The AES Corporation

Good morning and welcome to the AES Corporation's fourth quarter 2018 financial review conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, if you are listening to the webcast, please mute your computer speakers before asking questions. Please note, this event is being recorded. I would now like to turn the conference over to Ahmed Pasha, Vice President of Investor Relations. Please go ahead.

Thank you, Keri. Good morning and welcome to our fourth quarter and full year 2018 financial review call. Our press release, presentation, and related financial information are available on our website at aes.com. Today, we will be making forward-looking statements during the call. There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors. Joining me this morning are Andres Kluski, our President and Chief Executive Officer, Gustavo Pimenta, our Chief Financial Officer, and other senior management of our management team. With that, I will turn the call over to Andres.

Andres? Thank you, Ahmed. Good morning, everyone, and thank you for joining our fourth quarter and full year 2018 financial review call. 2018 was a good year for AES, demonstrated by our strong financial results and excellent progress towards achieving our strategic goals. We delivered on all of our commitments, including our financial guidance, and hit key milestones on our strategy, positioning AES for long-term sustainable growth. Some of our key accomplishments last year were, we reached the high end of our expected ranges for both earnings per share and parents fee cash flow. We achieved a key investment grade financial metric one year ahead of our plan. We met our expectation of signing long-term PPAs for two gigawatts of renewable capacity and increased our backlog to almost six gigawatts. We accomplished key milestones on our 4.4 gigawatts under construction and completed construction of an additional 1.3 gigawatts. We introduced a longer term target to reduce our carbon intensity by 70% from 2016 through 2030. We now expect to achieve a 50% reduction by 2022. And our world leading battery based energy storage joint venture with Siemens Fluence was awarded 286 megawatts of new projects, bringing its total to 766 megawatts. Reflecting on our successful execution, improved visibility, and increased confidence in our ability to deliver, we are extending our longer term outlook by two years, and now expect 7% to 9% average annual growth in earnings and cash flow through 2022. As a result of our strong performance in 2018, combined with our improved outlook, we expect to hit the high end of our prior guidance range through 2020. Gustavo will discuss our 2018 results and guidance in more detail after I provide an overview of our strategy. Turning now to slide four, our core strategy continues to revolve around the three themes of, first, enhancing the resilience of our portfolio and lowering risk to deliver attractive returns. Second, delivering on our backlog of long-term contracted projects to ensure profitable growth. And three, investing in innovative technologies to maintain our competitive edge and market-leading position. Today, I will review the progress we've made this year in support of these themes and how we have positioned ourselves well for the future. Turning to slide five, We are seeing the benefits of many initiatives that began several years ago to de-risk our portfolio. AES Today is a very different company than it was in 2011, doing business in 28 countries around the world with significant commodity exposure. Since then, we have focused our portfolio on roughly a dozen markets where we had a competitive advantage and we have reduced our overall exposure to foreign currencies, commodities, and hydrologies by 70%. In 2018 alone, we paid down a billion dollars in current debt, and we are on a path to attain investment grade ratings in 2020, supported not only by our financial metrics, but also by the lower level of risk and higher quality of our portfolio. Our efforts to enhance the resilience of the portfolio have led us to focus increasingly on clean technologies. As you can see on slide six, we are significantly decreasing the carbon intensity of our portfolio. In November, we announced a carbon intensity reduction target of 70% by 2030 versus 2016 levels. Today, I am pleased to announce an interim carbon intensity reduction target of 50% by 2022. Our shift to renewables simply makes good business sense. It increases the longevity of our cash flows and allows us to attract a broader investor base. Another way we are decreasing the risk of our portfolio is by completing most of the large conventional projects under construction and focusing our future growth on renewable projects, which are less capital intensive and considerably simpler to build. Turning now to our strong backlog of projects, beginning with our progress on those under construction on slide seven. In 2018, we completed 1.3 gigawatts of new projects. including the Eagle Valley Combined Cycle Gas Plant at IPNL in Indiana, and the AES Colon Combined Cycle Gas Plant and Regasification Terminal in Panama, and 254 megawatts of solar and energy storage, mostly in the U.S. We still have another 4.4 gigawatts currently under construction and expect it to come online through 2021. Our OPGC-2 plant in India is in the commissioning phase, and we expect it will be fully completed in April. Our Southland repowering project in Southern California is approximately 80% complete, and the project is on track to come online in the first half of next year. And our Alto Maipo hydroelectric project in Chile is advancing as planned and is now three-quarters complete, with two-thirds of the tunneling work done. The remaining projects under construction are made up of renewables across our portfolio. As you can see on slide nine, this capacity is split equally between the US and internationally. All of these projects are going well, and they're expected to come online in the next 18 months. We are particularly pleased with the speed at which we've been able to transition these projects from development to construction. Since our last call in November, we have broken ground on 731 megawatts of solar, wind, and energy storage. As can be seen on slide 10, in 2018, we signed new PPAs for approximately 2 gigawatts of renewables, and we're on track to sign between 2 and 3 gigawatts annually in the coming years. Turning to slide 11, combining our capacity under construction with our long-term PPAs that are not yet under construction, yields our total backlog of 5.8 gigawatts. As we execute on our plan to sign two to three gigawatts of new PPAs every year, we expect to bring a total of 12 gigawatts online by 2022. By then, we project that the U.S. will represent almost half of our earnings versus about one-third today. As can be seen on slide 12, our renewable investments are expected to produce go to high-teen IRRs across all our markets, assuming conservative terminal values. We have some unique advantages that allow us to earn these attractive returns, which I will discuss in the next few slides, beginning on slide 13. First, we have existing commercial relationships that we can leverage to drive new growth. For example, our green blend and extend strategy. allows us to negotiate new long-term PPAs with existing long-term thermal customers. Through this win-win strategy, we preserve the value of our existing thermal capacity contracts while replacing a portion of thermal energy with long-term contracted renewable energy. In exchange, our customers receive carbon-free energy at less than the marginal cost of thermal power. while still benefiting from reliable capacity provided by thermal generation. In 2018 alone, we negotiated green blend and extend contracts for 576 megawatts in Chile and Mexico. A second advantage that we have for renewable growth is deep market intimacy. For example, AES Distributed Energy recently inaugurated the largest solar storage facility in the world, island of Hawaii. The project was made possible by ABS's long history in Hawaii and willingness to work with local stakeholders to meet their needs and goals. The project, which includes 100 megawatt hours of five-hour duration energy storage, will essentially serve as a source of baseload power for the island and deliver roughly 11% of its power. We recently broke ground on a similar second project also on the island of Kauai, with 14 megawatts of solar and 70 megawatt hours of five-hour duration energy storage. Third, our work with partners provides us with an important competitive advantage. We bring in partners to achieve economies of scale, fine-tune our portfolio, and improve our returns on invested capital. A recent sell-down of S-Power is a good example, where we agreed to sell 48% of our stake in SPower's operating portfolio, which along with operational improvements and refinancings, have increased our returns to 13%. The sell-down also provides us with funds to invest in SPower's 10-gigawatt development pipeline to earn similar attractive returns. Turning now to slide 16. In addition to our growth in renewables, we continue to increase our LNG business, which is displacing heavy fuel oil and diesel with cheaper and cleaner natural gas. As you may know, in 2018, we inaugurated our AS Colon combined cycle gas plant and LNG regasification facility in Panama, which will play a key role in supplying natural gas for the entire Central American region. Our LNG facilities in Panama and the Dominican Republic represent a total installed capacity of 150 Tera BTUs to serve local and regional markets. The majority of this capacity is now under contract and the remaining 55 Tera BTUs are still available to drive future growth. As I mentioned on our last call, we are capitalizing on the expertise we have gained in the Dominican Republic and Panama by developing a similar LNG regasification facility and associated combined cycle power plants in Vietnam. Although this long-term U.S. dollar-denominated 450 Tera BTU facility is in its early stages, we're making very good progress and it has the potential to contribute significantly to our longer-term growth post-2023. Turning to slide 17, the third component of our core strategy is to invest in innovative technologies to maintain our competitive edge and market-leading position. As an example, in 2007, AES launched a small energy storage group that was the first of its kind. Today, energy storage is beginning to revolutionize the sector, and AES is at the forefront. Fluence, our joint venture with Siemens, was recently named the number one utility-scale energy storage integrator in the world by Navigant Research for the third time in a row. In 2018, Fluence was awarded 286 megawatts of new projects and is now the largest global energy storage provider by capacity in the world, with a total of 80 projects in 17 countries. Turning to slide 18, we're also implementing a corporate-wide digital transformation, including becoming a strategic investor in Simple Energy. Simple Energy provides a digital platform that allows our IPNL and DPNL utilities to accelerate energy efficiency and demand response programs, all the while improving customer experience. Simple Energy's digital platform serves not only AES's utilities, but 40 other utilities in the U.S. with access to over 40 million end customers. Although not in our guidance, we expect our new digital initiatives, to materially benefit both our top and bottom lines. We will provide more color as our digital strategy matures on future calls. Now, I will turn the call over to Gustavo to discuss our financial results, capital allocation, 2019 guidance, and longer-term expectations in more detail.