investor presentation - iec€¦ · israel electric corp. at a glance established in 1923, with...

Israel Electric Corp.

Investor

Presentation

Business update as of 3/31/2016

May 2016

1

Disclaimer

The Company is a public company, with all it entails, and this information provided to you, all or part of it, may constitute “Inside Information” in

accordance with Israel’s Securities Law, 1968, and making use of this information (including, but not only, by way of carrying out a transaction in a

security of IEC, and/or delivering this information, or an opinion regarding a security of IEC, to any third party who may use this information for

purposes of such transaction) may constitute a criminal offence pursuant to that Law.

Please treat this information as CONFIDENTIAL and do not disclose, publish or deliver all or any part of this information, directly or indirectly, to any

third party, except for your employees, officers and any person acting for you or on your behalf, strictly on a “need to know” basis, and only after you

have notified the person receiving any of this information that the information is confidential and that making use of this information may constitute a

criminal offence as specified above

This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer to buy or

acquire, securities of the Company. This Presentation is solely for informational purposes. The information contained in this presentation regarding

the Company's operations is concise and presented for convenience purposes only. To get a complete picture of the Company's operations, please

refer to the reports of the Company to the Israeli Securities authority and the Tel-Aviv Stock Exchange.

This presentation includes forward-looking information, as per its definition in the Securities Law, 1968, including forecasts and other information

whose realization is uncertain and depends on factors that are not under the control of the Company. These factors are based, among other things,

on data that is in the possession of the Company as of this date, internal estimates and expectations of the Company regarding trends in the

Company's fields of activity and regarding the implementation of the company's plans. The Company's forecast and expectations included in this

presentation may not be realized, in whole or in part, or may be realized in a different manner than expected, inter alia due to factors that some of

them are not under the control of the Company, including changes in the market conditions and the Company's business environment, regulatory

changes, or the realization of any of the risk factors of the Company.

The information contained in this presentation is provided as of the date of this presentation. The Company is not under any obligation to

update the information in this presentation or to update the forward-looking statements contained in it.

Investor Relations 2

Executive Summary

3

Gas turbines

power stations

Power stations

400 kV lines

161 kV lines

Israel Electric Corp. at a Glance

Israel Power Grid Established in 1923, with over 90 years of operation, the Israel Electric Corporation Limited (“IEC”)

is the sole integrated electric utility company in Israel and generates, transmits, distributes and

supplies the vast majority of the electricity used in Israel

IEC is approximately 99.85% owned by The State of Israel

The Company had total assets of NIS 82.8 billion and 12,165 employees as of March 31, 2016

As of December 31, 2015, IEC serves 2.7 million residential customers, commercial, agricultural

and industrial customers spread throughout the State of Israel

Total electricity sales of 50,601 GWh for the year ended December 31, 2015.

13.6GW Installed capacity

17 Power stations sites

Generation(2)

5,486km High voltage

transmission grid

201 Switching stations and sub-stations

Transmission(2)

47,259km Medium and low

voltage lines

2.7mn Customers

Distribution(2)

3M-2016 Key Financials Credit Ratings

Revenues:

NIS 5.4 billion

EBITDA:

NIS 2.2 billion

EBIT:

NIS 1.1 billion

IEC Global:

BBB- / Baa3

(S&P / Moody’s)

IEC Local: Aa3 Positive / ilAAStable

Maalot S&P) /(Midroog

State of Israel:

A1 / A+ / A Stable (Moody’s / S&P / Fitch)

Source: IEC’s financial statements. 1) As of December 31, 2015.

Denotes USD figures at USD/NIS average exchange rate of 3.91for the period of 3M’2016.

Investor Relations

$1.4 $0.6 $0.3

4

Israel - a Modern Economy

Source: The Central Bureau of Statistics, Bank of Israel. 1. 2015 GDP converted using yearly average USD/ILS exchange rate of 3.89. 2. Credit rating refers to long-term foreign currency debt only. 3. As published in the 2014 Government Debt Report by the Ministry of Finance. 2015 figure as presented in the “Economic Highlights” document.

Israel Public Debt to GDP(3)

Israel Rating History(2)

Inflation Environment

0

1

2

3

4

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Moody's S&P Fitch

Nov 2007

S&P upgrade

Israel to A

Apr 2008

Moody’s upgrade

Israel to A1

Sep 2011

S&P upgrade

Israel to A+

Feb 2008

Fitch upgrade

Israel to A

Baa1 / BBB+

A3 / A-

A2 / A

A1 / A+

Aa3 / AA-

74.7

72.9

75.1

71.3 69.9

68.5 67.6 67.1

64.9

60

65

70

75

80

2007 2008 2009 2010 2011 2012 2013 2014 2015

(% of GDP)

Area 22,072 km2

Population 8.5 million

GDP (2015)(1) USD 264.1 billion

GDP per Capita (2015)(1) USD 31,206

Avg. GDP Growth (2008–2015) 3.3%

Unemployment (January 2016) 5.1 %

Foreign Currency LT Debt Ratings A1 / A+ / A Stable

3.8% 3.9%

2.7%

2.2%

1.6% 1.8%

(0.2%)

-1.0% -2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2008 2009 2010 2011 2012 2013 2014 2015

(YoY Inflation %)

1%–3%

Government

Inflation Target

1.8%

Average inflation in

the last decade

Investor Relations

Key Figures

5

Essential

Service Provider

Owned by the

State of Israel

Robust Growth in

Electricity Demand

Regulated Tariff

Efficiency and

Reliability

Financial

Robustness

Natural Gas

Fuel

Independence

IEC is an essential

service provider to

Israel and the sole

vertically integrated in

the electricity chain

Approximately 99.85%

owned by the State of

Israel (A+/A1/A)

Strong electricity

demand growth in the

Israeli market, driven

by a robust economy

Tariff is based on costs

and return on equity

Set by the Electricity

Authority.

Continuous improvement of

efficiency and reliability

IEC has over 90 years of

experience in developing

and managing the electricity

sector in Israel

Rated investment grade by both S&P

(BBB-) and Moody’s (Baa3)

IEC total liquidity (1) of NIS4.3bn in

2015

Natural gas from Tamar

and other significant natural

gas discoveries in Israel

pave the way towards fuel

independence

Key Investment Highlights

Investor Relations

1. Liquidity includes cash and equivalents, short term investments and available credit facilities.

6

Key Strategic Targets

Investor Relations

Ensure reliable supply of electricity

Maintain sufficient electricity reserve

Supply of Electricity to the State of Israel

Maintain the financial robustness of IEC

Keep a sufficient liquidity cushion

Maintain long average maturity by continuing to issue

long term debt

Financial Strength

Diversify fuel mix while maintaining an efficient cost

structure and minimizing environmental impact

Focus on natural gas and coal as two main fuel sources

Fuel Diversification

7

Operational Overview

8

Source: IEC’s financial statements. Denotes USD figures at USD/NIS average exchange rate of 3.61, 3.58, 3.89 , 3.95 and 3.91 for the period of 2013A, 2014A, 2015A, 3M’2015 and 3M’2016 respectively.

Historical Performance

Comparison of Key Metrics

2006 2015 % Change

Population 7.1 8.5 19.7%

Number of Customers (mn) 2.4 2.7 12.5 %

Electricity Sales (GWh) 46,175 50,601 9.6%

National Peak Demand (MW) 9,450 12,905 36.5%

IEC Installed Capacity (MW) 10,487 13,617 29.8 %

18.1

20.3 21.3

22.7

26.3

20.4 20.5

25.4

28.3 27.7

25.3

23.1

5.7 5.4

0

5

10

15

20

25

30

35

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20153M

20163M

NIS bn

$1.4 $1.4

IEC Revenues

IEC continues to provide Israel’s energy requirements as the sole integrated electric utility in Israel

Investor Relations

$7.1

$7.7

$5.9

IFRS Prepared According to Government Companies Regulations

9

Israel Generation Capacity and Demand

Generation Capacity and Demand

Source: IEC’s Annual financial statements

11,297 11,649 11,664

12,769 12,759 13,248 13,483 13,617 13,617

174 228

278 518

516

734

1,956

2,933

359

596

785

11,368

11,823 11,892

13,047 13,277

13,764

14,576

16,169

17,335

10,070 10,200 10,280

11,530

11,110

11,890 11,640

11,335

12,905

8,000

10,000

12,000

14,000

16,000

18,000

2007 2008 2009 2010 2011 2012 2013 2014 2015

(MW)

Installed Generating Capacity Gas Fired IPPs Renewable Energy IPPs National Peak Demand


2,000

4,000

6,000

8,000

10,000

12,000

14,000

1990 1995 2000 2005 2010 2015

(MW)

Demand for Electricity

Historical National Peak Demand Trends

Source: IEC’s financial statements.

Multiplied by 3.4 in 25 years

Investor Relations

The demand for

electricity in Israel is

growing at a fast and

steady pace

Demand is driven

by both population

growth and the

increase in

electricity use

per household

The demand

forecast, which

serves for long-term

planning of the

generation system,

assumes an

average annual

increase of 2.7% in

peak demand in the

years 2015 to 2020

11

The Generation Segment

2015 IEC Generation Facilities

17 Power stations

sites

13,617 Megawatts of

generation

Fuel Mix by Electricity Generated


Orot Rabin

7 units / 2,605MW

Rothenberg

6 units / 2,290MW

Eshkol

7 units / 1,693 MW

Haifa

6 units / 1,110MW

Gezer

6 units / 1,336MW

Hagit

4 units / 1,394MW

- Mainly powered by coal

- Mainly powered by gas

2015 Key Power Generation Sites

Coal 57.6%

Fuel oil 0.1%

Natural gas

41.6%

Diesel oil 0.7%

Gas turbines

power stations

Power stations

2015

Coal 55.4%

Fuel oil 0.3%

Natural gas

43.8%

Diesel oil 0.5%

3M-2016

Investor Relations

Number

of Units

Installed

Capacity (MW)

Coal powered units 10 4,840

Combined cycle gas turbines 14 5,081

Industrial gas turbines 15 1,570

Gas converted units 8 1,622

Jet gas turbines 16 504

Total generation 63 13,617

12

The Transmission and Distribution Segments

Total Electricity Consumption by Customer Type

Transformation

System

11 Switching stations

Power Lines

142 Substations

Transmission

48 Private substations

760km 400 kV lines

4,621km 161 kV lines

106km 115 kV lines

Distribution

Capacity

47,259km Medium and low

voltage lines

48,825 Distribution

Transformers

2.7mn Customers

Distribution

Source: IEC’s 2015 Annual financial statements.

Households 35%

Industrial 18%

Public, commercial

and bulk 40%

Water pumping

4%

Agriculture 3%

(kWh)

Investor Relations

Diversified Customer Base

13

Fuel Expenses

Source: IEC’s financial statements 1) Excluding changes in fuel cost regulatory asset. 2) Revenues include sale of purchased electricity from IPPs. Denotes USD figures at USD/NIS average exchange rate of 3.61, 3.58, 3.89, 3.95 and 3.91 for the period of 2013A, 2014A, 2015A, 3M’2015 and 3M’2016, respectively.

IEC Fuel Expenses Development

4.9 4.4 4.9

6.9 5.6 5.0

6.7 7.0

4.8 4.0 3.6

1.0 0.7

1.0 1.3

1.4

1.8

2.4 2.9

2.8 1.6 4.7

3.8 4.3

1.1 1.0

1.5 1.4 0.8

1.0

0.3 0.2

0.7 3.1 0.3

0.1 0.1 2.2 2.9

4.5

4.4

1.3 1.3

3.1

8.3

1.3

0.1

0.1

9.6 9.9

11.7

14.1

9.5 9.4

13.3

20.1

11.1

8.0 8.4

2.2 1.7

47.6% 46.6%

51.6% 53.4%

46.7% 45.9%

52.4%

70.9%

40.2%

31.7%

36.6% 37.5%

32.2%

-40%

-20%

0%

20%

40%

60%

0

5

10

15

20

25

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 3M-2015 3M-2016

(NIS, bn)

Coal Nat Gas Fuel Oil Diesel as % of revenues

$2.2 $2.2

$0.6

$3.1

$0.5

(2)

(1)

(1)

IEC’s fuel expenses have significantly decreased due to the availability

of natural gas from Tamar and as a result of coal prices decreased significantly

IFRS Prepared according to Government Companies Regulations

(1)

Investor Relations

Tamar online:

Return to

normal operations

Gas shortage:

Expenses more than

doubled in two years

14

Coal Prices

Source: World Bank Commodity Price Data (Pink Sheet), May 2016. IEC’s coal sources are more limited Due to environmental constraints. 1. Calculated as average price of Australia, Colombia and South Africa Coal.

Coal Prices Development (International)

Investor Relations

45

55

65

75

($/mt)

Coal, Average(1)

(37%)

15

Israeli Electricity Sector

16

The Israeli Electricity Sector

Investor Relations

Nearly 100% by IEC

99.85% Government

owned

Expected to reach

75% of total

generating capacity

by the end of 2016

Expected to reach

25% of total

generating capacity

by the end of 2016

(21.4% as of

December 31, 2015)

Generation, Transmission and Distribution

Main Regulators Fuel Suppliers

The Electricity Authority

Government Companies Authority (GCA)

Ministry of National Infrastructures, Energy and Water Resources

Ministry of Finance

Ministry of Interior

Ministry of Environmental Protection

Natural Gas – Currently the Tamar Reservoir. More reservoirs have

been already discovered

Liquid Natural Gas - Imported from foreign suppliers

Coal - Imported from foreign suppliers

IPPs


IEC reached 2.7 million

customers

(as of December 31, 2015)

Transmission and Distribution Generation Customers

17

Tariff Regulation Principles

The Tariff is set by the Electricity Authority, based on a set formula, taking into account:

Tariff is examined every two weeks by the

Electricity Authority based on the publication

of fuel prices and CPI

An update will occur given a change in

the recognized cost of the input basket

of at least 3.5%, provided that 4 months

have passed since the last update

Each April, the Electricity Authority carries out

an annual update of the tariff components

which includes:

Recognized assets

Depreciation

Recognized return on equity and cost of

debt

Fuel mix

Compensation for delays in updating the

tariff

The Electricity Authority may decide not to

recognize certain costs that it considers

as not necessary

The fuels basket is calculated every year and

is retroactively updated, according to the

actual demand, abnormal events and new

professional information

The difference between the fuels basket and

an updated one is then refunded to the

consumers or to the Company

Fuel prices are the main component of the

costs and are passed on to electricity

consumers

Investor Relations

Current cost basket + Fair rate of return on

equity for each segment + The Electricity Authority’s

discretion (in consultation

with the Ministers),

efficiency factors to

promote increased

productivity

Tariff Rates

Ongoing Updates Annual Updates Fuel Mix

Tariff Rates

Source: IEC’s financial statements

The Tariff rates update occurs annually, but are also examined during the year to make necessary ongoing changes

18

Tariff Regulation Principles – Cont’d

Source: IEC’s financial statements, World Bank Commodity Price Data (Pink Sheet), May 2016. 1. Calculated as average price of Australia, Colombia and South Africa Coal.

Tariff vs. Coal Price Development

Investor Relations

40

45

50

55

60

45

55

65

75

85

($/mt)

Coal Average General Taarif Household Taarif

Israeli Agora (ILS/100)

(1)

Latest Tariff Update System Costs In August 2015 the Electricity Authority published a resolution on Tariff system

costs

System costs are the costs of services provided by IEC to the entire electricity

sector and are required in order to maintain proper operations of the electricity

system, including backup services, administration costs and redundancy costs

Prior to the Electricity Authority resolution, IEC customers carried the total

system costs, while subsiding the IPP’s consumers. The resolution should lead to

an equitable distribution of these costs among all electricity consumers and

eliminate the cross-subsidy existed between IEC’s customers and private

producers

As part of the regular Tariff update in September 2015, the average Tariff was

decreased by 5.89%

The aforementioned reduction is consisted of:

A reduction of 1.5% due to the transfer of payments from IEC’s customers to

the private producers customers, following the resolution on system-wide

costs

A decrease of 4.4% which derived primarily from the decline in coal prices,

the dollar exchange rate, interest rates and major indices

19

Electricity Sector Structure

On July 22, 2013, the Ministers appointed a Steering Team for the execution of a reform in the electricity sector and the Electric Company, headed by Mr. Uri Yogev, who is at

present the Director General of the Government Companies Authority Authority (the “GCA”). On March 23, 2014, the draft of recommendations of the Steering Team was published

for comments by the public until May 11, 2014 .

On May 7, 2014, the Company presented the Steering Team with its initial reaction and position with regard to all the recommendations of the Steering Team. The Company’s

comments are focused on two major issues: the scope of the future development of the electricity sector (with emphasis on the generation segment) and ensuring long-term stable

financial strength for the Company.

On September 8, 2014, the Company received a copy of a letter sent by the Director General of the GCA, addressed to the Chairman of the New National Labor Federation,

entitled "Government's position regarding Israel Electric Corporation Ltd.". The letter contained a summary of the final proposal for the structural reform, which is acceptable by the

Minister of Finance and Minister of National Infrastructure, Energy and Water Resources. The proposal includes, inter alia, the restructuring plan and its impact on workers' rights

(the “Yogev Letter”).

On September 11, 2014, a copy of the letter of Mr. Uri Yogev and Mr. Kobi Amsalem, the Director of Wages Department of the Ministry of Finance, addressed to the Chairman of

the New National Labor Federation, regarding the “Position of the State regarding the Israel Electric Company Ltd. as of September 8, 2014”, was sent to the Company.

The issues included in the Draft Report and the Yogev Letter may be of great importance to the Company, its financial position and the continued functioning of the Company as an

essential service provider.

During November 2015, the ministers assigned the Director General of the Ministry of Energy and the Director General of the Ministry of Finance with the task of starting a process

to formulate the government’s position and to renew negotiations and talks for implementation of the reform in the electricity sector, with the participation of the relevant government

entities, the Company and the employees’ representatives.

A hearing was held at the National Court of Labor on January 14, 2016, at which the parties reached a consent, under which the outline of the reform in the Company will be

promoted by April 30, 2016, and at the same time intensive negotiations will be conducted between the parties, during which they will discuss all the issues related to

implementation of the reform and its implications on the working conditions of the employees and their occupational security. The negotiations will be held under the auspices of the

Court.

A hearing was held on May 2, 2016 at the National Court of Labor, within which the parties notified the court that they have decided to conduct intensive negotiations regarding the

reform and the employees’ rights. At the parties’ request, the continuing negotiations between the parties will be accompanied by the court.

During November 2015, the ministers assigned the Director General of the Ministry of Energy and the Director General of the Ministry of Finance with the task of starting a process

to formulate the government’s position and to renew negotiations and talks for implementation of the reform in the electricity sector, with the participation of the relevant government

entities, the Company and the employees’ representatives. Several meetings were held between the parties during the past months, within which an intention to appoint three

dedicated teams to promote the issue was agreed upon, and the operating team of the structure and format of the electricity sector has begun operating. An agreed outline has not

yet been formulated and the Company does not yet know if and how the aforesaid outline which will be finally formulated will be different from the Draft Recommendations of the

Steering Team.

The Company regards the implementation of the structural change as a milestone in establishing and reinforcing the financial strength of the Company. However, in the opinion of

the Board of Directors and the Management of the Company, the Electricity Sector Law, in its current version, does not deal with all of the issues that the Structural Change causes

to the Company, and does not regulate in detail the manner of its execution, as well as the ways to establish and reinforce the financial strength of the Company. In the opinion of

the Company, a real structural change in the Company is vital to its ability to fulfill the functions that are imposed upon it by the Electricity Sector Law and it intends to continue to

operate, to the extent possible, to advance a structural change in the real outline, with the consent of the Employees' Organization and the relevant State entities.

Notes: • For additional details regarding the structural change see the IEC’s 2013 , 2014 ,2015 Annual financial statements and Q1-2016 Financial Statements.


Review the optimal structure

of the electricity sector

Propose an overall reform in

the electricity sector

The system management unit will be established as a separate government owned company

IEC will sell certain power stations and in parallel construct and/or convert existing power stations. Some power stations

will be transferred to a fully owned subsidiary. At the end of the period, the company’s market share is expected to be no

more than 58%

Privately owned entities will be incorporated in the distribution segment as secondary suppliers of up to 10% of total

consumption. In the supply segment, private power producers will be able to compete with the company, supplying

electricity generated by them or other generators

IEC will construct and operate the smart grid

Assets that are not used by the Company and not required by it to develop the electricity chain in accordance with the

Assets List or in accordance with the determination of the Reserves Committee will be sold by the Electric Company to

the State. assets that are serving the Company in the electricity chain – the ownership or lease arrangements in effect to

date will be continued.

Maintain the financial strength

of the Company

By 2025, IEC’s equity to total assets ratio will reach 35%

Executing public issues of shares in 2015 and 2018 according to a road map, after which the control of the Electric

Company will remain in the hands of the State

Review an efficiency plan for

the Company

Executing a comprehensive reorganization plan for reducing the Company’s employee ranks, reinforcing the

management capability of the Company management that will allow the necessary flexibility for the Company’s activities

as a commercial company

Electricity Sector Structure – The Yogev Committee

Main Draft Report Recommendations

Notes: • The full draft of the recommendations is available on the Ministry of National Infrastructures, Energy and Water Resources’ website. The full extract of the State’s proposal is available in the

immediate report dated 9 September 2014 and immediate report dated 15 September 2014. • For additional details regarding the structural change see the IEC’s 2013 ,2014, 2015 Annual Financial Statements and Q1-2016 Financial Statemets. • To the best of the Company’s knowledge, as of the date of the report, the final report of the Steering Team has not been published, and the Company does not know if and when a final report

as stated is intended to be published, and the Company also does not know if and when any structural change based on the Yogev letter, the existing Electricity Sector Law or on any other scheme, will be implemented.


Financial Overview

22

1.8

2.8 2.6 2.2

3.9 3.5

1.9 1.7

0.5 0.3

0.7

0.6 0.6

0.6

0.8

0.7

0.7 0.8

0.3 0.1

0.7

0.8 1.1 1.2

1.4

0.9

0.9 1.2

0.4 0.3

3.1

4.3 4.3 3.9

6.2

5.1

3.5 3.7

1.2 0.8

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 3M-2015 3M-2016

NIS bn

Generation segment Transmission segment Distribution segment

Financial Highlights

Revenues EBITDA(1)(2)(3)

Historical Investments (CapEx) Net Debt/EBITDA(4)

26.4

20.4 20.5

25.4 28.3 27.7

25.3 23.1

5.7 5.4

0

10

20

30

40

2008 2009 2010 2011 2012 2013 2014 2015 3M-2015 3M-2016

NIS bn

$1.4

7.9 7.2 7.5

3.9

1.6

9.8 10.8

7.2

2.0 2.2

0

3

6

9

12

2008 2009 2010 2011 2012 2013 2014 2015 3M-2015 3M-2016

NIS bn

-New IAS 19 19 Old IAS -

Source: IEC’s financial statements. 1. EBITDA is calculated as Income from Current Operations plus D&A; 2) 2011-2013 EBITDA are adjusted for changes in regulatory assets; 3) 2012 EBITDA is adjusted to one time expense related to

purchasing power adjustment of pension funds. 4) Net debt is calculated as total financial debt minus cash ,cash equivalents and short term investments; 5) 2011 debt number is not adjusted to new IAS 19; 6) In annualized terms, calculation based on LTM EBITDA.

Denotes USD figures at USD/NIS average exchange rate of 3.58, 3.89, 3.95 and 3.91 for the period of 2014A, 2015A, 3M’2015 and 3M’2016, respectively.

– New IAS 19 – Old IAS 19

0.9x 0.9x 0.2x

0.3x

0.8x 0.6x

0.2x 0.2x

6.1x 6.3x 5.9x

11.6x

5.1x 4.3x

6.2x 5.9x

0

3

6

9

12

15

2008 2009 2010 2011 2012 2013 2014 2015 3M-2016

Net Debt/EBITDA ex.Gov Gov add on

(5) (6)

32.1x

Investor Relations

$5.9

$7.1

$1.4

$3.0

$1.8

$0.5

$1.0

$0.3

$1.0

IFRS Prepared According to Government Companies Regulations IFRS Prepared According to Government Companies Regulations

IFRS Prepared According to Government Companies Regulations IFRS Prepared According to Government Companies Regulations

23

$0.6

$0.2

Historical Cash Flow

Source: IEC’s financial statements. 1. Investment activities excluding repayment (or deposits) of bank deposits. Total cash from investment activities figures as reported for 2014A, 2015A, 3M-2015 and 3M-2016 are NIS(5.92bn), NIS(0.93)bn, NIS1.85bn and NIS0bn, respectively;

2) Total liquidity includes cash and cash equivalents, short term investments and available credit facilities. Denotes USD figures at USD/NIS average exchange rate of 3.58 and 3.89, 3.95 and 3.91 for the period of 2014A and 2015A, 3M’2015 and 3M’2016, respectively.

(1.1)

5.8

10.4

7.6

1.9 2.0

(5.1) (4.5)

(4.0) (3.1)

(0.8) (0.2)

8.4

(1.6)

(3.4)

(8.7)

(4.7)

(0.8)

4.2 3.9

7.9

4.3

(14)

(9)

(4)

1

6

11

2012 2013 2014 2015 3M-2015 3M-2016

NIS bn

Operating activities Investment activities, net Financing activities Total Liquidity

$2.9

$2.0

$0.5 $0.5

($0.2)

($0.1)

($1.2)

($0.2)

Generating sufficient cash flow from operations enabling IEC to decrease financial debt

Investor Relations

(2) (1)

IFRS Prepared According to Government Companies Regulations

($1.1)

($1.0) ($0.8)

($2.2)

24

48,588

43,334 42,905

45,575

51,824

49,958

46,869

44,580

43,551

40,000

45,000

50,000

55,000

60,000

2008 2009 2010 2011 2012 2013 2014 2015 3M-2016

(ILS, mn)

$13.1

$11.5

$11.1

Net Debt Over Time

Source: IEC’s financial statements. Note: Net debt is calculated as total financial debt minus cash ,cash equivalents and short term investments. Denotes USD figures at USD/NIS average exchange rate of 3.58 and 3.89 and 3.91 for the period of 2014A and 2015A and 3M’2016, respectively.

Investor Relations

Prepared According to Government Companies Regulations IFRS

Old IAS 19 New IAS 19

25

Fixed 89.1%

Floating 10.9%

Consolidated Debt Breakdown

Source: IEC’s financial filings, IEC. 1. Includes NIS 2.49bn of perpetual bonds as of March 2016.

Annual Debt Maturities as of March 31, 2016 (Principal in NIS billions)

3.7 4.0

7.5

2.9

0.5 1.4

0.3

0.8

4.2

5.4

7.8

3.7

0

3

6

9

12

15

First year Second year Third year Fourth year Fifth year and thereafter

(NIS bn)

Local bonds, private bonds and non-bank loans Loans from local and foreign banks

Debt by Currency(1) Type of Instrument(1) Source of Debt(1)

NIS 35.0%

Euro 3.7%

USD 55.7%

Other 5.6%

State guaranteed

3.5%

Non-guaranteed

by state 96.5%

21.2

Interest Rate Exposure(1)

Investor Relations

ILS bonds 7.1%

Private bonds and non-bank

loans 83.5%

Israeli bank loans 3.5%

Non-Israeli bank loans

6.0%

26

Income Statement (NIS in millions)



(NIS in millions)

31/12/2015 31/03/2015 31/03/2016

Revenues 23,058 5,735 5,387

Cost of operating the electricity system

Fuels 8,440 2,152 1,735

Purchases of electricity 2,653 459 741

Operation of the generation system 4,042 1,011 978

Operation of the transmission and distribution system 3,151 763 758

Total costs 18,286 4,385 4,212

Profit from operating the electricity system 4,772 1,350 1,175

Sales and marketing expenses 904 235 226

Administrative and general expenses 763 236 175

Expenses (income) from liabilities to pensioners 531 (12) (286)

EBIT 2,574 891 1,060

EBITDA 7,152 1,991 2,194

Financial expenses 1,778 572 218

Income before income tax 796 319 842

Taxes on income 217 79 (122)

Profit after income tax 579 240 964

Company's share of the loss of asociated company (12) (3) (1)

Income before movement in regulatory deferral accounts 567 237 963

Movement in regulatory deferral accounts balances, net of tax (344) (185) (348)

Profit for the period223 52 615

Loss with respect to cash flow hedging, net of tax (13) (19) 20

Remeasurement of a defined benefit plan, net of tax 131 (716) (195)

Other Comprehensive income for the period, net of tax 118 (735) (175)

Comprehensive income for the period 341 (683) 440

For the year: For The Three Months Ended:

Balance Sheet (NIS in millions)



(NIS in millions)

Assets 31/12/2015 31/03/2015 31/03/2016 Liabilities and Equity 31/12/2015 31/03/2015 31/03/2016

Current assets Current liabilities

Cash and cash equivalents 2,524 3,596 3,702 Credit from banks and other credit providers 2,756 3,664 4,589

Short term investments 407 - 188 Trade payables 1,753 1,801 1,520

Trade receivables for sales of electricity 4,145 4,481 3,780 Other current liabilities 1,877 1,725 1,729

Other current assets 715 839 632 Customer advances, net of work in progress 496 449 492

Inventory - fuel 839 951 684 Provisions 726 758 760

Inventory - stores 132 147 131 Total current liabilities 7,608 8,397 9,090

Total current assets 8,762 10,014 9,117

Non-current liabilities

Debentures 34,923 36,045 32,341

Non-current assets Liabilities to banks 5,248 5,561 5,530

Inventory - Fuel 1,124 1,578 1,017 Liabilities with respect to other benefits after employment 2,732 3,341 2,771

Long-term receivables 1,659 1,944 1,420 Provision for refunding amounts to consumers 2,758 2,667 2,755

Investment in associate 74 83 73 Deferred taxes, net 5,788 5,409 5,482

Assets with respect to benefits after employment termination 7,207 5,489 7,187 Debentures and liability to the State of Israel 5,102 5,386 4,914

Fixed assets, net 62,442 63,395 62,023 Other liabilities 756 674 696

Intangible assets, net 1,295 1,382 1,294 Total non current liabilities 57,307 59,083 54,489

Total non-current assets 73,801 73,871 73,014 Equity 16,694 15,670 17,134

Debit balance of regulatory deferral accounts 837 2,624 713 Credit balance of regulatory deferral accounts 1,791 3,359 2,131

Total assets and debit balance of regulatory deferral

accounts83,400 86,509 82,844

Total liabilities, equity and credit balance of regulatory

deferral accounts83,400 86,509 82,844

Contacts

Thank you

For questions or additional information, please contact us:

Israel Electric Corp. Investor Relations: [email protected]

29

Appendices

30

Government and IEC Cooperated to Bridge the Natural Gas Shortage

The Government and the Electricity Authority acknowledged the short-term liquidity shortfall caused by the natural

gas shortage in 2011/12 and together with IEC planned and executed a series of temporary support measures to

help bridge the gap

Delayed

Deposits to

Designated

Account

Gradual Tariff

Increase Regulatory

Changes to

Fuel Mix

Government

Guarantees

for Local

Debt

Natural Gas

Shortage

• Disruptions to the

natural gas supply

from Egypt

• Expedited depletion of

the Yam Tethys

reserve

• As a result, IEC

shifted to more

expensive back-up

liquid fuels

Long-Term

Solution

• Sufficient supply of

natural gas (Tamar

online since March

2013 and LNG

terminal)

• Higher costs of

alternative fuels were

ultimately be reflected

in the tariff

Temporary

Diesel Oil

Purchase Tax

Reduction

2011 2014 Short-Term

Liquidity Shortage

Return to Normal

Operations

Government Support


Tariff Comparison to OECD Countries

The electricity rate in Israel is lower than most of OECD peers

Source: Eurostat, Electricity prices for domestic consumers – bi-annual data, as of 5/2/2016. Israel rate is based on the last Tariff update (9/13/15) and converted using an exchange rate of 4.30 as of 5/2/16. Average national price in Euro per kWh without taxes for medium size household consumers (consumption band DC with annual consumption between 2,500 and 5,000 kWh).

Average Price per KWh(1)

Investor Relations

20.8 19.9

18.4 18.6

14.6 14.8 14.3

9.4

12.4 12.3 12.3 12.3 12.0 11.5

10.6 9.9

11.1 11.3 11.0

9.7

11.1 10.6

10.1 10.0 9.5 9.4 9.0

8.6 8.0

0

5

10

15

20

25

Unite

d K

ingdom

Irela

nd

Be

lgiu

m

Sp

ain

Cyp

rus

Italy

Germ

any

Denm

ark

Au

stria

Neth

erla

nds

Slo

vakia

Gre

ece

Sw

eden

Po

rtuga

l

Norw

ay

Po

lan

d

Slo

venia

Latv

ia

Turk

ey

Fra

nce

Isra

el

Cze

ch R

epublic

Fin

lan

d

Cro

atia

Esto

nia

Rom

ania

Hungary

Lith

uania

Bu

lga

ria

(€ cents equivalent)

32

Current Electricity Sector Law

The Electricity Sector Law, enacted in 1996 and setting forth a regulatory framework for the electricity sector reform, has been

amended several times

The Company believes that the Electricity Sector Law enables a gradual process through which IEC will be restructured as a holding

company and its activities will be separated into several majority owned subsidiaries holding generation and distribution licenses and

one subsidiary holding a transmission license

IEC’s View of the Electricity Sector Law

System Management

(State owned)

Government

of Israel

Generation

(privatization of

at least 49%)

Transmission

(decision by

the ministers 1.1.2017)

Distribution

(privatization of

at least 49%)

Services

(partially limited)


IFRS Implementation

Following are the main gaps between the Government Companies Regulations which were implemented until 2014 and the IFRS, which has

been applied on IEC since January 1, 2014:

Asset Impairment – According to the Government Companies regulations (SFAS 90 rules), IEC tests a provision for impairment of assets

which completed recently and in addition, implements the provisions of IAS 36, separately. According to IFRS, when testing asset

impairment there is no differentiation between assets which completed recently and other assets. According to the last tariff update, IEC

reversed part of the impairment it executed which were implemented under SFAS 90 rules.

Investments in Operational Power Stations (including Renovations) – The Electricity Authority determined that the cost of investments in

operational power stations which includes significant renovations will not be recognized as an additional fixed asset but as an operational

expense. Under the IFRS, the investment cost in operational power stations is capitalized to the cost of fixed assets.

Capitalization of Financing Costs and Return of Capital – According to the Government Companies regulations (RE 6 rules), IEC capitalizes

financial and credit expenses and return to capital, which are recognized as part of the tariff, to the cost of under construction asset.

According to IAS 23 it is possible to capitalize financial costs that can be attributed directly to an asset under construction, in case it

constitutes a qualifying asset. However, it’s not possible to capitalize the return to capital component to such an asset.

Preparing Adjusted Financial Statements – According to the Government Companies regulations, IEC applies the provisions of Opinion N.36

with regard to the preparation of Financial Statements adjusted by changes to the exchange rates purchasing power of the Israeli currency.

According to IFRS, the financial statements may not be prepared under those provisions, except under conditions of Hyperinflation. Because

of the “Deemed cost” mitigation set in IFRS 1, prior to the transition to IFRS, the fixed assets balance was adjusted with respect to changes

in the exchange purchasing power rate.

Regulatory Assets / Liabilities – According to the Government Companies regulations (RE 6 rules), any net change in Regulatory Assets or

liabilities is presented as a decrease in income or decrease in operating/financing costs. According to IFRS, any net change is presented as

a separate item under the statement of comprehensive income. In addition, the Regulatory Assets is recognized as deferred accounts and

will be presented as separate items under separate balance category.

Cash Flow Statement – According to the Government Companies regulations, paid interest is classified under current operations in the cash

flow statement. According to IFRS, paid interest shall be classified under financing activity (while received interest remains as investment

activity).

Main Gaps between the Government Companies Regulations and IFRS(1)

Investor Relations

Source: IEC’s financial statements. 1. This summary is intended for information purposes only. For a full disclosure please read p.176-177 on the notes section of IEC’s 2014 annual report, note 36.

34

investor presentation - iec€¦ · israel electric corp. at a glance established in 1923, with...

Documents