Quarterly Financial Report September, 2008
EGE Haina Reports Third Quarter 2008 Earnings of US$19.4 million; Revenues of US$146.2 million, up 50% Santo Domingo, Dominican Republic, December 8th, 2008 – EGE Haina announced today third quarter earnings of US$19.4 million, up 61% from the third quarter 2007, driven primarily by an increase in operating income. Third quarter 2008 revenues were US$146.2 million, showing a 50% increase when compared to revenues for the same period of the previous year.
Financial and Operational Summary (US$ Thousands, except for Operational data) Description
3Q'08
3Q'07
Var %
YTD'08
YTD'07
Var %
Revenues
146,176
97,686
50%
368,014
241,314
53%
Operating Costs
121,639
80,510
51%
309,482
212,507
46%
Variable Margin
39,978
34,369
16%
104,734
84,994
23%
EBITDA
28,960
21,643
34%
71,475
48,266
48%
Operating Income
24,537
17,176
43%
58,532
28,807
103%
Net Income
19,441
12,073
61%
41,206
16,476
150%
Operational cash, net
(6,362)
2,715
-334%
(4,425)
(16,709)
74%
Availability, % Sales, GWh
94 588
97 599
-3% -2%
92 1,648
97 1,628
-5% 1%
Generation, GWh
350
480
-27%
1,088
1,278
-15%
Spot Purchase, GWh
238
119
100%
561
354
59%
Quarter Highlights and Recent Developments In August, 2008 the Company entered into a power sales agreement with Consorcio Energético Punta Cana Macao S.A. (CEPM). Through the aforementioned, the Company committed to sell 50MW and associated energy over an eighteen (18) year period. Related to the contract described above, three engines form Sultana Barge were disconnected from the national interconnected system and will be fully dedicated to sell electricity to CEPM in accordance with the terms of the agreement. In September, 2008 the Company entered into a letter of intent with Vestas Argentina, S.A. to acquire 25 wind turbine generators for the Juancho Los Cocos project for a total purchase price of €53,212,791. Related to this contract, the Company made a down-payment for an amount of €10,642,558 (20% of the total purchase price) as a retention fee. On September 17th, 2008 the Sultana and Barahona plants were declared commercially unavailable due to lack of fuel. Both units were synchronized with the national interconnected system on September 21st. On September 22nd, 2008 the Company collected the total amount lent to CEPM by US$18.3 million. On October 23rd, 2008 the Company paid the third interest coupon under the US$175 million senior notes. On October 29th, 2008 Ede Este and EGE Haina signed a contract suspension agreement for the PPA signed in 1999 between the parties. The suspension is effective November 1st and will last until EDE Este pays in full its current outstanding electricity bills with EGE Haina. As per conditions of the agreement, EGE Haina will continue to receive the revenues of pledge customers and credit card receipts for approximately US$6.0 million on a monthly basis. On November 26th, 2008 the Company entered into a Letter of Credit (LC) with Citibak for an amount up to US$3,014,000, in favor of Carbon and Minerals, LLC (coal supplier). The LC expires on September 1st, 2009 and is collateralized with a time deposit held at the Citibank.
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Quarterly Financial Report September, 2008
External Factors 30 25 20 15 10 5 -
During the quarter, fuel prices started to decline reaching a price of US$71.15 /Bbl for Platt’s US Gulf Coast HFO #6, 3% Sulfur (fuel used to index the tariffs under contract and for purchases in the international markets). Exchange rate as of September 30th, 2008, closed at RD$35.13/USD.
Q1
Accumulated inflation as of September 30th, 2008, was 10.76%.
Q2
Q3
Q4
Q1
Q2
2006
Q3
Q1
2007
Q2
Q3
2008
PLATTS US$/MMBTU CARBON US$/MMBTU
GDP grew 5.4% as of September 30th, 2008.
Q4
LFO US$/MMBTU NG US$/MMBTU
Consolidated Financial Results1 Revenues (US$ Thousands) Description Contracted Energy Contracted Capacity Others Total Revenues
3Q'08
3Q'07
Var %
YTD'08
YTD'07
Var %
136,566
89,028
53%
341,346
215,817
58%
9,179
8,659
6%
26,237
25,486
3%
432
(1)
-100%
432
11
100%
146,176
97,686
50%
368,014
241,314
53%
3Q’08 revenues exceeded 3Q’07 comparative figures by 50% (US$ 146.1MM Vs. US$ 97.6MM). Revenues were positively impacted by the prices of fuel, and negatively impacted by a decrease in the total quantity of energy sold (595 GWh in 3Q’07 Vs. 556 GWh in 3Q’08). The positive variance in energy sales is mainly driven by a 65.02% increase in the energy sales price (US¢23.45 per KWh vs. US¢14.21 per KWh 3Q’08 Vs 3Q’07, respectively).
Operating Expenses (US$ Thousands) Description
3Q'08
3Q'07
Var %
YTD'08
YTD'07
Var %
Fuel Expense
44,944
39,491
14%
120,759
92,254
31%
Transmission Tolls
3,044
3,984
-24%
10,264
11,857
-13%
Purchased Power
51,873
16,020
224%
116,636
42,595
174%
-
100%
Capacity Rebilling
883
100%
883
Frequency Regulation
291
403
-28%
1,823
1,212
Regulatory Payment
849
538
58%
2,056
1,284
60%
4,314
2,882
50%
10,858
7,118
53% -9%
Technical Advisory Fee
-
50%
Labor Cost
3,043
3,453
-12%
9,988
10,929
Operating & Maintenance
5,898
5,941
-1%
17,508
16,204
8%
General & Administrative
2,076
3,333
-38%
5,764
9,594
-40%
Book Depreciation
4,045
3,989
1%
12,010
12,021
0%
378
478
-21%
933
7,438
-87%
80,510
51%
309,482
212,507
46%
Amortization Total Operating Expenses
121,639
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The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (USGAAP). These consolidated financial statements include the accounts of EGE Haina, and those of its wholly owned subsidiary EGE Haina Finance Company. Intercompany balances and transactions have been eliminated in consolidation.
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Quarterly Financial Report September, 2008
During 3Q’08 operating expenses surpassed 3Q’07 comparative figures by 50% (US$121.6 MM Vs. US$80.5 MM). The Company changed the source of its sales from own generation to purchased power and energy. Therefore, the rise in operational expenses can be broken down as the net result of the following: Own generation: 14% increase in fuel expenses (US$44.9 MM Vs US$39.4 MM). The increase in fuel costs by 71.89% is partially offset by lower volume of fuel consumed (29.32% decrease). Purchased power: The 224% increase (US$51.8MM Vs US$16.0MM) resulted from the combination of i) higher average purchase price (US$222.39 per MWh in 3Q’08 Vs US$129.66 MWh in 3Q’07) and ii) higher volume of electricity purchases in the spot market and through PPA’s (236.67 GWh in 3Q’08 Vs 119.32 GWh in 3Q’07).The total energy purchased in spot during the 3Q’08 includes the energy purchased under contract to AES Andres. General and Administrative: In the 3Q’08 this item presented savings by US$1.2 million when compared to the same period of the prior year. Such positive impact is the result of not having an asset tax paying position in 2008. As a percentage of revenues, Operating expenses represented 83% and 82% in the 3Q’08 and 3Q’07, respectively.
Other Expenses (US$ Thousands) Description
3Q'08
3Q'07
Var %
YTD'08
YTD'07
Var %
990
2,197
-55%
5,602
5,563
1%
Other Expense (Income)
1,753
1,397
26%
5,798
3,308
75%
Exchange Loss (Gain)
(369)
123
-401%
(250)
(360)
-31%
3,716
-36%
11,150
8,511
31%
Interest and Fee
Total Other expenses
2,374
Net Income Net Income increased to US$19.4 million in the 3Q’08, from US$12.0 million in the same period of 2007. As a percentage of revenues, net income increased 0.9% in the 3Q’08, when compared with the same period of the previous year. The main variances impacting net income can be summarized as the net result of: i) US$5.6 million of higher variable margin, ii) US$1.7 million of lower G&A expenses, iii) US$1.2 million of lower net interest expenses, and iv)US$1.3 million of higher tax expenses.
Cash Flow Cash provided by (used in) operating activities Net cash used in operating activities was US$6.4 million during the 3Q’08, compared to a net cash provided by US$2.7 million in the same period of 2007. The most significant factors that increased the use of cash from operating activities were: a) US$17.9 million increase of accounts receivable; b) US$13.8 million increase in inventory; c) US$1.9 million increase in prepaid expenses; d) US$2.0 million decrease in accounts payable to related parties and other liabilities; and e) US$1.4 million of higher negative adjustments reconciling net income to the net cash used in operating activities. These negative factors were partially offset by i) US$7.5 million increase in net income; and ii) US$20.4 million increase of accounts payable. Cash provided by investing activities Net cash provided by investing activities was US$36.0 million in the 3Q’08, compared to a net cash used in 3Q’07 by US$9.6 million. The most significant factors that decreased the use of cash from investing activities were: (i) The company used cash in the amount of US$17.5 million in the acquisition of fixed assets; (ii) the cancellation of short term investments provided US$44.4 million; and (iii) during the 3Q’08 the Company received the payment from money lent to CEPM by US$19.3 million. Financing activities Net cash used in financing activities was US$2.0 million in the 3Q’08, compared to a net cash provided by US$2.8 million in the same period of the prior year. The Company repaid US$2.0 million in short term debt during the 3Q’08, while in 3Q’07 the Company shows an increase by US$2.8 million through from the incurrence of short term debt.
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Quarterly Financial Report September, 2008
Financial Debt (US$ millions) Description
Sep'08
Dec'07
Var %
Short Term
3,701
12,441
Long Term
175,000
175,000
0%
Total Financial Debt
178,701
187,441
-5%
Local currency
0%
0%
Foreign currency
100%
100%
Fixed rate
99.7%
99.5%
Variable rate
0.3%
0.5%
Financial Ratios
-70%
3Q'08
3Q'07
Dec'07
Interest Coverage Ratio (No less than 2.5:1)
5.04
6.73
3.80
Net debt to EBITDA Ratio (No greater than 3.5:1)
1.30
1.91
1.51
Collections Collections versus the quarterly invoices equaled 89% as compared to the 72% level of last year’s same quarter. In the 3Q’08 distribution companies have fallen more than 90 days in payments of their monthly power invoices, caused by a short fall of funds from the subsidy of the central government to cover increasing fuel prices. During the 3Q’08, the three distribution companies have sustained their energy supply at 74% of the total demand. Naturally, this is not met by a proportional increase in collections from customers, thus creating the delay in payment to generators, including EGE Haina. The Dominican government, via CDEEE, during the course of the 3Q’08 was seeking to increase the subsidy funding from the national treasury in order to reestablish the balance of payments between generators and distributors. International agencies such as World Bank, IDB and IMF are actively working along with the Dominican Government to fund energy theft reduction programs, clearly demonstrating that the principal solution to the Dominican electrical problem lies in the resolution of the energy theft. Unofficially, the deficit, and therefore, the subsidy estimated for 2008 equals US$1,000 million. The government budgeted US$650 million for this purpose.
Collections Vs Billings Q1 06 - Q3 08 140% 120% 100% 80% 60% 40%
1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 4Q07 1Q08 2Q08 3Q08
Series 1 105% 74% 81% 70% 129% 83% 72% 92% 92% 95% 108% 89%
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Quarterly Financial Report September, 2008
Operational Statistics Description
3Q'08 9,681
3Q'07 9,698
Availability, %
93.7
96.9
-3.3%
Forced Outage Rate, %
1.4
0.8
75.0%
Installed Capacity, MW
599
599
0.0%
Effective Capacity, MW
547
547
0.0%
Firm Capacity, MW
326
336
-3.0%
Heat Rate, Btu/KWh
Var % -0.2%
Energy Balance 580
GWh
430 280 130 (20) (170) 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 Spot
16
(78)
Contracts
471
547
551
531
490
539
596
544
503
558
588
Generation
486
469
420
386
389
409
480
395
377
361
350
(133) (152) (105) (132) (116) (149) (126) (197) (237)
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Quarterly Financial Report September, 2008
EMPRESA GE ERADORA DE ELECTRICIDAD HAI A, S.A, U AUDITED CO DE SED CO SOLIDATED BALA CE SHEETS AS OF SEPTEMBER 30, 2008 A D DECEMBER 31, 2007 Amounts in US$ Thousands
Sep-08 Assets: Current Assets: Cash and cash equivalents Investments in certificate of deposit Accounts receivable Inventory Prepaid expenses and other Deferred income tax Total current assets Deposits in banks, restricted Long term receivables Property, plant and equipment Intangible assets, net Other assets Total Assets Liabilities and shareholders' equity: Current liabilities: Short-term debt Current portion of long-term debt Accounts payable Accounts payable to related parties Other Liabilities Total current liabilities Long-term debt, Deferred income tax Other non-current liabilities
Shareholders' equity: Common stock Legal Reserve Retained earnings Accumulated other comprehensive loss Total shareholders' equity Total liabilities and shareholders' equity
Dec-07
42,167 867 185,686 33,182 7,097 5,177 274,176
47,053 20,000 110,758 18,250 4,106 5,177 205,344
8,313 36,663 271,446 11,032 162 601,792
8,313 44,380 261,359 11,965 134 531,495
3,200 501 34,332 20,715 18,645 77,392
11,440 1,002 12,618 17,630 7,277 49,967
175,000 7,929 351 260,672
175,000 6,273 341 231,581
289,000 8,698 74,454 (31,032) 341,120
289,000 8,698 33,248 (31,032) 299,914
601,792
531,495
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Quarterly Financial Report September, 2008
EMPRESA GE ERADORA DE ELECTRICIDAD HAI A. S.A., U AUDITED CO DE SED CO SOLIDATED I COME STATEME TS FOR THE THREE A D I E MO TH PERIODS E DED SEPTEMBER 30, 2008 A D 2007 Amounts in US$ Thousands
Three month period ended September 30, 2008 2007
ine month period ended September 30, 2008 2007
Revenue Capacity Energy - contractual Other Fuel Storage
9,179 136,566 125 307
8,659 89,028 (1) -
26,237 341,346 125 307
25,486 215,817 4 7
Total revenue
146,176
97,686
368,014
241,314
44,944 7,714 3,044 50,792 1,081 883 291 849 4,314
39,491 7,922 3,984 14,653 1,367 403 538 2,882
120,759 23,573 10,264 113,170 3,466 883 1,823 2,056 10,858
92,254 22,481 11,857 37,819 4,776 1,212 1,284 7,118
113,912 32,264
71,239 26,447
286,852 81,161
178,801 62,513
3,304 4,423 7,727
4,804 4,467 9,271
9,686 12,943 22,630
14,247 19,459 33,706
Operating Income
24,537
17,176
58,532
28,807
Other income (expense) Other income (expense) Interest income Interest expense Foreing currency gain (loss) Income tax Total other income (expense)
(1,753) 4,542 (5,532) 369 (2,722) (5,096)
(1,397) 2,920 (5,117) (123) (1,386) (5,103)
(5,798) 9,520 (15,121) 250 (6,176) (17,325)
(3,308) 7,170 (12,733) 360 (3,819) (12,331)
et Income
19,441
12,073
41,206
16,476
Operating Costs Fuel Operation and maintenance Transmission Tolls Purchase of Energy Purchase of Capacity Capacity Rebilling Frequency Regulation Regulatory Payment Technical Advisory Fee Total operating costs Operating Margin Operating Expenses Administrative expenses Depreciation and amortization Total operating expenses
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Quarterly Financial Report September, 2008
EMPRESA GE ERADORA DE ELECTRICIDAD HAI A. S.A., U AUDITED CO DE SED CO SOLIDATED CASH FLOW STATEME TS FOR THE THREE A D I E MO TH PERIODS E DED SEPTEMBER 30, 2008 A D 2007 Amounts in US$ Thousands Three Months Ended
ine Months Ended
September 30,
September 30,
2008 Cash flows from operating activities Net income Adjustments to reconcile the net income to net cash provided by (used in) operating activities: Deferred Income Tax Depreciation and amortization Gain on Sales of fixed assets Changes in current assets and liabilities: Accounts receivable Inventories Prepaid expenses Other Assets net Accounts payable and accrued expenses Payables to related parties Other Liabilities Other Non Current Lialibities Net cash provided by (used in) operating activities
2007
2008
2007
19,441
11,902
41,206
16,476
(31) 4,423 -
1,387 4,467 -
1,656 12,943 -
3,834 19,459 (325)
(48,590) (10,322) (1,387) (28) 19,810 2,940 7,372 10 (6,362)
(30,727) 3,459 469 39 (597) 6,464 5,310 542 2,715
(74,929) (16,309) (2,991) (28) 20,146 2,505 11,367 9 (4,425)
(19,322) (6,750) (1,677) (13,766) (2,324) (16,235) 3,544 377 (16,709)
Net changes in bank deposits restricted and unrestricted Purchases of property, plant and equipment Sales of Property, plant and equipment Changes in Short Term Investment Changes in Long Term Receivables Net cash provided by (used in) investing activities
(17,498) 34,193 19,347 36,042
(37) (10,247) 698 (9,586)
(18,569) 19,132 7,717 8,280
3,632 (578) 325 (70,293) 698 (66,216)
Cash flows from financing activities Net changes in Short Term Debt Repayment of Long Term Debt Proceeds from Long Term Debt Net cash (used in) provided by financing activities
(2,046) (2,046)
2,834
2,834
(8,240) (501) (8,741)
(1,748) (3,368) 86,587 81,471
27,634 14,533
(4,037) 8,995
(4,886) 47,053
(1,454) 6,412
42,167
4,958
42,167
4,958
Cash flows from investing activities
Net increase (decrease) in cash Cash at the beginning of the period Cash at the end of the period
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Quarterly Financial Report September, 2008
The consolidated financial statements presented herein have not been audited and were prepared in conformity with Generally Accepted Accounting Principles in the United States (USGAAP). EGE Haina is the largest generator of electricity in the Dominican Republic, currently operating 11 electric power generation units at six plants, consisting of San Pedro, Sultana del Este – barge, Haina and Barahona in the southern part of the country, Puerto Plata in the northern and Pedernales in the western part of Santo Domingo. EGE Haina has contracted approximately 98% of its power generation to the three Dominican Republic distributors. For more information, visit the Company's Web site at www.egehaina.com. Caution Concerning Forward-Looking Statements: This report may contain “forward-looking statements”- that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” believe,” “seek,” or “will”. Forward-looking statements involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of the Company may differ materially from those expressed or implied by such forward-looking statements and assumptions. For us, particular uncertainties that could adversely or positively affect our future results include, but are not limited to: changes in general economic, political, governmental and business conditions; the behavior of financial markets; changes in commercial market regulations. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. EGE Haina assumes no obligation and does not undertake to update forward-looking statements.
Investor Contact: Please address any questions or comments related to this report to our investor’s e-mail: hainainvestors@egehaina.com.
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