AES GENER 2015 YEAR-END RESULTS

Transcription

1 AES GENER 2015 YEAR-END RESULTS Net income recorded as of December 31, 2015 was ThUS$264,874, representing a 44% increase compared to the previous year. AES Gener recorded EBITDA of ThUS$691,068 during 2015, 3% higher than the EBITDA recorded in The increase of 3% in EBITDA and 9% in gross margin between 2014 and 2015 were driven by improved results in Chile partially offset by lower operating results in Colombia and Argentina. In Chile, an additional revenue was recorded associated with the lease of Nueva Renca plant in the Central Interconnected Grid (SIC), and there was an increase in the demand from unregulated customers in the Greater Northern Interconnected Grid (SING). Results in Colombia were affected by lower contract prices. The 44% increase in net income in year ended on December 31, 2015 compared to 2014 is principally due to higher operating results, a positive variation in foreign exchange differences and an increase in equity in earnings of associates mainly related to a positive variation registered in Guacolda s deferred taxes after the reorganization process between Empresa Eléctrica Guacolda S.A. and Guacolda Energía S.A. CONSOLIDATED FINANCIAL SUMMARY THUS$ % FINANCIAL SUMMARY Var Revenue 2,165,407 2,328,406-7% Gross Profit 582, ,386 9% EBITDA 1 691, ,215 3% Net Income 264, ,651 44% Net Operating Cash 107, ,628-58% Constanza López (562) IR Manager constanza.lopez@aes.com Earnings per share EBITDA is calculated as the sum of gross profit plus administrative expenses, depreciation and other minor adjustments. 1

2 HIGHLIGHTS IN 2015 TO DATE AES Gener, same as in 2014, continued to be the leader in energy generation in Chile, contributing with its plants with 27.2% of the total generation during Projects Guacolda V, a 152 MW coal-fired plant in the SIC, and the desalinization plant, with capacity of 4,800 m3/d adjacent to the Angamos plant in the SING, started its commercial operations in December Progress of projects under construction: AES Gener continues to consolidate its 2 nd phase of expansion with 1,104 MW of diverse generating projects to be completed, with direct employment for 8,097 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 98% 1H16 Andes 21 MW Solar 91% 1H16 Cochrane 532 MW Coal 96% H 2018/ Alto Maipo 531 MW Hydro 24% 1H2019 In June 2015, the Government officially announced the authorization for AES Gener to export energy from Chile to Argentina through the publication of the corresponding Decree in the Official Gazette. AES Gener initiated the exports of energy from the SING to the SADI in February During 2015, the Company concluded important liability management transactions for AES Gener and its affiliates for almost $1.3 billion, through the issuance of debt in the international markets at an average interest rate below 5%, allowing to extend AES Gener s maturity profile. Standard & Poor s, Fitch Ratings and Moody s reaffirmed the Company s investment grade credit rating of BBB- and Baa3 with stable outlook, in July 2015, August 2015 and January 2016, respectively. Similarly, international Investment Grade credit rating for Empresa Eléctrica Angamos S.A. (Eléctrica Angamos) and Guacolda Energía S.A. (GUacolda) were also reaffirmed during 2015, maintaining stable outlook. In August 2015, AES Gener was awarded with a regasification capacity in GNL Quintero Open Season process, later ratified at 1.5 million m3/day. In September 2015, the Santiago Stock Exchange and the S&P Dow Jones Indexes announced that AES Gener is the only generating company in Chile to be included in the Dow Jones Sustainability Chile Index (DJSI Chile Index), which is composed by 12 companies. In September 2015, the reorganization process of subsidiaries Empresa Eléctrica Guacolda S.A. and Guacolda Energia S.A. was successfully completed. In November 2015, AES Gener signed a gas supply agreement with ENAP to secure gas supply for the generation of Nueva Renca, equivalent to approximately 4 months of generation at full capacity during 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, which is higher than the spot price currently received for these sales, retroactive since February In December 2015, the Argentine authority partially released the FX restrictions, allowing the purchase of US dollar in this country. This allowed Termoandes to distribute to AES Gener a total of ThUS$5,800 in January During 2015, The Company was recognized as one of the best companies to work in different countries in which it operates according to "Great Place to Work". It was ranked # 21 in Chile, # 19 in Colombia and # 17 in Argentina. 2

3 EXTERNAL FACTORS Annual Inflation Rate Exchange Rate as of December 31, Var (%) Twelve month period ended December 30, Chile 3.9% Chile % Colombia 6.4% Colombia 3, , % Argentina 30.0% Argentina % GDP Growth in Electricity Consumption, twelve- month period ended on Dec. 31, 2015: Twelve month period ended Dec 31, 2014 SIC 1.2% Chile 2.1% SING 7.4% Colombia 3.0% Colombia 4.1% Argentina 2.2% Argentina 3.9% REVIEW OF 2015 RESULTS NET INCOME As of December , AES Gener S.A. (hereinafter referred to as AES Gener or the Company) recorded a net income ThUS$264,874, 44% higher than the ThUS$183,651 recorded in the previous year. EBITDA as of December 31, 2015 was ThUS$691,068, 3% higher than the EBITDA of ThUS$671,215 recorded at the close of December The increase in EBITDA is mainly explained by improved operating results in Chile, as a result of an additional revenue registered in the SIC from the lease of Nueva Renca plant, and in the SING, an increase in demand under long-term agreements with mining clients. In Colombia, lower gross profit was registered driven by lower contract prices as a consequence of the devaluation of the Colombian peso. From an operational standpoint, gross profit as of December 31, 2015 totaled ThUS$582,843 representing a positive variation of 9% when compared to the ThUS$536,386 recorded at the close of December of the previous year. Main variations in gross profit between 2015 and 2014 were the following: In the SIC, gross profit increased by ThUS$31,804 principally explained by an additional revenue recorded associated with the lease of Nueva Renca representing a margin of ThUS$38,049. This effect was partially offset by lower sales to regulated customers driven by the expiration of a contract in December 2014 and lower average sale prices to distribution companies due to the devaluation of the Chilean peso. It should be noted that there are foreign exchange forwards executed to mitigate the impact from the variation in foreign exchange registered in foreign exchange differences. In the SING, gross profit was ThUS$12,850 higher. Among the most important variations is the increase in volume demand from mining customers, mainly related to long-term power purchase agreements of Norgener S.A (hereinafter, Norgener), partially offset by lower net spot sales, mainly due to lower average spot prices. 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$11,664 due to lower average contract prices in US dollar terms of 19%, mainly driven by the strong devaluation of the Colombian peso by 34%. Like in Chile, it should be noted that there are foreign exchange forwards executed to protect the Colombian pesos margin reflected in foreign exchange differences. Additionally, lower net spot sales were registered associated to the increase in spot purchases, particularly in the first half of 2015, partially compensated by the deepening of the El Niño Phenomenon during the last four months of 2015, when AES Chivor registered spot sales at higher prices than in the previous year. In the Argentine Interconnected System (SADI), Argentina s, gross margin increased by ThUS$13,467 when comparing both periods, as a result of an adjustment in depreciation associated to equipment and spare parts received under a long term maintenance contract, partially offset by lower contract sales under the Energía Plus program. It should be noted that 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, retroactive since February 2015, which resulted in the registration during the fourth quarter of 2015 of an additional income of ThUS$8,893. Within the non-operating income, a positive variation was registered in exchange rate differences of ThUS$49,095 due to the FX forwards executed by the Company against the Chilean and the Colombian peso, which registered a compensation of ThUS$30,380 during 2015, and a lower exposure to the local currency in Argentina, despite higher devaluation during Additionally, higher earnings from associates of ThUS$41,492 were registered as a result of higher net income at Guacolda (ex Empresa Eléctrica Guacolda S.A., hereinafter, Guacolda), mainly driven by a positive variation registered in Guacolda s deferred taxes, after the reorganization process between Empresa Eéctrica Guacolda S.A. and Guacolda Energía S.A., partially offset by the sale of a transmission line registered during the first quarter 2014 and the one-off impact of the amortization of deferred expenses registered as of September 2015, associated with the refinancing process of Guacolda s debt in April

4 2015 INCOME STATEMENT INCOME STATEMENT 2015 THUS$ 2014 THUS$ Var % OPERATING REVENUE Energy and capacity sales 1,995,073 2,183,248-9% Other operating revenue 170, ,158 17% Total Operating Revenue 2,165,407 2,328,406-7% COST OF SALES Fuel consumption (501,710) (733,220) -32% Fuel cost of sales (52,780) (28,129) 88% Energy and capacity purchases (458,794) (434,707) 6% Transmission tolls (94,371) (88,554) 7% Other cost of sales (268,532) (283,620) -5% Depreciation and amortization (206,377) (223,790) -8% Total Cost of Sales (1,582,564) (1,792,020) -12% GROSS PROFIT 582, ,386 9% Other operating revenues 2,218 1,389 60% Selling, general and administrative expenses (104,659) (93,323) 12% Other operating expense (2,610) (1,128) 131% Other income / (expense) (15,897) (20,187) -21% Financial income 8,859 10,491-16% Financial expense (148,304) (151,532) -2% Equity in earnings of associates 80,273 38, % Foreign currency exchange differences (17,340) (66,435) -74% NET INCOME (LOSS) BEFORE TAX AND NON- CONTROLLING INTEREST 385, ,442 51% Income tax income (expense) (132,709) (79,546) 67% Net Income (Loss) After Tax 252, ,896 44% Income (loss) from discontinued operations, net of tax - - Net Income 252, ,896 44% Income (Loss) Attributable to Shareholders of Parent 264, ,651 44% Non-controlling interest (12,200) (8,755) 39% NET INCOME 252, ,896 44% 4

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 December 31, 2015, EBITDA was ThUS$691,068 compared to the ThUS$671,215 recorded in This positive variation of ThUS$19,853 is mainly explained by an additional revenue in the SIC associated with the lease of Nueva Renca plant, and an increase in the demand of mining customers in the SING due to the startup of new PPAs, partially offset by lower contract sales in Colombia related to a decrease in average sale prices during 2015 largely due to the devaluation of the Colombian peso and lower contract sales in Argentina. The table below shows EBITDA by market for 2015 and 2014: EBITDA (THUS$) VAR % SIC 272, ,586 7% SING 153, ,921 25% SIN 245, ,931-6% SADI 19,339 31,777-39% TOTAL EBITDA 691, ,215 3% Note: For EBITDA calculation please see page 30, Consolidated EBITDA. In the years ended on December 31, 2015 and 2014, the contribution to EBITDA from the SIC, SING, SIN and the SADI was the following: GROSS PROFIT Gross profit increased by ThUS$46,457 mainly as a result of increases in SIC, SADI and SING of ThUS$31,804, ThUS$13,467 and ThUS$12,850 respectively, partially offset by the reduction by ThUS$11,664 in the SIN. 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. 5

6 GROSS PROFIT (THUS$) VAR % OPERATING REVENUE SIC 1,119,927 1,289,042-13% SING 568, ,639 0% SADI 91, ,525-41% SIN 559, ,061 2% Consolidation adjustments (173,719) (236,861) -27% Total Operating Revenue 2,165,407 2,328,406-7% COST OF SALES SIC (886,263) (1,087,182) -18% SING (490,012) (504,456) -3% SADI (71,496) (149,027) -52% SIN (308,512) (288,216) 7% Consolidation adjustments 173, ,861-27% Total costs of sales (1,582,564) (1,792,020) -12% TOTAL GROSS PROFIT 582, ,386 9% Central Interconnected Grid (SIC) In the SIC, gross profit increased by ThUS$31,804 or 16% mainly due to an additional revenue associated with the lease of Nueva Renca plant, partially offset by lower sales to regulated customers associated to lower volume sales and lower average sale prices with distribution companies driven by the devaluation of the Chilean peso. The following table presents gross profit in the SIC for both periods: SIC GROSS PROFIT (THUS$) VAR % OPERATING REVENUE Regulated customer sales 463, ,151-13% Unregulated customer sales 281, ,558 12% Spot sales 51, ,374-66% Other operating revenues 323, ,959-9% Total Operating Revenue 1,119,927 1,289,042-13% COST OF SALES Fuel consumption (227,636) (383,172) -41% Energy and capacity purchases (110,692) (129,294) -14% Transmission tolls (87,245) (83,044) 5% Fuel cost of sales (222,016) (241,542) -8% Depreciation and amortization (108,785) (109,344) -1% Other cost of sales (129,889) (140,786) -8% Total Cost of Sales (886,263) (1,087,182) -18% TOTAL GROSS PROFIT 233, ,860 16% 6

7 The following table shows AES Gener generation by source in the SIC as of December 31, 2015 and 2014: SIC NET GENERATION (GWH) VAR % Hydro 1,173 1,202-2% Coal 5,503 5,734-4% LNG % Diesel % Biomass % Total 6,988 8,020-13% Main variations between the years ended on December 31, 2014 and 2015: Sales to regulated customers decreased by ThUS$66,929 due to lower physical sales for 494 GWh in 2015 when compared to 2014 mainly due to the expiration of the contract with CGE Distribución in 2014, and to a lesser extent to lower residential demand, and lower distribution companies average sale prices related to the devaluation of the Chilean peso. It should be noted that during the same period, gains of ThUS$12,515 were registered in foreign exchange variations, due to foreign exchange forwards executed to mitigate the impact from foreign exchange. In turn, sales to unregulated customers increased by ThUS$29,962 as of December 31, 2015 associated with the lease of Nueva Renca which represented revenues for ThUS$40,767, and to a lesser extent, an increase in physical sales for 115 GWh. This effect was partially offset by lower average sales price. Sales in the spot market decreased by ThUS$98,671 between the 2014 and 2015, associated with lower physical sales for 479 GWh and lower spot prices that decreased from an average of US$/MWh the twelve month period ended on December 31, 2014 to an average of 88.6 US$/MWh in It should be noted that the lower volume sale to the spot market was partially compensated by the lease of Nueva Renca previously mentioned. Also, 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 lower compared to 2014 by ThUS$18,602, despite the increase in volume terms by 161 GWh as a result of lower spot prices 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 negative variation of ThUS$33,477 in principally explained by lower coal sales, which are compensated in fuel cost of sales, and, to a lesser extent, lower services revenues after in 2014 Norgener, located in the SING, was absorbed by AES Gener, in the SIC. Fuel consumption as of December 31, 2015 decreased significantly by ThUS$155,536 compared to 2014, mainly associated with lower diesel and Liquefied Natural Gas (LNG) generation by 557 GWh and 212 GWh, respectively, mostly in Eléctrica Santiago due to the lease of Nueva Renca, and additionally, lower coal generation of 231 GWh mostly related to the programmed maintenance at units II and IV of Ventanas Complex. It should be noted that hydroelectric generation decreased by 29 GWh. 7

8 Greater Northern Interconnected Grid (SING) In the SING, the gross profit increased by ThUS$12,850, equivalent to 20% higher in 2015 as compared to This is a consequence of the increase of sales to unregulated customers, mostly associated with the increase in contracted demand of Norgener s mining customers due to the startup of new PPAs. This effect was partially offset by lower sales to the spot market and higher volumes of energy and capacity sales. The following table presents gross profit in the SING for both periods: SING GROSS PROFIT (THUS$) VAR % OPERATING REVENUE Unregulated customer sales 536, ,046 9% Spot sales 20,559 52,590-61% Other operating revenues 11,362 25,003-55% Total Operating Revenue 568, ,639 0% COST OF SALES Fuel consumption (226,812) (247,037) -8% Energy and capacity purchases (94,330) (77,337) 22% Transmission tolls (6,537) (5,232) 25% Fuel cost of sales (2,358) (17,351) -86% Depreciation and amortization (81,076) (71,189) 14% Other cost of sales (78,899) (86,310) -9% Total Cost of Sales (490,012) (504,456) -3% TOTAL GROSS PROFIT 78,033 65,183 20% The following table shows AES Gener generation by type of fuel in the SING as at December 31, 2014 and 2015: SING NET GENERATION (GWH) Coal 5,273 5,492-4% LNG % Total 5,982 5,809 3% VAR % Main variations between the years ended on December 31, 2014 and 2015: Between 2015 and 2014 an increase in sales to unregulated customers for ThUS$44,078 was registered mostly due to a larger demand volume. Contract sales increased from 4,969 GWh as of the close of December 2014 to 6,183 GWh in 2015, which is equivalent to a 24% increase. This effect is mainly explained by higher sales in Norgener associated with the increase of the demand of mining customers due to the startup of new PPAs. Energy and capacity sales in the spot market decreased by ThUS$32,031 as a result of lower average spot prices, associated with a reduction of fuel prices. The average spot price decreased from 75.6 US$/MWh as of December 31, 2014 to 57.3 US$/MWh in Likewise, physical sales decreased by 433 GWh as a result of lower generation from Angamos and Norgener due to higher dispatch from new renewable energy projects in the grid. Additionally, energy and capacity purchases increased by ThUS$16,996 between 2014 and 2015 as a result of a larger volume or physical purchases mainly as the result of a programmed maintenance at Norgener unit 2 and both units at Angamos, which increased from 797 GWh as of December 31, 2014 to 1,376 GWh in The cost of fuel consumption decreased by ThUS$20,225 as a result of lower coal average prices and lower generation by 220 GWh with this fuel comparing both periods. This effect was partially offset by higher generation with LNG by 393 GWh during The latest is associated with the lease of units running with such fuel in order to make the generation at minimum technical load more efficient in the case of the most expensive units in the SING and hence reduce the withdrawal costs of the grid. It should be noted that the other fact that also helped to decrease withdrawal costs was the decrease in fuel prices, decreasing the costs of generation of plants that regulates the system s frequency. 8

9 Colombian National Grid (SIN) In Colombia, gross profit decreased by ThUS$11,664 equivalent to 4% comparing 2015 and This negative variation is mainly explained by a reduction in contract sales, associated with a decrease in average sale prices mainly driven by the devaluation of the Colombian peso during 2015 of 34%, and lower net sales in the spot market due to higher spot purchases, particularly in the first half of Lower generation registered during the first half of 2015, was more than compensated from the second quarter 2015 onwards, driven by higher use of AES Chivor reservoir to give support to the Colombian system during the deepening of the dry hydrological conditions fundamentally during the last four months of the year. Spot sales made in the period September-December 2015 were sold at an average spot price of US$/MWh, compared to an average of 85.9 US$/MWh registered during the same period of The following table presents gross profit in Colombia for both periods: SIN GROSS PROFIT (THUS$) VAR % OPERATING REVENUE Contract sales 234, ,186-8% Spot sales 315, ,824 6% Other operating revenues 9, Total Operating Revenue 559, ,061 2% COST OF SALES Energy and capacity purchases (252,518) (228,077) 11% Depreciation and amortization (11,231) (15,399) -27% Other cost of sales (44,763) (44,740) 0% Total Cost of Sales (308,512) (288,216) 7% TOTAL GROSS PROFIT 251, ,845-4% The following table shows AES Gener generation in the SIN in the years ended on December 31, 2014 and 2015: SIN NET GENERATION (GWH) VAR % Hydro 4,110 3,982 3% Total 4,110 3,982 3% Main variations between the years ended on December 31, 2013 and 2014: Sales to distribution companies under contract decreased by ThUS$19,206 fundamentally explained by lower average prices in US dollar terms that fell from 75.6 US$/MWh in 2014 to 57.3 US$/MWh in 2015 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$13,272 were registered in foreign exchange variations, due to foreign exchange forwards executed to mitigate the impact from foreign exchange. To a lesser extent, volume sales registered a decrease of 2 GWh. Spot energy sales and ancillary service sales increased by ThUS$18,860 as a result of higher average spot prices that increased from US$MWh in 2014 to US$/MWh in 2015, as well as higher volume sales of 302 GWh, particularly in the period September-December 2015 when the effects from El Niño Phenomenon were stronger. During this period, to give support to the Colombian system, AES Chivor increase the use of the reservoir, increasing generation by 128 GWh between both years. In turn, spot energy purchases increased by ThUS$24,441 due to higher physical purchases of 193 GWh, which is the result of the lower plant generation particularly in the first quarter of With regards to the increase in other operating revenues of ThUS$9,158, this variance is explained by distribution and transmission revenues associated to new customers which not represent a margin to the Company as they have costs substantially similar registered in other costs of sales. 9

10 Interconnected Argentine Grid (SADI) Gross profit in SADI increased by ThUS$13,467 which represents a positive variation of 207% between 2015 and 2014, as a result of an adjustment in depreciation associated to equipment and spare parts received under a long term maintenance contract, partially offset by lower volume of energy sold to spot and under the Energía Plus program, at lower prices. It should be noted that in November 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, retroactive since February 2015, which is higher than the remuneration previously received for these sales. This resulted in the registration during the fourth quarter of 2015 of an additional income of ThUS$8,893. The following table presents gross profit in the SADI for both periods: SADI GROSS PROFIT (THUS$) VAR % OPERATING REVENUE Contract sales 71,677 80,852-11% Spot sales 19,784 74,667-74% Other operating revenues - 6 Total Operating Revenue 91, ,525-41% COST OF SALES Fuel consumption (47,262) (103,011) -54% Energy and capacity purchases (1,254) 1 Transmission tolls (589) (278) 112% Fuel cost of sales (792) - Depreciation and amortization (5,285) (27,858) -81% Other cost of sales (16,314) (17,881) -9% Total Cost of Sales (71,496) (149,027) -52% TOTAL GROSS PROFIT 19,965 6, % The following table shows AES Gener generation in the SADI in 2015 and 2014: SADI NET GENERATION (GWH) VAR % LNG 4,003 4,456-10% Total 4,003 4,456-10% Main variations between 2014 and 2015: Between 2014 and 2015, contract revenues decreased by ThUS$9,175 as a result of lower physical sales for 283 GWh equivalent to 22% associated with a drop in the volume of industrial demand, and lower contract prices under the Energía Plus methodology. Volume sales to the spot market decreased by 139 GWh. For an accountability standpoint during the fourth quarter 2015, adjustments were made to reflect the economical transactions under the new regime that applies for these sales, as described in Resolution 482, approved for Termoandes retroactive from February Under this regime, gas is directly provided by CAMMESA, registering in revenue, the margin for these sales. It should be noted that the spot price in Argentina pesos remained at AR$120/MWh and, in average, the spot price in dollars dropped from 14.8 US$/MWh in 2014 to 13.0 US$/MWh in Generation decreased by 452 GWh between 2014 and 2015 associated with the maintenance of two units during the period, the steam turbine and one of the gas turbines. In addition, lower depreciation of ThUS$22,753.was registered as a result of a one-off adjustment associated to equipment and pare parts received under a long term maintenance contract. 10

11 Physical energy sales in each market were as follows in the years ended December 31, 2014 and 2015: PHYSICAL SALES (GWH) VAR % SIC - Chile 8,121 8,980-10% Distribution companies 5,030 5,524-9% Other customers 2,595 2,480 5% Spot (CDEC) % SING - Chile 7,224 6,442 12% Distribution companies Other customers 6,183 4,969 24% Spot (CDEC) 1,041 1,473-29% SIN - Colombia 6,393 6,093 5% Distribution companies 3,508 3,509 0% Spot and other 2,885 2,583 12% SADI - Argentina 4,022 4,444-9% Customers 1,007 1,290-22% Spot 3,014 3,154-4% TOTAL SALES 25,760 25,958-1% SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Administration expenses increased by 12% from ThUS$93,393 as of the close of December 2014 to ThUS$104,659 in The most important variations include a reclassification of insurance payments from cost of sales to administrative expenses of ThUS$6,474, higher Colombian taxes of ThUS$2,618 associated to equity taxes, and higher other taxes in Termandes of ThUS$2,051 from penalties and fines related to income tax. FINANCIAL RESULTS The non-ebitda variables which experienced the most important changes comparing 2014 and 2015 include positive variances in exchange rate differences for ThUS$49,095, in earnings of associates for ThuS$41,492, in other losses of ThUS$4,290 and in finance expenses for ThUS$3,228. These effects were partially offset by a negative variation in finance income of ThUS$4,290. The following table shows the variations aforementioned: FINANCIAL RESULTS (THUS$) VAR % Other income / (loss) (15,897) (20,187) -21% Finance income 8,859 10,491-16% Finance expense (148,304) (151,532) -2% Equity in earnings of associates 80,273 38, % Foreign currency exchange differences (17,340) (66,435) -74% A positive variation of ThuS$49,095 was recorded in exchange rate differences mainly explained by the FX forwards executed by the Company to mitigate the FX impact on Colombian margin, sales to regulated customers in Chile, differences between invoice date and payment date and VAT recovery. This FX forwards registered compensation for ThUS$30,380 in Additionally Termoandes registered lower FX impact despite higher devaluation of the Argentine peso due to a lower exposure to this currency as of December It is important to mention that Termoandes keeps Argentine Sovereign Bonds payable in dollars for ThUS$26,462 with the purpose of mitigating the exchange rate risk. 11

12 The following table shows variation in exchange rates in the countries in which AES Gener has operations: DECEMBER DECEMBER VAR DECEMBER DECEMBER VAR % % Chilean Pesos ($) % % Colombian Pesos (Col$) 1, , % 2, , % Argentine Pesos (Ar$) % % The positive variation of the net finance expenses for ThUS$1,596 as of December 2015 is mainly due to the lower corporate debt due to the payments of the bond of AES Chivor for ThUS$170,000 in December 2014 and the early redemption of the Series O local bonds for ThUS$47,042 in July This positive variation was partially offset by the increase of corporate debt at lower rates than the paid debts. It should be noted that in July 2015, the refinancing of the balance of the Eléctrica Ventanas project finance for ThUS$308,000, and the partial repurchase of an AES Gener local bond for ThUS$62,380 due in 2019 was completed through a 144-A/Reg S bond issuance in the international markets for a total of ThUS$425,000 due in Later, in December 2015, an additional portion of AES Gener local bond was repurchase for a total of ThUS$15,280. In turn, the positive variation of ThUS$41,492 in the equity in earnings (losses) of associates is explained by the positive impact on deferred taxes after the merger process by which Empresa Eléctrica Guacolda S.A. was absorbed by Guacolda Energía S.A. This effect was partially offset by an extraordinary gain for ThUS$32,132 recorded as of December 31, 2014 from the sale of the 2x220 kv 330 km transmission line Maintencillo Cardones sold for a total of ThUS$54,720, as well as the one-off amortization of deferred expenses associated to the refinancing of Guacolda s debt registered as of December Other losses registered a positive variation of ThUS$4,290 mainly associated with the one-off amortization of deferred expenses associated to the refinancing of Eléctrica Angamos project finance debt in 2014 and the gain registered in Termoandes in 2015 due an adjustment associated to equipment and spare parts received under a long term maintenance contract. This effect was partially offset by the one-off amortization of deferred expenses associated to the refinancing of Eléctrica Ventanas project finance and the partial repurchase of AES Gener local bond in US dollar. INCOME TAX As of December 31, 2015 the income tax expense was 67% higher in comparison to 2014 from ThUS$79,546 as of December 2014 to ThUS$132,709 in 2015 which is mostly explained by higher income before taxes and an increase in the Chilean corporate tax rate from 20% to 22.5%, and in the Colombian corporate tax rate from 34% to 39%. CASH FLOW The final balance of cash and cash equivalent as of December 31, 2015 was ThUS$267,233, 16.9% higher than the final balance of ThUS$228,691 as of the close of December The total net flow of the period was positive for ThUS$51,842 as of December 31, 2015 that positively compares with the negative flow of ThUS$451,317 as of December 31, The net flow of the period is explained by the negative flow in investment activities, partially offset by positive net flows in financing and operation activities. Cash Flow (ThUS$) Variation (%) Net cash from operating activities 107, ,628-58% Net cash from investing activities (851,627) (871,786) -2% Net cash from financing activities 795, , % Total Net Cash for the Period 51,842 (451,317) -111% Effects of Foreign Exchange Variations (13,300) (27,508) -52% Total Cash at the End of the Period 267, ,691 17% 12

13 Net cash from operating activities recorded a negative variation of ThUS$149,994 as of the close of December 2015 compared with 2014 mainly due to the lower receipts from AES Chivor of ThUS$ as a result of higher sales in December 2015 collected in January 2016, the movement of ThUS$28,009 originally booked as cash and cash equivalent to other financial assets due to the term of the investment, the payment of water rights licenses for ThUS$7,351 and higher taxes paid of ThUS$35,751. Net cash from investment activities showed a positive variation of ThUS$20,159 comparing the 2015 and The main variations corresponds to an increase in other cash inflows of ThUS$131,748 mainly related to VAT recovery due to the fixed assets at Cochrane and Alto Maipo projects, and a decrease in purchase of long term assets of ThUS$73,313 fundamentally due to the purchase of Argentine sovereign bonds in 2014.These effects were partially offset by higher acquisitions of property, plant and equipment of ThUS$172,025 associated with the construction works of Cochrane and Alto Maipo and the investments in emission control equipment in the oldest coal-fired units of AES Gener. Net cash from financing activities represented a positive variation of ThUS$632,994 as of the close of December 2015 compared to This is a consequence of the long-term loan increase, such as the disbursement for ThUS$100,000 made by AES Gener to finance working capital requirements and a disbursement of ThUS$50,000 of uncommitted credit facilities to refinance the!44-a Reg S AES Chivor bond due in December 2014, as well as disbursements to finance projects Cochrane and Alto Maipo. Additionally, there was an early redemption of the 144-A bonds for ThUS$147,050 with maturity in March 2014, executed in January 2014 and the refinancing of Eléctrica Ventanas project finance debt for approximately ThUS$308,000 and the partial repurchase of AES Gener local bond in US dollars for ThUS$62,380 through the issuance of a 144-A/Res S bond in the international markets for ThUS$425,000 million. There was an additional portion of the local bond repurchased in December 2015 for a total of ThUS$15,280. These positive effects were partially compensated by a negative variation in proceeds from share issuance of ThUS$94,636 registered as of December 31, 2015 as the result of a capital increase executed in April 2014 for a total of ThUS$150,000, compared to the capital contribution from the partners of Alto Maipo and Cochrane during FINANCIAL DEBT Consolidated financial debt, including principal, interest and issuance costs, increased from ThUS$2,733,750 as of December 31, 2014 to ThUS$3,375,106 as of December 31, As of December 31, 2015, approximately 88.5% 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 11.5% of the Company s consolidated debt maintains a variable interest rate. As of December 31, 2015, approximately 97.9% 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, 0.9% was denominated in Chilean UF (Eléctrica Santiago s bond) and 1.2% in Colombian pesos (the leasing executed by AES Chivor to finance the Tunjita Project). During 2015, as mentioned earlier, Eléctrica Ventanas project finance was refinanced through the issuance of a 144- A/Reg S bond for a total of ThUS$425,000 with maturity in The latter also included the partial repurchase of the local Series Q bond with maturity in 2019, with outstanding amount of ThUS$39,820 after the refinancing process. Later, in December 2015, an additional portion of the local bond Series Q was repurchase, leaving an outstanding of ThUS$24,540. In December 2014, the Company entered into a three-year credit agreement with Banco Estado, Bank of Nova Scotia, Misuho and SMBC for a total of ThUS$100,000 which were disbursed during the first half of 2015 to cover the working capital requirements, plus the disbursement of ThUS$50,000 from uncommitted credit facilities. The following graph details AES Gener s consolidated amortization schedule for the outstanding principal of ThUS$3,507,496 as of December 31, 2015, excluding issuance costs and including non-recourse project finance debt. 13

14 1,600 Total Consolidated Debt (US$ Million) 1,768 1, AES GENER GROUP OPERATING STATISTICS GENERATION (GWH) Installed Capacity SIC 11,098 12,578 SIC (1) MW 2,743 2,618 Gener Hydro 1,173 1,202 SING (2) MW Gener Thermal 1,554 1,817 Colombia MW 1,000 1,000 Eléctrica Campiche 1,944 1,965 SADI MW Eléctrica Ventanas 2,032 1,983 Total MW 5,222 5,083 Eléctrica Santiago 284 1,053 Guacolda 4,110 4,558 SING 5,982 5,809 Norgener (3) 2,515 2,265 Net Generation Eléctrica Angamos 3,467 3,544 SIC (1) GWh 11,098 12,578 SIN - Colombia 4,110 3,982 SING (2) GWh 5,982 5,809 AES Chivor 4,110 3,982 Colombia GWh 4,110 3,982 SADI Argentina 4,003 4,456 SADI - Argentina GWh 4,003 4,456 TermoAndes 4,003 4,456 Total GWh 25,193 26,825 Total 25,193 26,825 (1) Includes AES Gener, Eléctrica Ventanas, Eléctrica Santiago and Guacolda (2) Includes Norgener and Angamos (3) Includes CTM3 generation 14

15 AES GENER CONSOLIDATED 2015 ENERGY GENERATION, PURCHASES & SALES SIC SING SADI SIN ENERGY (GWH) AES GENER ELÉCTRICA SANTIAGO ELÉCTRICA VENTANAS ELÉCTRICA CAMPICHE NORGENER ELÉCTRICA ANGAMOS TERMOANDES AES CHIVOR TOTAL GENERATION Hydro 1, ,110 5,283 Thermo 1, ,032 1,944 2,515 3,467 4,003-15,800 TOTAL GENERATION 2, ,032 1,944 2,515 3,467 4,003 4,110 21,083 PURCHASES Spot , ,244 3,955 Other generators Intercompany 4, ,260 TOTAL PURCHASES 5, , ,244 8,998 Losses (78) (55) (61) SALES Regulated 5, ,508 8,538 Unregulated 2, ,787 2,397 1,007-9,786 Spot ,041 3,014 2,885 7,436 Intercompany ,032 1, ,260 TOTAL SALES 8, ,032 1,944 3,787 3,437 4,022 6,393 30,020 15

16 MARKET INFORMATION In Chile, AES Gener does business principally in two large interconnected electric systems: the Central Interconnected System or SIC, that runs from the southern part of Region II to Region X, and the Greater Northern Interconnected System or SING, that encompasses Region I and Region XV, as well as part of Region II. AES Gener s Colombian subsidiary, AES Chivor, is one of the principal electric generators in the Colombian National Interconnected System or SIN. AES Gener affiliate, TermoAndes sells electricity to the Argentine market. SIC During 2015 better hydrological conditions were present in the system that allowed the levels of the reservoirs to show an improvement in comparison with This helped to increase hydroelectric generation, which, along with the drop of fuel prices at the end of 2014, helps reducing the average marginal costs by 32% compared to It should be noted that the decrease in spot prices was deeper from June 2015, after the restart of operations at Bocamina I and II plants. As of December 31, 2015, the companies of the Group AES Gener, including Guacolda, contributed with 21.5% of the net generation in the SIC. The table below shows certain principal variables in the SIC for the years ended December 31, 2015 and SING SIC Demand growth (%) Annual consumption (GWh) 4,132 4,084 Average annual spot price (Quillota 220 kv) US$/MWh The average marginal cost decreased by 24% compared to the previous year associated with the fuel price drop and the commissioning of renewable energy projects that had no contracts so they sold their generation in the spot market. As of December 31, 2015, the companies of the Group AES Gener contributed with 34,4% of the net generation in the SING. The table below shows the main variables in the SING in 2014 and SING Demand growth (%) Annual consumption (GWh) 1,408 1,311 Average annual spot price (Crucero 220 kv) US$/MWh Colombia During 2015, El Niño Phenomenon was present in Colombia, deepening in the last four months of the year. This situation resulted in extreme dry conditions in the system which translated into spot prices exceeding the scarcity price (110 US$/MWh) from September 20, Additionally, certain thermo plants could not generate as their variable costs were higher than the scarcity price. As a result, spot price reached 600 US$/MWh by October 2015 causing the government to set a cap to the spot price at 270 US$/MWh as a temporary measure. Spot prices increased by 68% in Colombian pesos during 2015 compared to 2014; while in dollars they increased by 16% due to the devaluation of the Colombian peso. As of December 31, 2015, the generation of AES Chivor represented 6% of the demand in Colombia. The following table shows the main variables in the SIN during 2014 and 2015: 16

17 COLOMBIA Demand growth (%) Annual consumption (GWh) 5,514 5,298 Average annual marginal cost US$/MWh SADI As of the closing of December 2015 the spot price remained at 120 AR$/MWh. However, the devaluation of the Argentine peso has reduced the average marginal cost in dollars by 12%. As of December 31, 2015, the generation of Termoandes in the SADI represented 3% of the demand in Argentina. In March 2015 the Undersecretariat of Energy in Argentina changed the Incremental Mean Charge of Excess Demand in the SADI, which changed from 320 AR$/MWh for GUME/GUMA to 450 AR$/MWh and from 455 Ar/MWh for GUDI to 550 Ar/MWh. Users with the non-contract plus type of demand have to pay these new amounts on top of the 120 Ar/MWH of spot price and 27 Ar/MWh for capacity and sustainability charge. Additionally, 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, which is higher than the spot price currently received for these sales. The following table shows the main variables in the SADI for the six-month periods ended December 31, 2014 and 2015: SADI Demand growth (%) Average monthly consumption (GWh) 9,876 9,506 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 December 31, 2015, 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 December 31, 2015, 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$9,820 in AES Gener net income. 17

18 During the year ended on December 31, 2015 approximately 73.7% of operating revenue and 87.1% of the Company s costs of sales were denominated in US dollars compared to 73.1% of operating revenue and 88.7% of costs of sales during 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 December 31, 2015, sales in Colombian pesos represented 25.4% of the Company s consolidated operating revenue, while they represented 23.7% in 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 December 2015, 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$8,631 in AES Gener s net income. Spot prices in the Argentine market are denominated in Argentinean pesos. Argentine-peso denominated sales represented 0.9% of the Company s consolidated operating revenue for 2015, representing 3.2% for the year ended December 31, Given TermoAndes' net asset position in Argentine pesos as of December 31, 2015, 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$924 in AES Gener s net income. It is worth mentioning that the Argentine government devalued the Argentinean peso by approximately 22% in January 2014, which implied a negative impact for approximately US$16.7 million in the Company s results due to the reasons aforementioned. However, during December 2015, the Argentine peso devaluated by 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 December 31, 2015, 85.6% of short-term investments and current account balances were in US dollars, 9.7% in Chilean pesos, 3.4% in Colombian pesos and 1.3% in Argentine pesos. Cash balances in Argentine pesos are subject to exchange restrictions and exchange rate volatility particular to the Argentine market. As of December 2014, 74.2% of investments and balances were in US dollars, 11.4% in Colombian pesos, 9.7% in Chilean pesos and 4.7% 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 crosscurrency swap for the UF-denominated bonds issued in 2007 for approximately ThUS$219,527 and the swaps extend throughout the duration of the debt. It should be noted that a portion of this swap was unwound in June, 2014, associated to the Series O Bonds with maturity in 2015, and the swap related to the Series N Bonds, with maturity in 2028 for ThUS$172,264 remained in force. As of December 31, 2015, 97.9% 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 December 31, 2015 and December 31, 2014: 18

19 CURRENCY % DECEMBER 2015 DECEMBER 2014 US$ UF Col$ Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. 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 88.5% 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 December 31, 2015 and December 31, 2014: RATE (%) DECEMBER 2015 DECEMBER 2014 Fixed or with Swap Variable It should be noted that the subordinated bond issued in December 2013 for a total of ThUS$450,000 with tenor of 60 years, is at a fixed interest rate of 8.375% until year 5.5 from the issuance. From that period onwards, the interest rate is recalculated based on the 5-year swap rate published by Bloomberg plus a margin (spread) established in the offer and subsequently recalculated, based on the same conditions, every 5 years to maturity of debt. Commodity Price Risk 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. 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. 19

20 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. It should be noted that one generator participant of the CDEC was declared in bankruptcy in September 2011 as a result of the financial losses caused by the low hydrological conditions experienced in the SIC. In the proceedings, AES Gener and Eléctrica Santiago presented evidence of the outstanding debt owed by such generator, of which the Company and Eléctrica Santiago received ThUS$3,000, approximately 30% of the associated receivables. At the end of 2013, a distribution company was declared in bankruptcy after the non-payment of electricity purchase invoices. Given this situation, AES Gener initiated legal procedures against the distribution company to recover at least a portion of the receivables, provisioning for this purpose the amount of ThUS$1,626. In Colombia, AES Chivor performs risk assessments of its counterparties based on an internal credit quality evaluation, which in some cases may include guarantees. In 2010, also in low hydrological conditions, AES Chivor suffered collection problems with an energy trader and eventually registered a loss of ThUS$1,300. In this case, the trader was suspended from participating in the Bolsa or spot market and AES Chivor presented actions to recover the outstanding amount. 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 December 31, 2015, AES Gener had available liquid funds of ThUS$295,242; ThUS$267,233 of which are registered as cash and cash equivalent and ThUS$28,009 included in other current financial assets. Meanwhile, as of the closing of December 2014, the balance in liquid resources amounted to ThUS$228,691 included in cash and cash equivalent. It should be noted that the balance of cash and cash equivalents includes cash, term deposits with expiration of less than 90 days, securities, low risk immediately available mutual funds in U.S. dollars and re-sale and fiduciary agreements. 20

21 Additionally, as of December 31, 2015, AES Gener has committed and uncommitted credit lines for approximately ThUS$216,535 and uncommitted and unused credit lines for approximately ThUS$203,612. With regard to the amortization schedule, the Company seeks to maintain an adequate debt profile. More detail of the current debt profile, please see Financial Debt on page 13. OPERATIONAL RISKS Operational risks relate to the possibility of future outages or deficiencies that can negatively affect the Company s strategic operational and/or financial objectives. Hydrology AES Gener s operations in the SIC and Colombia may be affected by hydrological conditions, as hydrology is key to plant dispatch and prices in both grids. The Company uses its own statistical models to evaluate the risks associated with its contractual commitments. In general terms, AES Gener s commercial strategy in Chile is to execute long-term contracts for its efficient generation plants, reserving other more expensive units for sales in the spot market. In Colombia, the commercial strategy focuses on optimal use of the reservoir with the general objective of contracting 75% to 85% of expected generation. Currently, efficient generation of AES Gener s facilities in the SIC is balanced with contracted volume, which mitigates most of the exposure to hydrology variations, and additionally, the Company has back-up facilities which allow to limit maximum exposure. Natural Gas Supply The combined cycle plants in Chile, including Eléctrica Santiago s Nueva Renca plant, currently operate with diesel or LNG alternatively. Eléctrica Santiago does not have long term LNG contracts and acquires volumes on the spot market or under short term contracts according to dispatch projections. In Argentina, TermoAndes holds natural gas supply contracts with Argentine producers and the Company estimates that in the case of potential gas supply restrictions, TermoAndes has certain alternatives to mitigate the impact of gas supply interruptions which include contract price indexation mechanisms, spot gas purchases and back-up supply from other generators. Operational Failures 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. 21

22 Currently, generation projects are facing a high opposition from organized groups or communities located next to them. The Company cannot ensure that this opposition will not affect projects under construction. AES Gener, in its interest of being a good neighbor and through its Policy on Ties and Relations with Local Communities, works to be locally respected and to be valued by its good economic, social and environmental performance and by its contribution to the sustainable development to the communities where the Company is inserted. Decoupling Risk Given certain transmission restrictions in Chile due to the concentration of energy renewable plants, there may be differences between prices of injection and withdrawal (decoupling), which should be assumed by the generation companies and can, in turn, affect their operating margins. Currently, there are contracts in which this risk cannot be pass-through, although in new contracts with non-regulated customers, clauses to mitigate this risk are being negotiated. REGULATORY RISKS AES Gener, its subsidiaries and related companies are subject to regulation in diverse aspects of their businesses in the countries in which they operate. Regulatory risk is related to potential modifications in existing legislation that could adversely affect the Company s financial results. Regulatory Framework As electric generation companies, AES Gener, its subsidiaries and related companies are subject to regulation in diverse aspects of their business. The current regulatory framework, which governs all electricity supply companies, has been in effect in Chile since 1982 and in Colombia since Recently, in Chile there was a regulatory risk associated with the lack of energy supply contracts for distribution companies (distcos.), a situation that was not addressed by the regulation. In January 2015, the Government approved a law modifying the bidding process of distribution companies that incorporates an allocation mechanism for the energy without contract for each operation hour, pro rata of the effective injection from each generator in the same period, at a price determined as the maximum between the short term node price and the variable cost, plus the difference between the price of injection and withdrawal. Additionally, it includes the alternative for certain distcos to transfer a portion of its unused supply to others with lack of contracts, which means that a generation company that signs an agreement with a distco might end-up supplying another. Furthermore, in early 2014, the Independent Electric Systems Interconnection Law was enacted, with the aim of promoting the SIC-SING interconnection through a 600 kilometers transmission line connecting both systems. The regulation on the repayment mechanism for this project investment is not yet enacted, and 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$/MWh in October. This situation resulted in certain measures taken by the Government to alleviate financial situation of thermo plants using liquid fuel with potential risk of not being able to have its firm energy available, as variable costs are higher than revenue recognized for these plants (scarcity price). Moreover, a cap of ~270 US$/MWh was determined for spot prices as a temporary measure. All potential regulatory changes could affect AES Chivor s results. 22

23 In Argentina, since 2001, significant modifications have been introduced to the electricity regulatory framework. These modifications include tariff conversion to Argentine Pesos, freezing of tariffs, the cancelation of inflation adjustment other mechanisms and the introduction of a complex pricing system, which have materially affected electricity generators and market agents, and generated substantial price differences within the market. On March 26, 2013, the Argentine government introduced a resolution (Resolution ), which amended the current regulatory framework and is to be applied to electric generation companies with certain exceptions. In accordance with this regulation, a new compensation system moving from a marginal cost to average cost market, which is based on compensating fixed costs, variable non-fuel costs and an additional margin. On May 20, 2014, the Argentine Government published 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 March 2013, it is understood that TermoAndes units are not affected by the resolution. As a result, the Company does not expect this amendment to have an impact on TermoAndes operations. On March 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 non-contracted 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 equitymethod investee Guacolda. In 2013, Guacolda initiated the installation of emission control equipment at Units I, II and IV, totaling, as of December 31, 2014, an investment of ThUS$184,800. 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. 23

24 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

25 AES GENER AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2015 AND DECEMBER 31, 2014 INTERNATIONAL FINANCIAL REPORTING STANDARDS ASSETS THUS$ THUS$ Current Assets Cash and Cash Equivalents 267, ,691 Other Current Financial Assets 40,161 7,205 Other Current Non-Financial Assets 5,787 18,359 Trade and Other Receivables 362, ,596 Related Party Receivables 13,213 3,631 Inventory 122, ,820 Taxes Receivables 42,149 43,794 Total Current Assets 853, ,096 Non-Current Assets Other Non-Current Financial Assets 34,359 39,429 Other Non-Current Non-Financial Assets 29,764 38,367 Trade and other Receivables 14,832 50,632 Investments in Associates 402, ,502 Intangible Assets 53,238 53,308 Goodwill 7,309 7,309 Property, Plant and Equipment 5,795,506 5,432,043 Deferred Taxes 94,893 69,211 Total Non-current Assets 6,432,079 6,033,801 TOTAL ASSETS 7,286,033 6,836,897 25

26 AES GENER AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2015 AND DECEMBER 31, 2014 INTERNATIONAL FINANCIAL REPORTING STANDARDS LIABILITIES AND SHAREHOLDERS' EQUITY THUS $ THUS$ Current Liabilities Other Current Financial Liabilities 159, ,533 Trade and Other Payables 288, ,432 Related Party Payables 18,392 28,256 Provisions 3,455 3,541 Taxes Payable 45,595 40,451 Employee Benefits 3,689 2,684 Other Current Non-Financial Liabilities 34,086 36,952 Total Current Liabilities 553, ,849 Current Liabilities Other Non-Current Financial Liabilities 3,456,919 2,869,307 Trade and Other Payables 26,283 46,223 Related Party Payables 229, ,169 Provisions 106, ,741 Deferred Taxes 542, ,001 Employee Benefits 27,960 34,320 Other Non-Current Non-Financial Liabilities 10,352 10,928 Total Non-Current Liabilities 4,400,441 3,761,689 Net Equity Issued Capital 2,052,076 2,052,076 Retained Earnings (Losses) 377, ,103 Share premium 49,864 49,864 Other Components of Equity 236, ,791 Other Reserves (492,188) (372,282) Total Equity Attributable to Shareholders of Parent 2,223,444 2,312,552 Non-Controlling Interest 108,790 51,807 Total Net Equity 2,332,234 2,364,359 TOTAL LIABILITIES AND EQUITY 7,286,033 6,836,897 26

27 AES GENER AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT FOR THE PERIOD DECEMBER 31, 2015 AND 2014 INTERNATIONAL FINANCIAL REPORTING STANDARDS INCOME STATEMENT THUS$ THUS$ Operating Revenue 2,165,407 2,328,406 Cost of Sales (1,582,564) (1,792,020) GROSS PROFIT 582, ,386 Other Operating Revenues 2,218 1,389 Selling, general and administrative Expenses (104,659) (93,323) Other Operating Expenses (2,610) (1,128) Other Income / (Loss) (15,897) (20,187) Financial Income 8,859 10,491 Financial Expense (148,304) (151,532) Equity Participation in Net Income of Associates 80,273 38,781 Foreign Currency Exchange Differences (17,340) (66,435) NET INCOME (LOSS) BEFORE TAXES 385, ,442 Income Tax Income (Expense) (132,709) (79,546) Income (Loss) from Discontinued Activities - - NET INCOME (LOSS) 252, ,896 INCOME ATTRIBUTABLE TO SHAREHOLDERS OF PARENT 264, ,651 Income (Loss) Attributable to Non-Controlling Interests (12,200) (8,755) NET INCOME (LOSS) 252, ,896 27

28 AES GENER AND SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENTS AS OF DECEMBER 31, 2015 AND 2014 INTERNATIONAL FINANCIAL REPORTING STANDARDS CONSOLIDATED CASH FLOW STATEMENT FROM JAN 1, 2015 TO DEC. 31, 2015 THUS$ FROM JAN 1, 2014 TO DEC. 31, 2014 THUS$ Net Cash Flows provided by (used in) Operating Activities Receipts from Customers 2,210,541 2,783,513 Other Receipts from Operating Activities 18,165 51,915 Payments to Suppliers (1,520,384) (1,997,217) Payments made to Employees (68,910) (68,819) Other Payments for Operating Activities (83,390) (60,680) Payments of Dividends (235,000) (230,434) Receipt of Dividends 22, Payment of Interests (166,108) (184,914) Receipt of Interests 5,982 7,330 Income Taxes Paid (74,317) (38,566) Other Operating Outflows from Operating Activities (1,445) (5,236) NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES 107, ,628 Net Cash Flows provided by (used in) Investing Activities Loss of Control over a Subsidiary or other business - 731,180 Other Payments to purchase equity - - Other receipts for sale of equity or debt instruments of other entities - - Purchase of Non-Controlling Interest - (728,000) Other receipts for sale of equity or debt instruments of other entities - 26,019 Proceeds from Sale of Property, Plant and Equipment 7, Purchases of Property, Plant and Equipment (1,001,514) (829,489) Proceeds from sale of Intangible Assets 932 Purchases of Intangible Assets (1,851) (2,216) Proceeds from other Long-Term Assets 9,561 Purchase of Long Term Assets - (73,313) Other Outflows from Investing Activities 135,728 3,980 NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES (851,627) (871,786) 28

29 AES GENER AND SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENT AS OF DECEMBER 31, 2015 AND 2014 INTERNATIONAL FINANCIAL REPORTING STANDARDS CONSOLIDATED CASH FLOW STATEMENT (CONTINUED) Net Cash Flows provided by (used in) Financing Activities FROM JAN 1, 2015 TO DEC. 31, 2015 THUS$ FROM JAN 1, 2014 TO DEC. 31, 2014 THUS$ Proceeds from Share Issuance 90, ,876 Proceeds from Long Term Borrowings 1,038,773 1,234,194 Proceeds from Short Term Borrowings 91, ,000 Proceeds from Related Parties Borrowings - - Repayments on Loans (421,483) (1,884,001) Payments on Financial Leasing Liabilities (1,797) (2,046) Other Inflows (Outflows) of Cash and Cash Equivalent (998) (70,182) NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES 795, ,841 INCREASE (DECREASE) IN NET CASH AND CASH EQUIVALENT 51,842 (451,317) Effects of Foreign Exchange Variations on Cash and Cash Equivalents (13,300) (27,508) Increase (Decrease) in Net Cash and Cash Equivalents 38,542 (478,825) Cash and Cash Equivalents at the Beginning of Period 228, ,516 CASH AND CASH EQUIVALENT AT THE END OF PERIOD 267, ,691 29