2016 2016 Annual EtrionAnnual Report Report Corporation CHIEF EXECUTIVE OFFICER’S LETTER CHIEF EXECUTIVE OFFICER’S LETTER 2 MANAGEMENT’S DISCUSSION AND ANALYSIS INTRODUCTION 6 Management’s Discussion and Analysis 6 Non-IFRS Financial Measures and Forward-Looking Statements 6 Operational Highlights 7 Financial Highlights 7 BUSINESS REVIEW 8 Business Overview 8 Operation Review 10 Development Activities 15 Solar Market Overview 17 FINANCIAL REVIEW 19 Financial Results 19 Financial Position 25 Capital Investments 27 Critical Accounting Policies and Estimates 28 Related Parties 29 Financial Risk Management 29 Derivative Financial Instruments 30 RISKS AND UNCERTAINTIES 30 Financial Risks 30 Non-Financial Risks 30 ETRION OUTLOOK AND GUIDANCE 31 DISCLOSURE CONTROLS AND INTERNAL CONTROL OVER FINANCIAL REPORTING 32 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION 34 ADDITIONAL INFORMATION 34 AUDITED CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT 35 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 37 CONSOLIDATED BALANCE SHEET 38 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 39 CONSOLIDATED STATEMENT OF CASH FLOW 40 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 41 9 2 109 MW 9 solar ower lants 2 countries 109 MW o installed solar caacity 17 MW 45 + 200 MW 174,600 MWh 17 MW under construction 45 MW as acklog and roduced 174 million in aan 200 MW as ieline k in 6 develoment in aan This is Etrion Etrion is an independent power producer that develops, builds, owns and operates utility-scale solar power generation plants. Etrion is a solar platform with a proven track record operating assets in Japan and Chile. The Company has gross installed solar capacity of 109 MW plus 17 MW under construction or pre-construction, 45 MW of backlog projects and 200 MW of additional pipeline. › 1 ‹ CHIEF EXECUTIVE OFFICER’S LETTER Dear Shareholders, A transformative year Italy We completely reshaped our business model in In December 2016, the Company completed 2016, moving from a multi-continent footprint the sale of its 60 MW Italian solar portfolio to to a Japan-focused company. This decision was EF Solare Italia, a joint venture owned equally based on the strong growth opportunities and by Enel Green Power S.p.A. and Fondo Italiano attractive economics for solar projects in Japan. per le Infrastrutture. We received total cash We took advantage of the robust market for consideration of EUR 78 million at closing operating assets in Europe and sold our Italian and could receive up to an additional EUR 24 business at a premium to reduce corporate million in earn-out payments, depending on debt and to fund growth without shareholder the outcome of certain legal and tax matters. dilution. We exited 2016 with $42 million in With the closing of this transaction, the Group unrestricted cash and a team fully dedicated to has fully exited from its business in Italy. Until Japan. the date of disposal, the 17 solar power plants in Italy produced approximately 98.8 GWh. We started 2016 with one operational asset in Japan of 9.3 megawatts (“MW”) and exited Chile with 34 MW operational and another 22.7 MW financed and currently under construction. We continue to hold a 70% ownership in We made significant progress on our 45 MW Project Salvador, the 70 MW solar park backlog Kumamoto project where we expect operating in northern Chile. Based on current to commence construction this year. We spot market prices there, we do not expect further strengthened our relationship with our cash distributions in the near future. However, local partners and stakeholders, all aligned to we plan to keep this asset on our balance sheet support our growth in Japan. for the time being as an option in case Chilean electricity prices improve in the future. Japan Outlook for 2017 and beyond The Company produced approximately 15.2 gigawatt-hours (“GWh”) from our 34 MW Looking forward, 2017 promises to be another portfolio of six operating solar plant sites in exciting year for Etrion. We expect to exit 2017 Japan. This represents an overall production with approximately 100 MW operational and/ increase of 176% year-over-year and includes or under construction and a pipeline of another our 24.7 MW Shizukuishi facility that entered 200 MW, all in Japan. With significant cash commercial operations in October 2016. on hand, we are fully funded through 2018, The Company continues to progress on the freeing up management to focus on execution. construction of both the 9.5 MW Aomori project and the 13.2 MW Komatsu project. In February We maintain our bullish view and see enormous 2017, the first two sites of Aomori, totaling 5.3 opportunities in Japan. There is an established MW, were connected to the electricity grid and regulatory and pricing framework for Japanese started producing revenues. These projects solar projects. Financing is readily available for would not have happened without the strong Etrion on excellent terms. Investors are hungry contributions of our local partner in Japan, for the predictable yield that infrastructure Hitachi High-Technologies. assets provide, especially in the low interest rate environment in Japan. We are confident › 2 ‹ that we can realize substantial gains from our projects if and when we are ready to monetize these investments. Finally, we have an established, well-regarded platform in Japan with a strong local team and an invaluable partnership with Hitachi High-Technologies. Growing our pipeline in this market will continue to be our main focus in 2017. On behalf of our entire organization, thank you for your support over the past year. We are committed to delivering value to all Etrion stakeholders. Kind Regards, “Marco A. Northland” Marco A. Northland, CEO and Director › 3 ‹ MANAGEMENT’S DISCUSSION AND ANALYSIS Year ended December 31, 2016 › 5 ‹ MANAGEMENT’S DISCUSSION AND ANALYSIS This management’s discussion and analysis (“MD&A”) for Etrion Corpora on (“Etrion” or the “Company” and, together with its subsidiaries, the “Group”) is intended to provide an overview of the Group’s opera ons, financial performance and current and future business opportuni es. This MD&A, prepared as of March 10, 2017, should be read in conjunc on with the Company’s consolidated financial statements and accompanying notes for the year ended December 31, 2016. Financial informa on is reported in United States dollars (“$” or “USD”). However, certain material financial informa on has also been reported in Japanese yen (“¥”) and Euros (“€”), because the Company has its main business ac vi es in Japan and had opera ons in Italy, which were fully divested in December 2016. The Company remains with an asset in Chile that is reported in $. Exchange rates for the relevant currencies of the Group with respect to the $ and the € are as follows: €/¥ $/¥ €/$ Closing rate at December 31, 2016 123.06 117.11 1.05 Closing rate at December 31, 2015 131.68 120.41 1.09 Twelve months average rate December 31, 2016 120.35 108.84 1.11 Twelve months average rate December 31, 2015 134.27 121.03 1.11 The capacity of power plants in this document is described in approximate megawa s (“MW”) on a direct current basis, also referred to as megawa -peak. NON-IFRS FINANCIAL MEASURES AND FORWARD-LOOKING STATEMENTS The terms “adjusted net income (loss)”, earnings before interest, tax, deprecia on and amor za on (“EBITDA”), “Adjusted EBITDA”, “solar segments EBITDA” and “adjusted opera ng cash flow”, used throughout this MD&A, are non-IFRS measures and therefore do not have standardized meanings prescribed by IFRS and may not be comparable to similar measures disclosed by other companies. The basis for calcula on has not changed and has been applied consistently by the Company over all periods presented. Adjusted net income (loss) is a useful metric to quan fy the Company’s ability to generate cash before extraordinary and non-cash accoun ng transac ons recognized in the financial statements (the most comparable IFRS measure is net income (loss) as reconciled on page 22). EBITDA, including solar segments EBITDA, is useful to analyze and compare profitability between companies and industries because it eliminates the effects of financing and certain accoun ng policy decisions, while Adjusted EBITDA is also useful because it excludes expenses that are expected to be non-recurring (the most comparable IFRS measure is net income (loss) as reconciled on page 22). In addi on, adjusted opera ng cash flow is used by investors to compare cash flows from opera ng ac vi es without the effects of certain vola e items that can posi vely or nega vely affect changes in working capital and are viewed as not directly related to a company’s opera ng performance. This MD&A contains forward-looking informa on based on the Company’s current expecta ons, es mates, projec ons and assump ons. This informa on is subject to a number of risks and uncertain es, many of which are beyond the Company’s control. Users of this informa on are cau oned that actual results may differ materially from the informa on contained herein. For informa on on material risk factors and assump ons underlying the forward- looking informa on, refer to the “Cau onary Statement Regarding Forward-Looking Informa on” on page 33. › 6 ‹ FOURTH QUARTER AND FULL YEAR 2016 HIGHLIGHTS OPERATIONAL HIGHLIGHTS FINANCIAL HIGHLIGHTS . In December 2016, the Group completed the sale of its . Generated revenues and solar segments EBITDA of $15.2 60 megawatts (“MW”) Italian solar portfolio to EF Solare million and $7.0 million, respectively, Italia, a joint venture owned equally by Enel Green . Generated a gain on the sale of its Italian assets of $61.3 Power S.p.A. and Fondo Italiano per le Infrastrutture million.