ABOITIZ POWER CORPORATION. Interim Unaudited Financial Statements with Management Discussion and Analysis for the First Quarter of 2016

Transcription

1 ABOITIZ POWER CORPORATION Interim Unaudited Financial Statements with Management Discussion and Analysis for the First Quarter of 2016

2 Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of Aboitiz Power Corporation s (AP, AboitizPower or the Company) consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying schedules and disclosures set forth elsewhere in this report. Key Performance Indicators Management uses the following indicators to evaluate the performance of the Company and its subsidiaries (the Company and its subsidiaries are hereinafter collectively referred to as the Group ): 1. Share in Net Earnings of Associates and Joint Ventures. It represents the Group's share in the undistributed earnings or losses of its investees for each reporting period subsequent to acquisition of said investment. It also indicates profitability of the investment and investees' contribution to the Group's net income. Manner of Computation: Investee's Net Income (Loss) x Investor's % ownership - Goodwill Impairment Cost 2. Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA). The Company computes EBITDA as earnings before extra-ordinary items, net finance expense, income tax provision, depreciation and amortization. It provides management and investors with a tool for determining the ability of the Group to generate cash from operations to cover financial charges and income taxes. It is also a measure to evaluate the Group s ability to service its debts. 3. Cash Flow Generated. Using the Statement of Cash Flows, management determines the sources and usage of funds for the period and analyzes how the Group manages its profit and uses its internal and external sources of capital. This aids management in identifying the impact on cash flow when the Group's activities are in a state of growth or decline, and in evaluating management's efforts to control the impact. 4. Current Ratio. Current ratio is a measurement of liquidity, calculated by dividing total current assets by total current liabilities. It is an indicator of the Group's short-term debt paying ability. The higher the ratio, the more liquid the Group. 5. Debt to Equity Ratio. Debt-to-Equity ratio gives an indication of how leveraged the Group is. It compares assets provided by creditors to assets provided by shareholders. It is determined by dividing total debt by stockholders' equity.

3 The table below shows the comparative figures of the top five key performance indicators for the first three months of 2016 and 2015, and as of December 31, 2015: MAR 2016 MAR 2015 DEC 2015 SHARE IN NET EARNINGS OF ASSOCIATES AND JOINT VENTURES 897, ,188 EBITDA 9,239,460 8,189,487 CASH FLOW GENERATED: Net cash flows from operating activities 9,071,320 11,609,776 Net cash flows used in investing activities (6,173,603) (2,846,030) Net cash flows from ( used in) financing activities 13,108,169 (1,601,384) Net increase in cash & cash equivalents 16,005,598 7,162,362 Cash & cash equivalents, beginning 51,098,269 40,231,875 Cash & cash equivalents, end 67,039,999 47,391,488 CURRENT RATIO DEBT-TO-EQUITY RATIO Share in net earnings of associates and joint ventures increased by 23% or by P170 million (mn). The increase is mainly a result of higher income contributions from SN Aboitiz Power Benguet, Inc. (SNAP Benguet) and SN Aboitiz Power Magat, Inc. (SNAP Magat) due to higher sales volume as they started the year at higher water elevations. Both companies also managed to recognize higher ancillary revenues in the first quarter. Consolidated EBITDA continues to be strong leading to significant cash flows from operating activities. Cash was used to fund ongoing projects and working capital requirements of subsidiaries mainly from the cash generated from the Group s operations. Higher level of project loan availments increased cash flows from financing activities. Current ratio went from 3.12x at the end of 2015 to 2.33 x at the end of the first quarter of 2016 as Trade and other payables increased total current liabilities. This is due to the recognition of dividends payable after the Board of Directors approved the declaration of cash dividends in March The increase in the Group s total liabilities led to the movement in debt to equity ratio to 1.82 as of March 31, 2016 from 1.39 as of December 31, Results of Operations The Company recorded consolidated net income of P 5.02 billion (bn), a 15% increase versus the same period last year. The Company s core net income for the period amounted to P 4.77 bn after adjusting for the effects of non-recurring gains of P 242 mn from the revaluation of consolidated dollar-denominated assets and liabilities. 2

4 Power Generation For the first quarter of 2016, the power generation business recorded an income contribution of P4.19 bn, a 17% increase compared to the same period last year. When adjusted for non-recurring items, the group registered a 10% year-on-year (YoY) increase in its core net income, from P3.56 bn to P 3.93 bn. The power generation group s average selling price decreased by 14% YoY for the period in review as the fuel pass through component in the group s selling price on its bilateral contracts continued to decline. On the other hand, the average rate for ancillary services remain unchanged. Capacity sales for the first quarter of 2016 registered a 12% increase from 1,804 MW to 2,014 MW. This increase comes from the additional capacities from Therma South, Inc. (TSI), which declared full commercial operations last February 2, SN Aboitiz Power (SNAP) Business Units had higher available capacities as they started the year at higher water elevations. Consequently, attributable energy sold rose by 22% YoY, from 2,828 GWh to 3,451 GWh. Bilateral sales made up 91% of the total volume sold, which expanded by 29% to 3,157 GWh. Spot sales decreased by 23% YoY from 380 GWh to 294 GWh. Power Distribution For the period in review, the power distribution group registered a 5% increase YoY in its earnings contribution, from P812 mn to P851 mn. The group s attributable electricity sales for the quarter increased by 8% to 1,201 GWh from 1,111 GWh a year ago. It was observed that the growth in sales was driven by higher electricity sales across all customer segments, with residential, commercial, and industrial sales registering YoY growth of 11%, 11%, and 6% respectively. The power distribution group s year-to-date gross margin on a per kwh basis declined to P1.46 from P1.51 a year ago. Material Changes in Line Items of Registrant s Statements of Income and Comprehensive Income Consolidated Statements of Income The various movements in the revenue and expense line items leading to the Consolidated Net Income Attributable to Equity Holders of the Parent of P 5.02 bn are shown below: Consolidated Net Income Attributable to Equity Holders of the Parent (January March 2015) P 4,346,577 Increase in operating revenues 660,585 Increase in operating expenses -389,948 Increase in interest income Increase in interest expense -341,707 Increase in share in net earnings of associates and joint ventures 170,132 Increase in other income Lower provision for taxes 74,286 Increase in income attributable to non-controlling interests -53,735 Total 669,655 Consolidated Net Income Attributable to Equity Holders of the Parent (January March 2016) P 5,016,232 3

5 Operating Revenues (3% increase from P20.70 bn to P21.36 bn) Higher electricity sales particularly at the larger distribution utilities, Davao Light & Power Company, Inc. (Davao Light) and Visayan Electric Company, Inc. (VECO), resulted to an increase in operating revenues for the group. The start of commercial operations in the first quarter for TSI also accounts for the increase in the Company s operating revenues. Operating Expenses (3% increase from P14.51 bn to P14.90 bn) Consolidated operating expenses slightly increased by P390 mn as the Company recognized the operating expenses for the first period of operations of TSI. Interest Income (26% increase from P218 mn to P275 mn) Increase is mainly due to higher average cash and cash equivalent balances for the first quarter 2016 as compared to the same period last year. Interest Expense and other financing costs (20% increase from P1.73 bn to P2.08 bn) The increase is mainly due to interest expenses recognized at TSI. Share in Net Earnings of Associates and Joint Ventures (23% increase from P727 mn to P897 mn) Higher water elevations at the start of the year increased capacities available at the two large hydro power plants, SNAP Magat and SNAP Benguet, increasing volumes sold. The higher contributions from the two large hydro companies was further augmented by higher contributions from STEAG State Power Inc. (STEAG). Other Income (Expenses) - net (174% increase from P283 mn to P776 mn) The increase is mainly due to unrealized foreign exchange gain recognized in the first quarter of This comes from the restatement of Therma Luzon Inc. (TLI) s dollar denominated debt on its monthly obligations to the Power Sector Assets and Liabilities Management Corporation (accounted as a finance lease obligation), net of unrealized loss on forward contracts. Provision for Taxes (7% decrease from P 1.06 bn to P 984 mn) Lower tax provisions at certain subsidiaries lead to the decrease in this line item. 4

6 Net Income Attributable to Non-controlling Interests (19% increase from P279 mn to P 333 mn) Higher net income contributed by VECO for the reporting period led to higher Net Income Attributable to Non-controlling interests. Consolidated Statements of Comprehensive Income Consolidated comprehensive income attributable to equity holders of the parent increased from P 4.32 bn in the first three months of 2015 to P 4.94 bn for the same period in The increase is mainly due to the increase in consolidated net income recognized during the period. Changes in Registrant s Resources, Liabilities and Shareholders Equity Assets Total assets were at P bn as of March 31, 2016, an increase of P23.24 bn or 10% from end The changes in the following line items account for the increase: a) Internally generated cash from operations and proceeds from a loan draw down of a subsidiary led to the 31% increase in Cash and cash equivalents (from P51.10 bn in 2015 to P67.04 bn as of March 2016). b) The recognition of fresh trade and other receivables at newly operational TSI, increased this account by 15% (from P13.69 bn in 2015 to P15.74 bn as of March 2016). c) Inventories increased by 7% (from P2.04 bn in 2015 to P2.19 bn as of March 2016) resulting from new inventories held at TSI and an increase of inventories at Davao Light. d) Other current assets increased by 15% (from to P3.39 bn in 2015 to P3.89 bn as of March 2016). The increase is mainly due to higher prepayments made during the period and the accumulation of input VAT during construction. e) Property, plant and equipment increased by 4% or P4.97 bn as the Company entered the final stages of the construction of its coal plant in Davao under TSI and continues to invest into the construction of its Pagbilao 3 and Cebu coal-fired plants, and small hydroelectric plants. f) Derivative assets (current and noncurrent portions) declined by P381 mn mainly due to unrealized mark-to-market losses recognized on outstanding hedging instruments during the current period. g) Net pension assets decreased by 33% as accrual of defined benefit expenses are taken up during the current period. h) Deferred income tax assets (DTA) decreased by 35% (from P585 mn in 2015 to P383 mn as of March 2016) to account for the unrealized FOREX gain at a subsidiary. 5

7 Liabilities Consolidated liabilities increased by 22% from P bn as of December 31, 2015 to P bn as of March 31, Equity a) Bank loans outstanding as of March 31, 2016 was 8% lower at P2.36 bn as certain subsidiaries made scheduled loan payments in the first quarter. b) Trade and other payables increased by 106% (from P14.14 bn to P29.18 bn as of March 2016) mainly due to the recognition of dividends payable after the Company s Board of Directors approved the declaration of cash dividends in March 2016 and the initial recognition of TSI s trade and other payables. c) Income tax payable increased by 83% (from P852 mn in 2015 to P1.56 bn as of March 2016) primarily due to higher tax payables of TLI, Therma Mobile, Inc. and VECO. d) Long term debt (current and noncurrent portions) increased by 28% mainly from the recent availment of AP Renewables, Inc. (APRI) of a P12.5 bn loan from three financial institutions. e) Deferred income tax liabilities increased by 6% (P1.13 bn in 2015 to P1.20 mn as of March 2016) unrealized foreign exchange gain on a derivative contract. Equity attributable to equity shareholders of the parent decreased by 7% (from P97.57 bn in 2015 to P90.29 bn as of March 2016) after the declaration of dividends in March 2016, net of the take up of the income during the period. Material Changes in Liquidity and Cash Reserves of Registrant Cash generated from the Group s operations continue to be the main cash generating activity as it brought in P9.07 bn year to date. The cash generated from operations for the period was further augmented by fresh cash generated by the newly started operations of TSI. The bulk of the Group s net cash used in investing activities totaling P6.17 bn, continue to be spent on capital expenditures as the construction for various thermal and hydro plants continue to progress. The Company realized significant proceeds from the availment of long term debt at APRI as well as continued drawdowns on loans put in place to fund the construction of various projects. These lead to an increase in Cash flows from financing activities. For the period, the cash flows from financing activities was P13.11 bn. As of March 31, 2015, the Group s cash and cash equivalents increased from P51.10 bn as of yearend 2015 to P67.04 bn. Financial Ratios The increase in current liabilities as a result of the recognition of dividends payable drove the change in current ratio from 3.12x to 2.33x as of the end of the first quarter

8 Consolidated debt to equity ratio remains to be comfortable at 1.82x as of March 31, 2016 (versus year end 2015 s 1.39x). The increase is mainly due to an increase in consolidated debt. 7

9 Aboitiz Power Corporation and Subsidiaries Unaudited Consolidated Financial Statements As of March 31, 2016 (with Comparative Figures as of December 31, 2015) and For the Three-Month Period Ended March 31, 2016 and 2015

10 ABOITIZ POWER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Thousands) ASSETS March 31, 2016 (Unaudited) December 31, 2015 (Audited) Current Assets Cash and cash equivalents P=67,039,999 P=51,098,269 Trade and other receivables 15,736,266 13,692,393 Derivative assets 94, ,283 Inventories 2,185,791 2,040,603 Other current assets 3,890,836 3,392,473 Total Current Assets 88,947,102 70,409,021 Noncurrent Assets Investments and advances 22,499,166 22,551,845 Property, plant and equipment 139,775, ,810,627 Intangible asset - service concession rights 3,161,093 3,226,536 Investment properties 3,300 3,300 Derivative assets - net of current portion 87, ,083 Available-for-sale (AFS) investments - net of allowance for impairment of P=5,254 3,620 3,620 Goodwill 1,094,687 1,094,687 Net pension assets 23,418 34,777 Deferred income tax assets 382, ,879 Other noncurrent assets 9,745,834 9,391,871 Total Noncurrent Assets 176,777, ,080,225 TOTAL ASSETS P=265,724,683 P=242,489,246 LIABILITIES AND EQUITY Current Liabilities Bank loans P=2,364,000 P=2,568,000 Current portions of: Long-term debts 2,365,339 2,368,161 Finance lease obligation 2,583,754 2,583,754 Long-term obligation on power distribution system 40,000 40,000 Trade and other payables 29,175,721 14,140,576 Derivative liabilities 18,393 Income tax payable 1,559, ,709 Total Current Liabilities 38,106,305 22,553,200 (Forward)

11 - 2 - March 31, 2016 (Unaudited) December 31, 2015 (Audited) Noncurrent Liabilities Noncurrent portions of: Long-term debts P=72,132,453 P=56,006,863 Finance lease obligation 49,837,412 51,085,100 Long-term obligation on power distribution system 214, ,184 Customers deposits 6,447,453 6,383,278 Asset retirement obligation 3,040,690 3,016,528 Net pension liabilities 502, ,848 Deferred income tax liabilities 1,197,675 1,130,678 Total Noncurrent Liabilities 133,373, ,322,479 Total Liabilities 171,479, ,875,679 Equity Attributable to Equity Holders of the Parent Capital stock 7,358,604 7,358,604 Additional paid-in capital 12,588,894 12,588,894 Share in net unrealized valuation gains on AFS investments of an associate 114, ,920 Cumulative translation adjustments 67, ,431 Share in cumulative translation adjustments of associates and joint ventures (216,797) (256,376) Actuarial losses on defined benefit plans (609,143) (609,066) Share in actuarial losses on defined benefit plans of associates and joint ventures (3,748) (3,748) Acquisition of non-controlling interests (259,147) (259,147) Excess of cost over net assets of investments (421,260) (421,260) Retained earnings Appropriated 20,900,000 20,900,000 Unappropriated 50,771,218 57,970,269 90,291,074 97,568,521 Non-controlling Interests 3,954,112 4,045,046 Total Equity 94,245, ,613,567 TOTAL LIABILITIES AND EQUITY P=265,724,683 P=242,489,246

12 ABOITIZ POWER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Amounts in Thousands, Except Earnings Per Share Amounts) (Unaudited) For the three months ended March OPERATING REVENUES P= 21,362,228 P=20,701,643 OPERATING EXPENSES 14,902,125 14,512,177 FINANCIAL INCOME (EXPENSES) Interest income 275, ,262 Interest expense and other financing costs (2,076,584) (1,734,877) (1,801,325) (1,516,615) OTHER INCOME (EXPENSES) Share in net earnings of associates and joint ventures 897, ,188 Other income (expenses) - net 776, ,130 1,673,495 1,010,318 INCOME BEFORE INCOME TAX 6,332,273 5,683,169 PROVISION FOR INCOME TAX 983,538 1,057,824 NET INCOME P=5,348,735 P=4,625,345 Attributable to: Equity holders of the parent P=5,016,232 P=4,346,577 Non-controlling interests 332, ,768 P=5,348,735 P=4,625,345 EARNINGS PER COMMON SHARE Basic and diluted, income for the period attributable to ordinary equity holders of the parent P=0.68 P=0.59 See Note I for the computation of Earnings per Common Share.

13 ABOITIZ POWER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in Thousands) (Unaudited) For the three months ended March NET INCOME ATTRIBUTABLE TO: Equity holders of the parent P=5,016,232 P=4,346,577 Non-controlling interests 332, ,768 5,348,735 4,625,345 OTHER COMPREHENSIVE INCOME Other comprehensive income that may be reclassified to profit or loss in subsequent periods: Movement in cumulative translation adjustments (117,898) (29,470) Share in movement in cumulative translation adjustment of associates and joint ventures 39,579 Net other comprehensive income to be reclassified to profit or loss in subsequent periods (78,319) (29,470) Other comprehensive income that will not be reclassified to profit or loss in subsequent periods: Actuarial losses on defined benefit plans, net of tax (77) Total other comprehensive loss, net of tax (78,396) (29,470) TOTAL COMPREHENSIVE INCOME P=5,270,339 P=4,595,875 Attributable to: Equity holders of the parent P=4,937,836 P=4,317,107 Non-controlling interests 332, ,768 P=5,270,339 P=4,595,875

14 ABOITIZ POWER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE PERIODS ENDED MARCH 31, 2016, DECEMBER 31, 2015 AND MARCH 31, 2015 (Amounts in Thousands, Except Dividends Per Share Amounts) (Unaudited) Attributable to Equity Holders of the Parent Share in Net Unrealized Valuation Gains on AFS Movement in Cumulative Share in Cumulative Translation Adjustments of Associates Actuarial Losses on Share in Actuarial Losses on Defined Benefit Plans of Associates Acquisition of Excess of cost Retained Earnings Capital Stock Additional Paid-in Capital Investments of an Associate Translation Adjustments and Joint Ventures Defined Benefit Plans and Joint Ventures Non-controlling Interests over net assets of investment Appropriated Unappropriated Non-controlling Interests Total Balances at January 1, 2016 P=7,358,604 P=12,588,894 P=114,920 P=185,431 (P=256,376) (P=609,066) (P=3,748) (P=259,147) (P=421,260) P=20,900,000 P=57,970,269 P=4,045,046 P=101,613,567 Net income for the year 5,016, ,503 5,348,735 Other comprehensive income (117,898) 39,579 (77) (78,396) Total comprehensive income (loss) for the year (117,898) 39,579 (77) 5,016, ,503 5,270,339 Cash dividends - P=1.66 a share (12,215,283) (12,215,283) Cash dividends paid to noncontrolling interests (423,432) (423,432) Change in non-controlling interests (5) (5) Balances at March 31, 2016 P=7,358,604 P=12,588,894 P=114,920 P=67,533 (P=216,797) (P=609,143) (P=3,748) (P=259,147) (P=421,260) P=20,900,000 P=50,771,218 P=3,954,112 P=94,245,186 Balances at January 1, 2015 P=7,358,604 P=12,588,894 P=119,087 P=38,091 (P=375,489) (P=519,854) (P=48,589) (P=259,147) (P=421,260) P=20,900,000 P=52,581,755 P=4,118,348 P=96,080,440 Net income for the year 4,346, ,768 4,625,345 Other comprehensive income (29,470) (29,470) Total comprehensive income (loss) for the year (29,470) 4,346, ,768 4,595,875 Cash dividends - P=1.66 a share (12,215,283) (12,215,283) Cash dividends paid to noncontrolling interests (499,213) (499,213) Change in non-controlling interests (3) (3) Balances at March 31, 2015 P=7,358,604 P=12,588,894 P=119,087 P=8,621 (P=375,489) (P=519,854) (P=48,589) (P=259,147) (P=421,260) P=20,900,000 P=44,713,049 P=3,897,900 P=87,961,816 (Forward)

15 - 2 - Attributable to Equity Holders of the Parent Share in Net Unrealized Valuation Gains on AFS Movement in Cumulative Share in Cumulative Translation Adjustments of Associates Actuarial Losses on Share in Actuarial Losses on Defined Benefit Plans of Associates Acquisition of Excess of cost Retained Earnings Capital Stock Additional Paid-in Capital Investments of an Associate Translation Adjustments and Joint Ventures Defined Benefit Plans and Joint Ventures Non-controlling Interests over net assets of investment Appropriated Unappropriated Non-controlling Interests Total Balances at January 1, 2015 P=7,358,604 P=12,588,894 P=119,087 P=38,091 (P=375,489) (P=519,854) (P=48,589) (P=259,147) (P=421,260) P=20,900,000 P=52,581,755 P=4,118,348 P=96,080,440 Net income for the year 17,603,797 1,348,854 18,952,651 Other comprehensive income (4,167) 147, ,113 (89,212) 44,841 8, ,922 Total comprehensive income (loss) for the year (4,167) 147, ,113 (89,212) 44,841 17,603,797 1,356,861 19,178,573 Cash dividends - P=1.66 a share (12,215,283) (12,215,283) Cash dividends paid to noncontrolling interests (1,278,953) (1,278,953) Change in non-controlling interests (151,210) (151,210) Balances at December 31, 2015 P=7,358,604 P=12,588,894 P=114,920 P=185,431 (P=256,376) (P=609,066) (P=3,748) (P=259,147) (P=421,260) P=20,900,000 P=57,970,269 P=4,045,046 P=101,613,567

16 ABOITIZ POWER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) (Unaudited) For the three months ended March CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=6,332,273 P=5,683,169 Adjustments for: Interest expense and other financing costs 2,076,584 1,734,877 Depreciation and amortization 1,410,338 1,007,597 Net unrealized foreign exchange gains (510,386) (12,123) Write-off of project costs and others 228 Unrealized fair valuation gain on derivatives 264,769 Loss (gain) on sale of property, plant and equipment (321) 181 Interest income (275,259) (218,262) Share in net earnings of associates and joint ventures (897,320) (727,188) Operating income before working capital changes 8,400,678 7,468,479 Decrease (increase) in operating assets (1,647,049) 1,911,962 Increase in operating liabilities 2,585,003 2,376,880 Cash provided by operations 9,338,632 11,757,321 Income and final taxes paid (267,600) (147,545) Net cash flows from operating activities 9,071,032 11,609,776 CASH FLOWS FROM INVESTING ACTIVITIES Cash dividends received 516,000 35,965 Interest received 192, ,324 Additions to property, plant and equipment (6,320,521) (2,645,341) Additions to intangible assets service concession rights (16,861) (6,795) Additional investments (426,422) Increase in other noncurrent assets (117,936) (378,183) Net cash flows used in investing activities (6,173,603) (2,846,030) CASH FLOWS FROM FINANCING ACTIVITIES Net availments (payments) of bank loans (204,000) 317,000 Net proceeds from availment of long-term debt 16,390, ,000 Payments of finance lease obligation (2,139,488) (1,996,232) Changes in non-controlling interests (423,432) (499,213) Interest paid (515,233) (145,939) Net cash flows from (used in) financing activities 13,108,169 (1,601,384) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 16,005,598 7,162,362 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (63,868) (2,749) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 51,098,269 40,231,875 CASH AND CASH EQUIVALENTS ATEND OF THE PERIOD P=67,039,999 P=47,391,488

17 - 9 - ABOITIZ POWER CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS SCHEDULES AND DISCLOSURES (Amounts in Thousands, Except Earnings per Share and Exchange Rate Data and When Otherwise Indicated) A. Components of Other Comprehensive Income Jan-Mar 2016 Jan-Mar 2015 Share in movement in cumulative translation adjustments of associates and joint ventures P=39,579 P= Movement in cumulative translation adjustments (117,898) (29,470) Actuarial losses on defined benefit plans (77) Other comprehensive loss for the period net of tax (P=78,396) (P=29,470) B. Tax Effects Relating to Each Component of Other Comprehensive Income Jan-Mar 2016 Before-Tax Tax (Expense) Net-of-Tax Amount Benefit Amount Share in movement in cumulative translation adjustments of associates and joint ventures P=39,579 P= P=39,579 Movement in cumulative translation adjustments (117,898) (117,898) Actuarial losses on defined benefit plans (77) (77) Other comprehensive loss for the period (P=78,396) P= (P=78,396) Jan-Mar 2015 Before-Tax Tax (Expense) Net-of-Tax Amount Benefit Amount Movement in cumulative translation adjustments (P=29,470) P= (P=29,470) Other comprehensive loss for the period (P=29,470) P= (P=29,470) C. Investments and Advances The Group s associates and joint ventures and the corresponding equity ownership are as follows: % Ownership Nature of Business March 31, 2016 Manila-Oslo Renewable Enterprise, Inc. (MORE) 1 Holding company Maaraw Holdings San Carlos, Inc. (MHSCI) 1 Holding company East Asia Utilities Corporation (EAUC) Power generation Hijos de F. Escaño, Inc. Holding company San Fernando Electric Light & Power Co., Inc. (SFELAPCO) Power distribution Pampanga Energy Ventures, Inc. Holding company La Filipina Elektrika, Inc. Power generation San Carlos Sun Power, Inc. (SACASUN) 1 Power generation STEAG State Power, Inc. (STEAG) Power generation AEV Aviation, Inc. (AAI) Service Cebu Energy Development Corporation (CEDC) Power generation Redondo Peninsula Energy, Inc. (RPEI) Power generation Southern Philippines Power Corporation (SPPC) Power generation Western Mindanao Power Corporation (WMPC) Power generation Joint ventures.

18 March 31, 2016 December 31, 2015 Acquisition cost: Balance at beginning of the year P=15,892,748 P=18,118,354 Additions during the year 426, ,598 Redemptions during the year (2,677,204) Balance at end of year 16,319,170 15,892,748 Accumulated equity in net earnings: Balance at beginning of the year 7,340,367 7,253,461 Share in net earnings 897,320 3,979,947 Dividends received or receivable (1,416,000) (3,893,041) Balance at end of year 6,821,687 7,340,367 Share in net unrealized valuation gains on AFS investment of an associate 114, ,920 Share in actuarial losses on defined benefit plans of associates and joint ventures (3,748) (3,748) Share in cumulative translation adjustments of associates and joint ventures (216,797) (256,376) 23,035,232 23,087,911 Less allowance for impairment losses 568, ,125 Investments at equity 22,467,107 22,519,786 Advances 32,059 32,059 P=22,499,166 P=22,551,845 D. Joint Operations Percentage of Ownership Name of Joint Operation Nature of Business March 31, 2016 Pagbilao Energy Corporation (PEC) Power generation * PEC s principal place of business and country of incorporation is the Philippines; No commercial operations as of March 31, The Group s share of assets, liabilities, revenue, expenses and cash flows of joint operations are included in the consolidated financial statements on a line-by-line basis. E. Trade and Other Payables March 31, 2016 December 31, 2015 Trade payables P=6,231,576 P=6,459,867 Dividends payable 12,215, ,895 Others 10,728,862 7,567,814 P=29,175,721 P=14,140,576 Trade payables are non-interest bearing and generally on 30-day terms. Others include nontrade payables, amounts due to contractors, accrued taxes and fees, withholding taxes and other accrued expenses and are generally payable within 12 months from the balance sheet date.

19 F. Bank Loans Interest Rate March 31, 2016 December 31, 2015 Peso loans financial institutions - unsecured 2.50% % P=2,364,000 P=2,568,000 G. Long-term Debts Interest Rate March 31, 2016 December 31, 2015 Company Bonds due % P=6,600,000 P=6,600,000 Bonds due % 3,400,000 3,400,000 10,000,000 10,000,000 Subsidiaries: TSI Financial institution - secured 4.50% % 25,083,407 25,083,407 APRI Financial institution - secured 4.53% % 12,500,000 TVI Financial institution - secured 6.02% % 11,542,000 8,673,999 Hedcor Bukidnon Financial institutions - secured 2.00% % 3,215,247 3,215,247 VECO Financial institution - unsecured 3.50% % 1,584,000 1,584,000 LHC Financial institutions - secured 2.00% % 1,527,223 1,560,039 DLP Financial institution - unsecured 3.50% % 1,188,000 1,188,000 HI Financial institution - secured 5.25% 693, ,000 SEZ Financial institution - unsecured 5.61% % 339, ,000 CLP Financial institution - unsecured 3.50% % 237, ,600 Joint operation (see Note D) Financial institution - secured 4.70% % 8,023,500 6,973,502 65,932,977 49,574,794 75,932,977 59,574,794 Less deferred financing costs 1,435,185 1,199,770 74,497,792 58,375,024 Less current portion - net of deferred financing costs 2,365,339 2,368,161 P=72,132,453 P=56,006,863 H. Debt Securities The Company registered and issued P=10 billion worth of peso denominated fixed rate retail bonds on September 10, 2014 under the following terms: MATURITY INTEREST RATE AMOUNT 12-year bonds to mature on September 10, %/p.a. P=3,400, year bonds to mature on September 10, %/p.a. P=6,600,000

20 I. Earnings Per Common Share Earnings per common share amounts were computed as follows: Jan-Mar 2016 Jan-Mar 2015 a. Net income attributable to equity holders of the parent P=5,016,232 P=4,346,577 b. Weighted average number of common shares issued and outstanding 7,358,604,307 7,358,604,307 Earnings per common share (a/b) P=0.68 P=0.59 There are no dilutive potential common shares as of March 31, 2016 and J. Operating Segment Information Operating segments are components of the Group that engage in business activities from which they may earn revenues and incur expenses, whose operating results are regularly reviewed by the Group s Chief Operating Decision Maker (CODM) to make decisions about how resources are to be allocated to the segment and assess their performances, and for which discrete financial information is available. For purposes of management reporting, the Group s operating businesses are organized and managed separately according to services provided, with each segment representing a strategic business segment. The Group s identified operating segments, which are consistent with the segments reported to the Board of Directors (BOD), which is the Group s CODM, are as follows: Power Generation segment, which is engaged in the generation and supply of power to various customers under power supply contracts, ancillary service procurement agreements and for trading in WESM; Power Distribution segment, which is engaged in the distribution and sale of electricity to the end-users; and Parent Company and Others, which includes the operations of the Company, retail electricity sales to various off takers that are considered to be eligible contestable customers and electricity related services of the Group such as installation of electrical equipment. The Group has only one geographical segment as all of its assets are located in the Philippines. The Group operates and derives principally all of its revenue from domestic operations. Thus, geographical business information is not required. Management monitors the operating results of its segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment revenue and segment expenses are measured in accordance with PFRS. The presentation and classification of segment revenue and segment expenses are consistent with the consolidated statement of income. Interest expense and financing charges, depreciation and amortization expense and income taxes are managed on a per segment basis. The Group has inter-segment revenues in the form of management fees as well as inter-segment sales of electricity which are eliminated in consolidation. The transfers are accounted for at competitive market prices on an arm s-length transaction basis. Segment assets do not include deferred income tax assets, pension asset and other noncurrent assets. Segment liabilities do

21 not include deferred income tax liabilities, income tax payable and pension liability. Adjustments as shown below include items not presented as part of segment assets and liabilities. Revenue is recognized to the extent that it is probable that economic benefits will flow to the Group, and that the revenue can be reliably measured. Financial information on the operations of the various business segments are summarized as follows: March 31, 2016 Power Generation Power Distribution Parent Company/ Others Eliminations and Adjustments Consolidated REVENUE External P=8,798,715 P=10,308,219 P=2,255,294 P= P=21,362,228 Inter-segment 3,383, ,944 (4,101,839) Total Revenue P=12,182,610 P=10,308,219 P=2,973,238 (4,101,839) P=21,362,228 Segment Results P=5,130,986 P=1,158,099 P=171,018 P= P=6,460,103 Unallocated corporate income - net 571, ,972 (14,823) 776,175 INCOME FROM OPERATIONS 5,702,012 1,378, ,195 7,236,278 Interest expense (1,869,273) (52,694) (154,617) (2,076,584) Interest income 169,608 6,372 99, ,259 Share in net earnings of associates and joint ventures 869,422 27,152 5,042,977 (5,042,231) 897,320 Provision for income tax (584,717) (345,122) (53,699) (983,538) NET INCOME P=4,287,052 P=1,013,779 P=5,090,135 (P=5,042,231) P=5,348,735 OTHER INFORMATION Investments P=21,228,428 P=918,940 P=109,479,315 (P=109,159,576) P=22,467,107 Segment Assets P=226,690,387 P=23,130,309 P=127,453,097 (P=111,549,110) P=265,724,683 Segment Liabilities P=130,147,939 P=15,496,820 P=36,713,494 (P=10,878,756) P=171,479,497 Depreciation and Amortization P=1,194,674 P=184,247 P=5,138 P= 26,279 P=1,410,338 March 31, 2015 Power Generation Power Distribution Parent Company/ Others Eliminations and Adjustments Consolidated REVENUE External P=8,434,974 P=9,704,724 P=2,561,945 P= P=20,701,643 Inter-segment 3,047, ,932 (3,643,173) Total Revenue P=11,482,215 P=9,704,724 P=3,157,877 (3,643,173) P=20,701,643 Segment Results P=5,036,378 P=1,065,313 P=87,775 P= P=6,189,466 Unallocated corporate income - net 92, ,868 (1,993) 283,130 INCOME FROM OPERATIONS 5,128,633 1,258,181 85,782 6,472,596 Interest expense (1,539,735) (54,193) (140,949) (1,734,877) Interest income 74,272 6, , ,262 Share in net earnings of associates and joint ventures 708,034 19,218 4,384,730 (4,384,794) 727,188 Provision for income tax (682,445) (320,279) (55,100) (1,057,824) NET INCOME P=3,688,759 P=909,496 P=4,411,884 (P=4,384,794) P=4,625,345 OTHER INFORMATION Investments P=24,000,670 P=840,850 P=96,160,232 (P=95,811,830) P=25,189,922 Segment Assets P=179,558,732 P=20,635,255 P=122,437,218 (P=97,878,726) P=224,752,479 Segment Liabilities P=94,965,962 P=14,495,376 P=39,247,112 (P=11,917,787) P=136,790,663 Depreciation and Amortization P=817,913 P=157,731 P=5,674 P=26,279 P=1,007,597

22 K. Financial Risk Management Objectives and Policies The Group s principal financial instruments comprise cash and cash equivalents and long-term debts. The main purpose of these financial instruments is to raise finances for the Group s operations. The Group has various other financial instruments such as trade and other receivables, AFS investments, bank loans, trade and other payables, finance lease obligation, long-term obligation on power distribution system and customers deposits, which generally arise directly from its operations. The Group also enters into derivative transactions, particularly foreign currency forwards, to economically hedge its foreign currency risk from foreign currency denominated liabilities and purchases. Risk Management Structure The BOD is mainly responsible for the overall risk management approach and for the approval of risk strategies and principles of the Group. Financial risk committee The Financial Risk Committee has the overall responsibility for the development of risk strategies, principles, frameworks, policies and limits. It establishes a forum of discussion of the Group s approach to risk issues in order to make relevant decisions. Treasury service group The Treasury Service Group is responsible for the comprehensive monitoring, evaluating and analyzing of the Group s risks in line with the policies and limits. The main risks arising from the Group s financial instruments are interest rate risk resulting from movements in interest rates that may have an impact on outstanding long-term debt; credit risk involving possible exposure to counter-party default on its cash and cash equivalents, AFS investments and trade and other receivables; liquidity risk in terms of the proper matching of the type of financing required for specific investments; and foreign exchange risk in terms of foreign exchange fluctuations that may significantly affect its foreign currency denominated placements and borrowings. Liquidity risk Liquidity risk is the risk of not meeting obligations as they become due because of the inability to liquidate assets or obtain adequate funding.the Group maintains sufficient cash and cash equivalents to finance its operations. Any excess cash is invested in short-term money market placements. These placements are maintained to meet maturing obligations and pay any dividend declarations. In managing its long-term financial requirements, the Group s policy is that not more than 25% of long-term borrowings should mature in any twelve-month period % of the Group s debt will mature in less than one year as of March 31, 2016 (December 31, 2015: 4.18%). For its shortterm funding, the Group s policy is to ensure that there are sufficient working capital inflows to match repayments of short-term debt. The financial assets that will be principally used to settle the financial liabilities presented in the following table are from cash and cash equivalents and trade and other receivables. Cash and

23 cash equivalents can be withdrawn anytime while trade and other receivables are expected to be collected/realized within one year. The following tables summarize the maturity profile of the Group s financial liabilities as of March 31, 2016 based on contractual undiscounted principal payments: Total carrying Contractual undiscounted principal payments value Total On demand <1 year 1 to 5 years > 5 years Trade and other payables P=13,239,148 P=13,239,148 P= 1,532 P=13,237,616 P= P= Customers deposits 6,447,453 6,447,453 28,283 6,419,170 Bank loans 2,364,000 2,364,000 2,364,000 Finance lease obligation 52,421,166 85,415,560 7,760,775 34,288,515 43,366,270 Long-term obligation on power distribution system 254, ,000 40, , ,000 Long-term debts 74,497,792 75,932,977 2,382,280 17,001,257 56,549,440 Derivative liabilities 18,393 18,393 18,393 P=149,242,652 P=183,897,531 P=1,532 P=25,803,064 P=51,518,055 P=106,574,880 Market Risk The risk of loss, immediate or over time, due to adverse fluctuations in the price or market value of instruments, products, and transactions in the Group s overall portfolio (whether on or offbalance sheet) is market risk. These are influenced by foreign and domestic interest rates, foreign exchange rates and gross domestic product growth. Interest rate risk The Group s exposure to market risk for changes in interest rates relates primarily to its longterm debt obligations. To manage this risk, the Group determines the mix of its debt portfolio as a function of the level of current interest rates, the required tenor of the loan, and the general use of the proceeds of its various fund raising activities. As of March , 2% of the Group s long-term debt had annual floating interest rates ranging from 2.00% to 2.75%, and 98% have annual fixed interest rates ranging from 3.50% to 6.68%. As of December 31, 2015, 3% of the Group s long-term debt had annual floating interest rates ranging from 2.00% to 2.75%, and 97% have annual fixed interest rates ranging from 3.50% to 6.68%. The following tables set out the carrying amounts, by maturity, of the Group s financial instruments that are exposed to cash flow interest rate risk: As of March 31, 2016 <1 year 1-5 years >5 years Total Floating rate - long-term debt P=251,896 P=1,262,178 P=6,906 P=1,520,980 As of December 31, 2015 <1 year 1-5 years >5 years Total Floating rate - long-term debt P=256,763 P=1,289,300 P=7,056 P=1,553,119 Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. The other financial instruments of the Group that are not included in the above

24 tables are non-interest-bearing and are therefore not subject to interest rate risk. The Group s derivative assets and liabilities are subject to fair value interest rate risk. The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group s income before tax (through the impact on floating rate borrowings): Increase (decrease) in basis points Effect on income before tax March 31, (P=30,420) (100) 15,210 March 31, (P=34,388) (100) 17,194 The Group s sensitivity to an increase/decrease in interest rates pertaining to derivative instruments is expected to be insignificant due to their short-term maturities and immateriality relative to the total assets and liabilities of the Group. There is no other impact on the Group s equity other than those already affecting the consolidated statements of income. The interest expense and other finance charges recognized according to source are as follows: Jan-Mar 2016 Jan-Mar 2015 Finance lease obligation P=1,466,055 P=1,485,164 Bank loans and long-term debt 578, ,967 Customers deposits 227 1,323 Other long-term obligations 31,678 33,423 P=2,076,584 P=1,734,877 Foreign exchange risk The foreign exchange risk of the Group pertains significantly to its foreign currency denominated obligations. To manage its foreign exchange risk, stabilize cash flows and improve investment and cash flow planning, the Group enters into foreign currency forward contracts aimed at reducing and/or managing the adverse impact of changes in foreign exchange rates on financial performance and cash flows. Foreign currency denominated borrowings account for 22% and 26% of total consolidated borrowings as of March 31, 2016 and December 31, Presented below are the Group s foreign currency denominated financial assets and liabilities as of March 31, 2016 and December 31, 2015, translated to Philippine Peso:

25 March 31, 2016 December 31, 2015 Philippine Peso Philippine Peso US Dollar equivalent 1 US Dollar equivalent 2 Loans and receivables: Cash and cash equivalents $50,741 P=2,337,638 $39,695 P=1,868,047 Trade and other receivables 119 5, ,559 Derivative assets 1,148 52,876 6, ,645 Total financial assets 52,008 2,395,985 46,669 2,196,251 Other financial liabilities: Trade and other payables , ,691 Finance lease obligation 580,245 26,731, ,108 27,676,362 Total financial liabilities 581,189 26,775, ,399 27,690,053 Total net financial liabilities ($529,181) (P=24,379,376) ($541,730) (P=25,493,802) 1 $1 = P= $1 = P=47.06 The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rates, with all other variables held constant, of the Group s income before tax as of March 31, 2016: Increase/ (decrease) in US Dollar Effect on income before tax US Dollar denominated accounts US Dollar strengthens by 5% (P=1,218,969) US Dollar denominated accounts US Dollar weakens by 5% 1,218,969 The increase in US Dollar rate represents the depreciation of the Philippine Peso while the decrease in US Dollar rate represents appreciation of the Philippine Peso. There is no other impact on the Group s equity other than those already affecting the consolidated statements of comprehensive income. Credit risk For its cash investments (including restricted portion), AFS investments and receivables, the Group s credit risk pertains to possible default by the counterparty, with a maximum exposure equal to the carrying amount of these investments. With respect to cash investments and AFS investments, the risk is mitigated by the short-term and/or liquid nature of its cash investments mainly in bank deposits and placements, which are placed with financial institutions and entities of high credit standing. With respect to receivables, credit risk is controlled by the application of credit approval, limit and monitoring procedures. It is the Group s policy to only enter into transactions with credit-worthy parties to mitigate any significant concentration of credit risk. The Group ensures that sales are made to customers with appropriate credit history and it has internal mechanisms to monitor the granting of credit and management of credit exposures.

26 Concentration Risk Credit risk concentration of the Group s receivables according to the customer category as of March 31, 2016 and December 31, 2015 is summarized in the following table: March 31, 2016 December 31, 2015 Power distribution: Industrial P=3,027,314 P=3,173,687 Residential 1,264,822 1,395,502 Commercial 541, ,065 City street lighting 110,298 28,924 Power generation: Power supply contracts 4,716,755 5,202,474 Spot market 1,597,873 1,408,744 P=11,258,709 P=11,810,396 Capital Management Capital includes equity attributable to the equity holders of the parent. The primary objective of the Group s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group monitors capital using a gearing ratio, which is net debt divided by equity plus net debt. The Group s policy is to keep the gearing ratio at 70% or below. The Group determines net debt as the sum of interest-bearing short-term and long-term loans (comprising long-term debt, finance lease obligation and payable to a preferred shareholder of a subsidiary) less cash and short-term deposits. Gearing ratios of the Group as of March 31, 2016 and December 31, 2015 are as follows: March 31, 2016 December 31, 2015 Bank loans P=2,364,000 P=2,568,000 Long-term debt 126,918, ,043,878 Cash and cash equivalents (67,039,999) (51,098,269) Net debt (a) 62,242,959 63,513,609 Equity 94,245, ,613,567 Equity and net debt (b) P=156,488,145 P=165,127,176 Gearing ratio (a/b) 39.77% 38.46% No changes were made in the objectives, policies or processes during the period ended March 31, 2016 and December 31, 2015.

27 L. Financial Instruments Fair Value of Financial Instruments Fair value is defined as the amount at which the financial instrument could be sold in a current transaction between knowledgeable willing parties in an arm s length transaction, other than in a forced liquidation or sale. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models, as appropriate. A financial instrument is regarded as quoted in an active market if quoted prices are readily available from an exchange, dealer, broker, pricing services or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm s length basis. For a financial instrument with an active market, the quoted market price is used as its fair value. On the other hand, if transactions are no longer regularly occurring even if prices might be available and the only observed transactions are forced transactions or distressed sales, then the market is considered inactive. For a financial instrument with no active market, its fair value is determined using a valuation technique (e.g. discounted cash flow approach) that incorporates all factors that market participants would consider in setting a price. Set out below is a comparison by category of carrying amounts and fair values of the Group s financial instruments whose fair values are different from their carrying amounts. Carrying Amounts March 31, 2016 December 31, 2015 Fair Carrying Values Amounts Fair Values Financial Liabilities Finance lease obligation P=52,421,166 P=62,374,697 P=53,668,854 P=56,465,454 Long-term debt - fixed rate 72,976,812 73,750,116 56,821,905 56,387,654 Long-term obligation on power distribution system 254, , , ,135 P=125,652,678 P=136,537,091 P=110,737,943 P=113,267,243 The following methods and assumptions are used to estimate the fair value of each class of financial instruments: Cash and cash equivalents, trade and other receivables, bank loans and trade and other payables. The carrying amounts of cash and cash equivalents, trade and other receivables, bank loans and trade and other payables approximate fair value due to the relatively short-term maturity of these financial instruments. Fixed-rate borrowings. The fair value of fixed rate interest-bearing loans is based on the discounted value of future cash flows using the applicable rates for similar types of loans. Floating-rate borrowings. Since repricing of the variable-rate interest bearing loan is done on a quarterly basis, the carrying value approximates the fair value. Finance lease obligation. The fair value of the finance lease obligation was calculated by discounting future cash flows using applicable interest rates.