Com ompany y Prese esent ntati tion January 2016
DISCLAIMER This presentation contains certain “forward looking statements. ” These forward looking statements 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 shall not 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.
CONTENTS Where We Are 8 Strategic Focus, 9 Business Model, 10 Contract Tenor, 11 Volatile Earnings, 12 Risk Factors & Initiatives Risk Factors in the EDC Value Chain 14 The EDC Value Chain, 15 Resource Development, 16 Fluid Handling, 17 Energy Conversion, 20 Market Forces & Competition, 21 Growth What We Are Doing 24 Resource Development, 25 Fluid Handling, 26 Energy Conversion, 30 CAPEX requirement, 31 Market Forces, 32 Growth , 35 Dividend Declaration, 36 Financial Key Takeaways
WHERE WE ARE
TODAY EDC IS A DIVERSIFIED RENEWABLE ENERGY COMPANY – 100% OF ITS INVESTMENTS ARE IN THE PHILIPPINES 150.0 MW Burgos 1 STRATEGIC BEFORE 2007 TODAY 1 1 4.16 MW Burgos FOCUS 1 1 120.0 MW Pantabangan TECHNOLOGY 1,149 MW Geothermal* 1,169 MW Geothermal** 12.0 MW Masiway 132 MW Hydro 150 MW Wind 120.0 MW Bacman I 1 4.16 MW Solar 20.0 MW Bacman II CUSTOMERS NPC NPC 112.5 MW Tongonan 2 1 Electric Cooperatives 3 112.5 MW Palinpinon I Distribution Utilities 60.0 MW Palinpinon II* Large Industrial Clients 1 125.0 MW Upper Mahiao 1 NGCP 232.5 MW Malitbog BUSINESS Power Purchase Agreements Power Purchase Agreements 180.0 MW Mahanagdong Wholesale Electricity Spot Market MODEL Ancillary Services Provider 50.9 MW Optimization 1 2 Feed-in Tariff 49.4 MW Nasulo 2 Philippines Philippines DOMICILE 52.0 MW Mindanao I 3 Indonesia 54.0 MW Mindanao II Chile 3 2 Note: *20 MW Nasuji Power Plant Peru placed on preservation * Steam field only ** Steam field & Power Plant 3 NPC - National Power Corporation NGCP - National Grid Corporation of the Philippines Wind Geothermal (EDC Subsidiary) Hydro Geothermal (Integrated) Solar EDC IS THE LARGEST VERTICALLY INTEGRATED GEOTHERMAL COMPANY GLOBALLY 8 Where We Are
EDC’S BUSINESS MODEL POSSESSES STABLE AND PREDICTABLE CASH FLOWS % of Consolidated USD Customers Revenues (1 ) Linkage Cashflow 37% Electricity 73% National Power Geothermal Electricity Corporation Power Purchase Agreements Sovereign off-take Power Purchase Agreements (PPAs) Cashflow or Cashflow Bac-Man Dividends Steam Geothermal Electricity Steam Sales Agreements (SSA) Cashflow or 58% Electricity 0% Cashflow Green Core Electric Cooperatives/ Dividends Geothermal Third party customers Steam Electricity Commercial off-take Geothermal Resources Sales Contracts (GRSC) Cashflow FG Hydro Dividends Electricity & Ancillary Svcs. Power Supply Agreements Power Supply Agreements (PSAs) Cashflow 5% Electricity 60% Burgos Wind Dividends Electricity Feed-in-Tariff Transco Cashflow Solar Electricity Subsidiaries Cashflow Energy Flow (1) As of Sept 30, 2015 of EDC 9 Where We Are
EDC’S EXPOSURE TO THE SPOT MARKET PRICES IS ONLY 12% TERM STRUCTURE OF CONTRACTS (1) In PHP Millions 88% revenue from long-term contracts 69% revenue from contract tenors of >6 yrs 45% expanded revenue base from commercial clients SPOT 1-2 YRS 3-5 YRS 6-10 YRS 11-20 YRS >21 YRS 12% - - - - - WESM NGCP - 2% - - - - - 12% 5% 11% 5% 12% DU NPC - - - 36% - - (1) Consolidated revenues as of September 30, 2015 TRANSCO - - - - 5% - 10 Where We Are
HOWEVER, EARNINGS HAVE BEEN VOLATILE 2007-2014 ( CAGR ) REVENUES Revenues 7.2% EBITDA 8.2% NI 4.5% TTM 4 EBITDA TTM 4 NI TTM 4 Tongonan/ Upper Mahiao JPY overhang 1 NNGP impairment 2 Typhoon damage 3 Bacman failure Outages (2009-2011) (2009-2011) (2012-2013) (2013-2014) (2015) 1 Recorded foreign exchange losses (Php9.4B) and higher interest expense (Php552.4M) on foreign loans brought about by the peso depreciation and yen appreciation against the US dollars 2 Recorded a non- cash impairment of Php5.0B on NNGP and Php1.2B of foregone steam revenues resulting from EDC’s acquisition of the Bacman power plants 3 Lower revenues (Php2.7B) mainly from ancillary services and impairment of PPE due to typhoon Yolanda (Php0.6B) 4 Twelve trailing months 11 Where We Are
WE HAVE CLEAR ACTION PLANS TO REDUCE/ELIMINATE VOLATILITY RISK FACTORS INITIATIVES IMPACT Power plant rehab Power plants: “Midlife” stage Retrofit aging plants to enhance brings about reliability issues overall reliability CAPEX Typhoon proofing Geography: Project sites are Typhoon proof critical power plant situated a long the “typhoon” components CAPEX/OPEX belt Mitigate margin Re-negotiate expiring contracts to Market: Margin squeeze due to preserve revenue base low commodity prices squeeze Advanced technologies drive Maintenance Geothermal Resource: Natural company’s replacement well drilling decline of reservoir pressure CAPEX strategy Geothermal Growth CAPEX: Expand to FiT-supported technologies Domestic growth Significant amounts required and access multi-lateral financing to mitigate exploration risk upfront Typhoon proofing FCRS: Mountainous location Institute a proactive landslide exposes infrastructure to mitigation strategy CAPEX/OPEX potential landslide risk 12 Where We Are
RISK FACTORS IN THE EDC VALUE CHAIN
EDC HAS EXPERTISE ACROSS THE ENTIRE GEOTHERMAL VALUE CHAIN PROCESSES IN THE GEOTHERMAL VALUE CHAIN ENERGY Resource Fluid Energy Development Handling Conversion SALES Surface Exploration ACTIVITIES Pipeline Maintenance Power Plant Construction Well Drilling Separator Vessel Maintenance Well Testing Turbine Retrofit 14 The EDC Value Chain
RESERVOIR MANAGEMENT PRACTICES AND NEW WELLS ADDRESS PRESSURE DECLINE MW GEOTHERMAL STEAMFIELD LIFE CYCLE Note: Natural decline of geothermal reservoir output results from … Reservoir processes, i.e., RI returns, field wide pressure drawdown Scaling and/or mineral deposition inside the well bore 4 Wells 3 Wells 4 Wells 5 Wells 2 Wells 2012 2013 2014 YTD Sept 2015 in php bn REVENUES 28.4 25.7 30.9 25.3 CASH OPEX 10.8 10.0 12.9 10.9 EBITDA 17.6 15.6 17.9 14.4 EBITDA MARGIN 62% 61% 58% 57% MAINTENANCE CAPEX 3.7 4.3 3.9 4.4 ADJUSTED EBITDA* 13.8 11.3 14.0 10.0 ADJUSTED EBITDA MARGIN 49% 44% 45% 40% TOTAL MAINTENANCE CAPEX 3.7 4.3 3.9 4.4 MAINTENANCE CAPEX / REVENUE 13% 17% 13% 17% Note: * Adjusted EBITDA is defined as EBITDA less capital expenditure for the maintenance of the producing assets. 15 The EDC Value Chain: Resource Development
OUR STEAM GATHERING FACILITIES ARE EXTENSIVE AND FROM TIME TO TIME ARE SUBJECTED TO NATURAL HAZARDS COVERAGE OF GEOTHERMAL CONTRACT AREA Project Site/Area (has) Comparable City/Area (has) BacMan (27,389) Cebu City (31,500) Unified Leyte (124,959) Rizal Province (117,600) So. Negros (64,299) Metro Manila (63,860) Mindanao (6,229) Caloocan City (5,580) VULNERABLE TO HARSH WEATHER CONDITIONS After Typhoon Amang After Typhoon Seniang Road at 1R10 Spillway 503 Road 208 Road Entry Hazard: Roadslip Hazard: Landslide Hazard: Landslide At risk: People At risk: 14MW At risk: ~30MW 16 The EDC Value Chain: Fluid Handling
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