Q4 2020 AES Corp Earnings Call
Good day and welcome to the Aes Corp, Q4, 2020 Financial review Conference call.
Good day, all participants will be in a listen only mode should you need assistance during todays call. Please signal for a conference specialist by pressing the Starkey followed by zero.
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At this time I would like to turn the conference over to Ahmed Pasha, Treasurer, and Vice President of the Investor Relations. Please go ahead Sir.
Good morning, everyone and welcome to our fourth quarter and full year 2020 financial review call.
The press release presentation and electric financial information are available one of our website at Aes <unk> 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 <unk>.
And then Q filed with the SEC.
Reconciliations between GAAP and non-GAAP financial measures can also be found on our website along with the presentation. Joining me. This morning I'm just go ski our president and Chief Executive Officer, and Gustavo Pimenta, Our Chief Financial Officer.
With that I will turn the call over to Andreas and rich.
Good morning, everyone and.
Thank you for joining our fourth quarter and full year, 'twenty and 'twenty financial review call.
This morning, I will provide an update on our major financial and strategic accomplishments, which position us well for the future.
Some of you may recall that last year I set out three short term catalyst for our stock.
Hitting our numbers.
Getting a second investment grade rating.
And becoming Norges bank coal generation compliant.
In 'twenty and 'twenty, we delivered on all three metrics and set ourselves up for continued progress.
First let me talk about hitting our numbers.
We delivered adjusted earnings per share of $1, 44, which was above our guidance range of $1 32 to $1 42.
Our parent free cash flow came in at $777 million.
Which also exceeded the top end of our range of $725 million to $775 million.
Second in November and S&P upgraded us to the investment grade rating of Triple B minus.
Joining fish, which had upgraded us in 2019.
Third by selling of retiring coal plants and building new renewables.
The reduce the percentage of megawatt hours being produced by coal plants to 25% on a pro forma basis, which is comfortably below norges bank threshold of 30%.
6.9, Gigawatts as shown and slide five.
About half of the total of solar and most of the remainder is wind and energy storage.
100% of our backlog us renewal.
We expect to bring almost four gigawatts of this backlog online and 2021, one of the largest capacity additions and Aes's history.
Finally, turning to slide six fluent or joint venture with Siemens to provide energy storage systems maintained its global leadership position and signed 785 megawatts of new capacity.
Its revenues grew 400% versus the prior year and they acquired a M s's, leading AI enabled bidding software business.
Ah capital raised was also announced with the Katar investment authority, which will provide funds to further accelerate the development of it's digital product offerings and the deployment of it systems around the world.
As you can see we are very well positioned to continue or solid renewables growth.
Aggressive Decarbonize Asian, and deployment of leading technology innovations the.
The electricity sector is changing rapidly and we will be providing a comprehensive view of a yes as long term plans and opportunities and this new environment next Wednesday March 3rd at our Investor Day.
Now, let me turn the call over to Gustava, who will provide more color on our financial results for 2020 and guidance for 2021.
Thank you and dress and good morning, everyone.
Today I'll cover the following key topics.
Our financial performance during the fourth quarter and full year 2020.
And Ah camera on location initiatives and 2020 and.
And our twenty-two anyone guidance.
As in resignation our results four of 22 any highlighted the resilience of our business model.
The delivered is strong financial performance, while navigating challenging macro conditions.
Including the backs of lower the men do two COVID-19 and of record the dry hydrology and Columbia.
And we finished day you're on a strong note sat and a solid foundation for continued growth.
Turning to us light eight.
Four year adjusted EPS of of dollar 44 exceeded the top and of our guidance range and it was at the midpoint of a regional pre COVID-19 guidance range.
As I noted the key negative impacts on our results were from lower the men and adverse hydrology.
Our generation business, which accounts for more than 80% of our earnings is largely insulated from the men fluctuations.
However, as we have discussed in the past R. U S utilities did experience of reduction and demand due to the economic impact of the pandemic.
A dog there has been of gradual recover and demand and the second half of 2020 and the impact on a full year basis was approximately four cents.
Regarding hydraulic we experienced average hydrology most of our markets accepting Colombia, where it was one of the worst hydrological years on record.
The total impact of hydrology, an hour of fully of results was approximately five cents and South America, primarily and Colombia.
We expect of the hydrological conditions to be normal and Columbia and 2021 in line with the long term historical average and have already observed this trend in the year to date.
Despite the headwinds from these two areas, we're able to deliver on our full we're guidance as the result of higher contributions for new businesses and improve it operating performance and South America.
We also benefitted for an hour of cost savings initiatives interest expense savings, resulting from $7 billion of refinancings across the portfolio and the lower adjusted the X rayed.
Turning to US line nine adjusted pretax contribution or a P. T C was $1.2 billion for the year and.
And increase of $7 million versus 2019 and.
And will cover our results in more detail over the next four us lights, beginning with the us and utilities SBU unenlightened.
And you may have seen yesterday, we have rebranded hour you ask utilities, the piano and I P. O two a line with the new a aspirin.
For now one this businesses will be known S. A S, Ohio and asking the Anna respectively into.
Into any to any lower P. T C. At R. U S and utilities S view reflects the impact of the reversion to yes P on rates at a S. Ohio, each one and 19 and lowered the men at our utilities due to the impact of COVID-19, and my other of weather.
The ZIP backs were partially offset by the benefit from the commencement of P. P. As of the Southland energy Cgt's as well as the contributions for new renewable projects.
Hi of P T C and or South America S view was largely driven by higher contributions for and a S and air and a favorable revision of regulatory charts at a S. T a day in Brazil.
These impacts were partially offset by dryer hydrology and the planet major outage at the issue of war Hydro plant in Colombia, and the regulatory changes in Argentina and 2019.
Lower P. T C. At R. M. C. C. S. B U primarily reflects the impact for an insurance of recovery and prior ear as well as outages incurred and twenty-two and in the medical of public Park.
Partially offset by and prove it availability and hydrology and Panama.
Final in Erasure, Hi results reflect lower interest expense due to the that repayment into any training and Bulgaria, partially offset by the impact of businesses sold and the United Kingdom and 2019.
And now turn into our credit profit on US light 14 hour significantly reduce parent that and growing free cash flow enabled us to improve our of credit matrix by 400 basis 0.6 2018 at.
At the end of twenty-two any hour of parent free cash flow Jeanette that ratio was 23% well above the 20% threshold required for and investment great rating.
Strong credit matrix remain and one of our top priority and you continue to take steps to maintain and for the improve the punk current levels.
Furthermore, we took advantage of last year of of low interest rate and the environment and refinished approximately $7 billion of debt across our portfolio extended maturities and capturing and realized interest savings of $90 million.
Now chart 2020 parent capital location is like the 15 beginning.
Begin on the left hand side sauces reflect $1.3 billion of total discretionary cash assets sales of $530 million reflect the net proceeds from the sale of O P. G C and the sales out of 35% of our interest and the Southland Repowering projects.
[noise] parent free cash flow of $777 million exceeded the top and of our expectation.
[noise] moving to US is on the right hand side rough.
Roughly one third of our discretionary cash was of located your shareholder dividend and that repayment.
Or invested $812 million and are so the zingers, primarily in our renewables backlog, south la Repowering and a S O high.
[noise] approximately 90% of the total of investments and subsidiaries were and the U S contributing to our of grow of increasing the proportion of earnings from the U S. Two of both have.
[noise] furniture of guidance on Us light 16.
Today, we are initiating guidance for 2021 at just the the P. S of $1.50 to $1.58 in line with our average annual growth target of 729%.
Fair and free cash flow four of 2021 is expected to be $775 million to $825 million, which is based on 7% growth from the meat point of our of 22 any expectation of $750 million.
The drivers of our expected growth and adjusted EPS. Each of any 21 include a full year of operations of our 1.3, Gigawatts Southland Repowering project, which came on line and meet you any training continue.
Continued growth and renewables, including four of gigawatt expect the to reach commercial operations. This year if.
The efficiency gains from cost savings and hour of digital initiatives and and the interest savings due to refinancing benefits and completed that production will.
And we look forward to discussing our of long term growth rates and drivers with you all at our Investor Day next week.
With that I'll turn the call back over transgress.
Thank you for the stubble.
Before we take your questions, let me summarize today's call.
Thanks to the extraordinary dedication of our people and the resilience of our business model, we met or exceeded all of our strategic and financial goals and 2020.
We are very well positioned to capitalize on significant growth opportunities of rising from the rapid transformation of our sector.
As always our primary focus is to continue to deliver superior returns to shareholders.
We look forward to discussing our strategy and longer term financial outlook with you at our Investor Day next Wednesday March 3rd.
With that I would like to open up the call to your questions.
We will now begin the question and answer session to ask a question you May press the star than one on your Touchtone phone. If you are using a speaker phone. Please pick up your handset before pressing the keys.
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Today's the first question comes from Angie stories, and ski with Seaport Global. Please proceed.
<unk> get the morning so.
Two quick questions one.
On.
Yard of 21, Guy and what what effective tax write us about it.
And that guidance and that is this the notification that.
You are actually expecting Lola the effective tax going forward.
So Angela stops no I think we are I mean, we had does your Chinese train of us, particularly lower around 23% for 2021, and we expect and she'll go back to a region of expectation and the meat twenties too high twenties.
Okay, Alright. Thank you and then one of the the point of dry you'll be of dried.
And your of 21 guidance of Sir some G S F adjustment and Brazil cause the expelled.
Yeah. So we had this positive gain there, but we also had and especially in Colombia, some negative Paul at one time or hate. So we had a life extension project. There there was about five to six cents negative. So when you look at both businesses there the print and Mitch and that each other out.
So I wouldn't expect any drag US you know from the hydro businesses into any 21.
Okay, and and I know that you're gonna be talking about strategy and and I'll get the graph plans on the next week [laughter], but.
And do you have any sense of <unk> could the river.
And your writing.
They came earlier this year and and with a positive update on their credit veal for a so basically Laura and the the overall F. A full to that and a consolidated basis to 14% versus 16.
We are seeing us they're very close to the this ratios. So you know we are we are positive I think there will we expect them to make a move hopefully this year, we'll see what is exactly the move that they make.
But the ratios are there and we think will work in the in a positive moment the with them.
And then again I know the animal the day. It next week, but can you comment if you see yourself issuing equity and you guys don't like say over the next five years and.
Yeah and this is in the race look you know that's one of the tools available to US and you know it depends we'll yep shield of the growth rates. We have we have a lot of opportunity. So that's one of the tools and and our kit.
Understood.
Thank you.
Thank you Andrew.
The next question comes from Richard Sunderland, and with a J P. Morgan police procedure.
Hi, good morning, and thanks for taking my questions here just wanted to start off you know maybe on the the event some types of us last week and what's the C. As of all for storage you and the state going forward and and you know what how my a us benefited from the the deployment of storage locally.
Sure look storage can be used to make a more resilient grid.
Definitely and so I think that.
Storage the the potential for growth and storage is enormous you know, what particularly happened and Texas of course was that you didn't have you don't have capacity payments. So you didn't have a really and incentive to winterize a lot of the the.
Existing plants and a fossil plants and also quite frankly, the winter Evans Interestingly solar performed very well. So I I think the follow US yes people are gonna be concerned about more resilient networks.
And that works and you know stores can play a part transmission and it can also play a part locally so I do think that this will.
Cast you know more of like more attention on energy storage as part of the more resilient grid.
So do you do you see kind of of different opportunity for solar then for solar post orange or the storage and general you're going for it as a result of of you guys or you think it's more of Margaret design issues and kind of of other specific doctors that that maybe the the change.
Well you know my my own personal opinion us that you know what you have a market where you don't remunerate capacity. I think is is you know one of the the key sources of having said that and of course sort of.
Energy storage of has many uses you know, it's not only solar plus storage windflaw of storage and all of a standalone storage, but also to make improve transmission with existing line. So you don't have to upgrade the whole line. So all of these attention to the robustness of the grid.
And and the network is is a positive for a future sales of energy stores.
Great. Thanks, and then just one specifically on the 21 guidance here uhm any weights of frame assumptions around you asked and sales uhm, you'll kohl's sales baked and the 21 guidance versus and what has been announced your last year and of this year.
Yeah the <unk>.
Status of so all of the announcer assets sales and retirements or incorporate it uhm effectively we have and get that close like late last year. So it's in here, We've said Vietnam, which was the the other large one wood probably close between the end of this year or the next year. So it doesn't hate 2020.
And one but effectively all of the announcer us it say us and retirements are incorporated and this twenty-twenty of them guidance.
And are there and you'll placeholders for incremental sales as well.
And if they happen and they will probably close later, so specifically for 22 anyone with and make make any difference here.
Got it that's helpful. Thank you for taking the time.
Thank you Richard.
And the next question comes from it Steven Bird with Morgan Stanley. Please proceed.
Hi, good morning.
Good morning, Steve.
I wanted to explore your your corporate partnership with the with Google and just get you over all of US on the degree of interest you seen from other companies to partner with a yes, given a S as global reach and renewables and storage capabilities to help those those corporates to to achieve.
Is zero emissions that and are you encouraged by.
Very much so very much so you know we.
We've talked to in the past the butter.
Relationship and and partnership with Google You know that continues to progress.
But you know we're also seeing interest from other similar players about you know 24 seven renewable so definitely you know we're encouraged by this and the fact that we have a presence and other markets and additional plus you know not immediately the down the road.
Okay. So it sounds like something and the longterm of your excited about but you know.
Nothing nothing near term, but but something we could see over time okay.
Of well no I wouldn't say, so long term [laughter] okay.
Okay. That's great and then I guess, just stepping back maybe building a little bit on on and she's question on financing you of.
Really great growth outlook in and many different asset classes and I was just curious just out of high level. As you think about just innovative financing approaches financing tools out there. There's certainly strikes me. There's a you know a lot of folks who'd love to provide capital to high quality clean energy and storage projects are you seen anything.
Sort of new in terms of innovation and as a yes gets bigger and bigger and renewables just different approaches to to financing all of this growth.
Well, it's a great question over the past, let's say eight years or so we've sold about $6 billion of assets and we have true that money alright, and that's provided and puts us for a lot of or a new growth. We've also done partnerships.
So you know those continue to you know we will continue to do asset sales and we continue to do partnerships. So you're right. We're seeing a lot of interest and people co investing with us and and different shapes or forms. So this is very positive I think we have a good reputation as as a partner.
Who really looks at all shareholders and these joint venture so you're absolutely the right. We're seeing a lot of new things you know as you know in the past I'd say the the one thing that did not come to fruition.
Fruition really was you know the effort the Tom led for about a year honestly without COVID-19 it would've come to fruition, which was quite innovative but.
As I always said back there and this was extra we didn't needed to finance of growth of it was just of plus so we're seeing again a lot of people who are interested and partnering with us and are different technology place.
Pretty good thank you very much.
Thank you Steve.
[noise] today's the next question comes from it Julia and it Jim Linda Smith with at Bank of America. Please proceed.
<unk> and good morning team congratulations get perhaps just just the kick it off here on on 21, and and I'm Gonna try to hold back ahead of next week, obviously, but can you talk about the renewables contribution here and and and earnings as well as fluent how are you thinking about those those two pieces and especially as you try to refine your expectation.
And given the success of renewable backlog here.
I get renewables are not necessarily homogenous, but how do you think about renewable earnings contributions here and I know this is getting a little bit of ahead of next week, but can you speak to and right, especially in the complex of 21 for <unk> for both Okay Livingston renewables.
Yeah, Let me start it and then I'll pass it over to start with so look next year is very interesting and just for my cutting ribbon point of view of we have four gigawatts is coming on line.
So that represents Ppa's, which were signed and the past and this is one of the highest additions to our fleet and in our history and the single year. So that we feel very good about.
So the second thing is as you correctly pointed out you know our renewables come and different flavors.
So you know about half us outside the U S.
So you know that and the what we're <unk> and you know about half his solar and about half is.
There is some hydro coming on line, but there is you know mostly mostly when some energy storage.
<unk>.
Regarding fluids I would say that the fluids will not be a contributor to earnings next year, because there's been a very rapid growth phase you know what we see us.
Big increase and acceleration and demand for the.
Energy storage and is more uses or seen and and there was some questions about prior on this call about you know grid stability and and yes. It can play it and important Roland that so we see growth accelerating influence and basically as a result of that you know, it's it's harder to hit the breakeven, but I would say that you know in terms of just a little.
A bit of postponed and time, because you're gearing up now and we came out with the new cube stack. We also bought the a I enabled the bidding platform from a M S.
And that's a very interesting addition, and we've had sales of a M. S bidding engine actually not using of fluids US hardware. So you know generally I would say that these kind of.
Software platforms, you know have the.
Less of you know less capital intensive you know the and building.
The the cube stack itself, so that will help us turn profitability sooner, but you know the there's a trade off between very rapid growth and and starting to break even but you know we feel very good about the company. So I'll I'll pass it now to go style wood to talk a little bit about the breakdown of of our earnings now realize a lot of these things are you the.
Somewhat tied together because you know you have like green blend that extent. So you basically have a capacity contract with of fossil.
Plant plus you know renewables being added onto that so with that I'll I'll pass it as it goes though thanks and red So so Julia and it's I would say that 2021 is mostly live and bye bye new additions. So remember we had just half of the you for self and so we're gonna have a full year of soft and and that's about four cents and the renewables I'll check.
That we are bringing before I gigawatts on line is and dress and renewables altogether us about five cents. So the delta to any genuine is mostly driven by by those additions and.
And then you have some items that offset the charter. So there was a dragon tax the excellent, particularly Lola what do we have recover of for example, and the demand-side from the utilities, you're expecting some recover there.
Of the cost cutting us also that will offset some of the drags contact so and I forget.
And all of that I would say mostly of the growth of primary the growth is coming from the new additions being selfless foyer and five cents from renewables.
[noise] excellent if I can ask you. The the obvious question here your target for annual development I suppose us two to three gigs four Gigawatts next year obvious question is how do you think about that long term target and then related uhm given your comment of them continue drag I'm fluent why hold onto a busy.
And that continues to drag your primary valuation metrics, uhm and light of accelerating and improving our.
Sure, let's see let me take the the first question, which was about the renewables growth. So we have two years, where we've basically been about it's free Gigawatts now what we talk about that that's P. P. A signed so those will be brought online you know and normally and appeared within 24 months, probably the average is about 18 months. So.
And there's a lag there. So we have had two very strong years. So four gigawatts or go to come on line that means they're actually coming on line. So then the you know the goal is signed Ppa's. The second is what you're actually going to start contributing to your earnings.
So you know we see a continued you know of acceleration, let's say and in the renewables business.
So you know we feel very comfortable you know, it's no longer sort of two to three it's it's more of three plus going forward and this could you know we have to see you know we'll be talking about this on Wednesday, and I want to get too far ahead of US now now regarding flu fluent and and you know really we do have a.
You know a number of unicorns that we've done you know it started with at the most in Brazil, which was the telecom fiberoptic rings that we had distributed energy fluids is one.
And we have another of.
Some more of potential ones that we're developing.
So I I would say that we're creating a lot of lot of values with fluency and two different ways first half of our renewable ppas that we're siding and have and energy storage component. The right. There. It makes us competitive you really understanding how to use energy storage and how it would be very creative I mean, what <unk>.
He did and Kawaii US you know we want a price for that we have other projects coming on and and Hawaii. We have the first world first the virtual reservoir, we have a number of new us. So a yes is part of that engine of growth of fluids, because we are creating many new.
Since.
And that is helping fluent and then we're getting it through the valuation of fluence itself.
So if you look at the valuation of fluids expect it to do very well you know we started with the Qatari and.
Investment authority guitars of particularly excellent partner at the stage for its investments and other technologies from batteries too.
You know potential clients like never us and in the Middle East So.
This is kind of somewhere between the financial and the strategic Investor here. So no I don't think at the time is now to get rid of fluids in any way I think we're in it for the long term I think there are opportunities in the future you know that we will evaluate but no. We're very pleased with it and I think we're just starting to see the real.
Inflection point here for for energy storage.
Thanks for the time speak the guys next week and congrats again.
Alright, Thanks Juliet.
As a reminder, if you do have a question. Please press the star than one on your Touchtone phone.
Our next question comes from my Charles Fishman with Morningstar. Please proceed.
Good morning, Andress I know you were targeting ultra Michael for a commercial operation by the end of the year and did you make it.
It will be this year, we were targeting this year 2020 of what may be originally but I'd say over the last year or so we've been targeting 2021, it's coming along very well and you know we are very close to completing all of the tunneling work and we were already done or.
Out of work in terms of of putting and the turbans and the machine room. So I'll do my bow as of proceeding nicely and it will come on line of this year and as you know you basically complete construction and then you got to fill up all the various tunnels with water before you start producing but we're very pleased with construction and also Michael.
Okay and then on.
The dividend policy.
And I'm just looking back over the last.
Six years and it looks like.
You've been pretty consistent on.
The other than being 70 per cent of the current free cash flow and.
Is that still the first the metric the board looks at the is that still the the primary.
True and they're gonna use our our metric, they're gonna use for determining and the dividend going forward.
We really look to see if we have a dividend that we think is competitive.
For our investors. So you know what we're targeting going forward as of growth between 4% to 6% and our dividend.
I think of you go and the past five years, we probably had the fastest growing dividend of seven years. We've had the fastest growing you know dividend of anybody really of you take a longer time frame and so you know we're happy with you know our growth of.
And that we've been forecasting us seven to nine and the past and and that will continue to grow our dividend, 4% to 6%, which we think US you know is.
Is competitive and our sector.
So the fact that it's been about 50 per cent of free Cashflow is just the I won't say coincidental, but it's just secondary importance.
That's correct, we're we're not target and being a pay out of our.
You.
Cash free cash flow and and that's it so that that's really not the target is really to make sure that we have and.
And attractive Ah dividend payment for our shareholders.
Okay. That's all I have thanks, Andrew.
Alright, Thanks Joseph.
At this time and we are showing no further questions and the queue and this concludes our question and answer session.
At this time I would like to turn the conference back over to Ahmad Pasha for any closing remarks.
Thanks, and thanks, everybody for joining us on today's call us always the I R. K and will be available to answer any questions you may have and.
Next week, we look forward to speaking with you again it of virtually Mr day, Thank you and have a nice day.
The conference US now concluded. Thank you for attending today's presentation and you may now disconnect.
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