Etrion Corporation today released its annual consolidated financial statements, related management's discussion and analysis ("MD&A") and annual information form ("AIF") for the year ended December 31, 2015. Etrion also announces the 2016 guidance for project level revenues, EBITDA and electricity production regarding its operational solar parks in Italy, Chile and Japan and fully-funded project under construction in northern Japan.
- Development: Advanced the development of three projects in Japan for a total capacity of 76MW. Management expects to have these backlog projects shovel ready, close the financing and break ground in 2016. The Company is advancing the development of additional projects in Japan which are targeted to be shovel ready in the 2017-2018 time frame.
- Construction: The Company is advancing on the construction of the 24.7MW Shizukuishi project in northern Japan. The project is on budget and on schedule, with estimated connection to the electricity grid in the third quarter of 2016.
- Operations and Maintenance ("O&M"): The Company completed the renegotiation of the O&M agreements for all the Group's Italian and Chilean operating subsidiaries, representing an aggregate capacity of 130 MW, reducing costs by approximately 35% on average and securing annual savings of US$2.8 million.
- Production: Produced approximately 265GWh in 2015 compared to 100.7GWh in 2014, from the Company's 139MW portfolio comprising 23 solar power plants in Italy, Chile and Japan. When broken down by country, in Italy the Company produced 102.4GWh (2014: 100.7GWh), in Chile produced 157.0GWh and in Japan produced 5.5GWh representing an overall production increase of 163% year-over-year.
- Corporate: The Company's headquarters relocated from Geneva, Switzerland to Miami, Florida, United States and relocated its Italian operations from Rome to Rovereto as part of its cost optimization plan.
- Revenue: Generated revenues of US$50.4 million (2014: US$49.6 million) during the year ended December 31, 2015, from the Company's 139MW portfolio comprising 23 solar power plants in Italy, Chile and Japan.
- EBITDA: Recognized earnings before interest, taxes, depreciation and amortization ("EBITDA") of US$27.4 million (2014: US$32.5 million) during the year ended December 31, 2015.
- Cash and Working Capital: Closed the year ended December 31, 2015 with a cash balance of US$52.5 million, of which US$17.6 million is unrestricted (December 2014: US$95.3 million) and positive working capital of US$1.5 million (December 2014: US$36.5 million).
- VAT Reimbursement: Fully repaid Project Salvador's total outstanding VAT credit facility of US$24 million five months ahead of schedule following cash reimbursement from the Chilean tax authorities for VAT credits accumulated during construction.
- Italian refinancing: In December 2015, the Company completed the refinancing of a majority of its Italian solar parks. The refinancing included a project bond listed on the Italian Exchange, a project finance loan and a debt service reserve facility. The Company's previous outstanding project debt and associated interest rate swap contracts were repaid and the Company entered into new contracts to hedge 90% of interest payments for both the project bond and loan for the entire new tenor.
Marco A. Northland, the Company's Chief Executive Officer, commented, "I am very excited about 2016; Japan should continue to be a terrific market for Etrion. Our target is to have over 100MW of projects connected or under construction and a larger pipeline for realization in subsequent years. Project economics continue to be very attractive and the partnership with Hitachi High-Tech remains very strong. Italy continues to deliver strong cash flows, which were significantly improved through a series of initiatives, including a comprehensive refinancing, introduction of several cost cutting measures and successful commercial activities. We still have additional upside in Italy which we expect to secure. We will communicate this as it is implemented.
In Chile, the team has done a great job by securing a Power Purchase Agreement ("PPA") for 70GWh for Project Salvador, starting January 2016. The team continues to work around the clock to secure additional PPAs for the remaining capacity of Project Salvador and our pipeline as well. In summary, our diversification strategy is paying off and I look forward to exiting 2016 with a stronger platform and substantial growth opportunities."
During 2015, Etrion reported a net loss of US$18.7 million (loss per share of US$0.05) compared to a net loss of US$16.5 million (loss per share of US$0.05) during 2014. Despite negative consolidated net results, primarily attributable to lower than expected spot electricity prices, exchange rate movements and the impairment of US$2.9 million in capitalized development costs, the Company reported a gross profit of US$16.9 million (2014: US$25.9 million) and generated adjusted operating cash flow of US$29.4 million (2014: US$31.6 million). In addition, the net results for 2015 were adversely impacted by non-cash finance costs of US$6.6 million of accelerated amortization of transactions costs (associated the previous outstanding project debt) upon completion of the Italian refinancing transaction.
Etrion will prepare and update on a regular basis forecasts for project level revenues and EBITDA information regarding its operational and fully-funded solar parks. The purpose of these forecasts is to provide investors with management's view on the expected performance of the Company's solar assets. Readers are advised to not place undue reliance on these forecasted financial and operational information because it may not be appropriate to use for purposes other than indicated. Etrion's consolidated project-level forecast for 2016 is in the following ranges:
Revenue, project-level EBITDA and production forecast for the Italian operating platform, incorporated in the above consolidated guidance, are based on Etrion's 100%-owned, 60MW solar portfolio in Italy. The weighted average FiT price applicable to the Italian portfolio is €0.30 per kWh for the 15 years remaining contract average life. The Italian spot price, currently €0.05 per kWh, has been projected based on independent third party estimates. Italian project-level EBITDA forecast is net of asset management service fees that are recharged to the operating projects as part of operational expenses. In Italy, revenues are received in Euros and are translated using the €/US$ exchange rate of the corresponding period. Consequently, revenues expressed in US dollars may fluctuate according to exchange rate variations.
Revenue, project-level EBITDA and production forecast for the Chilean platform, incorporated in the above consolidated guidance, are based on Etrion's 70%-owned, 70MW operational solar park, Project Salvador, located in northern Chile, and are incorporated on a net basis. Electricity production in Chile assumes curtailments on 25% of the total production capacity of the Project Salvador power plant. Revenue has been calculated using the PPA price of US$0.10 per kWh for the first 70 GWh of production and a spot price forecast prepared by the Chilean grid operator for the remaining electricity production of Project Salvador. Chilean project-level EBITDA is net of asset management service fees that are recharged to the operating project as part of operational expenses. In Chile, revenues are calculated with reference to the US dollar, which is also the reporting currency of the Group and therefore revenues forecast are not subject to exchange rate fluctuations.
Revenue, project-level EBITDA and production forecast for the Japanese platform, incorporated in the above consolidated guidance, are based on Etrion's 87%-owned, 34 MW operational and under construction Japanese portfolio comprising the Mito and the Shizukuishi solar parks, located in central and northern Japan, respectively, and are incorporated on a net basis. These projects benefits from 20-year PPAs with the Japanese public utility, Tokyo Electric Power Company and the Tohoku Electric Power utility, respectively, under which they will receive ¥40 per kWh produced (approximately US$0.33 per kWh). Shizukuishi construction-related work began in October 2014, and the solar project is expected to connect to the grid in the third quarter of 2016. In Japan, revenues are received in Japanese Yen and are translated using the ¥/US$ exchange rate of the corresponding period. Consequently, revenues expressed in US dollars may fluctuate according to exchange rate variations.
Project economics forecasts
Etrion has forecasted revenue, EBITDA and electricity production at the project level for the fiscal year ending December 31, 2016 based on the assumptions set out below. These forecasts include financial measures not defined under IFRS, specifically EBITDA. Non-IFRS measures have no standardized meaning prescribed under IFRS and therefore such measures may not be comparable with those used by other companies. Such forecasted financial information provides a financial outlook on the basis and for the year described above, and this information may not be appropriate for any other purposes.
Basis of preparation of the forecasts
The revenue forecasts have been prepared on a basis consistent with the accounting policies that are expected to be used in the Group's consolidated financial statements for the year to be then ended. These policies are consistent with those set out in the accounting policies in the Group's consolidated financial statements for the years ended December 31, 2015 and 2014.
The project-level EBITDA forecasts have been prepared using a non-IFRS widely accepted methodology which consist of earnings before interest, tax, depreciation and amortization and is useful to analyze and compare profitability between companies and industries because it eliminates the effects of financing and certain accounting policy decisions.
Electricity production forecasts have been prepared using the installed production capacity of the solar power plants, the guaranteed availability and irradiation levels based on historical data from the various solar park locations.
Revenue and project-level EBITDA forecasts have been prepared using the project currency and translated, where applicable, to US dollars using the expected prevailing exchange rate of €/US$ 1:1.099 and ¥/US$ 1:121.2 based on projections made by the Company.
Assumptions for the forecasts
Factors outside the influence or control of management:
- There will be no major event or other circumstances which would cause a significant delay in the construction, completion and connection to the grid of new solar power plants.
- There will be no material change in the current management team, ownership of and control over the project level companies.
- There will be no material change in legislation or regulatory requirements impacting the Group's operations or its accounting policies.
- There will be no material differences between the actual or past recent weather and irradiation conditions and those anticipated or projected by management.
- There will be no material changes to general trading and economic conditions and no downturn in economic activity in Italy, Chile or in Japan, in each case, from that which is currently prevailing and/or anticipated by management which would cause a material change in levels of energy production and demand.
- There will be no major or international natural disasters, outbreaks of hostilities, terrorist attacks or other circumstances which would cause a material change in levels of energy production and demand.
- There will be no business interruptions that materially affect the Group, its major suppliers or its major customers.
- There will be no material change in interest rates from those currently prevailing, hedged and/or anticipated by management.
- There will be no material changes to the prices of energy electricity forecasted by the Group's projects.
Factors within the influence or control of management:
- There will be no loss of revenue due to underperformance of the solar projects which will have a material impact on the forecast.
- There will be no acquisitions and disposals by the Group which will have a material impact on the forecast.