COMPANY PRESENTATION J.P. Morgan’s Philippines 1x1 Conference 2016 25Jan Januar ary2016, Ma Maka kati i Shangri-La La Hotel, l, Ma Manila ila
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 7 Executive Summary 9 Company Introduction 10 Strategic Focus, 11 Business Model, 12 Contract Tenor, 13 Volatile Earnings, 14 Risk Factors & Initiatives 15 Snapshot of the last 12 Months 17 Equipment Reliability & Resiliency 18 Profile of Geothermal Plants, 19 Total CAPEX, 20 FY2015 Outages, 21 Retrofitting of CTUs, 22 Tongonan Rehab, 23 Bacman Plants’ Gross Generation, 24 Geothermal Infrastructure, 25 Power Plant Structures 27 Preserving the Revenue Base 28 Weak Commodity Prices, 29 GCGI Contract Re-pricing 31 US$ Debt Management & FX Exposure 32 Financial Ratios, 33 Loans Profile, 35 Debt Maturity Profile, 36 US$ Exposure 37 Key Takeaways
EXECUTIVE SUMMARY
HIGHLIGHTS OF THE PRESENTATION Volatile earnings reported even as business model possesses stable and predictable cash flows Company Formulated initiatives being implemented to reduce/eliminate volatility Introduction Nasulo Project operates for its first full year; greater than 90% capacity utilization reported for the Snapshot of Bacman Plants; FiT allowance now being collected for the Burgos Wind and Solar Projects Revenue loss reported with plants going on forced outage, sales agreements being re-priced and the last 12 Months higher OPEX expenditures for typhoon proofing, O&M of new projects and reported FX losses with the PHP depreciating Focus Area 1: Significant CAPEX required to uprate reliability of aging power plants and resiliency of company infrastructures’ to harsh weather conditions Equipment Reliability & Typhoon proofing of critical power plant components in Leyte and Bacman substantially completed together with the implementation of a proactive landslide mitigation strategy Resiliency Focus Area 2: Weak commodity prices expose company's uncontracted capacity to lower margins prompting EDC to secure the "Base Case" thru re-negotiation of expiring supply contracts and to selectively Preserving the Revenue postpone growth initiatives until targeted project returns are achieved Base Focus Area 3: Deliberately managed financial risk with the successful refinancing of legacy US$ denominated debt into Php and the refinancing of previously incurred fixed interest notes into amortizing debt US$ Debt Management EDC comfortably maintains covenanted financial ratios & FX Exposure 8 Executive Summary
COMPANY INTRODUCTION
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 10 Company Introduction
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 11 Company Introduction
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% - 12 Company Introduction
HOWEVER, REPORTED 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 13 Company Introduction
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 Maintenance Geothermal Resource: Natural Advanced technologies drive decline of reservoir pressure company’s replacement well drilling CAPEX strategy Expand to FiT-supported technologies Domestic growth Geothermal Growth CAPEX: and access multi-lateral financing to Significant amounts required upfront mitigate exploration risk Typhoon proofing FCRS: Mountainous location Institute a proactive landslide exposes infrastructure to mitigation strategy CAPEX/OPEX potential landslide risk 14 Company Introduction
SNAPSHOT OF THE LAST 12 MONTHS
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