Second Quarter 2010 Relevant Results
Contact: Yandery Teran Investor Relations Director (1) (809) 955-2223
Santo Domingo, Dominican Republic August 17th, 2010
2Q10 Relevant Results
inversoraesdom@aes.com
www.aesdominicana.com.do
Itabo reports Net Loss of US$6.8 million for the second quarter 2010 Santo Domingo, Dominican Republic, August 17th, 2010 – Itabo announced today results for the second quarter 2010. All operating and financial information, except where otherwise specified, is expressed in US dollars in conformity with Generally Accepted Accounting Principles applicable in the United States (USGAAP). Revenues decreased 25.6% in the second quarter 2010 compared to the same period of 2009 and the accumulated results for the six month period ending in June 2010 decreased 18.3% compared to the same period of the previous year. Net Loss was US$6.8 million for the second quarter of 2010 as compared with a Net Income of US$16.1 million in the same period of 2009 and the accumulated Net loss was US$12.7 against a Net Income of US$31.1 million for the same period 2009.
2Q10
2Q09
(Millions of US$)
6M10
6M09
Inside this report:
46.1 56.5 (10.4)
62.0 Revenues 36.8 Operating costs and expenses 25.2 Operating (Loss) income
98.6 106.1 (7.5)
120.7 74.4 46.3
-22.6%
40.6% Operating (Loss) income margin
-7.6%
38.4%
(12.7)
31.1
24.2
3.7
(6.8)
16.1 Net (loss) Income
(0.1)
Net Cash (Used in) Provided by (5.6) Operating Activities
External Factors1 Dominican Republic’s GDP grew 7.5% during 1Q10.
Average Coal prices were US$2.97 per MMBtu for the quarter, with a peak of US$3.28 per MMBtu and a low of US$2.45 per MMBtu.
10.63
Financial Debt Summary
3
Liquidity
4
Regulation
4
Operational Results
4
Operational Developments
4
Safety Indicators
5
Environmental Matters
5
Financial Statements
6
Fuel-Oil #6
10
10.26
10 US$/MMBTU
The exchange rate as of June 30th, 2010 was RD$36.73 per US dollar (Bid) and RD$36.81 per US dollar (Ask).
12
2
Glossary of Key Terms
Coal, Natural Gas and Fuel-Oil #6 Price Evolution
Inflation stood at 2.87% at the end of June, 2010.
Page Analysis of Financial Results
8
7.97
6 4
4.92
Natural Gas 4.35
3.81 2.26
2
2.97 Coal
2.21
0 2Q09
3Q09
4Q09
1Q10
2Q10
Total electricity demand as of June 30th, 2010 reached 5,798 GWh, an increase of 10.0% versus the same period 2009.
1
Source: Dominican Central Bank and FOB, 6300 kcal/kg Puerto Bolivar, Platts International Coal Report.
Itabo, Earning Release
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2Q10 Relevant Results Analysis of Consolidated2 Financial Results (In USGAAP) Revenues decreased 25.6% to US$46.1 million in the second quarter 2010 compared to the same period of 2009. This result was driven mainly by US$15.8 in lower electricity sales that resulted from lower contract prices (primarily due to the decrease in coal prices, used as the semiannual escalator of the contracts). For the first six months of 2010, Revenues totaled US$98.6 million, a decrease of 18.3% compared to the same period of 2009. This decrease was mainly a result of: (i) lower electricity sales by US$21.9 million, due to lower contracted prices; and, (ii) lower other revenues of US$0.2 million. Revenues consist of the following:
2Q10
2Q09
45.9 0.2 46.1
61.7 0.3 62.0
(Millions of US$)
6M10
6M09
(25.6) Electricity sales (33.3) Other revenues (25.6) Total Revenues
98.1 0.5 98.6
120.0 0.7 120.7
Var%
Var% (18.3) (28.6) (18.3)
Operating Costs and Expenses increased 53.5%, in the second quarter of 2010, to US$56.5 million compared to the same period of 2009. This variance was principally a net result of: (i) US$17.1 million of higher coal costs (primarily due to higher generation and higher cost per unit of coal contracted); (ii) higher energy purchases by US$5.5 million basically due to higher energy acquired to meet higher demand, and higher spot prices; (iii) lower depreciation by US$1.1 million; (iv) lower operating and maintenance expenses by US$1.0 million (in June 2009 Itabo had two major maintenances); and, (iii) lower selling, general and administrative expenses by US$0.8 million. During the first six months of 2010, Operating Costs and Expenses increased 42.6% to US$106.1 million compared to same period of 2009. This variation was mainly caused by the net effect of: (i) higher coal cost by US$22.8 million due to higher generation and higher per unit costs of contracted coal derived from a contract signed in 2008, which is expected to expire in mid 2011; (ii) higher electricity cost by US$13.0 million due to higher demand and higher spot prices; (iii) lower operation and maintenance cost by US$1.9 million, due to the first major maintenance in 2010 started by the end of June while in 2009 both units had had a major maintenance during the same period; (iv) lower selling, general and administrative expenses by US$1.1 million; and, (v) lower depreciation by US$1.1 million. Operating costs and expenses consist of the following:
2Q10
2Q09
46.5 3.4 2.7 3.8 0.1 56.5
23.9 4.4 3.5 4.9 0.1 36.8
Var%
(Millions of US$) 94.6 Cost of electricity sales (22.7) Operating and maintenance expenses (22.9) Selling, general and administrative expenses (22.4) Depreciation 0.0 Amortization of contracts 53.5 Total Operating Cost and Expenses
6M10
6M09
84.5 7.2 5.5 8.7 0.2 106.1
48.7 9.1 6.6 9.8 0.2 74.4
Var% 73.5 (20.9) (16.7) (11.2) 0.0 42.6
Total Other Expenses were US$1.8 million in the second quarter 2010 compared to a total other expenses of US$4.3 million in the same period of 2009. This variation was primarily attributable to the net effect of: (i) higher other income by US$1.3 million; (ii) lower net financial expenses by US$0.5 million; (iii) higher net commercial interest income by US$0.4 million; and, (iv) lower exchange expense by US$0.3 million. For the first six months of 2010, Net Expenses decreased to US$3.7 million, as compared to the Net Expenses recorded in the same period of 2009 of US$6.6 million. This variance was the net result of: (i) lower other expenses by US$3.3 million; (ii) lower net commercial income by US$0.5 million related to lower accounts receivables; and, (iii) lower net financial expenses by US$0.1 million,.
2
The accompanying consolidated financial results include the accounts of Itabo, and its subsidiary Itabo Finance, S. A. Intercompany balances and transactions have been eliminated in these consolidated financial statements.
Itabo, Earning Release
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2Q10 Relevant Results Other (Expenses) Income consists of the following:
2Q10 (3.6) 1.8 (0.1) 0.1 0.0 (1.8)
2Q09
Var%
(4.1) 1.4 (0.1) (1.2) (0.3) (4.3)
(12.2) 28.6 0.0 n/a (100.0) (58.1)
6M10
(Millions of US$) Interest (expenses)- financial- net Interest income- commercial- net Amortization of deferred financing cost Other income (expenses)- net Exchange Expenses Total Other (Expenses)
(7.3) 3.8 (0.2) 0.0 0.0 (3.7)
6M09 (7.4) 4.3 (0.2) (3.3) 0.0 (6.6)
Var% (1.4) (11.6) 0.0 (100.0) 0.0 (43.9)
Net Cash Used in Operating Activities was US$0.1 million for the second quarter 2010 compared to a Net Cash Used in Operating Activities of US$5.6 million in the same period of 2009, resulting in a positive variation of US$5.4 million. This favorable variance was mainly a result of: (i) higher accounts payables by US$38.0 million; (ii) higher Net Loss by US$23.0 million; (iii) negative variation in accounts receivables by US$12.5 million (note, that the company received Sovereign Bonds payments in June 2009); (iv) lower inventory by US$5.2 million; and, (v) an impact of US$2.2 million from negative adjustments, reconciling net loss to net cash used in operations. For the first six months of 2010, the Net Cash Provided by Operating Activities was US$24.1 million against a Net Cash Provided by operating activities of US$3.7 million in the same period of 2009. This variation was primarily the net result of: (i) US$43.8 million of higher Net Loss; (ii) higher accounts payables US$42.3 million; (iii) lower accounts receivables by US$30.3 million; (iv) lower Provision of deferred tax by US$13.9 million; (v) lower inventory by US$13.8 million; and, (vi) US$8.3 million of negative reconciling adjustments, reconciling net loss to net cash used in operating activities. Free Cash Flow (a non-GAAP financial measure defined as net cash from operating activities less capital expenditures defined in the accompanying financial statement as additions to Property, Plant and Equipment and advances to suppliers in purchases of PP&E) was a net cash used of US$3.3 million for the second quarter 2010. During this period, in addition to the net cash used of US$0.1 million, there were additions to property, plant and equipment by US$3.2 million. For the first six months of 2010, the Free Cash Flow was net cash provided of US$19.2 million. In addition to the net cash provided by operating activities of US$24.2 million, there were additions to property, plant and equipment and advances to suppliers in purchases of PP&E by US$4.9 million.
Financial Debt Summary On April 6th Itabo paid interest due on its Senior Bonds of US$6.8 million. As of June 30th, 2010 Itabo’s total debt was US$125.0 million. Financial Debt
Jun-10
Dic-09
(expressed in millions of US$)
Local Currency
-
-
Foreign Currency Total Debt
125 125
125 125
100%
100%
Fixed Rate Variable Rate
0%
0%
Short Term
0%
0%
100% 12.10%
100% 12.10%
3
4
Long Term Financing Cost (*) Average Life (years)
(*) (1) After tax rates. (2) The Notes effective rate includes the interest income accrued by the interest debt reserve.
Itabo, Earning Release
Rating Agency Fitch Ratings
Senior Notes 2015
Rating B-
Outlook Stable
Standard & Poor's
Senior Notes 2015
B
Stable
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2Q10 Relevant Results Liquidity Collections
Collection Rate
During the second quarter 2010 the average collection rate was 91% against 135% in the same period of 2009. It should be noted that main reason for this variance is that the Q209 collection figures include $54 million of collections, paid in the form of sovereign bonds. YTD June 30th, 2010, the average collection rate was 121%, against 105% in the same period 2009. This favorable collection rate was primarily due to a loan taken out by the DR Government under the Standby Agreement with the IMF in order to pay their 2009 debts to the generation companies.
Sovereign Bonds effect.
IMF Agreement
206% 151%
135%
97%
2Q09
91%
3Q09
4Q09
1Q10
2Q10
Regulation In July, the Dominican Government submitted to the Congress an amendment to the electricity budget for around US$300 million.
Operational Results For the second quarter 2010, the Net Generation was 381 GWh, an increase of 4.4% with respect to the same period of 2009. The Energy Sold increased 9.6% compared to the same period of the previous year. The EAF decreased 1.2% to 81.0% and the EFOR decreased from 11% to 1% because the implementation of several operational improvement initiatives. For the first six months of 2010, the Net Generation was 765 GWh, an increase of 11.5% against the same period 2009 This variation was a function of major maintenances that occurred in 2009 during this time frame, and that shut down both units for a total of 45 days (Itabo I for 34 days and Itabo II for 11 days). In 2010 the Unit II started its maintenance program at the end of June. The Energy Sold increased 14.1% when compared to the same period of the previous year due mainly to higher contract and spot sales, related to higher generation. The Itabo’s Heat Rate decreased 6.3%, primaly related to lower EFOR (1%). The following table presents selected operational information for each of the periods indicated:
2Q10
As of June 30th, 2010 Installed capacity (MW)
260
Power Generation Units Effective capacity (MW)
2 260
2Q09*
422 (41) 381 445 226 10,737 81 1
405 (40) 365 406 226 11,581 82 11
Var.% 4.2 2.5 4.4 9.6 (7.3) (1.2) (90.9)
Gross generation Internal consumption Net Generation Total Energy Sold Firm Capacity Heat Rate EAF EFOR
GWh GWh GWh GWh MW Btu/KWh % %
6M10
6M09*
846 (81) 765 891 226 10,781 86 1
762 (76) 686 781 226 11,507 80 8
Var.% 11.0 6.6 11.5 14.1 (6.3) 7.5 (87.5)
*Data revised: The 2Q09 EAF was revised.
Operational Developments • During the second quarter 2010, four coal vessels were received containing 167,426 MT. th • On June 27 , Itabo II started a 45 days major maintenance program.
Itabo, Earning Release
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2Q10 Relevant Results Safety Indicators During the second quarter, Itabo celebrated the Safety Day with different activities that included the Safest Employee Award, Incident Report and Notification Program Conference, Safety Program Conference, Respirator Use, Operators Certification to fulfill the AES Corp. Safety Standard No. 24 Hoisting and Rigging, Safety Walks and observations training to the staff and Safety KPI’s were divulgated. During the second quarter 2010, AES Itabo had one Lost Time Incident (LTI). During the first semester 2010, the fist steps for the Proactive Safety Culture where implemented. These steps include a Monthly Message from the leaders of the Corporation shared with 100% of the employees. The messages from this quarter included the Incident Report, Safety Walks and Safety Inspections. Conferences were dictated for Emergency Preparedness for Earthquakes, Safe Driving (use of phone and texting while driving) and Hazard and Risk Management.
Environmental Matters During the second quarter 2010, environmental audits where performed by the Environmental Ministry. Effluents monitoring were also made during this audit. During the quarter we performed several activities: the Environmental Day Celebration, Dredge of the Itabo’s International Port, Certification of internal auditors towards the Environmental Management System certification in ISO14001, workshop in greenhouse effect emissions presented by Farmer to Farmer and CEDAF. During the quarter the businesses also recycled around 8,184.17 tons of ash (54% of the ash generated during the quarter), which was subsequently used in cement production. During first semester we have complied with all environmental requirements.
Itabo, Earning Release
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2Q10 Relevant Results
EMPRESA GENERADORA DE ELECTRICIDAD ITABO, S. A AND SUBSIDIARY. (An indirectly subsidiary of The AES Corporation) CONSOLIDATED STATEMENTS OF OPERATIONS For the six months ended as of June 30, 2010 and 2009 (Amounts expressed in thousands of US$ dollars)
2Q10
2Q09
45,852 271 46,123
REVENUES 61,657 Electricity sales 342 Other revenues 61,999 Total revenues
6M10 98,083 593 98,676
119,929 747 120,676
(84,443) (7,194) (5,513) (8,753) (235)
(48,602) (9,168) (6,589) (9,807) (235)
(106,138)
(74,401)
25,167 Operating (loss) income
(7,461)
46,274
Interest income 3,478 (6,157) Interest expense (128) Amortization of deferred financing costs (1,239) Other income - net (324) Remeasurement loss (4,370) Total non operational
5,775 (9,280) (265) 54 (85) (3,802)
7,508 (10,573) (255) (3,284) (27) (6,632)
(11,263)
39,642
(1,435)
(8,509)
(12,698)
31,133
OPERATING COSTS AND EXPENSES Cost of electricity sales Operating, maintenance and general expenses Selling, general and administrative expenses Depreciation Amortization of contracts
(46,462) (3,434) (2,738) (3,833) (117)
(23,849) (4,434) (3,519) (4,913) (117)
(56,584)
(36,832) Total operating costs and expenses
(10,461) 2,850 (4,663) (138) 96 (44) (1,899) (12,359)
6M09
20,797 (Loss) Income before taxes
5,562
(4,627) Income tax expense
(6,797)
16,170
Net (loss) income
The company’s Financial Results were prepared in Dollars in conformity with Generally Accepted Accounting Principles in the United States, as of any date of determination, or “GAAP.”
Itabo, Earning Release
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2Q10 Relevant Results EMPRESA GENERADORA DE ELECTRICIDAD ITABO, S. A. AND SUBSIDIARY (An indirectly subsidiary of The AES Corporation) CONSOLIDATED BALANCE SHEETS June 30, 2010 and December 31, 2009 (Amounts expressed in thousands of US$ dollars)
June 30th, 2010
Dec. 31st, 2009
CURRENT ASSETS Cash and cash equivalents Restricted cash and cash equivalents Accounts receivable Accounts receivable – related parties, net Other receivable Other receivable – related parties Fuel inventory Materials and supplies inventory - current Income tax receivable Prepaid expenses and other assets Deferred tax asset Total current assets
64,087 7,068 1,939 63,384 1,384 4,117 6,816 11,603 1,246 610 4,731 166,985
78,874 7,073 1,727 88,758 1,567 1,737 14,812 12,170 19,471 667 862 227,718
Property, plant and equipment Property, plant and equipment Accumulated depreciation and amortization Construction in progress Land Net property, plant and equipment
346,122 (130,311) 3,222 8,038 227,071
344,276 (121,558) 1,280 8,030 232,028
ASSETS
Long term assets Long term receivables from customers Income tax receivable LT Deferred financing costs Intangible - contracts Other assets Total long term assets
34,671 20,991 1,830 2,863 7,262 67,617
36,652 1,959 3,099 2,254 43,964
Total assets
461,673
503,710
12,614 21,674 10,850 45,138
8,873 28,789 21,631 59,293
125,000 18,817 11 143,828
125,000 13,987 41 139,028
355,556 194 (83,043) 272,707
355,556 177 (50,344) 305,389
461,673
503,710
Liabilities and stockholders' equity Current liabilities Accounts payable Accounts payable - related parties Accrued liabilities Total current liabilities Notes payable - long term Deferred income tax liability Other long - term liabilities Total long term liabilities Stockholders' equity Common stock (56,355,556 shares autorized and outstanding) Additional paid-in-capital Accumulated losses Total stockholders' equity Total liabilities and stockholders' equity
The company’s Financial Results were prepared in Dollars in conformity with Generally Accepted Accounting Principles in the United States, as of any date of determination, or “GAAP.”
Itabo, Earning Release
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2Q10 Relevant Results EMPRESA GENERADORA DE ELECTRICIDAD ITABO, S. A. AND SUBSIDIARY (An indirectly subsidiary of The AES Corporation) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended as of June 30, 2010 and 2009 (Amounts expressed in thousands of US$ dollars) 2Q10
2Q09
6M09
6M10 Cash flows from operating activities
(6,797)
16,170
3,833 117 138 (12,414) 12 143 6,897 (2,387) 1,258 (2,575) 2,154 545 (1,007) (5,356) 3,861 (678) 12,114 (143)
4,913 118 128 4,628 (219) 24 324 (850) (17) 0 2,611 11,976 1,074 2,065 (4,546) 87 633 (47,648) 12,820 (9,842) (5,552)
(3,238) 3
(165) 15,633 1
(3,235)
15,469
(20,000) (21)
(9,391) -
(20,021)
(9,391)
Net (loss) income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Amortization of contracts Amortization of deferred financing costs Provision for deferred tax Income tax payments Long term compensation Remeasurement gain (loss) Gain on asset disposal Allowance for doubful accounts Changes in assets and liabilities: Accounts receivable - trade Accounts receivable – related companies Other receivable Other receivable – related parties Fuel inventory Materials and supplies Prepaid taxes Prepaid expense and other assets Accounts payable Accounts payable - related parties Accrued liabilities and other Net cash (used in) provided by operating activities
(12,698)
31,133
8,753 235 265 (5,420) 32 26 -
9,807 235 255 8,509 (219) 51 27 (850) (17)
1,769 25,374 183 (2,380) 7,996 567 (2,766) (4,950) 4,969 6,660 (4,470) 24,145
3,606 (8,838) (73) (79) (5,122) 428 3,039 (46,289) 15,633 (7,490) 3,748
Cash flows from investing activities: Additions to property, plant and equipment Advances to suppliers in purchase of PP&E Long term investment Change in restricted cash and cash equivalents Net cash (used in) provided by investing activities
(4,890) 5
(14) (3,462) 15,633 4
(4,885)
12,160
Dividends payment Payments of deferred financing costs
(33,775) (136)
(9,391)
Net cash used in financing activities
(33,911)
(9,391)
Cash flows from financing activities:
(120) (23,519) 87,606 64,087
-
EFFECT OF EXCHANGE RATE CHANGES ON CASH
526 NET INCREASE IN CASH 26,502 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 27,028 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
(136)
-
(14,787)
6,517
78,874
20,511
64,087
27,028
The company’s Financial Results were prepared in Dollars in conformity with Generally Accepted Accounting Principles in the United States, as of any date of determination, or “GAAP.” The presentation of certain prior year balances has been reclassified to conform to the current year presentation.
Itabo, Earning Release
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2Q10 Relevant Results The results presented in this report have not been audited and were prepared in Dollars in conformity with generally accepted accounting principles in the United States, as of any date of determination, or “GAAP.� Itabo is controlled and managed by subsidiaries of AES. Itabo owns the lowest-cost thermal power generation units in the Dominican Republic. Itabo operates power generation units that in the aggregate have 260 MW of effective and installed capacity. Itabo also has the only loading dock with the capacity to service Panamax vessels and to unload to 60,000 tons of solid fuels in bulk. The AES Corporation (NYSE: AES) is a Fortune 500 global power company with generation and distribution businesses. Through our diverse portfolio of thermal and renewable fuel sources, we provide affordable and sustainable energy to 29 countries. Our workforce of 27,000 people is committed to operational excellence and meeting the world's changing power needs. Our 2009 revenues were $14 billion and we own and manage $40 billion in total assets. To learn more, please visit www.aes.com.
Please address any questions or comments related to this report to Investor Relations, email address: inversoraesdom@aes.com
This report may contain forward-looking statements speculative in nature based on the information, operational plans and forecasts currently available about future trends and facts. As such, they are subject to risks and uncertainties. A wide variety of factors may cause future real facts to differ significantly from the issues presented or anticipated in this report, including, among others, changes in general economic, political, government and business conditions. In the event of materializing any of these risks or uncertainties, or if underlying assumptions prove to be mistaken, future real facts may vary significantly. Itabo is not bound to update or correct the information contained in this report.
Itabo, Earning Release
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2Q10 Relevant Results Glossary of key terms Btu:
CDEEE: Coordinating Body:
EAF: Effective Capacity: EFOR: Firm Capacity: FX:
British thermal units of measurement. It is a unit of heat in the English European System. Its equivalence in the International System (IS) is the Calorie. The prices of Natural Gas are usually expressed in US$/MMBtu. 1 Btu is equivalent to 252 calories. Corporación Dominicana de Empresas Eléctricas Estatales. Previously known as CDE. “OC” or Organismo Coordinador. Whose function is to plan and coordinate the economic operations of the power providers with those of the transmission, distribution and commercialization system that form the SENI. Equivalent Availability Factor The currently available capacity, as of any date of determination, for generation of a unit or the amount of MW that a power generation unit can reliably generate. Equivalent Forced Outage Rate The amount of capacity assigned by the Coordinating Body to each power generation unit for being available to cover the demand in peak hours. Foreign exchange, a banking term for changing money from one currency into another.
GDP:
The gross domestic product (GDP) is one of the measures of national income and output for a given country's economy. GDP is defined as the total market value of all final goods and services produced within the country in a given period of time (usually a calendar year).
Installed capacity:
The amount of MW a turbine is designed to produce upon installment (name-plate capacity).
Platts:
Is a provider of energy information around the world that has been in business in various forms for more than a century and is now a division of The McGraw-Hill Companies. Products include Platts Energy Economist, industry news and price benchmarks for the oil, natural gas, electricity, nuclear power, coal, petrochemical and metals markets.
Itabo, Earning Release
PPA:
Power Purchase Agreement.
SENI:
Sistema Eléctrico Nacional Interconectado or the National Interconnected Electrical System.
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