2007 ANNUAL REPORT Power Corporation - Aboitiz Equity Ventures

F R O M Y O U R C H I E F F I N A N C I A L O F F I C E R
Iker M. Aboitiz
FIRST VICE PRESIDENT
CHIEF FINANCIAL OFFICER
CHIEF INFORMATION OFFICER
Total 2007
Consolidated Net
Income earned
stood at 4.1
billion, an increase
of 124% versus
2006. Net Foreign
Exchange Gains of
785 million were
incurred primarily
on the revaluation
of subsidiary
and associate
foreign exchangedenominated
debt.
Dear Shareholders,
2007 was both a challenging and rewarding year for Aboitiz Power
Corporation (AP). Your company turned in record profits of 4.1
billion, successfully completed its Initial Public Offering (IPO) in July
raising over 10 billion, and financed and completed over 20.3 billion
in acquisitions and investments.
2007 Investment Acquisitions Breakdown
STEAG
22%
Enerzones
5%
CPPC / EAUC
6%
Sibulan Project
5%
Magat
62%
Total 2007 Consolidated Net Income earned stood at 4.1 billion, an
increase of 124% versus 2006. Net Foreign Exchange Gains of 785
million were incurred primarily on the revaluation of subsidiary and
associate foreign exchange-denominated debt. Recurring income
contribution attributable to operations thus stood at 3.4 billion or a
very healthy increase of 81% on the back of record contributions from
both the distribution and generation businesses.
Exceptional growth in 2007 Net Income resulted to an increase in both
recurring and non-recurring earnings per share despite an increase of
year-end shares outstanding by 47%. Recurring and non-recurring
earnings per share for 2007 were at 0.53 and 0.66 respectively, both
increasing by 44% and 78% from 2006 levels of 0.37 per share.
Operating cash flow generated by AP’s business segments was equally
strong. Your company’s consolidated EBITDA in 2007 was 5.5 billion,
up by 92% from 2006 levels of 2.9 billion. Taking AP’s proportionate
share of each of its subsidiaries and associate companies, pro-forma
EBITDA increased to 6 billion, recording a 64% growth over the 3.7
billion registered in 2006.
2007 Pro-Forma EBITDA Breakdown
Merchant generation assets
26%
Hydro generation-based assets
with contracts
21%
Distribution and capacity
fee- based generation assets
53%
The strength of your company’s cash flows lies in its diversified risk mix.
Like a well-balanced portfolio, AP’s mix of cash flows is designed to
provide upside potential while prudently managing business risk:
• Of the above-mentioned EBITDA of 6 billion, 53% was attributed to a
combination of the very stable distribution business and the predictable
capacity fee-based generation assets. To a certain extent, both are
granted guaranteed returns.
• The run-of-river hydro generation assets contributed 21%. Due to
their Power Purchase Agreements, these assets take no market risk yet
maintain moderate upside arising from increases in generation volume.
These assets, however, do take hydrology risk, which your company
feels is manageable given fairly steady Philippine rainfall patterns.
• Magat, AP’s merchant hydro plant, generated most of the remaining
26% of the above-mentioned EBITDA of 6 billion. This asset’s
significant upside is driven by its ability to store water equivalent to
one month of generating capacity, allowing for the generation and sale
of electricity to occur at the peak hours of the day, which command
premium spot prices. Magat’s source of upside, water as a source of fuel
and the ability to store it, is also its source of limited downside. This
hydro asset has minimal marginal cash costs granting it competitive
advantage in terms of economic dispatch order versus other fuel-fired
power plants that have significant marginal cash costs. Lastly, given
this asset’s unique ability to store water, generation in times of low spot
prices can be deferred to times of more favorable spot prices.
22 • ABOITIZ POWER CORPORATION ANNUAL REPORT 2007