C O V E R S H E E T for AUDITED FINANCIAL STATEMENTS SEC Registration Number 0 6 9 - 0 3 9 2 7 4 C O M P A N Y N A M E A C EN E R G Y CO R P O R A T I O N ( Fo r m e r l y AC En e r g y Ph i l i p p i n e s In c . ) A N D SU B S I D I A R I E S PRINCIPAL OFFICE ( No. / Street / Barangay / City / Town / Province ) 4 t h Fl o o r , 67 5 0 Of f i c e To w e r , A y a l a Av e n u e , Ma k a t i C i t y Form Type Department requiring the report Secondary License Type, If Applicable AA F S SE C N/ A C O M P A N Y I N F O R M A T I O N Company’s Email Address Company’s Telephone Number Mobile Number N/A 7730-6300 – No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day) 3,182 04/20 12/31 CONTACT PERSON INFORMATION The designated contact person MUST be an Officer of the Corporation Name of Contact Person Email Address Telephone Number/s Mobile Number ALAN T. ASCALON [email protected] (02) 7730-6300 – CONTACT PERSON’s ADDRESS 4th Floor, 6750 Office Tower, Ayala Avenue, Makati City, Philippines 1200 NOTE 1 In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated. 2 All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation’s records with the Commission and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation from liability for its deficiencies. *SGVFSM005283* SyCip Gorres Velayo & Co. Tel: (632) 8891 0307 BOA/PRC Reg. No. 0001, 6760 Ayala Avenue Fax: (632) 8819 0872 October 4, 2018, valid until August 24, 2021 1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-5 (Group A), Philippines November 6, 2018, valid until November 5, 2021 INDEPENDENT AUDITOR’S REPORT The Stockholders and the Board of Directors AC Energy Corporation 4th Floor, 6750 Office Tower Ayala Avenue, Makati City Opinion We have audited the consolidated financial statements of AC Energy Corporation (formerly AC Energy Philippines, Inc.) and its Subsidiaries (collectively, the Group), which comprise the consolidated statements of financial position as at December 31, 2020 and 2019, and the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for each of the three years in the period ended December 31, 2020, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2020 and 2019, and its consolidated financial performance and its consolidated cash flows for each of the three years in the period ended December 31, 2020 in accordance with Philippine Financial Reporting Standards (PFRSs). Basis for Opinion We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in the Philippines, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. *SGVFSM005283* A member firm of Ernst & Young Global Limited - 2 - We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements. Accounting for Common Control Transaction In 2020, AC Energy Corporation (“ACEN”) and AC Energy and Infrastructure Corp. (“ACEIC”) executed a Deed of Assignment (the “Transaction”) where ACEIC transferred and conveyed to ACEN all its rights and interests in the onshore companies in consideration for the issuance by ACEN of 6,185,182,288 common shares at =2.37P per common share or a total transfer value of =14,658.88P million in favor of ACEIC. The Transaction was a common control transaction and was accounted for using the pooling of interests method. In applying the pooling of interests method, the assets and liabilities of the acquired entities were recognized at their carrying values, an equity adjustment was recorded for the difference between the carrying values of the assets and liabilities acquired and consideration given, and the prior year comparative information were restated. We considered the accounting for the Transaction as a key audit matter due to the complexity and financial impact of the Transaction to the Group. The Group’s disclosures about the Transaction are included in Notes 1, 3 and 32 to the consolidated financial statements. Audit Response We reviewed the Deed of Assignment and regulatory approvals related to the Transaction. We tested management’s application of the pooling of interests method, the balances of the onshore entities transferred to ACEN, restatement of prior year comparative information and the resulting equity adjustments. We also reviewed the presentation and disclosures related to the common control transaction in the consolidated financial statements. Accounting for Business Combinations The Group had a number of acquisitions in 2020. We considered the accounting for these acquisitions as a key audit matter because these required significant management judgment and estimation in identifying the underlying assets and liabilities, and in measuring these and any previously-held interest at fair values. The key assumptions used include discount rates, revenue and earnings forecast and relevant market data. The Group’s disclosures about the business combinations are included in Notes 3, 10 and 31 to the consolidated financial statements. Audit Response We reviewed the purchase agreements and the purchase price allocation prepared by management. We tested the identification of the underlying assets and liabilities based on our understanding of the acquirees’ businesses. We also involved our internal specialist in evaluating the methodologies and assumptions used in arriving at the fair values of the underlying assets and liabilities, and any previously- held interest. We compared the key assumptions used such as discount rates, revenue and earnings forecast against historical information and relevant market data. We reviewed the presentation and disclosures related to these business combinations in the consolidated financial statements. *SGVFSM005283* A member firm of Ernst & Young Global Limited - 3 - Impairment Testing of Assets As at December 31, 2020, the aggregate carrying amount of the Group’s investment in Negros Island Biomass Holdings, Inc. (“NIBHI”, an associate), power barges, assets related to the Bataan Project and goodwill amounted to P=864.80 million. Management performed impairment assessment on these assets based on the following: The projects where NIBHI has investments have not started commercial operations, are still completing pertinent regulatory permitting requirements, and are accumulating losses. There are no existing ancillary service contracts to utilize power barges for income generation, and the Bataan Project lack economies of scale. Goodwill attributable to the acquisition of One Subic Power Generation Corporation in 2014 and to the acquisition of Negros Island Solar Power, Inc. in 2020 are required to be tested annually under PFRS. Based on the impairment assessment, management provided allowance for impairment loss on its investment in NIBHI, power barges, and assets related to the Bataan Project amounting to P=617.97 million. No impairment loss on goodwill was recognized. The impairment testing is a key audit matter because it requires significant management judgment and estimation with respect to the estimated future cash flows of the related cash-generating units, forecasted revenue growth rates, gross margin, prices in the energy spot market, fuel prices, weighted average cost of capital, market risk premium, pre- tax cost of debt, capital structure, scrap value and discount rates used in calculating the present value of future cash flows. The Group’s disclosures are included in Notes 3, 7, 9, 10 and 13 to the consolidated financial statements. Audit Response We involved our internal specialist in evaluating the methodologies and the assumptions used by management.