AES GENER 2014 YEAR-END RESULTS

Transcription

1 AES GENER 2014 YEAR-END RESULTS AES Gener recorded EBITDA of ThUS$671,215 during 2014, 8% higher than the EBITDA recorded in Net income recorded as of December 31, 2014 was ThUS$183,651 EBITDA increased by 8% and gross margin increased by 5% when compared to 2013 as a result of higher generation of AES Gener plants in the principal markets in which the Company has operations. In the National Interconnected Grid (SIN) in Colombia, the increase in generation was driven by favorable hydrology compared to a reduction of inflows in the rest of the system. In the Central Interconnected Grid (SIC) in Chile, the generation increase was the result of the availability improvement of the Company s plants and the start of the commercial operations of Ventanas IV in March 2013, and in the Greater Northern Interconnected Grid (SING), generation increased due to higher dispatch from the Angamos plant. Net income decreased by 9% between 2013 and 2014 principally due to the negative variation in foreign exchange rate, higher finance expenses and the one-off amortization of deferred expenses registered in 2014, associated to the refinancing of the subsidiary Eléctrica Angamos Debt. This negative result was partially offset by the increase in EBITDA. CONSOLIDATED FINANCIAL SUMMARY THUS$ % FINANCIAL SUMMARY Var Revenue 2,328,406 2,244,790 4% Gross Profit 536, ,079 5% EBITDA 1 671, ,029 8% Net Income 183, ,321-9% Net Operating Cash 257, ,362 84% Earnings per Share EBITDA is calculated as the sum of gross profit plus depreciation plus other minor adjustments. 2 Earnings per share shown in US$/share. 1 Constanza López (562) IR Manager constanza.lopez@aes.com Paola Lara (562) IR Specialist paola.lara@aes.com

2 2014 HIGHLIGHTS Progress of projects under construction: AES Gener continues to consolidate its 2 nd phase of expansion with 1,256 MW of diverse generating projects and the start of a new business, a desalinization plant for an efficient self consumption and potential sale to third parties. Project Capacity Type Progress Start of Operation Tunjita 20 MW Hydro 91% 2S15 Andes 21 MW Solar 16% 2S15 Desalinization plant m3/d Water Desalinization 28% 2S15 Guacolda V 152 Coal 87% 2S15 Cochrane 532 Coal 74% H 2017/ Alto Maipo 531 Hydro 11% 2018 On January 27, the Company prepaid the Senior Bond due in March 2014 for a total of ThUS$147,050 using for this purpose a portion of the US$450 million subordinated corporate bonds issued in December On March 28, 2014 the Company accepted the agreement to buy out the 50% equity stake of Eléctrica Guacolda held by Copec and Inversiones Ultraterra for ThUS$ Subsequent to the purchase, the Company sold 50% minus 1 share to Global Infrastructure Partners (GIP) at essentially the same conditions. AES Gener does not consolidate Guacolda into its financial statements. At the end of April, the Company concluded the preemptive rights period of a capital increase. Total subscription reached 98.6% for a total equivalent amount of ThUS$150,190. AES Corporation, the controlling shareholder, subscribed its proportional share. On May 30, 2014 Moody s credit rating agency upgraded affiliate AES Chivor s international credit rating from Ba1 to Baa3, with stable outlook. It should be noted that after the payment of the AES Chivor US$170 million bond in December 2014, all of the subsidiary s credit ratings were cancelled. In July, Standard & Poors (S&P) reaffirmed the Company s investment grade credit rating of BBB- with stable outlook. In August, Fitch Ratings and Moody s affirmed AES Gener s investment rate credit rating of BBB- and Baa3, respectively, both with stable outlook. Construction works for the installation of AES Gener new emission control equipment (retrofits) continued at the Ventanas and Norgener Complex (Units I and II of each complex) and for Electrica Guacolda (Units I, II and IV). Investment in AES Gener, as of December 31, 2014 reached ~US$203 million. With the purpose of optimizing the Company s debt structure, the following financing activities were developed: o o Early redemption, on July 14, of the local Bond, Series O, for a total of UF1.2 million and maturity in June This operation meant that the cross currency swap associated to this debt, which was executed to convert UF payments to US dollars, was unwound. Payment of the US$170 million bond issued by AES Chivor on December 30, 2014 at its maturity date. This payment was executed using cash from the subsidiary plus an intercompany loan granted by AES Gener. o On November 21, 2014 the refinancing of the debt of the subsidiary Eléctrica Angamos, through the issuance of a US$800 million bond (BBB- by S&P and Baa3 by Moody s) in the international markets with maturity in The bonds were issued pursuant to 144-A and Regulation S of the U.S. Securities Act. 2 o On December 17, the issuance of a committed credit facility for up to US$100 million with four international and local banks. Disbursements of this credit can be executed until June 2015 and the tenor is three years. On November 11, AES Gener was informed that it remains between the Top 50 companies to work at in Chile, according to the international organization Best Place to Work. On December 4, the Company was awarded first place for companies in the energy sector in the Innovation Ranking organized by ESE Business School at Los Andes University. In December, the Colombian environmental authority extended in 50 years AES Chivor main water concession. The Company moved ahead from the original expiration date of December During 2014, consistent with its first corporate value, the Company achieved several acknowledgments in safety performance: o o o Award from the Chilean Workmen Safety Institute (IST for its acronym in Spanish) in Safety Merit and Occupational Health in Santa Lidia plant for 5 years without Lost Time Accidents (LTA) Acknowledgment from the National Safety Council to Guacolda V project for 3 and 6 million hours without LTA Moreover, 2 of AES Gener workers received important national acknowledgments from the IST The company received two 2 nd places in the air and water categories in the 1 st National Sustainability Award organized by an important local newspaper and Recycláplolis Foundation for two projects developed by Ventanas and Angamos plants workers

3 EXTERNAL FACTORS Annual Inflation Rate Exchange Rate as of Dec 31, Var (%) Twelve month period ended Dec 31, Chile 5.5% Chile % Colombia 2.9% Colombia 2, ,925,5 24% Argentina 23.9% Argentina % GDP Growth in Electricity Consumption, twelve month period ended Dec 31, 2014: Twelve month period ended Sept 30, 2014 SIC 3.1% Chile 0.8% SING 2.6% Colombia 4.2% Colombia 4.4% Argentina -0.8% Argentina 0.6% REVIEW OF 2014 RESULTS NET INCOME In the year ended December 31, 2014, AES Gener S.A. (AES Gener or the Company) registered an EBITDA of ThUS$671,215, 8% higher than in 2013 while net income totaled ThUS$183,651, 9% lower than the earnings of ThUS$201,320 recorded in the same period in The increase in EBITDA is mainly the result of higher generation of the plants in the major markets in which AES Gener has operations. The 18% increase in generation in the National Interconnected Grid (SIN) in Colombia resulted in higher sales to the spot market at higher prices, as a consequence of a reduction of inflows in the rest of the grid s reservoirs in 2014, compared to In the Central Interconnected Grid (SIC), energy production increased by 4% as a result of the start-up of the commercial operations of Ventanas IV in March 2013 and higher generation from Nueva Renca, the latter resulting in higher spot sales volume. In the Greater Northern Interconnected Grid (SING), the generation increase by 12% was mainly driven by higher dispatch in Angamos and higher spot sales volume. These positive variations were partially offset by lower contract sales from the Argentine Interconnceted Grid (SADI). In the fourth quarter of 2014, EBITDA totaled ThUS$157,453, 4% higher when compared to the EBITDA of ThUS$151,371 registered in the fourth quarter of This positive variation is principally explained by higher sales volume and prices to regulated customers in the SIC. As of December 31, 2014, gross profit totaled ThUS$536,386, a 5% increase compared to the total of ThUS$510,079 recorded in the same period in the previous year. This positive variation is mainly explained by: In Chile, gross profit in the SIC increased by ThUS$34,486 as a result of higher coal-efficient generation due to the start of operations of Ventanas IV in March 2013 and higher efficient plants availability, as well as higher generation from Nueva Renca, which in turn resulted in higher spot sales volume. In the SING, gross profit decreased by ThUS$34,163 between 2013 and The most important variations include lower average contract prices at Norgener S.A. (Norgener) related to the indexation variables fundamentally between January and May, and higher spot and capacity purchases during the first quarter of 2014, partially offset by an increase in spot energy and capacity volume sales as a result of higher generation of Angamos. In the SIN in Colombia, the increase of ThUS$54,289 in gross profit is mainly due to higher generation at the plant, mainly during the third quarter of 2014, which resulted in higher spot volume and ancillary services sales at higher prices driven by lower inflows in the rest of the system in 2014, when compared to Gross margin in the SADI decreased by ThUS$28,305 between both periods due to lower contract revenue under the Energía Plus program, associated with lower demand in this market and higher fuel costs. Main variations in non-operating income include an increase in finance expenses of ThUS$27,626 related to the ThUS$450,000 bond issued in December 2013 and the negative variation in foreign exchange of ThUS$27,579 mainly due to strong devaluation of the Argentine peso during January 2014 in addition to the devaluation of the Chilean and the Colombian pesos. Other expenses increased by ThUS$25,426 mainly due to the one-off amortization of deferred expenses registered in 2014, associated to the refinancing of the outstanding debt of the subsidiary Eléctrica Angamos. 3

4 2014 INCOME STATEMENT INCOME STATEMENT 2014 THUS$ 2013 THUS$ Var % Operating Revenue Energy and capacity sales 2,183,248 2,121,952 3% Other operating revenue 145, ,838 18% Total Operating Revenue 2,328,406 2,244,790 4% COST OF SALES Fuel consumption (733,220) (632,173) 16% Fuel cost of sales (28,129) (1,884) 1393% Energy and capacity purchases (434,707) (518,546) -16% Transmission tolls (88,555) (95,665) -7% Other cost of sales (283,619) (260,643) 9% Depreciation and amortization (223,790) (225,800) -1% Total Cost of Sales (1,7942,020) (1,734,711) 3% GROSS PROFIT 536, ,079 5% Other operating revenues 1, % Selling, general and administrative expenses (93,322) (113,366) -18% Other operating expense (1,128) (4,608) -76% Other income / (expense) (20,187) 5, % Financial income 10,490 8,962 17% Financial expense (151,532) (123,906) 22% Equity in earnings of associates 38,781 38,526 1% Foreign currency exchange differences (66,435) (38,856) 71% NET INCOME (LOSS) BEFORE TAX AND NON- CONTROLLING INTEREST 254, ,042-10% Income tax income (expense) (79,546) (84,525) 6% Net Income (Loss) After Tax 174, ,517-12% Income (loss) from discontinued operations, net of tax - - Net Income 174, ,517-12% Income (Loss) Attributable to Shareholders of Parent 183, ,320-9% Non-controlling interest (8,755) (2,804) 212% NET INCOME 174, ,516-12% 4

5 EBITDA AES Gener operates in four independent markets, SIC and SING in Chile, the SIN in Colombia and the SADI in Argentina. In the year ended December 31, 2014, EBITDA totaled ThUS$671,215, compared with EBITDA of ThUS$623,029 recorded in This improvement of ThUS$48,186 is primarily the result of an increase in net spot and ancillary service sales in the SIN given the generation increase, particularly in the third quarter of 2014, higher prices driven by lower inflows in the system in 2014 compared to 2013 and in the SIC, an increase in efficient generation related to the start of operations of Ventanas IV in March 2013, as well as higher efficient plants availability, and higher back-up generation at Nueva Renca plant with the consequent increase in sales to the spot market. These positive effects were partially offset by lower contract sales under Energía Plus program in the SADI and lower average contract prices at Norgener between January and May EBITDA (THUS$) VAR % SIC 253, ,869 24% SING 122, ,997-19% SIN 262, ,663 26% SADI 31,777 59,500-47% TOTAL EBITDA 671, ,029 8% Note: For EBITDA calculation please see page 29, Consolidated EBITDA. In the periods ended December 31, 2014 and 2013, the contribution to EBITDA from the SIC, SING, SIN and the SADI was the following: SIN 39% SADI 5% SIC 38% SIN 33% SADI 10% SIC 33% SING 18% SING 24% GROSS PROFIT Gross profit increased by ThUS$26,307, explained by higher gross profit in the SIN and the SIC by ThUS$54,289 and ThUS$34,486, respectively, partially offset by a decrease by ThUS$34,163 in the SING, in addition to the decrease of ThUS$28,305 in SADI s gross profit. The consolidation adjustment represents intercompany coal sales from AES Gener to subsidiaries Norgener and Eléctrica Angamos in the SING. 5

6 GROSS PROFIT (THUS$) VAR % OPERATING REVENUE SIC 1,289,042 1,308,253-1% SING 569, ,498 8% SADI 155, ,481-10% SIN 551, ,332 6% Consolidation adjustments (236,861) (284,774) -17% Total Operating Revenue 2,328,406 2,244,790 4% COST OF SALES SIC (1,087,182) (1,140,879) -5% SING (504,456) (426,152) 18% SADI (149,027) (138,678) 7% SIN (288,216) (313,776) -8% Consolidation adjustments 236, ,774-17% Total costs of sales (1,792,020) (1,734,711) 3% TOTAL GROSS PROFIT 536, ,079 5% The variations in gross margin in each of the four markets are explained below. Central Interconnected Grid (SIC) In the SIC, gross profit increased by ThUS$34,486, equivalent to 21% driven by higher coal-efficient generation related to the start of operations of Ventanas IV in March 2013, higher availability of the efficient plants of AES Gener and a higher spot sales volume associated to the higher generation at Nueva Renca back-up plant. The following table presents gross profit in the SIC for both periods: SIC GROSS PROFIT (THUS$) VAR % OPERATING REVENUE Regulated customer sales 530, ,041 0% Unregulated customer sales 251, ,245-6% Spot sales 150, ,074 31% Other operating revenues 356, ,893-10% Total Operating Revenue 1,289,042 1,308,253-1% COST OF SALES Fuel consumption (383,172) (351,652) 9% Energy and capacity purchases (129,294) (183,706) -30% Transmission tolls (83,044) (92,283) -10% Fuel cost of sales (241,542) (271,715) -11% Depreciation and amortization (109,344) (104,213) 5% Other cost of sales (140,786) (137,310) 3% Total Cost of Sales (1,087,182) (1,140,879) -5% TOTAL GROSS PROFIT 201, ,374 21% 6

7 The following table shows AES Gener generation by source in the SIC as at December 31, 2014: SIC NET GENERATION (GWH) VAR % Hydro 1,200 1,237-3% Coal 5,685 5,513 3% LNG % Diesel % Biomass % Total 7,846 7,544 4% Main variations between the years ended December 31, 2013 and 2014: Revenues from regulated sales remained stable, with a slight decrease of ThUS$890, as a result of lower sales for 81 GWh between 2013 and Additionally, non-regulated customer sales decrease by ThUS$ as a result of lower sales for 30 GWh and a decrease in average contract prices associated to lower coal prices. Spot sales increased by ThUS$35,300 comparing 2013 and 2014, driven by the higher sales volume of 127 GWh due to a higher dispatch of the Nueva Renca plant. In addition to that, from May to September 2013, Nueva Renca was unavailable due to maintenance. The increase in volume sales was partially offset by lower average spot prices, from US$/MWh in 2013 to 131,1 US$/MWh in Energy purchases (including spot market purchases and contract purchases from affiliate Guacolda and other generators, principally qualified Non-Conventional Renewable Energy (ERNC) suppliers) decreased by ThUS$54,412, and in volume terms by 302 GWh between both periods, driven by higher generation by the Company s coal and diesel plants and lower regulated customers withdrawal. Fuel consumption increased by ThUS$31,250 driven by higher diesel generation at Empresa Eléctrica Santiago SpA (Eléctrica Santiago) and higher coal generation at the Ventanas IV.. Diesel and coal generation by AES Gener and subsidiaries increased by 387 GWh and 172 GWh, respectively, between 2013 and 2014, while LNG and hydro generation decreased by 213 GWh and 36 GWh, respectively, compared to Other cost of sales increased by ThUS$3,476 mainly driven by higher maintenance costs of AES Gener plants compared to Additionally, a higher depreciation of ThUS$5,131 was registered, associated with the start-up of commercial operations of Ventanas IV in March

8 Greater Northern Interconnected Grid (SING) Between 2013 and 2014, gross profits decrease by ThUS$34,163, equivalent to 34%. The most important variations include lower contract prices in Norgener related to the indexation variables. Additionally, higher withdrawal costs are still affecting the margins from Norgener s oldest contracts, recorded as higher energy and capacity purchases, which cannot be passed-through to contract prices in these contracts expiring by the end of 2015 and early The new replacement contracts have pass-through clauses for the higher withdrawal costs. Partially offsetting these negative effects, an increase in contract sales volume was recorded in Norgener associated with higher customers demand, and higher volume sales to the spot market in Angamos. The following table presents gross profits in the SING for both periods: SING GROSS PROFIT (THUS$) OPERATING REVENUE Unregulated customer sales 492, ,056 8% Spot sales 52,590 57,834-9% Other operating revenues 25,003 12,608 98% Total Operating Revenue 569, ,498 8% COST OF SALES Fuel consumption (247,037) (192,514) 28% Energy and capacity purchases (77,337) (73,026) 6% Transmission tolls (5,233) (2,983) 75% Fuel cost of sales (17,351) (6,868) 153% Depreciation and amortization (71,189) (70,403) 1% Other cost of sales (86,309) (80,358) 7% Total Cost of Sales (504,456) (426,152) 18% TOTAL GROSS PROFIT 65,183 99,346-34% VAR % The following table shows AES Gener generation by type of fuel in the SING as at December 31, 2013 and 2014: SING NET GENERATION (GWH) Coal 5,492 5,164 6% LNG VAR % Total 5,809 5,164 12% Main variations between the years ended December 31, 2013 and 2014: Sales to unregulated customers increased by ThUS$36,716 between 2013 and 2014, mainly due to higher demand that rose from 4,256 GWh as of December 31, 2013 to 4,965 GWh in 2014, equivalent to 17%. This increase was partially offset by lower contract prices in Norgener associated with the indexation variables. Net spot sales decreased by ThUS$9,555 mainly driven by lower average spot prices, mainly during the fourth quarter, associated with lower fuel prices. On average, spot prices decreased from 80.3 US$/MWh in the year ended December 31, 2013 to 75.6 US$/MWh in This negative variation was partially offset by a higher sales volume of 314 GWh as a result of higher generation from Angamos driven by higher dispatch. Fuel consumption increased by ThUS$54,523, given an increase in coal generation of 328 GWh primarily in Angamos despite lower coal prices, and LNG generation during 2014 associated to the lease of a gas-fired plant. The purpose of this leasing was to make more efficient the generation of the system in order to reduce the minimum technical costs that in turn affect our costs in the grid. LNG generation was 316 GWh. Additionally, other cost of sales increased by ThUS$5,951, mainly related to an insurance recovery registered in the first quarter of

9 Colombian National Grid (SIN) In Colombia, the gross profits increased by ThUS$54,289, equivalent to 26%, between 2013 and This positive variation is mainly associated with higher net spot sales and ancillary service sales at higher average spot prices, in addition to a generation increase, particularly during the third quarter of The following table presents gross profit in Colombia for both periods: SIN GROSS PROFIT (THUS$) VAR % OPERATING REVENUE Contract sales 254, ,629-1% Spot sales 296, ,592 12% Other operating revenues % Total Operating Revenue 551, ,332 6% COST OF SALES Energy and capacity purchases (228,077) (261,812) -13% Depreciation and amortization (15,399) (16,278) -5% Other cost of sales (44,740) (35,686) 25% Total Cost of Sales (288,216) (313,776) 8% TOTAL GROSS PROFIT 262, ,556 26% The following table shows AES Gener generation in the SIN in the years ended December 31, 2013 and 2014: SIN NET GENERATION (GWH) VAR % Hydro 3,982 3,373 18% Total 3,982 3,373 18% Main variations between the years ended December 31, 2013 and 2014: Contract sales to distribution companies decreased by ThUS$3,443 due to lower average contract prices in dollars, from an average of 73.4 US$/MWh in the year ended December 31, 2013 to 71.6 US$/MWh in 2014, as a result of the devaluation of the Colombian peso. It should be noted that the decrease in tariffs was partially compensated by foreign exchange forwards executed for these purposes. Spot and ancillary service sales increased by ThUS$32,232 due to higher average spot prices, which rose from 96.1 US$/MWh during 2013 to US$/MWh in This increase was partially offset by lower sales volume of 78 GWh between 2013 and Spot purchases decreased by ThUS$33,735 as a result of a purchase decrease of 789 GWh, mainly due to higher generation in particular, during the third quarter of Additionally, a higher cost of sales of ThUS$9,054 was registered between both periods associated with maintenance works at the tunnels feeding the reservoir. 9

10 Interconnected Argentine Grid (SADI) The gross profits in the SADI decreased by ThUS$28,305, equivalent to 81%, between 2013 and 2014, associated with lower contract sales under the Energía Plus program, given lower customers demand and lower average contract prices, as well as higher fuel consumption fundamentally as the result of higher generation at TermoAndes, partially offset by higher spot sales volume. The following table presents gross profit in the SADI for both periods: SADI GROSS PROFIT (THUS$) OPERATING REVENUE Contract sales 80,852 99,508-19% Spot sales 74,667 73,973 1% Other operating revenues 6 - Total Operating Revenue 155, ,481-10% COST OF SALES Fuel consumption (103,011) (91,683) 12% Energy and capacity purchases Transmission tolls (278) (399) -30% Fuel cost of sales - (276) - Depreciation and amortization (27,858) (34,906) -20% Other cost of sales (17,881) (11,414) 57% Total Cost of Sales (149,027) (138,678) 7% TOTAL GROSS PROFIT 6,498 34,803-81% VAR % The following table shows AES Gener generation in the SADI in the years ended December 31, 2013 and 2014: SADI NET GENERATION (GWH) VAR % LNG 4,456 4,183 7% Total 4,456 4,183 7% Main variations between the years ended December 31, 2013 and 2014: Between 2013 and 2014, contract sales decreased by ThUS$18,656 associated with the decrease in sales volumes by 183 GWh between the years ended December 31, 2013 and 2014, equivalent to a decrease of 12% related to lower demand in Energía Plus contracts, in addition to lower average contract prices. Spot sales in the SADI remained stable with a slight increase of ThUS$694 mostly associated with an increase of volume sales of 441 GWh, offset by lower spot prices in dollars terms driven by the devaluation of the Argentine peso, which fell from an average of 22.0 US$/MWh in 2013 to an average of 14.8 US$/MWh in Spot price in Argentine pesos remained at 120 Ar$/MWh. It should be noted that the strong devaluation of the Argentine peso is driven by the difficult economic situation currently affecting Argentina, which remained throughout Fuel costs rose by ThUS$11,328 between 2013 and 2014 associated with higher gas consumption, which was driven by higher generation of 273 GWh and an increase in fuel prices. 10

11 Physical energy sales in each market were as follows in the years ended December 31, 2014 and 2013: PHYSICAL SALES (GWH) VAR % SIC - Chile 8,884 8,868 0% Distribution companies 5,525 5,606-1% Other customers 2,507 2,537-1% Spot (CDEC) % SING - Chile 6,438 5,414 19% Distribution companies - - Other customers 4,965 4,256 17% Spot (CDEC) 1,472 1,159 27% SIN - Colombia 6,093 6,178-1% Distribution companies 3,509 3,517 0% Spot and other 2,583 2,662-3% SADI - Argentina 4,444 4,185-6% Customers 1,290 1,473-12% Spot 3,154 2,713 16% TOTAL SALES 25,858 24,645 5% SELLING, GENERAL AND ADMINISTRATIVE EXPENSES SG&A decreased by 18%, from ThUS$113,366 at the close of 2013 to ThUS$93,322 in 2014, mainly related to lower personnel costs, employee compensation and benefits. This positive variation is mostly driven by a productivity improvement plan implemented by the Company, as well as differences produced by foreign exchange variations. FINANCIAL RESULTS The non-ebitda variables which experienced the most significant changes between the years ended December 31, 2013 and 2014, include a negative variation in foreign currency exchange differentials of Th$27,579, in finance expenses of Th$27,626, and ThUS$25,426 in other losses. These negative variations were partially offset by higher financial incomes for ThUS$1,528 and, to a lesser extent, an increase of equity in earnings of associates of Th$255. The following table shows variances of these items: FINANCIAL RESULTS (THUS$) VAR % Other income / (loss) (20,187) 5, % Finance income 10,490 8,962 17% Finance expense (151,532) (123,906) 22% Equity in earnings of associates 38,781 38,526 1% Foreign currency exchange differences (66,435) (38,856) 71% The negative variation of Th$27,579 in foreign currency exchange differentials between 2013 and 2014 is mainly the result of (i) the negative variation in TermoAndes associated to the devaluation of the Argentine peso by ~31% in The Argentine peso devaluation affected the net tax credits of TermoAndes and its cash and cash equivalents denominated in Argentine pesos. It is important to mention that during 2014 to date, TermoAndes maintains Argentine Sovereign Bonds with U.S. dollar payments for a total of ThUS$35,600 with the purpose of reducing foreign exchange risk (ii) the net asset position in Chilean pesos associated to certain receivables in the medium and long term, not realized. The 11

12 exchange rate loss in 2014 was partially offset by a positive variation associated to existing hedging instruments to mitigate the exchange rate effect on the regulated customer prices. The following table shows variation in exchange rates in the countries in which AES Gener has operations: DECEMBER DECEMBER VAR DECEMBER DECEMBER VAR % % Chilean Pesos ($) % % Colombian Pesos (Col$) 1, , % 1, , % Argentine Pesos (Ar$) % % As of December 31, 2014, the negative variation of finance expenses of Th$27,626 compared to the same period in 2013 is explained by the issuance of the AES Gener junior subordinated bond of ThUS$450,000 in December 2013, which bear interests at an annual average rate of 8.375%, partially offset by the payment of the AES Gener Senior Bond for a total of ThUS$147,050 and the early redemption of the local bond Series O for ThUS$47,042. The increase of ThUS$25,426 recorded in other losses is mainly explained by the one-off amortization of deferred expenses registered in 2014, associated to the refinancing of the subsidiary Eléctrica Angamos debt, the financial cost associated to the purchase - sale transaction of Eléctrica Guacolda, and the 2013 reversal of an equity tax provision made in 2005 and 2006 in AES Chivor. It should be noted that the impact of the refinancing of Eléctrica Angamos did not affect the cash flows. Earnings of associates remained stable, recording a slight increase of ThUS$255 explained by higher earnings from the equity-method investee, Eléctrica Guacolda, due to the sale of its 133 km 2x220 kv Maitencillo-Cardones transmission line to Transelec S.A. (Transelec) for a total of ThUS$54,720 that was offset by a negative variation in gross profits between 2013 and 2014, mostly driven by the difference between the injection and withdrawal prices and the consequent higher costs to Guacolda. For more information about Guacolda, please see Annex 1. INCOME TAX As of December 31, 2014, income tax expense decreased by 6% from ThUS$84,525 during the year ended December 31, 2013 to ThUS$79,546 during 2014, due to lower tax expenses related to the decrease in income before taxes in Chile and Argentina, partially offset by higher income taxes in Colombia and, to a lesser extent, the impact from the tax reform approved in Colombia in December CASH FLOW Total net cash in the year ended December 31, 2014 registered an ending cash position of ThUS$228,691, which is 67.7% lower than the ending cash position of ThUS$707,516 in Total cash flow during the twelve months of 2014 was equal to a net outflow of ThUS$451,317, which negatively compares with the inflow of ThUS$334,141 recorded at the end of December Net outflow in the period is explained by the negative contribution from investing activities, partially offset by positive contributions from financing and operating activities. Cash Flow (ThUS$) Variation (%) Net cash from operating activities 257, ,362 84% Net cash from investing activities (871,786) (536,422) 63% Net cash from financing activities 162, ,201-78% Total Net Cash for the Period (451,317) 334, % Effects of Foreign Exchange Variations (27.508) (23.829) -15,4% Total Cash at the End of the Period 228, ,516-68% 12

13 Net cash from operating activities registered a positive variation of ThUS$117,266 in the year ended December 31, 2014, compared to the previous year. This increase is mostly the result of the operational improvements in the three main markets in which AES Gener has operations. Additionally, lower income taxes paid were registered fundamentally due to the higher amount paid in 2013 with regards to higher income before taxes in 2012 in AES Chivor, Eléctrica Santiago and Gener Argentina. These effects were partially offset by VAT payments in Eléctrica Santiago, Eléctrica Campiche and Eléctrica Ventanas, in addition to higher interest expenses. Net cash from investment activities registered a negative variation of ThUS$335,364 between 2013 and The principal variation relates to higher purchases of plant, property and equipment for ThUS$297,875 mainly related to the construction of the projects Alto Maipo and Cochrane.. Additionally, a negative variation of ThUS$73,313 in purchases of other assets was registered in Gener Argentina associated with investments in Sovereign Argentinean Bonds executed by TermoAndes during the year, partially offset by proceeds from the sale of part of these assets for ThUS$26,019. Net cash from financing activities registered a negative variation of ThUS$567,360 in year ended December 31, 2014, when compared to the previous year. The principal variation in financing activities is explained by the repayment of loans for a total of ThUS$1,851,566, including the prepayment of Eléctrica Angamos debt in November for approximately ThUS$780,000, the payment of AES Chivor Senior bonds at the end of December for ThUS$170,000 and the prepayments of the 144-A Bonds for ThUS$147,050 with maturity in March 2014 and the local Bond Series O for ThUS$47,042 with maturity in June It should be noted that in the second half of 2014, AES Gener obtained a short-term loan for ThUS$700,000 to finance the purchase of Eléctrica Guacolda which was prepaid in the same period. Furthermore, Eléctrica Angamos issued a ThUS$800,000 Senior Bond in November 2014 and disbursements of the Project Finance debts associated with the projects under construction continued during 2014, reaching ThUS$434,194. FINANCIAL DEBT Consolidated financial debt, including principal, interest and issuance costs, decreased from ThUS$2,784,929 as of December 31, 2013 to ThUS$2,733,750 as of December 31, As of December 31, 2014, approximately 92% of AES Gener s credit agreements are at a fixed rate, including a significant portion of the debt held by the subsidiaries Eléctrica Ventanas, Eléctrica Cochrane and Alto Maipo for which interest rate swap agreements have been executed. The remaining 8% of the Company s consolidated debt maintains a variable interest rate. As of December 31, 2014, approximately 97% of AES Gener s long-term debt accruing interests was denominated in U.S. dollars, including the Chilean bond issued in December 2007 for which a cross-currency swap was executed. Of the remaining debt, 1.3% was denominated in Chilean UF (Eléctrica Santiago s bond) and 1.5% in Colombian pesos (the leasing executed by AES Chivor to finance the Tunjita Project). On January 27, 2014, the Company used a portion of the proceeds from the ThUS$450,000 subordinated bond issued in December 2013 to prepay the Senior Bond due in March, 2014 for a total of ThUS$147,050. Additionally, in July 2014, the Company prepaid the Series O Bonds for UF1.2 million with maturity in June The cross-currency swap associated to this debt executed to convert UF payments to US dollars was unwound in June Furthermore, in November 2014, the Company refinanced the outstanding debt associated with its subsidiary Eléctrica Angamos for approximately ThUS$780,000, with a Senior Bond issuance for ThUS$800,000 at Eléctrica Angamos level. Finally, AES Chivor paid its Senior Bond for ThUS$170,000 with maturity in December 2014, with cash from operations in addition to an intercompany loan provided by AES Gener. The following graph details AES Gener s consolidated amortization schedule for the outstanding principal of ThUS$2,861,823 as of December 31, 2014, excluding issuance costs and including non-recourse project finance debt. 13

14 1,600 Total Consolidated Debt (US$ million) 1,576 1, AES GENER GROUP OPERATING STATISTICS GENERATION (GWH) Installed Capacity SIC 12,404 12,408 SIC (1) MW 2,618 2,616 Gener Hydro 1,200 1,237 SING (2) MW Gener Thermal 1,822 2,109 Colombia MW 1,000 1,000 Eléctrica Campiche 1,938 1,747 SADI MW Eléctrica Ventanas 1,957 1,972 Total MW 5,083 5,081 Eléctrica Santiago Guacolda 4,558 4,726 SING 5,809 5,164 Norgener (3) 2,265 1,964 Net Generation Eléctrica Angamos 3,544 3,200 SIC (1) GWh 12,404 12,408 SIN - Colombia 3,982 3,373 SING (2) GWh 5,809 5,164 AES Chivor 3,982 3,373 Colombia GWh 3,982 3,373 SADI Argentina 4,456 4,183 SADI - Argentina GWh 4,456 4,183 TermoAndes 4,456 4,183 Total GWh 26,650 25,128 Total 26,650 25,128 (1) Includes AES Gener, Eléctrica Ventanas, Eléctrica Santiago and Guacolda (2) Includes Norgener and Angamos (3) Includes CTM3 generation 14

15 AES GENER CONSOLIDATED 12M 2014 ENERGY GENERATION, PURCHASES & SALES SIC SING SADI SIN ENERGY (GWH) AES GENER ELÉCTRICA SANTIAGO ELÉCTRICA VENTANAS ELÉCTRICA CAMPICHE NORGENER ELÉCTRICA ANGAMOS TERMOANDES AES CHIVOR TOTAL GENERATION Hydro 1, ,982 5,183 Thermo 1, ,265 3,544 4,456-16,910 TOTAL GENERATION 3, ,957 1,938 2,265 3,544 4,456 3,982 22,093 PURCHASES Spot ,991 3,006 Other generators Intercompany 4, ,824 TOTAL PURCHASES 5, ,991 8,642 Losses (71) (91) (12) 119 (52) SALES Regulated (1) 5, ,509 9,035 Unregulated 2, ,985 1,981 1,290-8,762 Spot ,472 2,328 2,583 8,062 Intercompany ,957 1, ,824 TOTAL SALES 8, ,957 1,938 2,985 3,453 4,444 6,093 30,682 (1) Regulated sales include obligatory sales to distribution customers of a generation company which was declared in bankrupt in September

16 MARKET INFORMATION In Chile, AES Gener does business principally in two large interconnected electric systems: the Central Interconnected System or SIC, that runs from the southern part of Region II to Region X, and the Greater Northern Interconnected System or SING, that encompasses Region I and Region XV, as well as part of Region II. AES Gener s Colombian subsidiary, AES Chivor, is one of the principal electric generators in the Colombian National Interconnected System or SIN. AES Gener affiliate, TermoAndes sells electricity to the Argentine market. SIC The SIC has experienced dry hydrological conditions in the last five years. During 2014, hydrological conditions remained weak compared to a normal year wherein reservoir levels continued low. However, the slight increase in rainfall during the second and third quarter of 2014 plus new efficient capacity that came on line in the system led to an 18% decrease in average spot prices. In the year ended December 31, 2014 the AES Gener group companies, including Guacolda, accounted for 24% of the net generation in the SIC. The table below shows certain principal variables in the SIC for the periods ended December 31, 2014 and SING SIC Demand growth (%) Annual consumption (GWh) 49,012 47,831 Average annual spot price (Quillota 220 kv) US$/MWh The average marginal cost decreased by 6% between 2014 and 2013, associated with lower fuel costs during the third and fourth quarter of In the year ended December 31, 2014, the AES Gener Group companies contributed 36% of the net generation in the SING. The table below shows certain principal variables in the SING for the period ended December 31, 2014 and SING Demand growth (%) Annual consumption (GWh) 15,788 15,409 Average annual spot price (Crucero 220 kv) US$/MWh Colombia In Colombia, spot prices in U.S. dollars increased by 19% between 2013 and 2014, while, spot prices in Colombian pesos increased by 26%. The increase in spot prices is explained by a significant reduction in water inflows in reservoirs in the second quarter, situation that improved with better hydrological conditions in the third quarter, situation softened by better hydrological conditions in the third quarter of 2014 and the start of operations of new hydro capacity in the system and the devaluation of the Colombian peso in the fourth quarter. In the year ended December 31, 2014, AES Chivor s generation represented 6% of total generation in Colombia. The table below presents certain principal variables in Colombia for the years ended December 31, 2014 and 2013: 16

17 COLOMBIA Demand growth (%) Annual consumption (GWh) 63,571 60,891 Average annual marginal cost US$/MWh SADI As of December 31, 2014, spot prices remained at $120 Argentine pesos per MWh, although when compared to the same period in 2013, the spot price decreased by 33% in U.S. dollars due to the devaluation of the Argentine peso. Additionally, lower energy demand in the Energía Plus market was registered. In the twelve months of 2014, TermoAndes contribution to the SADI represented approximately 4% of total system demand. The table below shows certain principal variables in the SADI for the years ended December 31, 2014 and SADI Demand growth (%) Average monthly consumption (GWh) 114, ,355 Average annual marginal cost US$/MWh RISK ANALYSIS Market and Financial Risks Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to a change in market prices. Market risks include the following three categories: foreign currency risk, interest rate risk and commodity price risk. Financial risk relates to the potential occurrence of events which could have a negative financial impact on the Company and specifically includes: credit risk and liquidity risk. Foreign currency risk With the exception of its Colombian operations, the Company's functional currency is the U.S. dollar, given that its revenue, costs, investments in equipment and financial debt are principally determined in dollars. Additionally, the Company has been authorized to file and pay its principal taxes in U.S. dollars. Foreign currency risk is associated with revenues, costs, investments and debt denominated in currencies other than the U.S. dollar. The principal components denominated in Chilean pesos include the accumulated credit balances from electricity sales and tax credits mainly associated with VAT. As of December 31, 2014, AES Gener maintained several currency forwards with banks to mitigate its exposure to foreign exchange variations associated with energy sales, given that even though most of the Company s energy supply agreements have prices denominated in US dollars, payments are made in Chilean pesos at an exchange rate that is fixed for a specific period of time, and VAT payments. As at December 31, 2014, given the net asset position in Chilean pesos, the impact of a devaluation of 10% in the Chilean peso to U.S. dollar exchange rate would have resulted in a negative realized variation of approximately ThUS$1,586 in AES Gener s net income. 17

18 In the period ended December 31, 2014, approximately 85.9% of the Company s revenue and 88.7% of its costs of sale were denominated in U.S. dollars, while in the period ended December 31, 2013 approximately 85.2% of the revenue and 90.5% of costs of sale were denominated in U.S. dollars. With regard to Colombia, it should be noted that AES Chivor s functional currency is the Colombian peso since most of its revenues, specifically contract sales, and its operating costs are linked primarily to the Colombian peso. As of December 31, 2014, contract sales in Colombia represented 10.9% of consolidated revenues; while in the year period ended December 31, 2013 these sales represented 11.5% of consolidated revenues. Additionally, AES Chivor s dividends are determined in Colombian pesos, although financial coverage mechanisms are utilized to fix the amounts in U.S. dollars. In the period ended December 31, 2014, the impact of a devaluation of 10% in the Colombian peso to U.S. dollar exchange rate would have resulted in a negative realized variation of approximately ThUS$9,463 in AES Gener s net income, given AES Chivor net liability position in dollars. In Argentina, spot prices are set in Argentine pesos and these sales represented 3.2% of consolidated revenues in year ended December 31, 2014, while at the close of December 2013 these sales represented 3.3%. As of December 31, 2014, the impact of a variation of 10% in the Argentine peso to U.S. dollar exchange rate would have resulted in a variation of approximately ThUS$2,691 in AES Gener s net income given TermoAndes net asset position in Argentine pesos. It should be noted that in January 2014 the Argentine peso devaluated by 22%, the strongest since 2002, which meant a negative impact of approximately ThUS$16,7 million in AES Gener s net income during the period mentioned above. Further weakening of the Argentine Peso and local economic activity could cause significant volatility in TermoAndes results of operations and cash flows. Argentina defaulted on its public debt in 2001, when it stopped making payments on about $100 billion amid a deep economic crisis. In 2005 and 2010, Argentina restructured its defaulted bonds into new securities valued at about 33 cents on the dollar. Between the two transactions, 93% of the bondholders agreed to exchange their defaulted bonds for new bond at 33% of their original face value. The remaining 7% did not accept the restructured deal. Since then, a certain group of such bondholders has been in judicial proceedings with Argentina regarding payment. In June 2014, the United States District Court ruled that Argentina would need to make payment to all bondholders, including the ones that declined to accept the exchanges of 2005 and 2010, such hold-out bondholders according to the original applicable terms. Despite intense negotiations with such bondholders, mediators and the U.S. District Court appointed Special Master, on July 30, 2014 the parties failed to reach a settlement agreement and consequently (as referred by S&P and Fitch) Argentina fell into a selective default resulting from failure to make interest payments on its Discount Bonds maturing in December Argentina publicly expressed its intention to reach a satisfactory agreement to solve the current situation. This default situation has not caused any significant changes that impact our current exposures other those that are discussed above in regards to the macroeconomics within the country. Additionally, investments in new plants and maintenance equipment are mainly set in U.S. dollars. Short-term investments are also mostly held in U.S. dollars. As of December 31, 2014, 74.2% of AES Gener s short-term investments and bank account balances were denominated in U.S. dollars, 11.4% in Colombian pesos, 9.7% in Chilean pesos and 4.7% in Argentine pesos. Cash balances in Argentine pesos are subject to foreign exchange restrictions and exchange rate volatility inherent to the Argentine market. At the close of December 2013, 82.3% of AES Gener s shortterm investments and bank account balances were denominated in U.S. dollars, 8.9% in Argentine pesos, 6.9% in Chilean pesos and 1.9% in Colombian pesos. With regard to debt (bank loans and bonds payable) denominated in currencies other than the U.S. dollar, AES Gener has executed coverage in the form of cross-currency swaps to reduce exchange rate risk. AES Gener executed a crosscurrency swap for the UF-denominated bonds issued in 2007 for approximately ThUS$219,527 and the swaps extend throughout the duration of the debt. It should be noted that a portion of this swap was unwound in June, 2014, associated to the Series O Bonds with maturity in 2015, and the swap related to the Series N Bonds, with maturity in 2028 for ThUS$172,264 remained in force. As of December 31, 2014, 97.2% of AES Gener and its subsidiaries debt was denominated in U.S. dollars, including the local bonds mentioned above and the associated swaps. The following table details the debt composition by currency for the years ended December 31, 2014 and December 31, 2013: 18

19 CURRENCY % DECEMBER 2014 DECEMBER 2013 US$ UF Col$ Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. AES Gener s exposure to the risk of changes in market interest rates relates primarily to its long-term debt obligations with floating interest rates. AES Gener manages its interest rate risk by having an important percentage of its debt at fixed rate or with interest rate swaps, to fix it. To mitigate interest rate risks, the Company has entered into interest rate swaps for long-term obligations. Currently, AES Gener has interest rate swaps for an important part of the debt associated with subsidiaries Eléctrica Ventanas, Eléctrica Cochrane and Alto Maipo. It should be noted that the impact of a variation of 10% in variable interest rates would not have had a significant impact on AES Gener s net income given that 92.4% of its total debt is at a fixed interest rate or with interest rate swaps associated to them. The following table shows the composition of debt by type of interest rate as of December 31, 2014 and December 31, 2013: RATE (%) DECEMBER 2014 DECEMBER 2013 Fixed or with Swap Variable It should be noted that the subordinated bond issued in December 2013 for a total of ThUS$450,000 with tenor of 60 years, is at a fixed interest rate of 8.375% until year 5.5 from the issuance. From that period onwards, the interest rate is recalculated based on the 5-year swap rate published by Bloomberg plus a margin (spread) established in the offer and subsequently recalculated, based on the same conditions, every 5 years to maturity of debt. Commodity price risk AES Gener is affected by the volatility of certain commodity prices. The fuels used by the Company, primarily coal, diesel and LNG, are commodities with international prices set by external market factors. In Argentina, subsidiary TermoAndes purchases natural gas at a fixed price under a short-term contract, which is reflected in the contract price fixation. The price of fuel is a key factor for dispatch and spot prices in both Chile and Colombia. Since AES Gener is a company with primarily a thermoelectric generation mix, fuel costs represent an important part of the operating costs. Currently, the majority of the Company s power purchase agreements include indexation mechanisms that adjust prices based on the increase and decrease in the price of coal in accordance with the indices and adjustment periods specified under each contract, in order to mitigate major variations in the fuel cost. Currently, AES Gener s contracted energy is balanced with energy generation of facilities with high probability of dispatch (efficient generation) and the remaining facilities (back-up facilities) which utilize diesel or LNG are expected to generate only during periods with limited market supplies such as dry hydrological conditions in the SIC, selling energy on the spot market. 19

20 At the moment, derivative instruments are not utilized for diesel and LNG purchases, as spot sales allows transferring variations in fuel prices to sales prices. However, as mentioned above, given that the price of fuel, particularly diesel and LNG, is a key factor for determining spot prices and plants dispatch, the Company estimates that an increase of 10% in the cost of diesel during year ended December 31, 2014 would have resulted in a negative variation of approximately ThUS$24,273 in gross profit. It should be noted that Eléctrica Santiago s Nueva Renca plant is able to alternatively utilize diesel and LNG and it acquires defined volumes of LNG under short-term contracts when the price of LNG is more competitive than diesel. Credit Risk Credit risk relates to the credit quality of counterparties with which AES Gener and its subsidiaries establish relationships. These risks are reflected primarily in accounts receivables and financial assets including bank and other deposits and other financial instruments. With regard to accounts receivable, AES Gener s counterparties in Chile are mainly distribution companies and industrial customers of elevated solvency and over 90% of these customers or their parent companies have local and/or international investment grade credit ratings. Necessarily, sales made by the AES Gener Group companies in the spot market must be made to other generators, members of the CDEC, in accordance with the economic dispatch determined by this entity. It should be noted that one generator participant of the CDEC was declared in bankruptcy in September 2011 as a result of the financial losses caused by the low hydrological conditions experienced in the SIC. In the proceedings, AES Gener and Eléctrica Santiago presented evidence of the outstanding debt owed by such generator, of which the Company and Eléctrica Santiago received ThUS$3,000, approximately 30% of the associated receivables. At the end of 2013, a distribution company was declared in bankruptcy after the non-payment of electricity purchase invoices. Given this situation, AES Gener initiated legal procedures against the distribution company to recover at least a portion of the receivables, provisioning for this purpose the amount of ThUS$1,626. In Colombia, AES Chivor performs risk assessments of its counterparties based on an internal credit quality evaluation, which in some cases may include guarantees. In 2010, also in low hydrological conditions, AES Chivor suffered collection problems with an energy trader and eventually registered a loss of ThUS$1,300. In this case, the trader was suspended from participating in the Bolsa or spot market and AES Chivor presented actions to recover the outstanding amount. In Argentina, the principal counterparties are CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico S.A.) and large unregulated consumers with contracts under the Energía Plus program. TermoAndes carries out internal credit evaluations of its unregulated customers and therein include guarantees to secure payments. Financial investments by AES Gener and its subsidiaries such as mutual funds, time deposits and derivatives, are executed with local and foreign financial institutions which have national and/or international credit ratings greater than or equal to A under the S&P and Fitch scale and A2 under the Moody s scale. Similarly, derivatives for financial debt are executed with first class international entities. Cash, investment and treasury policies direct the management of the Company's cash portfolio and minimize credit risk. Liquidity Risk Liquidity risk relates to the funding requirements to meet payment obligations. The Company's objective is to maintain a balance between continuity of funding and financial flexibility, through internally generated cash flows, bank loans, bonds, short-term investments, committed credit lines and uncommitted credit lines. As of December 31, 2014, AES Gener s available liquid funds totaled ThUS$228,691 included in cash and cash equivalents. At the close of December 2013, available liquid funds equaled ThUS$727,521, including cash and cash equivalents of ThUS$707,516 and term deposits and immediate liquidity funds in U.S. dollars for a total of ThUS$20,005. It should be noted that the balance of cash and cash equivalents includes cash, term deposits with expiration of less than 90 days, securities, low risk immediately available mutual funds in U.S. dollars and re-sale and fiduciary agreements. 20

21 In addition, as of December 31, 2014, AES Gener has in place unused committed credit facilities for approximately ThUS$243,531, in addition to unused uncommitted lines of credit for approximately ThUS$235,003. With regard to the amortization schedule, the Company seeks to maintain an adequate debt profile. More detail of the current debt profile, please see Financial Debt on page 13. OPERATIONAL RISKS Operational risks relate to the possibility of future outages or deficiencies that can negatively affect the Company s strategic operational and/or financial objectives. Hydrology AES Gener s operations in the SIC and Colombia may be affected by hydrological conditions, as hydrology is key to plant dispatch and prices in both grids. The Company uses its own statistical models to evaluate the risks associated with its contractual commitments. In general terms, AES Gener s commercial strategy in Chile is to execute long-term contracts for its efficient generation plants, reserving other more expensive units for sales in the spot market. In Colombia, the commercial strategy focuses on optimal use of the reservoir with the general objective of contracting 75% to 85% of expected generation. Currently, efficient generation of AES Gener s facilities in the SIC is balanced with contracted volume, which mitigates most of the exposure to hydrology variations, and additionally, the Company has back-up facilities which allow to limit maximum exposure. Natural gas supply The combined cycle plants in Chile, including Eléctrica Santiago s Nueva Renca plant, currently operate with diesel or LNG alternatively. Eléctrica Santiago does not have long term LNG contracts and acquires volumes on the spot market or under short term contracts according to dispatch projections. In Argentina, TermoAndes holds natural gas supply contracts with Argentine producers and the Company estimates that in the case of potential gas supply restrictions, TermoAndes has certain alternatives to mitigate the impact of gas supply interruptions which include contract price indexation mechanisms, spot gas purchases and back-up supply from other generators. Operational failures Mechanical failures, accidents or planned and unplanned maintenance affecting the availability of the Company s efficient capacity could have a material adverse effect on results. Although the Company performs regular maintenance and operational enhancements to guarantee the commercial availability of its generation plants and operational insurance policies remain in effect, mechanical failures or accidents could result in periods of commercial unavailability. Significant periods of unavailability of AES Gener s efficient plants as a result of mechanical failure or maintenance (planned or unplanned) would require the Company to meet its contractual obligations by using more expensive back up generation or by purchasing energy on the spot market, both of which could result in higher costs that would adversely affect operating results. In the SIC, the maximum exposure to this risk is limited by variable costs of our back-up facilities. Investment projects The execution of the investment projects being developed by the Company depends on numerous factors, including construction, investment on equipment, skilled labor, financing costs, and the effect of potential delays or difficulties in the regulatory authorization and permitting process, including potential litigation or lawsuits. It should be noted that adequate project development includes making investments related to diverse project areas such as studies, easements, land preparation and construction of roads, among others, before the approval and final execution of the project. 21

22 Currently, generation projects are facing a high opposition from organized groups or communities located next to them. The Company cannot ensure that this opposition will not affect projects under construction. AES Gener, in its interest of being a good neighbor and through its Policy on Ties and Relations with Local Communities, works to be locally respected and to be valued by its good economic, social and environmental performance and by its contribution to the sustainable development to the communities where the Company is inserted. Decoupling risk Given certain transmission restrictions in Chile due to the concentration of energy renewable plants, there may be differences between prices of injection and withdrawal (decoupling), which should be assumed by the generation companies and can, in turn, affect their operating margins. Currently, there are contracts in which this risk cannot be pass-through, although in new contracts with non-regulated customers, clauses to mitigate this risk are being negotiated. REGULATORY RISKS AES Gener, its subsidiaries and related companies are subject to regulation in diverse aspects of their businesses in the countries in which they operate. Regulatory risk is related to potential modifications in existing legislation that could adversely affect the Company s financial results. Regulatory framework As electric generation companies, AES Gener, its subsidiaries and related companies are subject to regulation in diverse aspects of their business. The current regulatory framework, which governs all electricity supply companies, has been in effect in Chile since 1982 and in Colombia since Recently, in Chile there was a regulatory risk associated with the lack of energy supply contracts for distribution companies (distcos.), a situation that was not addressed by the regulation. In January 2015, the Government approved a law modifying the bidding process of distribution companies that incorporates an allocation mechanism for the energy without contract for each operation hour, pro rata of the effective injection from each generator in the same period, at a price determined as the maximum between the short term node price and the variable cost, plus the difference between the price of injection and withdrawal. Additionally, it includes the alternative for certain distcos to transfer a portion of its unused supply to others with lack of contracts, which means that a generation company that signs an agreement with a distco.might end-up supplying another. Furthermore, in early 2014, the Independent Electric Systems Interconnection Law was enacted, with the aim of promoting the SIC-SING interconnection through a 600 kilometers transmission line connecting both systems. The regulation on the repayment mechanism for this project investment is not yet enacted, and therefore the participation of each generator is not defined to date. In the past few years, Colombian authorities have discussed proposals to make certain regulatory changes. Among the most important issues under development are (i) Creation of MOR Organized Market seeking to change contract methodology to centralized bids, with the purpose of eliminating price discrimination between agents and making the market more efficient. On this matter, more clarity regarding participation guarantees and tax aspects are being asked (ii) Law 1715 from 2014 creates the option for renewable energies to be introduced into the market as well as energy surplus sales from self-generators; however, regulations to clarify the entrance of new participants is pending to avoid over-installation and affect the revenues of existing plants. (iii) Under Resolution CREG 206 from 2014, a hydrological crisis such as severe drought conditions will be monitored in order to implement measures to prevent shortages and other negative economic impacts. All potential regulatory changes could affect AES Chivor s results. In Argentina, since 2001, significant modifications have been introduced to the electricity regulatory framework. These modifications include tariff conversion to Argentine Pesos, freezing of tariffs, the cancelation of inflation adjustment other mechanisms and the introduction of a complex pricing system, which have materially affected electricity generators and market agents, and generated substantial price differences within the market. On March 26, 2013, the Argentine government introduced a resolution (Resolution ), which amended the current regulatory framework and is to be applied to electric generation companies with certain exceptions. In accordance with this regulation, a new compensation system, moving from a marginal cost to average cost market, which is based on compensating fixed costs, variable non-fuel costs and an additional margin. On May 20, 2014, the Argentine Government published a new resolution (RES SE 529/14) under which the additional margin to compensate generators is updated. Based on Note 2053, sent by the Ministry of Energy in March 2013, it is understood that TermoAndes units are not affected by the resolution. As a result, the Company does not expect this amendment to have an impact on TermoAndes operations. 22

23 AES Gener cannot guarantee that the laws or regulations in the countries in which it operates or has investments will not be modified or interpreted in a manner which could adversely affect the Company or that governmental authorities will effectively grant any approval requested. AES Gener actively participates in the development of the regulatory framework, submitting comments and proposals to the proposed regulations presented by authorities. Environmental Regulation AES Gener is also subject to environmental regulations, which, among others, require that it perform environmental impact studies for its future projects and obtain regulatory permits. AES Gener cannot guarantee that governmental authorities will effectively grant any environmental approval requested. It should be noted that in June 2011, a new regulation on air emission standards was enacted, which established new emission limits for particulate matter and gases produced of thermoelectric power generation. For existing plants, including those currently under construction, the new limits for particulate matter emission will go into effect by the end of 2013 and the new limits for SO2, NOX and mercury emission will begin to be applied by mid-2016, with the exception of plants that operates in zones declared as latent or saturated, where the limits will go into effect in June In order to comply with the new emission standards, between 2012 and 2015, AES Gener will invest approximately US$251 million, at a consolidated level, in emission reduction equipment in four older coal plants (constructed between 1964 and 1997) and approximately US$110 million in the coal units owned by the equity-method investee Guacolda. Both AES Gener and Guacolda have already executed contracts with equipment suppliers and initiated works in order to comply within the required timeframe. It should be noted that works at AES Gener Group are currently underway, in compliance with current regulation. AES Gener initiated these investments in 2012, and the total investment reached approximately ThUS$202,943 million as of December 31, Additionally, in 2013, Guacolda initiated the installation of emission control equipment at Units I, II and IV, totaling, as of December 31, 2014, an investment of ThUS$113,843. AES Gener s coal plants that initiated operations in recent years (Nueva Ventanas and Ventanas IV in the SIC and Angamos Units I and II in the SING) will not require additional investments. Tax Regulation AES Gener, its subsidiaries and affiliates are subject to existing tax legislation in each country where they operate. Amendments to laws or modification in tax rates may have a direct effect on earnings. In Chile, in September 2014, the new tax reform was passed, which, among others, will gradually increase the first category corporate tax rate from the current 20% to a rate that will depend on the regime chosen considering two alternatives: (i) Attributed Profits Income (API) gradual increase in the rate to 25% in 2017 and (ii) Partially Integrated System (PIS) gradual increase in the rate to 27% in According to a Chilean Securities and Insurance Authority (SVS) resolution, the impact on deferred taxes related to the tax reform will not be registered in the net income, but it will be registered in the equity. Additionally, the tax reform incorporates an emission tax for thermo plants effective from A great portion of the Company s PPAs have clauses that allow to pass-through the costs arising from new laws, which mitigates the negative impact from this new tax. However, the estimated negative impact is near Th$30,000 from 2017 to 2020, and from 2021 the impact decreases gradually reaching cero in In Colombia, on December 23, 2014, the Colombian Government approved a Tax Reform including, among others, an increase in the tax rate in four years of 5% in 2015, 6% in 2016, 8% in 2017 and 9% in 2018, and a wealth tax of 1.15% in 2015, 1% in 2016 and 0.4% in 2017, disappearing in Additionally, a tax on transactions will be maintained until 2018, decreasing to 0.3% in 2019, 0.2% in 2020 and 0.1% in With regard to this tax reform, a negative impact of ThUS$2,900 on deferred taxes was registered in

24 AES GENER AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2014 AND DECEMBER 31, 2013 INTERNATIONAL FINANCIAL REPORTING STANDARDS ASSETS Current Assets THUS$ THUS$ Cash and Cash Equivalents 228, ,516 Other Current Financial Assets 7,205 25,462 Other Current Non-Financial Assets 18,359 15,263 Trade and Other Receivables 348, ,421 Related Party Receivables 3,631 1,680 Inventory 116, ,760 Taxes Receivables 43,794 23,346 Total Current Assets 803,096 1,216,448 Non-Current Assets Other Non-Current Financial Assets 39,429 83,377 Other Non-Current Non-Financial Assets 38,367 40,614 Trade and other Receivables 50,632 1,402 Investments in Associates 343, ,759 Intangible Assets 53,308 48,765 Goodwill 7,309 7,309 Property, Plant and Equipment 5,432,043 4,871,754 Deferred Taxes 69, Total Non-current Assets 6,033,801 5,375,454 TOTAL ASSETS 6,836,897 6,591,902 24

25 AES GENER AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2014 AND DECEMBER 31, 2013 INTERNATIONAL FINANCIAL REPORTING STANDARDS LIABILITIES AND SHAREHOLDERS' EQUITY THUS $ THUS$ Current Liabilities Other Current Financial Liabilities 103, ,135 Trade and Other Payables 495, ,882 Related Party Payables 28,256 17,517 Provisions 3,541 2,624 Taxes Payable 40,451 13,266 Employee Benefits 2,684 1,244 Other Current Non-Financial Liabilities 36,952 38,581 Total Current Liabilities 710, ,249 Current Liabilities Other Non-Current Financial Liabilities 2,869,307 2,425,982 Trade and Other Payables 46,223 55,318 Related Party Payables 158,169 47,019 Provisions 120,741 65,892 Deferred Taxes 522, ,144 Employee Benefits 34,320 36,505 Other Non-Current Non-Financial Liabilities 10,928 14,827 Total Non-Current Liabilities 3,761,689 3,062,687 Net Equity Issued Capital 2,052,076 1,901,720 Retained Earnings (Losses) 358, ,818 Share premium 49,864 49,908 Other Components of Equity 224, ,817 Other Reserves (372,282) (169,907) Total Equity Attributable to Shareholders of Parent 2,312,552 2,543,356 Non-Controlling Interest 51,807 93,610 Total Net Equity 2,364,359 2,636,966 TOTAL LIABILITIES AND EQUITY 6,836,897 6,591,902 25

26 AES GENER AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT FOR THE PERIOD DECEMBER 31, 2014 AND 2013 INTERNATIONAL FINANCIAL REPORTING STANDARDS INCOME STATEMENT 12M M 2013 THUS$ THUS$ Operating Revenue 2,328,406 2,244,790 Cost of Sales (1,792,020) (1,734,711) GROSS PROFIT 536, ,079 Other Operating Revenues 1, Selling, general and administrative Expenses (93,322) (113,366) Other Operating Expenses (1,128) (4,608) Other Income / (Loss) (20,187) 5,239 Financial Income 10,490 8,962 Financial Expense (151,532) (123,906) Equity Participation in Net Income of Associates 38,781 38,526 Foreign Currency Exchange Differences (66,435) (38,856) NET INCOME (LOSS) BEFORE TAXES 254, ,042 Income Tax Income (Expense) (79,546) (84,525) Income (Loss) from Discontinued Activities - - NET INCOME (LOSS) 174, ,517 INCOME ATTRIBUTABLE TO SHAREHOLDERS OF PARENT 183, ,321 Income (Loss) Attributable to Non-Controlling Interests (8,755) (2,804) NET INCOME (LOSS) 174, ,517 26

27 AES GENER AND SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENTS AS OF DECEMBER 31, 2014 AND 2013 INTERNATIONAL FINANCIAL REPORTING STANDARDS CONSOLIDATED CASH FLOW STATEMENT FROM JAN 1, 2014 TO DEC 31, 2014 THUS$ FROM JAN 1, 2013 TO DEC 31, 2013 THUS$ Net Cash Flows provided by (used in) Operating Activities Receipts from Customers 2,783,513 2,886,910 Other Receipts from Operating Activities 52,074 14,851 Payments to Suppliers (1,997,217) (2,240,386) Payments made to Employees (68,819) (69,759) Other Payments for Operating Activities (57,587) (17,296) Payments of Dividends (230,434) (209,932) Receipt of Dividends 736 1,996 Payment of Interests (162,337) (111,475) Receipt of Interests 7,333 8,938 Income Taxes Paid (38,566) (104,018) Other Operating Outflows from Operating Activities (31,065) (19,467) NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES 257, ,362 Net Cash Flows provided by (used in) Investing Activities Loss of Control over a Subsidiary or other business 731,180 - Other Payments to purchase equity (728,000) - Other receipts for sale of equity or debt instruments of other entities 26,019 - Purchase of Non-Controlling Interest - - Proceeds from Sale of Property, Plant and Equipment Purchases of Property, Plant and Equipment (829,489) (531,614) Purchases of Intangible Assets (2,216) (6,139) Purchase of Long Term Assets (73,313) - Other Outflows from Investing Activities 3, NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES (871,786) (536,422) 27

28 AES GENER AND SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENT AS OF DECEMBER 31, 2014 AND 2013 INTERNATIONAL FINANCIAL REPORTING STANDARDS CONSOLIDATED CASH FLOW STATEMENT (CONTINUED) Net Cash Flows provided by (used in) Financing Activities FROM JAN 1, 2014 TO DEC 31, 2014 THUS$ FROM JAN 1, 2013 TO DEC 31, 2013 THUS$ Proceeds from Share Issuance 184, ,695 Proceeds from Long Term Borrowings 1,234, ,619 Proceeds from Short Term Borrowings 700,000 - Repayments on Loans (1,884,001) (32,435) Payments on Financial Leasing Liabilities (2,046) (2,042) Other Inflows (Outflows) of Cash and Cash Equivalent (70,182) (50,636) NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES 162, ,201 INCREASE (DECREASE) IN NET CASH AND CASH EQUIVALENT (451,317) 334,141 Effects of Foreign Exchange Variations on Cash and Cash Equivalents (27,508) (23,829) Increase (Decrease) in Net Cash and Cash Equivalents (478,825) 310,312 Cash and Cash Equivalents at the Beginning of Period 707, ,204 CASH AND CASH EQUIVALENT AT THE END OF PERIOD 228, ,516 28