Q4 2019 Earnings Call
We are reaffirming are 7 to 9 % average annual growth in adjusted EPs and and free cash flow through 2022.
In 2019 after reducing our parent debt by half we were upgraded to an investment-grade rating for the first time in a s history in 2019. We completely off of 2.2 gigawatts of new projects. We also signed 2.8 gigawatts of renewable contracts bringing our backlog to 6.1 gigawatts this space puts us on track to nearly triple our portfolio of Renewables in operation to 22 gigawatts by the end of 2024 vs. 2016.
critical milestones in expanding our LNG infrastructure in the Dominican Republic Panama and Vietnam
We achieved.
To accelerate a broader adoption of clean energy. We are delivering Innovative Energy Solutions through our leading platforms, including fluence up light and our strategic alliance with Google considering our success today in substantially lowering our carbon intensity today. I'm announcing a Target to reduce our coal-fired generation to below 30% off road in megawatt-hours by the end of this year furthermore, we expect to reduce it to less than 10% by 2030 turning now to our strategy on slide for months. We spent the last several years positioning to lead the energy transition and cementing. Our place is a top Global developer throughout the Western Hemisphere today. I will discuss with the Three core themes of our strategy.
Investing in sustainable growth offering innovative solutions and delivering Superior results through our strong presence in key markets. We are well positioned to benefit from the global transition towards more sustainable energy in these markets. We see growth in clean energy of 30 gigawatts per year by capitalizing on our Competitive Edge and the Dynamics favoring clean power generation. We have had great success in increasing our backlog of signed pba's turning now to that backlog of projects beginning on Page in 2019. We signed long-term pba's for 2.8 gigabytes of which approximately half is Win 40% is solar and 10% is energies storage 40% of this capacity is in the US and 60% is located internationally turning to slide six beginning with the RMV.
and distributed
Energy businesses maintain their momentum by adding more than one gigawatt of new long-term contracted renewable projects to our backlog the rate of growth from I distributed energy business is particularly impressive in 2019. It's signed 365 megawatts under long-term PBS three times more than in 2018. One of the reasons this business is success is its deep knowledge of customers and specific markets including Hawaii and the north-eastern US for example in Hawaii. We delivered the world's largest black solar plus storage project and during the year. We were awarded an additional 205 megawatts of similar projects as a reminder are renewable Investments are expected to produce low to High teen irrs across our markets, assuming conservative terminal values. We have some unique advantages that allow us to earn these attractive returns.
such as
Our presence and growth markets and r25 gigawatts of development pipeline including land and interconnection rights our ability to bring low-cost capital gains optimize a s is return on equity.
And our relationship with key customers including those for whom we are implementing our green blend and extend product now to slide seven as of the end of last year off our backlog of projects with scientific was 6.1 gigawatts half of which was under construction Approximately 80% of the total or 4.8 gig Shack Renewables split amongst Hydro solar wind and energy storage.
In terms of the three gigawatts that was under construction. I am pleased to announce that the one point three gigawatts Southland repowering project achieve commercial operations on February 6th.
This project was completed ahead of time and slightly under budget and is helping support the reliability of the Grid in Southern California, the remaining 1.7 gigawatts under construction home or Renewables and energy storage. The majority of these projects are expected to come online in 2020 and the remainder in 20 21 in addition to our 6.15 backlog and the two or three gigawatts of annual renewable pba's that we expect to sign. We see opportunities for attractive Investments that are not currently included in our forecast wage is further growth at DBL and I feel as well as more Renewables and energy storage.
Turning to slide night.
Another example of how we are achieving sustainable growth is which is one of our most important businesses is transforming its portfolio by growing as wind and solar jobs and strengthening its balance sheet under it's green blend and extend strategy is negotiating new long term renewable pba's with existing customers, which preserve the value of its thermal contract and creates incremental value with long-term contracted Renewables customers receive carbon-free energy at less than the marginal cost of Thursday our enabling them to meet their sustainability goals and affordable energy needs in 2018 announced that screen blend and extend strategy. And today. I am pleased to report that since then it has executed 2.5 gigawatts of long term renewable contracts the majority of which were signed in the last 12 months.
As a result a as in there has significantly Diversified its generation mix it has positioned itself to deliver attractive long-term growth specifically. I do contracts will more than double its renewable capacity and largely offset the roll off of Legacy contracts in Chile through 2024 in Columbia. Am is successful expanding from a single Hydro asset to a broader portfolio, which will include wind and solar a is in there will primarily serve it's green blend and extend contracts through a combination of 1.6 gigawatts of new renewable capacity and its existing portfolio.
We expect these.
New projects to deliver mid-teen returns to a s in addition to this new capacity the Altima hydroelectric complex will be substantially completed by the end of this month and will help Supply these new PBS.
Gustavo will discuss how are will fund the 1.6 gigawatts of new Investments including a s s participation?
Notified 10 and the second theme of our strategy in addition to Growing our core infrastructure business. We're also developing new solutions to meet increasing customer demand for a 4.7 Renewable Power and greater Energy Efficiency. Our focus is on solutions that are scalable and relatively Capital light which allow us to work with our customers to Cocoa applications that meet their most critical energy needs.
I keep platform for us in this area is our energy storage business fluids which continues to be the global market leader.
Through this partnership with Siemens. We are well positioned to benefit from the expected 15 to 20 gigawatts of annual growth in energy storage. Globally today. We're already seeing that nearly half of all solar projects in the US include a storage component.
In 2019 fluids one contracts for 961 and has tripled its backlog since 2018 to a record of 1.2 gigawatts, which equates to roughly a billion dollars in revenue fluence is cash and margin positive and it's continuing to expand its capabilities including modular prefab and solar D C Cups projects to address New Market opportunities.
Across all of our platforms. We've also been incorporating Innovative applications an example is a 10 megawatt five hour duration energy storage facility at home hydroplaning. Chili. This ground-breaking project will serve as the first virtual Reservoir in the world providing the run-of-the-river platten with capabilities similar to a reservoir inaugurating this project in March and it has the potential to increase this virtual Reservoir by another 240 megawatts month.
22
11:00 last quarter. We announced a strategic alliance with Google to collaborate on Innovation across our business lines. We're actively working together to develop new solutions to excel in a broader adoption Renewables and energy storage and to improve the experience of corporate customers. This Alliance also encompasses energy management and opportunities to develop own and operate projects in targeted markets to help Google it. It's clean energy objectives.
Not as like 12:30 Jake investment is up light continues to grow rapidly as a reminder applied provides utilities with the suite of digital services, including an online Marketplace these Solutions prove and customer experiences while helping utilities balance energy demand and reduce service costs.
This is now works with over 80 Electric and Gas Utilities and reaches over a hundred million households and businesses in the United States has over a hundred million dollars in sales in 2019. We solid margin and continues to fund growth without additional Equity needs we see up light is very well positioned to benefit enormously from continued growth in cloud-based digital Solutions in all aspects of energy management.
finally
Turning to slide 13 and the third team of our strategy Superior results as we invest in sustainable growth in offer innovative solutions to our customers. We are Transforming Our portfolio while achieving Superior Financial results in late 2019. We received our first investment-grade rating and expect that we will receive another investment-grade rating this year off additionally through 2022 are is expected to generate three point four billion dollars of discretionary cash, which we we will invest to continue to deliver double-digit total returns to our shareholders.
This return includes our dividend which is grown by 30% over the last five years and we expect it will continue to increase by 46% annually.
Having the right Energy Mix is key to our future success this morning. We announced a Target to reduce our generation from Google to below 30% of our total volume dead end of this year furthermore. We expect to reduce generation from call to less than 10% of our total by 2030. We are also committed to providing time and accurate EST data. We were the first US investor-owned company in our sector to publish a climate scenario report consistent with the recommendations of the task force on climate-related financial disclosures. Additionally, we can't provide a substantial portion of the disclosures recommended by Savvy and expect to provide virtually off all of the remaining data by the end of this year.
Beginning to see the benefits of attracting a wider investor base that appreciates a s s growth in clean energy and Innovation while maintaining consistent financial performance month before I turn the call over to this album. Let me address the issue of 19 for the coronavirus as a long-term contract that generator overwhelmingly in faith and utility business. We see limited impact from most likely scenarios from the coronavirus epidemic. Furthermore is I have previously laid out a dog has a strong pipeline of contracted mostly renewable projects that ensure growth over the coming years off.
Although we may suffers some delivery delays both our solar and energy storage businesses have largely secured their supplies of Lithium-ion batteries and photovoltaic cells for this year.
We will continue to closely monitor the situation and take proactive measures to ensure the resiliency of our business with that. Let me turn the call over to Gustavo to discuss our financial results in capital allocation in more detail.
Dress today, I'll cover our financial results credit profile and capital location. Are you conclude by address in our guidance for this year and expectations through to an attorney to walk as in transmission, we finish 2018 on a strong note achieving the upper hand branch of our adjusted EPs and setting a solid foundation for growth as shown is light 15 just a DPS was a dollar thirty-six primarily reflecting growth at our regulated utilities contributions from new businesses, including Renewables and a and a lower tax rate with this positive drivers were partially offset by the asset dispositions, including two point six Giga watt of power generation turning to slide sixteen adjusted pretax contribution or peacock was one point two billion dollars for the year and increase of fifty five million dollars cover or results in more detail over the next four is lights begin on slide seventeen.
The utilities S-View increase reflects regulated rate cases completed in 2018 as well as contributions from new Renewables projects.
Disney packs were partially offset by the exit of coal-fired generation at Shady point and DPL at our South America lower PTC was largely driven by lower generation and assets. I partially offset by operating results and lower interest expense in Sheila.
Higher p t c r m c c s view reflects the commencement of operations and better contracted prices in Panama as well as Insurance Recovery in the Dominican Republic and Panama net of outage costs importantly this facilities in the DVR and Panama have resumed operations at full capacity now like to discuss briefly the resilience of our life. This was the worst hydrological on record in Panama, but the financial impact was significantly lower than in years past due to actions. We have taken to improve our portfolio with the addition of a lot only diversifies are a few mix but also lowers the hydraulic exposure and the spot price volatility of the entire system. This is just one example of how our location strategy has enabled us to lower our overall EPS risk from hydrology foreign currency and commodities by 70% since 2011.
turning back to
In a ratio the results primarily reflect asset sales in the United Kingdom Philippines and Netherlands.
Now to slide Twenty-One before moving. I wanted to provide a couple of business updates starting with the pl in Ohio. As you may know in November the distribution modernization right there in a electric security plan was removed and we reverted back to ESP one the net impact of this decision reduced it by about fifty million dollars. Annually roughly twenty-five million dollars of this relates to costs that would have been recovered through a distribution investment Rider. We expected to start collecting this again in 2022 after new distribution rates may have been filed and approved in addition as part of the order to revert to the PO needs to pass certain regulatory tests, including the significantly excessive our Nostalgia feet in April this as a customer is regulated Utilities in Ohio and use it to assess regulated returns. We feel good about our ability to pass this test and maintain. Yep.
hombres
Don't the overall production last year was disappointing. Yes continues to be fully committed to the PO and we look forward to resuming our discussions around the smart grid and now the modernization investment opportunities the PO has the lowest residential tariff in Ohio, and we believe there continue to be significant opportunities to improve value to our customers expect that you have more details about investment plan in the following quarter's regarding Argentina yesterday, the new Administration announced anticipated reforms as part of that all in price has been reduced by about 15 to 20% and the regulated tariffs have been linked to Argentina peso with low inflation adjustments. This is in line with our expectations Following last year's election, and it is fully reflected in our guidance and expectations for 2022 and Beyond importantly. We we have also had some positive developments that work to offset the regulatory wage.
Just in Ohio and Argentina.
Highlighting once again the resilience of our portfolium that includes the potential extension of our existing Legacy Generation generation at Southland early efficiency gains from our savings and digital initiatives and opportunistic refinances leverage a historical low interest rate environment regarding Southland approval is still pending by the state water board and lodging permitting authorities and is expected for the second half of this year. Now turning to our credit profile on his light 22 since 2011. We have reduced that our current debt by Thoughts with 1 billion dollars or 50%
At your end or apparent leverage was 3.7 times and our ffo to that was 21% comfortably within the investment-grade thresholds or four times and 20% respectively month after having attained our first investment-grade rating in November. We continue to expect a second upgrade this year.
Turning to our 2019 Capital location and it's like 23.
Did you know?
The left hand side schwarz's reflect one point four billion dollars of total discretionary cash. This is largely consistent with our previous call with the exception of the announcement Jordan sale, which we now expect to be closed in the first half of this year now to use on the right hand side roughly 60% of our discretionary cash was allocated to shareholder dividend and that reduction and the remaining amount of faith in our subsidiaries primarily in our Renewables backlog.
Turning to our guidance on his light 24 today. We are initiating guidance for 2020 adjusted EPS of a dollar forty two a dollar forty eight growth busier will be driven by the completion of our wage point three Giga watt Southland repowering which came online earlier this month and a full year of operations at 2 in India continued growth and renewal including 1.5 gigs is scheduled to reach commercial operations this year efficiency gains from past cutting and our digital initiatives in a lower interest expense due to refinancing benefits and completed that reads this growth will be partially offset by the reversion to ESP one at the PO in Ohio reduce the terrorists in Argentina and I slightly higher tax rate. I know that much of a gap will begin contributing later in the ear and our CPS is expected to be more weighted towards the second half for instance. Although suffering came online this month. It will be authors.
On a merchant basis until the day begins in June.
Turn light 25% free cash flow is expected to be from 7:25 to $775 this year and is expected to grow 79% per page twenty-two of a 2018 base now to 20 20 parents Capital location on is like twenty-six beginning on the left hand side sources reflect 1.3 billion months of total discretionary cash including roughly 750 million dollars of parent free cash flow sources also include $550 in assets sale proceeds. I'm moving to the uses in the right hand side, including the 5% dividend increase. We announced it in December will be returning 381 million dollars to shareholder this year. We do not plan any additional debt reduction Beyond repayment of $200 of temporary drawing on our revolver. Our credit metrics are very strong and we continue to improve on the strength of our cash flow alone.
And we plan to invest 750.
The million dollars, you know to visitors including our equity for the cellphone repowering our Renewables backlog and the green blend and extend the strategy at ASN are as in resignation a f n e r has been successfully execute and it's decarbonisation strategy by securing 2.5 gigawatts of renewable energy contracts this includes growth in Columbia. Where is diversifying away from a single month include new wind and solar resources this replicates what he has done in other markets such as Panama where the addition of a diversified portfolio immaturely hence the valve existing assets as a result of its successful strategy execution today announced the five hundred million dollars Equity issuance to help fund. It's one point eight billion a renewable growth program and they will be participating with our Pro rata share of approximately three hundred thirty-five million dollars. We believe this investment will create significant value to our shareholders job.
And we allow it to remain an important contributor for a s earnings and cash flow for years to come finally moving to our Capital location from 2020 through 2026. Begin on the lights.
Trying to 7 we expect to generate three point four billion dollars in discretionary cash recorders of this is expected to be generated from parent free cash flow with the $5,900 million dollars coming from an asset sale proceeds this reflects an increase in Target asset sales of roughly four hundred million dollars since our last call which is fully Incorporated in our guidance for the year and in the 79% growth rate.
Given the range of opportunities we have we feel confident in achieving this additional sales Target and the next few years.
Turning to the use of discretionary cash on his light 28 roughly. A third of this cash will be allocated to shareholders dividends looking forward subject to review by the board. We continue to expect an increase the dividend by 46% per year in line with industry average. We are also expecting to use one point six billion dollars to invest in our backlog new project bpa's T and the adjustment said IPL and the partial funding of our Vietnam LNG project and investments in Acquisitions once completed this project will contribute to our growth through age twenty-two and Beyond
the remaining four hundred
And Daughters of allocated cash is largely. We waited towards 2022 and will be used in accordance with our Capital location framework to achieve our financial objectives based off a significant transformation. I have achieved that a yes in the last several years. We now have a much stronger balance sheet and portfolio of assets as such we are well positioned to capitalize on our leadership and the global transition why deliver very solid financial performance for our shareholders with that? I'll turn the call back over to address before we open the same questions. I will summarize the key points we have made this morning.
Through the actions we have taken over the last several years. We have greatly enhanced the resiliency of our portfolio in 2019. This was reflected in our financial performance as well as the investment-grade rating. We achieved by adding 2.8 gigawatts of Renewables to our backlog. We have cemented our position as the leader in the global transition to cleaner energy successfully executing on its green blend and extend strategy 2.5 gigawatts of renewable contracts. These contracts will ensure strong earnings at a as an error by largely offsetting the roll off of Legacy contracts expiring through 2024.
Also accelerating a cleaner energy future by delivering innovative solutions through fluence up light and our strategic alliance with Google.
We are.
We are targeting a reduction in cold generation to below 30% by the end of this year and to less than 10% by 2030.
Finally we're reaffirming are 7 to 9 % average annual growth in adjusted EPS in parrot free cash flow to 20 22, which along with our growing dividend will be total returns to our shareholders to take your questions. Thank you. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two bulbs are listening on the webcast. Please mute your computer before you ask your question at this time. We will pause momentarily to assemble our roster.
The first question today comes from Julian Smith with Bank of America, please. Go ahead. Hey, good morning, Tim. Hey howdy, so Thursday, if if I can dig it a little bit on the latest Capital raised as an error and as well as the uptick in and renewable spending here and and the equity involved. How do you think about the the current wage Outlook reconciling versus the the long-term earnings growth rate, right? So you've seen a further uptick in the capex and Renewables. Does that put you in a different place relative age range? How do you think about your disclose capex at this eight billion dollar Mark relative to achieving your longer-term targets. And again, this is more of as you ramp up. How do you think about what you are within that range and then maybe a sub-point on that is how should we think about that Global Renewables investment relative to the capital raised an aneris. I suspect that a different number.
Then the cat box on that front.
In there, the capital race is to fund the very successful green blend an extent, you know, we we've gotten two and half gigawatts of green blend and extend pba's. This is good for the exact assets. This is a good for us because we get these long-term contracted Renewables, you know, average life is around Seventeen years. So that is what we're raising the capital for that's because up and above, you know, we we did very well in doing that and and and their needs to raise the money and it basically, you know will largely offset off the the roll off of existing thermal contracts that in there has to twenty-four so that's one thing. So basically the capital raises hit in our participation, you know, well, it's a good investment. These are renewable contracts in dollars inflation-adjusted and we want to find that growth and really move into the a sustainable.
long-term future regarding our other Investments now this basically
Okay, let me let me take some of the big picture. Let's start with an air so in the case of a
Tucson the targets that we have given before so, you know, we're on target. We are successfully delivering on these Renewables and what we're seeing is our investments in some of the most Innovative Fields whether it be fluent whether it be up light are going to help us achieve those renewable goals and also achieve our financial targets. So it's all coming together very nicely and what this really is allowing us to do is to meet our financial guidance and commitments while at the same time decarbonizing even faster. So that really is I said a big story I think Gustavo will add something I was just sad really I think one of the benefits of especially this investment in an area is the post 22 story, right. So a lot of the Investments that we are doing now, we will help as we said in the call sustain the earnings and cash flow that Center has been providing to a so dead.
It's not within the 79% It's going to be posted. But it allows us to continue to sustain growth 2022.
Yeah, he's above and beyond what you have in your Global Renewables cap Equity. Right? And that's not your contributions and then Thursday and that 3:30 are targeted beyond the growth range that you're currently talking about. That is exactly right. Then we increase the asset sales which is helping funding some of the Investments God and if I can save even more succinctly if I'm hearing you, right you think that based on the broad assumptions that you're looking at you can keep earnings and cash flow largely intact home twenty-two and the contracts were lost. That is exactly we provide more detail in their call, but that is exactly the way and that's with the existing set or you still need to scale up the narrow to get that wage level started with existing with with this new contract and assuming the role off of the of the Legacy assets the luggage ready there ma'am.
No, thanks.
Morning Star please. Go ahead.
Good morning, 2015. I look at.
Got it. So if I can clarify briefly the 3:30.
I'm sorry. I got the wrong.
Wait, I'm on the wrong side back. I apologize here. It's the slide that it shows 2019 headwinds on EPS basis. There. It is. Like 15 on the back deck $0.12 headwind.
What will be the you know and looking at slide forty-five which has the ptc's it doesn't look like assets will be a big head win in 2020. Am I correct on that?
Yeah, that that's true. I think.
We continue to have some asset sales in the plan with but this rain so I think what is important is my 7 to 9, even with the increases asset sales that represented they are Incorporated in those numbers. Okay. So so the 2020 EPS already has whatever the Aleutian we we we have as a result of asset sales. It's incorporating that 79% growth if I answer your question, I you know, I think you did. Okay second question is I think Andre I boy. This is the first call and I'll quite a while I didn't hear also. My phone mentioned is no news good news. It's still go operational this year. Yes. Yes, in this case. The my boy is 90% completed, you know, it has sort of two phases off. So the first phase is, you know, we only have a I think less than a little bit more than three miles of tunneling less. So the most of the telling on phase one is done and we
Again, if you have a question, please press * then 1 the next question comes from Charles Fishman.
expect it to be a
You know substantially completed by the end of this year. And so, you know, we're already putting in the electronics and machinery and so it's going forward. Well, so that's why we didn't talk about it off because it's going forward and again, it is part of this. Let's say transformation. That's an error towards a much a lower carbon intensity.
So the the tunneling tunnel boring machines the where the cause of the problem initially. Those are operating pretty well now and we're over that. Yeah, a lot of them have actually finished their task and have or you know been taken out. So I think we have two left at one point. We had six which was probably the the most I think of any project on the world. So yes, I mean there were there were issues with the rock climb and more than anything else. So so those that's basically being overcome what would continue in 2021 is what's called valkenburg, which is basically just to bring additional water to the project but the project will have its full capacity of 531 megawatts. But what is very interesting also is this first virtual Reservoir wage which you know, we have ten megawatts up and running and the regulations in place five our batteries and that it will allow us to dispatch this run-of-the-river differently. Yep.
Take advantage of different.
Xin daily pricing and if this goes well, we could expand this from 10 megawatts to 240, which would be really substantial. So realize that the ultimate wage is together with Alfalfa while so together. This is 750 megawatts of hydro close to the load Center of ceiling in in Santiago. So it really will be a terrific asset off. Okay, so it sounds like no news was good news. Thank you. That's all I had. Thank you.
The next question comes from Steve fleischman's with wolf research, please go ahead. Hi. Good morning. Maybe just thinking about some of the businesses like flashing and up light and and the Google partnership. Can you you know, I'm not sure I don't think you kind of can disclose like Financial impacts from them yet, but I don't know when they can be material to the money. Can you maybe give some collar on how we could see value from them kind of show up to the older? Sure. Yeah. That's a great question. Let's take fluence, which is the most mature in the case of influence, you know, this is a market which is a technology which is you know, really hitting I would say, I'm very rapid rates of growth. You know, anybody will talk to will talk about you know, whether it's whether it's India tens of gigawatts of energy storage, which is needed to be able to operate
the greater numbers of Renewables and the technology keeps improving, you know, we're coming out with
New products will be launching them this year which will help lower costs and you know, for example prefab modular Etc. So that's very exciting now getting to valuation long as I've said in the past, you know, we would like and to really get a marker by having a capital raised at fluids so that you can see what was the name date it. So as you know, we we feel that you know, we there's a lot of values being created. We think it's it would be a unique asset in the market. There's nothing else similar to it. So we're working on that page regarding up white, you know, we first bought simple energy and then we merged it with up light and the valuation that we got from simple energy in that merger was up about 100% from what we paid in less than two years. So up light is again doing many things for a lot of people in terms of that being really a cloud-based Digital Bath.
Service is provided for utilities really the leader in the field and it's also helping us, you know with our cost savings and and quality improvement as well. So that way you will probably be longer-term. I mean, I'm already seeing the benefits in terms of our own operations in terms of the things that we can offer and you're right and especially in the case of Google. There's not that much that we can disclose other than you know, this involves. I said, you know Energy Management providing them with energy. We have our first in Chile to provide them with Renewable Power and what's very interesting to them is really our ability to provide 24/7 Renewables. So I am working on a number of fields with them and in all of these is how we really get a Competitive Edge in Renewables that combining that with our existing platforms existing client relationships.
Okay, great. Thank you.
Thank you.
This concludes our question-and-answer session. I would now like to turn the conference back over to Ahmed pasta for any closing remarks about to answer any follow-up questions you may have. Thanks and have a nice day.
This contract has now concluded. Thank you for attending today's presentation. You may now disconnect.