The AES Corporation

Hello and welcome to today's AES Corporation Q4 2021 Financial Review. My name is Bailey and I will be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to Ahmed Pasha, Global Treasurer and Vice President of Investor Relations. Ahmed, please go ahead.

Thank you, Operator. Good morning and welcome to our fourth quarter and full year 2021 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, which are discussed in our most recent 10-K and 10-Q filed with the SEC. Reconciliations between GAAP and non-GAAP financial mayors can be found on our website along with the presentation. Joining me this morning are Andres Klosky, our President and Chief Executive Officer, Steve Coughlin, our Chief Financial Officer, and other senior members of our management team. With that, I will turn the call over to Andres. Andres?

Good morning, everyone. and thank you for joining our fourth quarter and full year 2021 financial review call. Today, I will cover our full year results and discuss our strategy and areas of focus for this year. Before discussing our 2021 results and future plans, I want to state that we do not see any significant impact on our portfolio from the outbreak of hostilities in the Ukraine. Nonetheless, Our thoughts and prayers go out to the Ukrainian people and government, and we hope for a speedy return to peace. Now turning our focus back to our business. Today marks an important and exciting milestone for AEF, with the announcement of our intention to fully exit coal by year-end 2025. This accelerated goal is a result of our success in growing our renewables portfolio, and our backlog gives us the confidence to take this step. As a leader in the global energy transition, we are committed to the goals of the Paris Agreement and achieving a net zero economy. We will work with our stakeholders to ensure a smooth transition while meeting our regulatory obligations. Our exit from coal will be modestly diluted, but we feel comfortable with our growth trajectory and accordingly, we are reaffirming our annualized growth target of 7% to 9% in earnings and cash flow through 2025. Now moving on to our 2021 results and accomplishments. First, I am pleased to report our financial results, including adjusted earnings per share of $1.52, which was in line with our expectations. Our 2021 parent-free cash flow of $839 million exceeded our expected range of $775 to $825 million. Second, we signed contracts for 5 gigawatts of new renewable projects, significantly above our target of 3 to 4 gigawatts that we set last year. In fact, according to Bloomberg New Energy Finance, as signed more renewable deals with corporate customers in 2021 than anyone else in the world included in these deals were two groundbreaking arrangements to provide renewable energy on an hour-by-hour basis 24 hours a day seven days a week signed with google and microsoft third fluent successfully completed their ipo in november and have no foreseeable need for external funding to achieve their strategic and financial objectives. Furthermore, Fluence has made progress towards mitigating the supply chain challenges they have faced, which I shall discuss shortly. Finally, safety is our most important value. I am very proud to report that our safety performance in 2021 was the best in our 40-year history, with no major incidents recorded. among roughly 25,000 AS people, contractors, and construction workers. Today, I will be discussing two things. First, executing today, and second, investing for the future. Beginning with executing today on slide four. Even as we are transitioning to a carbon-free future, we are laser focused on delivering on our commitments. Our business model has proven itself to be resilient and enables us to deliver predictable results. For example, 85% of our adjusted PTC is from long-term contracted generation and utilities, and 88% is in U.S. dollars, with the remaining 12% split between euros and various Latin American currencies. Similarly, we're largely insulated from macroeconomic headwinds, such as rising inflation and interest rates. As shown on slide five, 83% of our revenue is from businesses that have indexation clauses or are hedged to limit the impact from inflation. At the same time, almost 90% of our interest rate exposure is fixed or hedged, protecting us from the impact of rising interest rates. Next, turning to slide six. In January, we completed a tender to acquire the publicly traded shares of AES Andes, bringing our ownership from 67% to 99% today. This was motivated by our conviction in the underlying strength of the business, which is highly contracted, predominantly in U.S. dollars, and transitioning to low-carbon generation. This transaction is immediately earnings and cash flow accreted. Moving to slide seven, we now have a backlog of 9.2 gigawatts, including the 5 gigawatts we signed in 2021. About three-quarters of the 5 gigawatts is in the U.S., with the vast majority signed with C&I customers and to grow the rate base at our AES Indiana utility. We have secured supply arrangements for the bulk of our current backlog. In 2021, we successfully added 2.1 gigawatts to our portfolio, without any material delays or cost overruns. This execution demonstrates the robust nature of our supply chain and the strength of our relationships with our suppliers. For example, we secured Samsung batteries for many of our new energy storage facilities to alleviate some of the supply chain challenges faced by Fluence. Being able to switch to different battery suppliers shows the inherent flexibility of their Gen 6 products. as we look towards our 2.3 gigawatts of new projects coming online in 2022 two-thirds of which is in the u.s we do not expect any significant delays or supply chain disruptions we remain confident in our ability to complete our projects under construction on time and on budget moving to our second theme investing for the future on flight eight Our actions today ensure that we will be able to take full advantage of the unprecedented transformation of our sector. One clear example is the 5 gigawatts of new PPAs that we signed last year, an increase of 65% from 2020. For full year 22, we expect to sign 4.5 to 5.5 gigawatts of new renewables under long-term contracts. We are seeing strong demand for renewables. And so far this year, we have already signed more than 600 megawatts of new contracts. We expect our portfolio of operating renewable assets to more than double from approximately 13 gigawatts to 26 gigawatts by 2026. Despite any current headwinds for our sector, such as delays in legislation and supply chain issues, we see very strong demand for low-carbon energy, especially for tailored products. such as our 24-7 renewable offering. That is why we have been investing in growing our pipeline of future projects to ensure that we're able to meet our customers' growing demand for AES services. As you can see on slide nine, we now have a development pipeline of 59 gigawatts, which we believe is the second largest among U.S. renewable developers. Our pipeline includes almost 10 gigawatts in the U.S. that are ready to bid. This robust pipeline provides us with the projects we need to deliver on our backlog and to continue to build on our competitive position in the US. As a result, we're accelerating our goal of increasing the proportion of earnings coming from our US businesses to 50% by two years from 2025 to 2023. We are also investing for the future by growing the rate base at our U.S. utilities by 9% annually while delivering safe, reliable, and affordable services to our customers. As you can see on slide 10, AS Indiana is executing on the approved plan to retire two coal units, which we will replace with nearly 500 megawatts of new renewable generation. We have already started our next integrated resource plan process, which could include additional retirement or fuel conversion for the remaining one gigawatt of coal generation. At AS Ohio, we're executing on our smart grid and transmission investment programs approved in 2021. AS Ohio is also in the midst of a distribution rate case and recently completed a hearing. AS Ohio's base distribution rates have been the lowest in the state for the past five years. In fact, as of the end of 2021, AES Ohio's rates were 16% lower than the next lowest utility in the state. And even with the requested rate increase would remain the lowest. Turning to slide 11. Another way we're investing for the future is by developing and incubating new products and businesses platforms through AES Next. Our investment in AES Next help our core businesses be more innovative and competitive. and drive value for our customers and shareholders. Turning to slide 12, the most mature initiative under AES Next today is Fluence, the leading energy storage technology company. In 2021, Fluence completed their IPO with a billion dollars in capital raised to invest in developing their products and supply chain, as well as their digital platform. As of December 31st, Fluence had 4.2 gigawatts of energy storage products deployed and contracted and a signed backlog of $1.9 billion. Additionally, Fluence's digital platform, Fluence IQ, now has six gigawatts contracted, of which more than 80% is with third-party customers. Over the past several months, Fluence has been dealing with short-term challenges stemming from COVID-19 related supply chain issues. Their management team has taken proactive actions to address these challenges, including diversifying battery suppliers, signing new shipping agreements, and building out their in-house supply chain team. Overall, demand for energy storage remains robust, and Fluence is well positioned as a market leader. we see significant opportunity for them to continue to grow and remain confident that they will execute on their long-term plan, which will deliver value to their shareholders. AES Next is also working to develop and incubate other technologies that help accelerate the deployment of renewables, as shown on slide 13. One example is our investment in 5B, which has a prefabricated solar solution called Maverick, that is hurricane wind resistant and allows projects to be built in one third of the time and on half as much land. This innovative product is currently being rolled out in Australia, Chile, the Dominican Republic, India, Panama, and the US. Turning to slide 14, we're one of a small number of companies in our sector with targets that are fully aligned with the Paris Agreement according to the Transition Pathways Initiative. We already have a goal to have net zero emissions from electricity by 2040. And as I mentioned earlier, we're excited to announce our intent to exit coal completely by the end of 2025, subject to receiving necessary approvals. We expect to achieve this objective through a combination of retirement, fuel conversions, and asset sales. In summary, we have consolidated our position as the leader of innovation in the industry and accelerated the decarbonization of our portfolio while delivering attractive returns to our shareholders. With that, I now turn the call over to our CFO, Steve Cosson.