EDENOR First Quarter 2007 Financial Summary
Business Context and Reporting Period
This Form 6-K filing covers the first quarter of 2007 (ended March 31, 2007) for EDENOR (Empresa Distribuidora y Comercializadora Norte S.A.), Argentina's largest electricity distributor. The company serves approximately 7 million people in the greater Buenos Aires metropolitan area. All financial figures are presented in Argentine Pesos (Ps.) in accordance with Argentine GAAP, with U.S. dollar conversions provided at a rate of Ps. 3.10 per dollar.
Key Financial Metrics
| Metric | Q1 2007 | Q1 2006 | % Change |
|---|---|---|---|
| Net Sales | Ps. 628.4 million | Ps. 331.5 million | +89.6% |
| Gross Margin | Ps. 414.0 million | Ps. 144.5 million | +186.5% |
| Net Operating Income | Ps. 268.4 million | Ps. 11.9 million | +2,155.5% |
| Net Income | Ps. 106.8 million | Ps. 440.4 million | -75.7% |
| Volume of Energy Sold | 4,390.7 GWh | 4,027.1 GWh | +9.0% |
| Operating Cash Flow | Ps. 50.8 million | Ps. 75.7 million | -32.9% |
| Capital Expenditures | Ps. 43.0 million | Ps. 29.5 million | +45.8% |
Debt and Liquidity: Following the IPO, the company repurchased discount bonds with a face value of approximately US$26.0 million in May 2007, reducing total principal debt to US$350.4 million. Cash and bank balances at March 31, 2007, totaled Ps. 1.66 million (current) plus Ps. 38.8 million in investments.
Material Changes vs. Prior Period
- Retroactive Tariff Adjustment: The primary driver for the increase in Net Sales, Gross Margin, and Operating Income was the recognition of a Ps. 218.6 million retroactive tariff increase for non-residential customers covering the period from November 1, 2005, to January 31, 2007. This amount is being collected in 55 monthly installments starting February 2007.
- Organic Growth: Excluding the retroactive effect, Net Sales increased 23.6% to Ps. 409.8 million, and Net Operating Income increased 318.5% to Ps. 49.8 million. This organic growth was driven by a 38.3% increase in the Aggregated Distribution Value (VAD) due to a 28% tariff hike and an 8.032% Cost Monitoring Mechanism (CMM) adjustment, alongside a 9.0% increase in energy volume sold.
- Net Income Decline: Despite higher operating income, Net Income decreased significantly compared to Q1 2006. Q1 2006 included one-time gains of Ps. 284.8 million from debt restructuring and Ps. 193.5 million from the reversal of deferred tax asset valuation allowances. Q1 2007 included a Ps. 41.2 million loss for the present value adjustment of the retroactive receivables and a Ps. 15.1 million loss on the present value adjustment of new notes.
- Expense Management: Selling expenses decreased 10.5% due to a favorable evolution in past due balances, reducing the allowance for doubtful accounts by Ps. 5.3 million. Transmission and distribution expenses rose 15.0% primarily due to salary increases and contractor costs.
Guidance, Outlook, and Risks
- Tariff Outlook: Management expects a revised tariff structure (Integral Tariff Revision) to take effect on February 1, 2008, implemented in two installments (February and August 2008). The company anticipates this will maintain current distribution margins.
- Capital Markets: The company successfully completed its IPO in April 2007, pricing ADSs at US$17.00. The offering was oversubscribed, and the over-allotment option was exercised in full.
- Capital Plan: The 2007 capital expenditure plan totals Ps. 222.9 million, focused on network maintenance, new connections, and the Malaver project.
- Risks: Forward-looking statements are subject to risks including general economic conditions, regulatory changes, and the timing of tariff adjustments. The company notes that actual results may differ materially from expectations.
Investor Verification Checklist
- Verify the collection schedule and credit risk associated with the Ps. 218.6 million retroactive tariff receivable, which is being collected over 55 months.
- Confirm the impact of the 10% discount rate used to calculate the present value adjustment on long-term trade receivables.
- Monitor the timeline for the Integral Tariff Revision (RTI) scheduled for February 2008 to ensure margin maintenance.
- Review the debt restructuring terms and the remaining principal debt of US$350.4 million post-repurchase.
- Assess the sustainability of the 9.0% volume growth in energy sales given macroeconomic conditions in Argentina.