EDENOR Second Quarter 2014 Financial Summary
Business Context and Reporting Period
This Form 6-K filing covers the second quarter ended June 30, 2014, for Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR), Argentina's largest electricity distributor. The company serves approximately 7 million people in the Buenos Aires metropolitan area. Financial figures are presented in Argentine Pesos (ARS) in accordance with IFRS, with U.S. Dollar translations provided at an exchange rate of Ps. 8.133 per USD.
Key Financial Metrics
| Metric (2Q 2014) | Value (ARS Millions) | Value (USD Millions) |
|---|---|---|
| Revenue from Sales | 852.7 | 104.8 |
| Net Income | 15.8 | 1.9 |
| Net Operating Loss (before CMM) | (661.9) | (81.4) |
| Adjusted EBITDA | (479.4) | (58.9) |
| Capital Expenditures | 368.8 | 45.3 |
| Total Indebtedness | - | 190.5 |
| Cash and Equivalents | - | 40.0 |
| Net Debt | - | 150.6 |
Operating expenses totaled Ps. 1,792.2 million for the six months ended June 30, 2014, a 36.8% increase year-over-year. Energy losses rose to 15.8% in 2Q 2014 compared to 13.3% in 2Q 2013.
Material Changes vs. Prior Period
- Revenue: Increased 3.9% to Ps. 852.7 million, driven by a 0.6% rise in energy volume sold (5,304 GWh). Residential sales volume grew 6.9%, offset by a 13.4% decline in medium commercial sales.
- Profitability: Net Income collapsed 99.1% to Ps. 15.8 million from Ps. 1,816.9 million in 2Q 2013. This decline is primarily attributed to the absence of the full Cost Monitoring Mechanism (CMM) recognition benefit recorded in the prior year (Ps. 1,477.1 million difference) and higher operating costs.
- Operating Costs: Net Operating Loss before CMM recognition widened by 62.2% to Ps. 661.9 million. Increases were driven by salary hikes (15% retroactive to May 2014), higher transmission/distribution expenses, and increased material consumption.
- EBITDA: Adjusted EBITDA deteriorated to a loss of Ps. 479.4 million from a loss of Ps. 193.6 million in the prior year.
Outlook, Risks, and Unusual Items
- Cost Monitoring Mechanism (CMM): The company recorded Ps. 735.5 million in income and Ps. 108.2 million in net interest related to CMM recognition for Oct 2013–Mar 2014. While this improved the operating result, it did not generate cash inflow. Thirteen tariff increases requested since 2008 have been recognized by regulators but not yet incorporated into the tariff structure.
- Regulatory and Labor Risks: A 15% wage increase for unionized workers (Resolution 836/14) and a cumulative 10% increase in July 2014 significantly impacted costs. The company has secured a financing agreement with CAMMESA to fund these increases, receiving an initial installment of Ps. 90.0 million.
- Liquidity: The company offset CMM recognition against PUREE debt (Ps. 168.4 million) and reduced CAMMESA debt by Ps. 1,038.0 million through accounting adjustments. Net debt stands at US$ 150.6 million.
- Forward-Looking Statements: Management notes that future results depend on economic conditions, regulatory approvals for tariff adjustments, and the successful implementation of cost recovery mechanisms.
Investor Verification Checklist
- Verify the timeline for incorporating the 13 recognized CMM tariff increases into the actual billing structure.
- Confirm the sustainability of the financing agreement with CAMMESA regarding salary increases and future cash flow requirements.
- Monitor the trend of energy losses, which increased to 15.8%, and its impact on future margins.
- Assess the impact of the 99.1% drop in net income on the company's ability to service US$ 190.5 million in outstanding debt.
- Review the status of the PUREE funds, which decreased 23.9% year-over-year.