ABOITIZ POWER CORPORATION · Current Ratio. Current ratio is a measurement of liquidity, calculated...

ABOITIZ POWER CORPORATION

Interim Unaudited Financial Statements with Management Discussion and Analysis

for the First Quarter of 2016

PART I--FINANCIAL INFORMATION

Item 1. Financial Statements. Please refer to the financial statements and schedules attached herewith. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of Aboitiz Power Corporation’s (AP, AboitizPower or the Company) consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying schedules and disclosures set forth elsewhere in this report.

Key Performance Indicators Management uses the following indicators to evaluate the performance of the Company and its subsidiaries (the Company and its subsidiaries are hereinafter collectively referred to as the “Group”):

1. Share in Net Earnings of Associates and Joint Ventures. It represents the Group's share in the undistributed earnings or losses of its investees for each reporting period subsequent to acquisition of said investment. It also indicates profitability of the investment and investees' contribution to the Group's net income.

Manner of Computation:

Investee's Net Income (Loss) x Investor's % ownership - Goodwill Impairment Cost

2. Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA). The Company computes EBITDA as earnings before extra-ordinary items, net finance expense, income tax provision, depreciation and amortization. It provides management and investors with a tool for determining the ability of the Group to generate cash from operations to cover financial charges and income taxes. It is also a measure to evaluate the Group’s ability to service its debts.

3. Cash Flow Generated. Using the Statement of Cash Flows, management determines

the sources and usage of funds for the period and analyzes how the Group manages its profit and uses its internal and external sources of capital. This aids management in identifying the impact on cash flow when the Group's activities are in a state of growth or decline, and in evaluating management's efforts to control the impact.

4. Current Ratio. Current ratio is a measurement of liquidity, calculated by dividing total

current assets by total current liabilities. It is an indicator of the Group's short-term debt paying ability. The higher the ratio, the more liquid the Group.

5. Debt–to–Equity Ratio. Debt-to-Equity ratio gives an indication of how leveraged the

Group is. It compares assets provided by creditors to assets provided by shareholders. It is determined by dividing total debt by stockholders' equity.

2

The table below shows the comparative figures of the top five key performance indicators for the first three months of 2016 and 2015, and as of December 31, 2015:

MAR 2016 MAR 2015 DEC 2015

SHARE IN NET EARNINGS OF ASSOCIATES AND JOINT VENTURES 897,320 727,188

EBITDA 9,239,460 8,189,487

CASH FLOW GENERATED: Net cash flows from operating activities 9,071,320 11,609,776 Net cash flows used in investing

activities (6,173,603) (2,846,030) Net cash flows from ( used in) financing

activities 13,108,169 (1,601,384) Net increase in cash & cash equivalents 16,005,598 7,162,362 Cash & cash equivalents, beginning 51,098,269 40,231,875 Cash & cash equivalents, end 67,039,999 47,391,488

CURRENT RATIO 2.33

3.12

DEBT-TO-EQUITY RATIO 1.82

1.39

Share in net earnings of associates and joint ventures increased by 23% or by P 170 million (mn). The increase is mainly a result of higher income contributions from SN Aboitiz Power – Benguet, Inc. (SNAP Benguet) and SN Aboitiz Power – Magat, Inc. (SNAP Magat) due to higher sales volume as they started the year at higher water elevations. Both companies also managed to recognize higher ancillary revenues in the first quarter.

Consolidated EBITDA continues to be strong leading to significant cash flows from operating activities. Cash was used to fund ongoing projects and working capital requirements of subsidiaries mainly from the cash generated from the Group’s operations. Higher level of project loan availments increased cash flows from financing activities. Current ratio went from 3.12x at the end of 2015 to 2.33 x at the end of the first quarter of 2016 as Trade and other payables increased total current liabilities. This is due to the recognition of dividends payable after the Board of Directors approved the declaration of cash dividends in March 2016. The increase in the Group’s total liabilities led to the movement in debt to equity ratio to 1.82 as of March 31, 2016 from 1.39 as of December 31, 2015. Results of Operations The Company recorded consolidated net income of P 5.02 billion (bn), a 15% increase versus the same period last year. The Company’s core net income for the period amounted to P 4.77 bn after adjusting for the effects of non-recurring gains of P 242 mn from the revaluation of consolidated dollar-denominated assets and liabilities.

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Power Generation For the first quarter of 2016, the power generation business recorded an income contribution of P 4.19 bn, a 17% increase compared to the same period last year. When adjusted for non-recurring items, the group registered a 10% year-on-year (YoY) increase in its core net income, from P 3.56 bn to P 3.93 bn. The power generation group’s average selling price decreased by 14% YoY for the period in review as the fuel pass through component in the group’s selling price on its bilateral contracts continued to decline. On the other hand, the average rate for ancillary services remain unchanged. Capacity sales for the first quarter of 2016 registered a 12% increase from 1,804 MW to 2,014 MW. This increase comes from the additional capacities from Therma South, Inc. (TSI), which declared full commercial operations last February 2, 2016. SN Aboitiz Power (SNAP) Business Units’ had higher available capacities as they started the year at higher water elevations. Consequently, attributable energy sold rose by 22% YoY, from 2,828 GWh to 3,451 GWh. Bilateral sales made up 91% of the total volume sold, which expanded by 29% to 3,157 GWh. Spot sales decreased by 23% YoY from 380 GWh to 294 GWh.

Power Distribution For the period in review, the power distribution group registered a 5% increase YoY in its earnings contribution, from P812 mn to P851 mn. The group’s attributable electricity sales for the quarter increased by 8% to 1,201 GWh from 1,111 GWh a year ago. It was observed that the growth in sales was driven by higher electricity sales across all customer segments, with residential, commercial, and industrial sales registering YoY growth of 11%, 11%, and 6% respectively. The power distribution group’s year-to-date gross margin on a per kWh basis declined to P1.46 from P1.51 a year ago. Material Changes in Line Items of Registrant’s Statements of Income and Comprehensive Income Consolidated Statements of Income The various movements in the revenue and expense line items leading to the Consolidated Net Income Attributable to Equity Holders of the Parent of P 5.02 bn are shown below:

Consolidated Net Income Attributable to Equity Holders of the Parent (January – March 2015) P 4,346,577

Increase in operating revenues 660,585 Increase in operating expenses -389,948 Increase in interest income 56.997 Increase in interest expense -341,707 Increase in share in net earnings of associates and joint ventures 170,132 Increase in other income 493.045 Lower provision for taxes 74,286 Increase in income attributable to non-controlling interests -53,735

Total 669,655

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Consolidated Net Income Attributable to Equity Holders of the Parent (January – March 2016) P 5,016,232

Operating Revenues (3% increase from P 20.70 bn to P21.36 bn) Higher electricity sales particularly at the larger distribution utilities, Davao Light & Power Company, Inc. (Davao Light) and Visayan Electric Company, Inc. (VECO), resulted to an increase in operating revenues for the group. The start of commercial operations in the first quarter for TSI also accounts for the increase in the Company’s operating revenues. Operating Expenses (3% increase from P 14.51 bn to P 14.90 bn) Consolidated operating expenses slightly increased by P 390 mn as the Company recognized the operating expenses for the first period of operations of TSI. Interest Income (26% increase from P 218 mn to P 275 mn) Increase is mainly due to higher average cash and cash equivalent balances for the first quarter 2016 as compared to the same period last year. Interest Expense and other financing costs (20% increase from P 1.73 bn to P2.08 bn) The increase is mainly due to interest expenses recognized at TSI. Share in Net Earnings of Associates and Joint Ventures (23% increase from P 727 mn to P 897 mn) Higher water elevations at the start of the year increased capacities available at the two large hydro power plants, SNAP Magat and SNAP Benguet, increasing volumes sold. The higher contributions from the two large hydro companies was further augmented by higher contributions from STEAG State Power Inc. (STEAG). Other Income (Expenses) - net (174% increase from P 283 mn to P 776 mn) The increase is mainly due to unrealized foreign exchange gain recognized in the first quarter of 2016. This comes from the restatement of Therma Luzon Inc. (TLI)’s dollar denominated debt on its monthly obligations to the Power Sector Assets and Liabilities Management Corporation (accounted as a finance lease obligation), net of unrealized loss on forward contracts. Provision for Taxes (7% decrease from P 1.06 bn to P 984 mn) Lower tax provisions at certain subsidiaries lead to the decrease in this line item.

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Net Income Attributable to Non-controlling Interests (19% increase from P279 mn to P 333 mn) Higher net income contributed by VECO for the reporting period led to higher Net Income Attributable to Non-controlling interests. Consolidated Statements of Comprehensive Income Consolidated comprehensive income attributable to equity holders of the parent increased from P 4.32 bn in the first three months of 2015 to P 4.94 bn for the same period in 2016. The increase is mainly due to the increase in consolidated net income recognized during the period. Changes in Registrant’s Resources, Liabilities and Shareholders’ Equity Assets Total assets were at P 265.72 bn as of March 31, 2016, an increase of P 23.24 bn or 10% from end 2015. The changes in the following line items account for the increase:

a) Internally generated cash from operations and proceeds from a loan draw down of a subsidiary led to the 31% increase in Cash and cash equivalents (from P 51.10 bn in 2015 to P 67.04 bn as of March 2016).

b) The recognition of fresh trade and other receivables at newly operational TSI, increased this

account by 15% (from P 13.69 bn in 2015 to P 15.74 bn as of March 2016).

c) Inventories increased by 7% (from P 2.04 bn in 2015 to P 2.19 bn as of March 2016) resulting from new inventories held at TSI and an increase of inventories at DavaoLight.

d) Other current assets increased by 15% (from to P 3.39 bn in 2015 to P 3.89 bn as of March

2016). The increase is mainly due to higher prepayments made during the period and the accumulation of input vat during construction.

e) Property, plant and equipment increased by 4% or P 4.97 bn as the Company entered the

final stages of the construction of its coal plant in Davao under TSI and continues to invest into the construction of its Pagbilao 3 and Cebu coal-fired plants, and small hydroelectric plants.

f) Derivative assets (current and noncurrent portions) declined by P 381 mn mainly due to

unrealized mark-to-market losses recognized on outstanding hedging instruments during the current period.

g) Net pension assets decreased by 33% as accrual of defined benefit expenses are taken up

during the current period.

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h) Deferred income tax assets (DTA) decreased by 35% (from P 585 mn in 2015 to P 383 mn as of March 2016) to account for the unrealized forex gain at a subsidiary.

Liabilities Consolidated liabilities increased by 22% from P 140.88 bn as of December 31, 2015 to P 171.48 bn as of March 31, 2016.

a) Bank loans outstanding as of March 31, 2016 was 8% lower at P 2.36 bn as certain subsidiaries made scheduled loan payments in the first quarter.

b) Trade and other payables increased by 106% (from P 14.14 bn to P 29.18 bn as of March 2016) mainly due to the recognition of dividends payable after the Company’s Board of Directors approved the declaration of cash dividends in March 2016 and the initial recognition of TSI’s trade and other payables.

c) Income tax payable increased by 83% (from P 852 mn in 2015 to P 1.56 bn as of March 2016) primarily due to higher tax payables of TLI, Therma Mobile, Inc. and VECO.

d) Long term debt (current and noncurrent portions) increased by 28% mainly from the recent availment of AP Renewables, Inc. (APRI) of a P 12.5 bn loan from three financial institutions.

e) Deferred income tax liabilities increased by 6% (P 1.13 bn in 2015 to P 1.20 mn as of March 2016) unrealized foreign exchange gain on a derivative contract.

Equity Equity attributable to equity shareholders of the parent decreased by 7% (from P 97.57 bn in 2015 to P 90.29 bn as of March 2016) after the declaration of dividends in March 2016, net of the take up of the income during the period. Material Changes in Liquidity and Cash Reserves of Registrant Cash generated from the Group’s operations continue to be the main cash generating activity as it brought in P 9.07 bn year to date. The cash generated from operations for the period was further augmented by fresh cash generated by the newly started operations of TSI. The bulk of the Group’s net cash used in investing activities totaling P 6.17 bn, continue to be spent on capital expenditures as the construction for various thermal and hydro plants continue to progress. The Company realized significant proceeds from the availment of long term debt at APRI as well as continued drawdowns on loans put in place to fund the construction of various projects. These lead to an increase in Cash flows from financing activities. For the period, the cash flows from financing activities was P 13.11 bn. As of March 31, 2015, the Group’s cash and cash equivalents increased from P 51.10 bn as of year-end 2015 to P 67.04 bn.

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Financial Ratios The increase in current liabilities as a result of the recognition of dividends payable drove the change in current ratio from 3.12x to 2.33x as of the end of the first quarter 2016. Consolidated debt to equity ratio remains to be comfortable at 1.82x as of March 31, 2016 (versus year end 2015’s 1.39x). The increase is mainly due to an increase in consolidated debt.

Aboitiz Power Corporation and Subsidiaries

Unaudited Consolidated Financial Statements As of March 31, 2016 (with Comparative Figures as of December 31, 2015) and For the Three-Month Period Ended March 31, 2016 and 2015

ABOITIZ POWER CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Amounts in Thousands)

March 31, 2016

(Unaudited) December 31, 2015

(Audited)

ASSETS

Current Assets Cash and cash equivalents P=67,039,999 P=51,098,269 Trade and other receivables 15,736,266 13,692,393 Derivative assets 94,210 185,283 Inventories 2,185,791 2,040,603 Other current assets 3,890,836 3,392,473

Total Current Assets 88,947,102 70,409,021

Noncurrent Assets Investments and advances 22,499,166 22,551,845 Property, plant and equipment 139,775,814 134,810,627 Intangible asset - service concession rights 3,161,093 3,226,536 Investment properties 3,300 3,300 Derivative assets - net of current portion 87,890 378,083 Available-for-sale (AFS) investments - net of allowance for

impairment of P=5,254 3,620 3,620 Goodwill 1,094,687 1,094,687 Net pension assets 23,418 34,777 Deferred income tax assets 382,759 584,879 Other noncurrent assets 9,745,834 9,391,871

Total Noncurrent Assets 176,777,581 172,080,225

TOTAL ASSETS P=265,724,683 P=242,489,246

LIABILITIES AND EQUITY

Current Liabilities Bank loans P=2,364,000 P=2,568,000 Current portions of: Long-term debts 2,365,339 2,368,161 Finance lease obligation 2,583,754 2,583,754 Long-term obligation on power distribution system 40,000 40,000 Trade and other payables 29,175,721 14,140,576 Derivative liabilities 18,393 – Income tax payable 1,559,098 852,709

Total Current Liabilities 38,106,305 22,553,200

(Forward)

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March 31, 2016

(Unaudited) December 31, 2015

(Audited)

Noncurrent Liabilities Noncurrent portions of: Long-term debts P=72,132,453 P=56,006,863 Finance lease obligation 49,837,412 51,085,100 Long-term obligation on power distribution system 214,700 207,184 Customers’ deposits 6,447,453 6,383,278 Asset retirement obligation 3,040,690 3,016,528 Net pension liabilities 502,809 492,848 Deferred income tax liabilities 1,197,675 1,130,678

Total Noncurrent Liabilities 133,373,192 118,322,479

Total Liabilities 171,479,497 140,875,679

Equity Attributable to Equity Holders of the Parent Capital stock 7,358,604 7,358,604 Additional paid-in capital 12,588,894 12,588,894 Share in net unrealized valuation gains on AFS investments of an

associate 114,920 114,920 Cumulative translation adjustments 67,533 185,431 Share in cumulative translation adjustments of associates and

joint ventures (216,797) (256,376) Actuarial losses on defined benefit plans (609,143) (609,066) Share in actuarial losses on defined benefit plans of associates

and joint ventures (3,748) (3,748) Acquisition of non-controlling interests (259,147) (259,147) Excess of cost over net assets of investments (421,260) (421,260) Retained earnings

Appropriated 20,900,000 20,900,000 Unappropriated 50,771,218 57,970,269

90,291,074 97,568,521 Non-controlling Interests 3,954,112 4,045,046

Total Equity 94,245,186 101,613,567

TOTAL LIABILITIES AND EQUITY P=265,724,683 P=242,489,246


CONSOLIDATED STATEMENTS OF INCOME (Amounts in Thousands, Except Earnings Per Share Amounts) (Unaudited)

For the three months ended March 31 2016 2015

OPERATING REVENUES P= 21,362,228 P=20,701,643

OPERATING EXPENSES 14,902,125 14,512,177

FINANCIAL INCOME (EXPENSES) Interest income 275,259 218,262 Interest expense and other financing costs (2,076,584) (1,734,877)

(1,801,325) (1,516,615)

OTHER INCOME (EXPENSES) Share in net earnings of associates and joint ventures 897,320 727,188 Other income (expenses) - net 776,175 283,130

1,673,495 1,010,318

INCOME BEFORE INCOME TAX 6,332,273 5,683,169

PROVISION FOR INCOME TAX 983,538 1,057,824

NET INCOME P=5,348,735 P=4,625,345

Attributable to: Equity holders of the parent P=5,016,232 P=4,346,577 Non-controlling interests 332,503 278,768

P=5,348,735 P=4,625,345

EARNINGS PER COMMON SHARE Basic and diluted, income for the period attributable to ordinary equity holders of the parent P=0.68 P=0.59

See Note I for the computation of Earnings per Common Share.


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in Thousands) (Unaudited)


NET INCOME ATTRIBUTABLE TO:

Equity holders of the parent P=5,016,232 P=4,346,577 Non-controlling interests 332,503 278,768

5,348,735 4,625,345

OTHER COMPREHENSIVE INCOME Other comprehensive income that may be reclassified to profit or

loss in subsequent periods:

Movement in cumulative translation adjustments (117,898) (29,470) Share in movement in cumulative translation adjustment

of associates and joint ventures 39,579 –

Net other comprehensive income to be reclassified to profit or loss in subsequent periods (78,319) (29,470)

Other comprehensive income that will not be reclassified to profit or loss in subsequent periods:

Actuarial losses on defined benefit plans, net of tax (77) –

Total other comprehensive loss, net of tax (78,396) (29,470)

TOTAL COMPREHENSIVE INCOME P=5,270,339 P=4,595,875

Attributable to: Equity holders of the parent P=4,937,836 P=4,317,107 Non-controlling interests 332,503 278,768

P=5,270,339 P=4,595,875

*SGVFS004072*


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE PERIODS ENDED MARCH 31, 2016, DECEMBER 31, 2015 AND MARCH 31, 2015 (Amounts in Thousands, Except Dividends Per Share Amounts) (Unaudited)

Attributable to Equity Holders of the Parent

Capital Stock Additional

Paid-in Capital

Share in Net Unrealized Valuation

Gains on AFS Investments of

an Associate

Movement in Cumulative Translation

Adjustments

Share in Cumulative Translation

Adjustments of Associates

and Joint Ventures

Actuarial Losses on

Defined Benefit Plans

Share in Actuarial Losses

on Defined Benefit Plans of Associates

and Joint Ventures

Acquisition of Non-controlling

Interests

Excess of cost over net assets

of investment

Retained Earnings Non-controlling

Interests Total Appropriated Unappropriated

Balances at January 1, 2016 P=7,358,604 P=12,588,894 P=114,920 P=185,431 (P=256,376) (P=609,066) (P=3,748) (P=259,147) (P=421,260) P=20,900,000 P=57,970,269 P=4,045,046 P=101,613,567

Net income for the year – – – – – – – – – – 5,016,232 332,503 5,348,735 Other comprehensive income – – – (117,898) 39,579 (77) – – – – – – (78,396)

Total comprehensive income (loss) for the year – – – (117,898) 39,579 (77) – – – – 5,016,232 332,503 5,270,339

Cash dividends - P=1.66 a share – – – – – – – – – – (12,215,283) – (12,215,283)

Cash dividends paid to non-controlling interests – – – – – – – – – – – (423,432) (423,432)

Change in non-controlling interests – – – – – – – – – – – (5) (5)

Balances at March 31, 2016 P=7,358,604 P=12,588,894 P=114,920 P=67,533 (P=216,797) (P=609,143) (P=3,748) (P=259,147) (P=421,260) P=20,900,000 P=50,771,218 P=3,954,112 P=94,245,186


Net income for the year – – – – – – – – – – 4,346,577 278,768 4,625,345 Other comprehensive income – – – (29,470) – – – – – – – – (29,470)

Total comprehensive income (loss) for the year – – – (29,470) – – – –

– – 4,346,577 278,768 4,595,875

Cash dividends - P=1.66 a share – – – – – – – – –

– (12,215,283) – (12,215,283)

Cash dividends paid to non-controlling interests – – – – – – – –

–

– – (499,213) (499,213) Change in non-controlling interests – – – – – – – – – – – (3) (3)

Balances at March 31, 2015 P=7,358,604 P=12,588,894 P=119,087 P=8,621 (P=375,489) (P=519,854) (P=48,589) (P=259,147) (P=421,260) P=20,900,000 P=44,713,049 P=3,897,900 P=87,961,816

(Forward)

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Attributable to Equity Holders of the Parent

Capital Stock Additional

Paid-in Capital

Share in Net Unrealized Valuation

Gains on AFS Investments of

an Associate

Movement in Cumulative Translation

Adjustments

Share in Cumulative Translation

Adjustments of Associates

and Joint Ventures

Actuarial Losses on

Defined Benefit Plans

Share in Actuarial Losses

on Defined Benefit Plans of Associates

and Joint Ventures

Acquisition of Non-controlling

Interests

Excess of cost over net assets

of investment

Retained Earnings Non-controlling

Interests Total Appropriated Unappropriated


Net income for the year – – – – – – – – – – 17,603,797 1,348,854 18,952,651 Other comprehensive income (4,167) 147,340 119,113 (89,212) 44,841 – – – – 8,007 225,922

Total comprehensive income (loss) for the year – – (4,167) 147,340 119,113 (89,212) 44,841 – – – 17,603,797 1,356,861 19,178,573

Cash dividends - P=1.66 a share – – – – – – – – – – (12,215,283) – (12,215,283)

Cash dividends paid to non-controlling interests – – – – – – – – – – – (1,278,953) (1,278,953)

Change in non-controlling interests – – – – – – – – – – – (151,210) (151,210)

Balances at December 31, 2015 P=7,358,604 P=12,588,894 P=114,920 P=185,431 (P=256,376) (P=609,066) (P=3,748) (P=259,147) (P=421,260) P=20,900,000 P=57,970,269 P=4,045,046 P=101,613,567

*SGVFS004072*


CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) (Unaudited)


CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=6,332,273 P=5,683,169

Adjustments for: Interest expense and other financing costs 2,076,584 1,734,877 Depreciation and amortization 1,410,338 1,007,597 Net unrealized foreign exchange gains (510,386) (12,123) Write-off of project costs and others – 228 Unrealized fair valuation gain on derivatives 264,769 – Loss (gain) on sale of property, plant and equipment (321) 181 Interest income (275,259) (218,262) Share in net earnings of associates and joint ventures (897,320) (727,188)

Operating income before working capital changes 8,400,678 7,468,479

Decrease (increase) in operating assets (1,647,049) 1,911,962

Increase in operating liabilities 2,585,003 2,376,880

Cash provided by operations 9,338,632 11,757,321

Income and final taxes paid (267,600) (147,545)

Net cash flows from operating activities 9,071,032 11,609,776

CASH FLOWS FROM INVESTING ACTIVITIES

Cash dividends received 516,000 35,965

Interest received 192,137 148,324

Additions to property, plant and equipment (6,320,521) (2,645,341)

Additions to intangible assets – service concession rights (16,861) (6,795)

Additional investments (426,422) –

Increase in other noncurrent assets (117,936) (378,183)

Net cash flows used in investing activities (6,173,603) (2,846,030)

CASH FLOWS FROM FINANCING ACTIVITIES

Net availments (payments) of bank loans (204,000) 317,000

Net proceeds from availment of long-term debt 16,390,322 723,000

Payments of finance lease obligation (2,139,488) (1,996,232)

Changes in non-controlling interests (423,432) (499,213)

Interest paid (515,233) (145,939)

Net cash flows from (used in) financing activities 13,108,169 (1,601,384)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 16,005,598 7,162,362 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (63,868) (2,749)

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 51,098,269 40,231,875

CASH AND CASH EQUIVALENTS ATEND OF THE PERIOD P=67,039,999 P=47,391,488

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CONSOLIDATED FINANCIAL STATEMENTS SCHEDULES AND DISCLOSURES (Amounts in Thousands, Except Earnings per Share and Exchange Rate Data and When Otherwise Indicated)

A. Components of Other Comprehensive Income

Jan-Mar

2016 Jan-Mar

2015

Share in movement in cumulative translation adjustments of associates and joint ventures P=39,579 P=–

Movement in cumulative translation adjustments (117,898) (29,470)

Actuarial losses on defined benefit plans (77) –

Other comprehensive loss for the period – net of tax (P=78,396) (P=29,470)

B. Tax Effects Relating to Each Component of Other Comprehensive Income Jan-Mar 2016

Before-Tax Tax (Expense) Net-of-Tax

Amount Benefit Amount

Share in movement in cumulative translation adjustments of associates and joint ventures P=39,579 P=– P=39,579

Movement in cumulative translation adjustments (117,898) – (117,898)

Actuarial losses on defined benefit plans (77) – (77)

Other comprehensive loss for the period (P=78,396) P=– (P=78,396)

Jan-Mar 2015

Before-Tax Tax (Expense) Net-of-Tax

Amount Benefit Amount

Movement in cumulative translation adjustments (P=29,470) P=– (P=29,470)

Other comprehensive loss for the period (P=29,470) P=– (P=29,470)

C. Investments and Advances

The Group’s associates and joint ventures and the corresponding equity ownership are as follows:

% Ownership

Nature of Business March 31, 2016

Manila-Oslo Renewable Enterprise, Inc. (MORE)1 Holding company 83.33 Maaraw Holdings San Carlos, Inc. (MHSCI)1 Holding company 60.00 East Asia Utilities Corporation (EAUC) Power generation 50.00 Hijos de F. Escaño, Inc. Holding company 46.73 San Fernando Electric Light & Power Co., Inc. (SFELAPCO) Power distribution 43.78 Pampanga Energy Ventures, Inc. Holding company 42.84 La Filipina Elektrika, Inc. Power generation 40.00 San Carlos Sun Power, Inc. (SACASUN)1 Power generation 35.00 STEAG State Power, Inc. (STEAG) Power generation 34.00 AEV Aviation, Inc. (AAI) Service 26.69 Cebu Energy Development Corporation (CEDC) Power generation 26.40 Redondo Peninsula Energy, Inc. (RPEI) Power generation 25.00 Southern Philippines Power Corporation (SPPC) Power generation 20.00 Western Mindanao Power Corporation (WMPC) Power generation 20.00 1 Joint ventures.

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March 31,

2016 December 31,

2015

Acquisition cost: Balance at beginning of the year P=15,892,748 P=18,118,354 Additions during the year 426,422 451,598 Redemptions during the year – (2,677,204)

Balance at end of year 16,319,170 15,892,748

Accumulated equity in net earnings: Balance at beginning of the year 7,340,367 7,253,461 Share in net earnings 897,320 3,979,947 Dividends received or receivable (1,416,000) (3,893,041)

Balance at end of year 6,821,687 7,340,367 Share in net unrealized valuation gains on AFS

investment of an associate 114,920 114,920 Share in actuarial losses on defined benefit plans of

associates and joint ventures (3,748) (3,748) Share in cumulative translation adjustments

of associates and joint ventures (216,797) (256,376)

23,035,232 23,087,911 Less allowance for impairment losses 568,125 568,125

Investments at equity 22,467,107 22,519,786 Advances 32,059 32,059

P=22,499,166 P=22,551,845

D. Joint Operations

Percentage of

Ownership

Name of Joint Operation Nature of Business March 31, 2016

Pagbilao Energy Corporation (PEC) Power generation 50.00 * PEC’s principal place of business and country of incorporation is the Philippines; No commercial operations as of March 31, 2016.

The Group’s share of assets, liabilities, revenue, expenses and cash flows of joint operations are included in the consolidated financial statements on a line-by-line basis.

E. Trade and Other Payables

March 31, 2016 December 31, 2015

Trade payables P=6,231,576 P=6,459,867

Dividends payable 12,215,283 112,895

Others 10,728,862 7,567,814

P=29,175,721 P=14,140,576

Trade payables are non-interest bearing and generally on 30-day terms. Others include nontrade payables, amounts due to contractors, accrued taxes and fees, withholding taxes and other accrued expenses and are generally payable within 12 months from the balance sheet date.

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F. Bank Loans

Interest Rate March 31, 2016

December 31, 2015

Peso loans – financial institutions - unsecured 2.50% - 2.75% P=2,364,000 P=2,568,000

G. Long-term Debts

Interest Rate March 31, 2016

December 31, 2015

Company Bonds due 2021 6.10% P=6,600,000 P=6,600,000 Bonds due 2026 5.21% 3,400,000 3,400,000

10,000,000 10,000,000

Subsidiaries: TSI

Financial institution - secured 4.50% - 5.14% 25,083,407 25,083,407 APRI

Financial institution - secured 4.53% - 5.20% 12,500,000 – TVI

Financial institution - secured 6.02% - 6.23% 11,542,000 8,673,999 Hedcor Bukidnon Financial institutions - secured 2.00% - 2.75% 3,215,247 3,215,247 VECO

Financial institution - unsecured 3.50% - 4.81% 1,584,000 1,584,000 LHC Financial institutions - secured 2.00% - 2.75% 1,527,223 1,560,039 DLP Financial institution - unsecured 3.50% - 4.81% 1,188,000 1,188,000 HI Financial institution - secured 5.25% 693,000 720,000 SEZ Financial institution - unsecured 5.61% - 6.06% 339,000 339,000 CLP Financial institution - unsecured 3.50% - 4.81% 237,600 237,600 Joint operation (see Note D)

Financial institution - secured 4.70% - 6.68% 8,023,500 6,973,502

65,932,977 49,574,794

75,932,977 59,574,794 Less deferred financing costs 1,435,185 1,199,770

74,497,792 58,375,024 Less current portion - net of deferred financing costs 2,365,339 2,368,161

P=72,132,453 P=56,006,863

H. Debt Securities The Company registered and issued P=10 billion worth of peso denominated fixed rate retail bonds on September 10, 2014 under the following terms:

MATURITY INTEREST RATE AMOUNT 12-year bonds to mature on September 10, 2026 6.10%/p.a. P=3,400,000

10-year bonds to mature on September 10, 2021 5.21%/p.a. P=6,600,000

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I. Earnings Per Common Share

Earnings per common share amounts were computed as follows:

Jan-Mar

2016 Jan-Mar

2015

a. Net income attributable to equity holders of the parent P=5,016,232 P=4,346,577 b. Weighted average number of common shares issued and outstanding 7,358,604,307 7,358,604,307

Earnings per common share (a/b) P=0.68 P=0.59

There are no dilutive potential common shares as of March 31, 2016 and 2015.

J. Operating Segment Information

Operating segments are components of the Group that engage in business activities from which they may earn revenues and incur expenses, whose operating results are regularly reviewed by the Group’s Chief Operating Decision Maker (CODM) to make decisions about how resources are to be allocated to the segment and assess their performances, and for which discrete financial information is available.

For purposes of management reporting, the Group’s operating businesses are organized and managed separately according to services provided, with each segment representing a strategic business segment. The Group’s identified operating segments, which are consistent with the segments reported to the Board of Directors (BOD), which is the Group’s CODM, are as follows:

“Power Generation” segment, which is engaged in the generation and supply of power to various customers under power supply contracts, ancillary service procurement agreements and for trading in WESM;

“Power Distribution” segment, which is engaged in the distribution and sale of electricity to the end-users; and

“Parent Company and Others”, which includes the operations of the Company, retail electricity sales to various off takers that are considered to be eligible contestable customers and electricity related services of the Group such as installation of electrical equipment.

The Group has only one geographical segment as all of its assets are located in the Philippines. The Group operates and derives principally all of its revenue from domestic operations. Thus, geographical business information is not required.

Management monitors the operating results of its segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment revenue and segment expenses are measured in accordance with PFRS. The presentation and classification of segment revenue and segment expenses are consistent with the consolidated statement of income. Interest expense and financing charges, depreciation and amortization expense and income taxes are managed on a per segment basis. The Group has inter-segment revenues in the form of management fees as well as inter-segment sales of electricity which are eliminated in consolidation. The transfers are accounted for at competitive market prices on an arm’s-length transaction basis. Segment assets do not include deferred income tax assets, pension asset and other noncurrent assets. Segment liabilities do

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not include deferred income tax liabilities, income tax payable and pension liability. Adjustments as shown below include items not presented as part of segment assets and liabilities.

Revenue is recognized to the extent that it is probable that economic benefits will flow to the Group, and that the revenue can be reliably measured. Financial information on the operations of the various business segments are summarized as follows:

March 31, 2016

Power

Generation Power

Distribution

Parent Company/

Others Eliminations and

Adjustments Consolidated

REVENUE External P=8,798,715 P=10,308,219 P=2,255,294 P=– P=21,362,228 Inter-segment 3,383,895 – 717,944 (4,101,839) –

Total Revenue P=12,182,610 P=10,308,219 P=2,973,238 (4,101,839) P=21,362,228

Segment Results P=5,130,986 P=1,158,099 P=171,018 P=– P=6,460,103 Unallocated corporate income - net 571,026 219,972 (14,823) – 776,175

INCOME FROM OPERATIONS 5,702,012 1,378,071 156,195 – 7,236,278 Interest expense (1,869,273) (52,694) (154,617) – (2,076,584) Interest income 169,608 6,372 99,279 – 275,259 Share in net earnings of associates and joint ventures 869,422 27,152 5,042,977 (5,042,231) 897,320 Provision for income tax (584,717) (345,122) (53,699) – (983,538)

NET INCOME P=4,287,052 P=1,013,779 P=5,090,135 (P=5,042,231) P=5,348,735

OTHER INFORMATION Investments P=21,228,428 P=918,940 P=109,479,315 (P=109,159,576) P=22,467,107

Segment Assets P=226,690,387 P=23,130,309 P=127,453,097 (P=111,549,110) P=265,724,683

Segment Liabilities P=130,147,939 P=15,496,820 P=36,713,494 (P=10,878,756) P=171,479,497

Depreciation and Amortization P=1,194,674 P=184,247 P=5,138 P= 26,279 P=1,410,338

March 31, 2015

Power

Generation Power

Distribution

Parent Company/

Others Eliminations and

Adjustments Consolidated

REVENUE External P=8,434,974 P=9,704,724 P=2,561,945 P=– P=20,701,643 Inter-segment 3,047,241 – 595,932 (3,643,173) –

Total Revenue P=11,482,215 P=9,704,724 P=3,157,877 (3,643,173) P=20,701,643

Segment Results P=5,036,378 P=1,065,313 P=87,775 P=– P=6,189,466 Unallocated corporate income - net 92,255 192,868 (1,993) – 283,130

INCOME FROM OPERATIONS 5,128,633 1,258,181 85,782 – 6,472,596 Interest expense (1,539,735) (54,193) (140,949) – (1,734,877) Interest income 74,272 6,569 137,421 – 218,262 Share in net earnings of associates and joint ventures 708,034 19,218 4,384,730 (4,384,794) 727,188 Provision for income tax (682,445) (320,279) (55,100) – (1,057,824)

NET INCOME P=3,688,759 P=909,496 P=4,411,884 (P=4,384,794) P=4,625,345

OTHER INFORMATION Investments P=24,000,670 P=840,850 P=96,160,232 (P=95,811,830) P=25,189,922

Segment Assets P=179,558,732 P=20,635,255 P=122,437,218 (P=97,878,726) P=224,752,479

Segment Liabilities P=94,965,962 P=14,495,376 P=39,247,112 (P=11,917,787) P=136,790,663

Depreciation and Amortization P=817,913 P=157,731 P=5,674 P=26,279 P=1,007,597

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K. Financial Risk Management Objectives and Policies

The Group’s principal financial instruments comprise cash and cash equivalents and long-term debts. The main purpose of these financial instruments is to raise finances for the Group’s operations. The Group has various other financial instruments such as trade and other receivables, AFS investments, bank loans, trade and other payables, finance lease obligation, long-term obligation on power distribution system and customers’ deposits, which generally arise directly from its operations.

The Group also enters into derivative transactions, particularly foreign currency forwards, to economically hedge its foreign currency risk from foreign currency denominated liabilities and purchases.

Risk Management Structure The BOD is mainly responsible for the overall risk management approach and for the approval of risk strategies and principles of the Group.

Financial risk committee The Financial Risk Committee has the overall responsibility for the development of risk strategies, principles, frameworks, policies and limits. It establishes a forum of discussion of the Group’s approach to risk issues in order to make relevant decisions.

Treasury service group The Treasury Service Group is responsible for the comprehensive monitoring, evaluating and analyzing of the Group’s risks in line with the policies and limits.

The main risks arising from the Group’s financial instruments are interest rate risk resulting from movements in interest rates that may have an impact on outstanding long-term debt; credit risk involving possible exposure to counter-party default on its cash and cash equivalents, AFS investments and trade and other receivables; liquidity risk in terms of the proper matching of the type of financing required for specific investments; and foreign exchange risk in terms of foreign exchange fluctuations that may significantly affect its foreign currency denominated placements and borrowings. Liquidity risk Liquidity risk is the risk of not meeting obligations as they become due because of the inability to liquidate assets or obtain adequate funding.The Group maintains sufficient cash and cash equivalents to finance its operations. Any excess cash is invested in short-term money market placements. These placements are maintained to meet maturing obligations and pay any dividend declarations.

In managing its long-term financial requirements, the Group’s policy is that not more than 25% of long-term borrowings should mature in any twelve-month period. 3.71 % of the Group’s debt will mature in less than one year as of March 31, 2016 (December 31, 2015: 4.18%). For its short-term funding, the Group’s policy is to ensure that there are sufficient working capital inflows to match repayments of short-term debt.

The financial assets that will be principally used to settle the financial liabilities presented in the following table are from cash and cash equivalents and trade and other receivables. Cash and

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cash equivalents can be withdrawn anytime while trade and other receivables are expected to be collected/realized within one year.

The following tables summarize the maturity profile of the Group’s financial liabilities as of March 31, 2016 based on contractual undiscounted principal payments:

Total carrying Contractual undiscounted principal payments

value Total On demand <1 year 1 to 5 years > 5 years

Trade and other payables P=13,239,148 P=13,239,148 P= 1,532 P=13,237,616 P=– P=– Customers’ deposits 6,447,453 6,447,453 – – 28,283 6,419,170 Bank loans 2,364,000 2,364,000 – 2,364,000 – – Finance lease obligation 52,421,166 85,415,560 – 7,760,775 34,288,515 43,366,270 Long-term obligation on power

distribution system 254,700 480,000 – 40,000 200,000 240,000 Long-term debts 74,497,792 75,932,977 – 2,382,280 17,001,257 56,549,440 Derivative liabilities 18,393 18,393 – 18,393 – –

P=149,242,652 P=183,897,531 P=1,532 P=25,803,064 P=51,518,055 P=106,574,880

Market Risk The risk of loss, immediate or over time, due to adverse fluctuations in the price or market value of instruments, products, and transactions in the Group’s overall portfolio (whether on or off-balance sheet) is market risk. These are influenced by foreign and domestic interest rates, foreign exchange rates and gross domestic product growth.

Interest rate risk The Group’s exposure to market risk for changes in interest rates relates primarily to its long-term debt obligations. To manage this risk, the Group determines the mix of its debt portfolio as a function of the level of current interest rates, the required tenor of the loan, and the general use of the proceeds of its various fund raising activities. As of March 31 2016, 2% of the Group’s long-term debt had annual floating interest rates ranging from 2.00% to 2.75%, and 98% have annual fixed interest rates ranging from 3.50% to 6.68%. As of December 31, 2015, 3% of the Group’s long-term debt had annual floating interest rates ranging from 2.00% to 2.75%, and 97% have annual fixed interest rates ranging from 3.50% to 6.68%.

The following tables set out the carrying amounts, by maturity, of the Group’s financial instruments that are exposed to cash flow interest rate risk:

As of March 31, 2016

<1 year 1-5 years >5 years Total

Floating rate - long-term debt P=251,896 P=1,262,178 P=6,906 P=1,520,980

As of December 31, 2015

<1 year 1-5 years >5 years Total

Floating rate - long-term debt P=256,763 P=1,289,300 P=7,056 P=1,553,119

Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. The other financial instruments of the Group that are not included in the above

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tables are non-interest-bearing and are therefore not subject to interest rate risk. The Group’s derivative assets and liabilities are subject to fair value interest rate risk. The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s income before tax (through the impact on floating rate borrowings):

Increase (decrease) in

basis points

Effect on income before tax

March 31, 2016 200 (P=30,420) (100) 15,210 March 31, 2015 200 (P=34,388) (100) 17,194

The Group’s sensitivity to an increase/decrease in interest rates pertaining to derivative instruments is expected to be insignificant due to their short-term maturities and immateriality relative to the total assets and liabilities of the Group.

There is no other impact on the Group’s equity other than those already affecting the consolidated statements of income. The interest expense and other finance charges recognized according to source are as follows:

Jan-Mar

2016 Jan-Mar

2015

Finance lease obligation P=1,466,055 P=1,485,164 Bank loans and long-term debt 578,624 214,967 Customers’ deposits 227 1,323 Other long-term obligations 31,678 33,423

P=2,076,584 P=1,734,877

Foreign exchange risk The foreign exchange risk of the Group pertains significantly to its foreign currency denominated obligations. To manage its foreign exchange risk, stabilize cash flows and improve investment and cash flow planning, the Group enters into foreign currency forward contracts aimed at reducing and/or managing the adverse impact of changes in foreign exchange rates on financial performance and cash flows. Foreign currency denominated borrowings account for 22% and 26% of total consolidated borrowings as of March 31, 2016 and December 31, 2015.

Presented below are the Group’s foreign currency denominated financial assets and liabilities as of March 31, 2016 and December 31, 2015, translated to Philippine Peso:

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US Dollar Philippine Peso

equivalent1 US Dollar Philippine Peso

equivalent2

Loans and receivables: Cash and cash equivalents $50,741 P=2,337,638 $39,695 P=1,868,047

Trade and other receivables 119 5,471 224 10,559 Derivative assets 1,148 52,876 6,750 317,645

Total financial assets 52,008 2,395,985 46,669 2,196,251

Other financial liabilities:

Trade and other payables 944 43,474 291 13,691 Finance lease obligation 580,245 26,731,887 588,108 27,676,362

Total financial liabilities 581,189 26,775,361 588,399 27,690,053

Total net financial liabilities ($529,181) (P=24,379,376) ($541,730) (P=25,493,802) 1$1 = P=46.07 2$1 = P=47.06

The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rates, with all other variables held constant, of the Group’s income before tax as of March 31, 2016:

Increase/ (decrease)

in US Dollar Effect on income

before tax

US Dollar denominated accounts US Dollar strengthens by 5% (P=1,218,969) US Dollar denominated accounts US Dollar weakens by 5% 1,218,969

The increase in US Dollar rate represents the depreciation of the Philippine Peso while the decrease in US Dollar rate represents appreciation of the Philippine Peso.

There is no other impact on the Group’s equity other than those already affecting the consolidated statements of comprehensive income.

Credit risk For its cash investments (including restricted portion), AFS investments and receivables, the Group’s credit risk pertains to possible default by the counterparty, with a maximum exposure equal to the carrying amount of these investments. With respect to cash investments and AFS investments, the risk is mitigated by the short-term and/or liquid nature of its cash investments mainly in bank deposits and placements, which are placed with financial institutions and entities of high credit standing. With respect to receivables, credit risk is controlled by the application of credit approval, limit and monitoring procedures. It is the Group’s policy to only enter into transactions with credit-worthy parties to mitigate any significant concentration of credit risk. The Group ensures that sales are made to customers with appropriate credit history and it has internal mechanisms to monitor the granting of credit and management of credit exposures.

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Concentration Risk Credit risk concentration of the Group’s receivables according to the customer category as of March 31, 2016 and December 31, 2015 is summarized in the following table:


Power distribution: Industrial P=3,027,314 P=3,173,687 Residential 1,264,822 1,395,502 Commercial 541,647 601,065 City street lighting 110,298 28,924 Power generation: Power supply contracts 4,716,755 5,202,474 Spot market 1,597,873 1,408,744

P=11,258,709 P=11,810,396

Capital Management Capital includes equity attributable to the equity holders of the parent. The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group monitors capital using a gearing ratio, which is net debt divided by equity plus net debt. The Group’s policy is to keep the gearing ratio at 70% or below. The Group determines net debt as the sum of interest-bearing short-term and long-term loans (comprising long-term debt, finance lease obligation and payable to a preferred shareholder of a subsidiary) less cash and short-term deposits. Gearing ratios of the Group as of March 31, 2016 and December 31, 2015 are as follows:


Bank loans P=2,364,000 P=2,568,000 Long-term debt 126,918,958 112,043,878 Cash and cash equivalents (67,039,999) (51,098,269)

Net debt (a) 62,242,959 63,513,609 Equity 94,245,186 101,613,567

Equity and net debt (b) P=156,488,145 P=165,127,176

Gearing ratio (a/b) 39.77% 38.46%

No changes were made in the objectives, policies or processes during the period ended March 31, 2016 and December 31, 2015.

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L. Financial Instruments

Fair Value of Financial Instruments Fair value is defined as the amount at which the financial instrument could be sold in a current transaction between knowledgeable willing parties in an arm’s length transaction, other than in a forced liquidation or sale. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models, as appropriate.

A financial instrument is regarded as quoted in an active market if quoted prices are readily available from an exchange, dealer, broker, pricing services or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis. For a financial instrument with an active market, the quoted market price is used as its fair value. On the other hand, if transactions are no longer regularly occurring even if prices might be available and the only observed transactions are forced transactions or distressed sales, then the market is considered inactive. For a financial instrument with no active market, its fair value is determined using a valuation technique (e.g. discounted cash flow approach) that incorporates all factors that market participants would consider in setting a price.

Set out below is a comparison by category of carrying amounts and fair values of the Group’s financial instruments whose fair values are different from their carrying amounts.


Carrying

Amounts Fair

Values Carrying

Amounts Fair

Values

Financial Liabilities Finance lease obligation P=52,421,166 P=62,374,697 P=53,668,854 P=56,465,454 Long-term debt - fixed rate 72,976,812 73,750,116 56,821,905 56,387,654 Long-term obligation on power

distribution system 254,700 412,278 247,184 414,135

P=125,652,678 P=136,537,091 P=110,737,943 P=113,267,243

The following methods and assumptions are used to estimate the fair value of each class of financial instruments:

Cash and cash equivalents, trade and other receivables, bank loans and trade and other payables. The carrying amounts of cash and cash equivalents, trade and other receivables, bank loans and trade and other payables approximate fair value due to the relatively short-term maturity of these financial instruments.

Fixed-rate borrowings. The fair value of fixed rate interest-bearing loans is based on the discounted value of future cash flows using the applicable rates for similar types of loans.

Floating-rate borrowings. Since repricing of the variable-rate interest bearing loan is done on a quarterly basis, the carrying value approximates the fair value.

Finance lease obligation. The fair value of the finance lease obligation was calculated by discounting future cash flows using applicable interest rates.

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Long-term obligation on PDS. The fair value of the long-term obligations on power distribution system is calculated by discounting expected future cash flows at prevailing market rates.

Customers’ deposits. The fair value of bill deposits approximates the carrying values as these deposits earn interest at the prevailing market interest rate in accordance with regulatory guidelines. The timing and related amounts of future cash flows relating to transformer and lines and poles deposits cannot be reasonably and reliably estimated for purposes of establishing their fair values using an alternative valuation technique. AFS investments. These are carried at cost less impairment because fair value cannot be determined reliably due to the unpredictable nature of cash flows and lack of suitable methods of arriving at reliable fair value.

Derivative financial instruments The fair value is calculated by reference to prevailing interest rate differential and spot exchange rate as of valuation date, taking into account its remaining term to maturity. The Group enters into non-deliverable short-term forward contracts with counterparty banks to manage its foreign currency risks associated with foreign currency-denominated liabilities and purchases. The movements in fair value changes of all derivative instruments for the period ended March 31, 2016 and for the year ended December 31, 2015 are as follows:


At beginning of year P=563,366 P=112,544 Net changes in fair value of derivatives designated

as accounting hedges (134,890) 150,474 Net changes in fair value of derivatives not

designated as accounting hedges (264,769) 331,291 Fair value of settled instruments - (30,943)

At end of year P=163,707 P=563,366

Fair Value Hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: other techniques for which all inputs which have a significant effect on the recorded

fair value are observable, either directly or indirectly; and Level 3: techniques which use inputs which have a significant effect on the recorded fair value

that are not based on observable market data. As of March 31, 2016, the Group held the following financial instruments that are measured and carried or disclosed at fair value:

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Total Level 1 Level 2 Level 3

Carried at fair value: Derivative asset P=182,100 P=− P=182,100 P=− Derivative liability 18,393 − 18,393 −

Disclosed at fair value: Finance lease obligation 62,374,697 − − 62,374,697 Long-term debt - fixed rate 73,750,116 − − 73,750,116 Long-term obligation on PDS 412,278 − − 412,278

During the period ended March 31, 2016, there were no transfers between level 1 and level 2 fair value measurements and transfers into and out of level 3 fair value measurement.

M. Disclosures

1. Corporate Information Aboitiz Power Corporation (the Company) was incorporated in the Philippines and registered with the Securities and Exchange Commission on February 13, 1998. The Company is a publicly-listed holding company of the entities engaged in power generation and power distribution in the Aboitiz Group. As of March 31, 2016, Aboitiz Equity Ventures, Inc. (AEV, also incorporated in the Philippines) owns 76.88% of the Company. The ultimate parent of the Company is Aboitiz & Company, Inc. (ACO). The registered office address of the Company is 32nd street, Bonifacio Global City, Taguig City, Metro Manila.

2. Group Information

The consolidated financial statements comprise the financial statements of the Company, subsidiaries controlled by the Company and joint operation that are subject to joint control (collectively referred to as “the Group”). The following are the subsidiaries as of March 31, 2016 and December 31, 2015: Percentage Ownership


Nature of Business Direct Indirect Direct Indirect

Aboitiz Renewables, Inc. and Subsidiaries Power generation 100.00 – 100.00 – AP Renewables, Inc. (APRI) Power generation – 100.00 – 100.00 Hedcor, Inc. (HI) Power generation – 100.00 – 100.00 Hedcor Sibulan, Inc. (HSI) Power generation – 100.00 – 100.00 Hedcor Tudaya, Inc. (Hedcor Tudaya) Power generation – 100.00 – 100.00 Luzon Hydro Corporation (LHC) Power generation – 100.00 – 100.00 AP Solar Tiwi, Inc.* Power generation – 100.00 – 100.00 Bakun Power Line Corporation* Power generation – 100.00 – 100.00 Cleanergy, Inc.* Power generation – 100.00 – 100.00 Cordillera Hydro Corporation* Power generation – 100.00 – 100.00 Hedcor Benguet, Inc.* Power generation – 100.00 – 100.00 Hedcor Bukidnon, Inc. (Hedcor Bukidnon)* Power generation – 100.00 – 100.00 Hedcor Cordillera, Inc.* Power generation – 100.00 – 100.00 Hedcor Ifugao, Inc.* Power generation – 100.00 – 100.00 Hedcor Kalinga, Inc.* Power generation – 100.00 – 100.00 Hedcor Itogon Inc.* Power generation – 100.00 – 100.00 Hedcor Manolo Fortich, Inc.* Power generation – 100.00 – 100.00 Hedcor Mt. Province, Inc.* Power generation – 100.00 – 100.00 Hedcor Sabangan, Inc. (Hedcor Sabangan) Power generation – 100.00 – 100.00

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Percentage Ownership


Nature of Business Direct Indirect Direct Indirect

Hedcor Tamugan, Inc.* Power generation – 100.00 – 100.00 Kookaburra Equity Ventures, Inc. Holding company – 100.00 – 100.00 Mt. Apo Geopower, Inc.* Power generation – 100.00 – 100.00 Negron Cuadrado Geopower, Inc.* Power generation – 100.00 – 100.00 Tagoloan Hydro Corporation* Power generation – 100.00 – 100.00 Luzon Hydro Company Limited* Power generation – 100.00 – 100.00 Hydro Electric Development Corporation Power generation – 99.97 – 99.97

Therma Power, Inc. and Subsidiaries Power generation 100.00 – 100.00 – Therma Luzon, Inc. Power generation – 100.00 – 100.00 Therma Marine, Inc. Power generation – 100.00 – 100.00 Therma Mobile, Inc. Power generation – 100.00 – 100.00 Therma South, Inc. (TSI) Power generation – 100.00 – 100.00 Therma Power-Visayas, Inc.* Power generation – 100.00 – 100.00 Therma Central Visayas, Inc.* Power generation – 100.00 – 100.00 Therma Subic, Inc.* Power generation – 100.00 – 100.00 Therma Visayas, Inc. (TVI)* Power generation – 80.00 – 100.00 Abovant Holdings, Inc. Holding company – 60.00 – 60.00

Aboitiz Energy Solutions, Inc. Retail electricity supplier 100.00 – 100.00 – Adventenergy, Inc. Retail electricity supplier 100.00 – 100.00 – Balamban Enerzone Corporation Power distribution 100.00 – 100.00 – LiMa Enerzone Corporation Power distribution 100.00 – 100.00 – Mactan Enerzone Corporation Power distribution 100.00 – 100.00 – Cotabato Light and Power Company (CLP) Power distribution 99.94 – 99.94 – Cotabato Ice Plant, Inc. Manufacturing – 100.00 – 100.00 Davao Light & Power Co., Inc. (DLP) Power distribution 99.93 – 99.93 – Subic Enerzone Corporation (SEZ) Power distribution 65.00 34.98 65.00 34.98 Cebu Private Power Corporation Power generation 60.00 – 60.00 – Prism Energy, Inc. * Retail electricity supplier 60.00 – 60.00 – Visayan Electric Company (VECO) Power distribution 55.26 – 55.26 –

* No commercial operations as of March 31, 2016.

3. Basis of Financial Statement Preparation and Changes in Accounting Policies

Basis of Financial Statement Preparation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Philippine Accounting Standard (PAS) 34, Interim Financial Reporting. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and disclosures required in the December 31, 2015 annual audited consolidated financial statements, and should be read in conjunction with the Group’s consolidated financial statements as of and for the year ended December 31, 2015. The preparation of the financial statements in compliance with Philippine Financial Reporting Standards (PFRS) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The estimates and assumptions used in the accompanying unaudited condensed consolidated financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the unaudited condensed consolidated financial statements. Actual results could differ from such estimates. The unaudited condensed consolidated financial statements of the Group are presented in Philippine peso, the Group’s functional currency, and rounded to the nearest thousands except for earnings per share and exchange rates and when otherwise indicated. On May 3, 2016, the Audit Committee of the Board of Directors approved and authorized the release of the accompanying unaudited condensed consolidated financial statements of the Group.

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Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year except for the new and revised PFRS and Philippine Interpretations which the Group has adopted starting January 1, 2016. Except as otherwise indicated, adoption of these new and revised standards and interpretations did not have any significant impact on the Group’s financial statements:

PFRS 10, Consolidated Financial Statements, and PAS 28, Investments in Associates and Joint Ventures – Investment Entities: Applying the Consolidation Exception (Amendments) The amendments clarify that the exemption in PFRS 10 from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity that measures all of its subsidiaries at fair value and that only a subsidiary of an investment entity that is not an investment entity itself and that provides support services to the investment entity parent is consolidated. The amendments also allow an investor (that is not an investment entity and has an investment entity associate or joint venture), when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries.

PFRS 11, Joint Arrangements – Accounting for Acquisitions of Interests in Joint Operations (Amendments) The amendments to PFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business must apply the relevant PFRS 3 principles for business combinations accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to PFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party.

The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation. The Group shall consider these amendments if it enters into this type of arrangement in the future.

PFRS 14, Regulatory Deferral Accounts PFRS 14 is an optional standard that allows an entity, whose activities are subject to rate-regulation, to continue applying most of its existing accounting policies for regulatory deferral account balances upon its first-time adoption of PFRS. Entities that adopt PFRS 14 must present the regulatory deferral accounts as separate line items on the statement of financial position and present movements in these account balances as separate line items in the statement of profit or loss and other comprehensive income. The standard requires disclosures on the nature of, and risks associated with, the entity’s rate-regulation and the effects of that rate-regulation on its financial statements. This standard is not applicable since the Group is an existing PFRS preparer.

PAS 1, Presentation of Financial Statements – Disclosure Initiative (Amendments) The amendments are intended to assist entities in applying judgment when meeting the presentation and disclosure requirements in PFRS. They clarify the following:

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a. That entities shall not reduce the understandability of their financial statements by

either obscuring material information with immaterial information; or aggregating material items that have different natures or functions.

b. That specific line items in the statement of income and OCI and the statement of financial position may be disaggregated.

c. That entities have flexibility as to the order in which they present the notes to the financial statements.

d. That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss.

Early application is permitted and entities do not need to disclose that fact as the amendments are considered to be clarifications that do not affect an entity’s accounting policies or accounting estimates.

PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets – Clarification of Acceptable Methods of Depreciation and Amortization (Amendments) The amendments clarify the principle in PAS 16 and PAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. These will have no impact on the Group given that it has not used a revenue-based method to depreciate its non-current assets.

PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture – Bearer Plants (Amendments) The amendments change the accounting requirements for biological assets that meet the definition of bearer plants. Under the amendments, biological assets that meet the definition of bearer plants will no longer be within the scope of PAS 41. Instead, PAS 16 will apply. After initial recognition, bearer plants will be measured under PAS 16 at accumulated cost (before maturity) and using either the cost model or revaluation model (after maturity). The amendments also require that produce that grows on bearer plants will remain in the scope of PAS 41 measured at fair value less costs to sell. For government grants related to bearer plants, PAS 20, Accounting for Government Grants and Disclosure of Government Assistance, will apply. These will have no relevance to the Group as it does not have any bearer plants.

PAS 27, Separate Financial Statements – Equity Method in Separate Financial Statements (Amendments) The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. Entities already applying PFRS and electing to change to the equity method in its separate financial statements will have to apply that change retrospectively. For first-time adopters of PFRS electing to use the equity method in its separate financial statements, they will be required to apply this method from the date of transition to PFRS.

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Annual Improvements to PFRSs (2012-2014 cycle) The Annual Improvements to PFRSs (2012-2014 cycle) are effective for annual periods beginning on or after January 1, 2016 and are not expected to have any material impact on the Group. They include:

PFRS 5, Non-current Assets Held for Sale and Discontinued Operations – Changes in Methods of Disposal The amendment is applied prospectively and clarifies that changing from a disposal through sale to a disposal through distribution to owners and vice-versa should not be considered to be a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in PFRS 5. The amendment also clarifies that changing the disposal method does not change the date of classification.

PFRS 7, Financial Instruments: Disclosures – Servicing Contracts PFRS 7 requires an entity to provide disclosures for any continuing involvement in a transferred asset that is derecognized in its entirety. The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and arrangement against the guidance in PFRS 7 in order to assess whether the disclosures are required. The amendment is to be applied such that the assessment of which servicing contracts constitute continuing involvement will need to be done retrospectively. However, comparative disclosures are not required to be provided for any period beginning before the annual period in which the entity first applies the amendments.

PFRS 7 - Applicability of the Amendments to PFRS 7 to Condensed Interim Financial Statements This amendment is applied retrospectively and clarifies that the disclosures on offsetting of financial assets and financial liabilities are not required in the condensed interim financial report unless they provide a significant update to the information reported in the most recent annual report.

PAS 19, Employee Benefits – Regional Market Issue Regarding Discount Rate This amendment is applied prospectively and clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used.

PAS 34, Interim Financial Reporting – Disclosure of Information “Elsewhere in the Interim Financial Report” The amendment is applied retrospectively and clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the greater interim financial report (e.g., in the management commentary or risk report).

New Accounting Standards, Interpretations, and Amendments to Existing Standards Not Yet Effective as of January 1, 2016:

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The Group will adopt the standards enumerated below when these become effective. Except as otherwise indicated, the Group does not expect the adoption of these new PFRS to have significant impact on its financial statements.

PFRS 9, Financial Instruments In July 2014, the IASB issued the final version of International Financial Reporting Standards (IFRS) 9, Financial Instruments. The new standard (renamed as PFRS 9) reflects all phases of the financial instruments project and replaces PAS 39 and all previous versions of PFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. PFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. Early application of previous versions of PFRS 9 (2009, 2010 and 2013) is permitted if the date of initial application is before February 1, 2015.

The adoption of PFRS 9 will have an effect on the classification and measurement of and impairment methodology for the Group’s financial assets, and on its application of hedge accounting. However, it will have no impact on the classification and measurement of its financial liabilities. After evaluating the impact of PFRS 9 and considering that it will not have any significant effect on the Group’s operating results or financial condition, management has decided not to early adopt the said standard. It will be implemented only when it becomes effective on January 1, 2018. Thus, the consolidated financial statements do not reflect the impact of this standard.

IFRS 15, Revenue from Contracts with Customers IFRS 15 was issued in May 2014 by the IASB and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after January 1, 2018 with early adoption permitted. The Group is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date, once adopted locally.

IFRS 16, Leases On January 13, 2016, the IASB issued its new standard, IFRS 16, Leases, which replaces International Accounting Standards (IAS) 17, the current leases standard, and the related Interpretations. Under the new standard, lessees will no longer classify their lessees as either operating or finance leases in accordance with IAS 17. Rather, lessees will apply the single-asset model. Under this model, lessees will recognize the assets and related liabilities for most leases on their balance sheets, and subsequently, will depreciate the lease assets and recognize

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interest on the lease liabilities in their profit or loss. Leases with a term of 12 months or less or for which the underlying asset is of low value are exempted from these requirements. The accounting by lessors is substantially unchanged as the new standard carries forward the principles of lessor accounting under IAS 17. Lessors, however, will be required to disclose more information in their financial statements, particularly on the risk exposure to residual value. The new standard is effective for annual periods beginning on or after January 1, 2019. Entities may early adopt IFRS 16 but only if they have also adopted IFRS 15. When adopting IFRS 16, an entity is permitted to use either a full retrospective or a modified retrospective approach, with options to use certain transition reliefs. The Group is currently assessing the impact of PFRS 16 and plans to adopt the new standard on the required effective date once adopted locally.

4. Seasonality of Interim Operations Operations of hydropower plants are generally affected by climatic seasonality. Seasonality and location have a direct effect on the level of precipitation. In Luzon where rainy and summer seasons are more pronounced, higher rainfall is normally experienced in the months of June to September. As such, the hydropower plants located in Luzon operate at their maximum capacity during this period. In contrast, the hydropower plants in Mindanao experience a well-distributed rainfall throughout the year, with a slightly better precipitation during the months of December to April. This precipitation seasonality greatly affects subsidiary companies HI, HSI, Hedcor Tudaya, Hedcor Sabangan and LHC, which operate ‘run-of-river’ hydropower plants since these plants do not have any means to impound water. Any unexpected change in the seasonal aspects will have no material effect on the Group's financial condition or results of operations.

5. Property, Plant and Equipment During the three months ended March 31, 2016, the Group’s additions to property, plant and equipment amounted to P=6.32 billion, including acquisition of distribution assets amounting to P=471.4 million, and costs relating to the construction of power plant facilities. A significant portion of the Group’s property, plant and equipment relates to various projects under “Construction in progress” as of March 31, 2016, as shown below:

Project Company

Estimated cost to complete

(in millions) % of completion

TVI P=29,826 23%

PEC (see Note D) 13,391 40%

Hedcor Bukidnon 9,051 20%

TSI 989 97%

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For the period, construction costs for the various projects amounted to P=5.75 billion, which includes capitalized borrowing costs amounting to P=408.2 million.

6. Material Events and Changes

a) Dividend declaration

On March 8, 2016, the BOD approved the declaration of regular cash dividends of P=1.20 a share (P=8.83 billion) and special cash dividends of P=0.46 a share (P=3.38 billion) to all stockholders of record as of March 22, 2016. The cash dividends are payable on April 19, 2016. Except for the above developments and as disclosed in some other portions of this report, no other significant event occurred that would have a material impact on the registrant and its subsidiaries, and no other known trend, event or uncertainty came about that had or were reasonably expected to have a material favorable or unfavorable impact on revenues or income from continuing operations, since the end of the most recently completed fiscal year. There were also no significant elements of income or loss that did not arise from the continuing operations of the registrant and its subsidiaries. Other than those disclosed above, no material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships with unconsolidated entities or other persons entities or other persons were created during the interim period. There were also no events that would trigger substantial direct or contingent financial obligations or cause any default or acceleration of an existing obligation. Likewise, there were no other material changes made in such items as: accounting principles and practices, estimates inherent in the preparation of financial statements, status of long-term contracts, changes in the composition of the issuer, and reporting entity resulting from business combinations or dispositions. Lastly, there were no changes in estimates of amounts reported in prior interim period and financial year that would have a material effect in the current interim period.

7. Material Adjustments There were no material, non-recurring adjustments made during period that would require appropriate disclosures. All other adjustments are of a normal recurring nature.

8. Contingencies The Group is a party to certain proceedings and legal cases with other parties in the normal course of business. The ultimate outcome of these proceedings and legal cases cannot be presently determined. Management, in consultation with its legal counsels, believes that it has substantial legal and factual bases for its positions and is currently of the opinion that the likely outcome of these proceedings and legal cases will not have a material adverse effect

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on the Group’s financial position and operating results. It is possible, however, that the future results of operations could be materially affected by changes in estimates or in the effectiveness of the strategies relating to these proceedings and legal cases. The Company obtained Standby Letters of Credit and is acting as surety for the benefit of certain associates and a subsidiary in connection with loans and credit accommodations.

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N. Schedule of Relevant Financial Ratios

Formula March 31, 2016 December 31, 2015

LIQUIDITY RATIOS

Current ratio Current assets

Current liabilities 2.33 3.12

Acid test ratio

Cash + Marketable securities+ Accounts receivable+ Other liquid assets

Current liabilities

2.17 2.88

SOLVENCY RATIOS

Debt to equity ratio Total liabilites

Total equity 1.82 1.39

Asset to equity ratio Total Assets

Total Equity 2.82 2.39

Net debt to equity ratio Debt - Cash & cash equivalents

Total Equity 0.66 0.63

Gearing ratio Debt - Cash & cash equivalents

Total Equity

+ (Debt - Cash & cash equivalents)

39.77% 38.46%

Interest coverage ratio * EBIT

Interest expense n.a. 4.89

PROFITABILITY RATIOS

Operating margin * Operating profit

Total revenues n.a. 28.98%

Return on equity * Net income after tax

Total equity n.a. 21.3%

Ratio marked * is deemed not applicable (n.a.) for the interim reporting period since this would not be

comparable to the ratio reported in the previous period.


1) AGING OF RECEIVABLESAS OF : March 31, 2016

30 Days 60 Days 90 Days Over 90 Days Total

A/R - Trade: Power Distribution Customers 2,670,015 304,098 78,421 733,067 3,785,601 Power Generation Customers 3,433,049 181,454 182,034 2,518,091 6,314,628 Management & Other Services Customers 1,158,481 0 0 0 1,158,481

Sub-total - A/R - Trade 7,261,545 485,552 260,455 3,251,158 11,258,710

Less : Allowance for Doubful Accounts 1,907,519

Net Trade Receivables 9,351,191

A/R - Non Trade 6,249,361 11,064 6,567 118,083 6,385,075

Grand Total 13,510,906 496,616 267,022 3,369,241 15,736,266

2) ACCOUNTS RECEIVABLE DESCRIPTION

Type of Receivable

Collection

Period

Trade uncollected billings to customers for sale of power, goods and services 30 - 60 days

Non-Trade claims, operating cash advances and advances to suppliers & employees 30 - 120 days

3) NORMAL OPERATING CYCLE

Power Subsidiaries Distribution - 60 days Generation - 65 days

Nature / Description

ABOITIZ POWER CORPORATION · Current Ratio. Current ratio is a measurement of liquidity, calculated...

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