first quarter 2018 earnings report - aes gener · aes gener continues moving forward with the...

FIRST QUARTER 2018 EARNINGS REPORT

May 8, 2018

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AES GENER FIRST QUARTER 2018 RESULTS

• AES Gener achieved a record high first quarter EBITDA of US$208 million, 10% higher than

in the same period in 2017. This increase was mainly driven by US$ 7 million EBITDA

growth in both Chile and Argentina and to a slightly lesser extent a US$ 5 million increase

from Colombian operations.

• AES Gener recorded US$812 million of EBITDA in the twelve months ended March 31, 2018

• Net Income Attributable to Parent (“Net Income”) reached US$79 million in the first

quarter of 2018, up 70%.

FIRST QUARTER 2018 HIGHLIGHTS AND RECENT EVENTS

• AES Gener S.A. (hereinafter referred to as AES Gener, Gener, or the Company) continues

to be the top generation company in Chile, producing 27% of the energy generated on

the new SEN market in the first quarter of 2018.

• AES Gener successfully closed the restructuring process of the Alto Maipo Hydroelectric

Project on May 8, 2018. (Further detail provided on the next page.)

• The company announced the sale of 100% of the shares of Sociedad Eléctrica Santiago

SpA (ESSA) to Generadora Metropolitana SpA for US$ 300 million. Closing is expected to

take place in May, 2018, subject to minor administrative proceedings pending.

• AES Gener it is evaluating the possibility of selling certain non-strategic transmission

assets. Received binding offers are under evaluation. The sale process is expected to close

during the second half of 2018.

• In line with Chile’s commitment to reduce carbon emissions, the company has pledged to

build no new coal plants and to continue implementing technological innovations to

provide the flexibility that the grid requires for the incorporation of renewable energy.

• The Company received approval from its shareholders to distribute US$185 million in

dividends during 2018, equal to 100% of Net Income in 2017.

• Chile’s two main power grids were unified as one system in November 2017, creating the

Sistema Eléctrico Nacional (“SEN”) market.

• The company continues to expand its portfolio, incorporating new customers, increasing

the supply of new energy contracts.

• In February and March 2018, the company requested approval from the environmental

authority for environmental impact statements in Huasco and Puchuncaví for the

construction of desalination plants for internal use and for the sale of water to third parties.

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ALTO MAIPO UPDATE

AES Gener continues moving forward with the construction of the Alto Maipo project (531 MW,

run of the river hydro). Construction of the Project has never stopped moving forward and

currently more than 4,700 workers work across 12 work fronts. The progress to date is 64%, with

39.4 kilometers complete.

On April 21, 2018, a key milestone was achieved on April 21st, with the complete excavation of the

cavern for the Las Lajas powerhouse, which will house the generation equipment for the Las Lajas

system.

On May 6, 2018, breakthrough was achieved in the Las Lajas Headrace, connecting the two

sections of the 9.4km tunnel.

Below, is a summary of the most relevant events over the past twelve months:

• Alto Maipo terminated its contract with Constuctora Nuevo Maipo (“CNM”) in June, 2017

o The contract was terminated due to breaches of contract by CNM

o Alto Maipo took control of the works in order to continue progress

o Alto Maipo has drawn on US$73 million of Letters of Credit posted by CNM

o CNM and Alto Maipo entered judicial and arbitration proceedings

• The contract termination triggered a technical default

o Project Finance disbursements stopped until a CNM replacement was found

o Alto Maipo’s financial debt, US$629 million as of March 31, 2018, and its derivative

liabilities, US$116 million, must be reported as a current liability on the balance

sheet as long as the technical default state persists.

Today, Alto Maipo SpA, subsidiary of AES Gener, has successfully completed the financial

restructuring process of the Alto Maipo Hydroelectric Project. This process contemplates a lump

sum, fixed price contract with Strabag, which assumes the geological and construction risks of the

Project; with guaranteed completion dates and financial and corporate guarantees provided by

Strabag to Alto Maipo. This financial restructuring will allow to fully cover the costs of the Project.

The Company had already informed that Commission of the progress of said process in the

Material Facts of July 31 and November 27, 2017. Although the documentation of this process with

the lenders, contractors and owners of the project, has been signed, the finalization of the financial

transaction is subject to wire transfers and other conditions which is expected to be fulfilled today.

• One of the essential elements in this restructuring process was the signing on February

19, 2018, of a new construction contract between Alto Maipo and Strabag SpA (hereinafter

"Strabag") called "Amended and Restated Lump Sum Fixed Price Tunnel Complex

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Construction Contract” (hereinafter the" Construction Contract "), which includes, among

others, the following relevant aspects:

o Strabag will carry out the works under the modality of lump sum fixed price, assuming

the geological and construction risk of the Project;

o Strabag took over the construction of the works initially assigned to Constructora

Nuevo Maipo S.A., in the sector of El Yeso and Volcán;

o The Construction Contract includes guaranteed completion dates, which are backed

by financial guarantees and by Strabag’s parent company, estimating the start of the

operations of both plants towards the end of 2020;

o Strabag will grant financing for part of the cost associated with the new Construction

Contract; and

o The agreement includes an increase in Strabag’s stake in Alto Maipo’s ownership, in

the event of the timely completion of certain milestones in the construction of the

Project.

• The signing of the new Construction Contract with Strabag, in the terms outlined above,

required the preparation of a new budget for the Project, which now totals 3,048 million

dollars, and an additional 392 million dollars that will be paid to Strabag only after the

completion of the total construction of the Project, over a 20-year term. This budget has

been approved by the institutions that finance it, including the following terms, among

others:

o An additional capital contribution by AES Gener to the Project, of 200 million dollars

will be contributed during construction in the same proportion as the lenders disburse

their contributions, and up to 200 million in funds that will be provided once the

lenders have finished disbursing all the committed debt and to the extent that the

funds are required for construction.

o The lenders have agreed to grant the rest of the already committed financing, up to

a total amount of 688 million dollars, and to capitalize interests during the

construction, which implies an additional commitment of approximately 135 million

dollars.

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o The lenders have agreed to various modifications to the financing contracts of the

Project and the financing commitments assumed by each of them.

o Strabag has agreed to provide financing to the Project, by allowing the 392 million to

be repaid over a 20-year period, starting from the end of construction of the Project.

Strabag may increase, under certain conditions, its equity participation in Alto Maipo

SpA.

Today’s financial restructuring agreement will allow to fully cover the estimated costs of the

Project and continue with the development and construction of the Project.

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CONSOLIDATED FINANCIAL SUMMARY

Numbers presented in the analysis are rounded to millions; therefore, differences may arise with

the financial statements.

[1] EBITDA is calculated as the sum of gross profit plus administrative expenses, depreciation and other minor adjustments.

REVIEW OF OPERATIONS BY MARKET

AES Gener operates in three independent markets in Chile, Colombia, and Argentina.

Former SIC & SING Will be Reported as a Single Market

On November 21, 2017, Chile’s former SIC and SING grids were interconnected creating the

Sistema Eléctrico Nacional (SEN) grid. This first stage of the interconnection encompasses a 600km

dual circuit 500kV line connecting Mejillones on the SING, the northern grid, and Cardones on

the SIC, the central grid. Transmission between the SIC and the SING will be limited until the

completion of the dual circuit 500kV line between Cardones and Polpaico. AES Gener will be

reporting all operations in Chile as one market segment and has consolidated historical results

from the SIC and SING markets for comparison purposes.

In Chile, AES Gener operates on the nation’s largest interconnected electric system, with 4,150

MW of coal, natural gas, diesel, hydro and solar capacity on the national grid. The National Electric

System or SEN, supplies a wide range of customer types, including Chile’s main population

centers, in the center and mining operations in the north, with a diverse generation park including

thermal, hydro and renewables. The SEN runs from the northern part of Region I to Region X.

AES Gener’s Colombian subsidiary, AES Chivor, operates 1,020MW of hydro capacity and is one

of the principal electric generators in the Colombian National Interconnected System or SIN, a

predominantly hydro-based system.

The Argentine Interconnected System or SADI is the main power grid in Argentina and is supplied

primarily by natural gas fired thermal plants, in addition to hydro, coal and nuclear power plants.

AES Gener’s affiliate, TermoAndes operates a 643MW gas-fired plant selling electricity to the

1Q 1Q Var.

2018 2017 %

Revenue 655,900 557,109 18%

Gross Profit 169,775 146,032 16%

EBITDA (1) 207,822 188,915 10%

Net Income (attributable to AES Gener) 79,365 46,732 70%

Net Cash from Operations 84,310 140,544 -40%

Earnings per share (US$) 0.009 0.006

Financial Summary (ThUS$)

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Argentine market and is also connected to the northern SEN market in Chile via the InterAndes

transmission line.

External Factors

The following section explains the different market conditions and variations in gross profit,

separated by market.

Chile

During the first quarter of 2018, wetter hydrological conditions led to higher reservoir levels

compared with the same period of the previous year, which led to higher hydro generation on

the grid. In addition, the system registered both higher solar and wind generation while thermal

generation declined slightly. These factors led to a 13% decrease in the average marginal costs of

the system compared to the same period in 2017. As of March 31, 2018, AES Gener and its

subsidiaries, including Guacolda, contributed with 27% of the generation on the SEN during 2018.

The table below shows the main SEN variables as of March 31, 2018, and 2017.

In the first quarter of 2018 sales to non-regulated customers increased by US$85 million, mainly

due to higher non-regulated physical sales of 123 GWh because of PPA contracts which began

supply in the period, primarily at Angamos and Cochrane. Meanwhile, sales in the Spot market

declined US$12 million as spot market prices were lower than the previous year. Revenues from

sales to regulated customers declined US$29 million due to a 241GWh drop in sales volumes.

Other operating revenue income includes, among others, intercompany coal sales and coal sales

to related companies, transmission revenues, and income from services, essentially, to related

companies. The positive variation of US$21 million in the first quarter is mainly due to higher sales

of coal, which at the gross profit level are offset by higher fuel sales costs of US$24 million.

During the first quarter, fuel costs increased by US$19 million compared to the same period of

the previous year, mainly explained by a 6% uptick in coal-fired generation compared to the same

quarter of the previous year.

Costs related to the purchases of energy and capacity increased by US$7 million. This increase is

mainly associated with higher capacity and ancillary services costs and the impact of a capacity

payment readjustment payment in 2017. Higher output at the Ventanas complex, due to less

Electricity Consumption

2018 2017 Var.

Chile 1.8% Chile 603.4 664.0 -9% Chile - SEN 2.8%

Colombia 3.1% Colombia 2780.5 2880.2 -3% Colombia- SIN 3.0%

Argentina 26.9% Argentina 20.1 15.4 31% Argentina- SADI -0.5%

LTM

1Q-2018

Growth

LTM Inflation Rate in March 2018Exchange Rate as of March 31, 2018 and 2017:

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maintenance activities compared to 2017, led to an 8% decline in the volume of energy purchases

on the spot market.

Other costs of sales increased by US$3 million, mainly explained by higher personnel costs

associated with the organizational restructuring plan carried out during the quarter. This increase

was partially offset by a decrease in maintenance expenses and lower consumption of materials.

Other cost of sales related to the accrual of emissions tax declined 21%, to US$9 million, due to

new agreements with the nonregulated customers to adhere to the change-of-law clauses in the

company’s PPA contracts.

In the first quarter of 2018 Gross Profit in Chile increased by US$15, mainly due to: i) higher contract

sales as a result of the start of PPA at Angamos and Cochrane, ii) lower emissions tax accruals due

to higher pass-throughs, iii) higher efficient output at the Ventanas complex generating higher

margins. These positive effects were partially offset by lower margins from the tolling agreement

at Nueva Renca, as it underwent scheduled maintenance during the first quarter of 2018.

The following table shows distribution of sales and physical purchases of energy, in addition to

generation by type of fuel in Chile during the first quarter of 2018 and 2017.

Chile 1Q 1Q Var.

Gross Profit (ThUS$) 2018 2017 %

Operating Revenue

Regulated customer sales 113,963 143,381 -21%

Unregulated customer sales 293,840 208,366 41%

Spot sales 30,119 42,497 -29%

Other operating revenues 78,131 57,515 36%

Total Operating Revenue 516,053 451,759 14%

Cost of Sales

Fuel consumption (139,306) (120,078) 16%

Energy and capacity purchases (48,423) (41,205) 18%

Transmission tolls (23,715) (24,397) -3%

Fuel cost of sales (53,722) (29,418) 83%

Depreciation and amortization (56,846) (60,043) -5%

Other cost of sales (74,351) (71,829) 4%

Total Cost of Sales (396,363) (346,970) 14%

Total Gross Profit 119,690 104,789 14%

Chile 1Q 1Q Var.

Energy Sales (GWh) 2018 2017 %

Distribution Companies 1,030 1,271 -19%

Other Customers 2,536 2,413 5%

Intercompany Sales 870 822 6%

Spot 0 0 ---

Spot Re-Routing 376 323 16%

Total Energy Sales 4,812 4,829 0%

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Colombia

Colombia’s spot prices, expressed in Colombian pesos (COP) were 12% higher in the first quarter

of 2018 compared to the same period of 2017, driven by drier hydrological conditions and uptick

in energy demand. Spot prices converted in US$, were 14% higher in the first quarter of 2018,

due to the previously explained market conditions and the appreciation of the COP against the

US$.

In the first quarter of 2018, revenues in Colombia increased by US$26 million mainly due to an

additional US$17 million in spot sales and US$9 million in contract sales. Spot sales revenue growth

was driven by higher prices coupled with a 208GWH rise in sales volume. The higher Contract

sales revenues were attributable to a 12% increase in contract sales prices to 69,94 US$/MWh,

offsetting a 44GWh decline in contract sales volumes.

It is worth mentioning that the increase in revenues associated with the decrease in exchange

rates was partially offset by exchange rate hedges executed for these purposes that are reflected

in the line Exchange Differences.

The cost of energy and power purchases increased by US$22 million, mainly due an 86% increase

the volume of spot market purchases and higher average spot prices. This offset the increase in

spot sales revenues explained above.

Gross Profit in Colombia the first quarter of 2018 decreased US$5 million, mainly explained by

higher contract sales prices coupled with the appreciation of the Colombian Peso. These positive

drivers were partially offset by lower revenue from ancillary service.

The following tables present gross profit, energy sales, purchases and generation in Colombia for

both periods:

Chile 1Q 1Q Var.

Energy Purchases (GWh) 2018 2017 %

Spot 291 443 -34%

Intercompany 870 822 6%

Total Energy Purchases 1,161 1,265 -8%

Chile 1Q 1Q Var.

Net Generation (GWh) 2018 2017 %

Coal 3,212 3,043 6%

Hydro 424 459 -8%

Biomass 8 10 -20%

Gas / Diesel 0 9 ---

Solar 17 16 6%

Total 3,661 3,537 4%

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Argentina

In February 2017, Argentina’s Secretariat of Energy issued Resolution 19/2017, which improved the

Energía Base program´s energy and power tariffs, now set in US Dollars, and eliminated the

retention of payments. For TermoAndes, the power and energy not committed under the Energía

Plus contracts are sold per this resolution. The Resolution established several step-ups in the

capacity payment tariffs which took place during 2017 causing the capacity payment rate to more

than double between February 2017 and November 2017.

During first quarter of 2018, generation increased 10% when compared to the same period of

2017 due higher plant availability as a result of less maintenance activities during the quarter.

Sales in the spot market registered an increase of US$8 million, mainly explained by the previously

explained increase in Energía Base capacity rates as well as a 79GWh increase in sales volume due

to higher generation.

Colombia 1Q 1Q Var


Operating Revenue

Contract sales 62,743 53,862 16%

Spot sales 33,107 15,946 108%

Other operating revenues 3,239 4,587 -29%


Cost of Sales



Other cost of sales (11,080) (13,140) -16%



Colombia 1Q 1Q Var.


Contracts 794 838 -5%

Spot 671 463 45%

Total Energy Sales 1,465 1,301 13%

Colombia 1Q 1Q Var.

Energy Purchases (GWh) 2018 2017 %

Spot 625 336 86%

Total Energy Purcharses 625 336 86%

Colombia 1Q 1Q Var.

Net Generation (GWh) 2,018 2,017 %

Hydro 840 959 -12%

Total 840 959 -12%

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Contract sales revenues in the Energía Plus market rose US$2 million due to a 5% increase in

average contract sales prices to US$ 76.45/MWh and an additional 11GWh in contract sales

volumes.

Fuel cost in the first quarter of 2018 increased by US$ 3 million due to higher generation at the

TermoAndes plant.

Quarterly gross profit grew US$4 million driven primarily by the previously mentioned increase in

Energía Base spot market capacity prices. The following tables present gross profit, energy sales,

purchases and generation in Argentina for both periods:

Argentina 1Q 1Q Var


Operating Revenue


Spot sales 22,045 14,156 56%


Cost of Sales


Energy and capacity purchases (3) 11 ---

Transmission tolls 160 (47) ---

Depreciation and amortization (7,642) (6,300) 21%



Total Gross Profit 3,771 (505) ---

Argentina 1Q 1Q Var.


Customers 249 238 5%

Spot 702 623 13%

Total Energy Sales 951 861 10%

Argentina 1Q 1Q Var.

Net Generation (GWh) 2018 2017 %

Natural Gas 951 861 10%

Total 951 861 10%

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REVIEW OF FINANCIAL RESULTS

Income Statement

Income Statement (ThUS$) 1Q 1Q Var

2018 2017 %

Operating Revenue

Energy and capacity sales 574,853 495,517 16%

Other operating revenue 81,047 61,592 32%


Cost of sales


Fuel cost of sales (53,722) (29,418) 83%






Gross Profit 169,775 146,032 16%

Other operating revenues 500 270 85%

Selling, general and administrative expenses (31,772) (27,647) 15%

Other operating expense (313) (338) -7%

Other income / (expense) 1,472 738 99%

Financial income 785 1,619 -52%

Financial expense (26,799) (45,576) -41%

Equity in earnings of associates 3,686 1,928 91%

Foreign currency exchange differences (16,344) (9,934) 65%

Net Income (Loss) Before Tax and Non-Control l ing Interest 100,990 67,092 51%

Income tax (17,562) (16,984) 3%

Net Income (Loss) After Tax 83,428 50,108 66%

Income (Loss) Attributable to Shareholders of Parent 79,365 46,732 70%

Non-controlling interest 4,063 3,376 20%

Net Income 83,428 50,108 66%

Total EBITDA 207,822 188,915 10%

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Operating Revenue

Operating Revenue grew 17% in the first quarter of 2018, compared to the same period in 2017,

reaching US$656 billion. The positive performance was driven primarily by higher unregulated

contract revenues in Chile, as well as higher contract and spot sales in Colombia and, and to a

lesser extent the increase in spot sales in Argentina. These increases were offset in part by lower

contract sales to regulated Chilean customers and lower spot sales in Chile.

Cost of Sales

Cost of Sales increased 18% in the first quarter of 2018. The main drivers were higher costs of fuel

sales in Chile, higher energy and capacity costs in Colombia and higher fuel costs in Chile.

Gross Profit

Gross Profit increased 16% to US$577 million in first quarter of 2018, compared to the first quarter

of 2017. This quarterly performance is explained by a $14 million increase in contributions from

Chile and to a lesser extend higher contributions from Colombia and Argentina of US$5 million

and US$4 million respectively.

The Consolidation Adjustment line mainly accounts for intercompany operations between AES

Gener and the Colombian subsidiary, AES Chivor.

1Q 1Q Var.


Operating Revenue

Chile 516,053 451,759 14%

Colombia 41,081 31,465 31%

Argentina 99,089 74,395 33%

Consolidation adjustments (323) (510) -37%


Cost of Sales

Chile (396,363) (346,970) 14%

Colombia (37,310) (31,970) 17%

Argentina (52,775) (32,647) 62%

Consolidation adjustments 323 510 -37%

Total costs of sales (486,125) (411,077) 18%


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Selling, General and Administrative Expenses

SG&A costs increased by US$4million in the first quarter of 2018 compared to the same period of

2017. The primary driver of this increase was higher personnel costs, associated with the

organizational restructuring plan carried out during the quarter, offset in part by a decrease in

cost related to professional services.

EBITDA

AES Gener achieved US$208 million in EBITDA in the first quarter of 2018, a 10% increase

compared to the same period in 2017.

This positive variation of US$19 million, is mainly explained by better margins in the Chile market

due to the start of Angamos and Cochrane PPAs, lower emission tax accruals in Chile, higher

capacity prices in Argentina and higher margins in Colombia from higher contract sale prices.

1Q 1Q Var.

EBITDA by Market (ThUS$) 2018 2017 %

Chile 150,815 143,680 5%

Colombia 45,856 40,996 12%

Argentina 11,151 4,239 163%

Total EBITDA 207,822 188,915 10%

Chile

76%

Colombia

22%

Argentina

2%

1Q - 2017

US$189mn

Chile

73%

Colombia

22%

Argentina

5%

1Q - 2018

US$208mn

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Financial Results

Net Financial expenses for the first quarter of 2018 decreased by 27% to US$37 million.

Financial Expenses decreased by US$18 million the first quarter of 2018, mostly explained by a $16

million positive impact related to the change in mark to market of Alto Maipo derivatives, which

no longer qualify for hedge accounting, therefore changes in fair value of these instruments are

now recognized in Earnings. Lower interest expense as a result of less financial liabilities due to

the debt prepayment in the fourth quarter of 2017 also had a positive effect on Financial expenses.

Other Gains experienced a positive variation of US$1 million in the first quarter, associated mainly

with higher gains on the sale of intangible assets in 2018.

Equity in Earnings of Associates increased by US$2 million in the first quarter of 2018 due to higher

operational results from the Company’s affiliate, Guacolda, driven by higher contracted sales.

Foreign exchange losses increased US$ 6 million primarily associated with the impact of the

appreciation of local currency on Alto Maipo Accounts Payable denominated in local inflation

currency.

Income Tax

In the first quarter of 2018, income tax expense increased 3% to US$18 million. This $0.6 million

increase in Income Tax Expense is mainly explained by higher Pre-Tax Earnings previously

explained offset by one time impact of statutory tax rate reduction in Argentina.

Net Income

AES Gener reported US$79 million in Net Income Attributable to Shareholders of Parent for the

first quarter of 2018, up 70% compared to the first quarter of 2017.

1Q 1Q Var.

Financial Results (ThUS$) 2018 2017 %

Net Other gains (losses) 1,472 738 99%

Financial income 785 1,619 -52%

Financial expense (26,799) (45,576) -41%

Equity in earnings of associates 3,686 1,928 91%

Foreign currency exchange differences (16,344) (9,934) 65%

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Cash Flow

The ending balance of cash and cash equivalents as of March 31, 2018, was US$235 million, 54%

less than on the same date in 2017.

AES Gener’s reported a negative quarterly net cash flow of US$44 million, compared with the

positive flow of US$36 million at the end of March, 2017.

Net Operating Cash Flow totaled US$ 83 in the first quarter of 2018, down US$56 million year

over year, mainly due to a US$ 31 million increase in income tax and monthly tax outflows, offset

in part by US$15 million in lower interest outflows as a result of the debt prepayment in December,

2017.

Net Investment Activities Net Cash Flow fell US$10 million compared to the first quarter of 2017,

to US$-125 million in the same period of this year. This was mainly due to a US$7 million increase

in Purchases of Property, Plant and Equipment at Alto Maipo.

Net Financing Cash Flow suffered a negative variation of US$13 million in the first quarter of 2018,

compared to the same period of 2017. The main drivers of this negative variation were a US$22

million decline in capital contributions at Alto Maipo and a US$15 million increase in debt

payments. These negative drivers were partially offset by higher cash inflows from short term

debt.

Balance Sheet

As of March 31, 2018, Assets totaled US$8.25 billion, higher than the US$8.16 billion as of the end

of 2017, due primarily to a US$28 million increase in current assets, and a US$67 million increase

in non-current assets.

Total liabilities and equity grew by US$94 million as a result of a US$131 million increase in Net

Equity and a US$9 million increase in non-current liabilities, offset in part by a US$46 decrease in

current liabilities.

1Q 1Q Var.

Cash Flow (ThUS$) 2018 2017 %

Net cash from operating activities 84,310 140,544 -40%

Net cash from investing activities (125,487) (115,460) 9%

Net cash from financing activities (2,329) 10,762 ---

Total Net Cash Flow for the Period before FX variations (43,506) 35,846 ---

Effects of Foreign Exchange Variations 2,967 1,279 132%

Cash at the beginning of the period 275,948 469,560 -41%

Total Cash at the End of the Period 235,409 506,685 -54%

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Current Assets increased by US$28 million, mainly due to a US$20 million increase in Inventory, a

US$17 million increase in Trade and Other Receivables, a US$12 million increase in Assets Held for

Sale and a US$7 million increase in Other Current Non-Financial Assets. These increases were

partly offset by a US$41 million decrease in Cash and Cash Equivalents.

Non-Current Assets increased by US$65 million since December 31, 2017, with an increase of

US$32 million in Property, Plant and Equipment, mainly associated with the construction of the

Alto Maipo hydroelectric project, and a US$33 million increase in the value of Other Non-Current

Financial Assets due to the increase in the market value of derivatives. These increases were

partially compensated by a US$12 million decrease in Deferred Tax assets.

Current Liabilities decreased by US$46 million since December 31, 2017, mainly driven by a US$103

million decrease in Current Related Party Payables associated with payments by Alto Maipo to

Strabag, offset in part by a US$30 million increase in Trade and Other Current Payables and a

US$29 million increase in Other Current Financial Liabilities.

Non-Current Liabilities increased by US$9 million, mainly due to the US$15 million increase in

Other Non-Current Financial Liabilities, partially offset by a US$4 decrease in Employee Benefits

provisions and a US$4 million decrease in differed tax liabilities.

Shareholders' equity increased by US$131 million, attributed to a US$79 million increase Retained

Earnings, a US$42 million increase in Other Reserves, and a US$10 million increase in Non-

Controlling Interest.

March 31st December 31st Var.

2018 2017 %

Current Assets 1,137,786 1,109,702 3%

Non-Current Assets 7,115,562 7,050,105 1%

Total Assets 8,253,348 8,159,807 1%

Current Liabilities 1,699,235 1,745,463 -3%

Non-Current Liabilities 3,712,852 3,704,274 0%

Total Net Equity 2,841,261 2,710,070 5%

Total Liabilities and Equity 8,253,348 8,159,807 1%

Balance (ThUS$)

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Financial Debt

As of March 31, 2018, AES Gener has a total debt of US$3,749 million, of which approximately

93% of AES Gener’s debt is a at fixed rate, including a significant portion of the debt held by the

subsidiaries Eléctrica Cochrane and Alto Maipo which have interest rate swaps associated with it.

The remaining portion of the Company’s debt is subject to variable interest rates.

As of March 31, 2018, approximately 96% of AES Gener’s debt was denominated in USD, including

the CLF denominated bond issued in December 2007 for which a cross-currency swap was

executed. Of the remaining debt, 1% was denominated in CLF (Eléctrica Santiago’s bond) and 3%

in Colombian pesos (the leasing executed by AES Chivor to finance the Tunjita Project [and Chivor

Loan]).

Avg. Rate 2018 2019 2020 2021 +

Fixed Rate

Gener US$ 450 M Junior Notes due 2073 8.38% - - - 450.00

Gener US$ 24.5 M Senior Notes due 2019 7.95% - 24.54 - -

Gener US$ 402 M Senior Notes due 2021 5.25% - - - 291.68

Gener US$ 409 M Senior Notes due 2025 5.00% - - - 172.36

Gener UF$ 4.4 M Senior Notes due 2028 7.34% 15.66 15.66 15.66 125.28

Gener US$ 91,5 M ST Loan due 2018 2.18% 90.00 - - -

ESSA UF$ 1.0 M Senior Notes due 2024 10.09% 1.43 1.60 1.79 34.07

Angamos US$ 600 M Senior Secured Notes due 2029 4.88% 52.28 52.28 52.28 444.12

Angamos US$ 199 M Term Loans due 2029 4.50% 17.32 17.32 17.32 147.08

Cochrane Fixed Portion 4.16% 46.57 48.36 50.23 622.54

Alto Maipo Fixed Portion 6.33% - - - 628.17

Chivor US$ 60 M (7,5% cop) 4.17% 64.74 - - -

Variable Rate

Gener US$ 167,5 M ST debt 2.20% - - - -

Cochrane Floating Portion 4.16% 11.64 12.09 12.56 155.63

Alto Maipo Floating Portion 0.00% - - - -

Tunjita 6.37% 3.51 4.69 4.69 43.91

Total 303.15 176.54 154.53 3,114.85

Schedule of Maturities as of March 31, 2017

US$ million

303.2176.5 154.5

449.3162.1 174.6 189.1

2,139.8

0

500

1,000

1,500

2,000

2,500

2018 2019 2020 2021 2022 2023 2024 2025 +

US

$ M

illi

on

Debt Amortization Schedule

19

RISK ANALYSIS

Market and Financial Risks

Market risks include the following three categories: foreign currency risk, interest rate risk and

commodity price risk. Financial Risk relates to the potential occurrence of events, which could

have a negative financial impact on the Company and specifically includes credit risk and liquidity

risk.

Foreign Currency Risk

Except for operations in Colombia, the Company’s functional currency is the US Dollar ("USD")

given that its revenue, expenses, and investments in equipment and debt are mainly denominated

in or linked to the USD. In addition, the Company is authorized to file and pay its income taxes in

Chile in USD. There is an exchange rate risk associated with any revenue, expenses, investments,

and debt denominated in any currency other than USD. The main items denominated in Chilean

pesos ("CLP") are some energy receivables and tax credits primarily associated with VAT. As of

March 31, 2018, AES Gener maintained several currency forwards with banks to mitigate its

exposure to foreign exchange variations associated with the collection of energy sales, given that

even though most of the Company’s energy supply agreements have USD denominated prices,

payments are made in CLP at an exchange rate that is fixed for a specific period of time, and VAT

payments. Given the Company's net asset position in CLP as of March 31, 2018, the impact of 10%

devaluation in the exchange rate of the Chilean peso with respect to the USD would have resulted

in a realized negative impact of approximately US$8 million in net income for AES Gener.

During the first quarter of 2018, approximately 85% of operating revenue and 87% of the

Company’s costs of sales were denominated in USD compared to 88% of operating revenue and

88% of costs of sales during the first quarter of 2017.

The functional currency of Chivor, the Company’s Colombian subsidiary, is the Colombian peso

("COP") since most its revenue, particularly contract and spot sales and operating costs are linked

to the COP. During the first quarter of 2018, sales in COP represented 7% of the Company’s

consolidated operating revenue, compared to 12% during the first quarter of 2017. Additionally,

AES Chivor’s dividends are denominated in COP, although financial hedge instruments are used

to fix the amount to be distributed in USD. Given AES Chivor's net liability position in USD as of

the end of March 2017, a 10% devaluation in the COP/USD exchange rate would have generated

a negative impact of approximately US$2 million to AES Gener’s net income.

Spot prices in the Argentine market are denominated in USD. Given TermoAndes' net asset

position in Argentine pesos ("ARS") as of March 31, 2018, a 10% devaluation in the ARS/USD

20

exchange rate would have generated a negative impact of approximately US$163,000 in AES

Gener’s net income.

In consolidated terms, investments in new plants and maintenance equipment are principally USD

denominated. Short-term investments are also mostly held in USD. As of March 31, 2018, 77% of

short-term investments and current account balances were in USD, 18% in CLP, 3% in COP and

2% in ARS. Cash balances in Argentina are subject to exchange rate volatility, specific to the

Argentine market. At the end of December 2017, 83% of investments and balances were in USD,

14% in CLP, 1% in COP and 1% in ARS.

With regards to non-USD denominated debt (bank loans and bonds), AES Gener has executed

hedges in the form of cross-currency swaps to reduce the associated exchange rate risks. AES

Gener executed a cross-currency swap for the Chilean UF-denominated bonds issued in 2007 for

approximately US$220 million, AES Gener executed exchange rate swaps with the same amount

and term of the debt. Current historical balance is US$172 million. At the end of March 2018, 96%

of the debt of AES Gener and its subsidiaries is USD denominated, including the previously

mentioned N series bonds and the associated swap.

The following table shows the composition of the debt by currency based on principal to be

repaid, as of March 31, 2017, and December 31, 2017:

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will

fluctuate because of changes in market interest rates. The Company’s exposure to the risk of

changes in market interest rates relates primarily to the Company’s long-term debt obligations

with variable interest rates.

AES Gener manages its interest rate risk by having an important percentage of its debt at a fixed

rate or with interest rate swaps, to fix it. As of March 31, 2018, AES Gener had interest rate swaps

for an important part of the debt associated with subsidiaries Angamos, Cochrane and Alto Maipo.

A 10% increase in variable interest rates would not have a significant impact on net income as

93.4% of the Company's debt is at fixed interest rates or has rate swaps. The following table shows

the composition of debt by type of interest rate as of March 31, 2018, and December 31, 2017.

Currency March 31st December 31st

2018 2017

US$ 95.7% 96.0%

CLF 1.0% 1.0%

Col$ 3.3% 3.0%

21

It should be noted that the subordinated bond issued in December 2013 for a total of US$450

million with a 60-year tenor, is at a fixed interest rate of 8.375% for 5.5 years from the issuance.

From that period onwards, the interest rate is recalculated based on the 5-year swap rate

published by Bloomberg plus a margin (spread) established in the offer and subsequently

recalculated, based on the same conditions, every 5 years until maturity of the debt.

Commodity Price Risk

AES Gener is affected by the volatility of certain commodity prices. The fuels used by the

Company, mainly coal, diesel and liquefied natural gas (LNG), are commodities with international

prices set by market factors outside of the Company’s control. In Argentina, the Company’s

subsidiary TermoAndes purchases natural gas at a fixed price under short-term contracts, which

is reflected in the energy contract price fixation.

The price of fuel is a key factor in plant dispatch and spot prices both in Chile and Colombia. Since

AES Gener’s portfolio has a large component of thermal generation, fuel costs represent a

significant portion of the cost of sales.

Currently, the majority of the Company’s PPAs include indexation mechanisms that adjust prices

based on variations in the price of coal in accordance with the indexes and adjustment periods

specified in each contract, in order to mitigate the risk of major variations in the cost of fuel.

Currently, AES Gener’s contracted energy is balanced with energy generation of facilities with high

probability of dispatch (efficient generation) and the remaining facilities (backup facilities) which

utilize diesel or LNG are expected to generate only during periods with limited market supply,

such as dry hydrological conditions in Chile, selling energy on the spot market. Diesel and LNG

purchases are not currently hedged, as spot market sales allow for variations in fuel prices to be

transferred to the sale price. However, the price of fuel (particularly LNG or diesel) directly affects

the spot price and plant dispatch. A 10% increase in the cost of diesel is estimated to have not

had a material impact on the Company's gross profits in the Chile during the first quarter of 2018.

It is worth noting that Eléctrica Santiago’s Nueva Renca plant can use either diesel or LNG and

acquires defined volumes of LNG volumes using short-term contracts when the LNG price is more

competitive than diesel.

Rate March 31st December 31st

2018 2017

Fixed or with Swap 93.4% 93.5%

Variable 6.6% 6.5%

22

Credit Risk

Credit risk relates to the credit quality of counterparties with which AES Gener and its subsidiaries

establish relationships. These risks are reflected primarily in accounts receivables and financial

assets including bank and other deposits and other financial instruments.

With regards to accounts receivable, AES Gener’s counterparties in Chile are mainly distribution

companies and high solvency industrial customers, and a significant percentage of these

customers or their parent companies have local and/or international investment grade credit

ratings. Additionally, sales by the AES Gener Group companies on the spot market must be made

to other generators, members of the ISO, in accordance with the economic dispatch determined

by this entity.

In Colombia, AES Chivor performs risk assessments of its counterparties based on an internal

credit quality evaluation, which in some cases may include guarantees.

In Argentina, the main counterparties are CAMMESA (Compañía Administradora del Mercado

Mayorista Eléctrico S.A.) Argentina’s wholesale electric market administrator, and large

unregulated consumers with contracts under the Energía Plus program. TermoAndes carries out

internal credit evaluations of its unregulated customers and therein include guarantees to secure

payments.

Financial investments by AES Gener and its subsidiaries such as mutual funds, time deposits and

derivatives, are executed with local and foreign financial institutions, which have national and/or

international credit ratings greater than or equal to “A” under the S&P and Fitch scale and “A2”

under the Moody’s scale. Similarly, derivatives for financial debt are executed with first class

international entities. Cash, investment and treasury policies direct the management of the

Company's cash portfolio and minimize credit risk.

Liquidity Risk

Liquidity risk relates to the funding requirements to meet payment obligations. The Company's

objective is to maintain a balance between continuity of funding and financial flexibility, through

internally generated cash flows, bank loans, bonds, short-term investments, committed credit lines

and uncommitted credit lines.

As of March 31, 2018, AES Gener had US$235 million in available funds including cash and cash

equivalents. Meanwhile, as of the end of December 2017, the balance totaled US$276 million in

cash and cash equivalents. The balance of cash and cash equivalents includes cash, term deposits

with expiration of less than 90 days, securities, low risk immediately available mutual funds in USD

and short-term repurchase agreements and fiduciary agreements.

23

As of March 31, 2018, AES Gener had approximately US$250 million in committed lines of credit

and US$37 million of uncommitted and unused lines of credit.

For more detail of the cash restrictions see Note 9 in the Financial Statements

During June, and as reported in the Essential Fact GG 017/2017 dated July 31, 2017, Alto Maipo

SpA ("Alto Maipo") terminated one of the construction contracts of the Project, celebrated with

Constructora Nuevo Maipo SA ("CNM"), due to the breaches of the contractor. This has triggered

an event of technical default under the financing contracts for which, the payment schedule for

the debts of said project may be subject to modifications.

Operational Risks

Operational risks relate to the possibility of future outages or deficiencies that can negatively affect

the Company’s strategic operational and/or financial objectives.

Hydrology

AES Gener’s operations in the Chile and Colombia may be affected by hydrological conditions, as

hydrology is key to plant dispatch and prices on both grids. The Company uses its own statistical

models to evaluate the risks associated with its contractual commitments. In general terms, AES

Gener’s commercial strategy in Chile is to execute long-term contracts for its efficient generation

plants, reserving other more expensive units as backup. In Colombia, the commercial strategy

focuses on optimal use of the reservoir with the general objective of contracting on average 75%

of expected generation.

Currently, efficient generation of AES Gener’s facilities in Chile is balanced with contracted volume,

which mitigates most of the exposure to hydrology variations, and additionally, the Company has

backup facilities which limit maximum exposure.

Natural Gas Supply

The combined cycle plants in Chile, including Eléctrica Santiago’s Nueva Renca plant, currently

operate with diesel or LNG alternatively. Eléctrica Santiago does not have long–term LNG

contracts and acquires volumes on the spot market or under short–term contracts according to

dispatch projections. In Argentina, TermoAndes holds natural gas supply contracts with Argentine

producers and the Company estimates that in the case of potential gas supply restrictions,

TermoAndes has certain alternatives to mitigate the impact of gas supply interruptions which

include contract price indexation mechanisms, spot gas purchases and backup supply from other

generators.

24

Operational Failures and Maintenance

Mechanical failures, accidents, planned or unplanned maintenance that affect the availability of

the Company’s efficient capacity could have a material adverse effect on results.

Although the Company performs regular maintenance and operational enhancements to

guarantee the commercial availability of its generation plants and operational insurance policies

remain in effect, mechanical failures or accidents could result in periods of commercial

unavailability. Significant periods of unavailability of AES Gener’s efficient plants as a result of

mechanical failure or maintenance (planned or unplanned) would require the Company to meet

its contractual obligations by using more expensive backup generation or by purchasing energy

on the spot market, both of which could result in higher costs that would adversely affect

operating results. In the Chile, the maximum exposure to this risk is limited by the variable costs

of the Company’s backup facilities.

Projects under construction

The execution of the investment projects being developed by the Company depends on

numerous factors that could defer from the original projections. Among these factors, projects

can experience increases in costs of construction or investment in equipment, potential delays,

difficulty in finding skilled labor, financing costs, and the effect of potential delays or difficulties in

the regulatory authorization and permit process, including potential litigation or lawsuits. It should

be noted that adequate project development includes making investments related to diverse

project areas such as studies, easements, land preparation and construction of roads, among

others, before the approval and final execution of the project.

Currently, power generation projects are facing a high level of opposition from organized groups

or local communities. The Company cannot ensure that this opposition will not affect projects

under construction. AES Gener, in its interest of being a good neighbor and through its “Policy

for Relations with Local Communities”, works to be locally respected and to be valued by its good

economic, social and environmental performance and by its contribution to the sustainable

development to the communities where the Company is inserted.

Decoupling Risk

Given certain transmission restrictions in Chile due to the concentration of renewable energy

plants, there be a decoupling between injection and withdrawal prices. The effect of the difference

in price is assumed by the generation companies and can, in turn, affect their operating margins.

Currently, there are contracts in which this risk cannot be passed through, however, clauses to

mitigate this risk are being negotiated in new contracts with unregulated customers.

25

Regulatory Risks

AES Gener, its subsidiaries and related companies are subject to several different aspects of

regulation in the countries in which they operate. Modifications to the existing legislation could

adversely affect the Company’s financial results.

AES Gener cannot guarantee that the laws or regulations in the countries in which it operates or

has investments will not be modified or interpreted in a manner that could adversely affect the

Company, or guarantee that governmental authorities will grant any requested approval. AES

Gener however actively participates in the development of the regulatory framework, submitting

comments and proposals to the proposed regulations presented by authorities.

Market Regulatory Framework

As power generation companies, AES Gener, its subsidiaries, and related companies are subject

to regulation in diverse aspects of their business. The current regulatory framework, which governs

all electricity supply companies, has been in effect in Chile since 1982 and in Colombia since 1994.

Meanwhile in Argentina, on February 2, 2017, Resolution 19/2017 of the Secretariat of Electric

Energy was published in the official bulletin. The new regulation modifies the remuneration

framework for energy and power to the generators included in Resolution S.E. 95/2013 and its

amendments. In the case of TermoAndes, these changes impact the power and energy not

committed in the contracts of Energía Plus. The new regulation establishes that prices must be set

in USD, to be converted into ARS at the exchange rate at the end of the month of the

corresponding transaction. All the concepts determined in the resolution will be paid at the

expiration date of the economic transaction of each month, eliminating the retention of unpaid

amounts and the accumulation of receivables with CAMMESA.

During February 2017, Argentina’s electricity regulator ENRE carried out the Integral Rate Review

(RTI) of the electric energy transportation system, setting new tariffs for users of high voltage

transport and trunk distribution systems, which affect TermoAndes.

On November 28, 2017, the Argentine Electric Energy Agency published Resolution 1085-E / 2017,

which establishes a new methodology for the distribution of transmission costs. Per this resolution,

most of the costs will be borne by the final transmission users (demand) and the generators will

pay the maintenance cost of the transmission assets that are exclusively dedicated to them.

CAMMESA is working on the detailed implementation of this resolution.

On November 30, 2017, the Ministry of Energy and Mining Published Resolution 474-E / 2017

establishes that the refund provided by Article 75 of Law No. 25,565 (Trust Fund for Residential

Gas Consumption Subsidies for the southern area of the country) and its modifications, will be

26

equivalent to 2.58% on the price of natural gas at the injection point to the Transportation System.

This modifies the price that the generators must pay, which was AR$3.8/dam3

During the first quarter Colombian authorities published new regulation that could have an impact

on AES Gener’s activities:

Resolution CREG 030-2018: definitive rules for small scale self-generation and distributed

generation;

Resolution CREG 015-2018: update of the Methodology for the remuneration of electric power

distribution;

Resolution CREG 010-2018: review of the block sale rate with which the transfers of environmental

law are calculated, which increases by about 45% in relation to the current value and will be due

in 2019;

Resolution CREG 007-2018: consultation to define tests to the scheme of "Voluntary

Disconnectable Demand" that is part of the safety rings of the reliability charge;

CREG Resolution 201-2017: modifying CREG Resolution 243 of 2016, which defines the

methodology to determine the firm energy for the Reliability Charge, ENFICC, of solar

photovoltaic plants;

Resolution CREG 167-2017. By which the Methodology is defined to determine the firm energy of

wind power plants;

Ministry of Mines and Energy Decree 0570 of March 23, 2018: Adding to Regulatory Decree of

the Mining and Energy department, 1073 of 2015, in relation to the public policy guidelines for

the long-term contracting of electric power generation projects and other provisions are dictated.

The focus of the standard is oriented towards the promotion of non-conventional renewable

energies.

In addition, the regulator issued Circulars CREG 021, 022 and 025 of 2018 inviting consultants to

submit bid proposals to develop the following aspects: i) design of indicators for monitoring and

evaluating the integration of self-generation and distributed generation in the national

interconnected system, ii) study for the analysis of the complementary services for the national

interconnected system (SIN) and iii) study on the modernization of the office and the spot market

of electric energy - binding clearance and intraday markets.

The Company cannot guarantee that the laws or regulations of the countries in which the

Company operates or has investments will not be modified or interpreted in a way that could

adversely affect the Company or guarantee that authorities grant requested authorization. AES

Gener participates actively in the development of the regulatory framework, making comments

and proposals to the bills presented by the authorities.

27

Environmental Regulation

AES Gener, its subsidiaries, and associates are subject to environmental regulations, which, among

others, require environmental impact studies for project development and regulatory permits.

AES Gener cannot guarantee that governmental authorities will effectively grant any requested

environmental approval.

New and increasingly demanding environmental regulations are continuously under

development, which may modify operations and/or require additional investments to comply with

such regulation.

On August 30, 2017 Decree 38/2017 was enacted, which established a new Atmospheric Pollution

Prevention Action Plan for Huasco and surrounding zone (the “Prevention Plan”). The Prevention

Plan for Huasco establishes additional requirements for particulate matter (“PM”) emission control

for Guacolda, being the main ones:

i. Keep stack PM emissions below 30 mg/m3N for each stack, and below 730 ton/year on

aggregate of all stack emissions

ii. Reduce PM emissions on coal transfers points and on coal conveyors

iii. Pave the ash deposit access road

iv. Sweep and vacuum the PM that falls during material transportation, wind action or vehicle

movement.

Requirement i. is effective from January 1, 2018, while action items ii. iii. and iv. must be defined

and detailed in a “Control Plan” that should be submitted to the authority for approval within six

months, and executed within up to 3 years. An assessment of the Prevention Plan shall be carried

out within 5 years of the enactment of the decree.

On October 4, 2017 Chile’s Environment Ministry approved a draft of a bill regarding PM10 air

quality and submitted it to a 60-day Public consultation process which ended January 8, 2018. The

bill is currently undergoing a final drafting process.

On November 24, 2017, Supreme Decree 31/2016, Plan for Prevention and Atmospheric

Decontamination for the Metropolitan Region, was published and entered into force. It applies to

sources, establishments and activities that emit Fine Breathable Particulate Material (PM10),

Breathable Fine Particulate Material (PM2.5), Ozone (O3,) and Carbon Monoxide (CO), located in

the Metropolitan Region; therefore, it is applicable to the Renca and Nueva Renca power plants

of Eléctrica Santiago. It establishes emission control measures to comply with current air quality

regulations within 10 years, the main requirements are:

i. Emission limits for stationary sources for MP, SO2, CO and NOx, applicable to boilers and

combustion processes.

28

ii. 30% Reduction of emissions of particulate material for large industrial establishments.

iii. Projects or activities that enter the Environmental Impact Assessment System must

compensate 120% of their total annual emissions.

Eléctrica Santiago complies with the emission limits established in the Air Pollution Prevention

and Decontamination Plan for the Metropolitan Region. Regarding the 30% reduction of

particulate matter emissions, compensation alternatives are being evaluated and are expected

to be presented to the Environment Ministry for approval during 2018.

A new Environmental Prevention and Decontamination Plan for Concón, Quintero and

Puchuncaví was approved in 2017 by the Environment Ministry, however on December 26, 2017,

the Office of the Comptroller General of the Republic, by means of Resolution 44,528, returned

the document without processing to the Ministry of the Environment

The Chilean Environmental Authority (SMA) notified Alto Maipo in January, 201,7 of certain

breaches associated with its environmental permit. Alto Maipo presented a Compliance Plan for

consideration and approval by SMA with actions that corrected the deviations in order to fully

comply with the permit. The Compliance Plan was approved by the SMA on April 6, 2018.

Tax Regulation

AES Gener, its subsidiaries, and affiliates are subject to existing tax legislation in each country

where they operate. Amendments to laws or modification in tax rates may have a direct impact

on earnings.

In Colombia, as of January 1, 2017, a new structural tax reform came into effect. In general, the

reform: unifies the corporate taxes, reduces corporate rate, eliminates CREE tax and sets an

additional and transitory tax rate of 6% and 4% for 2017 and 2018 respectively, thus gradually

lowering the corporate tax, from 40% in 2017 to 33% from 2019 onwards. Also, new normative

taxes dividend distribution with a rate of 10%, puts in place new tax evasion regulation, applies

VAT to new activities, among other modifications. The new tax law reduces the tax burden of AES

Gener, considering the lower corporate tax rate and the fact that the new dividend distribution

tax is not applicable because the Company falls under article 10 of the convention between Chile

and Colombia to avoid double taxation. It is also noteworthy that the law reiterates that electricity

is not considered a “good”, and therefore is not subject to VAT.

On December 29, 2017, the Argentine government enacted a new tax reform. The law sets a 30%

tax rate on 2018 and 2019 income and a 25% income tax rate from 2020 onwards. Dividends

attributable to income generated prior to December 31, 2017 will remain subject to the previous

tax-free dividend distribution regime. Going forward however a 7% tax will be applied to dividends

attributable to income generated in 2018 and 2019. The dividend tax rate will increase to 13% on

29

dividends stemming from 2020 income onwards. Its worthy to note that the tax will be collected

when dividends are distributed to shareholders outside of Argentina.

Emissions Taxes

The 2014 Chilean tax reform incorporated a new tax on emissions from stationary sources with

boilers or turbines that have a thermal capacity equal or greater than 50 MWt. In the case of CO2,

the tax is US$5 per metric ton of C02 emitted. The first payment of this tax took place in April 2018

based on the Chilean Environmental Authority’s certification of the 2017 emissions, carried out in

March 2018. A large portion of the Company’s energy sales contracts contain clauses that allow

for the pass-through of the costs associated with the new taxes to the offtaker, mitigating the

negative effect of the emissions tax.

During the first quarter of 2018, AES Gener accrued US$9 million in emission taxes, 21% less than

in the same quarter of 2017, after reaching agreements with nonregulated customers to adhere

to the change-of-law clauses in the Company’s PPA contracts.

30

AES GENER AND SUBSIDIARIES

Consolidated Balance Sheet

As of March 31, 2018, and December 31, 2017

International Financial Reporting Standards (IFRS).

March 31st December 31st

Assets ThUS$ 2018 2017

Current Assets

Cash and Cash Equivalents 235,409 275,948

Other Current Financial Assets 16,818 10,647

Other Current Non-Financial Assets 12,863 5,529

Trade and Other Receivables 462,070 444,905

Related Party Receivables 16,372 10,066

Inventory 175,068 155,157

Taxes Receivables 26,089 25,911

Assets held for sale 193,097 181539

Total Current Assets 1,137,786 1,109,702

Non-Current Assets

Other Non-Current Financial Assets 67,878 34,398

Other Non-Current Non-Financial Assets 30,541 24,274

Trade and other Receivables 20,196 18,929

Investments in Associates 414,972 410,882

Intangible Assets 52,522 52,589

Goodwill 0 0

Property, Plant and Equipment 6,453,546 6,421,441

Deferred Taxes 75,907 87,592

Total Non-current Assets 7,115,562 7,050,105

Total Assets 8,253,348 8,159,807

31


Consolidated Balance Sheet

As of March 31, 2018, and December 31, 2017


Liabilities and Shareholders' Equity ThUS$ March 31st December 31st

2018 2017

Current Liabilities

Other Current Financial Liabilities 1,081,807 1,052,448

Trade and Other Payables 385,200 355,108

Related Party Payables 175,534 278,918

Provisions 2,154 1,450

Taxes Payable 33,110 25,542

Employee Benefits 4,126 4,507

Other Current Non-Financial Liabilities 17,304 27,490

Total Current Liabilities 1,699,235 1,745,463

Other Non-Current Financial Liabilities 2,796,922 2,781,566

Trade and Other Payables 15,505 15,314

Related Party Payables 0 0

Provisions 288,129 286,047

Deferred Taxes 571,776 575,871

Employee Benefits 31,497 35,981

Other Non-Current Non-Financial Liabilities 9,023 9,495

Total Non-Current Liabilities 3,712,852 3,704,274

Total Liabilities 5,412,087 5,449,737

Net Equity

Issued Capital 2,052,076 2,052,076

Retained Earnings (Losses) 492,278 412,913

Share premium 49,864 49,864

Other Components of Equity 238,292 238,157

Other Reserves -116,925 -159,090

Total Equity Attributable to Shareholders of Parent 2,715,585 2,593,920

Non-Controlling Interest 125,676 116,150

Total Net Equity 2,841,261 2,710,070

Total Liabilities and Equity 8,253,348 8,159,807

32


Consolidated Income Statement for the periods ended on

March 31, 2018 and March 31, 2017


Income Statement ThUS$ 1Q 1Q Var.

2018 2017 %

Operating Revenue 655,900 557,109 18%

Cost of Sales (486,125) (411,077) 18%

Gross Profit 169,775 146,032 16%

Other Operating Revenues 500 270 85%

Selling, general and administrative Expenses (31,772) (27,647) 15%

Other Operating Expenses (313) (338) -7%

Other Income / (Loss) 1,472 738 99%

Financial Income 785 1,619 -52%

Financial Expense (26,799) (45,576) -41%

Equity Participation in Net Income of Associates 3,686 1,928 91%

Foreign Currency Exchange Differences (16,344) (9,934) 65%

Net Income (Loss) before Taxes 100,990 67,092 51%

Income Tax Income (Expense) (17,562) (16,984) 3%

Net Income (Loss) 83,428 50,108 66%

Income Attributable to Shareholders of Parent 79,365 46,732 70%

Income (Loss) Attributable to Non-Controlling Interests 4,063 3,376 20%

Net Income (Loss) 83,428 50,108 66%

33


Consolidated cash flow statements for the periods ended on

March 31, 2018, and March 31, 2017


Consolidated Cash Flow Statement (ThUS$) March 31st March 31st

2018 2017

Operating Activities

Receipts from Customers 712,860 683,135

Other Receipts from Operating Activities 12,058 3,459

Payments to Suppliers (481,974) (444,056)

Payments made to Employees (37,155) (27,011)

Other Payments for Operating Activities (66,968) (31,176)

Dividends Received - 1,287

Payment of Interests (15,360) (30,189)

Interests Received 605 777

Income Tax Paid (37,675) (7,157)

Other Operating Outflows from Operating Activities (2,081) (8,525)

Net Cash Flows Provided by (Used in) Operating Activities 84,310 140,544

Investing Activities

Proceeds from the sale of shares in associates - 566

Proceeds from sale of financial assets 41,278 -

Purchases of financial assets (41,254) -

Proceeds from Sale of Property, Plant and Equipment - 21

Purchases of Property, Plant and Equipment (125,227) (118,018)

Proceeds from sale of Intangible Assets - 109

Purchases of Intangible Assets (284) (46)

Proceeds from other Long-Term Assets - 2,050

Receipt of Interests - 72

Other Outflows (Inflows) from Investing Activities - (214)

Net Cash Flows provided by (Used in) Investing Activities (125,487) (115,460)

Financing Activities

Proceeds from Share Issuance - 22,156

Proceeds from Long –Term Borrowings - 16,706

Proceeds from Short –Term Borrowings 41,000 -

Payments of Loans (42,500) (27,000)

Payments on Financial Leasing (432) (320)

Other Inflows (Outflows) of Cash and Cash Equivalent (397) (780)

Net Cash Flows From (Used In) Financing Activities (2,329) 10,762

Increase (Decrease) in Net Cash and Cash Equivalent (43,506) 35,846

Effects of Foreign Exchange Variations on Cash and Cash Equivalents 2,967 1,279

Increase (Decrease) in Net Cash and Cash Equivalents (40,539) 37,125

Cash and Cash Equivalents at the Beginning of Period 275,948 469,560

Cash and Cash Equivalent at the End of Period 235,409 506,685

34

ANNEX 1: GUACOLDA ENERGÍA S.A

Summarized income statement and balance sheet for the periods ended

March 31, 2018 and March 31, 2017


Income Statement (ThUS$) 1Q 1Q Var.

2018 2017 %


Spot sales 0 0 ---

Other operating revenues 6,980 14,102 -51%

Operating Revenues 111,555 110,911 1%


Energy and capacity purchases (12,335) (14,596) -15%



Depreciation (18,165) (18,887) -4%

Total Costs of Sales (90,081) (90,006) 0%


Administrative expenses (2,478) (3,055) -19%

EBITDA 37,161 36,737 1%

Financial Income 95 176 -46%Financial expenses (8,891) (9,276) -4%Other income(Losses) 0 (159) -100%Foreign currency exchange differences (103) (1,388) -93%0 0


Income Tax Income (Expense) (2,726) (3,348) -19%

Net Income (Loss) 7,371 3,855 91%

March 31st, December 31st, Var.

2018 2017 %

Current Assets 231,156 192,278 20%

Non-Current Assets 1,635,017 1,651,268 -1%

Total Assets 1,866,173 1,843,546 1%

0 0

Current Liabilities 157,698 147,431 7%

Non-Current Liabilities 859,600 855,397 0%

Total Net Equity 848,875 840,718 1%


Balance (ThUS$)

35

Guacolda Energy Generation, Purchases and Sales

In the first quarter of 2018, Guacolda’s contract sales revenues increased US$8 million, explained

by an additional 49 GWh in contract sales volumes from new contacts and greater demand on

existing contracts.

It is important to mention the increase in the efficient generation of Guacolda, up 171 GWh, is

explained by the new SEN grid which allows for better injection into the transmission system and

higher output. This increase in generation explains the US$2 million decrease in energy and power

purchases, as a result of 122GWh less physical purchases, as less spot sales were needed to cover

contracted demand.

The US$2 million increase in Other Selling Costs is due primarily to higher costs associated with

emissions taxes. The decrease in Other Operating Revenues of US$7 million is mainly due to lower

transmission revenues, offset in part by a US$5 million decline in transmission costs.

Energy (GWh) 1Q 1Q Var.

2018 2017 %

Generation

Thermal 948 777 22%

Purchases

Spot 96 220 -56%

Other generators 4 2 100%

Total Purchases 100 222 -55%

Gains/(Losses) (1) (1) ---

Sales

Regulated 156 186 -16%

Unregulated 891 812 10%

Spot 0 0 ---

Total Sales 1,047 998 5%

36

Gross Profit for the first quarter of 2018, reached US$21 million, relatively the same as in the first

quarter of 2017. The additional US$8 million in contract sales revenue was offset by a US$6 million

increase in fuel costs as a result of higher generation and higher coal prices. Higher emission tax

accruals were the main driver behind the 13% increase in in Other cost of sales.

37

ANNEX 2: EMPRESA ELÉCTRICA ANGAMOS S.A

Summarized income statement and balance sheet for the periods ended

March 31, 2018 and March 31, 2017


Income Statement (ThUS$) 1Q 1Q Var.

2018 2017 %


Spot sales 3,146 14,881 (79%)

Other operating revenues 10,160 3,371 201%

Operating Revenues 97,485 74,682 31%



Transmission tolls (5,061) (1,326) 282%

Other cost of sales (17,987) (18,826) (4%)

Depreciation (12,868) (12,147) 6%

Total Costs of Sales (75,354) (63,581) 19%


Administrative expenses (1,393) (1,354) 3%

EBITDA 34,246 22,223 54%

Financial Income 5,570 4,434 26%

Financial expenses (10,928) (10,896) 0%

Other income(Losses) 7 33 (79%)

Foreign currency exchange differences 779 (454) ---


Income Tax Income (Expense) (4,423) (418) 958%

Net Income (Loss) 11,743 2,446 380%

March 31st, December 31st, Var.

2018 2017 %

Current Assets 162,361 129,766 25%

Non-Current Assets 1,442,526 1,417,342 2%

Total Assets 1,604,887 1,547,108 4%

Current Liabilities 187,039 155,025 21%

Non-Current Liabilities 913,620 904,014 1%

Total Net Equity 481,915 467,819 3%

Non-Controlling Interests 22,313 20,250 10%


Balance (ThUS$)

38

Angamos Energy Generation, Purchases and Sales

Angamos generated an additional 115GWh during the first quarter of 2018, up 16% from the first

quarter of 2017. Spot Sales volumes fell 57GWh, down 58% as a result of higher contracted

demand after the start of supply of additional 80MW contract with an unregulated customer

began in January, 2018.

Contract sales revenues increased US$28 million to 84 million in the quarter, 49% higher because

of the start of supply of the 80MW PPA. The higher contract sales volumes limited the amount of

uncontracted output to be sold on the spot market, which led to lower sales volumes and thus a

79% decline in spot sales revenues.

On a quarterly basis, Angamos’s Gross Profit increased 99% to US$22 million, mainly driven by

higher contract sales revenues, due to the start of supply of the previously mentioned 80MW PPA,

and the consolidation of the subsidiary Compañía Transmisora del Norte Grande S.p.A.

Energy (GWh) 1Q 1Q Var.

2018 2017 %

Generation

Thermal 831 716 16%

Total Generation 831 716 16%

Purchases

Total Purchases 8 4 94%

Sales

Unregulated* 799 623 28%

Spot 41 97 (58%)

Total Sales 839 720 17%

*Includes Re-Routed spot sales

39

ABOUT AES GENER

AES Gener generates and sells electricity in Chile, Colombia and Argentina. AES Gener has a total

installed capacity of 5,813MW and is the second largest electricity generation group in Chile, in

terms of generation capacity. AES Gener owns and operates 4,150 MW in Chile, composed of

3,858 MW of thermoelectric, 271 MW of run-of-river hydroelectric and 21 MW of solar

photovoltaic installed capacity. The Company is the main thermoelectric generator in Chile, with

a diversified portfolio of plants using coal, natural gas, diesel and biomass as fuel. AES Gener also

owns a dam-based hydroelectric complex in Colombia with a total capacity of 1,020 MW and a

combined cycle natural gas plant in Argentina with an installed capacity of 643 MW. AES Gener

is 66.7% owned by The AES Corporation.

To learn more about AES Gener, please visit www.aesgener.com

ABOUT THE AES CORPORATION

The AES Corporation (NYSE: AES) is a Fortune 200 global power company. AES provides

affordable, sustainable energy to 15 countries through its diverse portfolio of distribution

businesses as well as thermal and renewable generation facilities. AES' is committed to operational

excellence and meeting the world’s changing power needs.

AES’s 2017 revenues were $11 billion and owns and manages $33 billion in total assets.

To learn more, please visit www.aes.com

http://www.aesgener.com/

http://www.aes.com/

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