuring (Subsequent Event):
- On October 25, 2010, Edenor issued US$ 140 million in new 9.75% Senior Notes due 2022.
- Through an exchange offer, US$ 90.3 million of 10.5% Senior Notes due 2017 were exchanged for the new 2022 notes.
- Through a tender offer, US$ 33.5 million of 2017 notes were purchased and cancelled.
- Total new issuance: US$ 230.3 million. Remaining 2017 notes outstanding: US$ 24.7 million.
Regulatory Environment & Risks:
- Tariff Revision: The Revision of the Company Tariff Structure (RTI) expected to take effect in February 2009 remains pending. The company submitted revenue requirement proposals in November 2009.
- Cost Monitoring Mechanism (MMC): Adjustments for periods through April 2010 have been submitted to the regulator (ENRE) but approval is pending. These adjustments are critical to restoring the financial equation.
- Legal Proceedings: The company is involved in litigation regarding tariff resolutions (National Ombudsman case) and consumer complaints. A prohibitory injunction prevents cutting power for non-payment of bills issued with contested rate hikes until a final ruling.
- IFRS Adoption: Mandatory adoption of International Financial Reporting Standards (IFRS) is scheduled for the fiscal year beginning January 1, 2012.
Investor Verification Checklist
- Debt Maturity Profile: Verify the impact of the new 2022 notes on the company's leverage ratio and interest coverage, given the reduction of 2017 debt.
- Regulatory Approval Status: Monitor the status of the pending MMC adjustments and the RTI tariff revision, as these are essential for margin recovery.
- Allowance for Doubtful Accounts: Review the trend in bad debt provisions, which increased significantly (Ps. 5.7 million in Q3) and impacted selling expenses.
- Energy Losses: Assess the operational efficiency implications of the rise in energy losses to 12.9%.
- Legal Contingencies: Evaluate the potential financial impact of the ongoing litigation regarding tariff resolutions and the prohibitory injunction on collections.