The AES Corporation

Good morning and welcome to the AES Corporation's first quarter 2019 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, Head of Investor Relations. Please go ahead.

Thank you, Brendan. Good morning, everyone, and welcome to our first quarter 2019 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 members of our management team. With that, I'll turn the call over to Andres.

Good morning, everyone. and thank you for joining our first quarter 2019 financial review call. Since our last call, we have made significant progress on a number of fronts. We continue to transform the company, growing our renewables and LNG businesses, simplifying and streamlining our portfolio, reducing costs and improving our overall risk profile. Specifically, we reported first quarter adjusted EPS of 28 cents and remain confident in our full-year outlook. We're on track to attain investment-grade ratings in 2020. We signed long-term contracts for approximately 500 megawatts of renewable capacity, increasing our backlog to 6.2 gigawatts. We signed a 12-year agreement to sell up to 18 Tera BTUs of LNG annually in the Caribbean, beginning in 2020. Today, we're announcing a target of $100 million of additional annual cost savings to be realized by 2022 as a result of our digital initiatives. And we agreed to sell our businesses in Jordan and Northern Ireland for $211 million. Gustavo will discuss our financial results and capital allocation plan in more detail following my remarks. Turning to slide four. Our core strategy continues to revolve around three themes. First, enhancing the resilience of our portfolio to deliver attractive returns. Second, increasing our backlog of long-term contracted projects to ensure profitable growth. And third, investing in innovative technologies to maintain our competitive edge and market-leading positions. Today, I will review the progress we've made since our last call in support of these themes. Turning to slide five, we continue to take steps to de-risk our portfolio and make it even more resilient. We remain on track to attain investment grade ratings by 2020, supported not only by our financial metrics, but also by the lower level of risk and higher quality of our portfolio. We expect to achieve our carbon intensity reduction target of 50% by 2022 and 70% by 2030. reducing potential regulatory risks, and attracting a broader investor base. One of the ways we are reducing our carbon intensity is through our green blend and extend strategy, where we are negotiating new long-term renewable PPAs with existing long-term thermal customers. Through this win-win strategy, we preserve the value of our existing contracts while extending our average contract life and earning a return on our incremental capital investments. We're currently in advanced discussions for additional large green blend and extend contracts in Chile and Mexico. Separately, we just initiated similar conversations on green blend and extend with PREPA in Puerto Rico. Another way we're transforming our portfolio is by exiting certain businesses. For example, in late April, we announced the sale of more than two gigawatts of overwhelmingly thermal generation in Jordan and Northern Ireland. These sales decrease our merchant exposure, lower our carbon intensity, and reduce our presence to 13 countries. In line with our capital allocation framework, we will primarily invest these proceeds in renewables in the Americas. Turning to slide six, as we've discussed previously, we're focused on growing our business through long-term US dollar-denominated contracts with limited merchant, commodity, and hydrology exposure. One additional initiative that I would like to mention today is the expansion of our business with commercial and industrial customers. This approach further enhances our resilience by diversifying our customer base and providing greater protection from regulatory and macroeconomic factors in our markets. Now turning to our backlog, our growth in renewables continues. As can be seen on slide seven, during the first quarter, we signed new long-term PPAs for approximately 500 megawatts of renewables, consistent with our expectations. Turning to slide eight, we now have a total backlog of 6.2 gigawatts, and we expect to sign two to three gigawatts of new PPAs every year for a total of approximately 12 gigawatts of new capacity by 2022. By then, We project that the U.S. will represent almost half of our earnings versus about a third today. Now to our projects under construction, beginning on slide 9. Of the 4.5 gigawatts currently under construction, approximately 40% is now renewables. This percentage will grow as we bring online the large conventional thermal plants we contracted a number of years ago, while adding new wind, solar, and energy storage projects. As you can see on slide 10, the renewable projects under construction are split equally between the U.S. and internationally. All of these projects are expected to come online in the next 18 months. We are particularly pleased with the speed at which we have been able to transition these projects from development to construction. For example, as you can see on slide 11, we received all necessary permits for S-Power's 500 megawatt Highlander solar project in Virginia, the largest solar project in the Mid-Atlantic. This project has long-term contracts with CNI customers, such as Apple and Microsoft, and we expect to begin construction this summer with completion targeted for 2020 and 2021. Turning to slide 12 and our conventional projects under construction. Our OPGC II plant in India is in the testing phase and is running at full load The plant is expected to be operational later this month and will deliver much-needed power to the Indian grid. Our Southland repowering project in Southern California is approximately 90% 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 78% complete, with 72% of the tunneling work done. Turning now to our LNG business on slide 13, you see the expansion of our LNG projects is complementary to our renewable businesses, as it provides capacity while displacing heavy fuel oil and diesel with cheaper and cleaner natural gas. This business is based on long-term tolling agreements with no direct commodity risk. Another benefit of our LNG projects is that once they are built, they can be scaled up at relatively low cost, as most of the key infrastructure is already in place. We are focusing our LNG growth on two major markets. First in Vietnam, where we are making very good progress towards the development of a landmark project with 450 terabtus of LNG storage capacity and two gigawatts of associated combined cycle gas plants. We expect this project to significantly contribute to our growth beginning in 2023. Second, in the Caribbean and Central America, where we have a total of 150 TBTUs of LNG storage capacity in Panama and the Dominican Republic. Our guidance assumed that we would contract some of the excess capacity available at these two terminals. In fact, since our last call, we signed a 12-year contract for up to 18 Tera BTUs of annual capacity. With this contract, we have already locked in the terminal capacity payments that are assumed in our guidance through 2022. The remaining uncontracted capacity provides us with three cents of potential EPS upside relative to our guidance. Turning to slide 14, the third component of our core strategy is to invest in innovative technologies to maintain our market-leading position and realize commercial and operational efficiencies. As most of you know, AAE is at the forefront of battery-based energy storage. Fluence, our energy storage joint venture, is the leading provider of grid-scale storage in the world, with 81 projects in 18 countries, totaling 776 megawatts deployed or awarded. Now let me say a few words on the recent thermal incident at our two-megawatt energy storage facility we installed for Arizona Public Service, which resulted in serious injuries of four first responders last month. Of course, our top priority is the health, safety, and recovery of the first responders. Fortunately, we understand from statements made by the hospital that all are expected to make a full recovery. Regarding the event itself, Fluence immediately dispatched a team of technical, and operational experts to support APS in the incident root cause investigation. APS and Fluence have committed to share what they can from the investigation, especially insights that would be helpful to the entire industry and first responders in efforts to prevent similar incidents anywhere in the world. AES has been safely operating a fleet of battery-based energy storage systems for over a decade. and today has storage systems operating in multiple country uses and environments. We continue to believe in the use of lithium ion batteries for energy storage and continue to see rapidly growing demand for this technology and its many applications. Finally, turning to slide 15, today we announced the launch of an additional $100 million annual cost savings program. Our savings target is based on our current digital initiatives which are expected to be fully implemented by 2022. Although we have significantly reduced costs over the last several years, we're taking our efforts to the next level by applying new digital initiatives and analytics across our $33 billion asset base. As most of our business is long-term contracted at fixed US prices, much of the benefits from these digital initiatives will flow to our bottom line. Specifically, the main activities include utilizing AI for predictive maintenance and outage preventance, using technologies such as robotics and drones for solar and wind maintenance and inspection, and implementing process automation in administrative and support functions. On an annual basis, we are targeting a 5% reduction in the total expense for these activities, net of any cost to achieve. So we feel very confident about our ability to achieve $100 million in annual run rate savings by 2022. Now, I'll turn the call over to Gustavo to discuss our financial results and capital allocation in more detail. Thank you, Andres.