EDENOR: Q1 2017 Financial Summary
Business Context and Reporting Period
Company: Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR)
Reporting Period: Three months ended March 31, 2017
Business: Distribution and sale of electricity in the Greater Buenos Aires area under a regulated concession.
Regulatory Status: The company implemented a new Tariff Structure Review (RTI) effective February 1, 2017, via ENRE Resolution No. 63/17. This resolution established new electricity rates intended to cover operating costs and investments, replacing previous interim measures.
Key Financial Metrics (in thousands of Argentine Pesos)
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | 5,366,635 | 2,990,120 |
| Operating Profit | 816,636 | 238,265 |
| Net Profit (Loss) | 421,383 | (125,037) |
| EPS (Basic & Diluted) | 0.47 | (0.14) |
| Net Cash from Operating Activities | 139,931 | 483,755 |
| Total Assets | 19,770,659 | 18,933,530 (Dec 31, 2016) |
| Total Liabilities | 18,965,471 | 18,571,698 (Dec 31, 2016) |
| Total Equity | 805,188 | 361,832 (Dec 31, 2016) |
| Cash and Cash Equivalents | 68,660 | 258,562 (Dec 31, 2016) |
Material Changes vs. Prior Period
- Profitability Turnaround: The company reported a net profit of 421.4 million pesos in Q1 2017, reversing a net loss of 125.0 million pesos in Q1 2016. This shift is primarily attributed to the implementation of the new tariff structure (RTI) in February 2017 and the absence of significant regulatory income adjustments that were present in the prior year.
- Revenue Growth: Revenue increased by approximately 80% year-over-year, driven by the new rate schedules and volume adjustments.
- Financial Expenses: Net financial expenses decreased significantly to 160.1 million pesos from 450.7 million pesos in the prior year, largely due to favorable exchange differences and changes in the fair value of financial assets.
- Working Capital: Despite profitability, the company reported a working capital deficit of 2.8 billion pesos as of March 31, 2017. This includes a significant outstanding balance owed to CAMMESA (wholesale market administrator) of approximately 3.9 billion pesos (principal plus accrued interest).
Outlook, Risks, and Contingencies
- Regulatory Framework: Management is optimistic that the new RTI framework will allow the company to cover costs and service debt. However, the definitive treatment of balances related to the non-compliance with the previous Adjustment Agreement remains pending government definition.
- Penalties: New penalty determination mechanisms were established by the regulator (ENRE) effective February 1, 2017. Unpaid penalties accrue interest, and late payments may incur additional fines equivalent to twice the penalty amount.
- Capital Reduction: Although accumulated losses previously consumed more than 50% of share capital (triggering a mandatory reduction under Argentine law), the Shareholders' Meeting resolved to defer this reduction pending further assessment of the financial position in Q2 2017, citing the positive impact of the new tariff resolution.
- Legal Contingencies: An arbitration proceeding initiated by the parent company (EASA) and EDF International regarding the Concession Agreement was discontinued in March 2017 following the completion of the RTI process.
- Liquidity: Cash and cash equivalents decreased by 186.8 million pesos during the quarter. The company has submitted a payment plan proposal to CAMMESA regarding outstanding debts, but no reply was received at the time of filing.
Investor Verification Checklist
- CAMMESA Settlement: Verify the status of the payment plan proposal submitted to CAMMESA for the 3.9 billion peso outstanding balance.
- Tariff Implementation: Confirm the full recognition of the new VAD (Distribution Added Value) rates and the timeline for the remaining 42% increase scheduled for late 2017 and early 2018.
- Capital Adequacy: Monitor the Q2 2017 results to determine if the mandatory share capital reduction will be required despite the Q1 profit.
- Regulatory Penalties: Assess the potential financial impact of the new penalty adjustment mechanisms and any accrued penalties from the transition period.
- Parent Company Merger: Track the progress of the merger between EASA, IEASA, and CTLL, which is pending regulatory approval.