EDENOR Form 6-K Summary: Q1 2019
Business Context and Reporting Period
Company: Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR)
Reporting Period: Three months ended March 31, 2019
Business: Distribution and sale of electricity in the Greater Buenos Aires area under a concession agreement.
Regulatory Status: Jurisdiction over the public service of electricity distribution was transferred from the Federal Government to the Province of Buenos Aires and the City of Buenos Aires effective February 28, 2019. The Federal Government announced in April 2019 that residential rate increases scheduled for May and August 2019 would be absorbed by the government, with no further increases for the year.
Key Financial Metrics (in thousands of constant pesos)
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | 15,986,592 | 17,587,109 |
| Operating Profit | (10,989) | 3,635,568 |
| Net Financial Expense | (2,092,058) | (1,120,484) |
| Gain on Net Monetary Position | 3,307,942 | 1,692,480 |
| Profit Before Taxes | 1,204,895 | 4,207,564 |
| Net Profit | 131,498 | 2,849,437 |
| Earnings Per Share (Basic/Diluted) | 0.15 | 3.17 |
| Cash and Cash Equivalents (End of Period) | 70,230 | 224,335 |
| Total Borrowings (Current + Non-Current) | 9,615,026 | 9,244,117 |
Note: Financial statements are restated for inflation (IAS 29) with an inflation rate of 11.78% for the period Jan-Mar 2019.
Material Changes vs. Prior Period
- Profitability Decline: Net profit decreased by approximately 95% year-over-year, dropping from 2.85 billion to 131 million pesos. This was driven by a shift from positive operating profit to a slight operating loss, offset significantly by a "Gain on net monetary position" due to inflation accounting.
- Revenue Decrease: Revenue fell 9% to 16.0 billion pesos, primarily due to lower billed volumes and regulatory adjustments.
- Financial Costs: Net financial expenses increased by 87% to 2.09 billion pesos, largely due to exchange differences (789 million pesos) and higher interest costs.
- Operating Loss: The company reported an operating loss of 11 million pesos in Q1 2019, compared to an operating profit of 3.6 billion pesos in Q1 2018. Gross gain declined significantly due to increased electric power purchases and transmission/distribution expenses.
- Cash Position: Cash and cash equivalents decreased by 69% to 70 million pesos, reflecting net cash outflows from operating and financing activities.
Guidance, Outlook, and Risks
- Regulatory Framework: The company is negotiating a new extension for the Framework Agreement covering the Oct 2017-Dec 2018 period. No revenue has been recognized for this concept as of March 31, 2019.
- Rate Freeze: Residential electricity rates are frozen for the remainder of 2019, with the Federal Government absorbing previously authorized increases.
- Jurisdiction Transfer: Control and police power over the distribution service have been transferred to the Province of Buenos Aires and the City of Buenos Aires. The company must review the treatment of low-income area consumption with the new grantors.
- Share Repurchase: The Board approved a share buyback program up to 800 million pesos (approx. 10% of share capital limit) with a price cap of USD 23 per ADR. As of the filing date, the company had acquired additional shares post-March 31.
- Financial Risks: Significant exposure to currency risk (USD/EUR/CHF) and interest rate risk. The company has hedged floating rate debt exposure with Citibank London.
Investor Verification Checklist
- Framework Agreement Resolution: Verify the status of negotiations regarding the payment of amounts owed for the Oct 2017-Dec 2018 period.
- Regulatory Rate Adjustments: Monitor the impact of the government absorbing residential rate increases on future cash flows and margins.
- Foreign Currency Exposure: Assess the impact of continued peso devaluation on the company's USD-denominated debt and financial expenses.
- Share Buyback Execution: Track the execution of the approved share repurchase program and its effect on capital structure.
- Provisions and Contingencies: Review Note 7 and Note 24 for updates on legal contingencies and provisions, which increased due to inflation and interest rate changes.