Grupo Saesa 2018 Annual Report by Klee Diseño

2018 ANNUAL REPORT

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TABLE OF CONTENTS

LETTER FROM THE CHAIR

SECTION ONE

OUR COMPANY CORPORATE MISSION AND VISION CORPORATE VALUES ABOUT OUR COMPANY OUR SHAREHOLDERS OWNERSHIP STRUCTURE CORPORATE GOVERNANCE

16 17 17 20 21 22 23

CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT BOARD OF DIRECTORS BOARD OF DIRECTOR COMPOSITION MANAGEMENT EXECUTIVE COMMITTEE ORGANIZATIONAL STRUCTURE OVERVIEW OF 2018 ACTIVITIES

26 28 29 30 31 32 33

SECTION TWO

CORPORATE DATA RISK FACTORS ORGANIZATIONAL EFFECTIVENESS RELEVANT FACTS FINANCIAL MANAGEMENT REMUNERATION OF DIRECTORS AND SENIOR OFFICERS

SECTION THREE

38 41 46 57 58 59

INDUSTRIAL ECONOMIC SECTOR ACTIVITIES AND BUSINESSES SUBSIDIARIES STATEMENT OF LIABILITY

64 68 81 113

We are well aware of our responsibility towards our community, its quality of life and opportunities.

LETTER FROM THE CHAIR

Joining a New World

The past few years have been immensely challenging for Grupo Saesa. New social, regulatory and technological demands have led us to redouble our efforts to provide a better and more stable service to our customers. Although there is still some way to go, we can say with satisfaction that we are consistently moving forward.

2017. New and very stringent parameters were set for the supply, products and services that we provide to our customers. This challenge is in line with our ongoing commitment to permanent improvement and we will succeed in this undertaking through substantial investments, leading-edge technology and infrastructure, and the support of our growing staff.

Last year brought major challenges for Chileâ&#x20AC;&#x2122;s electricity sector. The new technical standard that regulates electric power distribution and is aimed to upgrade quality of service to worldclass standards was published in December

We are committed to the development of Chileâ&#x20AC;&#x2122;s electricity sector and we are increasingly aware that sustainability plays a key role in that endeavor. In an ever-changing world, we understand that we have a duty to pioneer the

new technologies that will allow us not only to improve the quality of life of all people, but also care for our environment. Clean energy sources, energy efficiency solutions and electro-mobility, among other initiatives, will allow us to join this crusade we all need to be part of. For example, our involvement in the photovoltaic electrification projects advanced by the authority to supply clean and efficient electric power to remote areas in our country is a source of great pride for us. Not only do these projects rely on renewable energy sources, but they dramatically improve the quality of life of many communities along the country. In the same vein, the electric heating projects we will be launching shortly are driven by regulatory changes in an effort to clean up the large cities in the south of Chile.

Improvements and Projects Honoring our commitment to better serve our more than 860,000 customers, in 2018 we commissioned three new substations and over 1,500 km of lines, which allowed us to strengthen our power grids and reach new townships and customers. One project warranting special mention is Kimal Substation. Located in the middle of the Atacama desert, this substation has successfully reduced the congestion on the transmission grid in the north of the country and comprehensively improved the electrical stability of that grid. This major work in the national transmission grid required an investment of USD 27 million. In addition, the Ministry of Energy ordered that this project be expanded by investing a further USD 14 million. Commissioning of this expansion is scheduled for the second quarter of 2019.

Financial Performance Grupo Saesa’s Ebitda totaled CLP 108 billion, up by 9.1% compared to the preceding year, reflecting the company’s increased efficiency. Added to the aforementioned are the revenues from commissioning of new projects, the total investment of which amounted to CLP 121.7 billion, up 14% from 2017, which evidences the confidence and commitment of our shareholders for supporting sustainable development in our sector.

An Ongoing Commitment At Grupo Saesa we are well aware of our responsibility towards our community, its quality of life and opportunities. Accordingly, we are continuously developing social responsibility programs –many of which our personnel feels as their own due to the many years they have been implemented– that we believe are equally or more important than our corporate business. In so doing, we contribute to the development of our company from our region, the geography and climate of which impose increasingly greater challenges on its people. Among the examples of this commitment are programs like “Somos Vecinos”, “A la Escuela con Energía”, “Conexión de Sedes Sociales” or “Liceos Eléctricos,” which consider contributions

to education, the creation of working groups, the development of tools to enhance access to employment, ensure friendly relations with the community, and provide energy solutions, to name a few.

Our Employees Our employees are not only our main asset but the main pillar of our company. Consequently, their safety and wellbeing are the lens through which we view our day-to-day activities. Safety is non-negotiable and there would be no growth if safety were not a priority. We are working on and we will continue to develop tools, training programs, campaigns and oversight instruments that will allow us to remain a benchmark for the national industry and keep reducing accident rates among our employees and contractor staff. We aspire to be a place where our employees want to stay and grow. Values like innovation, cooperation, readiness and flexibility are now part of our everyday language. We do understand that there are new and more efficient ways to work that will enable us to make of our work a rewarding experience that is compatible with our personal life. This concern has allowed us to climb to place No. 4 in the Great Place to Work ranking that measures the best companies to

work in Chile.

Acknowledgements

We strive to be a company that does things well and in an ethical manner. This is why, over the past years we have complemented our existing integrity policies and standards with a crime prevention model and compliance program aimed to ensure that our employeesâ&#x20AC;&#x2122; behaviors will reflect our principles and values.

Over recent years we have achieved significant growth, which has allowed us to position Grupo Saesa as a leader in the electricity sector in Chile. This has been made possible by the great efforts of each and every one of our employees, shareholders and directors and the support of a culture of cooperation, values and principles to the benefit of our people, community and the development of the electricity sector in Chile.

Jorge Lesser GarcĂa-Huidobro Chair

SECTION ONE OUR COMPANY CORPORATE MISSION AND VISION CORPORATE VALUES ABOUT OUR COMPANY OUR SHAREHOLDERS OWNERSHIP STRUCTURE CORPORATE GOVERNANCE CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT BOARD OF DIRECTORS BOARD OF DIRECTOR COMPOSITION MANAGEMENT EXECUTIVE COMMITTEE ORGANIZATIONAL STRUCTURE OVERVIEW OF 2018 ACTIVITIES

OUR COMPANY

Inversiones Eléctricas del Sur S.A. (or the “Company”) is the investee through which Canadian investment funds Ontario Teachers’ Pension Plan Board (OTPPB) and Alberta Investment Management Corporation (AIMCo) control Grupo Saesa companies, which are mostly involved in distribution and transmission of electric power and, to a lesser extent, in generation. Grupo Saesa consists of various operating companies, including power distribution companies Sociedad Austral de Electricidad S.A. (Saesa), Empresa Eléctrica de la Frontera S.A. (Frontel), Compañía Eléctrica Osorno (Luz Osorno), and Empresa Eléctrica de Aysén S.A. (Edelaysen), power transmission companies like Sistema de Transmisión del Sur S.A. (STS), Sistema de Transmisión del Centro S.A. (STC), Sistema de Transmisión del Norte S.A. (STN), Sociedad Austral de Transmisión Troncal S.A. (SATT), and Línea de Transmisión Cabo Leones S.A., a power trading company like Sociedad Generadora Austral S.A. (SGA) and a generation company, Sagesa S.A. In addition, Saesa and Chilquinta Energía S.A. are the joint owners of Eletrans S.A., Eletrans II S.A., and Eletrans III S.A., the three of them dedicated to the development of national transmission projects. Finally, limited liability

companies Inversiones Los Ríos and Inversiones Los Lagos IV are also part of Grupo Saesa. Grupo Saesa is organized under a decentralized operational structure and centralized management, which allows the operating companies to keep their presence and proximity to customers in the various concession areas, and to facilitate the development of new business alternatives in the electric sector.

CORPORATE MISSION AND VISION

VISION

GROWTH AND 2022 VISION

Improve the quality of life of people and contribute to the sustainable development of the country by supplying reliable, secure energy. Our work builds on a deep commitment to our customers, the safety, wellbeing and development of our employees, and to modernization of Chileâ&#x20AC;&#x2122;s electricity industry. Our vision has a long-term perspective aimed to create value for our shareholders.

Over the coming years, Grupo Saesa will undertake a major turnaround in its business, as part of which the Company must successfully complete the implementation of its investments and redefine its relationship with its customer while fostering a culture of excellence and portraying the image of the best place to work. The Company must also consolidate its leadership in occupational safety in the industry and create sustainable economic value for its shareholders.

MISSION

CORPORATE VALUES

Over the next four years, Grupo Saesa must undertake a major turnaround in its business, reaching a new standard of quality of service and significantly strengthening the relationship with its customers. The Company is to successfully implement the new Technical Standard on Distribution and Smart Metering projects and consolidate its leadership in occupational safety in the industry. Grupo Saesa must be a leading player in the development of the regulatory framework and new technologies in Chile, fostering close collaboration with regulators and communities. By 2022 Grupo Saesa must have redefined its relationship with its customers by fostering new digital systems that successfully improve customer experience and support the development of a customer-focused culture. To build the future, Grupo Saesa must advance the agenda of innovation in all its business areas and explore the opportunities offered by new technologies of electrical goods and services used by customers on a daily basis.

To achieve its objectives, the Company must aim at and uphold the highest work standards and implement the following core values in its daily activities: Integrity: We do the right things. Transparency: We act truthfully and honestly. Safety: Non-negotiable. Excellence: We do things impeccably. Customer focus: The center of our operations. Efficiency: Key in our industry. Sustainability: We are responsible regarding the future.

We are committed to the development of Chileâ&#x20AC;&#x2122;s electricity sector and we are increasingly aware that sustainability plays a key role in that endeavor.

In an ever-changing world, we understand that we have a duty to pioneer new technologies.

ABOUT OUR COMPANY

CORPORATE OVERVIEW

Company Name Inversiones Eléctricas del Sur S.A. Business Name Eléctricas del Sur Tax ID No. 76.022.072-8

INCORPORATION DOCUMENTS

Legal and Business Address Isidora Goyenechea 3621 Piso 20, Las Condes, Santiago Telephone # (2) 24147010 - 24147500

Inversiones Eléctricas del Sur S.A. is a joint-stock company incorporated by means of a public deed executed on June 10, 2008, executed at Santiago Notary Public’s Office of Raúl Undurraga Laso, the authorized abstract of which was registered under number 17,956 on page 26,156 of the Santiago Register of Commerce of 2008 and published in the Official Gazette’s issue of June 14, 2008. A public deed dated July 31, 2008 executed at Santiago Notary Public’s Office of Raúl Undurraga Laso converted the Company into a closely-held corporation called Inversiones Eléctricas del Sur S.A., the authorized abstract of which was registered under number 26,394 on page 38,356 of the Santiago Register of Commerce of 2008 and published in the Official Gazette’s issue of August 22, 2008.

Fax # (2) 24144709 Company Type Closely Held Corporation Securities Register Reg. # No. 1,016 Email infoinversionistas@saesa.cl Website www.gruposaesa.cl For Investor Relations (64) 2385450

OUR SHAREHOLDERS

As set out in Title XV in Law 18,045, Securities Market Law, Inversiones Eléctricas del Sur S.A. is controlled by Inversiones Grupo Saesa Limitada, which owns a 99.9% equity interest in the company. As of December 31, 2018, the company has two (2) shareholders, namely:

SERIES A SHARES

SERIES B SHARES

TOTAL SHARES

TOTAL INTEREST

INVERSIONES GRUPO SAESA

79,573,672

79,573,732

99.999950 %

CÓNDOR HOLDING SpA

0.000050 %

79,573,672

79,573,772

100 %

100

On occasion of the Extraordinary Shareholders’ Meeting held in February 2018, the shareholders agreed upon increasing the company’s equity capital by issuing 7,992,672 Series B shares, which will be fully subscribed and paid up within the three years following the date of the aforementioned meeting.

OWNERSHIP AND CONTROL The Company’s shares are divided into Series “A” shares, with all the rights accorded by law to ordinary shares, and Series “B” shares, with all the rights accorded by law to ordinary shares but also with a preferential right whereby the Board of Directors shall be required to call for a Regular or Extraordinary Shareholders’ Meeting whenever 5% of the Series B shares requests so, as well as a restriction, which is that Series B shares are not entitled to participate in Board of Directors elections. Series A and B shares were issued with 100-year maturities on July 31, 2008.

regulated, including restrictions on the transfer of equity rights in the Company.

JOINT AGREEMENTS

Finally, the shareholders of subsidiary Sagesa S.A. and Sistema de Transmisión del Sur S.A., a subsidiary of Sociedad Austral de Electricidad S.A., executed shareholders’ agreements on June 22, 2012, whereby restrictions on free disposal of shares by shareholders are set forth.

The partners of Inversiones Grupo Saesa Limitada, the Company’s controller, executed an agreement on July 24, 2008, whereby a number of matters are

Likewise, a shareholders’ agreement executed on the same date provides certain restrictions on free disposal of shares by shareholders. Moreover, the majority shareholders of Sociedad Austral de Electricidad S.A. and Empresa Eléctrica de la Frontera S.A. also executed an agreement on the same date referred to in the preceding paragraph whereby restrictions on free disposal of shares by shareholders are laid down.

OWNERSHIP STRUCTURE

As of December 31, 2018 the Company’s ownership structure is as follows:

50%

50% AIMCo

OTPPB

0.000050% 99.999950%

0.002746%

INVERSIONES ELÉCTRICAS DEL SUR S.A.

99.997104% 0.002896%

INVERSIONES LOS RÍOS LTDA. 0.0027543%

0.0750844% 99.9160126% SAESA

0.074354%

99.333483%

99.924906%

FRONTEL

0,0003551%

0.075094%

INVERSIONES LOS LAGOS IV LTDA. 0.000818% 99.898666%

99.9%

99.895356%

0.10%

50%

90%

99.9%

99.456047% STS

EDELAYSEN

LUZ OSORNO

SGA

50%

93.217324%

0.104644%

0.443947%

0.099556% 0.000444%

ELETRANS S.A.

STC

ELETRANS II S.A.

SATT S.A.

50.1%

0.000006%

0.001334%

99.99%

0.10% 0.01%

CABO LEONES

ELETRANS III S.A.

STN

SAGESA

10%

0.1%

CORPORATE GOVERNANCE

The Company is managed by the Board of Directors, which is vested with the broadest powers conferred by Law 18,046 on Corporations and its regulations to act in the name and on behalf of the company. The Board of Directors holds regular monthly meetings during which it oversees the matters of interest to the Company that fall within its field of competence and receives the CEO’s report on the management and operations of the Company. The Board of Directors might also need to meet occasionally to conduct special business. In any case, Directors have the right to be informed at any time of all matters corporate. The remuneration of Directors is set by the Regular Shareholders’ Meeting on a yearly basis. Shareholders meet on occasion of Regular and Extraordinary Shareholders’ Meetings. Regular Shareholders’ Meetings are held once a year, within the first four months, to discuss and decide on matters within its field of competence. Extraordinary Shareholders’ Meetings may be held at any time, when required by company needs, to decide on any matter which according to the law or the company’s bylaws are within the field of competence of the Shareholders’ Meetings. The Company has a Manual on Acquisition or Transfer of Shares and Management and Disclosure of Information of Interest to the Securities Market, the latest version of which was approved by the Board of Directors on January 28, 2010. The manual is available on the Company’s Website.

CRIME PREVENTION MODEL AND COMPLIANCE PROGRAM Grupo Saesa abides by values and commitments that aim to promote a corporate culture in full compliance with applicable laws and regulations and strives to ensure that all its companies and employees shall conduct themselves ethically, transparently, honestly, and with integrity. This mentality has translated into a series of instruments, company policies and training courses, including the adoption and implementation of a Crime Prevention Model and a Compliance Program:

CRIME PREVENTION MODEL In 2011, Grupo Saesa adopted and implemented a Crime Prevention Model across its companies. This model was developed in accordance with the guidelines under Law 20,393 on the criminal liability of legal persons for the crimes of money laundering, terrorist financing and bribery. Initially, this Model aimed to prevent the crimes of money laundering, financing of terrorism, and bribery of local and/or foreign public officials. Subsequently, Law No. 20,931 known as “Short Agenda against Crime” was enacted in 2016. This new

law added receiving to the crimes prescribed in Law 20,393, which led to the need of updating the Model for the first time.

covered include the concepts established in the Standards of Integrity and those contained in Law 20,393.

On November 20, 2018 the Official Gazette published Law 21,121, which increases the penalties for crimes of corruption and substantially amends the Statute relating to criminal liability of legal entities contained in Law 20,393 by adding four new crimes: disloyal administration, corruption between private individuals, incompatible negotiation and misappropriation.

In an effort to ensure full compliance with all legal requirements and to guarantee its efficiency, the Crime Prevention Model has been certified every year since 2014.

This last amendment entailed a long and strenuous process of updating the Crime Prevention Model and related policies, including the preparation of risk matrices for the new crimes introduced into the catalog of crimes, with a view to ensuring Grupo Saesa’s successful adaptation to the country’s current social and legal scenario while retaining its integrity standards. The Model is led by the Head of Crime Prevention, who was specifically appointed by the Board of Directors of the companies that make up Grupo Saesa. The Head is an autonomous position from management; it has its own financial and material resources that are sufficient for carrying out its duties; and reports, at least twice yearly, to the Board on the current state of the Crime Prevention Model. Since the implementation of the Model, the company has trained its own staff as well as its contractors’ through in-person and e-learning sessions. The topics

In addition, in 2017 the Crime Prevention Model was brought under the company’s Compliance Program, which has introduced a number of internal rules and procedures to strengthen it. As a result, today Grupo Saesa has a solid and robust Crime Prevention Model in full compliance with each and every legal requirement, thus ensuring the adoption of the right measures to prevent unlawful behavior within the company and to maintain integrity as one of the pillars of our activities.

COMPLIANCE In 2017, Grupo Saesa introduced its Compliance Program, which consists of organizational management policies, procedures, actions and initiatives aimed at setting up good practices for full compliance with the current legislation while adhering to the principles of ethics and integrity, thus reducing the risk of actions that may result in cases of

regulatory non-compliance. For Grupo Saesa, the term “compliance” is not limited to abiding by a set of rules and standards. It implies creating a culture of ethics and integrity that guides the behavior and decisions of all members of our organization, giving them a distinctive way of working towards the company’s strategic guidelines and objectives vis-à-vis its stakeholders. Along this line, Grupo Saesa modified its organizational chart and processes in order to place the focus of its actions on a common ethical framework defined according to certain basic principles, especially those included in its Standards of Integrity. Thus, the creation of the Compliance Department in 2017 under the criteria and guidelines of Senior Management laid the foundations of a management system that seeks to become a driver in the implementation of good practices whenever the situation calls for efficient risk management.

operation, forbidding any actions that may actually or potentially hinder, restrict or hamper free competition. Grupo Saesa categorically rejects all instances of unfair competition and any act, fact or convention that contravenes applicable laws or the internal regulation as set forth in the Manual of Compliance with Free Competition Defense Regulations published in 2017. The Compliance Program has been designed with a comprehensive approach that includes the identification, management, monitoring and reporting of risks as well as annual training and dissemination plans that seek to promote and reinforce compliance with the priorities established in the Compliance Policy. The program’s components attest to the company’s commitment to laying the foundations of a system of efficient management and continuous improvement that involves the entire organization in strengthening a culture of compliance, transparency, integrity and respect for the ethical standards embraced by the group.

The basic pillars of the Compliance Program are, on the one hand, internal leadership to promote values and good corporate governance, transparency and integrity, and, on the other, an approach based on risk analysis and management that helps to identify vulnerabilities and the actions needed to prevent and/ or correct them. In addition, the company’s guidelines and principles also include the respect of rules for proper market

CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT

DIVERSITY OF THE BOARD OF DIRECTORS AGE RANGE

MEN

WOMEN

TOTAL

Under 30

Between 30 and 40

Between 41 and 50

Between 51 and 60

Between 61 and 70

Over 70

MEN

WOMEN

TOTAL

Under 3

Between 3 and 6

Between 6 and 9

Between 9 and 12

Over 12

MEN

WOMEN

TOTAL

CHILEAN

FOREIGN NATIONAL

WOMEN

TOTAL

SENIORITY (YEARS)

CITIZENSHIP

DIVERSITY OF THE CEOâ&#x20AC;&#x2122;S OFFICE AND OTHER DEPARTMENTS AGE RANGE Under 30

Between 30 and 40

Between 41 and 50

Between 51 and 60

Between 61 and 70

Over 70

SENIORITY (YEARS)

MEN

WOMEN

TOTAL

Between 3 and 6

Between 6 and 9

Between 9 and 12

MEN

WOMEN

TOTAL

Under 3

Over 12

CITIZENSHIP CHILEAN FOREIGN NATIONAL

MEN

DIVERSITY OF COMPANY EMPLOYEES AGE RANGE

MEN

WOMEN

TOTAL

Under 30

180

219

Between 30 and 40

414

118

532

Between 41 and 50

266

337

Between 51 and 60

Between 61 and 70

Over 70

MEN

WOMEN

TOTAL

Under 3

356

449

Between 3 and 6

116

148

Between 6 and 9

130

157

Between 9 and 12

111

285

346

MEN

WOMEN

TOTAL

SENIORITY (YEARS)

Over 12

CITIZENSHIP CHILEAN FOREIGN NATIONAL

955

244

1,199

DIVERSITY SUMMARY DIVERSITY

BOARD OF DIRECTORS

DEPARTMENTS WOMEN

MEN

TOTAL

WOMEN

MEN

180

414

118

266

MEN

WOMEN

Under 3

Between 3 and 6

Between 6 and 9

Between 9 and 12

Over 12

AGE RANGE

MEN

WOMEN

Under 30

Between 30 and 40

Between 41 and 50

Between 51 and 60

Between 61 and 70 Over 70 SENIORITY (YEARS)

CITIZENSHIP

MEN

COMPANY

MEN

WOMEN

MEN

WOMEN

180

14.2%

3.1%

422

118

33.2%

9.3%

296

23.3%

6.2%

7.0%

1.2%

2.2%

0.2%

0.1%

WOMEN

MEN

WOMEN

MEN

WOMEN

MEN

WOMEN

356

361

28.4%

7.4%

116

128

10.1%

2.5%

130

138

10.9%

2.2%

6.5%

2.8%

285

306

24.1%

5.2%

MEN

WOMEN

MEN

WOMEN

MEN

WOMEN

MEN

WOMEN

MEN

WOMEN

CHILEAN

955

244

1,001

251

78.8%

19.7%

FOREIGN NATIONAL

1.2%

0.3%

79.9%

*Including BoD

20.1%

1,271

GENDER PAY GAP JOB LEVEL

FEMALE

MALE

DIFFERENCE

Administrative

109%

100%

Unit Head

87%

100%

-13%

Department Head

95%

100%

-5%

Lineman

N.A.

100%

N.A.

Professional

81%

100%

-19%

Supervisor

100%

Technician

85%

100%

-15%

BOARD OF DIRECTORS OF ELÉCTRICAS DEL SUR S.A. AND SUBSIDIARIES

In 2018, the Board of Directors of Inversiones Eléctricas del Sur S.A. and its subsidiaries consists of eight members, excluding alternate directors. Directors serve for a term of two years and may be reelected. In 2018, the members of the Board were:

CHAIR Jorge Lesser García-Huidobro Civil Engineer ID No. 6.443.633-3

REGULAR DIRECTOR Ben Hawkins Master of Business Administration Foreign National

VICE-CHAIR Iván Díaz - Molina Civil Engineer ID No. 14.655.033-9

REGULAR DIRECTOR Stacey Purcell Business Administrator Foreign National

REGULAR DIRECTOR Juan Ignacio Parot Civil Industrial Engineer ID No. 7.011.905-6

REGULAR DIRECTOR Waldo Fortín Lawyer ID No. 4.556.889-K

REGULAR DIRECTOR Christopher Powell Engineer and B. Sc. Foreign National

REGULAR DIRECTOR Stephen Best Public Accountant Foreign National

BOARD MEMBERS

Over the last four years, the members of the Board have been:

BOARD MEMBERS NAME

ID No.

PROFESSION

POSITION

LAST APPOINTMENT

RESIGNED ON

JORGE LESSER G.

6.443.633-3

CIVIL ENGINEER

CHAIR

16-05-2018

IVÁN DÍAZ-MOLINA

14.655.033-9

CIVIL ENGINEER

VICE-CHAIR

16-05-2018

JUAN IGNACIO PAROT B.

7.011.905-6

CIVIL INDUSTRIAL ENGINEER

REGULAR DIRECTOR

26-04-2018

WALDO FORTÍN C.

4.556.889-K

LAWYER

REGULAR DIRECTOR

26-04-2018

REGULAR DIRECTOR

26-04-2018

BUSINESS ADMINISTRATOR

REGULAR DIRECTOR

26-04-2018

ENGINEER, B.SC.

REGULAR DIRECTOR

26-04-2018

ACCOUNTANT-AUDITOR

REGULAR DIRECTOR

26-04-2018

22-08-2018

PUBLIC ACCOUNTANT

REGULAR DIRECTOR

22-08-2018

BEN HAWKINS

STACEY PURCELL

CHRISTOPHER POWELL

FOREIGN

MASTER OF BUSINESS

NATIONAL

ADMINISTRATION

FOREIGN NATIONAL FOREIGN NATIONAL FOREIGN

DALE BURGESS

NATIONAL

STEPHEN BEST

NATIONAL

FOREIGN

MANAGEMENT

Chief Executive Officer Francisco Alliende Arriagada / Business Administrator ID No. 6.379.874-6 / Appointed on 02/01/2012

Business Development Officer Charles Naylor Del Río / Civil Industrial Engineer ID No. 7.667.414-0 / Appointed on 05/15/2014

Chief Operations Officer Raúl González Rojas / Civil Electrical Engineer ID No. 7.741.108-9 / Appointed on 09/10/2012

Strategic Planning, Management, and Risks Officer Marcela Ellwanger Hollstein / Business Administrator ID No. 12.752.648-6 / Appointed on 12/10/2013

Chief Administrative and Financial Officer Víctor Vidal Villa / Civil Industrial Engineer ID No. 9.987.057-5 / Appointed on 04/11/2012

Transmission Officer Marcelo Matus Castro / Electrical Engineer ID No. 11.364.868-6 / Appointed on 11/01/2015

Legal Counsel Sebastián Sáez Rees / Lawyer ID No. 8.955.392-K / Appointed on 10/01/2007

Operational Development Officer Leonel Martínez Martínez / Electrical Engineer ID No. 14.556.330-5 / Appointed on 03/23/2015

Commercial SAP Project Officer Patricio Turén Arévalo / Civil Industrial Engineer ID No. 7.256.279-8 / Appointed on 09/24/2012

Risk Prevention Manager Patricio Velásquez Soto / Risk Prevention Engineer ID No. 12.540.271-2 / Appointed on 10/30/2013

Trade Officer Marcelo Bobadilla Morales / Civil Electrical Engineer ID No. 10.151.086-7 / Appointed on 09/01/2009

Internal Audit Director Jorge Castillo Quiroz / Accountant-Auditor ID No. 7.759.917-7 / Appointed on 01/01/2009

Distribution Projects Officer Paolo Rodríguez Pinochet / Electrical Engineer ID No. 13.199.851-1 / Appointed on 10/01/2017

Regulation Manager Jorge Muñoz Sepúlveda / Civil Electrical Engineer ID No. 11.694.983-0 / Appointed on 08/01/2009

Regulation Officer Rodrigo Miranda Díaz / Civil Electrical Engineer ID No. 10.784.472-4 / Appointed on 09/10/2012

Customer Relations Officer Bárbara Boekemeyer Slater / Civil Industrial Engineer ID No. 12.747.160-6 / Appointed on 04/01/2018

HR Officer María Dolores Labbé Daniel / Business Administrator ID No. 13.117.638-4 / Appointed on 12/10/2013

Operations Officer Diego Moenne-Loccoz / Public Accountant-Auditor ID No. 12.708.537-4 / Appointed on 01/01/2018

EXECUTIVE COMMITTEE

Marcelo Bobadilla, Raúl González, Sebastián Sáez, Marcelo Matus, Patricio Velásquez, María Dolores Labbé, Victor Vidal, Marcela Ellwanger, Francisco Alliende, Bárbara Boekemeyer, Leonel Martínez, Paolo Rodríguez, Charles Naylor y Diego Moenne-Loccoz Not on the picture: Jorge Muñoz / Rodrigo Miranda

ORGANIZATIONAL STRUCTURE

The Board of Directors, the CEO and the Executive Committee hold the same positions and perform the same functions at the Company and its subsidiaries, with the exception of Línea de Transmisión Cabo Leones S.A. (Cabo Leones), the Board of which consists of parent company officers, and Sistema de Transmisión del Centro S.A. (STC), the Board of which consists of 5 members, 2 appointed by each shareholder and where STS, in its capacity of shareholder, has appointed parent company officers, and one independent director. The consortium with Chilquinta S.A. (Eletrans S.A., Eletrans II S.A., and Eletrans III S.A.) is managed by directors and officers of both groups.

BOARD OF DIRECTORS

AUDIT COMMITTEE CHIEF EXECUTIVE OFFICER

CORPORATE OPERATIONS DEPARTMENT

LEGAL DEPARTMENT

INTERNAL AUDIT

RISK PREVENTION DIVISION

ADMINISTRATION AND FINANCE DEPARTMENT

REGULATION DEPARTMENT

TRADE DEPARTMENT

DISTRIBUTION PROJECTS DEPARTMENT CUSTOMER RELATIONS DEPARTMENT

HR DEPARTMENT

STRATEGIC PLANNING, MANAGEMENT AND RISKS DEPARTMENT

BUSINESS DEVELOPMENT DEPARTMENT

OPERATIONS DEPARTMENT

TRANSMISSION DEPARTMENT OPERATIONAL DEVELOPMENT DEPARTMENT COMMERCIAL SAP PROJECTS DEPARTMENT

2018

OVERVIEW ACTIVITIES

MAY In the framework of international competitive bidding, Sociedad Austral de Transmisión Troncal S.A. was awarded the contract for the new Rio Toltén Substation on the national transmission grid consisting of construction of a sectioning substation for the Ciruelos-Cautín line in Freire, Araucanía Region.

AUGUST STC completed the construction of the

2x220 kV San Fabián-Ancoa transmission line that will convey the energy generated by Ñuble Hydropower Plant. The project consisted of building a 121 km-long, 220 kV double circuit transmission line, the 220 kV San Fabián Substation, and two 220 kV sections on Transelec's existing Ancoa Substation. Construction works took roughly 4 years.

OCTOBER

Grupo

Saesa's subsidiary SATT was awarded two zonal transmission projects as part of international competitive bidding: The Guardiamarina Substation project in Antofagasta (sectioning of 1x110 kV Mejillones-Antofagasta and 1x110 kV Esmeralda-La Portada lines) and the Valdivia-Picarte Transmission Line in Valdivia that will connect Picarte Substation to Valdivia Substation through a 66 kV transmission line.

NOVEMBER

SATT's new Kimal Substation in the Atacama desert started

operations in the National Electricity System (SEN grid). Execution of this project took 18 months and consisted of construction of the Kimal-Encuentro and Kimal-Crucero lines and a 220 kV bay. The project also considered four new diagonal lines that will connect the lines originating from sectioning of Laberinto-Crucero and Crucero-Chuquicamata-Salar lines and two additional diagonal lines to connect the 500 kV bay where the Changos-Kimal national interconnection line will connect to the grid. Also in November, substations Masisa and Mapal were acquired through subsidiary Sagesa S.A. in the Bío Bío Region and tolling agreements were executed for 20 and 10 years, respectively.

OVERVIEW OF ACTIVITIES

1920 1926

Sociedad Austral de Electricidad S.A. was incorporated

to supply electric power to Lebu, Arauco, Carampangue and later

1940

1946

Corfo and Endesa became majority shareholders of

Saesa to spur Chile’s government-led Electrification Plan.

Puerto Montt, Osorno, and Valdivia.

1980

2002 SGA

Frontel.

1980 Copec became the majority shareholder of Saesa and 1981 Edelaysen is incorporated as a subsidiary of

was incorporated.

Endesa. The company would later become a joint stock company.

improved to the level required by the regulator as a result of the

industrial-scale wind farm, came into operation.

2006

Quality of service indices were

2007

1982 Saesa acquired 70% of Frontel’s equity capital from Copec. Frontel thus became Saesa’s subsidiary. 1986 Corfo,

started on the Chiloé Project, a 220 kV transmission system

Edelaysen and Endesa kicked off construction of mini-hydropower

between Puerto Montt and the Chiloé Island. Retail sales kicked

plants and transmission lines along Carretera Austral highway.

off this year as well.

1988 Corfo transferred its facilities to Edelaysen and became a majority shareholder. 1989 Saesa and Frontel started

transmission operations with 66 kV lines and 66/23 kV substations.

1994 Saesa and Transelec jointly incorporated STS. The newly

investments made by the company.

Construction

2008 Ontario Teachers’ Pension Plan and

Morgan Stanley Investment Funds acquired all of Grupo Saesa’s share capital.

2009 Construction of the first rural electrifica-

tion project connected to the SIC grid through overhead powerlines between islands was completed. The Retail department now

2010 A massive

created company is 60% owned by Saesa and 40% owned by

1996 Saesa purchased Transelec’s 39.9% interest in

consist of 58 PoS in the concession area.

Transelec.

earthquake and a tsunami hit the country, causing serious

STS and now owns 99.9% of the share capital. The remainder 0.1%

damage. Our employees and contractors had to work hard and for

was purchased by Frontel.

a long time to restore power supply for customers from Bío Bío to

1998 Saesa acquired 90.11% of

the Edelaysen shares tendered by Corfo. Consequently, its

Chiloé. In November, the Company issued bonds for UF 4.0 million

operation area now spans over 1,500 km between Bío Bío and

to raise funds to refinance its financial liabilities, which in turn

Araucanía regions.

allowed the company to improve finance terms, reduce its cost,

1999 Saesa y Frontel acquired Creo Ltda. 2000 Saesa and STS upgraded the transmission facilities that

and extend the debt repayment period.

2011Canadian

supply power to the Chiloé Island to 110 kV. Saesa purchased a

investment fund Alberta Investment Management Corporation

further 1.56% interest in Edelaysen from Corfo, thus increasing its

purchased the 50% interest that was owned by Morgan Stanley.

share to 91.67%.

2001 Copec sold its interest in Saesa and

Frontel to PSEG Chile Holding S.A. Alto Baguales, Chile’s first

2000

2012 Saesa and Chilquinta (a non-Grupo Saesa company)

incorporated Eletrans S.A. after the consortium they established

1960

1950

1956

Frontel started its power distribution activities as

1960

A severe earthquake damaged over 70% of the grids

Endesa’s subsidiary, supplying the provinces of Concepción, Ñuble,

and substations in Valdivia and Puerto Montt, as well as power

Endesa

facilities in the Osorno area. The company put all its crews and

Arauco, Bío Bío, Malleco, and Cautín.

1957

transformed Frontel into a joint stock company where it owns an

resources to work on restoring power.

83.7% interest.

2017

2010

was awarded trunk transmission projects. The Puyehue-Rupanco was officially inaugurated.

2013

The consortium established

by subsidiary Saesa and Chilquinta incorporated Eletrans II S.A.

2016 A new transmission system consisting of the new 220 kV Kapatur Substation, which enables sectioning of the existing Angamos Laberinto Line and a new 2x220 kV line

after it was awarded two new trunk transmission projects. The

between the Kapatur and O'Higgins Substations, the latter

Company successfully issued corporate bonds for UF 3.0 million.

owned by Minera Escondida (a subsidiary of BHP Billiton), was

The issue was so successful that there was overdemand in the local

commissioned

market. The Chiloé Project, which increased power supply to the

connects Minera Escondida’s O'Higgins Substation and the

Chiloé Island from 55 to 110 MVA, was commissioned this year.

new 517 MW Kelar Power Plant, in turn connected to the

Sistema de Transmisión del Norte S.A. (STN) was

Kapatur Substation, to the existing SING power grid. This

incorporated in September. The company will concentrate its

project was developed by Sistema de Transmisión del Norte

operations in the north of Chile. Saesa and Frontel issued bonds for

S.A. (STN) and involved an investment of USD 70 million. In

2014

UF 2.0 million and UF 2.5 million, respectively, for placement in the local market. The placements are intended to raise capital to finance investments and refinance liabilities.

2015 Sociedad

Austral de Transmisión Troncal S.A. (SATT) was incorporated in October. Owned 99.9% by Saesa and 0.1% by STS, SATT would develop and operate the Nueva Crucero – Encuentro Substation trunk transmission (now national transmission) project previously awarded to Saesa. In December, subsidiary Eletrans commis-

June.

This

new

transmission

system

July, Grupo Saesa’s subsidiary Sagesa acquired "Línea de Transmisión Cabo Leones S.A.," the company that owns the "110-km, 2x220 kV Cabo Leones-Maitencillo Transmission Line." The EPC contract for expansion of the Kimal Substation was awarded to the Isotron-Sacyr consortium in October. Also in October, subsidiary Sociedad Austral de Transmisión Troncal ( SATT) acquired the San Andrés Substation. In November, the EPC contract for expansion of the trunk portion of the San Andrés Substation was awarded to HMV Ingenieros.

sioned the Cardones-Diego de Almagro transmission line between Copiapó and Diego de Almagro in the Atacama Region. This project was developed by the Saesa–Chilquinta Consortium and involved an investment of USD 94 million.

SECTION 2

CORPORATE DATA RISK FACTORS ORGANIZATIONAL EFFECTIVENESS RELEVANT FACTS FINANCIAL MANAGEMENT REMUNERATION OF DIRECTORS AND SENIOR OFFICERS

ELÃ&#x2030;CTRICAS DEL SUR CORPORATE DATA

OPERATING FIGURES

FINANCIAL BACKGROUND 2018

CONSOLIDATED (CLP million)

503,769

Revenues

Gross Margin

Profit

223,868

Customers (thousands)

205,520

43,747

Employees

24,312

1,392,952 1,261,449

892,785

Liabilities

840,061

3,572 3,426

867 842

1,263 1,070

Installed MVA (HV/MV) Installed MVA (MV/LV)

2017

2,679 2,639

961 987

500,168

Equity

EBITDA

2018

CONSOLIDATED

Energy Sales (GWh)

518,007

Assets

Investments

2017

421,388

121,740 106,671

108,231 99,229

HV lines (km)

1,990 1,935

42,515

MV lines (km)

LV lines (km)

34,556

31,327 25,003

CUSTOMERS SAESA

900

(in thousands) FRONTEL

EDELAYSEN

LUZ OSORNO

3.17%

800

SAESA

3,000

500

2,500

400

2,000

300

1,500

200

1,000

100

500 0

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

*Compound Annual Growth Rate

(CLP million) FRONTEL

110,000 100,000

CAGR*

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

EBITDA

(CLP million)

120,000

18.52% CAGR*

90,000

105,000 90,000

7.70% CAGR*

75,000

80,000 70,000

60,000

60,000 50,000

45,000

40,000

30,000

30,000 20,000

15,000

10,000 0

LUZ OSORNO

SAGESA AND SUBSIDIARY

130,000 120,000

EDELAYSEN

*Compound Annual Growth Rate

INVESTMENTS SAESA AND SUBSIDIARIES

FRONTEL

4.41%

3,500

600

(in GWh)

4,000

CAGR*

700

ENERGY SALES

0 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

*Compound Annual Growth Rate

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

*Compound Annual Growth Rate

GENERATION RISK RATINGS

No. OF POWER PLANTS

MW SAGESA Gas / Diesel BONDS

RATING AGENCY

ELÃ&#x2030;CTRICAS DEL SUR

AA-

ICR / FELLER RATE

SAESA

AA+

ICR / FELLER RATE

45.7

Diesel

108.7

Wind

0.025

Solar

0.037

EDELAYSEN Wind

3.78

Hydropower

24.29

FRONTEL

AA+

ICR / FELLER RATE

Diesel

32.27

STS

AA+

ICR / FELLER RATE

TOTAL

214.83

SAFETY INDICATORS FREQUENCY

SEVERITY

86%

2011

2012

2013

2014

2015

2016

2017

88%

2018

2011

2012

2013

2014

2015

2016

2017

2018

RISK FACTORS

The risk management strategy aims to protect the Company, its employees and its environment against situations that may impact them negatively. Risk management is orchestrated by the Company’s senior management and materializes both at a general level and at the individual level of each participating sector, considering the special characteristics of each one. To achieve the objectives, the financial risk management strategy seeks to hedge all significant exposures, provided there is an availability of suitable instruments and the cost is reasonable. The main risks the Company and its subsidiaries are exposed to are addressed below (supplemented by Note 4. To Financial Statements “Risk Management Policy” and section V in the Company’s Risk Analysis):

REGULATORY RISK The electricity market is a regulated sector. Rate cases regulate the energy distribution, transmission and transformation tariffs, as well as generation of medium-voltage grids like those served by subsidiary Edelaysen. Through the aforementioned rate cases, the regulator sets tariffs based on product and operation quality standards as well as rights and obligations that are essential for provision of these services. The regulator seeks economic optimization of both operations and investments in each grid based on tariffs that ensure recovery of the initial investment and coverage of the costs necessary to operate in compliance with the regulations in force. The foregoing considers an efficiently-sized organization and facilities to provide rated services. The risk in this area is mostly associated to changes that the regulator may initiate regarding regulatory

matters and on occasion of each rate case, which could potentially affect the Company’s revenues. Accordingly, the main components of this risk are as follows:

A) CHANGE IN REGULATIONS The electricity sector is governed by regulations in effect since 1982 that are applicable to key industry aspects including tariffs, capacity of the companies to supply their customers, and quality of service, among others. To date, various amendments have been introduced to electric power regulations (See Note No. 3, item 3.4 Regulatory Framework of Financial Statements). In general, changes to the aforementioned regulatory framework may result in a risk for the Company and the power industry as those changes may affect operating aspects, the company’s margins and profits, and other key aspects. The Company is regularly monitoring potential regulatory changes so that It can implement the necessary mitigation actions on a timely basis. At present, company representatives sit in advisory committees and participate in public consultations on regulations that may potentially affect company businesses. In this sense, the main regulatory changes anticipated include: • Review, discussion and public consultation of potential changes to the General Law of Electric Services advanced by the Ministry of Energy. The regulator has already expressed its intention to introduce improvements in the recent Transmission Law, a new regulation for power distribution and

medium-voltage grids. • Drafting and public consultation on Law 20,936 regulations to be defined by the Ministry of Energy. • Drafting or review, discussion and public consultation of various regulatory bodies (medium-voltage grids, NetBilling, Small Means of Distributed Generation (PMGD), Technical Standard on Safety and Quality of Service (TSS&QoS), supplementary services (SSCC), among others) based on the annual plan to be determined by CNE.

B) SETTING OF GENERATION TARIFFS At present, a generation company can play various roles, either exclusively or simultaneously, regarding sales of the electricity produced by a power plant. On the one hand, it can act solely as a generator, that is to say, the company will sell all the energy produced by the power plant in the spot market; or as a generatortrader, in which capacity the company may execute supply agreements with customers not subject to tariff regulation, or it can also participate in electricity supply tenders for regulated customers called by the National Energy Commission. The energy sold in the spot market is priced at its hourly marginal cost in the bus bar where the energy is injected, which for these purposes is calculated by the Toll Division of the Coordinator based on the variable costs of the units that were dispatched in the system to economically and safely meet its hourly demand. Power is priced according to the prices calculated by the National Energy Commission during rate cases conducted every six months. On the other hand, if the generation company has also executed supply agreements, it must buy the energy necessary to fulfill its agreements with the trader in the marginal market. The trader, in turn, will supply the energy to its customers at the price set in the said bilateral supply agreements.

At present, subsidiary Sagesa S.A. is focused on selling the energy it produces to subsidiary SGA, which in turn sells it in the spot market in the Central Interconnected System Grid. In addition to the power purchased from Sagesa S.A., SGA sells energy purchased from other grid generation companies with which it holds purchase agreements. For medium-voltage grids, generation tariffs are set every four years based on the average efficient generation costs of the relevant zone and according to a mandatory expansion work plan. The tariffs set are made part of the total tariff charged to end customers. The new tariffs applicable to mediumvoltage grids from November 2014 onwards were published in 2015. Those tariffs will remain in effect until publication of the new ones that were determined in the rate case held in 2018, which in turn will be applicable between November 2018 and October 2022.

C) SETTING OF DISTRIBUTION TARIFFS Power distribution tariffs (or Distribution Added Value – DAV / Valor Agregado de Distribución – VAD) are set every four years. On August 24, 2017, the Ministry of Energy published a new Executive Order on tariff formulas (DS N°11T-2017) that would be in effect between November 2016 (retroactively) and October 2020. However, as a result of publication of the Technical Standard on Quality of Service for Distribution Grids in late 2017 higher standards were provided for the duration and frequency of power outages, commercial quality, and product and metering, monitoring and control system (SMMC) quality levels that will be required once their implementation cost is reflected in distribution tariffs, which will allow companies to finance the investments required to meet the new standards. Accordingly, the new tariffs (Executive Order (EO) 5T2018) consistent with the new standards that will be in effect until 2020 were published in late September 2018.

These tariffs are fixed and adjusted every year based on an economy of scale factor (recognizing the efficiencies occurring at every company as a consequence of increased sales) and an indexation formula that considers monthly variations of the local inflation rate (IPC), the inflation rate in the U.S. (CPI) and the exchange rate. As to the rate case for electric power supply related services (SSAA) carried out every 4 years as part of the DAV Setting Process, new tariffs were published in July 2018 under Executive Order 13T-2017. The risks related to regulation of the distribution business are monitored on a permanent basis so that any changes the regulator may introduce during each new tariff cycle are properly identified to safeguard the assets and business profitability of the Company and its subsidiaries. To that end, the Company may turn to any of the entities identified in the current regulation, that is, it can submit its observations to the CNE or its discrepancies to the Honorable Panel of Experts or the Office of the Comptroller General of the Republic, as the case may be.

D) SETTING OF TRANSMISSION TARIFFS Pursuant to the current laws, the yearly tariff to be charged by the existing Transmission grids must be set every four years. Existing assets are assets whose investment value did not originate from competitive bidding or those that were awarded through a bidding process over 20 years ago. The coming rate case is underway and the tariffs so set will be in effect in 2020-2023. Law 20,805 enacted in 2015 extended the application of Executive Order No. 14 that set the zonal transmission tariffs for the period comprised between 2011 and 2014 until December 31, 2015. Subsequently, Law 20,936 further extended the validity of EO No. 14 until December 31, 2017.

In addition, the same law set forth a new regulatory framework for Zonal Transmission. The law laid down a new tariff structure for 2018-2019 that will allow the value of the existing facilities to be assessed. The calculation process started in late 2016 and the resulting tariff decree was published in October 2018 for the facilities commissioned until 2015. In the case of facilities commissioned in subsequent years, in late 2018 the CNE released a standardization criterion for their remuneration starting on their commissioning date. The same law sets forth a 4-year review period for an assessment of the value of regulated Dedicated, Zonal, and National Distribution applicable from 2020 onwards. Qualification of facilities started in late 2018 and is still underway. Once completed, the assessment process corresponding to 2020-2023 will be launched. The risks related to the regulation of the national and zonal transmission business are monitored on a permanent basis so that any changes the regulator may introduce during each new rate case are properly identified to safeguard the Companyâ&#x20AC;&#x2122;s assets and the profitability of the business. To that end, the Company may turn to any of the entities identified in the current regulation, that is, the CNE, the Honorable Panel of Experts or the Office of the Comptroller General of the Republic, as the case may be

RISK INHERENT TO POWER SUPPLY AGREEMENTS A) AGREEMENTS CUSTOMERS

SUPPLY

REGULATED

Electric power distribution companies are required to operate based on energy supply agreements awarded by means of bidding processes to supply their regulated customers for at least the following five (5) years. At present, supply is the matter of agreements executed as a result of the latest electricity supply

bidding processes carried out jointly by distribution companies based on the Contract Documents published by CNE. It should be noted that the bankruptcy of a supplier does not jeopardize power and energy supply to regulated customers as a result of the legal changes introduced by Law 20,805 of 2015 that allow surplus energy to be transferred among distribution companies. After enactment of Law 20,085, every year during the first quarter CNE requests all distribution companies to submit their regulated customer demand projections. Based on such information as well as an adjusted projection by the Commission, the Regulator issues a Bidding Process Report on the overall requirements in terms of electricity supply. With that information, CNE launched bidding process 2017/01 (January 2024 – December 2043 supply), which was awarded in October 2017 for 100% of the tendered energy. The relevant supply agreements were executed in early 2018. In addition, CNE’s 2018 demand projection process showed that regulated consumption demand has declined as a result of significant customer migration to the unregulated power supply system, the energy efficiency projection, and growing connection to distributed generation. The latest results of the tenders for the supply of distribution companies have supported the development of new projects, including the development of renewable energy projects that will allow the future requirements of regulated customers to be met.

B) ENERGY SUPPLY The security of energy supply for the entire National Electrical System Grid (Sistema Eléctrico Nacional– SEN) during future years could be affected by prolonged outages at thermal power plants and/

or gas supply problems and/or drought or energy transmission constraints. Nevertheless, these risks are mitigated because: • Legislative changes fostered incentives to investments in electric power generation and transmission. • The regulator increased the available energy matrix through tenders for energy supply and transmission work. Still, the Company makes estimations for a deficit supply scenario in order to plan possible actions (agreements between distribution companies, reports to generation companies and authorizations from CNE) to transfer energy surpluses available at distribution companies or to include new requirements in forthcoming bidding processes.

FINANCIAL RISK Management of the financial risks of the Company and its subsidiaries is aimed to ensure that operating cash flows and financial liabilities are balanced. The Company and its subsidiaries’ cash flows, mostly generated by their interest in the electricity business, have a highly stable, long-term profile. Note 4. To Financial Statements “Risk Management Policy” specifies the financial risks inherent to financing, financial assets, return on investment time frames, and the cost and variability of funds, i.e., credit risk, liquidity risk, and market risk.

Through the new Technical Standard on Quality of Service, the Ministry of Energy established greater trade and technical demands on local distribution companies, including Smart Metering.

ORGANIZATIONAL EFFECTIVENESS

OPERATIONAL EXCELLENCE 2018 was a positive year for Grupo Saesa in terms of quality of service as indicators improved compared to 2017. Last year’s achievements include a decline in both the average outage duration by customer measured by SAIDI (System Average Interruption Duration Index by Customer) and their frequency, measured by SAIFI (System Average Interruption Frequency Index). As to the former indicator, at the end of 2018 SAIDI was 26.9, which is 31.1% below the preceding year or 13 hours less of outages for all customers compared to 2017. Regarding SAIFI, Grupo Saesa’s distribution companies had an average value of 9.9 or 8.9% lower than last year.

SUSTAINABILITY Grupo Saesa strives to improve people’s quality of life and contribute to the country’s sustainable development by supplying reliable, secure energy. The group’s daily activities revolve around its strong commitment to its customers, the care and development of its associates and the modernization of the electricity sector in Chile, thus creating the long-term value our shareholders expect. Sustainability is pivotal to this challenge and therefore is at the core of the company’s guiding values. This means focusing our efforts towards a socially, environmentally and economically responsible corporate performance that pays special attention to the present and the future expectations of our stakeholders (investors, customers, contractors, associates, communities, suppliers, etc.). It is through our ordinary daily actions that we can improve our service and address the various impacts caused by the Group’s operations, constantly looking to contribute and add value to the development

of the regions where the company has a presence. And to achieve that, all these actions must be in full consonance with the strategic points defined in our Sustainability Policy: Dialogue, Awareness and Shared Value. • Dialogue: Exchange and conversation spaces constitute excellent vehicles to build relationships with our stakeholders. We want communication with them to be timely, useful and legitimate, having active listening and closeness as the pillars to create bonds based on mutual knowledge. • Awareness: We understand the impact of our activities and act with a deep sense of social and environmental responsibility. We want our operations and projects to materialize in a framework of care, respect and empathy towards the communities and territories where we operate. • Shared value: We build relationships that give us the chance to have a positive impact on our interest groups by undertaking collaborative and mutually beneficial work. We strive to create value and innovate in our processes to achieve real social progress, not just mitigate our immediate impact. But in order to move forward and underscore the importance of working towards sustainable development, we must first cement our commitment to each member of our organization. That is why we are permanently strengthening leadership among our associates to embrace this challenge, promoting in each one the willingness to take active part in our sustainability efforts, both present and future. Two Sustainability Committees have been created, which include members of the Executive Committee, Managers, Heads of Departments and Units, to implement programs, processes or projects that contribute to enhancing and consolidating this value through their objectives, targets, results and indicators. These committees are contained in the current Sustainability Plan, which, together with specific actions from the Strategic Plan, show the

path to follow in the medium term. During 2018, community-focused Sustainability Programs continued implementing activities to significantly contribute to the welfare of neighbors, children, youth, and the overall local development. We are neighbors Program: A space for dialogue and exchange with the community that has as its mission to address concerns, work cooperatively on issue resolution and provide useful information to different actors by organizing participatory meetings. Gathering with the community around a working table guarantees effective dialogue, promotes the involvement of local organizations and ensures prompt and proper response to their concerns. This will eventually produce sustainable bonds between the company and its neighbors. More than a community linkage program, Somos Vecinos offers an open, warm, transparent, practical, and educational approach to communication that seeks to humanize the company beyond our corporate logo or the monthly bill sent by mail. In 2018, meetings were held with neighborhood organizations as well as various social entities, including the Fire Department, Police Department, Detective Bureau (PDI), trade associations, chambers of commerce, municipal councils, sports clubs, educational institutions, etc. In addition, the program implemented Somos Vecinos Radio, an initiative that brings the topics discussed in the meetings and useful information to a larger audience. A total of 60 radio programs were broadcast in the seven zone departments, reaching communities in remote locations and resolving many of their concerns. A total of 463 meetings with over 6,000 participants were held in 2018, which represents a 116% increase from 2017. The program has enabled meetings and dialogue with the community, fostering progress and benefits to all participants and creating shared value.

Community Center Connection Program: A company that considers itself responsible and sustainable must develop community engagement programs so that its presence in a certain territory provides actual opportunities for the development and welfare of the adjacent communities through legitimate social investments that add real value. Along its 7 years providing electricity to more than 100 social organizations, the Community Center Connection Program has had a positive impact on more than 6,500 families that now have access to a well-lit place to conduct their productive, recreational and community activities, even in winter. Although seemingly trivial, this is especially relevant because the lack of electricity prevented them from holding meetings after dark. Grupo Saesa has therefore created value for its neighbors and they have opened the doors of their community centers to converse with and get to know the company better. In practice, the contribution consists of connecting the buildings to the power grid and providing protection and metering equipment, as well as all interior wiring and the TE1 certificate required by the SEC. In 2018, 28 new community centers were given electricity in 22 townships across the Companyâ&#x20AC;&#x2122;s area of operation. To school with energy Campaign: A program that provides backpacks, school supplies and audiovisual equipment to schools in rural areas at the beginning of the school year, benefiting mostly schoolchildren from low-income families. The program also intends to support homeroom teachers in charge of all children from 1st to 7th grade. In 2018, 32 schools and approximately 1,500 students received the benefit, completing more than 300 facilities assisted since the beginning of the initiative in 2011. Another interesting activity developed under the program was the 3rd edition of the interschool energy efficiency competition. During 4

months, participating schools competed to reduce their electric consumption as much as possible, comparing it against the same period a year earlier. Between the months of July and October, schools received monthly performance reports, tips for saving electricity, and videos on energy efficiency to show to their students. Also, a number of lectures on this topic were conducted by the zone engagement team. In 2018, 5 winners were selected among the 30 entrants: The first place went to Escuela Rural Cristo Rey de Ralún, in Puerto Varas, with 46% energy savings. The other four winners were school de Purrehuín from San Juan de la Costa; Rural school la Península del Río Rollizo from Cochamó; Rural school Pumol from Futrono; and School Héroes de Chile from Yumbel. These schools were visited to assess their needs and conduct a technical evaluation of the buildings in order to determine the most appropriate prize. In most cases, the prize consisted of a new internal and external electric connection for the entire facility to replace the old, irregular one. Technical Schools with Electricity Specialization Program: This education-oriented program supports training on electricity for junior and senior-year students of technical high schools in Grupo Saesa’s area of operation. The program includes classes and hands-on training, distribution of personal protection equipment, and implementation of a training bay in the school, as well as visits to substations, capacitybuilding and job shadowing activities, and internships offered to advanced students. Eleven high schools from 11 different townships were chosen for this program in 2018, benefiting 416 students and 22 teachers. Saesa League Program: This initiative is one of the main pillars of Grupo Saesa’s community-oriented sustainability programs. More than 6,000 youth have participated in the Saesa League, which is considered

the leading basketball training tournament in the country, now in its 20th edition. Generation after generation of children and adolescents have had their lives changed by this sport, which has instilled in them positive values and habits such as responsibility, discipline, respect and teamwork. Participants develop great competitive skills and many of them become professional basketball players or members of the national team in lower categories. Besides, they are given the possibility of gaining admission to university via athletic scholarships. This year, 18 clubs representing 15 townships in 3 regions took part in the 6 months of uninterrupted playing every weekend (a total of 560 matches), convening approximately 1,450 players including children, youth and adults. Saesa League provides an opportunity for athletic development and personal growth that not only impacts the life of the athletes involved, but also their families and the community who receive the benefits of healthy coexistence and the creation of approximately 450 jobs.

ENVIRONMENT Grupo Saesa has actively advanced and developed renewable energy projects. Accordingly, in 2018, the generation capacity from renewable sources reached 681 kW, through 11 solar and wind generation projects. Five new projects are scheduled for implementation in 2019, pushing generation capacity further to 925 kW. For years, the Group has promoted the value of sustainability within its organizational culture,

incorporating a number of initiatives aiming at building relationships and generating positive impacts on the community through collaborative work. For example, since 2014 the company has organized activities to educate on the proper and safe use of highly toxic waste like alkaline household batteries. The “RecoPila” battery stewardship project was created to ensure proper management and disposal of exhausted batteries by means of hazardous waste collection campaigns organized in conjunction with the Regional Environmental Offices of La Araucanía, Los Ríos and Aysén and several municipalities from the Bío Bío to the Los Lagos regions. The idea is to encourage the participation of children, promote respect for the environment and mitigate our footprint. During 2018, 16.6 tons of used batteries were collected from school facilities and numerous collection points installed at Saesa’s bill payment centers, city halls and municipal libraries, raising the battery management and disposal rate by 37% compared to 2017. It is important to mention that the collection and proper management cycle would not be complete if the batteries were not disposed of safely in authorized locations. In this sense, Hidronor Chile S.A. has become an active partner in providing safe, sustainable and efficient solutions for the waste disposal needs of Grupo Saesa. They have the best waste management practices and technologies in Chile. The spent batteries collected during the annual campaigns are sent to Hidronor’s plant for inertization, a process whereby toxic materials are confined in watertight containers to prevent seepage into the soil and/or groundwater. In 2018, Edelaysen and Corporación Patagonia Viva teamed up to launch the first-ever battery collection campaign in the Aysén Region through which 68 tons of used batteries were disposed of. On a different environmental note, and as a consequence of the civil works executed to strengthen electric systems within the company’s concession zones and the tree-trimming and pruning activities along power lines, every year the company is obligated to submit Trimming Management and Reforestation Plans for the execution of civil works to the forestry agency Corporación Nacional Forestal (CONAF) in compliance with Law 20,283 on the recovery of the native forest and forest development. In this context, Grupo Saesa is fully aware of the impact of its operations and therefore has placed environmental conservation at the center of its priorities. The company is permanently verifying that its operations and projects adhere to the principles of care and respect for the environment, restoring the trees affected by the implementation of its projects. In 2018, 21 hectares of land were reforested with 32,867 native trees.

OUR STAFF, OUR GREATEST ASSET Grupo Saesa has embarked on a new journey filled with challenges in which our staff plays an essential role for the way things are done has changed. Accordingly, new behaviors have been added to the 7 values on which our corporate culture is supported. These new additions will allow the company to join the era of Disruption: Innovation, Flexibility, Readiness, and Cooperation. We are trainers Program • As part of its professional development agenda, Grupo Saesa’s Corporate Training Plan delivered 173,380 hours of training to over 2,800 employees and contractor staff in 2018. • In turn, the Crece (Grow) Program offered over 64,000 hours of professional training to 88 participants. • 56 youngsters graduated from the Linemen Training Program. There are now 139 participants from 9 training programs that have successfully completed the training. • In accordance to the newly introduced requirements, the first Smart Metering training program was carried out and successfully completed by 22 participants who will undertake this major technological challenge. • For a second year in a row, the Supplier Development Program (PDP) aimed to improve business and quality management standards was successfully carried out in 2018. Eight contractor firms –5 from Temuco and 3 from Concepción, respectively– participated in this training. The average number of participants per session was 26 people. • Already in its third year, the Performance Evaluation and Reward System (SEDR) has introduced a new way to do things, evaluate and offer feedback that has enabled supervisors and a second evaluator to have a 360-degree view of employees. Work has continued uninterruptedly over these three years to develop a feedback culture that fosters excellence in management. • The new Inclusion Law that promotes hiring of employees with disabilities in public and private institutions entered into force in early 2018. In this light, the Company started working on a plan that views the new law as an opportunity to foster an inclusive culture. Consequently, large efforts are being made to make of Grupo Saesa a more diverse company that values talent and offers work opportunities by means of inclusive positions.

A Great Place to Work • Keeping a good work environment is one of Grupo Saesa’s paramount objectives. To prove it, over the past 4 years the company has obtained a satisfaction level of 85% in Work Environment Survey. Organizational commitment, work conditions, and work environment were the dimensions that showed the highest scores. • In 2018, the company climbed to place No. 4 in the Great Place to Work ranking that measures the best companies to work in Chile. This is a great source of pride and a well-deserved recognition of the practices that bring our culture to life. EVOLUTION RANKING GREAT PLACE TO WORK

Continued commitment to people’s safety.

1º

4 10º

13 23

40º

50º 2013

2014

2015

2016

2017

2018

• The Trampoline of dreams program was launched. This pioneering initiative is aimed at offering the unpaid leave benefit to employees that will allow them to fulfill a dream that they had to put aside due to lack of time. • Over 1,000 employees used their Smile Points, which represents a 92% rate of use of two days of positive experiences (2,000 points) that translate into days off and 47 employees benefited from the Flexible work schedule that allowed them to work two half days from home. • Healthy Life is a pilot program launched in 2017 and based on three main pillars: Health, Sports, and Leisure Activities. The second installment of this program took place in 2018 and over 400 employees

Safety is not negotiable. That is a belief that encourages Grupo Saesa to continue to carry out actions aimed to ensure the safety of its workers and that safety and the determination to take care of themselves are values that go beyond the workplace, so that the culture and habits of care is transferred to the workers’ very households. The foregoing is intimately linked to Grupo Saesa’s statements, where the safety of its employees is a core concern while performing their work but also during their spare time.

20º

• The Refuerzos PEC campaign, an initiative aimed to identify and train individuals to join the reinforcement staff list for the Weather-related Emergencies Plan - PEC, was carried out in 2018. A total of 182 employees signed in voluntarily for the 6 roles defined, namely Look Up, Third Man, Telephone Verifier, Contact Center, Materials Logistics Assistant, and Food Logistics Assistant.

SAFETY IS NOT NEGOTIABLE

50 BEST COMPANIES TO WORK IN CHILE

30º

were evaluated by a nutritionist and more than 150 received immunization. Moreover, initiatives like Fruit Cart and Workout during Breaks were implemented to encourage healthy habits across the company.

Grupo Saesa’s safety culture did not happen overnight. It has been a long, hard process that has come to fruition thanks to the efforts of a multidisciplinary team supported by the senior management and the commitment of each and every employee. To bring about this cultural change, Grupo Saesa is constantly seeking to pave the way for its personnel to adopt safe work practices, which ultimately reflects in safety results. Activities focused on strengthening safe behaviors were carried out in 2018, such as: Grupo Saesa’s Safety Culture • Saesa Safety Orientation. • Critical Focus Workshop. • Safe Mode Launch. Safety and Technical Training • Completion of training plans. • Control of contractor training plans. • Linemen and Smart Metering Training Programs. • Training Program on Transmission. Commitment • Walk for Safety.

Kimal Substation, Antofagasta Region

• One-day sessions to review safety results, plans and zone department plans. • ‘Pa la Foto’ safety prevention campaign. • Field coaching programs for Transmission construction programs. Dissemination and Reaching Out • Safety at Work Fair. • Organization of Extended Meeting of Committees of the Chilean Electricity Industry.

safety at Grupo Saesa, a milestone the company must project in the long term to grow into a benchmark in the local and international electricity business.

MAJOR WORKS H&S

The results obtained in 2018 reflect the efforts made by each employee of Grupo Saesa and its contractor firms to improve the performance of previous years. For our employees, safety is not an obligation, but a personal commitment. Consequently, Grupo Saesa has pledged to ensure that the safety of its over 6,000 employees will remain non-negotiable today and always. The Safe Mode encourages us all to be aware of risks, to remain focused on the tasks at hand, and most of all to be motivated by the objectives and challenges to continue to improve our performance in terms of safety, which led 2018 to be the best year ever in

GUARDIAMARINA SUBSTATION (ANTOFAGASTA REGION) Grupo Saesa was awarded the 110/23 – 13 kV Guardiamarina Substation Project located in the city of Antofagasta, Antofagasta Region, in October 2018. The project consists of construction of a new substation in a double busbar-transfer bar arrangement on its 110 kV bay, with 4 sections to sectionalize the 1x110 kV Mejillones – Antofagasta and 1x110 kV Esmeralda – La Portada lines, one busbar coupling section, two transformer sections, and at least three available sections. The substation is expected to be commissioned no later than 28 months following the formal award of the project.

NEW 220 kV KIMAL SUBSTATION PROJECT (ANTOFAGASTA REGION) Located in the Atacama Desert, in the María Elena district, Antofagasta Region, the Kimal Substation started operations in the National Electricity System (SEN grid) in November 2018. The Kimal sectioning substation connects to the existing Crucero and Encuentro substations through two independent 10 km-long, 2x220 kV lines, each with a transmission capacity of 590 MVA at 75°C. These new lines sectionalize the 2x220 kV CruceroEncuentro high-voltage line. The project included the construction of both KimalEncuentro and Kimal-Crucero lines, the 220 kV bay that includes two full 220 kV busbars, two diagonal lines in breaker-and-a-half configuration to which the four circuits running from the Crucero and Encuentro substations are connected. The project also considered four new diagonal lines that will connect the lines originating from sectioning of the 2x220 kV Laberinto-Crucero high-voltage line, 2x220 kV Crucero-Chuquicamata-Salar high-voltage line and two additional diagonal lines to connect the 500 kV bay where the 2x500 Changos-Kimal national interconnection high-voltage line will connect to the grid. Construction works took 18 months. SAN FABIÁN – ANCOA TRANSMISSION LINE PROJECT AND RELATED 2x220 kV WORKS (MAULE REGION – ÑUBLE REGION) Construction of the 2x220 kV San Fabián - Ancoa transmission line that will convey the power generated by the Ñuble Hydropower Plant was completed in August 2018. The project consisted of building a 121 km-long, 220 kV double circuit transmission line, the 220 kV San Fabián Substation, and two 220 kV sections on Transelec’s existing Ancoa Substation. Construction took 4 years, approximately. MAPAL SUBSTATION (BÍO BÍO REGION) SAGESA acquired Mapal substation in November 2018, and simultaneously a 10-year dedicated tolling

agreement was executed with selling party Masisa. The 154/54 kV substation is located in San Pedro de la Paz, Bío Bío Region and consists of a 24 MVA transformer. MASISA SUBSTATION (BÍO BÍO REGION) SAGESA acquired Masisa substation in November 2018, and simultaneously a 20-year dedicated tolling agreement was executed with selling party Masisa. The 66/13.2 kV substation is located in Cabrero, Bío Bío Region and consists of a 30 MVA transformer. SANTA BÁRBARA SUBSTATION, INSTALLATION OF LV1 POWER BREAKER (BÍO BÍO REGION) Low-voltage 52BT1 power breaker of Santa Bárbara Substation was commissioned on January 29. The project consisted of replacing a fused disconnect switch (89BT1-F) by a power breaker (52BT1) on the high-voltage side, which allowed the company to comply with the maximum power supply restoration times at the Faenas Pangue substation provided in the regulatory framework in effect. NEW 110/23 kV, 16 MVA CUNCO SUBSTATION (LA ARAUCANÍA REGION) The Cunco Substation was commissioned on August 17. The project consisted of construction of a new GIS Substation called Cunco that connected to the grid through sectioning of the 1x110 kV Pitrufquén – Melipeuco line, installation of a new 16-MVA, 110/23 kV transformer, and building the corresponding bays and HV and LV sections for connection to the transformer. The project also included all the civil works and activities required for execution and commissioning of the substation. NEW 66/13.2 kV, 16 MVA DEUCO SUBSTATION (LA ARAUCANÍA REGION) The Deuco Substation was commissioned in November. The project consisted of construction of a new Substation called Deuco, which connected to the grid through sectioning of the 1x66 kV Angol – Picoiquén line, installation of a new 16-MVA, 66/13.2 kV transformer, and construction of the corresponding

bays and HV and LV sections for connection to the transformer. The project also included all the civil works and tasks required for execution and commissioning of the substation. RÍO TOLTÉN SUBSTATION (ARAUCANÍA REGION) The Río Toltén Substation Project located in Freire, La Araucanía Region, consists of building a sectioning Substation to standardize the existing parallel connection on the 2x220 kV Ciruelos - Cautín line. The project was awarded to Grupo Saesa in May 2018. The substation is expected to be commissioned within the 24 months following the formal award of the project. VALDIVIA – PICARTE TRANSMISSION LINE (LOS RÍOS REGION) The Valdivia – Picarte transmission line project in Valdivia, Los Ríos Region, consists of construction of a 2x66 kV underground line with a 3.7 km long circuit between the new Nueva Valdivia Substation and the Picarte Substation with 60 MVA capacity per circuit. The project was awarded to Grupo Saesa in October 2018. The substation is expected to be commissioned within the 36 months following the formal award of the project.

RURAL ELECTRIFICATION Grupo Saesa companies have a sustained commitment to contribute to the progress and wellbeing of the communities in which they operate. Rural Electrification Projects are a proof of it, as the company joins efforts in a 3-player partnership of the Government of Chile, the Society and the Beneficiaries to supply electricity to the most remote locations stretching from north to south along the country.

The distribution lines and in-house installation work for 52 Rural Electrification Projects in remote areas of 27 townships of the Bío Bío, La Araucanía, Los Ríos and Los Lagos regions were completed and 49 new projects were signed for 27 townships in the aforementioned regions, which are currently at the authorization and engineering stages. Completion and commissioning of these projects has allowed the company to meet the objective of supplying power to 1,865 households from rural areas. It should be noted that these projects involve 249 km of MV lines, 170 km of LV lines on individual poles, 43 km of LV lines on common poles, and 540 5-kVA to 15-kVA distribution transformers. In addition, Grupo Saesa was awarded the “Isla Huapi Household Solar System Construction” Project, an initiative that falls within the framework of the energy access and equality program advanced by the Ministry of Energy to supply electric power to all the families on that island through non-conventional renewable energy (ERNC) sources. 151 households will benefit from this project.

BUSINESS MANAGEMENT In 2018, Grupo Saesa’s business activity revolved primarily around strengthening the CustomerFocused Culture by giving this corporate value the same priority as safety. That course of action led to the creation of “Customer Mode / Safe Mode” concept that has allowed smooth integration of the company’s passion for its customers. This concept was complemented by a plan consisting of various initiatives along the lines of strategic planning that were disseminated throughout the company. Among the largest projects are: Management of information on power outages: A

mechanism that allows the company to keep its customer base fully abreast of power outages through direct communication. Artificial intelligence has been gradually incorporated to this project as well. This project is expected to continue to evolve along 2019 and is in line with other major initiatives like customer data capture. Experience Tree Model: This tool represents evolution of customer satisfaction and experience indicators. It consists of relating process indicators to perception indicators in an attempt to establish a causal relationship among results to act proactively. This endeavor is leading to the establishment of a customer-focused culture in the different levels of the organization in a highly participatory environment in which business and technical teams cooperate. Greater availability and promotion of remote channels: Including fostering of customer migration to the digital bill and use of the ‘Report an outage button on the website. Customer Segmentation: A new way to see business customers has been implemented through new functionalities at on-site outage response level. Displays were implemented in segment, subsegment, and customer sensitivity systems both at the “front” and in control centers to systematically manage outage response to most critical customers. Segmentbased changes have been introduced in customer relations in terms of information, billing and other processes. Another highlight is the implementation of unregulated tariffs for customers with a level of consumption above 500 kW and seasonal customers (like irrigation customers), which has been highly valued by the latter. Power-dependent users: Understanding the critical situation they face, a specific outage response service for power-dependent customers has been developed. In some critical cases, generators have been made available to households, which the latter have been very grateful for. In addition, the company worked

jointly the regulator to provide a clear definition of the ‘power dependence’ condition so as to prioritize the customers in greater need. As to initiatives in other areas of the company that have also been working in improving their relationship with customers, communication with customers through press releases on traditional and digital media like twitter has been enhanced and the dissemination of positive news has increased by 100% compared to 2017.

BUSINESS PROCESSES In terms of business processes, 2018 debuted with a number of digitalization efforts to encourage customers to sign up for the Digital Bill. A local printing activity was carried out in some Edelaysen districts as well. Among the improvements introduced are automation of supply interruption lists, and use of smartphones including a mobile app for field personnel that improved traceability of the disconnection and reconnection process as it allows our staff to work online and ensures that the customers who settle their past due bills will not face service interruption. Customer focus was also applied in this area through a new vision added to the bill distribution process. Enhanced technology was introduced through a more robust industrial smartphone and subsequently development of the supporting application, all of which will ensure traceability and recording of this activity.

MANAGEMENT OF OUR PROJECTS AND SERVICES 2018 was particularly successful in terms of project management, awarding, execution of work, and unregulated services in the field of energy as a result of sales of projects and materials to private customers and differentiative business ventures like adaptation of poles so that telecom companies can install their antennas on them. Centralized business management efforts continued through energy efficiency projects and new value propositions for customers, including electric AC and heating, and standardization of a photovoltaic kit for on-grid connection. Likewise, public lighting projects involving LED technology continued in 2018, particularly in townships like Purranque and Codegua, both outside our service area. In addition, connection works were carried out in inaccessible areas, like the photovoltaic project implemented in Ancapi Ñancucheo indigenous community in Ercilla, La Araucanía Region, and in the San Luis sector in Cochamó.

SMALL MEANS OF DISTRIBUTED GENERATION (PMGD) In 2018, two new power plants (3.2 MW) were added to Grupo Saesa’s distribution grid, which now consists of 48 small means of distributed generation (PMGD) owned by third parties with combined installed power of 125.4 MW. Among the non-conventional generation means used are run-of-the-river power plants, cogeneration plants, and wind farms. Also in 2018, two power plants were connected to the company’s grid: 0.2 MW El Brinco Hydropower Plant located in Mulchén and 3.0 MW Almendrado Power Plant located in Chonchi.

EL BRINCO This 0.2 MW run-of-the-river power plant was connected to the MV grid of the Picoltué Substation’s Mulchén outgoing feeder, located in the Quitralman Estate in Mulchén. El Brinco collects water from an irrigation canal fed by River Bío Bío and according to the new Technical Standard on Connection and Operation (NTCO) it has No Significant Impact (INS), which means that no additional work is required for connection to the grid. This project is owned by Hidro Munilque Spa and was commissioned on March 23, 2018. EL ALMENDRADO This 3.0 MW thermal power plant was connected to Chonchi Substation’s Notuco outgoing feeder on Chiloé Island. This plant is owned by IMELSA S.A. Unlike others, this plant is equipped for isolated operation, which means that it can provide backup for power consumption in the area in case of power outages in the grid. EL ARREBOL Efforts in this project focused on executing the necessary works in Lebu for connection of 9 MW El Arrebol Wind Farm, which involved an investment of nearly USD 1.94 million in La Fortuna’ feeder medium-voltage grid. This project located north of the Lebu Substation was scheduled for commissioning in January 2019. EL NOGAL Execution of the agreement for additional works on June 22, 2018 marked the start of works associated to Parque Eólico El Nogal Wind Farm located in Negrete, under which USD 330,000 will be invested in improving the MV grid of the area. Commissioning is scheduled for March 2019.

The projects developed this year are as follows:

Explanatory video: How Smart Metering works.

RELEVANT FACTS

1. On occasion of the Extraordinary Shareholders’ Agreement held on February 20, 2018, shareholders voted in favor of increasing the company’s equity capital from CLP 348,613,120,764 divided into 71,581,100 registered, no-par value shares, 100 of which correspond to Series A and 71,581,000 correspond to Series B to $394,413,120,764, for a total increase of $45,800,000,000 by issuing 7,992,672 Series B registered, no-par value shares. 2. On occasion of the Extraordinary Shareholders’ Agreement held on April 26, 2018, the shareholders elected Messrs. Iván Díaz – Molina, Jorge Lesser García – Huidobro, Juan Ignacio Parot Becker, Waldo Fortín Cabezas, Stacey Purcell, Dale Burgess, Ben Hawkins, and Christopher Powell as Board members. 3. On occasion of the Extraordinary Shareholders’ Agreement held on April 26, 2018, the shareholders adopted payment of a final dividend amounting to CLP 178.955271154 per share, charged to the income of the period ending on December 31, 2017. The aforementioned dividend was paid in cash and the number of shares entitled to such payment amounted to 79,573,772. Consequently, the actual payment amounted to CLP 14,240,146,000. 4. On occasion of the Board Meeting held on May 16, 2018, Mr. Jorge Lesser García-Huidobro was elected Chairman of the Board and President of the Company and Mr. Iván Díaz-Molina was appointed vice-chair. 5. On occasion of the Board Meeting held on August 22, 2018, the Board of Directors acknowledged the resignation of Director Dale Burgess and appointed Mr. Stephen Best as Mr. Burgess’ replacement.

FINANCIAL MANAGEMENT

DISTRIBUTABLE NET INCOME The company does not apply any adjustments to the item “Profit (loss), attributable to the parent company’s owners” in the Statement of Comprehensive Income. Consequently, the values of such item are taken as a base, minus accumulated loss, if any, and distributed dividends charged to the accounting period are deducted from such result. First IFRS adoption adjustments are not part of this calculation insofar as they remain unrealized.

This policy for calculation of the distributable net income is applicable since 2010, following adoption by the Board on October 7, 2010, and pursuant to instructions issued by the Financial Market Commission (former Securities and Insurance Supervisor) in Circular Letter No. 1,945 of September 29, 2009. Accordingly, the distributable net income of 2018 is as follows:

DISTRIBUTABLE NET INCOME CLP thousand Profit (loss) attributable to owners of the parent

43,957,153

Retained profit

33,095,220

Modifications and exchanges (IFRS 9)

34,364

Dividends paid with a charge to 2018

Distributable Net Income of 2018

77,086,737

DIVIDENDS The dividends paid by the Company over the past 4 years are as follows:

DIVIDEND HISTORY

CLP PER SHARE CONSTANT CURRENCY

DIVIDEND

PAID ON

Interim Nº3

09-06-2014

26.16367705

2014

Final Nº10

23-06-2015

125.73151290

2014

Final Nº11

23-06-2016

63.27341829

2015

Final Nº12

27-05-2017

186.53061508

2016

Final Nº13

26-05-2018

178.95527115

2017

CHARGED TO

PROFIT SHARING

EQUITY CAPITAL

The Board proposes that profits be distributed as follows:

As of December 31, 2018, the equity capital of the Company amounted to CLP 385,906,755 thousand, divided into 71,581,100 subscribed and paid up shares. Should the Ordinary Shareholders’ Meeting adopt the profit sharing proposal, the Company’s equity as of December 31, 2018 will be as follows:

PROPOSED DIVIDEND CLP thousand Final dividend No. 14 payable from Distributable Net Income of 2018

26,374,292

Distributable Income

26,374,292

CLP thousand

The Board of Directors has agreed upon proposing to the Regular Shareholders’ Meeting to adopt payment of final dividend No. 14 amounting to CLP 331.444538462 per share charged to the income of the period ending on December 31, 2018. This dividend accounts for 60% of the net income of the period.

Issued capital

385,906,755

Retained profit

43,965,408

Other reserves

38,138,130

EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT

468,010,293

REMUNERATION OF DIRECTORS AND SENIOR OFFICERS Board of Directors In compliance with provisions under Law 18,046 on Corporations, remuneration of Directors is set annually at the Regular Shareholders’ Meeting of the Company. Directors Waldo Fortín Cabezas, Ben Hawkins, Juan Ignacio Parot Becker, Stacey Purcell, Christopher Powell, and Stephen Best have waived their right to compensation as Directors of Eléctricas and its subsidiaries. Consequently, only the directors specified below received the aforementioned remuneration:

REMUNERATION OF DIRECTORS (CLP thousand) 2018 ELÉCTRICAS

SAESA AND SUBSIDIARIES

FRONTEL

SAGESA

TOTAL

2017

Jorge Lesser García-Huidobro

1,762

36,300

29,252

1,762

69,076

62,444

Iván Díaz-Molina

1,762

36,300

29,252

1,762

69,076

62,446

TOTAL

3,524

72,600

58,504

3,524

138,152

124,890

In 2017 and 2018, the Company has made no payments to companies related to the Company’s directors. As of December 31, 2018, Subsidiary STC paid remuneration to independent director Mario Donoso Aracena for CLP 32,563 thousand. Likewise, in 2017, the aforementioned director was paid remuneration for CLP 31,881 thousand. In addition, the Board incurred no expenses in advisory or other services, incentives like bonuses, stock compensation, stock options, etc. in 2018. Directors have no ownership interest in the parent company or its subsidiaries.

EXECUTIVE COMMITTEE COMPENSATION

SENIOR OFFICERS Senior Officers are directly compensated by the Company. Subsidiaries, however, have a performance incentive plan whereby senior officers are offered a share of the Companyâ&#x20AC;&#x2122;s profits upon fulfillment of individual objectives. Incentives are structured according to minimum and maximum gross compensations and senior officers receive an advance payment equivalent to 25% of one gross compensation in the third quarter of every year and the balance on the first quarter of the following year.

CLP million

2018

2017

FIX COMPENSATION

4,235

3,535

VARIABLE INCENTIVES

1,958

1,634

TOTAL

6,193

5,169

Senior Officers have no ownership interest in the parent company or its subsidiaries. The Executive Committee of the parent company and its subsidiaries received the following total compensation and incentives in 2018:

Seniority severance payments to senior officers of the parent company and its subsidiaries amounted to CLP 12 million and CLP 188 million in 2018 and 2017, respectively.

PERSONNEL As of December 31, 2018, the Company and its subsidiaries has the following employees:

PERSONNEL SAESA AND SUBSIDIARIES

SAGESA

TOTAL

PROFESSIONALS AND TECHNICIANS

595

256

859

ADMINISTRATIVE STAFF AND ELECTRICIANS

206

138

352

TOTAL

844

402

1,263

SENIOR OFFICERS AND OFFICERS

FRONTEL

FINANCIAL INFORMATION

Investment and Financing Policies

Dividend Policy

The Company and its subsidiaries will pursue their development strategy by strengthening the current businesses, consolidating their position as distribution, generation and zonal transmission company, within or outside its concession area, and continuously seeking new opportunities in the utility industry, sale of products and services associated to electric power distribution and transmission, and development of complementary businesses tapping into the companiesâ&#x20AC;&#x2122; extensive customer base in the south of Chile.

The dividend distribution policy for the coming years will be at last 30%, plus an additional percentage to be determined according to Companyâ&#x20AC;&#x2122;s restrictions based on financial obligations and operational policies.

Investments are carried out based on strict financial, technical and strategic decision-making criteria. The basic guideline every new investment is to meet is clarity in the legal framework of the intended activity. Financing sources are managed according to the long-term financial plan of the Parent, Subsidiaries, and Related Parties. Financial resources are obtained from own sources, traditional debt finance, private and public offering of securities and capital contributions, always based on stable structures and ongoing efforts to streamline use of the most advantageous products in the market.

Properties and Insurance In order to safeguard the activities of the industry in which it participates, the Company and its subsidiaries hold insurance policies according to the conventional practice of the electricity industry. The main insurance policies taken are civil liability for operations, which provides coverage against third-party damage, and all risk including business interruption of company business like facilities, power plants, substations, contents and inventory. Customarily, insurance policies have a 12-month term.

SECTION THREE

INDUSTRIAL ECONOMIC SECTOR ACTIVITIES AND BUSINESSES SUBSIDIARIES STATEMENT OF LIABILITY

INDUSTRIAL ECONOMIC SECTOR

THE LARGEST ELECTRIC POWER DISTRIBUTION COMPANY IN THE SOUTH OF CHILE.

REGULATION AND OPERATION CHILEAN ELECTRICITY SYSTEM

Grupo Saesa companies are mostly involved in distribution and transmission of electric power and, to a lesser extent, in power generation and trade. Consequently, the Company’s main asset are its distribution and transmission grids. Through subsidiaries Saesa, Frontel, Luz Osorno, and Edelaysen, Grupo Saesa is the largest electric power distribution company between the provinces of Concepción (Bío Bío Region) and Capitán Prat (Aysén del General Carlos Ibáñez del Campo Region).

Chile’s electricity sector consists of generation, transmission and distribution of electric power. These activities are carried out by private companies and the Government plays a regulatory, oversight, and subsidiary role. This structure implies that companies have decision-making capacity regarding investments, marketing of their services and operation of their facilities, which makes them responsible for the quality of service provided in each segment, as required by the sector regulatory framework.

With annual sales of 3,572 GWh and 867,000 customers in 2018, Grupo Saesa is the country’s third largest electric power distribution company, both in terms of sales and number of customers. The table below shows a breakdown of customers and sales by distribution company:

Through grids with an installed capacity equal to or higher than 200 MW, the various players of the electricity sector operate in concert and under the coordination of the National Electricity Coordinator (the Coordinator or CEN), which is responsible for:

FRONTEL EDELAYSEN LUZ OSORNO

THE

• Preserving the security of supply of the power grid. • Ensuring the most cost-efficient operation of all the electricity system installations.

ELECTRIC POWER DISTRIBUTION

SAESA

DISTRIBUTION AREA

CUSTOMERS (in thousands)

SALES (GWh)

IX, X and XIV Regions

440

2,288

VIII and IX Regions

357

982

X and XI Regions

154

X and XIV Regions

148

• Guaranteeing open access to all transmission systems, in compliance with the Law. Chile’s two main power grids, which jointly account for over 99% of the country’s power generation, were interconnected in November 2017: Sistema Interconectado del Norte Grande (“SING grid”) that supplies energy to the area between Arica and Antofagasta in the north of the country, and Sistema Interconectado Central (“SIC grid”), which covers from Tal-Tal to Chiloé. Together, they became the new Sistema Eléctrico Nacional (SEN grid).

The system also consists of various medium-voltage grids (SSMM grids), the installed generating capacity of which ranges between 1,500 kW and 200 MW, that supply regions like Los Lagos, Aysén del General Carlos Ibáñez del Campo, and Magallanes y Antártica Chilena. These grids (like subsidiary Edelaysen) are usually operated by vertically-integrated companies, that is to say, they are responsible for generation, transmission, and distribution of electric power.

POWER GENERATION No concession or special authorization is required to engage in power generation in the SEN grid, but only for construction and operation of hydropower plants. The SEN grid consists of three main markets with different types of customers and tariffs: A) Wholesale Market: Segment in which generation companies engage in transactions among them, either through contracts or sales at marginal cost. B) Unregulated Power Market: Market segment corresponding to customers with an installed capacity in excess of 5 MW that freely negotiate tariffs with the generation company. Customers with installed power between 0.5 MW and 5 MW may opt to be treated as unregulated customers, which they negotiate for 4-year terms. C) Regulated Power Market: This segment corresponds to all energy transfers between generation and distribution companies aimed to supply power to customers subject to regulated power tariffs (hereinafter, “regulated customers”).

Thus, distribution companies become generation companies’ customers. The price at which energy is sold is set through open, transparent, and non-discriminatory tendering. Tariffs are usually set for a period of 20 years. It should be noted that electricity sales prices are set at national bar (national transmission) level. Subsequently, charges for use of zonal transmission grids are introduced as additional charges by the distribution company. Regardless of the end market established by a generation company, transfers between generation companies with surplus energy to those with energy deficit in the SEN grid are completed at the marginal hourly cost set by the grid. The entity responsible for such calculations is the Coordinator’s Toll Department. Medium-Voltage Grids differ greatly from one another; consequently, generation and transmission costs are set based on a tariff study conducted every four years. The Aysén, Palena, and General Carrera MediumVoltage Grids are operated by the same company, which manages both generation facilities and transmission and distribution installations (vertically integrated like subsidiary Edelaysen) and is responsible for ensuring that the grid operates as efficiently and safely as possible. The Cochamó MediumVoltage Grid is a special case in the sense that the generation and transmission assets are owned by one company (Sagesa), while distribution to end customers is managed by a different one (Saesa). The same is true for Hornopirén grid, where generation and transmission assets are owned by Cuchildeo and Sagesa, respectively, while distribution to end customers is managed by distribution company Saesa.

TRANSMISSION

Since enactment of Law 20,936 in 2016, transmission grids are classified into National, Zonal and Dedicated Transmission, all of them open access grids and the first two subject to tariff regulation. In dedicated transmission, charges for transport are regulated by private contracts executed by the relevant parties, while use of the grids to supply regulated customers is subject to regulated tariffs calculated by the regulator. The information used to set toll rates is publicly disclosed in all cases. Transmission companies charge tolls to generation companies and end users, which according to the Law will be gradually transferred to users in their entirety. Transmission tolls allow the owners of transmission facilities to recover and finance their investments in transmission assets and collect the costs associated to operation of such assets.

TRANSMISSION

TRANSMISSION GRID

TOLLS

NATIONAL

100% charged to end users based on anticipated withdrawal. Tolls are determined by the National Energy Commission (CNE) every 4 years based on efficient investment, operation, maintenance and administration costs of the existing facilities or the costs of bidding processes for new facilities.

ZONAL

Tolls set by CNE every 4 years based on efficient investment, operation, maintenance and administration costs of the existing facilities and charged to end customers in their entirety based on anticipated withdrawal.

DEDICATED

Tolls freely negotiated by the owner of the transmission facilities and its users. Tariff regulated according to use of the facilities to supply regulated customers.

DISTRIBUTION

Pursuant to the law, distribution is any electricity supply up to 23 kV. Distribution companies operate according to concessions under which territories are defined for each company, which in turn has the obligation to supply regulated customers under a maximum tariff structure combined with an efficient business model set by the regulator. Given access barriers to this activity as a result of strong economies of density, distribution companies operate as a natural regulated monopoly. Although the regulator may grant overlapping concessions, in practice, existence of several distribution companies in the same area is discouraged because the tariffs set by the regulator aim at an optimal technical-economic scenario, that is to say, they do not finance distribution facilities which the company deems redundant or unnecessary to meet the existing requirements. Regulated and unregulated customers (either a customer of the distribution company or not) are to pay a distribution added value– DAV (VAD as per the Spanish acronym) for use of the grid. A) REGULATED CUSTOMERS The tariffs charged by distribution companies to regulated customers consist of: • Average Node Price: This component reflects the average power and energy purchase price that is passed on to end customers through distribution companies. This price is set twice a year through an Average Node Price Decree issued in January and July and published in the Official Gazette. • Transmission Payment: Charged by national, zonal, and dedicated transmission companies to customers subject to regulated tariffs. • Utility Charge: Component that finances the budgets of the Coordinator, Panel of Experts, and utility strip study. • Distribution Added Value (DAV): Price component

consisting of the cost of capital of distribution assets and the administrative, maintenance and operating costs of the grids, billing and customer service costs, and average losses incurred during distribution. The aforementioned amounts correspond to those of an efficient business model. Additionally, during the distribution rate case, tariffs may consider some of the services associated to power supply that have been previously set as part of the distribution added value. The tariff charged by each distribution company is set by CNE according to a classification process of each company in typical distribution areas that takes into consideration economic criteria, such as population density, energy consumption per capita, and unit costs of distributed power. Various model companies are simulated, one in each typical distribution area, considering primarily construction and operational standards ensuring supply of an actual company’s demand based on characteristics of special distribution, category of customers, and other restrictions imposed by the concession area to the actual company called “company of reference.” The tariff is set based on a target internal return rate of 10% for each model company. To validate the tariffs so set, it should be ensured that the return of all the distribution companies in operation, taken as a whole, is within 4% of the theoretical 10% (between 6% and 14%). DAV comprises power (kW) and energy (kWh) charges, fixed charges and efficient loss level and is set every 4 years, same as its indexation formulas. B) UNREGULATED CUSTOMERS These customers (whether served by a distribution company or not) are required to pay a distribution toll for use of the distribution grids they are connected to, which corresponds to the DAV of each distribution company plus energy and power tariff losses. These tariffs are set every 4 years during every DAV rate case. C) OTHER SERVICES ASSOCIATED TO DISTRIBUTION In addition, distribution companies are paid for services associated (SSAA in Spanish) to electricity supply or provided in the capacity of utility concession holder, including meter rental, disconnection and reconnection, support to telecom companies, and late payment charges, among the core ones. Tariffs for these services are set every 4 years during every DAV rate case.

ACTIVITIES AND BUSINESSES

CONCESSIONS

To conduct business, Grupo Saesa companies rely on electric power distribution concessions awarded through an Executive Order (EO) issued by the Ministry of Energy by order of the President of the Republic.

entitled to charge for the said supply, which are set every 4 years through a decree issued by the Ministry of Energy and set by means of formulas that that represent the cost of the resources used by users at generation â&#x20AC;&#x201C; transmission, and distribution level.

Distribution concessions entitle the concession holder to develop, build, and operate overhead and underground electric power facilities within the concession area set by the relevant executive order and to supply electricity to the end customers situated in that area or to any customer outside the concession area that is connected to the concession holderâ&#x20AC;&#x2122;s facilities through its own or third-party lines. To lay their distribution grid within the concession area, distribution companies are entitled to use and go through national property for public use, as well as to occupy and use private property by means of voluntary or legal easements. In the latter, the owner of the relevant property is obligated to refrain from building or planting or using the land in any way that may interfere with the easement, provide access to the personnel of the concession holder to conduct maintenance, repair and other jobs in the distribution facilities located in the said property.

The concessions held by Grupo Saesa companies have been granted by the competent authority and are of indefinite duration.

On the other hand, the concession holder is obligated to supply electricity to any user located within the concession area that may so require, as set forth in the General Law of Electric Services and its Regulations. The concession holder is to provide a quality of service compliant with the regular standards laid down by the law, its regulations and the applicable technical standards, consistent with the tariffs the company is

As of December 31, 2018, the concession areas awarded to Grupo Saesa companies through concession decrees are as follows:

CONCESSIONS

AREA (km2)

No. OF DECREES

SAESA

15,118

134

FRONTEL

24,625

129

616

4,360

44,719

280

EDELAYSEN LUZ OSORNO TOTAL

SUSTAINED GROWTH IN DEMAND The concession areas in which Grupo Saesa companies operate are highly dynamic. The economic development shown by the south of Chile –driven mostly by the forest and salmon industries, and combined with strong urban development– has spurred solid growth of our operations over the last few years, both in terms of electricity sales and number of customers.

CUSTOMER STRUCTURE

CUSTOMERS SAESA

Over the past 15 years, sales of electric power have grown at an annual rate of 4.41%, while the number of customers has increased by 3.17%. Such level of growth is underpinned by ongoing efforts to supply electricity to all the sectors within the company’s concession area. Energy sales are highly correlated with economic growth, industrial and commercial activity.

FRONTEL

EDELAYSEN

LUZ OSORNO

RESIDENTIAL

2.7%

5.4%

COMMERCIAL

INDUSTRIAL

OTHERS

0.6%

1.6% 50.8%

0.9%

41.1%

96.9%

CUSTOMER EVOLUTION SAESA

900 800 700

FRONTEL

(in thousands) EDELAYSEN

EVOLUTION OF SALES

LUZ OSORNO

3.17% CAGR*

SAESA

3,500 3,000

500

2,500

400

2,000

300

1,500

200

1,000

100

500 0

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

*Compound annual growth rate

EDELAYSEN

LUZ OSORNO

4,000

600

FRONTEL

(in GWh)

4.41% CAGR*

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

*Compound annual growth rate

MAIN SUPPLIERS AND CUSTOMERS In 2018, suppliers Enel and Colbún accounted for 88% of distributed supply (purchase of energy and zonal transmission tolls).

The above translates into a significant improvement as only 26.7% of customers and 23.6% of feeders were below the standard in 2018.

In the case of the Company’s distribution companies, no customer concentrates on its own over 10% of the companies’ total revenues. In Sagesa and Edelaysen, mostly devoted to generation, Copec accounts for nearly 70% of diesel oil purchases. In STS, a company mostly devoted to transmission, 65% of its revenues are concentrated in Saesa, 8% in Enel Generación and 6% in CGE.

The regulator, in turn, continues to be rather strict in its review of the causes of the power outages presented as force majeure events, and the ones the regulator rejected were reclassified as internal causes. In spite of this, the regulator validated on average 90% of the outages that the Company reported had been caused by force majeure events.

In the case of trading companies SGA, SAESA, FRONTEL, and LUZ OSORNO, their revenues originate from some 130 unregulated customers, none of them with a share in total revenues over 10%. Finally, Enel Generación concentrates 80% of the energy purchases to the aforementioned companies.

The new technical standard applicable to electric power distribution systems was published in December 2017. This new standard is aimed to regulate quality of service in distribution by overseeing the following: • Quality of Supply: Rates the power supply provided by the company through SAIFI y SAIDI global indicators and TIC and FIC individual indicators.

QUALITY OF SERVICE

• Product quality: Quality of the electricity supplied by the company measured based on, among other factors, the magnitude, frequency and contamination of instantaneous supply voltage.

In 2018, Grupo Saesa showed improved quality of service compared to the preceding year. Specifically, the number of substandard feeders declined from 107 to 55.

• Commercial Quality: Rates the commercial and customer service provided by the distribution company.

SUBSTANDARD FEEDERS – ROLLING 12 MONTHS SUBSTANDARD FR 12 MONTHS

110

DEC/17

113

JAN/18

113

FEB/18

116

118

115 105

MAR/18

APR/18

MAY/18

JUN/18

106

JUL/18

AUG/18

SEP/18

OCT/18

NOV/18

• Metering, Monitoring and Control Systems: Facilities and equipment a distribution system consists of and which serve to measure, record, and store a number of relevant system variables.

standard in effect in 2018, indicators are not measured at feeder level because the standards that must be observed are *SAIFI and *SAIDI for each companydistrict pair in every distribution company.

It should be noted that according to the technical

Comparison of SAIFI and SAIDI at Grupo Saesa level:

SAIFI GRUPO SAESA 2017 VS 2018

SAIDI GRUPO SAESA 2017 VS 2018

SAIFI ACUM 2017

SAIFI ACUM 2018

SAIDI ACUM 2017

SAIDI ACUM 2018

30 8

20 15

10 2

0 JAN

FEB MAR

APR MAY JUN

JUL AUG

SEP

OCT

NOV

DEC

JAN

FEB MAR

APR MAY JUN

JUL AUG

SEP

OCT

*SAIFI: System Average Interruption Frequency Index per customer.

*SAIDI: System Average Interruption Duration Index per customer.

CASH FLOW GENERATION

EVOLUTION OF CONSOLIDATED CASH FLOW GENERATION (1)

DEC

(in CLP million) GAAP

Cash flow generation at the Company and its subsidiaries is highly stable, considering that it belongs to a regulated industry like electric power distribution. In the future, cash generation is expected to remain stable and on the rise.

NOV

IFRS

120,000 105,000 90,000

7.70% CAGR*

75,000 60,000 45,000

(1) EBITDA (GAAP): Operating income + depreciation + amortization + recurring non-operating income. EBITDA (IFRS): Income from Ordinary Activities + Other Income, By Nature – Raw Materials and Consumables Used – Employee Benefit Expenses – Other Expenses, By Nature. *Compound Annual Growth Rate.

30,000 15,000 0

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

INVESTMENT Grupo Saesa operates based on a 5-year investment plan that includes distribution, transmission, generation and other activities through its subsidiaries: Edelaysen, Frontel, Luz Osorno, Saesa, Sagesa, STS, STN, STC, SATT, and Cabo Leones.

INVESTMENTS SAESA AND SUBSIDIARIES

(CLP million) FRONTEL

SAGESA AND SUBSIDIARY

130,000 120,000 110,000 100,000

18.52% CAGR*

90,000 70,000 60,000 50,000

The total investment of 2018 amounted to CLP 121,740 million.

40,000 30,000 20,000 10,000 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

*Compound Annual Growth Rate

Among the main investments made in 2018 are commissioning of the Kimal Substation project, which is part of the National Transmission Grid expansion plan advanced by the Ministry of Energy. The purpose of this project is to meet the country’s rising demand for energy and, in particular, growing demand in the north and center of Chile, as well as the quality of service in transmission in the zone. The investment in this projects hovers around CLP 18,000 million. The new projects under execution in the north of the country like expansions of substations San Andrés and María Elena are also worth mentioning.

80,000

On the one hand, the plan considers base investments related to the projects required to meet the demand and normal growth of the business, on the other, highreturn projects. The annual investment plan amounts to CLP 40,000 million, approximately, financed with debt and own resources, based on the company’s financial policy.

COMPANY’S ASSETS The Company’s subsidiaries own the properties and facilities specified below:

COMPANY

MAIN PROPERTIES

LOCATION

CHARATERISTICS 129 HV lines (km)

SAESA

Plants and equipment, consisting

Cautín, Valdivia, Ranco, Osorno, Llanquihue,

mostly of poles and conductors.

Palena and Chiloé.

15,801 MV lines (km) 12,779 LV lines (km) 88 Installed MVA (HV/MV) 552 Installed MVA (MV/LV) 118 HV lines (km)

FRONTEL

Plants and equipment, consisting

Arauco, Concepción, Bío Bío, Ñuble, Cautín

mostly of poles and conductors.

and Malleco.

20,709 MV lines (km) 16,418 LV lines (km) 287 Installed MVA (HV/MV) 308 Installed MVA (MV/LV)

LUZ OSORNO

STS

EDELAYSEN

SAGESA

STN

Plants and equipment, consisting mostly of poles and conductors.

Osorno Province.

3,806 MT lines (km) 938 BT lines (km) 60 MVA (MT/BT)

Melipulli Substation

Puerto Montt

Osorno Substation

Osorno

Picarte Substation

Valdivia

90 MVA

Valdivia Substation

Valdivia

180 MVA

Cholguán Substation

Cholguán

106 MVA

La Unión Substation

La Unión

54 MVA

Degan Substation

Cruce Dalcahue, Chiloé

Barro Blanco Substation

Osorno

Los Lagos Substation

Los Lagos

16 MVA

Paranal Substation

Paposo

30 MVA

Armazones Substation

Paranal-Armazones

Other Substations

Ñuble and Chiloé

Tehuelche Power Plant

Coyhaique

12.7 MW

Lago Atravesado Power Plant

Coyhaique

10.5 MW

Chacabuco Power Plant

Chacabuco

6.8 MW

Aysén Hydropower Plant

Aysén

8.6 MW

Other Power Plants

Aysén

21.7 MW

Coronel Power Plant

Coronel

45.7 MW

Chuyaca Power Plant

Osorno

14.4 MW

Calle Calle Power Plant

Valdivia

7.2 MW

Cañete Power Plant

Cañete

Other Power Plants

Concepción and Chiloé

82.7 MW

Kapatur Substation

Atacama

800 MVA

330 MVA 96 MVA

40 MVA 139 MVA

10 MVA 1,109 MVA

4.4 MW

TRANSMISSION The activities developed as part of the transmission business correspond mainly to conveyance of power from the generation plants with which supply agreements exist with distribution companies in the

Bío Bío, La Araucanía, Los Ríos, and Los Lagos regions, as well as provision of various services inherent to power transmission, like advisory services on design, construction, maintenance and operation of grids.

OPERATING FIGURES

1,023

STS

328

EDELAYSEN

220

CABO LEONES

HV lines (km)

SAESA

129

FRONTEL

118

LUZ OSORNO

220-110-66 kV installed MVA

1,979

760

STS SAESA

SATT

220-110-66/23-13.2 kV installed MVA

TOTAL

150

STN

800

80 1,440

STS SAESA FRONTEL

TOTAL

48 287

TOTAL

1,855

In addition, subsidiary STS operates third-party facilities corresponding to 11 km of HV lines and 24 MVA of the 220-110-66/23-13.2 kV (HV/MV) classification.

GENERATION Subsidiary Edelaysen is a generation company that operates in the Los Lagos and Aysén Regions and owns a 3.78 MW wind farm and several diesel-fueled and hydropower generation plants. Subsidiary Sagesa is a generation company that operates from regions Bío Bío to Los Lagos.

Sagesa owns a 45.70 MW gas/diesel power plant and diesel-fueled power plants with total installed capacity of 108.66 MW. A portion of the power generated by this company is sold in CDEC-SIC’s spot market through subsidiary SGA, and its revenues originate from the sale of energy and power in that market, and the remainder from sales to related entities (Saesa, Frontel, and Luz Osorno).

OFF-GRID SYSTEMS Grupo Saesa companies have developed generation and distribution projects aimed to supply isolated areas that are not connected to the SEN grid and require 24-hour power supply to support their sustainable development needs. At present, the off-grid systems managed by subsidiaries Saesa, Frontel, and Edelaysen are as follows:

OPERATING FIGURES OFF-GRID SYSTEMS

SAESA

676

589

ISLA TAC

140

208

ISLA QUEHUI

423

418

ISLA CAGUACH

119

282

ISLA MEULÍN

237

498

ISLA QUENAC

207

316

ISLA LLINGUA

111

240

ISLA ALAO

113

280

ISLA CHAULINEC

162

380

ISLA APIAO

206

428

ISLA LAITEC

209

288

152

316

ISLA COLDITA

172

SANTA MARÍA

853

569

3,846

1,226

939

501

1,060

330

472

284

9,957

7,325

ISLA CAILÍN 2

CISNES

EDELAYSEN

CUSTOMERS

AYACARA

ISLA CAILÍN 1

FRONTEL

ENERGY SALES (MWh)

HUICHAS VILLA O’HIGGINS AMENGUAL-LA TAPERA

TOTAL

COMPANY TRADEMARKS Grupo Saesa owns 13 trademarks through which it develops various activities related to the electric power business along its operation area.

Sistema de Transmisiรณn del Norte

Sistema de Transmisiรณn del Centro

L.T. CABO LEONES

AREA OF OPERATIONS Grupo Saesa has operations in 9 regions of Chile. Although its business is mostly concentrated in the south of Chile, in 2014 the company expanded into the central and northern regions. 1

XV REGION

FRONTEL Area of Operations: Bío Bío and La Araucanía Regions Customers: 357,000 / Sales: 982 GWh

I REGION

SAESA Area of Operations: La Araucanía, Los Lagos and Los Ríos Regions Customers: 440,000 / Sales: 2,288 GWh LUZ OSORNO Area of Operations: Los Lagos and Los Ríos Regions Customers: 23,000 / Sales: 148 GWh

EDELAYSEN Area of Operations: Los Lagos and Aysén del General Carlos Ibáñez del Campo Regions Customers: 47,000 / Sales: 154 GWh

V REGION MR VI REGION 9 9

SGA Activity: Development and marketing of own and third-party electric power systems. STN Area of Operations: Antofagasta Region (Kapatur) Activity: Transmission projects.

SAGESA Area of Operations: Bío Bío and Los Lagos Regions (Chuyaca and Quellón) Activity: Sales of energy in the spot market through SGA and related parties

STC Area of Operations: Maule Region (San Fabián, not in operation) Activity: Transmission projects.

III REGION

IV REGION

STS Area of Operations: Atacama, Bío Bío, La Araucanía, Los Lagos and Los Ríos Regions (Including Paranal and Armazones) Lines: 220-110-66 kV / 760 km and 220-110-66/23-13.2kV / 1,440 km

II REGION

VII REGION XVI REGION

VIII REGION

IX REGION

XIV REGION

X REGION

XI REGION

10 SATT S.A.

Area of Operations: Antofagasta and Atacama Regions (María Elena, Kimal, San Andrés Sectioning Substation) Activity: Transmission projects.

L.T. CABO LEONES Area of Operations: Atacama Region (Maitencillo, Cabo Leones) Activity: Transmission projects.

MÁS CERCA Area of Operations: Bío Bío, La Araucanía, Los Ríos, Los Lagos, Aysén del General Carlos Ibáñez del Campo Regions Activity: Retail.

XII REGION

CUSTOMER SERVICE CENTERS Grupo Saesa has customer service offices in 88 cities, towns and villages of 5 regions in the south of Chile.

FRONTEL

Angol Antuco Arauco Bulnes Cabrero Cañete Carahue Collipulli Concepción Cunco Curacautín Curanilahue El Carmen Florida Galvarino Gorbea Huepil Laja Lautaro Lebu Lonquimay Los Alamos Lota Monte Aguila Mulchén Nacimiento Negrete

Julio Sepúlveda Nº 358 O’Higgins Nº 61 Covadonga Nº 160 Anibal Pinto Nº 560 Membrillar Nº 55 Villagrán Nº 850 Ercilla Nº 587 Bulnes Nº 350 Manuel Rodríguez Nº 1161 La Concepción Nº 579 Manuel Rodríguez Nº 656 Av. O’Higgins Nº 289 Esmeralda Nº 415 Eleuterio Ramírez Nº 546 Freire Nº 99 Andrés Bello Nº 546 Av. Ecuador Nº 50 Balmaceda Nº 668 José Miguel Carrera Nº 217 J.J. Pérez Nº 350 O’Higgins Nº 1102 Luis N. Sáez Mora Nº 440 Carlos Cousiño Nº 206 Ahumada Nº 251 Gana Nº 1095 San Martín Nº 595 Emilio Serrano Nº 3

Nueva Imperial Nueva Toltén Pto. Saavedra Purén Quilleco Quillón San Ignacio Santa Bárbara Santa Juana Temuco Teodoro Schmidt Tirúa Traiguén Victoria Vilcún Yumbel Yungay

O’Higgins Nº 535 Holanda Nº 405 Ejército Nº 1248 Gamboa Nº 461 Barros Arana Nº 297 Diego Portales Nº 161 Manuel Rodríguez Nº 740 Las Heras Nº 160 Lautaro Nº 350 Andrés Bello Nº 631 Diego Portales Nº 346 Arturo Prat Nº 156 Saavedra Nº 488 Pisagua Nº 1070 Camilo Henríquez Nº 180 P. Valdivia Nº 407-B Esmeralda Nº 468

SAESA / LUZ OSORNO

Achao Ancud Calbuco Castro Corral Entre Lagos Fresia Frutillar Futrono Hornopirén La Unión Lago Ranco Lanco Licanray Loncoche Los Lagos Los Muermos Maullín Osorno / Rahue Osorno Paillaco Panguipulli Puerto Montt Puerto Octay Puerto Varas Purranque

Progreso Nº 33 Pedro Montt Nº 482 Arturo Prat Nº 111 O’Higgins Nº 494 Miraflores Nº 150 Manuel Rodríguez Nº 31 San Carlos Nº 379 Carlos Richter Nº 155 Balmaceda Nº 880 Diego Portales Nº 55 Serrano Nº 760 Concepción Nº 631 Yungay Nº 293 Gabriela Mistral Nº 398 Arturo Prat Nº 268 Patricio Lynch Nº 138 Balmaceda Nº 202 Bernardo O’Higgins Nº 196 Victoria Nº 380 Local 6,7,8 Ramírez Nº 705 Camilo Henríquez Nº 64 Bernardo O’Higgins Nº 462 Concepción Nº 110 Germán Wulf Nº 598 San Francisco Nº 641 21 de Mayo Nº 148

Quellón Río Bueno Río Negro Sn. José de la Mariquina San Pablo Valdivia

Ladrilleros Nº 236 Comercio Nº 296 Pedro Montt Nº 687 A. Carrillo Nº 103 Paglieta Nº 497 Yungay Nº 630

EDELAYSEN

Chile Chico Cochrane Coyhaique Futaleufú Huichas La Junta Lago Verde Mañihuales Palena Pto. Aysén Puerto Cisnes Villa O’Higgins

Lautaro Nº 191 San Valentín Nº 648 Francisco Bilbao Nº 412 Manuel Rodríguez S/N Poblador Caleta A. S/N Esmeralda Nº 14 Camino Cacique Blanco Km 1 Caupolicán Nº 197 Vicente Pérez Rosales Nº 529 Serrano Montaner Nº 538 Juan José La Torre S/N Río Los Ñadis S/N

SUBSIDIARIES

Saesa SOCIEDAD AUSTRAL DE ELECTRICIDAD S.A. Company Type: Closely Held Corporation Subscribed and Paid-up Capital: CLP 304,501,634 thousand Inv. Eléctricas del Sur S.A. interest: 99.92% Saesa is Grupo Saesa’s main operating company and is mostly devoted to distribution of electric power in the south of Chile. SAESA distributes electricity between the provinces of Cautín, in the Araucanía Region, and Palena, in Los Lagos Region. Individually, Saesa supplies over 440,000 customers. It also has operations in the transmission and zonal transmission segment, with 129 km of high voltage lines, the maintenance and operation of which are performed by subsidiary STS. Through subsidiary Edelaysen, a company involved in generation, transmission and distribution activities, it supplies electricity mostly to the Aysén Region. On September 11, 2014, Saesa and Alusa Ingeniería Limitada (currently Alumini Ingeniería Limitada) incorporated Sistema de Transmisión del Norte S.A., “STN”, with a 90% and 10% interest, respectively. STN’s line of business is construction, operation, and maintenance of power transmission facilities. On October 15, 2015, Sociedad Austral de Electricidad S.A.–Saesa (99.9% interest) and subsidiary Sistema de Transmisión del Sur S.A.–STS (0.1% interest) incorporated Sociedad Austral de Transmisión Troncal S.A., “SATT”, a company devoted to construction, operation and maintenance of power transmission facilities, development and marketing of own or third-party systems for transmission and transformation of electric power.

ENERGY SALES

(in GWh) SAESA

EDELAYSEN

Over the past 10 years, SAESA’s compound annual sales growth rate has increased by roughly 3.67%. One of the key drivers of such growth has been the significant development shown by the salmon industry and related sectors, particularly in the Llanquihue and Chiloé Provinces, forestry in the Valdivia Province, and the sustained growth of residential consumption all over its area of operation. At present, supply is the matter of contracts executed with Endesa, Colbún, Enel, Caren, ERNC, El Morado, Chungungo, SPV P4, San Juan, Pelumpen, Santiago Solar, Aela, Abengoa, Ibereolica, SCBII, and Amunche Solar. However, the companies awarded the contract under the last supply tender will join this group shortly. The National Energy Commission–CNE (Comisión Nacional de Energía) has advanced joint bidding processes intended to meet the regulated demand by the distribution companies supplied by the SEN grid. Accordingly, as part of one of such bidding processes, 91% of the tendered energy was awarded in December 2014, leaving only 9% yet to be tendered in future bidding processes. Given the enforcement of Law 20,085, supply bidding processes are managed by the CNE for the first time in 2015. During the first half of 2015, CNE requested all distribution companies to submit their regulated customer demand projections. Based on such information, as well as an adjusted projection by the Commission, CNE issued

CUSTOMERS SERVED

(in thousands) SAESA

LUZ OSORNO

EDELAYSEN

LUZ OSORNO

3,000 2,500 2,000

4.34%

CAGR*

600 500

3.39%

CAGR*

400

1,500

300 1,000

200

500 0

100 0 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Energy sales of Saesa and its subsidiaries amounted to 2,590 GWh in 2018. *Compound Annual Growth Rate

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

As of the end of 2018, Saesa and its subsidiaries had a customer base of 510,000 customers, higher by 3.44% compared to 2017. *Compound Annual Growth Rate

a bidding process report on the overall requirements in terms of electricity supply. With that data, CNE launched three bidding processes:

be obligated to tender the consumption that fails to be covered by the supply agreement that was terminated in advance.

• Process 2015/02 (January 2017 – December 2036) executed in the first half of 2016, under which 100% of the tendered energy was awarded in 2015.

To respond adequately and in a timely fashion to the demands of a growing area of operation, to supply remote areas and to deliver a constantly improving quality of service, Saesa invested a total of CLP 26,116 million in 2018.

• Process 2015/01 (January 2021 – December 2041) executed in the first half of 2017, under which 100% of the tendered power was awarded in 2016. • Process 2017/01 (January 2023 – December 2042) executed in the first half of 2018, under which 100% of the tendered power was awarded in 2017. A new bidding process launched in 2019 is aimed to meet regulated demand. The process is currently at the bidders’ observations to terms stage. • Process 2019/01 (January 2025 – December 2040) to be executed in 2020. It is worth mentioning that by issuing Exemption Resolution No. 239 (ER 239) on February 9, 2012, the Superintendence of Electricity and Fuels (SEC) provided that any supply intended for regulated customers that fails to be provided by a bankrupt company should be supplied by the other grid stakeholders included in transfer balances prepared by the National Electricity Coordinator as a percentage of their actual injections during the month and at the same prices agreed to in the supply agreements executed with the bankrupt company. Only in the event of early termination of a supply agreement ordered by a court of law, would the concession holder

INDIVIDUAL OPERATING FIGURES

Clients (thousands) Employees

HV lines (km)

2,288 2,199 440

Buying and selling electricity and tolls are the main business transactions with related entities. The electricity prices at which these transactions are carried out are set by the regulator or the market, while toll rates are controlled by the regulatory framework of the sector. Other business transactions with related parties are the sale and purchase of materials at average wholesale price and short-term intercompany loans between related parties as a source of working capital. These checking account loans pay market interests calculated for the duration of the transaction and they are subject to a maximum amount, as provided in the bond contracts in effect.

2017

CONSOLIDATED (CLP million)

574

Profit

464

2018

377,577 155,677 145,735 38,270 35,974 997,557

Assets

129 247 15,801

MV lines (km)

12,048 12,779

Liabilities Total Assets

913,200 546,022 484,486 451,535 428,714

9,504

84,281

Investments Installed MVA (MV/LV)

552 544

EBITDA

2017

357,362

Revenues Gross Margin

426

LV lines (km)

BUSINESS TRANSACTIONS WITH RELATED ENTITIES

CONSOLIDATED FINANCIALS 2018

Energy Sales (GWh)

Saesa represents 67.20% of Inversiones Los Ríos Ltda.’s assets (direct owner).

80,677 82,092 78,135

Frontel EMPRESA ELÉCTRICA DE LA FRONTERA S.A. Company Type: Closely Held Corporation Subscribed and Paid-up Capital: CLP 133,737,399 thousand Inv. Eléctricas del Sur S.A. interest: 99.31% (Indirect) Frontel’s main focus is the distribution of electric power in the south of the country, in an area encompassing the provinces of Concepción (Bío Bío Region) and Cautín (Araucanía Region). It also has operations in transmission and zonal transmission with 118 km of 66 kV, 220 kV, and 287 MVA HV/MV and 308 MVA MV/LV power lines connecting voltage regulation substations maintained and operated by STS. Finally, it also participates in generation to supply an off-grid system. At present, supply is the matter of contracts executed with Endesa, Colbún, Enel, Caren, ERNC, El Morado, Chungungo, SPV P4, San Juan, Pelumpen, Santiago Solar, Aela, Abengoa, Ibereolica, SCBII, and Amunche Solar. However, the companies awarded the contract under the last supply tender will join this group shortly. The National Energy Commission–CNE (Comisión Nacional de Energía) has advanced joint bidding processes intended to meet the regulated demand by the distribution companies supplied by the SEN grid. Accordingly, as part of one of such bidding processes, 91% of the tendered energy was awarded in December 2014, leaving only 9% yet to be tendered in future bidding processes.

processes are managed by the CNE for the first time in 2015. During the first half of 2015, CNE requested all distribution companies to submit their regulated customer demand projections. Based on such information, as well as an adjusted projection by the Commission, CNE issued a bidding process report on the overall requirements in terms of electricity supply. With that data, CNE launched three bidding processes: • Process 2015/02 (January 2017 – December 2036)

Given the enforcement of Law 20,085, supply bidding

ENERGY SALES

1,100 1,000 900

(in GWh)

CUSTOMERS SERVED 400

4.58%

CAGR*

350

700

250

600

200

500

150

400 300

100

200

100 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Energy sales amounted to 982 GWh in 2018. *Compound Annual Growth Rate

2.86%

CAGR*

300

800

(in thousands)

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Frontel’s customer base in 2018 amounted to 356,000 customers, up by 2.38% from 2017. *Compound Annual Growth Rate

It is worth mentioning that by issuing Exemption Resolution No. 239 (ER 239) on February 9, 2012, the Superintendence of Electricity and Fuels (SEC) provided that any supply intended for regulated customers that fails to be provided by a bankrupt company should be supplied by the other grid stakeholders included in transfer balances prepared by the National Electricity Coordinator as a percentage of their actual injections during the month and at the same prices agreed to in the supply agreements executed with the bankrupt company. Only in the event of early termination of a supply agreement ordered by a court of law, would the concession holder be obligated to tender the consumption that fails to be covered by the supply agreement that was terminated in advance. In 2018, Frontel’s investments totaled CLP 28,248 million.

BUSINESS TRANSACTIONS WITH RELATED PARTIES

Buying and selling electricity and tolls are the main business transactions with related parties. The electricity prices at which these transactions are carried out are set by the regulator or the market, while toll rates are controlled by the regulatory framework of the sector. Other business transactions with related parties are the sale and purchase of materials at average wholesale price and short-term intercompany loans between related parties as a source of working capital. These checking account loans pay market interests calculated for the duration of the transaction and they are subject to a maximum amount, as provided in the bond contracts in effect.

Frontel represents 25.82% of Inversiones Los Ríos Ltda.’s assets (direct owner).

CIFRAS OPERACIONALES

OPERATING FIGURES FINANCIALS 2018

Energy Sales (GWh)

982

357

402

118 118 20,709

142,234

59,483 53,589 8,572 6,974

309,661 292,022 142,246

Liabilities

130,648

16,843 16,418 13,765

287 257 308 340

167,415

Total Assets

Investments

EBITDA

2017

138,647

Assets

LV lines (km)

Installed MVA (MV/LV)

Profit

366

MV lines (km)

Installed MVA (HV/MV)

2018

Gross Margin

348

Employees

(CLP million)

Revenues

941

Clients (thousands)

HV lines (km)

2017

161,374

28,243 11,294 21,803 19,303

Sagesa SAGESA S.A. Company Type: Closely Held Corporation Subscribed and Paid-up Capital: CLP 25,587,086 thousand Inv. Eléctricas del Sur S.A. interest: 99.9% (Direct and Indirect)

most of the assets and liabilities of the old Sagesa, and the line of business, that is, generation of electric power. In July 2016, Sagesa and Inversiones Eléctricas del Sur acquired the company called Línea de Transmisión Cabo Leones S.A. with a 99.99% and a 0.01% interest, respectively.

Subsidiary Sagesa is a generation company that operates from regions Biobío to Los Lagos. It currently owns a 46 MW gas/diesel-fueled power plant, a 108.66 MW diesel-fueled power plant, and solar and wind power generation facilities. A portion of the power generated by this company is sold in CDEC-SIC’s spot market through related party Sociedad Generadora Austral S.A. (SGA), and its revenues originate from the sale of energy and power in that market, and the remainder from sales to related entities (Saesa, Frontel, and Luz Osorno). Sagesa was incorporated on December 30, 2011, after a corporate restructuring that resulted in the split-up of Sociedad Austral de Generación y Energía Chile S.A. (former Sagesa or Legal Successor) into the Legal Successor and Sagesa. Sagesa S.A. was assigned

In 2018, Sagesa’s investments totaled CLP 4,457 million. Sagesa represents 0.004% of Inversiones Eléctricas del Sur S.A.’s assets (indirect owner). BUSINESS TRANSACTIONS WITH RELATED PARTIES

CLASSIFIED STATEMENT OF FINANCIAL POSITION (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

4,224,733

6,081,360

96,212,530

77,570,183

100,437,263

83,651,543

ASSETS Current Assets Non-Current Assets TOTAL ASSETS

DEC-31-2018

DEC-31-2017

60,276,261

53,352,776

9,962,120

7,259,695

TOTAL LIABILITIES

70,238,381

60,612,471

TOTAL NET EQUITY

30,198,882

23,039,072

100,437,263

83,651,543

CLP thousand NET EQUITY AND LIABILITIES Current Liabilities Non-Current Liabilities

TOTAL NET EQUITY AND LIABILITIES

STATEMENTS OF COMPREHENSIVE INCOME BY FUNCTION (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

Gross Margin

8,708,176

6,196,076

PROFIT (LOSS) BEFORE INCOME TAX

5,941,530

(4,309,094)

(1,520,407)

1,824,894

4,421,123

(2,484,200)

Income Tax PROFIT (LOSS)

DEC-31-2017

STATEMENTS OF CASH FLOW UNDER THE DIRECT METHOD (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

Net cash flows from (used in) operating activities

2,850,514

2,378,696

Net cash flows from (used in) investing activities

(7,018,829)

(16,977,539)

Net cash flows from (used in) financing activities

4,201,573

13,644,617

5,736

(264)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

38,994

(954,490)

Cash and cash equivalents at beginning of period

22,704

977,194

CASH AND CASH EQUIVALENTS AT END OF PERIOD

61,698

22,704

Net increase (decrease) in cash and cash equivalents from foreign exchange rate variation

STATEMENT OF CHANGES IN NET EQUITY (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand Restated Initial Balance Changes in Equity FINAL BALANCE OF CURRENT PERIOD

DEC-31-2018

DEC-31-2017

23,039,072

27,665,785

7,159,810

(4,626,713)

30,198,882

23,039,072

OTHER FINANCIALS

(CLP million) 2018

Investments (consolidated)

9,216 14,700

EBITDA

2017

4,411 1,834

STS SISTEMA DE TRANSMISIÓN DEL SUR S.A. Company Type: Closely Held Corporation Subscribed and Paid-up Capital: CLP 32,135,483 thousand Inv. Eléctricas del Sur S.A. interest: 99.9% (Direct and Indirect)

STS’ main activity is providing energy transmission and transformation services to generation companies that hold supply agreements with distribution companies in the regions of Bío Bío, Araucanía, Los Ríos, and De Los Lagos, including Saesa, Frontel, and electric co-operatives. The largest generation companies served by STS are Puyehue and Capullo. In addition, STS engages in the provision of various services inherent to power transmission, like advisory services on design, construction, maintenance and operation of grids. These services are compensated through the tolls paid by users of the various transmission facilities, the price, terms, and indexation formulas of which are laid down in Executive Order No. 14 of the Ministry of Energy, whereby zonal transmission tariffs are set and which was published in the Official Gazette’s issue of April 9, 2013. Sistema de Transmisión del Sur S.A. (“old STS”) was merged into Sociedad Austral de Generación y

Energía Chile S.A. (current STS and legal successor) by acquisition on May 31, 2012. As part of the transaction Sociedad Austral de Generación y Energía Chile S.A. was assigned all the assets and liabilities of the old STS and the new company was renamed Sistema de Transmisión del Sur S.A., STS. On March 4, 2015, Sistema de Transmisión del Sur S.A. and Eléctrica Puntilla S.A. incorporated Sistema de Transmisión del Centro S.A., “STC”, a company devoted to construction, operation and maintenance of power transmission facilities, development and marketing of own or third-party systems for transmission and transformation of electric power. In 2018, STS’s investments in projects and facility upgrades totaled CLP 31,489 million. STS represents 19.31% of Saesa’s assets (direct owner).

INDIVIDUAL OPERATING FIGURES

CONSOLIDATED FINANCIALS 2018

(CLP million)

36,023

Revenues

35,682

Profit

16,174 14,984

292,348 251,271

145,147 107,897

1,082

760

220-110-66 kV Installed MVA

1,148

220-110-66 /23-13.2 kV Installed MVA

1,440 1,100

147,201

Total Assets

EBITDA

1,023

220-110-66 kV (km) HV lines

Assets

Investments

PROPRIETARY FACILITIES

30,424

Liabilities

2017

117

Employees

30,730

Gross Margin

2018

2017

143,373

31,489 23,149

27,956 24,086

COMPANY-OPERATED THIRD-PARTY FACILITIES

110-66 kV (km) HV lines

110-66/23-13.2 kV Installed MVA

11 11

24 54

Edelaysen EMPRESA ELÉCTRICA DE AISÉN S.A. Company Type: Closely Held Corporation Subscribed and Paid-up Capital: CLP 37,005,894 thousand Inv. Eléctricas del Sur S.A. interest: 93.21% (Indirect)

Edelaysen engages in electric power generation, transmission and distribution activities in the province of Palena, Los Lagos Region, and Aysén Region through five off-grid systems: Cisnes, Huichas, Villa O´Higgins, Amengual-La Tapera, and Santa Bárbara; and three medium-voltage grids: Aysén, Palena, and General Carrera. Edelaysen is essentially a vertically-integrated generation company that distributes electric power in the areas in which it was awarded a concession

ENERGY SALES

(in GWh)

180 160 140

3.77%

CAGR*

and where it holds municipal permits. It also sells medium voltage power to Saesa in Palena. In order to meet demand, support growth and reliability of its grid, the company invested a total of CLP 5,463 million in 2018. Edelaysen represents 9.72% of Saesa’s assets (direct owner).

CUSTOMERS SERVED

(in thousands)

3.67%

CAGR*

120 30

100 80

60 40

20 0

0 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Energy sales amounted to 154 GWh in 2018. *Compound Annual Growth Rate

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Edelaysen’s customer base at the end of 2018 was 47,000 customers. *Compound Annual Growth Rate

POWER PLANT CAPACITY

BUSINESS TRANSACTIONS WITH RELATED PARTIES

Edelaysenâ&#x20AC;&#x2122;s main business transactions with related entities include the sale and purchase of materials at average wholesale price and short-term intercompany loans that pay market interests calculated for the duration of the transaction.

FINANCIALS

(CLP million) 2018

Profit

17,529

3.78

HIDROPOWER

24.29

DIESEL

32.27

TOTAL

60.34

CIFRAS OPERACIONALES 2018

5,663

2017

154 141

47 46

5,523

Employees

97,095 92,362

14,322 81,928

Total Assets

78,040

5,463 4,440 9,283 9,412

328

HV lines (km)

15,167

Liabilities

EBITDA

Clients (thousands)

17,362

Assets

Investments

WIND

Energy Sales (GWh)

21,964

Gross Margin

2017

24,360

Revenues

NUMBER OF POWER PLANT

328

2,199

MV lines (km)

1,926

1,193

LV lines (km)

Installed MVA (MV/LV)

1,019

41 41

Luz Osorno COMPAÑÍA ELÉCTRICA OSORNO S.A. Company Type: Closely Held Corporation Subscribed and Paid-up Capital: CLP 10,557,505 thousand Inv. Eléctricas del Sur S.A. interest: 99.9% (Indirect)

Luz Osorno S.A. engages in distribution and sales of electric power in rural areas of the province of Osorno and in some towns in the provinces of Valdivia and Llanquihue.

information, as well as an adjusted projection by the Commission, CNE issued a bidding process report on the overall requirements in terms of electricity supply. With that data, CNE launched three bidding processes:

At present, supply is the matter of contracts executed with Endesa, Colbún, Enel, Caren, ERNC, El Morado, Chungungo, SPV P4, San Juan, Pelumpen, Santiago Solar, Aela, Abengoa, Ibereolica, SCBII, and Amunche Solar. However, the companies awarded the contract under the last supply tender will join this group shortly.

• Process 2015/02 (January 2017 – December 2036)

The National Energy Commission–CNE (Comisión Nacional de Energía) has advanced joint bidding processes intended to meet the regulated demand by the distribution companies supplied by the SEN grid. Accordingly, as part of one of such bidding processes, 91% of the tendered energy was awarded in December 2014, leaving only 9% yet to be tendered in future bidding processes. Given the enforcement of Law 20,085, supply bidding processes are managed by the CNE for the first time in 2015. During the first half of 2015, CNE requested all distribution companies to submit their regulated customer demand projections. Based on such ENERGY SALES

160 140

(in GWh)

executed in the first half of 2016, under which 100% of the tendered energy was awarded in 2015. • Process 2015/01 (January 2021 – December 2041) executed in the first half of 2017, under which 100% of the tendered power was awarded in 2016. • Process 2017/01 (January 2023 – December 2042) executed in the first half of 2018, under which 100% of the tendered power was awarded in 2017. A new bidding process launched in 2019 is aimed to meet regulated demand. The process is currently at the bidders’ observations to terms stage. • Process 2019/01 (January 2025 – December 2040) to be executed in 2020. It is worth mentioning that by issuing Exemption Resolution No. 239 (ER 239) on February 9, 2012, the Superintendence of Electricity and Fuels (SEC) provided that any supply intended for regulated customers that fails to be provided by a bankrupt company should be supplied by the other grid stakeholders included in CUSTOMERS SERVED

(in thousands)

3.70%

CAGR*

3.20%

CAGR*

120 100

80 10

60 40

20 0

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Energy sales amounted to 148 GWh in 2018. *Compound Annual Growth Rate

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Luz Osorno’s customer base at the end of 2018 was 23,000 customers. *Compound Annual Growth Rate

transfer balances prepared by the National Electricity Coordinator as a percentage of their actual injections during the month and at the same prices agreed to in the supply agreements executed with the bankrupt company. Only in the event of early termination of a supply agreement ordered by a court of law, would the concession holder be obligated to tender the consumption that fails to be covered by the supply agreement that was terminated in advance. Investments in 2018 totaled CLP 1,865 million, mostly to satisfy demand growth and increase geographic coverage.

BUSINESS TRANSACTIONS WITH RELATED PARTIES

Buying and selling electricity and tolls are the main business transactions with related parties. The electricity prices at which these transactions are carried out are set by the regulator or the market, while toll rates are controlled by the regulatory framework of the sector. Luz Osorno also engages in the sale and purchase of materials at average wholesale price and short-term intercompany loans that pay market interests calculated for the duration of the transaction.

Luz Osorno represents 2.01% of Saesaâ&#x20AC;&#x2122;s assets.

FINANCIALS

(CLP million) 2018

21,332

Energy Sales (GWh)

7,165

Clients (thousands)

2,098

146

23 22

36 20

26,147

Assets

26,408 10,304

Liabilities

HV lines (km)

11 11

10,049 15,843

Total Assets

EBITDA

148

2,838 Employees

Investments

2017

5,730

Gross Margin

Profit

2018

2017

18,707

Revenues

OPERATING FIGURES

16,358

LV lines (km)

1,865

3,806

MV lines (km)

3,739

938 715

1,417 3,539 4,632

Installed MVA (MV/LV)

60 62

SGA SOCIEDAD GENERADORA AUSTRAL S.A. Company Type: Closely Held Corporation Subscribed and Paid-up Capital: CLP 3,160,921 thousand Inv. Eléctricas del Sur S.A. interest: 100% (Indirect)

SGA focuses on the development and marketing of own or third-party systems for transmission and transformation of electric power. Similarly, it provides advisory services in engineering, design, construction, maintenance, and operation of thirdparty transmission grids, and engages in energy trade and other related activities. SGA was incorporated on March 31, 2003 as a result of STS’s split-up, as adopted on occasion of the

Extraordinary Shareholders’ Meeting held on June 25, 2003. Accordingly, SGA was assigned assets and liabilities at the book value of March 31, 2003. SGA’s EBITDA as of December 31, 2017 amounted to CLP 1,289 million. SGA represents 0.61% of Saesa’s assets (direct owner).

CLASSIFIED STATEMENT OF FINANCIAL POSITION (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

Current Assets

9,554,538

7,664,307

Non-Current Assets

1,554,900

489,093

11,109,438

8,153,400

ASSETS

TOTAL ASSETS

DEC-31-2018

DEC-31-2017

6,277,135

3,425,026

TOTAL LIABILITIES

6,277,135

3,425,026

TOTAL NET EQUITY

4,832,303

4,728,374

11,109,438

8,153,400

CLP thousand NET EQUITY AND LIABILITIES Current Liabilities Non-Current Liabilities

TOTAL NET EQUITY AND LIABILITIES

The company also participates in intercompany loans, which are checking account loans that pay market interests calculated for the duration of the transaction.

STATEMENTS OF COMPREHENSIVE INCOME BY FUNCTION (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

Gross Margin

1,317,932

1,094,452

917,212

1,739,411

Income Tax

(285,586)

(284,938)

NET PROFIT

631,626

1,454,473

INCOME BEFORE INCOME TAXES

DEC-31-2017

STATEMENTS OF CASH FLOW UNDER THE DIRECT METHOD (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

Net cash flows from (used in) operating activities

(551,915)

(296,400)

Net cash flows from (used in) investing activities

1,508,893

2,303,622

Net cash flows from (used in) financing activities

(1,291,269)

(1,740,419)

(334,289)

266,805

352,253

85,448

17,964

352,253

Net increase (decrease) in cash and cash equivalents from foreign exchange rate variation NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of period CASH AND CASH EQUIVALENTS AT END OF PERIOD

STATEMENT OF CHANGES IN NET EQUITY (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand Restated Initial Balance Changes in Equity FINAL BALANCE OF CURRENT PERIOD

DEC-31-2018

DEC-31-2017

4,728,374

5,597,382

103,929

(869,008)

4,832,303

4,728,374

STC SISTEMA DE TRANSMISIÓN DEL CENTRO S.A. Company Type: Closely Held Corporation Subscribed and Paid-up Capital: CLP 23,238,005 thousand Inv. Eléctricas del Sur S.A. interest: 50.10% (Indirect)

On March 4, 2015, Sistema de Transmisión del Sur S.A. and Eléctrica Puntilla S.A. incorporated Sistema de Transmisión del Centro S.A. (STC), a company devoted to construction, operation and maintenance of power transmission facilities, development and marketing of own or third-party systems for transmission and transformation of electric power.

Construction of the 2x220 kV San Fabián – Ancoa transmission line that will convey the power generated by the Ñuble Hydropower Plant was completed in August 2018. STC will be in charge of managing this line Construction took 4 years, approximately. STC’s investments in 2018 totaled CLP 4,523 million.

Sistema de Transmisión del Sur S.A.’s interest in STC is 50.1%, while Eléctrica La Puntilla owns 49.9%.

CLASSIFIED STATEMENT OF FINANCIAL POSITION (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

5,656,326

5,011,947

Non-Current Assets

53,814,446

42,993,522

TOTAL ASSETS

59,470,772

48,005,469

ASSETS Current Assets

DEC-31-2018

DEC-31-2017

35,609,358

25,723,805

24,494

16,006

TOTAL LIABILITIES

35,633,852

25,739,811

TOTAL NET EQUITY

23,836,920

22,265,658

TOTAL NET EQUITY AND LIABILITIES

59,470,772

48,005,469

CLP thousand NET EQUITY AND LIABILITIES Current Liabilities Non-Current Liabilities

STATEMENTS OF COMPREHENSIVE INCOME BY FUNCTION (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

Gross Margin PROFIT (LOSS) BEFORE INCOME TAX

(1,858,833)

296,078

497,892

(58,051)

(1,360,941)

238,027

Income Tax PROFIT (LOSS)

DEC-31-2017

STATEMENTS OF CASH FLOW UNDER THE DIRECT METHOD (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

(411,712)

(48,293)

Net cash flows from (used in) investing activities

(4,700,293)

(13,873,093)

Net cash flows from (used in) financing activities

5,113,000

13,910,943

Net increase (decrease) in cash and cash equivalents from foreign exchange rate variation

(33)

(4,062)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

962

(14,505)

Cash and cash equivalents at beginning of period

1,230

15,735

CASH AND CASH EQUIVALENTS AT END OF PERIOD

2,192

1,230

Net cash flows from (used in) operating activities

STATEMENT OF CHANGES IN NET EQUITY (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand Restated Initial Balance Changes in Equity FINAL BALANCE OF CURRENT PERIOD

DEC-31-2018

DEC-31-2017

22,265,658

24,017,313

1,571,262

(1,751,655)

23,836,920

22,265,658

STN SISTEMA DE TRANSMISIÓN DEL NORTE S.A. Company Type: Closely Held Corporation Subscribed and Paid-up Capital: CLP 16,630,018 thousand Inv. Eléctricas del Sur S.A. interest: 100% (Indirect)

On September 11, 2014, Saesa and Alusa Ingeniería Limitada (currently Alumini Ingeniería Limitada) incorporated Sistema de Transmisión del Norte S.A. (STN), a company devoted to construction, operation and maintenance of power transmission facilities, and transmission and transformation of electric power. In January 2017, Alumini Ingeniería Ltda. sold its share

to Sistema de Transmisión del Sur S.A. Consequently, Saesa’s share in the company amounts to 90%, while Sistema de Transmisión del Sur S.A. owns 10%. STN’s investments in 2018 totaled CLP 1,105 million.

CLASSIFIED STATEMENT OF FINANCIAL POSITION (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

ASSETS Current Assets

3,744,935

2,883,617

Non-Current Assets

48,065,501

41,527,533

TOTAL ASSETS

51,810,436

44,411,150

DEC-31-2018

DEC-31-2017

25,175,394

24,247,186

6,147,951

3,126,445

TOTAL LIABILITIES

31,323,345

27,373,631

TOTAL NET EQUITY

20,487,091

17,037,519

TOTAL NET EQUITY AND LIABILITIES

51,810,436

44,411,150

CLP thousand NET EQUITY AND LIABILITIES Current Liabilities Non-Current Liabilities

STATEMENTS OF COMPREHENSIVE INCOME BY FUNCTION (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

Gross Margin

6,586,919

6,698,470

INCOME BEFORE INCOME TAXES

1,377,180

2,050,023

Income Tax

(495,270)

(520,186)

NET PROFIT

881,910

1,529,837

STATEMENTS OF CASH FLOW UNDER THE DIRECT METHOD (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

Net cash flows from (used in) operating activities

4,662,422

15,345,601

Net cash flows from (used in) investing activities

(1,301,190)

(71,978)

Net cash flows from (used in) financing activities

(3,551,006)

(14,939,014)

1,492

(15,987)

(188,282)

318,622

Cash and cash equivalents at beginning of period

320,503

1,881

CASH AND CASH EQUIVALENTS AT END OF PERIOD

132,221

320,503

Net increase (decrease) in cash and cash equivalents from foreign exchange rate variation NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

STATEMENT OF CHANGES IN NET EQUITY (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand Restated Initial Balance Changes in Equity FINAL BALANCE OF CURRENT PERIOD

DEC-31-2018

DEC-31-2017

17,037,519

842,443

3,449,572

16,195,076

20,487,091

17,037,519

SATT S.A. SOCIEDAD AUSTRAL DE TRANSMISIÓN TRONCAL S.A. Company Type: Closely Held Corporation Subscribed and Paid-up Capital: CLP 354,377 thousand Inv. Eléctricas del Sur S.A. interest: 100% (Indirect)

On October 15, 2015, Sociedad Austral de Electricidad S.A.–Saesa (99.9% interest) and subsidiary Sistema de Transmisión del Sur S.A.–STS (0.1% interest) incorporated Sociedad Austral de Transmisión Troncal S.A. (SATT), a company devoted to construction, operation and maintenance of power transmission facilities, development and marketing of own or third-

party systems for transmission and transformation of electric power. SATT represents 0.14% of Saesa’s assets (direct owner). In 2018, SATT’s investments totaled CLP 13,721 million.

CLASSIFIED STATEMENT OF FINANCIAL POSITION (AS OF DECEMBER 31, 2018 AND 2017)

DEC-31-2018

DEC-31-2017

8,710,324

6,971,687

Non-Current Assets

50,877,239

32,240,435

TOTAL ASSETS

59,587,563

39,212,122

CLP thousand ASSETS Current Assets

CLP thousand

DEC-31-2018

DEC-31-2017

58,298,575

37,746,505

164,886

60,695

58,463,461

37,807,200

1,124,102

1,404,922

59,587,563

39,212,122

NET EQUITY AND LIABILITIES Current Liabilities Non-Current Liabilities TOTAL LIABILITIES TOTAL NET EQUITY TOTAL NET EQUITY AND LIABILITIES

100

STATEMENTS OF COMPREHENSIVE INCOME BY FUNCTION (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

Gross Margin

1,469,582

980,842

PROFIT (LOSS) BEFORE INCOME TAX

(286,114)

1,091,803

85,612

(255,940)

(200,502)

835,863

Income Tax PROFIT (LOSS)

STATEMENTS OF CASH FLOW UNDER THE DIRECT METHOD (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

372,106

803,742

Net cash flows from (used in) investing activities

(15,156,088)

(23,943,953)

Net cash flows from (used in) financing activities

14,816,159

23,142,698

6,669

768

38,846

3,255

6,203

2,948

45,049

6,203

Net cash flows from (used in) operating activities

STATEMENT OF CHANGES IN NET EQUITY (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

Restated Initial Balance

1,404,922

414,591

Changes in Equity

(280,820)

990,331

FINAL BALANCE OF CURRENT PERIOD

1,124,102

1,404,922

101

Inversiones Los Ríos Ltda. INVERSIONES LOS RÍOS LIMITADA Company Type: Limited Liability Company Subscribed and Paid-up Capital: CLP 464,393,585 thousand Inv. Eléctricas del Sur S.A. interest: 99.99% (Direct)

On July 1, 2009, Inversiones Eléctricas del Sur S.A. and Inversiones Grupo Saesa Ltda. incorporated Inversiones Los Ríos Ltda., with interests of 99.997104% and 0.002896%, respectively. The purpose of the company is to invest in all kinds of tangible assets and to pursue business for its own or for third parties. On July 1, 2009, Inversiones Eléctricas del Sur S.A. contributed, assigned and transferred its interest in Inversiones Los Lagos Ltda. to Inversiones Los Ríos Ltda. Subsequently, on August 5, 2009, Inversiones Grupo Saesa Ltda. Sold, assigned and transferred its entire

interest in Inversiones Los Lagos Ltda. to Inversiones Los Ríos Ltda. As a result, Inversiones Los Ríos Ltda. acquired 100% of the equity rights, which led to dissolution of Inversiones Los Lagos Ltda. and all its rights and obligations were therefore transferred to Inversiones Los Ríos Ltda. Its consolidated EBITDA as of December 31, 2018 amounted to CLP 108,296 million. Inversiones Los Ríos Ltda. represents 76.60% of Inversiones Eléctricas del Sur S.A.’s assets (direct owner).

CLASSIFIED STATEMENT OF FINANCIAL POSITION (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

ASSETS Current Assets

199,414,512

197,639,825

Non-Current Assets

1,190,455,006

1,061,292,673

TOTAL ASSETS

1,389,869,518

1,258,932,498

CLP thousand

DEC-31-2018

DEC-31-2017

NET EQUITY AND LIABILITIES Current Liabilities

460,228,637

373,877,095

Non-Current Liabilities

280,902,363

272,311,106

TOTAL LIABILITIES

741,131,000

646,188,201

TOTAL NET EQUITY

648,738,518

612,744,297

1,389,869,518

1,258,932,498

TOTAL NET EQUITY AND LIABILITIES

102

The company also participates in intercompany loans, which are checking account loans that pay market interests calculated for the duration of the transaction.

STATEMENTS OF COMPREHENSIVE INCOME BY FUNCTION (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand Gross Margin

DEC-31-2018

DEC-31-2017

223,868,318

205,519,994

69,288,723

54,201,769

Income Tax

(18,136,367)

(13,811,201)

NET PROFIT

51,152,356

40,390,568

INCOME BEFORE INCOME TAXES

STATEMENTS OF CASH FLOW UNDER THE DIRECT METHOD (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

Net cash flows from (used in) operating activities

126,847,680

133,023,409

Net cash flows from (used in) investing activities

(141,611,815)

(126,972,189)

Net cash flows from (used in) financing activities

10,332,258

(5,283,275)

36,138

7,154

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(4,395,739)

775,099

Cash and cash equivalents at beginning of period

20,408,329

19,633,230

CASH AND CASH EQUIVALENTS AT END OF PERIOD

16,012,590

20,408,329

Net increase (decrease) in cash and cash equivalents from foreign exchange rate variation

STATEMENT OF CHANGES IN NET EQUITY (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand Restated Initial Balance Changes in Equity FINAL BALANCE OF CURRENT PERIOD

DEC-31-2018

DEC-31-2017

612,779,623

601,927,193

35,958,895

10,817,104

648,738,518

612,744,297

103

Inversiones Los Lagos IV Ltda. INVERSIONES LOS LAGOS IV LIMITADA Company Type: Limited Liability Company Subscribed and Paid-up Capital: CLP 25,061,634 thousand Inv. Eléctricas del Sur S.A. interest: 99.92% (Indirect)

Inversiones Los Lagos IV Ltda. was created on August 5, 2009, upon Inversiones Los Lagos Ltda.’s split up into four different companies. The purpose of the company is to invest in all kinds of tangible assets and to pursue business for its own or for third parties. The Company’s main asset is its interest in Sagesa S.A. Its consolidated EBITDA as of December 31, 2018 amounted to CLP 4,407 million.

BUSINESS TRANSACTIONS WITH RELATED PARTIES Buying and selling electricity and tolls are the main business transactions with related parties. The electricity prices at which these transactions are carried out are set by the regulator or the market, while toll rates are controlled by the regulatory framework of the sector. The company also participates in intercompany loans, which are checking account loans that pay market interests calculated for the duration of the transaction.

Inversiones Los Lagos IV Ltda. represents 4.77% of Inversiones Los Ríos Ltda.’s assets (direct owner).

CLASSIFIED STATEMENT OF FINANCIAL POSITION (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

4,247,179

6,101,158

96,895,890

78,239,375

101,143,069

84,340,533

ASSETS Current Assets Non-Current Assets TOTAL ASSETS

DEC-31-2018

DEC-31-2017

60,429,134

53,564,719

9,962,118

7,259,694

NET EQUITY AND LIABILITIES

70,391,252

60,824,413

CURRENT LIABILITIES

30,751,817

23,516,120

101,143,069

84,340,533

CLP thousand NET EQUITY AND LIABILITIES Current Liabilities Non-Current Liabilities

NON-CURRENT LIABILITIES

104

STATEMENTS OF COMPREHENSIVE INCOME BY FUNCTION (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

Gross Margin

8,708,176

6,196,076

PROFIT (LOSS) BEFORE INCOME TAX

6,012,076

(4,250,370)

(1,519,749)

1,826,285

4,492,327

(2,424,085)

Income Tax PROFIT (LOSS)

DEC-31-2017

STATEMENTS OF CASH FLOW UNDER THE DIRECT METHOD (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

Net cash flows from (used in) operating activities

2,850,514

2,378,696

Net cash flows from (used in) investing activities

(7,018,829)

(16,977,539)

Net cash flows from (used in) financing activities

4,201,573

13,644,617

5,736

(264)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

38,994

(954,490)

Cash and cash equivalents at beginning of period

22,704

977,194

CASH AND CASH EQUIVALENTS AT END OF PERIOD

61,698

22,704

Net increase (decrease) in cash and cash equivalents from foreign exchange rate variation

STATEMENT OF CHANGES IN NET EQUITY (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand Restated Initial Balance Changes in Equity FINAL BALANCE OF CURRENT PERIOD

DEC-31-2018

DEC-31-2017

23,516,120

28,154,331

7,235,697

(4,638,211)

30,751,817

23,516,120

105

L.T. Cabo Leones S.A. LÍNEA DE TRANSMISIÓN CABO LEONES S.A. Company Type: Closely Held Corporation Subscribed and Paid-up Capital: CLP 10,042 thousand Inv. Eléctricas del Sur S.A. interest: 99,99% (Direct and Indirect)

On July 19, 2016, Sagesa S.A. and Inversiones Eléctricas del Sur acquired the company called Línea de Transmisión Cabo Leones S.A., the owner of the 110-km, 2x220 kV Cabo Leones-Maitencillo Transmission Line Project, with interests of 99.99% and 0.01%, respectively. The main business of this company is construction, operation and maintenance of power transmission facilities, development and marketing of own or third-

party systems for transmission and transformation of electric power. L.T. Cabo Leones S.A. represents 0.02% of Sagesa S.A.’s assets (direct owner). In 2018, L.T. Cabo Leones S.A.’s investments totaled CLP 4,759 million and its EBITDA amounted to CLP 2,988 million.

CLASSIFIED STATEMENT OF FINANCIAL POSITION (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

ASSETS Current Assets

704,174

4,172,627

Non-Current Assets

38,370,342

27,208,022

TOTAL ASSETS

39,074,516

31,380,649

CLP thousand

DEC-31-2018

DEC-31-2017

37,795,770

31,245,640

1,098,115

38,893,885

31,245,640

180,631

135,009

39,074,516

31,380,649

NET EQUITY AND LIABILITIES Current Liabilities Non-Current Liabilities TOTAL LIABILITIES TOTAL NET EQUITY TOTAL NET EQUITY AND LIABILITIES

106

STATEMENTS OF COMPREHENSIVE INCOME BY FUNCTION (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

Gross Margin

3,209,643

208,810

INCOME BEFORE INCOME TAXES

95,188

312,921

Income Tax

54,251

(113,676)

NET PROFIT

149,439

199,245

STATEMENTS OF CASH FLOW UNDER THE DIRECT METHOD (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand

DEC-31-2018

DEC-31-2017

Net cash flows from (used in) operating activities

5,069,599

(13,764)

Net cash flows from (used in) investing activities

(5,712,217)

(14,651,952)

Net cash flows from (used in) financing activities

639,425

14,666,165

Net increase (decrease) in cash and cash equivalents from foreign exchange rate variation

9,875

2,831

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

6,682

3,280

Cash and cash equivalents at beginning of period

4,009

729

10,691

4,009

CASH AND CASH EQUIVALENTS AT END OF PERIOD

STATEMENT OF CHANGES IN NET EQUITY (AS OF DECEMBER 31, 2018 AND 2017)

CLP thousand Restated Initial Balance Changes in Equity FINAL BALANCE OF CURRENT PERIOD

DEC-31-2018

DEC-31-2017

135,009

(15,905)

45,622

150,914

180,631

135,009

107

Summary of Joint Businesses

ELETRANS S.A., ELETRANS II S.A. Y ELETRANS III S.A.

Company Type: Closely Held Corporation Subscribed and Paid-up Capital of ELETRANS S.A.: MUS$ 39,044 Subscribed and Paid-up Capital of ELETRANS II S.A.: MUS$ 1,000 Subscribed and Paid-up Capital of ELETRANS III S.A.: MUS$ 2,000 Inv. Eléctricas del Sur S.A. interest: 50% (Indirect)

BOARD OF DIRECTORS

REGULAR DIRECTORS

MANAGEMENT General Manager:

Carlos Mauer Díaz Barriga Chairman, Foreign National

Fulvio Stacchetti Encalada, ID No. 6.617.581-2 Civil Industrial Engineer

Juan Ignacio Parot Becker Vice-Chair, ID No. 7.011.905-6

Deputy General Manager:

Waldo Fortín Cabezas ID No. 4.556.889-K

Julio Herrera Mahan, ID No. 13.225.404-4 Civil Electrical Engineer

Francisco Mualim Tietz ID No. 6.139.056-1 Francisco Alliende Arriagada ID No. 6.379.874-6 Allan Hughes García ID No. 8.293.378-6

ALTERNATE DIRECTORS Jorge Lesser García-Huidobro, ID No. 6.443.633-3 Marcelo Luengo Amar, ID No. 7.425.589-2 Víctor Vidal Villa, ID No. 9.987.057-5 Ben Hawkins, Foreign National Alex Hernández, Foreign National Rafael Allende, Foreign National

108

In June 2012, subsidiary Saesa and Chilquinta Energía S.A. (a non-Saesa Group company) incorporated Eletrans S.A. In June 2013, they incorporated a new company that they called Eletrans II S.A., and in June 2017 they incorporated Eletrans III S.A., all of them equally owned (50% interest each), to build and operate the trunk transmission projects awarded to a consortium established by both companies. The sole purpose of Eletrans S.A., Eletrans II S.A., and Eletrans III S.A. is the construction, operation, and maintenance of power transmission facilities; and the development, operation and trading of electric power systems owned thereby or by third parties, intended for transmission and transformation of electric power. Their main market segment is National Transmission, where they provide power transmission services to generation companies that hold supply agreements with distribution companies or unregulated customers. Eletrans S.A. and Eletrans III S.A. represent 1.65% and 0.09% of Saesa’s assets. In turn, Eletrans II S.A. has a negative equity, therefore, it represents 0% of Saesa’s total assets.

STATEMENT OF FINANCIAL POSITION OF ELETRANS S.A. (FUNCTIONAL CURRENCY US$) US$ thousand ASSETS

DEC-31-2018

CLP thousand

DEC-31-2017

DEC-31-2018

DEC-31-2017

44,425

22,294

30,865,157

13,705,237

NON-CURRENT ASSETS

168,211

150,600

116,867,956

92,581,350

TOTAL ASSETS

212,636

172,894

147,733,114

106,286,587

DEC-31-2018

DEC-31-2017

DEC-31-2018

DEC-31-2017

140,439

5,922,219

86,334,875

166,894

115,952,944

37,218

32,455

25,857,950

19,951,711

212,636

172,894

147,733,114

106,286,587

JAN-01-2018 DEC-31-2018

JAN-01-2017 DEC-31-2017

JAN-01-2018 DEC-31-2018

JAN-01-2017 DEC-31-2017

CURRENT ASSETS

EQUITY AND LIABILITIES CURRENT LIABILITIES NON-CURRENT LIABILITIES EQUITY TOTAL EQUITY AND LIABILITIES

Statements of comprehensive income

8,524

Income from ordinary activities

21,101

13,358

14,660,342

8,211,831

Cost of sales

(4,226)

(2,992)

(2,936,098)

(1,839,332)

Administrative expenses

(1,032)

(766)

(717,003)

(470,899)

Other expenses

(236)

(163,966)

Other revenues

260

180,640

3,689

482

695

296,310

(7,825)

(5,047)

(5,436,575)

(3,102,643)

Financial income Financial expenses Capitalization of interests

2,169

1,333,393

(1,792)

(1,108)

(1,245,028)

(681,143)

272

188,977

3,074

6,523

6,107

4,531,985

3,754,278

(1,760)

(1,755)

(1,222,795)

(1,078,886)

INCOME ATTRIBUTABLE TO OWNERS OF THE CONTROLLER

4,763

4,352

3,309,190

2,675,392

INCOME

4,763

4,352

3,309,190

2,675,392

Exchange rate differences Profit and loss per adjustment unit INCOME BEFORE TAXES Expense from income taxes

JAN-01-2017 DEC-31-2017

JAN-01-2018 DEC-31-2018

4,763

4,352

3,309,190

2,675,392

Income related to hedge derivatives

2,189

1,345,688

Income taxes for cash flow hedges

(485)

(298,154)

TOTAL COMPREHENSIVE INCOME

4,763

6,056

3,309,190

3,722,926

Statement of comprehensive income INCOME

JAN-01-2018 DEC-31-2018

JAN-01-2017 DEC-31-2017

109

STATEMENT OF FINANCIAL POSITION OF ELETRANS II S.A. (FUNCTIONAL CURRENCY USD) US$ thousand ASSETS

DEC-31-2017

DEC-31-2018

DEC-31-2017

CURRENT ASSETS

14,835

18,286

10,306,913

11,241,319

NON-CURRENT ASSETS

60,001

49,341

41,686,895

30,332,380

TOTAL ASSETS

74,836

67,627

51,993,808

41,573,698

DEC-31-2017

DEC-31-2018

DEC-31-2017

79,526

70,744

55,252,279

43,489,874

53,483

EQUITY

(4,690)

(3,204)

(3,258,471)

(1,969,659)

TOTAL EQUITY AND LIABILITIES

74,836

67,627

51,993,808

41,573,698

JAN-01-2017 DEC-31-2017

JAN-01-2018 DEC-31-2018

JAN-01-2017 DEC-31-2017

EQUITY AND LIABILITIES CURRENT LIABILITIES NON-CURRENT LIABILITIES

Statements of comprehensive income

DEC-31-2018

JAN-01-2018 DEC-31-2018

Income from ordinary activities

Cost of sales

(53)

(27)

(36,823)

(16,598)

Other expenses

(204)

(141,733)

Other revenues

223

154,934

44,877

Financial income

341

184

236,917

113,114

(2,928)

(2,489)

(2,034,287)

(1,530,113)

Capitalization of interests

2,418

1,740

1,679,954

1,069,665

Exchange rate differences

(1,922)

(204)

(1,335,348)

(125,409)

LOSS BEFORE TAXES

(2,125)

(723)

(1,476,386)

(444,464)

573

196

398,103

120,491

LOSS ATTRIBUTABLE TO OWNERS OF THE CONTROLLER

(1,552)

(527)

(1,078,283)

(323,973)

LOSS

(1,552)

(527)

(1,078,283)

(323,973)

Administrative expenses

Financial expenses

Revenue from income taxes

Statement of comprehensive income LOSS

JAN-01-2018 DEC-31-2018

JAN-01-2017 DEC-31-2017

JAN-01-2018 DEC-31-2018

JAN-01-2017 DEC-31-2017

(1,552)

(527)

(1,078,283)

(323,973)

115

3,049

1,345,688

Income taxes for cash flow hedges

(824)

(298,154)

TOTAL COMPREHENSIVE INCOME

(1,437)

1,698

(998,384)

1,043,846

Income related to hedge derivatives

110

DEC-31-2018

CLP thousand

STATEMENT OF FINANCIAL POSITION OF ELETRANS III S.A. (FUNCTIONAL CURRENCY USD) US$ thousand ASSETS

DEC-31-2018

CLP thousand

DEC-31-2017

DEC-31-2018

DEC-31-2017

963

1,222

669,064

751,225

NON-CURRENT ASSETS

10,155

835

7,055,389

513,316

TOTAL ASSETS

11,118

2,057

7,724,453

1,264,541

CURRENT ASSETS

EQUITY AND LIABILITIES CURRENT LIABILITIES NON-CURRENT LIABILITIES EQUITY TOTAL EQUITY AND LIABILITIES

Statements of comprehensive income

DEC-31-2018

DEC-31-2017

DEC-31-2018

DEC-31-2017 16,598

9,191

6,385,631

1,927

2,030

1,338,822

1,247,943

11,118

2,057

7,724,453

1,264,541

JAN-01-2018 DEC-31-2018

JAN-01-2017 DEC-31-2017

JAN-01-2018 DEC-31-2018

JAN-01-2017 DEC-31-2017

Income from ordinary activities

Cost of sales

(80)

(5)

(55,582)

(3,074)

Administrative expenses Other expenses

Other revenues

Financial income

3,474

3,074

(158)

(109,774)

Financial expenses Capitalization of interests

63.919

Exchange rate differences

(3)

(2,084)

25,205

2,084

(141)

(97,963)

25,205

(11)

26,401

(6,762)

INCOME (LOSS) ATTRIBUTABLE TO OWNERS OF THE CONTROLLER

(103)

(71,561)

18,443

INCOME (LOSS)

(103)

(71,561)

18,443

Profit and loss per adjustment unit INCOME (LOSS) BEFORE TAXES Revenue (expense) from income taxes

Statement of comprehensive income INCOME (LOSS)

JAN-01-2018 DEC-31-2018

JAN-01-2017 DEC-31-2017

JAN-01-2018 DEC-31-2018

JAN-01-2017 DEC-31-2017

(103)

(71,561)

18,443

Income related to hedge derivatives

Income taxes for cash flow hedges

TOTAL COMPREHENSIVE INCOME

(103)

(71,561)

18,443

111

STATEMENT OF LIABILITY

112

In compliance with provisions under General Standard No. 30 issued by the Financial Market Commission (former Securities and Insurance Supervisor) and its subsequent amendments, the undersigned, in their capacity of Directors and Chief Executive Officer of the Company, hereby acknowledge and take responsibility for the accuracy of the information contained in this Annual Report as of December 31, 2018.

Jorge Lesser García-Huidobro / 6.443.633-3 CHAIR

Iván Díaz – Molina / 14.655.033-9 VICE-CHAIR

Juan Ignacio Parot B. / 7.011.905-6 REGULAR DIRECTOR

Waldo Fortín Cabezas / 4.556.889-K REGULAR DIRECTOR

Ben Hawkins / Extranjero REGULAR DIRECTOR

Stacey Purcell / Extranjera REGULAR DIRECTOR

Christopher Powell / Extranjero REGULAR DIRECTOR

Stephen Best / Extranjero REGULAR DIRECTOR

Francisco Alliende Arriagada / 6.379.874-6 CHIEF EXECUTIVE OFFICER

113