AES GENER Q RESULTS

Transcription

1 AES GENER Q RESULTS AES Gener recorded an EBITDA of ThUS$157,603 during the first quarter of 2016, similar to the EBITDA recorded in the same period in Net income of ThUS$41,033 recorded as of 31, Cochrane Unit 1 (266 MW) and Andes Solar (21 MW) projects finalized their construction, were synchronized to the SING and started its commissioning tests. In February, AES Gener started the energy exports to Argentina, through its international transmission line. In December 2015, the Argentine authority partially released the FX restrictions, allowing the Company to purchase of US dollar and distribute dividends to parent. Successful Angamos Liability Management for US$199mn. CONSOLIDATED FINANCIAL SUMMARY THUS$ % FINANCIAL SUMMARY Q Q Var Revenue 555, ,535 4% Gross Profit 121, ,125-7% EBITDA 1 157, ,787-1% Net Income 41,033 51,330-20% Net Operating Cash 97,990 80,447 57% Earnings per share Tomás Gonzalez (56 2) IR Manager tomas.gonzalez@aes.com 1 EBITDA is calculated as the sum of gross profit plus administrative expenses, depreciation and other minor adjustments. 0

2 HIGHLIGHTS IN 2015 TO DATE AES Gener, same as in 2014 and 2015, continued to be the leader in energy generation in Chile, contributing with their plants with 28.5% of the total generation during the first quarter of During February, Cochrane Unit 1 and Andes Solar projects were synchronized to the SING and started its commissioning tests. The start of commercial operations for both projects are expected for the second quarter of Progress of projects under construction: AES Gener continues to consolidate its 2nd phase of expansion with 1,104 MW of diverse generating projects to be completed, with direct employment for more than 7,500 people, and the start of a new business, a desalinization plant for the sale to third parties. Project Capacity Type Progress Start of Operation Tunjita 20 MW Hydro 99.3% 1H16 Andes Solar 21 MW Solar 99.9% 1H16 Cochrane 532 MW Coal 97.8% 2016 Alto Maipo 531 MW Hydro 28.8% 2H 2018/1H 2019 In February, AES Gener started the energy exports to Argentina, through its transmission line. As of 31, 2016, exports reached approximately 44 GWh generated. By the end of, the Argentinean Energy Authority updated generation tariffs through Resolution 22/2016, increasing generation prices by approximately in 43% in Argentine pesos. In December 2015, the Argentine authority partially released the FX restrictions, allowing the Company the purchase of US dollar in this country. This measure enabled Termoandes to distribute to AES Gener a total of ThUS$15,422 as of today. In April, Angamos executed a partial early redemption of its US$800 million 4.875% 144A / Reg S for a total amount of US$199 million, at 94% of its nominal value. Tendered bonds were refinanced through banks facilities with the same amount and conditions. With regards to interest rate, the Company achieved a decrease to 4.5%. Guacolda Energía S.A. (Guacolda) international credit rating was revised downward in April by Standard & Poors, from BBB- with stable outlook to BB+ with stable outlook. 1

3 EXTERNAL FACTORS Annual Inflation Rate Exchange Rate as of 31, Twelve month period ended on Dec 31, Var Chile 4.2% Chile % Colombia 7.9% Colombia 3, , % Argentina 14.3% Argentina % Growth in Electricity Consumption, twelve month GDP period ended on 31, 2016: Twelve month period ended on Dec 31, 2015 SIC Chile 3.1% Chile 1.4% SING -Chile 7.8% Colombia 0.9% Colombia 3.5% Argentina 3.3% Argentina 4.5% REVIEW OF 2016 RESULTS Net Income As of , AES Gener S.A. (hereinafter referred to as AES Gener or the Company) recorded a net income of ThUS$41,033, 20% lower than the ThUS$51,330 recorded in the same period of the previous year. EBITDA as of 31, 2016 was ThUS$157,603, 1% lower than the EBITDA of ThUS$159,787 recorded at the close of The slight decrease in EBITDA is mainly explained by improved operating results in the SING and in Argentina, compensated by lower gross profit in Colombia and in the SIC. From an operational standpoint, gross profit as of 31, 2016 totaled ThUS$121,315 representing a negative variation of 7% when compared to the ThUS$131,125 recorded at the close of of the previous year. Main variations in gross profit between the first three months of 2016 and 2015 were the following: In the SIC, gross profit decreased by ThUS$7,028 mainly explained by higher revenues recorded in the first quarter of 2015 associated to Nueva Renca plant s short-term leasing agreement. In the SING, gross profit increased by ThUS$9,645. Among the most important variations is the improved margins associated to unregulated customers due to the expiration of old contracts and the start-up of new ones. In turn, in the National Interconnected Grid (SIN) in Colombia, gross profit at AES Chivor & Cia S.C.A.E.S.P. (hereinafter, AES Chivor) was lower by ThUS$17,918 due to lower generation during the first quarter of 2016, given lower reservoir levels at the beginning of 2016, compared with levels at the beginning of This resulted in higher spot purchases at higher average prices, in addition to lower sales to distribution companies. It is important to highlight that during the fourth quarter of 2015, AES Chivor increased its generation to supply the country s demand during the drought as the result of the El Niño Phenomenon presence in the system to support the needs of the country. In the Argentine Interconnected System (SADI), Argentina s, gross margin increased by ThUS$5,491 when comparing both periods, as a result of higher generation explained by maintenances performed during the first quarter of 2015, and higher margins associated to the recognition of the Resolutions 482/2015 and 22/2016 enacted by the Argentine energy authorities. Within the non-operating income, a negative variation was registered in exchange rate differences of ThUS$3,394 due to the FX forwards executed by the Company against the Chilean and the Colombian peso, which registered lower compensations during the first quarter of 2016, partially compensated by the appreciation of the Chilean and the Colombian peso during the period, compared to a devaluation in the same period of Additionally, lower earnings from associates of ThUS$41,492 were registered as a result of lower net income at Guacolda Energía S.A. (hereinafter, Guacolda). 2

4 Q Income Statement Var Income Statement (ThUS$) % Operating Revenue Energy and capacity sales 495, ,966 0% Other operating revenue 60,149 35,569 69% Total Operating Revenue 555, ,535 4% Cost of Sales Fuel consumption (108,548) (149,003) -27% Fuel cost of sales (30,380) (1,300) 2237% Energy and capacity purchases (157,222) (99,459) 58% Transmission tolls (23,082) (27,242) -15% Other cost of sales (56,644) (68,469) -17% Depreciation and amortization (58,430) (55,937) 4% Total Cost of Sales (434,306) (401,410) 8% Gross Profit 121, ,125-7% Other operating revenues % Selling, general and administrative expenses (23,352) (28,988) -19% Other operating expense (635) (824) -23% Other income / (expense) (1,220) % Financial income 2,962 2,844 4% Financial expense (33,797) (32,394) 4% Equity in earnings of associates 2,552 8,030-68% Foreign currency exchange differences (11,152) (7,758) 44% Net Income (Loss) before Tax and Non-Controlling Interest 57,081 73,222-22% Income tax income (expense) (17,056) (24,947) -32% Net Income (Loss) After Tax 40,025 48,275-17% Income (Loss) Attributable to Shareholders of Parent 41,033 51,330-20% Non-controlling interest (1,008) (3,055) -67% NET INCOME 40,025 48,275-17% 3

5 EBITDA AES Gener operates in four independent markets, SIC and SING in Chile, the SIN in Colombia and the SADI in Argentina. The following section explains the variations in gross earnings separated in the four markets mentioned above. As of 31, 2016, EBITDA was ThUS$157,603 compared to the ThUS$159,787 recorded in the same period in This negative variation of ThUS$2,184 is mainly explained by higher spot purchases in the SIN and the additional revenue registered in the SIC during the first quarter of 2015 associated with the shortterm lease of Nueva Renca plant, compensated by improved contract margins in 2016 in the SING and higher margin in the SADI associated to higher generation and sales under Resolutions 482/2015 and 22/2016. The table below shows EBITDA by market for 2015 and 2014: Marzo Marzo Var. EBITDA by Market (ThUS$) % SIC 84,161 86,808-3% SING 54,762 41,933 31% SIN 13,417 31,207-57% SADI 5,263 (161) -3369% TOTAL EBITDA 157, ,787-1% Note: For EBITDA calculation, please see page 27, Consolidated EBITDA. In the three-month period ended on 31, 2016 and 2015, the contribution to EBITDA from the SIC, SING, SIN and the SADI was the following: Q Q SING 35% SIN 9% SADI 3% SIN 20% SIC 53% SING 26% SIC 54% GROSS PROFIT Gross profit decreased by ThUS$9,810 mainly as a result of decreases in SIC and SIN of ThUS$7,028 and ThUS$17,918 respectively, partially offset by the reductions by ThUS$9,645 and ThUS$5,491 in the SING and SADI, respectively. The item consolidation adjustment represents intercompany coal sales of AES Gener to the subsidiaries Norgener and Empresa Eléctrica Angamos (Eléctrica Angamos) in the SING. In revenues in the SIC, these sales are included in Other operating revenues. 4

6 Var Gross Profit (ThUS$) % OPERATING REVENUE SIC 302, ,563-6% SING 148, ,795 0% SADI 24,502 28,293-13% Colombia 116,906 96,158 22% Consolidation adjustments (36,943) (62,274) -41% Total Operating Revenue 555, ,535 4% COST OF SALES SIC (231,409) (244,111) -5% SING (113,237) (122,354) -7% SADI (25,352) (34,634) -27% Colombia (101,251) (62,585) 62% Consolidation adjustments 36,943 62,274-41% Total costs of sales (434,306) (401,410) 8% TOTAL GROSS PROFIT 121, ,125-7% Central Interconnected Grid (SIC) In the SIC, gross profit decreased by ThUS$7,028 or 9% mainly due to higher revenues in the first quarter of 2015 associated with the short-term lease agreement of Nueva Renca plant. The following table presents gross profit in the SIC for both periods: SIC Var Gross Profit (ThUS$) % OPERATING REVENUE Regulated customer sales 119, ,853-3% Unregulated customer sales 63,209 70,901-11% Spot sales 25,919 41,035-37% Other operating revenues 93,847 86,774 8% Total Operating Revenue 302, ,563-6% COST OF SALES Fuel consumption (57,018) (77,016) -26% Energy and capacity purchases (29,059) (28,335) 3% Transmission tolls (21,291) (25,954) -18% Fuel cost of sales (66,823) (56,639) 18% Depreciation and amortization (27,898) (27,949) 0% Other cost of sales (29,320) (28,218) 4% Total Cost of Sales (231,409) (244,111) -5% TOTAL GROSS PROFIT 71,424 78,452-9% The following table shows AES Gener energy sales, purchases and generation by source in the SIC as of 31, 2016 and 2015: 5

7 SIC Var Energy Sales (GWh) % Distribution companies 1,296 1,319-2% Other customers % Spot % Intercompany 1,137 1,241-8% Total energy sales 3,480 3,476 0% Average monomic price for unregulated customers (US$/MWh) % Average monomic price for regulated customers (US$/MWh) % Var Energy Purchases (GWh) % Other generators % Intercompany 1,137 1,241-8% Total energy purchases 1,398 1,439-3% Var Net generation (GWh) % Hydro % Coal 1,388 1,387 0% LNG % Diesel % Biomass % Total 2,093 2,038 3% Main variations between the three-month periods ended on 31, 2015 and 2016: Sales to regulated customers decreased by ThUS$3,995 due to lower physical sales for 23 GWh in the first quarter of 2016 when compared to the same period in In turn, sales to unregulated customers decreased by ThUS$7,692 as of 31, 2016, associated with the short-term lease of Nueva Renca registered in the first quarter of 2015, not present in the two first months of 2016, partially offset by higher physical sales to unregulated customers of 133 GWh, as a result of higher demand. Sales in the spot market decreased by ThUS$15,116 between the first quarter of 2015 and the same period in 2016, mainly due to lower spot prices that decreased from an average of US$/MWh in the threemonth period ended on 31, 2015 to an average of 60.3 US$/MWh in the same period of In turn, energy and capacity purchases (including purchases on the spot market, contract purchases to affiliate Guacolda and other third parties mainly contracts with Non-Conventional Renewable Energy generators, NCRE) were higher compared to the first three months of 2015 by ThUS$724, due to the increase in volume terms by 63 GWh during the programmed maintenances performed at AES Gener coal plants. Other operating revenues mainly include intercompany and third parties coal sales, transmission revenues and services revenues essentially to affiliates. The positive variation of ThUS$7,073 in principally explained by higher coal sales, which are compensated in fuel cost of sales, and lower transmission revenue. Fuel consumption as of 31, 2016 decreased by ThUS$19,998 compared to the same period in 2015, mainly associated with lower coal prices, partially offset by higher diesel and Liquefied Natural Gas (LNG) generation mostly at Eléctrica Santiago. 6

8 Greater Northern Interconnected Grid (SING) In the SING, the gross profit increased by ThUS$9,645, equivalent to 38% higher in the first quarter of 2016 as compared to the same period in This is a consequence of the improved margins associated with the start-up of new contracts at Norgener, under better conditions, replacing old contracts which expired in December Additionally, it is important to mention that the exports of energy to the SADI through AES Gener transmission line were initiated during the first quarter of The following table presents gross profit in the SING for both periods: SING Var Gross Profit (ThUS$) % OPERATING REVENUE Unregulated customer sales 137, ,117 2% Spot sales 8,569 10,581-19% Other operating revenues 2,422 2,097 15% Total Operating Revenue 148, ,795 0% COST OF SALES Fuel consumption (37,001) (50,093) -26% Energy and capacity purchases (35,865) (32,531) 10% Transmission tolls (1,705) (1,325) 29% Depreciation and amortization (20,900) (18,491) 13% Other cost of sales (17,766) (19,914) -11% Total Cost of Sales (113,237) (122,354) -7% TOTAL GROSS PROFIT 35,086 25,441 38% The following table shows AES Gener energy sales, purchases and generation by type of fuel in the SING as at 31, 2015 and 2016: 7

9 SING Var Energy Sales (GWh) % Other customers 1,737 1,446 20% Spot % Total energy sales 1,930 1,733 11% Average monomic price for unregulated customers (US$/MWh) % Var Energy Purchases (GWh) % Spot % Total energy purchases % Var Net generation (GWh) % Coal 1,475 1,318 12% LNG % Total 1,475 1,383 7% Main variations between the three-month periods ended on 31, 2015 and 2016: Between the first quarter of 2016 and the same period of 2015 an increase in sales to unregulated customers of ThUS$2,215 was registered mostly due to higher sales volume, increasing from 1,446 GWh in the threemonth period ended on 31, 2015 to 1,737 GWh at the close of 2016, or an increase of 20%. This increase is the result of a larger demand from unregulated customers, and to a lesser extent to energy exports to the SADI in Argentina, started on February 2016, representing 44 GWh as of 31, This effect is partially offset by lower sales price, fundamentally as a result of lower coal prices. Energy and capacity sales in the spot market decreased by ThUS$2,012 as a result of lower physical sales, decreasing by 94 GWh as a result of higher contracted level as of Additionally, energy and capacity purchases increased by ThUS$3,334 between the first quarter of 2016 and the same period in 2016, explained by energy purchases associated to the exports to the SADI, and a larger volume or physical purchases mainly as the result of higher unregulated customers demand. The average spot price remained at 49 US$/MWh in the first quarters of 2015 and The cost of fuel consumption decreased by ThUS$13,092 as a result of lower coal average prices, despite an increase in generation by 157 GWh. Colombian National Grid (SIN) In Colombia, gross profit decreased by ThUS$17,918 equivalent to 53% comparing the first three months of 2016 and This negative variation is mainly explained by a reduction in the generation in the first quarter of 2016 associated to lower reservoir levels at the beginning of 2016, compared to the same period in This resulted in an increase in volume purchases in the spot market at higher prices, increasing from an average of 76.1 US$/MWh in 2015 to an average of US$/MWh in Additionally, lower sales to distribution companies were registered as a result of lower contracted level. It is important to mention that during the fourth quarter of 2015, AES Chivor increased its generation to supply energy demand in the country during drought from the presence of the El Niño Phenomenon. The following table presents gross profit in Colombia for both periods: 8

10 SIN Var Gross Profit (ThUS$) % OPERATING REVENUE Contract sales 39,335 54,821-28% Spot sales 76,748 39,300 95% Other operating revenues 823 2,037-60% Total Operating Revenue 116,906 96,158 22% COST OF SALES Energy and capacity purchases (92,315) (45,293) 104% Depreciation and amortization (2,382) (3,068) -22% Other cost of sales (6,554) (14,224) -54% Total Cost of Sales (101,251) (62,585) 62% TOTAL GROSS PROFIT 15,655 33,573-53% The following table shows AES Gener energy sales, purchases and generation in the SIN in the first three months of 2015 and 2016: SIN Var Energy Sales (GWh) % Contract % Spot % Total energy sales 1,208 1,187 2% Average monomic price for customers (US$/MWh) % Var Energy Purchases (GWh) % Spot % Total energy purchases % Var Net generation (GWh) % Hydro % Total % Main variations between the three-month periods ended on 31, 2015 and 2016: Sales under contracts decreased by ThUS$15,486 primarily explained by lower volume sales of 75 GWh, in addition to a decrease in average prices in US dollar terms that fell from 60.7 US$/MWh in the first quarter of 2015 to 50.3 US$/MWh in the same period of 2016, mainly due to the devaluation of the Colombian peso in comparison with the US dollar. It should be noted that during the same period, gains of ThUS$2,247 were registered in foreign exchange variations, due to foreign exchange forwards executed to mitigate the impact from foreign exchange. Spot energy sales and ancillary service sales increased by ThUS$37,447 as a result of higher average spot prices that increased from 76.1 US$MWh in 2015 to US$/MWh in 2016, as well as higher volume sales of 96 GWh. In turn, spot energy purchases increased by ThUS$47,022 due to higher physical purchases of 9

11 113 GWh at higher spot prices, which is the result of the lower plant generation in the first quarter of It is important to mention that at the beginning of 2016, the reservoir level was 61%, which is lower than the reservoir level at the beginning of 2015 of 78% due to the support provided to the Colombian system during the fourth quarter of 2015 given the lower inflows during that period. With regards to the decrease in other operating revenues of ThUS$7,670, this variance is explained by distribution and transmission revenues associated to contracts in the unregulated market lower maintenance costs mainly related to works performed at the Tunjita tunnel at the beginning of Interconnected Argentine Grid (SADI) Gross profit in SADI increased by ThUS$5,491 which represents a positive variation of 87% between the first quarter of 2016 and the same period in This positive variance is the result of higher generation by 69% during 2016 and the recognition from November 2015 of Resolutions 482/2015 and 22/2016 (retroactive from February 2015), for sales above energy sold under Energía Plus contracts, allowing the Company to capture higher margins than the previous ones obtained in the spot market. The following table presents gross profit in the SADI for both periods: SADI Var Gross Profit (ThUS$) % OPERATING REVENUE Contract sales 15,651 17,892-13% Spot sales 8,851 10,401-15% Total Operating Revenue 24,502 28,293-13% COST OF SALES Fuel consumption (14,529) (21,894) -34% Energy and capacity purchases 17 (235) -107% Transmission tolls (86) % Depreciation and amortization (7,250) (6,429) 13% Other cost of sales (3,504) (6,113) -43% Total Cost of Sales (25,352) (34,634) -27% TOTAL GROSS PROFIT (850) (6,341) -87% The following table shows AES Gener energy sales, purchases and generation in the SADI in the first quarters of 2016 and 2015: 10

12 SADI Var Energy Sales (GWh) % Contract % Spot % Total energy sales 1, % Average monomic price for customers (US$/MWh) % Var Net generation (GWh) % LNG 1, % Total 1, % Main variations between the three-month periods ended on 31, 2015 and 2016: Generation increased by 452 GWh between the first quarter of 2016 and the same period in 2015 mainly associated with lower maintenance days in the three-month period ended on 31, 2016, which resulted in higher volume sales to the spot market of 124%. Between the three-month period ended on 31, 2015 and the same period in 2016, contract revenues decreased by ThUS$2,241 as a result of lower physical sales for 32 GWh equivalent to 13% associated with a drop in the volume of industrial demand under the Energía Plus methodology. Sales to the spot market decreased by ThUS$1,550. This variation is associated to the recognition of Resolutions 482/2015 and 22/2016. Under this regime, gas is directly provided by CAMMESA, registering in revenue, the margin for these sales. This margin is higher than the margins previously obtained in the spot market. This also affected cost of fuel consumption, decreasing by ThUS$7,365. Selling, General and Administrative Expenses Administration expenses decreased by 19% from ThUS$28,988 as of the close of 2015 to ThUS$23,352 in the same period in The most important variations include lower personnel expenses by ThUS$2,351, bad debt recovery for ThUS$1,352 associated with EMELCA bankruptcy process and lower equity taxes in Colombia by ThUS$941. Financial Results The non-ebitda variations between the first quarter of 2016 and the same period of 2015 are listed in the following table: Financial Results (MUS$) Var % Other income / (loss) (1,220) % Finance income 2,962 2,844 4% Finance expense (33,797) (32,394) 4% Equity in earnings of associates 2,552 8,030-68% Foreign currency exchange differences (11,152) (7,758) 44% 11

13 A negative variation of ThuS$3,394 was recorded in exchange rate differences. This variance is mainly explained by the FX forwards executed by the Company to mitigate the FX impact of Colombian and Chilean pesos, which had lower compensations in the first quarter of 2016, partially offset by an appreciation in the Chilean and Colombian peso during the period, compared to a devaluation of both currencies in the same period last year. The following table shows variation in exchange rates in the countries in which AES Gener has operations: Exchange Rate 2016 December 2015 Variation % 2015 December 2014 Variation % Chile (CLP / US$) % % Colombia (COP / USD) 3, , % 2, , % Argentina (ARS / US$) % % The negative variation of the net finance expenses for ThUS$1,403 as of 2016 is mainly due to the higher corporate debt, compensated by a positive effect of valuation of derivative instruments. In turn, the negative variation of ThUS$5,478 in equity in earnings (losses) of associates is explained by lower results in Guacolda, mainly due to a decrease in gross profit and higher finance expense associated to lower capitalization of interests after the start of commercial operations of Unit 5. Other losses registered a negative variation of ThUS$1,555 as of 2016 mainly associated with the loss from spare parts obsolescence provision registered in the first quarter of 2016 for ThUS$902 and higher loses for assets retirement for ThUS$623. Income Tax As of 31, 2015 the income tax expense was 32% lower in comparison to the same period of 2015, from ThUS$24,947 as of 2015 to ThUS$17,056 in the same period of This variation in fundamentally explained by lower income before tax in Chile and Colombia. CASH FLOW The final balance of cash and cash equivalent as of 31, 2015 was ThUS$266,268, 7% lower than the final balance of ThUS$285,811 as of the close of The total net flow of the period was negative for ThUS$3,508 as of 31, 2016 that negatively compares with the positive flow of ThUS$61,399 as of 31, The net flow of the period is explained by the negative flow in investment activities, partially offset by positive net flows in financing and operation activities. Var. Cash Flow (MUS$) % Net cash from operating activities 97,990 80,447 22% Net cash from investing activities (115,995) (376,240) -69% Net cash from financing activities 14, ,192-96% Total Net Cash for the Period (3,508) 61, % Effects of Foreign Exchange Variations 2,543 (4,279) -159% Cash at the Beggining of the Period 267, ,691 17% Total Cash at the End of the Period 266, ,811-7% 12

14 Net cash from operating activities recorded a positive variation of ThUS$17,543 as of the close of 2016 compared with the same period in 2015 mainly due to the higher receipts from AES Chivor of as a result of higher spot sales in December 2015 collected in January Net cash from investment activities showed a positive variation of ThUS$260,245 comparing the first quarter of 2016 and the same period in The main variations corresponds to a decrease in acquisitions of property, plant and equipment of ThUS$257,309 associated with the construction works of Cochrane which is at its final stage and higher investments recovery of ThUS$16,630. These effects were partially compensated by the negative variance in other cash inflows (outflows) by ThUS$13,927, mainly related to VAT recovery in the first quarter of Net cash from financing activities represented a negative variation of ThUS$342,695 as of the close of 2016 compared to the same period in This is a consequence of lower long-term loans obtained principally related to Cochrane and AES Gener, in addition to lower proceeds from share issuance, mainly related to lower equity payments for Cochrane and Alto Maipo during the first quarter of FINANCIAL DEBT Consolidated financial debt, including principal, interest and issuance costs, increased from ThUS$3,375,106 as of December 31, 2015 to ThUS$3,429,570 as of 31, As of 31, 2016, approximately 88.3% of AES Gener s credit agreements are at a fixed rate, including a significant portion of the debt held by the subsidiaries Eléctrica Cochrane and Alto Maipo for which interest rate swap agreements have been executed. The remaining 11.7% of the Company s consolidated debt maintains a variable interest rate. As of 31, 2016, approximately 97.7% 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, 1.0% was denominated in Chilean UF (Eléctrica Santiago s bond) and 1.3% in Colombian pesos (the leasing executed by AES Chivor to finance the Tunjita Project). In April 2016, Eléctrica Angamos partially refinanced its US$800 million bond through a tender process, purchasing US$199 million at 94% of its nominal value. The Company refinance this debt with syndicated loans under the same terms and conditions with local bank facilities at a lower average interest rate of 4.50%. The following graph details AES Gener s consolidated amortization schedule for the outstanding principal of ThUS$3,539,245 as of 31, 2016, excluding issuance costs and including non-recourse project finance debt. 13

15 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 During the first quarter of 2016, better hydrological conditions allowed reservoir level to show an improvement compared to the same period of the previous year. This resulted in an increase in hydro generation that, together with the drop in commodity prices, drove a spot price decrease in the system by 71% when compared to the first quarter in As of 31, 2016, the companies of the Group AES Gener, including Guacolda, contributed with 24.3% of the net generation in the SIC. The table below shows certain principal variables in the SIC for the three-month periods ended on 31, 2016 and SIC Demand growth (%) Monthly Average consumption (GWh) 4,283 4,163 Average annual spot price (Quillota 220 kv) US$/MWh SING The average marginal cost remained at the same level when compared to the same period of the previous year. As of 31, 2016, the companies of the Group AES Gener contributed with 32,7% of the net generation in the SING. The table below shows the main variables in the SING in the first quarters of 2015 and 2016: SING Demand growth (%) Monthly Average consumption (GWh) 1,417 1,348 Average annual spot price (Crucero 220 kv) US$/MWh SIN Given extreme dry conditions, spot prices exceeding the scarcity price (~ 110 US$/MWh), and thermo plants not being able to operate as they have variable costs above the scarcity price; in October of 2015 the government stablished a cap for the spot price at 810 Col$/KWh (~ 268 US$/MWh) as a temporary measure. Spot prices increased by 260% in Colombian pesos during the first quarter of 2016 compared to the same period in 2015; while in dollars they increased by 175% due to the devaluation of the Colombian peso. As of 31, 2016, the generation of AES Chivor represented 3% of the demand in Colombia. The following table shows the main variables in the SIN during the three-month periods ended on 31, 2015 and 2016: 14

16 SIN Demand growth (%) Monthly Average consumption (GWh) 5,537 5,297 Average annual marginal cost US$/MWh SADI In November 2015, the Argentine Energy authority confirmed that the energy sold by Termoandes, in excess of what is sold under the Energía Plus program, will receive an extra remuneration determined by Resolution 482/2015, which is higher than the spot price currently received for these sales. By the end of 2016, the Undersecretariat of Energy in Argentina issued Resolution 22/2016 replacing, from February 1, 2016 onwards, Annexes from Resolution 482/2015 enacted on July 10, 2015, updating remunerations for fixed costs, non-fuel variable costs, additional remunerations, non-recurring maintenances, investment resources for and availability remunerations. These adjustments benefit Termoandes, improving prices received for the energy form the gas turbines sold at the spot market. As of 31, 2016, the generation of Termoandes in the SADI represented 3% of Argentine demand. The following table shows the main variables in the SADI for the three-month periods ended on 31, 2014 and 2015: SADI Demand growth (%) Monthly Average consumption (GWh) 10,432 10,065 Average annual marginal cost US$/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 operations in Colombia, the Company s functional currency is the US dollar given that its revenue, expenses and investments in equipment and debt are mainly determined based in US dollar. Also, the Company is authorized to file and pay its income taxes in Chile in US dollars. Exchange rate risk is associated with any revenue, expenses, investments and debt denominated in any currency other than US dollars. The main items denominated in Chilean pesos are contract sales and tax credits mainly associated with VAT. As of 31, 2016, 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. Given the Company's net asset position in Chilean pesos as of 31, 2016, the impact of 10% devaluation in the exchange rate of the Chilean peso with respect to the US dollar could have resulted in a realized negative impact of approximately ThUS$11,699 in AES Gener net income. 15

17 During the three-month period ended on 31, 2016 approximately 77.5% of operating revenue and 91.0% of the Company s costs of sales were denominated in US dollars compared to 80.5% of operating revenue and 85.8% of costs of sales during the first quarter of The functional currency of Chivor, the Company s Colombian subsidiary, is the Colombian peso since the majority of its revenue, particularly contract and spot sales and operating costs are linked to the Colombian peso. For the period ended on 31, 2016, sales in Colombian pesos represented 20.9% of the Company s consolidated operating revenue, while they represented 17.5% in the same period of Additionally, AES Chivor s dividends are determined in Colombian pesos, although financial hedge instruments are used to fix the amount to be distributed in US dollars. Given AES Chivor's net liability position in US Dollars as of the close of 2016, a 10% devaluation in the exchange rate of the Colombian peso with respect to the US dollar could have generated a negative impact of approximately ThUS$5,041 in AES Gener s net income. Spot prices in the Argentine market are denominated in Argentinean pesos. Argentine-peso denominated sales represented 1.6% of the Company s consolidated operating revenue for the first quarter of 2016, representing 2.0% for the year ended on 31, Given TermoAndes' net asset position in Argentine pesos as of 31, 2016, a 10% devaluation in the exchange rate of the Argentine peso with respect to the US dollar could have generated a negative impact of approximately de ThUS$1,519 in AES Gener s net income. It is worth mentioning that the Argentine government devalued the Argentinean peso by approximately 35%, the fastest devaluation since 2002, resulting in a non-material impact on results given the limited exposure Termoandes had to the Argentine peso at that time. A weaker Argentinean peso and economy could cause significant volatility in TermoAndes' operating income 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 these new bonds. 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, according to the original applicable terms. After on July 30, 2014 the parties failed to reach a settlement agreement, 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 Since then, Argentina has advanced in negotiations with bondholders, reaching a preliminary agreement with some of them, involving the payment of approximately $900 million in defaulted notes and has already secured US$5bn in loans from international banks to pursuit a final agreement with 100% of them. The current proposal is to pay approximately about US$6.5bn in cash to US holdouts. Main holdouts stated that they reject the proposal, expecting the payment of full US$9,000 million claimed. S&P raised the country s local credit rating by one notch from CCC- to B- as they consider the new administration presents a credible plan to face the macro economical imbalance. This 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. In consolidated term, investments in new plants and maintenance of equipment are principally denominated in US dollars. Short-term investments are also mostly held in U.S. dollars. As of 31, 2016, 92.2% of short-term investments and current account balances were in US dollars, 5.4% in Chilean pesos, 0.9% in Colombian pesos and 1.5% in Argentine pesos. Cash balances in Argentine pesos are subject to exchange restrictions and exchange rate volatility particular to the Argentine market. As of 2015, 71.8% of investments and balances were in US dollars, 16.4% in Colombian pesos, 6.0% in Chilean pesos and 5.8% in Argentinean 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 cross-currency 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 31, 2016, 97.7% 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 shows the composition of debt by currency as of 31, 2016 and December 31, 2015: 16

18 Currency 2016 (%) December 2015 (%) US$ 97,7 97,9 UF 1,0 0,9 Col$ 1,3 1,2 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. The Group s exposure to the risk of changes in market interest rates relates primarily to the Group s long-term debt obligations with variable 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. Additionally, AES Gener has entered into interest rate swaps to mitigate interest rate risk for long-term obligations. Currently, AES Gener has interest rate swaps for an important part of the debt associated with subsidiaries Eléctrica Cochrane and Alto Maipo. It should be noted that in July 14, 2015 Eléctrica Ventanas project finance was refinanced through the issuance of a 144A / Reg S bond in the international markets at the AES Gener level, which also included the partial repurchase of the local Series Q of AES Gener, allowing this debt to be at fixed rate from July 2015 onwards. A 10% increase in variable interest rates would not have a significant impact on net income as 88.3% of the Group's debt is at fixed rates or rate swaps. The following table shows the composition of debt by type of interest rate as of 31, 2016 and December 31, 2015: Rate 2016 December 2015 (%) (%) Fixed or with Swap 88,3 88,5 Variable 11,7 11,5 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 The Group is affected by the volatility of certain commodity prices. The fuels used by the Company, mainly coal, diesel and liquefied natural gas (LNG), are commodities with international prices set by market factors outside of the Company s control. In Argentina, the Company s subsidiary TermoAndes purchases natural gas at a fixed price under short-term contracts, which is reflected in the energy contract price fixation. The price of fuel is a key factor in plant dispatch and spot prices both in Chile and Colombia. Since AES Gener is a company based mainly on thermal generation, fuel costs represent a significant portion of the cost of sales. 17

19 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 indexes 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. Currently, diesel and LNG purchases are not hedged as spot market sales allow variations in fuel prices to be transferred to the sale price. However, the price of fuel (particularly LNG or diesel) directly affects the spot price and plant dispatch. 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. 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. During 2015, under a new period of dry hydrological conditions, a thermo generator accumulated penalties and debts with the Colombian market, including AES Chivor, owing the Company approximately ThUS$7,500. This member of the market was intervened by the Colombian authority, freezing its debt as of the date of the intervention. It is expected that payments will be managed over a period to be shortly determined. 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 31, 2016, AES Gener had available liquid funds of ThUS$266,268 included in cash and cash equivalent. Meanwhile, as of the closing of December 2015, the balance in liquid resources amounted to ThUS$295,242 including cash and cash equivalent of ThUS$267,233 and short-term time deposits for ThUS$28,009 included in other current financial assets. 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. 18

20 Additionally, as of 31, 2016, AES Gener has committed and uncommitted credit lines for approximately ThUS$231,222 and uncommitted and unused credit lines for approximately ThUS$176,000. 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 on average 75% 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 and Maintenance 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 that could defer from the originally projected. Among these factors, projects can experience increases in costs of construction or investment on equipment, potential delays, difficulty in finding 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. 19

21 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 there is uncertainty whether an important modification in tolling assignment would take place, particularly in the SIC. In the past few years, Colombian authorities are developing certain regulatory changes. Among the most important issues under development is the review of an implementation of a standardized market for contracts with distribution companies replacing or complementing the current bid processes, however no major progress was registered during During 2015, the regulator developed the regulations to implement of Law 1715 from 2014 with regards to the participation of renewable energy in the system as well as energy surplus sales from self-generators, and also rules for the Distributed Generation and demand participation. In turn, the Government issued a regulatory proposal that could affect current incentives to plants with effective capacity equal or below 20 MW that, if adopted, makes AES Chivor future developments of these kind of projects more difficult. Finally, the monitoring of indicators of the "Shortage Risk Statute was implemented, developed for energy emergencies, promulgated by the regulator in 2014, however there have not been interventions in reservoirs yet as the market has reacted properly to the signs of scarcity and reliability of the system has remained adequate. Additionally, although the regulation proposal is not known yet, the regulator stated that it will soon announce the new rules for the next bid for the reliability charge, giving the signs for future expansions. Recently, due to the drier hydrology present in Colombia, spot price exceeded the scarcity price (110 US$/MWh) reaching ~300 US$/MWh in September and ~600 US$/MWh in October. This situation resulted in certain measures taken by the Government to alleviate financial situation 20

22 of thermo plants using liquid fuel with potential risk of not being able to have its firm energy available, as variable costs are higher than revenue recognized for these plants (scarcity price). Moreover, a cap of ~270 US$/MWh was determined for spot prices as a temporary measure. 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 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 the resolution (RES SE 529/14) under which the additional margin to compensate generators is updated. On July 10th 2015, Resolution 482/15 was published, updating figures previously published in Resolutions 95/13 and 529/14. Based on Note 2053, sent by the Ministry of Energy in 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. On 13th, 2015, the Argentine Undersecretary of Energy increased by approximately 40% the Incremental Mean Charge of Excess Demand in the SADI, which corresponds to part of the charge the large users and large clients must pay in Argentina when they buy energy in the spot market, which changed from 320 Ar/MWh to 450 Ar/MWh for certain users. With this change, users with noncontracted plus type of demand that purchase their energy requirements on the spot market would have an incentive to contract their demand with an Energía Plus generator. 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 went into effect in June In order to comply with the new emission standards, between 2012 and 2015, AES Gener completed investments for approximately ThUS$229,000 million, at a consolidated level, in emission reduction equipment in four older coal plants (constructed between 1964 and 1997) and is investing approximately US$110 million in the coal units owned by the equity-method investee Guacolda. In 2013, Guacolda initiated the installation of emission control equipment at Units I, II and IV, totaling, as of 31, 2016, an investment of ThUS$189,500. 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. 21

23 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. It should be noted that in January 2016, the Chilean Government approved the reform of the reform which prevents Corporations to opt for the API regime. This last reform had no impact on the Company as it has opted for the PIS regime from the beginning. 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 Currently the Colombian government is analyzing a new reform with the objective of unifying the direct taxes and determine taxes on dividends. This reform is expected for the second half of

24 AES GENER AND SUBSIDIARIES Consolidated Balance Sheet As of 31, 2016 and December 31, 2015 International Financial Reporting Standards ASSETS 31, 2016 December 31, 2015 ThUS$ ThUS$ Current Assets Cash and Cash Equivalents 266, ,233 Other Current Financial Assets 9,334 40,161 Other Current Non-Financial Assets 24,143 5,787 Trade and Other Receivables 387, ,558 Related Party Receivables 17,360 13,213 Inventory 135, ,853 Taxes Receivables 45,408 42,149 Total Current Assets 886, ,954 Non-Current Assets Other Non-Current Financial Assets 22,547 34,359 Other Non-Current Non-Financial Assets 37,272 29,764 Trade and other Receivables 8,536 14,832 Investments in Associates 404, ,178 Intangible Assets 51,040 53,238 Goodwill 7,309 7,309 Property, Plant and Equipment 5,919,412 5,795,506 Deferred Taxes 71,038 94,893 Total Non-current Assets 6,521,453 6,432,079 TOTAL ASSETS 7,407,688 7,286,033 23

25 AES GENER AND SUBSIDIARIES Consolidated Balance Sheet As of 31, 2016 and December 31, 2015 International Financial Reporting Standards LIABILITIES AND SHAREHOLDERS' EQUITY 31, 2016 December 31, 2015 ThUS$ ThUS$ Current Liabilities Other Current Financial Liabilities 165, ,552 Trade and Other Payables 313, ,589 Related Party Payables 24,358 18,392 Provisions 3,511 3,455 Taxes Payable 45,705 45,595 Employee Benefits 3,476 3,689 Other Current Non-Financial Liabilities 28,268 34,086 Total Current Liabilities 584, ,358 Current Liabilities Other Non-Current Financial Liabilities 3,560,056 3,456,919 Trade and Other Payables 23,853 26,283 Related Party Payables 232, ,788 Provisions 108, ,599 Deferred Taxes 515, ,540 Employee Benefits 30,485 27,960 Other Non-Current Non-Financial Liabilities 10,209 10,352 Total Non-Current Liabilities 4,480,437 4,400,441 TOTAL LIABILITIES 5,065,145 4,953,799 Net Equity Issued Capital 2,052,076 2,052,076 Retained Earnings (Losses) 418, ,125 Share premium 49,864 49,864 Other Components of Equity 236, ,567 Other Reserves (509,017) (492,188) Total Equity Attributable to Shareholders of Parent 2,247,908 2,223,444 Non-Controlling Interest 94, ,790 TOTAL NET EQUITY 2,342,543 2,332,234 TOTAL LIABILITIES AND EQUITY 7,407,688 7,286,033 24

26 AES GENER AND SUBSIDIARIES Consolidated Income Statement for the periods ended on 31, 2016 and 2015 International Financial Reporting Standards INCOME STATEMENT 31, , 2015 ThUS$ ThUS$ Operating Revenue 555, ,535 Cost of Sales (434,306) (401,410) GROSS PROFIT 121, ,125 Other Operating Revenues Selling, general and administrative Expenses (23,352) (28,988) Other Operating Expenses (635) (824) Other Income / (Loss) (1,220) 335 Financial Income 2,962 2,844 Financial Expense (33,797) (32,394) Equity Participation in Net Income of Associates 2,552 8,030 Foreign Currency Exchange Differences (11,152) (7,758) NET INCOME (LOSS) BEFORE TAXES 57,081 73,222 Income Tax Income (Expense) (17,056) (24,947) Net Income (Loss) from Current Operations 40,025 48,275 Income (Loss) from Discontinued Activities - - NET INCOME (LOSS) 40,025 48,275 Income Attributable to Shareholders of Parent 41,033 51,330 Income (Loss) Attributable to Non-Controlling Interests (1,008) (3,055) NET INCOME (LOSS) 40,025 48,275 25

27 AES GENER AND SUBSIDIARIES Consolidated cash flow statements As of 31, 2016 and 2015 International Financial Reporting Standards 31, 31, CONSOLIDATED CASH FLOW STATEMENT MUS$ MUS$ Net Cash Flows provided by (used in) Operating Activities Receipts from Customers 571, ,787 Other Receipts from Operating Activities 2,548 4,473 Payments to Suppliers (392,729) (507,562) Payments made to Employees (22,891) (20,761) Other Payments for Operating Activities (17,914) (21,027) Payments of Dividends - - Receipt of Dividends - - Payment of Interests (24,110) (17,574) Receipt of Interests 8, Income Taxes Paid (13,184) (6,706) Other Operating Outflows from Operating Activities (13,542) (5,773) NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES 97,990 80,447 Net Cash Flows provided by (used in) Investing Activities Loss of Control over a Subsidiary or other business - - Purchase of Non-Controlling Interest - - Other receipts for sale of equity or debt instruments of other entities - - Proceeds from Sale of Property, Plant and Equipment - 1 Purchases of Property, Plant and Equipment (149,792) (407,101) Proceeds from sale of Intangible Assets - - Purchases of Intangible Assets (54) (288) Proceeds from other Long-Term Assets 16,630 - Purchase of Long Term Assets - - Other Outflows from Investing Activities 17,221 31,148 NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES (115,995) (376,240) Net Cash Flows provided by (used in) Financing Activities Proceeds from Share Issuance 5,200 65,200 Proceeds from Long Term Borrowings 23, ,047 Proceeds from Short Term Borrowings - - Proceeds from Related Parties Borrowings - - Repayments on Loans - - Payments on Financial Leasing Liabilities (453) (524) Other Inflows (Outflows) of Cash and Cash Equivalent (14,050) (4,531) NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES 14, ,192 INCREASE (DECREASE) IN NET CASH AND CASH EQUIVALENT (3,508) 61,399 Effects of Foreign Exchange Variations on Cash and Cash Equivalents 2,543 (4,279) Cash and Cash Equivalents at the Beginning of Period (965) 57,120 Cash and Cash Equivalents at the Beginning of Period 267, ,691 CASH AND CASH EQUIVALENT AT THE END OF PERIOD 266, ,811 26

28 AES GENER CONSOLIDATED EBITDA Var. EBITDA (ThUS$) % Gross Profit 121, ,125-7% Depreciation (-) 58,430 55,936 4% Other Operating Revenues % Administrative Expenses (23,352) (28,988) -19% Other Operating Expense (635) (824) -23% Other Costs not included in EBITDA (-) 1,437 1,686-15% TOTAL EBITDA 157, ,787-1% 27

29 ANNEX 1: GUACOLDA ENERGÍA S.A Summarized income statement for the period As of 31, 2016 and 2015 International Financial Reporting Standards Income Statement (ThUS$) Operating Revenue Contract Sales 62,669 95,900-35% Spot Sales 14,187 16,176-12% Other Revenue 8,697 16,423-47% Total Operating Revenue 85, ,499-33% Cost of Sales Fuel consumption (28,536) (34,377) -17% Energy and capacity purchases (912) (32,293) -97% Transmission tolls (4,633) 3, % Other cost of sales (13,446) (18,384) -27% Depreciation (16,803) (11,651) 44% Total Cost of Sales (64,330) (92,774) -31% Var % Gross Profit 21,223 35,725-41% Selling, general and administrative Expenses (3,626) (3,230) 12% EBITDA 34,400 44,146-22% Financial Expense (11,089) (8,291) 34% Net Income (Loss) Before Taxes 6,934 21,795-68% Income Tax Income (Expense) (1,831) (5,901) -69% Net Income (Loss) Before Taxes 5,103 15,894-68% Balance Sheet Information (ThUS$) Cash and Cash Equivalents 66,409 18, % Property, Plant and Equipment 1,646,782 1,566,105 5% Other Current Financial Liabilities (72,707) (108,436) -33% Other Non-Current Financial Liabilities (768,933) (629,033) 22% Total Financial Liabilities (841,640) (737,469) 14% 28

30 Energy Generation, purchases and sales Energy (GWh) Var % Generation Thermo 1,144 1,081 6% Purchases Spot Other generators % Total Purchases % Sales Distribution Companies % Other customers % Spot % Total Sales 1,156 1,100 5% As of 31, 2016, the decrease of ThUS$14,702 in gross profit is mainly explained by a negative impacts in transmission revenues and costs, associated to transmission settlements registered in both quarters, resulting in lower profit registered in the first quarter of Additionally, lower volume sales of 211 GWh to regulated and unregulated customers were registered, mainly explained by lower mining production during the first three months of These negative effects are partially compensated by lower energy purchases associated to higher generation and lower cost of fuel consumption associated to lower coal prices. From a non-operational standpoint, main variances include a positive effect in deferred taxes related to the reorganization process between Empresa Eléctrica Gaucolda S.A. and Guacolda Energía S.A. completed in 2015, partially offset by an increase in finance expenses due to lower capitalization interest after the start of commercial operations at Unit 5. 29

31 ANNEX 2: EMPRESA ELÉCTRICA ANGAMOS S.A Summarized income statement for the period As of 31, 2016 and 2015 International Financial Reporting Standards Marzo 2016 Marzo 2015 Income Statement (ThUS$) Operating Revenue Contract Sales 62,059 58,577 6% Spot Sales 13,159 9,397 40% Other Revenue 1, % Total Operating Revenue 76,645 68,178 12% Cost of Sales Fuel consumption (24,678) (27,438) -10% Energy and capacity purchases (7,279) (690) 955% Transmission tolls (561) (520) 8% Other cost of sales (11,510) (12,206) -6% Depreciation (12,080) (11,674) 3% Total Cost of Sales (56,108) (52,528) 7% Var % Gross Profit 20,537 15,650 31% Selling, general and administrative Expens (1,447) (1,975) -27% EBITDA 31,636 25,918 22% Financial Expense (10,903) (10,804) 1% Net Income (Loss) Before Taxes 11,429 3, % Income Tax Income (Expense) (1,847) (942) 96% Net Income (Loss) Before Taxes 9,582 2, % Balance Sheet Information (ThUS$) Cash and Cash Equivalents 73,487 36, % Property, Plant and Equipment 930, ,748-5% Other Current Financial Liabilities (14,259) (14,336) -1% Other Non-Current Financial Liabilities (781,246) (779,523) 0% Total Financial Liabilities (795,505) (793,859) 0% 30

32 Energy Generation, purchases and sales Energía (GWh) Variación % Generación Termo % Ventas Clientes Libres % Ventas Spot % Total Ventas % As of 31, 2016, the increase by ThUS$4,887 in Angamos gross profit compared to the same period of 2015, is mainly explained by higher volume sales to unregulated customers of 239 GWh in the first quarter of This effect was partially offset by higher net spot purchases as a result of lower volume sales of 94 GWh. From a non-operational standpoint, main variances include an increase in net finance income of ThUS$2,103 as a result of higher interest received from AES Gener for an intercompany loan, partially compensated by higher income taxes of ThUS$