investor presentation - iec · gas turbines power stations power stations 400 kv lines 161 kv lines...
TRANSCRIPT
Israel Electric Corp.
Investor
Presentation
Business update as of 12/31/2015
March 2016
1
Disclaimer
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 83.4 billion and 12,077 employees as of December 31, 2015
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
5,486km High voltage
transmission grid
201 Switching stations and sub-stations
Transmission
47,259km Medium and low
voltage lines
2.7mn Customers
Distribution
2015 Key Financials Credit Ratings
Revenues:
NIS 23.1 billion
EBITDA:
NIS 7.2 billion
EBIT:
NIS 2.6 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) Please refer appendix for further information
Denotes USD figures at USD/NIS average exchange rate of 3.89 for the period of 2015A.
Investor Relations
$5.9 $1.9 $0.7
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 3.86, 3.61, 3.58 and 3.89 for the period of 2012A, 2013A, 2014A and 2015A , 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
0
5
10
15
20
25
30
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
NIS bn
$5.9
IEC Revenues
IEC continues to provide Israel’s energy requirements as the sole integrated electric utility in Israel
Investor Relations
$7.7 $7.3
$7.1
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
Investor Relations 10
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
Source: IEC’s financial statements.
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 58.2%
Fuel oil 0.0%
Natural gas
41.7%
Diesel oil 0.1%
2014
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 3.86, 3.61, 3.58, and 3.89 for the period of 2012A, 2013A, 2014A and 2015A, 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 1.3
1.4
1.8
2.4 2.9
2.8 1.6 4.7
3.8 4.3 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
9.6 9.9
11.7
14.1
9.5 9.4
13.3
20.1
11.1
8.0 8.4
47.6% 46.6%
51.6% 53.4%
46.7% 45.9%
52.4%
70.9%
40.2%
31.7%
36.6%
-40%
-20%
0%
20%
40%
60%
0
5
10
15
20
25
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(NIS, bn)
Coal Nat Gas Fuel Oil Diesel as % of revenues
$3.1
$2.2 $2.2
$5.2
(2)
(1)
(1)
IEC’s fuel expenses have significantly decreased due to the availability
of natural gas from Tamar and as a result of coal prices decreased significantly
IFRS Prepared according to Government Companies Regulations
(1)
Investor Relations
Tamar online:
Return to
normal operations
Gas shortage:
Expenses more than
doubled in two years
14
Coal Prices
Source: World Bank Commodity Price Data (Pink Sheet), March 2016. 1. Calculated as average price of Australia, Colombia and South Africa Coal.
Coal Prices Development
Investor Relations
45
55
65
75
($/mt)
Coal, Average(1)
(39%)
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
Source: IEC’s financial statements.
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), March 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.
On March 2, 2016, an additional hearing was held at the National Court of Labor, in which it was decided that the parties will hold several meetings in order to advance the
negotiations regarding the reform.
Several meetings were held by the parties during recent months, but an agreed outline for the reform has not yet been formulated. The Company does not yet know if and
how the aforesaid outline which will be finally formulated will be different from the Steering Team’s Draft Recommendations.
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 and 2015 Annual financial statements.
Investor Relations 20
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 and 2015 Annual financial statements.. • 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.
Investor Relations 21
Financial Overview
22
1.8 2.8 2.6 2.2
3.9 3.5
1.9 1.7
0.7
0.6 0.6
0.6
0.8 0.7
0.7 0.8
0.7
0.8 1.1 1.2
1.4
0.9
0.9 1.2
3.1
4.3 4.3 3.9
6.2
5.1
3.5 3.7
0
2
4
6
8
2008 2009 2010 2011 2012 2013 2014 2015
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
0
10
20
30
40
2008 2009 2010 2011 2012 2013 2014 2015
NIS bn
7.9 7.2 7.5
3.9
1.6
9.8 10.8
7.2
0
3
6
9
12
2008 2009 2010 2011 2012 2013 2014 2015
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 3.61, 3.58, 3.89 for the period of 2013A, 2014A and 2015A, respectively.
– New IAS 19 – Old IAS 19
0.9x 0.9x 0.2x
0.3x
0.8x 0.6x
0.2x 6.1x 6.3x 5.9x
11.6x
5.1x 4.3x
6.2x
0
3
6
9
12
15
2008 2009 2010 2011 2012 2013 2014 2015
Net Debt/EBITDA ex.Gov Gov add on
(5) (6)
32.1x
Investor Relations
$7.1 $7.6
$5.9
$2.7
$3.0
$1.9
$1.0 $1.0
$1.4
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
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 2013A, 2014A, 2015A are NIS(4.97bn), NIS(5.88bn), NIS(2.59bn) and NIS(0.91bn), 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 for the period of 2014A and 2015A, respectively.
(1.1)
5.8
10.4
7.6
(5.1) (4.5)
(4.0) (3.1)
8.4
(1.6)
(3.4)
(8.7)
4.2 3.9
7.9
4.3
(14)
(9)
(4)
1
6
11
2012 2013 2014 2015
NIS bn
Operating activities Investment activities, net Financing activities Total Liquidity
$2.9
$2.0
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
40,000
45,000
50,000
55,000
60,000
2008 2009 2010 2011 2012 2013 2014 2015
(ILS, mn)
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.
Investor Relations
Prepared According to Government Companies Regulations IFRS
Old IAS 19 New IAS 19
25
Fixed 89.2%
Floating 10.8%
Consolidated Debt Breakdown
Source: IEC’s financial filings, IEC. 1. Includes NIS 2.5bn of perpetual bonds as of December 2015.
Annual Debt Maturities as of December 31, 2015 (Principal in NIS billions)
1.9
5.4 5.9 4.3 0.5
0.4
1.3
0.3
2.4
5.8
7.2
4.6
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 34.7%
Euro 3.6%
USD 56.5%
Other 5.3%
State guaranteed
3.5%
Non-guaranteed
by state 96.5%
23.4
Interest Rate Exposure(1)
Investor Relations
ILS bonds 4.0%
Private bonds and non-bank
loans 86.7%
Israeli bank loans 3.4%
Non-Israeli bank loans
5.8%
26
Income Statement (NIS in millions)
Source: IEC’s financial statements.
Investor Relations 27
(NIS in millions)
31/12/2014 31/12/2015
Revenues 25,305 23,058
Cost of operating the electricity system
Fuels 8,039 8,440
Purchases of electricity 1,708 2,653
Operation of the generation system 4,252 4,042
Operation of the transmission and distribution system 2,956 3,151
Total costs 16,955 18,286
Profit from operating the electricity system 8,350 4,772
Sales and marketing expenses 901 904
Administrative and general expenses 1,157 763
Expenses (income) from liabilities to pensioners (3) 531
EBIT 6,295 2,574
EBITDA 10,787 7,152
Financial expenses 2,838 1,778
Income before income tax 3,457 796
Taxes on income 916 217
Profit after income tax 2,541 579
Company's share of the loss of asociated company (12) (12)
Income before regulatory deferral accounts 2,529 567
Movement in regulatory deferral accounts balances, net of tax (2,064) (344)
Profit for the year465 223
Loss with respect to cash flow hedging, net of tax (6) (13)
Remeasurement of a defined benefit plan, net of tax 1,143 131
Other Comprehensive income for the year, net of tax 1,137 118
Comprehensive income for the year 1,602 341
For the year:
Balance Sheet (NIS in millions)
Source: IEC’s financial statements.
Investor Relations 28
(NIS in millions)
Assets 31/12/2014 31/12/2015 Liabilities and Equity 31/12/2014 31/12/2015
Current assets Current liabilities
Cash and cash equivalents 4,504 2,524 Credit from banks and other credit providers 8,355 2,756
Short term investments 2,559 407 Trade payables 1,925 1,753
Trade receivables for sales of electricity 4,546 4,145 Other current liabilities 1,631 1,877
Other current assets 537 715 Customer advances, net of work in progress 453 496
Inventory - fuel 1,053 839 Provisions 719 726
Inventory - stores 146 132 Total current liabilities 13,083 7,608
Total current assets 13,345 8,762
Non-current liabilities
Debentures 35,703 34,923
Non-current assets Liabilities to banks 4,742 5,248
Inventory - Fuel 1,509 1,124 Liabilities with respect to other benefits after employment 2,930 2,732
Long-term receivables 1,833 1,659 Provision for refunding amounts to consumers 2,675 2,758
Investment in associate 86 74 Deferred taxes, net 5,663 5,788
Assets with respect to benefits after employment termination 6,219 7,207 Debentures and liability to the State of Israel 5,439 5,102
Fixed assets, net 63,381 62,442 Other liabilities 683 756
Intangible assets, net 1,384 1,295 Total non current liabilities 57,835 57,307
Total non-current assets 74,412 73,801 Equity 16,353 16,694
Debit balance of regulatory deferral accounts 2,876 837 Credit balance of regulatory deferral accounts 3,362 1,791
Total assets and debit balance of regulatory deferral
accounts90,633 83,400
Total liabilities, equity and credit balance of regulatory
deferral accounts90,633 83,400
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
Investor Relations 31
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 10/09/2015. Israel rate is based on the last Tariff update (9/13/15) and converted using an exchange rate of 4.37 as of 9/14/15. 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
20.2 19.7
18.2 18.2
15.7 15.1
14.3
12.8 12.6 12.6 12.2 12.1 11.8 11.5 11.3 11.3 11.2
10.8 10.8 10.7 10.4 10.4 10.3 10.1 9.5 9.3
8.9 8.7 7.9
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
Tu
rkey
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)
Investor Relations 33
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