The AES Corporation

Good morning, and welcome to the AES Corporation's second 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 a star, then two. Please note, if you are listening to the webcast, please mute your computer speakers before asking questions. Also note, this event is being recorded. I would now like to turn the conference over to Amit Pasha. Please go ahead, sir.

Thank you, Nancy. Good morning, and welcome to our second 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 Andrzej Skrzewski, our President and Chief Executive Officer, Gustavo Pimenta, our Chief Financial Officer, and other senior members of our management team. With that, I will turn the call over to Andres.

Thank you, Ahmed. Good morning, everyone, and thank you for joining our second quarter 2019 financial review call. I am pleased to report that based on our year-to-day results and our expected growth in the second half of the year, we are on track to achieve our 2019 adjusted EPS guidance with a midpoint of $1.34, and our parent free cash flow target with a midpoint of $725 million. We're also confident in our ability to deliver 7% to 9% average annual growth through 2022. Turning to slide four, since our last call, we have continued to make great progress on our three key strategic objectives. These are, first, becoming investment-grade and enhancing the resilience of our portfolio. Second, positioning the company for sustained growth by increasing our backlog of contracted projects. And third, improving our competitiveness by deploying innovative technologies. Now allow me to provide some color on each one, starting with our first objective of becoming investment grade and enhancing the resilience of our portfolio on slide five. We have already achieved a key investment grade metric and we are on track to attain investment grade ratings in 2020. Our improved credit metrics reflect the growth of our free cash flow, paying down 43% of our recourse debt, and an almost 70% decrease in our exposure to foreign currencies, commodities, and hydrology over the past eight years. A good example of this last point is bringing LNG to Panama with the commissioning of the AES Colón terminal and combined cycle power plant. This new facility has reduced our exposure to poor hydrology in Panama by 70% by providing far less expensive energy to supply our hydro PPAs in times of drought. Such has occurred in 2014 and is occurring again this year. It is not only good for AES, but it is expected to save Panama more than $400 million a year in imported fuel expenses. We are further enhancing the resilience of our portfolio by decreasing our carbon intensity. This year alone, we have announced the sale of 2.4 gigawatts of thermal generation in Northern Ireland, Jordan, and Oklahoma. As you can see on slide six, as a result of our actions, we expect to reduce our carbon intensity by 50% from 2016 levels by 2022. By that date, we also expect that coal will represent less than 30% of our total generation by megawatt hour. Now to our second objective, positioning the company for sustainable growth by increasing our backlog of contracted projects, beginning on slide 7. We now have a backlog of 6.8 gigawatts of mostly renewable projects. This number encompasses projects under construction or with signed PPAs. all of which are expected to be online by 2023. We are now on track to become one of the five largest renewable developers in the world outside of China. As we discussed on our last call, we expect to sign two to three gigawatts of renewables per year, split roughly 50-50 between wind and solar, and likewise between the U.S. and international. So far this year, we have signed one gigawatt of renewable PPAs. including about 500 megawatts since our last call this new capacity includes 181 megawatts of renewable energy signed in chile as part of our green blend and extend strategy through this win-win approach we preserve the value of our existing contracts while replacing a portion of thermal energy with long-term contracted renewables 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. We expect to see meaningful progress on the green blend and extend opportunity in the coming months. Now to our projects under construction, beginning on slide eight. Of the 4.5 gigawatts currently under construction, 43% are renewables. This percentage will continue to grow as we complete the large conventional thermal plants we started a number of years ago, while adding new wind, solar, and energy storage. We are particularly pleased with the speed at which we have been able to transition projects from development to construction. Now onto slide nine. We are reaching key milestones on our conventional projects under construction. We have completed the construction of our OPGC 2 plant in India with one unit already online and the second unit in the final commissioning phase. Our Southland repowering project in California continues to progress well and is now approximately 95% complete. We recently achieved first fire and the project is on track to come online in the first quarter of next year ahead of our original schedule. I'm also pleased to announce that just yesterday The storage tank at our AES Colón LNG regasification facility in Panama came online, replacing the temporary floating storage unit we had been using. Turning to slide 10, our Alto Maipo hydroelectric project in Chile is advancing as planned and is now approximately 80% complete. As you may remember, tunneling is the most difficult aspect of construction, and we now have completed 36 miles. with only five miles to go until initial COD. Additionally, we broke ground on a 10 megawatt energy storage project that will serve as the first virtual reservoir in the world. This innovative project is for our Alfalfal hydro plant, which is part of the Alto Maipo complex. It will store five hours of energy during periods of low demand and inject that energy into the grid during hours of peak demand, providing the run-of-the-river plant with many of the same capabilities as a reservoir. We have the potential to increase the virtual reservoir by another 240 megawatts of five-hour energy storage at the Alto Maipo complex. Turning to slide 11, another component of our contracted growth strategy is investing in LNG, which we see as complementary to our renewables business. Not only does LNG displace heavy fuel oil and diesel with less volatile, cheaper, and cleaner natural gas, but the investments are based on long-term tolling agreements with no direct commodity risk. I have previously mentioned that once our LNG import terminals and regasification facilities are built, they can be scaled up at a relatively low cost, as much of the key infrastructure is already in place. We're working on expanding our LNG storage capacity in the Dominican Republic by 50 Tera BTUs. We have already signed or are in advanced negotiations for a third Tera BTU of this additional capacity under long-term contracts. This expansion will require minimal investment from AES and is expected to be completed by 2022. Once fully contracted, this expansion will provide 2 cents of incremental EPS. This is up and above the 3 cents of potential upside at our existing LNG facilities in the region we had already discussed. In Vietnam, we're making excellent progress toward the development of a landmark project with 450 TBTUs of LNG storage and 2 GW of combined cycle power plants. We expect to achieve this critical milestone this year, and once completed, this project will be an important contributor to our earnings growth beyond 2022. Now to our third strategic objective of deploying new technologies to maintain our market-leading positions, beginning on slide 12. We are complementing and enhancing our current businesses by incorporating digital capabilities and by growing in adjacent areas. As we discussed on our last call, by applying new digital initiatives and analytics across our $33 billion asset base, this is a primary driver of our $100 million annual cost savings initiative. We are on track to fully achieve these savings by 2022. One example of our investment in new technologies is our energy storage business. We are now the undisputed global leader in the sector. as both an owner of projects and through Fluence, the energy storage provider that we jointly own with Siemens. Fluence has now surpassed one gigawatt of projects either awarded or delivered, including more than 400 megawatts of projects awarded in the first half of 2019 alone. With a current backlog of nearly $700 million and a growing pipeline of activity, Fluence's cash-positive, self-funding, and has the potential to rapidly increase in value as demand for energy storage accelerates. Now to slide 13. Another example is our investment in Simple Energy, a company that provides utility customers a marketplace for energy efficiency products. There is great demand for digital solutions that enable energy users to be more efficient, and Simple Energy has grown even faster than we anticipated. Since our last call, Simple Energy has merged with other companies to form a new company called Uplight. Uplight is now the market leader in providing cloud-based energy solutions in the United States, serving 85 electric and gas utilities with more than 100 million customers. Through this transaction, the implied value of our equity in Simple Energy nearly doubled in a little over a year since our initial investment. A digital business such as Uplight is capital light, largely self-funding, and we expect Uplight's annual revenue to grow significantly from its current base of over $100 million. Finally, turning to slide 14, AES's success as a technology leader was recently recognized when we were awarded our industry's top honor, EEI's Edison Award. We were honored for our innovation in advancing round-the-clock renewables at our Hawaii Solar Plus Storage project, which is already operational in Hawaii. We see renewables plus storage as increasingly important for our sector, and AES is well-positioned to gain significant market share in this space. Now, I'll turn the call over to Gustavo to discuss our financial results and capital allocation in more detail.