INVESTORS AND ANALYSTS BRIEFING Manila Room A & B, Makati Shangri-La 12 February 2008 1
DISCLAIMER This presentation contains certain forward looking statements. These forward looking statements that include words or phrases such as EDC or its management believes, expects, anticipates, intends, plans, foresees, or other words or phrases of similar import. Similarly, statements that describe EDC s objectives, plans or goals also are forward-looking statements. All such forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Such forward looking statements are made based on management s current expectations or beliefs as well as assumptions made by, and information currently available to, management. EDC does not make expressed or implied representations or warranties as to the accuracy and completeness of the information contained herein and neither of them shall accept any responsibility or liability (including any third party liability) for any loss or damage, whether or not arising from any error or omission in compiling such information or as a result of any party s reliance or use of such information. The information and opinions in this presentation are subject to change without notice. This presentation does not constitute a prospectus or other offering memorandum in whole or in part. Information contained in this presentation is a summary only and is prepared for discussion purposes and is not a complete record of the discussions. This presentation shall not constitute an offer to sell or the solicitation of an offer to buy any security. There shall be no sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to qualification under securities laws of such state or jurisdiction. By receiving this presentation each investor is deemed to represent that it is a sophisticated investor and possesses sufficient investment expertise to understand the risks involved. Prospective investors should undertake their own assessment with regard to their investment and they should obtain independent advice on any such investment s suitability, inherent risks and merits and any tax, legal and accounting implications which it may have for them. 2
PRESENTATION SEQUENCE 2007 in Review Major Milestones Growth Initiatives IFRIC 12 and Impact on the Company Financial Overview Growth Platforms Question & Answer Session 3
MAJOR MILESTONES IN 2007 THE YEAR WAS HIGHLIGHTED BY THE COMPANY S S FULL PRIVATIZATION AND THE TURNOVER OF ITS LEYTE BOT PLANTS RESULTING IN COST SAVINGS OF PHP2.6 BILLION Key Areas Major Milestones Full Privatization Secondary sale of another 20% of Common Shares in July 2007. Complete sell down of remaining 40% of Common Shares and 100% of Preferred Shares in Nov 2007 for PHP58.5 billion (~PHP9.75/share). BOT Transfer Full year s operation of the 125 MW Upper Mahiao Power Plant. Transfer of the 232.5MW Malitbog & 180MW Mahanagdong Power Plants in July 2007, and the 50.9 MW Leyte Optimization Plants in Sept. 2007. Organic Growth Completion of the 49MW Northern Negros Power Plant on time and within budget marking the Company s first foray in power plant development. NPC Issues Agreed some of the long outstanding issues with NPC amounting to a net of PHP580.0 million in favor of the Company. About PHP484.8 million of this were settled in January 2008. Loan Prepayment Prepayment of US$90 million ING and US$75 million Standard Chartered syndicated loans, which saves the company some PHP375.4 million in interest payments. Effective interest rates were 9.9% and 8.6%, respectively, and original tenor of 5 years. 4
GROWTH INITIATIVES IN 2007 THE COMPANY ALSO PURSUED SEVERAL GROWTH INITIATIVES IN 2007 Key Platform Areas Growth Initiatives Organic Growth Started the tendering process for the engineering, procurement, and construction of the 20MW Nasulo Power Plant in Southern Negros. Ongoing development of six other geothermal greenfield projects totaling up to 290MW and the Burgos Wind Project of up to 86MW. PSALM Privatization Pre-qualified to participate in the privatization of the 192.5MW Palinpinon Geothermal Power Plant in Southern Negros. Overseas Expansion Initiated business development efforts in Indonesia by setting up a Jakarta office. Drilling Operations Signed PHP686.9 million international drilling contract with Lihir Gold Ltd. in March 2007. As of Dec. 31, 2007, 82% of the contracted days have been completed earning the Company PHP624.8 million in revenues. Finalized terms of reference for the acquisition of new rigs and commenced upgrade of 3 drilling. 5
IFRIC 12 AND IMPACT ON THE COMPANY WHAT IS IFRIC 12? The International Financial Reporting Interpretations Committee (IFRIC) issued IFRIC 12 Service Concession Arrangements to address the proper accounting by private sector operators involved in the provision of public sector infrastructure assets and services, such as roads, bridges, energy supply, and telecommunication networks, etc. IFRIC 12 is required to be adopted starting January 1, 2008. Nonetheless, the Company has decided to early adopt IFRIC 12 since its impact is required to be shown in the notes to the financial statements. 6
IFRIC 12 AND IMPACT ON THE COMPANY THE COMPANY EARLY ADOPTED IFRIC 12 ON ITS SERVICE CONCESSION AND RELATED ARRANGEMENTS WITH MINIMAL IMPACT TO INCOME OF PHP12.8 MILLION IN 2007 Major differences and impact: Most of the Company s concession assets are now recorded as Concession Receivable 1 instead of Power Plants, Production Wells, and Property, Plant, and Equipment. Thus, there is no amortization and depreciation expense. Part of the billings from NPC are recorded as Revenues from Sale of Steam and Electricity while a fixed portion is recorded to reduce the Concession Receivable and recognize Interest Income on Service Concession. Construction Revenues and Construction Costs are recorded on a percentage-ofcompletion basis. The margin is reflected in the EBITDA. Capital expenditure that doesn t increase the revenue potential of the assets are charged to expense. 1 The Northern Negros ESA has been recorded as intangible asset. While EBITDA is reduced on paper, IFRIC 12 does not have an impact on total cash flow 7
FY 2007 FINANCIAL HIGHLIGHTS NET INCOME AND RECURRING NET INCOME INCREASED BY 26% AND 23%, RESPECTIVELY, IN 2007 Headline 2007 2006 Difference Revenues 18,784 25,722-6,938-27% EBITDA 10,239 10,345-106 -1% Net Income 8,651 6,863 1,788 26% Recurring Net Income 6,210 5,062 1,148 23% Total Assets 65,071 77,392-12,321-16% Total Liabilities 30,217 50,018-19,801-40% Stockholders' Equity 34,853 27,375 7,478 27% Earnings-per-Share 0.577 0.565 0.012 2% Current Ratio 2.13x 1.47x Debt-to-Equity Ratio 0.67x 1.45x Debt-to-EBITDA Ratio 2.26x 3.83x Note: Amounts in PHP Millions except for the ratios Revenue decline is driven by IFRIC 12 which resulted in the Company booking bulk of the construction of the Northern Negros Plant as revenue in 2006 8
FY 2007 OPERATION HIGHLIGHTS WHILE ELECTRICITY & STEAM REVENUES REMAIN RELATIVELY FLAT, BOT FEES DECREASED SIGNIFICANTLY POWER AVERAGE TARIFF TOTAL GWH BOT FEES P2.9/kwh 5,099.5 2,105.7 P3.1/kwh 5,041.8 4,782.9 STEAM AVERAGE TARIFF TOTAL GWHe P1.6313/kwh 3,093.7 P1.6007/kwh 3,135.8 OTHER REVENUES DRILLING CONSTRUCTION Note: Amounts in PHP Millions except for PHP/kWh 624.8 108.8 261.4 6,600.0 9
FY 2007 RESULTS OF OPERATION BOTH REVENUES AND OPERATING COSTS AND EXPENSES DECLINED AS A RESULT OF LOWER CONSTRUCTION COSTS Revenues (PHP billion) Operating Costs and Expenses (PHP billion) 25.7 6.9 (27%) 18.8 15.5 8.8 6.7 (43%) Decrease is mainly due to: Lower construction revenue (6.5) Lower revenue from electricity (1.0) Lower interest income on concession (0.1) Higher steam revenue 0.3 Higher drilling services revenue 0.4 Total (6.9) Decrease is mainly due to: Lower construction cost (5.9) Lower O&M's purchased services (2.1) Higher depreciation & amortization 0.1 Lower O&M (0.2) Higher G&A Expenses 1.3 Total (6.7) 10
FY 2007 RESULTS OF OPERATION EBITDA SLIGHTLY DECREASED DUE TO LOWER CONSTRUCTION REVENUE MARGIN WHILE NET INCOME WAS UP BY 26% E B I T D A (PHP billion) Net Income (PHP billion) 1.8 (26%) 10.3 10.2 0.1 (1%) 6.9 8.7 Decrease in EBITDA mainly due to: - Decrease in construction revenue (6.9) - Decrease in purchased services 2.1 - Decrease in construction cost 5.9 - Lower O&M 0.2 - Increase in G&A (1.3) Total (0.1) Increase in Net Income mainly due to: - Increase in forex gain 2.0 - Decrease in interest expense 0.8 - Increase in provision for income tax (0.9) - Decrease in EBITDA (0.1) Total 1.8 11
FY 2007 RESULTS OF OPERATION AS A RESULT, RECURRING NET INCOME WAS UP BY 23% Recurring Net Income (PHP billion) 1.1 (23%) 5.1 6.2 Increase in RNI mainly due to: - Realized forex gain in 2007 of PHP848.2 million in contrast to 1.9 the PHP1,036.7 million realized forex loss in 2006 - Decrease in finance cost 0.8 - Adjustment in prior years' accrued royalty fee (0.9) - Increase in provision for income tax (0.6) - Decrease in EBITDA (0.1) Total 1.1 12
FY 2007 CASH FLOWS FREE CASH FLOW IMPROVED SIGNIFICANTLY; WITH LONG-TERM DEBT PREPAYMENTS, CASH AND CASH EQUIVALENTS DECREASED TO PHP2.8 BILLION Free Cash Flow* (PHP billion) Movements in Cash and Cash Equivalents (PHP billion) 7.7 5.9 (328%) 1.9 1.5 1.8 5.9 13.5 Increase is mainly due to decrease in capital investments in building the Northern Negros Plant *Net cash from operations less net cash used in investing activities 10 2.8 FCF Other Cash Long-term Sources Dividends Debt payments 13
FY 2007 FINANCIAL RATIOS STRONGER FUNDAMENTALS: FINANCIAL CONDITION LOOKS EVEN BETTER DUE TO DEBT PREPAYMENTS Liquidity and Solvency Ratios Current Ratio 2.13x 1.47x Net Debt PHP20.4B PHP29.7B Debt-to- Equity Ratio 0.67x Debt-to- EBITDA Ratio 2.26x 1.45x 3.83x 14
GROWTH PLATFORMS THE COMPANY WILL FOCUS ON THREE MAJOR PLATFORMS FOR ITS FUTURE GROWTH Organic Growth Transfer of the 106 MW Mindanao power plant to be effected in June 2009 The Company plans to build new plants (up to 310MW) to capitalize on the DOE projected demand growth and supply shortages Acquisitions The Company intends to actively participate in the privatization of some 1,155 MW geothermal power plants International Expansion Structurally, Indonesia appears to present good opportunities and the Company intends to explore these 1
GROWTH PLATFORMS: ORGANIC GROWTH POTENTIAL PROJECTS ARE INTEGRATED STEAM & POWER GENERATING FACILITIES OF UP TO 310MW Southern Negros 20MW Nasulo 40MW Dauin Albay & Sorsogon 40MW Tanawon 40MW Rangas 40MW Kabayon Leyte 50 80MW Southern Leyte Cotabato 50 MW Mindanao 3 Projects Capacity (MW) Target Date Acceleration Nasulo 20 2010 - Mindanao 3 50 2010 15 mos. Dauin 40 2012 9 mos. Tanawon 40 2011 22 mos. Rangas 40 2012 22 mos. Kayabon 40 2012 31 mos. Southern Leyte 50-80 2015 - TOTAL 280-310 The Mindanao 1 & 2 BOT projects are also scheduled to be transferred to the Company in June 2009 16
GROWTH PLATFORMS: ACQUISITIONS THE COMPANY INTENDS TO ACTIVELY PARTICIPATE IN THE PRIVATIZATION OF GOVERNMENT S S GEOTHERMAL POWER PLANTS Power plant Installed capacity (in MW) Privatization plan Palinpinon 192 Bundled with Panay Dingle Tongonan 113 Tongonan and Bacon Bacon - Manito 150 Manito to be bundled with Bohol Target bidding date Est. 2008 Est. 2008 Tiwi-MakBan 700 Est. 2008 1,155 17
GROWTH PLATFORMS: INTERNATIONAL EXPANSION STRUCTURALLY, INDONESIA APPEARS TO PRESENT GOOD OPPORTUNITIES AND THE COMPANY INTENDS TO EXPLORE THESE Indonesia will prioritize the utilization of renewable energy for power generation. Indonesian government targets its geothermal capacity to reach 9,500 MW in 2025 from the present ~1,000 MW. Indonesian government sets new benchmark price for geothermal power generated by independent power producers at between 5.9 US cents to 10.0 US cents per kwh. 18
OTHER INITIATIVES THE COMPANY INTENDS TO HEDGE ITS JPY EXPOSURE, PARTICULARLY MIYAZAWA 1 & 2 LOANS LOANS PROFILE (In Millions) Loan Repayment Schedule (In Million Pesos) USD101.0 (PHP4,180.8) 18.0% PHP378.4 1.6% 2008 2009 2,009 5,852 JPY51,183.5 2010 9,246 (PHP18,643.6) 80.4% 2011-2017 4,203 Interest Rate (AVE) JPY 4.81% USD 6.85% PHP 5.67% 2018-2027 1,892 0 2,000 4,000 6,000 8,000 10,000 19
SUMMARY IN SUMMARY, THE COMPANY HAD A SOLID PERFORMANCE IN 2007 & IS LOOKING AT VARIOUS GROWTH OPPORTUNITIES IN 2008 In 2007, net income and recurring net income increased by 26% and 23%, respectively. The Company will focus on three major platforms for its future growth: Organic growth with seven new greenfield projects of up to 310MW and the transfer of the Mindanao 1 and 2 BOT plants in 2009; Acquisitions through PSALM privatization of geothermal assets; and, International expansion the Company is looking at the opportunities in Indonesia. 20
Question & Answer Visit us at www.energy.com.ph 21