Report. Industry Regulation. Financial Report Second Quarter Reliability Charge. Single Information System for Public Utilities (SUI)

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1 Financial Report Second Quarter 2017 At the close of the first semester of 2017, EBITDA was $584,354 million and net profit stood at $167,583 million, both much higher than that recorded in the first semester of last year at 85% and 304%, respectively. ISAGEN had generated revenue of $1,133,252 million, down 24% on that recorded in the same period last year. Below is a presentation of the main regulatory changes that occurred during the second quarter of the year, market trends, and finally, year-to-date and quarter financial results. Industry Regulation The SSPD proposed the creation of a Monitoring and Evaluation System for Firm Energy Obligations (SIMEO, for the Spanish original). Reliability Charge The object consists of monitoring and assessing the capacity to comply on the part of the assigned firm energy obligations agents, which shall include i) the publication of financial information (Operation sustainability and solvency) and ii) physical capacity (technical). Single Information System for Public Utilities (SUI) The SSPD proposed to disclose all the information loaded by electricity sector companies in the SUI. Electricity Rate for Transfer Payments Proposal to amend the base rate to pay electricity sector transfers to Regional Autonomous Corporations and municipalities (Law 99 / 1993). 1

2 Energy Market National Energy Demand ISAGEN Energy Generation Average Spot Price 1S 2017 Average Contract Price 1S % 45% 104 $/kwh 167 $/kwh Energy Demand At the close of the first semester, the energy demand for the National Electric Grid was 32,851 GWh, down 0.2% from what was reported in the same period last year. Energy demand over the last twelve months has dropped 0.8% primarily due to the absence of the El Niño phenomenon in 2017, as well as an economic slowdown in the last months of 2016 and so far in National Energy Demand (GWh) Year-to-Date June 2016: 32,961 GWh 2017: 32,851 GWh 5,586 5,428 5,465 5,188 5,568 5,608 5,397 5,451 5,546 5,682 5,399 5,493 January February March April May June Source: XM 2016 Domestic Demand 2017 Domestic Demand 2

3 Inflows and SIN Reserves Evolution The year-to-date inflows to the SIN have been above average in general terms. According to major international weather reporting agencies, the El Niño-Southern Oscillation (ENSO) phenomenon is expected to remain neutral over the second half of this year. Inflows to the National Electric Grid (% media) Jan/10 Apr/10 Jul/10 Oct/10 Jan/11 Apr/11 Jul/11 Oct/11 Jan/12 Apr/12 Jul/12 Oct/12 Jan/13 Apr/13 Jul/13 Oct/13 Jan/14 Apr/14 Jul/14 Oct/14 Jan/15 Apr/15 Jul/15 Oct/15 Jan/16 Apr/16 Jul/16 Oct/16 Jan/17 Apr/17 Source: XM 3

4 Inflows (Year-to-Date Average %) January February March April May June Antioquia East Center Caribbean Valle SIN San Carlos (Punchiná) Miel I (Amaní) Jaguas (San Lorenzo) Sogamoso Source: XM National Electric Grid Reserves The increased inflows mentioned above resulted in higher than average generation in the long term and National Electric Grid reservoirs closed the quarter at a 78.38% useful capacity, much higher than the long-term average. ISAGEN was able to actively manage its reservoirs and maximize generation in high-inflows events. As at the close of the first semester of the year, ISAGEN reserve levels were as follows: San Carlos (Punchiná): % Miel (Amaní): 92.07% Jaguas (San Lorenzo): % Sogamoso (Topocoro): 99.60% 16, , , , , , , , /01/ /04/ /07/ /10/2010 GWh 01/01/ /04/ /07/ /10/ /01/ /04/ /07/ /10/ /01/ /04/ /07/ /10/ /01/ /04/ /07/ /10/ /01/ /04/ /07/ /10/ /01/ /04/ /07/ /10/ /01/ /04/2017 Source: XM 4

5 Spot Market Prices During the first semester of 2017 the average spot price was $104/kWh, a 77% drop in the average spot price recorded in the first semester of 2016, which was $447/ kwh. This lower price may primarily be explained by the high hydroelectric generation reported in the semester, low growth in demand, and because the effects of the El Niño phenomenon were still present last year. As for market contract prices, the average price of contracts in the first semester was $167/kWh for the year, due to the incorporation of market conditions in contract renewals throughout the year Average Spot Market Price ($/kwh) January February March April May June Spot Market Price 2016 Spot Market Price Average Contract Price ($/kwh) January February March April May June Contract Price 2016 Contract Price 2017 Source: XM 5

6 Energy Generation ISAGEN s year-to-date generation in the first semester of the year was 7,564 GWh, 45% greater than the 5,203 GWh reported in the first semester of Increased generation is mainly due to the aforementioned higher inflows throughout the year, and better reservoir levels at the beginning of the year. Monthly Generation (GWh) Year-to-Date June 2016: 5,203 GWh 2017: 7,564 GWh 791 1, , , ,331 1,125 1, ,264 Source: XM January February March April May June Generation 2016 Generation 2017 Generation accumulated by ISAGEN Power Plants (GWh) Sogamoso Amoyá ,380 2,583 So far this year, generation at all of ISAGEN Power Plants has been above results obtained in the same period last year, which is primarily explained by inflows trends that have benefited generation. On the other hand, thermal power generation was way below results reported in the same period last year because spot market prices disallow covering operating costs. Termocentro San Carlos Jaguas Miel Calderas ,986 3,296 S S Source: XM 6

7 Financial Statements Second Quarter 2017 Energy Generation Revenues Operating Costs EBITDA Net Profit 48% 8% 31% 55% 153% Main Figure Q Q Q Variation % Energy generated (GWh) 3,426 4,138 2, Revenue (Millions of $) 579, , ,499-8 Operating costs (Millions of $) 309, , , Administrative expenses (Millions of $) 38,479 33,122 35,492-7 Operating Profit (Millions of $) 231, , , Operating margin 40% 39% 21% - EBITDA (Millions of $) 299, , , EBITDA margin 52% 51% 30% - Financial expenses 77, , , Income tax provision (Millions of $) 48,664 43,010 23, Net Profit/Loss (Millions of $) 92,983 74,600 29, Net margin 16% 13% 5% - Revenue Q Q Q Variation % Domestic contracts 493, , , Spot market transactions 132, ,600 44, Reliability charge refund (64,805) (99,079) (33,122) 199 AGC 17,821 42,915 40,611 6 Diversions Gas Technical services , TOTAL 579, , ,499-8 * Figures in millions of Colombian pesos 7

8 In the second quarter of 2017, ISAGEN s revenue was $553,982 million, 8% lower from that obtained in the same quarter for the previous year. This revenue behavior is explained primarily by the following: Revenue from energy contract sales decreased by 11% compared to the same quarter of In the second quarter of the year, 2,451 GWh were sold in contracts, 16% less from the energy sold in the same quarter last year, which was 2,906 GWh. According to this, lower sales are mainly due to changes in contract levels and reduced demand on the part of some clients. Revenue from spot market transactions were 176% higher than those reported in the second quarter last year, which is explained mainly by increased inflows during the analysis period, which permitted much greater generation than last year. Reliability charge refunds was higher than what was reported in the same quarter of last year, explained primarily by increased generation during the quarter, which was 48% higher than last year. Revenue from the provision of the automatic generation control service (AGC) represented 8% of the total revenue for the quarter, and was higher than that reported in the same period last year, explained by greater designation of the AGC service which favored revenue. Operating Costs Q Q Q Variation % Spot market transactions 55,950 58, , Charges for using and connecting to the NTS 66,286 68,418 67,005 2 NDC, CRDs and Commercial Exchange System 3,972 4,231 3, Transfer (Law 99/93) 14,927 18,083 11, FAZNI contribution 6,602 7,979 5, Depreciation 58,434 59,313 57,787 3 Fuels 26,045 19,602 62, Other operating expenses 76,971 70,137 78, TOTAL 309, , , * Figures in millions of Colombian pesos In the second quarter of 2017, ISAGEN s operating costs were $306,479 million, 31% lower than that obtained in the same period for the previous year, which can be attributed primarily to the following: 8

9 Expenses from spot market transactions during the second quarter represented 19% of the total operating costs for the period. The spot-market transactions item is broken down as follows: Q Q Q Variation % SPOT MARKET TRANSACTIONS 55,950 58, , Energy purchases 13,058 9, , AGC commercial responsibility 16,086 21,460 6, Restrictions and other 26,806 28,042 22, * Figures in millions of Colombian pesos Energy purchases in the second quarter of the year experienced a significant reduction compared to those reported in the same quarter last year thanks to improved inflows and better generation on the part of the Company, helping to address its business undertakings. Fuel costs were lower than what was reported in the second quarter of last year. This reduction is explained primarily by thermal power generation, which was so low in the analysis period. 9

10 Financial Statements Year-to-Date June Energy Generation Revenues Operating Costs EBITDA Net Profit 45% 24% 49% 85% 304% Main Figures S S Variation % Energy generated (GWh) 5,203 7, Revenue (Millions of $) 1,481,413 1,133, Operating costs (Millions of $) 1,196, , Administrative expenses (Millions of $) 90,376 71, Operating Profit (Millions of $) 195, , Operating margin 13% 39% - EBITDA (Millions of $) 316, , EBITDA margin 21% 52% - Financial expenses 235, , Income tax provision (Millions of $) 55,897 91, Net Profit/Loss (Millions of $) (81,952) 167, Net margin -6% 15% - Revenue S S Variation % Domestic contracts 1,113, , Spot market transactions 221, , Reliability charge refund (40,457) (163,884) 305 AGC 175,229 60, Diversions 2, Gas 3, Technical services 5, TOTAL 1,481,413 1,133, * Figures in millions of Colombian pesos At the close of the first semester, ISAGEN generated revenue of $1,133,252 million. This behavior of revenue may be primarily explained by the following factors: 10

11 Revenue from contract sales dropped 12% compared to the figures obtained in the first semester of last year, mainly due to a 17% reduction in amounts sold, going from 5,879 GWh in the first semester of 2016 to 4,885 GWh in the first semester of this year. This reduction in amounts is a product of reduced demand on the part of some clients, as well as changes in contract levels. Revenue from energy sales on the spot market in the first semester of the year were higher than what was obtained in the same period last year thanks to better inflows, thus higher energy generation, despite lower spot market prices which have come up during Considering that generation during the first semester has been 45% higher than what was reported last year, the reliability charge refunds has been higher, taking into account that this revenue correlates to the Company s generation trends. Revenue from the provision of the automatic generation control service (AGC) in the first semester of the year was 65% lower than what was obtained in the same period last year; explained primarily by the fact that during the first quarter of the year the allocation was much lower due to strong competition for this service at a base price, as well as to a regulatory change which affected the service s remuneration. Operating Costs S S Variation % Spot market transactions 576, , Charges for using and connecting to the NTS 133, ,704 1 NDC, CRDs and Commercial Exchange System 6,651 8, Transfer (Law 99/93) 20,791 33, FAZNI contribution 9,248 14, Depreciation 117, ,748 0 Fuels 185,362 45, Other operating expenses 146, ,108 0 TOTAL 1,196, , * Figures in millions of Colombian pesos At the close of the first semester, ISAGEN s operating costs were $615,667 million, down 49% on that recorded in the same period last year. This behavior of costs is mainly due to the following factors: Expenses from spot market transactions during the first semester represented 19% of the total operating costs for the period. The spot-market transactions item is broken down as follows: S S Variation % SPOT MARKET TRANSACTIONS 576, , Energy purchases 501,560 22, AGC commercial responsibility 30,932 37, Restrictions and other 44,194 54, * Figures in millions of Colombian pesos 11

12 Spot market energy purchases in the first semester of the year was 96% lower compared to those reported last year due to improved inflows and greater generation on the part of the Company, helping to address its business undertakings. Fuel expenses were 7% of the total operating costs, showing a significant drop compared to last year because of lower thermal power generation that occurred during the year. Revenue S S Variation % Revenue 1,481,413 1,133, Operating Costs 1,196, , Administrative expenses 90,376 71, Total Operating Costs and Expenses 1,286, , Operating Profit 195, , EBITDA 316, , Operating margin 13% 39% - EBITDA margin 21% 52% - * Figures in millions of Colombian pesos Revenue obtained in the semester was $445,986 million (revenue minus operating costs and administrative expenses), up 129% compared to last year s for the same semester. This increase is attained basically due to greater generation resulting from higher water levels, which means not having to incur in costs from energy purchases. However, this higher generation makes spot market prices drop, which does not allow for greater growth in revenue from energy sales. Similarly, at the close of the semester, EBITDA was $584,354 million, 85% higher compared to S Net Income Q Q Variation % Operating Profit 195, , Financial and other revenue 61,202 40, Financial expenses 234, , Other expenses 47,416 48,946 3 Income tax provision 55,897 91, Net Profit/Loss (81,952) 167, * Figures in millions of Colombian pesos 12

13 Net profit of $167,584 million was obtained at the end of the semester, which significantly surpassed the loss experienced in the same period last year. This resulted from the improved revenue explained above, as well as less financial expenses. Finally, income tax provisions for the semester were $91,675 million, up 64% from what was reported for the first semester of 2016, this being due to a higher profit. The breakdown provisions is as follows: Income tax provision S S Difference Regular income tax 0 52,250 52,250 CREE 2, ,990 CREE surcharge 1, ,945 Deferred income tax 50,962 39,425-11,537 Total 55,897 91,675 35,778 * Figures in millions of Colombian pesos Balance Sheet Assets The main variation presented by the assets during the semester is due to a reduction in cash that resulted from dividend payments to shareholders for $520,000 million. * Figures in millions of Colombian pesos As of December 2016 As of March 2017 As of June 2017 Quarterly Variation Current assets 957,890 1,001, , % Non-Current assets 7,341,090 7,374,259 7,338, % TOTAL ASSETS 8,298,980 8,375,273 7,886, % Liabilities and Equity No significant movements were evident in liability accounts other than payment of financial debt of USD 2.2 million and $100,065 million, as well as interest payment of USD 773,169 and $76,445 million. On the other hand, the net worth reflects a reduction originated from dividend payment for $520,000. * Figures in millions of Colombian pesos As of December 2016 As of March 2017 As of June 2017 Quarterly Variation Current liabilities 466, , , % Non-current liabilities 4,239,758 4,240,992 4,185, % TOTAL LIABILITIES 4,705,954 4,689,595 4,646, % TOTAL EQUITY 3,593,026 3,685,679 3,240, % 13

14 Balance Sheet (Millions COP) Assets NON-CURRENT ASSET June 2017 December 2016 Propriety, plant and equipement, net 7,115,191 7,192,963 Intangible and other assets 7,115,191 7,192,963 Deferred charges Other assets 84,013 74,459 Debtors 84,921 75,367 Customers and other debtors 170,043 78,959 Provision debtors (32,116) (6,199) TOTAL NON-CURRENT ASSETS 137,927 72,760 7,338,039 7,341,090 CURRENT ASSETS Inventories (Net) 17,718 19,402 Debtors and other acounts receibable (Net) 355, ,984 Other asset 29,262 38,774 Cash and fixed income investments 146, ,730 TOTAL CURRENT ASSETS 548, ,890 Liability and Equity June 2017 December 2016 CAPITAL SOCIAL Authorized: 2,726,072,000 common shares with a unit value of COP 49 Suscribed and paid 133, ,578 Legal reserve and 130 E.T Art. Reserve 1,375,122 1,234,316 Capital surplus 49,344 49,344 Retained earnings 1,127,384 1,268,261 Occasional reserve investments and risk ratings 240, ,116 Income from previous years 140,877 0 Other comprehensive income 6,783 6,534 Profit for the year 167, ,877 TOTAL EQUITY 3,240,834 3,593,026 NON-CURRENT LIABILITY Financial loans 3,271,839 3,399,212 Labor liabilities 118, ,053 Claims and litigations 48,139 15,630 Deposits in administration and warranty 14,297 14,120 Deferred Tax 733, ,743 TOTAL NON-CURRENT LIABILITY 4,185,900 4,239,758 CURRENT LIABILITY Financial loans 289, ,864 Accounts payable 124, ,245 Taxes and contributions 14,100 11,262 Labor liabilities 6,526 18,140 Estimated liabilities 11, Other liabilities 14,095 17,244 TOTAL CURRENT LIABILITY 460, ,196 TOTAL LIABILITY 4,646,093 4,705,954 TOTAL ASSETS 7,886,927 8,298,980 TOTAL LIABILITY AND EQUITY 7,886,927 8,298,980 14

15 Income Statements As of June and 2017 (Million COP) Quarterly Year to date Variation Q1 QT S S % REVENUES 579, ,982 1,481,413 1,133, Energy 578, ,831 1,472,638 1,132, Gas , Technical Services , COST OF SALES 309, ,479 1,196, , Spot Market Transactions 55,949 58, , , Charges for use and connection to the STN 66,286 68, , ,704 1 CND, CRD S and SIC 3,972 4,231 6,651 8, Transfer Law 99/93 14,927 18,083 20,791 33, FAZNI Contribution 6,602 7,979 9,248 14, Depreciation 58,434 59, , ,748 0 Fuels 26,045 19, ,362 45, Other operating costs 76,971 70, , ,108 0 SALES GROSS PROFIT 270, , , , Other revenues 14,609 (4,070) 25,998 10, Administration expenses (38,479) (33,122) (90,376) (71,600) -21 Other expenses (43,272) (5,674) (47,416) (48,946) 3 Financial revenues 16,002 13,929 35,204 29, Financial expenses (77,295) (100,956) (234,868) (178,251) -24 PROFIT BEFORE TAXES 141, ,610 (26,055) 259, INCOME TAX PROVISION (48,665) (43,010) (55,897) (91,675) 64 NET PROFIT / LOSS 92,983 74,600 (81,952) 167, NET MARGIN 16% 13% -6% 15% Investors Relations: Phones: Medellín +57 (4) / E.mail: ir@isagen.com.co Follow us