Q4 2021 AES Corp Earnings Call
Hello, and welcome to todays H E. S Corporation Q4, 2021 financial review my name is daily and that will be the motivator for today's call.
All lines will be muted during the presentation portion of the cool 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, Playboy Treasurer, and Vice President of Investor Relations.
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.
I'll start.
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.
With the SEC.
A reconciliation between GAAP and non-GAAP financial measures can be found on our website along with the presentation.
Joining me. This morning are Andreas Gursky, President and Chief Executive Officer, Steve Hoffman, Our Chief Financial Officer, and other senior members of our management team.
With that I will turn the call over to Andreas Andreas.
Good morning, everyone.
Thank you for joining our fourth quarter and full year 2021 financial review call.
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 in 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 <unk> with the announcement of our intention to fully exit coal by year end 2025.
This accelerated gold as a result of our success in growing our renewables portfolio.
And our backlog gives us the confidence to take this step.
As the 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 dilutive.
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 onto our 2021 results and accomplishment.
First I'm pleased to report our financial results, including adjusted earnings per share of $1 52.
<unk> was in line with our expectations.
2021 parent free cash flow of $839 million exceeded our expected range of $775 million to $825 million.
Second we signed contracts for five gigawatts of new renewable projects significantly above our target of three to four gigawatts that we set last year.
In fact, according to Bloomberg, New energy Finance, a S signed more renewable deal with corporate customers in 2020 one than anyone else in the world.
Included in these deals were two groundbreaking arrangement to provide renewable energy on an hour by hour basis 24 hours a day seven days, a week signed with Google and Microsoft.
Third who was successfully completed their IPO in November and have no foreseeable need for external funding to achieve their strategic and financial objectives.
Furthermore, fluids 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'm very proud to report that our safety performance in 2021 was the best in our 40 year history.
With no major incidents recorded.
Roughly 25000, a S people contractors and construction workers.
Today, I will be discussing tubing.
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, <unk>.
85% of our adjusted PTC is from long term contracted generation and utilities.
88% is in U S dollars with the remaining 12% split between euros and various Latin American currencies.
Similarly, we are largely insulated from macroeconomic headwinds such as rising inflation and interest rates.
As shown on slide 583% of our revenue is from businesses that had indexation clauses or hedged to limit the impact from inflation.
At the same time, almost 90% of our interest rate exposure is fixed or hedged.
<unk> 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 and it.
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 accretive.
Moving to slide seven we now have a backlog of 9.2 gigawatt.
Including the five Gigawatts, we signed in 2021.
About three quarters of the five gigawatt is in the U S with.
But the vast majority sign with C&I customers and to grow the rate base at our a S Indiana utility.
We have secured supply arrangement for the bulk of our current backlog in.
In 2020 , one we successfully added 2.1 gigawatt, who our portfolio without any material delays or cost overruns.
This execution demonstrate the robust nature of our supply chain and the strength of our relationships with our suppliers.
For example, we secured Samsung battery for many of our new energy storage facility to alleviate some of the supply chain challenges faced by fluids.
Being able to switch to different battery suppliers shows the inherent flexibility of their gen six product.
As we look towards our two three gigawatts of new projects coming on line in 2022 to.
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 slide eight.
Our actions to date ensure that we will be able to take full advantage of the unprecedented transformation of our sector.
One clear example is the five gigawatts of new Ppas that we signed last year on.
An increase of 65% from 2020.
For full year 'twenty, two we expect to sign four and a half to five and a half 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 through 'twenty six gigawatt by 2026.
Despite any current headwinds for our sector such as delays in legislation and supply chain issues, we've seen very strong demand for low carbon energy, especially for tailored products such as our 20th horse seven renewable offering.
That is why we have been investing and growing our pipeline of future projects to ensure that we're able to meet our customers' growing demand for <unk> services.
As you can see on slide nine we now have a development pipeline of 59 gigawatt.
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 U S.
As a result, we're accelerating our goal of increasing the proportion of earnings coming from our U S 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, a S. Indiana is executing on the approved plan to retire two coal units, which.
Which we will replace with nearly 500 megawatts of new renewable generation.
Have already started our next integrated resource plan process, which could include additional retirement or fuel conversions for the remaining one gigawatt of coal generation.
They S, Ohio, we're executing on our smart grid and transmission investment programs.
Approved in 2021 a.
Hey S. Ohio is also in the midst of a distribution rate case and recently completed the hearing.
He asked Ohio's base distribution rates had been the lowest in the state for the past five years.
In fact as of the end of 2021 .
S. Ohio's rates were 16% lower than the next lowest utility in the state.
And even with our 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 a S neck.
Our investment in E. S. 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 influence the leading energy storage technology company.
In 2021 fluids completed their IPO with a $1 billion in capital raised to invest in developing their products and supply chain as well as their digital platform.
As of December 31st.
Who has had 4.2 gigawatts of energy storage products deployed and contracted.
And they signed backlog of $1 9 billion.
Additionally floor.
Fluids as digital platform fluent Iq.
Now has six gigawatts contracted.
Of which more than 80% is with third party customers.
Over the past several months fluids 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 fluids as 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.
A S. Next is also working to develop an incubator other technology that help accelerate the deployment of renewables as shown on slide 13.
One example is our investment in <unk>, 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, they don't have as much land.
This innovative product is currently being rolled out in Australia, Chile, the Dominican Republic, India, Panama and the U S.
Turning to slide 14.
We're one of a small number of company in our sector with targets that are fully aligned with the Paris agreement.
According to the transition pathway initiative.
We already have a goal to have a 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.
Firemen.
Fuel conversions and asset sales.
In summary, we have consolidated our position as the leader of innovation in the industry and accelerated the de carbonization of our portfolio while.
While delivering attractive returns to our shareholders.
With that I'll now turn the call over to our CFO , Steve Cutler.
Thank you Andres and good morning, everyone.
Today I will cover the following key topics.
Financial performance during 2021.
Our parent capital allocation.
And our 2022 guidance and expectations through 2025.
As Andres mentioned our results for 2021 show our continued progress in leading the energy transition, while achieving our financial goals.
We delivered strong financial results, even while absorbing the previously discussed impact from the share count adjustment related to the equity units issued last year.
Overall, the strong growth of our core energy business, which includes generation and utilities gives us confidence that we will continue to achieve our earnings and cash flow target.
Turning to slide 16.
Full year 2021, adjusted EPS was $1 52.
Eight cents higher than 2020.
'twenty 'twenty adjusted EPS of $1 44 included three cents of dilution from AAF snacks, implying that our core business generated adjusted EPS of $1 47.
In 2021, our core business grew by 21 cents to $1 68, primarily as a result of higher contributions from new renewables businesses improved operations at both U S generation in MCC and lower parent interest.
Our 2021 results of $1 52 include the seven cent impact due to a higher share count as a result of the accounting adjustment the equity units and the dilution from a S. Next where we are investing and expanding our high growth technology businesses.
The impact familiar snacks was three times higher than our prior expectation due to the nonrecurring COVID-19 related supply chain issues at fluent.
Going forward, we plan to manage the a S. Next portfolio such that these businesses will yield a neutral to positive contribution to a S earnings by 2024.
Turning to slide 17, adjusted pre tax contribution or PTC was $1 4 billion for the year, an increase of 171 million and 14% growth over 2020.
I'll cover our results in more detail over the next four slides.
Getting with the U S and utilities SBU on slide 18.
Our increased investments in the U S drove P. T C growth of 155 million, a 31% increase over 2020.
As of year end 2021, the U S represented 41% of our adjusted PTC up from 34% in 2020.
About half of this growth was driven by new businesses at a S. Clean energy that came online in 2021.
And the rest of the increase was from our legacy South one units, which remained a key contributor to the stability of the California grid during the peak summer season.
And delivered solid growth from increased dispatch and attractive market prices.
We continue to see the potential for some of our legacy Southland units to support the energy transition in California for several years to come.
Yeah.
Lower PTC.
At our South America, SBU was primarily driven by regulatory adjustments and recovery of expenses from customers ever were recorded in 2020.
Hydrology was not a major driver as we benefited from the increased diversity of our generation portfolio and favorable hydrological conditions in Colombia, offset drier conditions in Brazil.
Higher PTC at our M. C. A T SBU reflects higher LNG sales in both Panama and the Dominican Republic, as we benefited from higher contract levels at our LNG terminals.
We now have roughly 80% of our LNG capacity contracted leaving approximately $20 million to $30 million of potential annual upside to our longer term expectation.
Finally in Eurasia.
PTC was primarily driven by higher contributions from Bulgaria due to improved operating performance at Maritza and increased revenue at our wind farm, which benefited from favorable market prices.
Now, let's turn to review of how we allocated our capital in 2020 one on slide 22.
Beginning on the left hand side sources reflect $2 3 billion of total discretionary cash.
And I'm pleased to report that this includes parent free cash flow of $839 million, which exceeded the top end of our guidance expectation.
The remaining sources are largely in line with our prior disclosures, except the $295 million and temporary drawings under our revolver, which we utilized to fund our accelerating growth in clean energy.
Moving to the uses on the right hand side.
Reallocated $450 million of our discretionary cash to our dividend.
We invested nearly $1 8 billion in our subsidiaries of which approximately two thirds within the U S.
As Andres mentioned, we expect the relative share of our allocation for the U S to continue to grow.
And I'm glad to report that we now expect to reach our goal of 50% of our earnings coming from the U S. In 2023, two years earlier than our previous target in 2025.
Now turning to our credit profile on slide 23.
As a result of the successful execution of our strategy over the last few years, our balance sheet continues to be in a much stronger position.
We significantly reduced debt, while growing our parent free cash flow.
At the end of 2021 our parent free cash flow to net debt ratio was approximately 23%, which is well above the 20% threshold required for an investment grade rating.
We expect this ratio to continue to improve over time, putting us in triple B territory by 2025.
We are in active discussions with Moody's and remain optimistic that we will be upgraded this year.
Turning to our guidance and expectations beginning on slide 24.
We are reaffirming our annualized growth target of 7% to 9% in both adjusted EPS and parent free cash flow through 2025 off a base year of 2020.
Today, we are initiating guidance for 2022.
Adjusted EPS of $1 55 to $1 65.
Key drivers of our expected growth include the approximate nine cent benefit from a higher ownership of a F Andy's, which we increased to 99% as Andres mentioned earlier.
This transaction is immediately significantly accretive on both an earnings and cash flow basis, and with a simplified shareholder base a.
A S Andes will be able to more efficiently execute on it substantial renewables pipeline.
Our adjusted our 2022 adjusted EPS will also benefit from continued growth in renewables and higher contributions from existing operations, adding 10 cents.
This growth is expected to be partially offset by 11 cents of impact from a higher adjusted tax rate a.
A full year of a higher share count due to the accounting adjustment for the equity units issued in 2021.
And assumed dilution from planned asset sales or.
Our target for this year has increased to reflect our efforts to further decarbonize and fully exit coal by the end of 2025.
I would also note that we previously expected the pending distribution rate case, the D. P L to be resolved earlier in the year.
However, we now expect resolution later this year and therefore have assumed only a small contribution in 2022.
Turning to slide 25.
Parent free cash flow for 2022 is expected to be $8 $60 million to $910 million in line with our annualized growth target of 7% to 9%.
Now turning to our 2022 parent capital allocation plan on slide 26.
Beginning with approximately $1 5 billion of sources on the left hand side in.
In addition to parent free cash flow, we expect to generate $500 million to $700 million in asset sale proceeds roughly.
Roughly half of this is from already announced fails in Vietnam in Jordan and the remaining portion is expected to come from additional asset sales that have not yet been announced.
Recycling of capital is an integral part of our capital allocation framework and as we have done in the past, we will deploy asset sale proceeds to achieve our strategic objectives and maximize shareholder value.
Now to uses on the right hand side.
We expect to allocate $494 million to our shareholder dividend, which reflects our announced 5% increase.
We are also projecting investment of roughly 1 billion and our subsidiaries for growth of which about three quarters will be allocated to the U S to renewables and utilities.
Finally, turning to our four year capital allocation plan through 2025, beginning on slide 27.
Our financial strategy is centered around maintaining a strong investment grade rated balance sheet, while investing in our growth to achieve our strategic and financial objectives.
Our total growth investments for 2022 through 2020 five have increased to $3 8 billion.
We expect to continue to increase our dividend, 4% to 6% annually in line with our prior guidance.
As you can see on slide 28, we plan to fund this $6 billion with 60% parent free cash flow and the remaining 40% will be from asset sale proceeds and future parent debt issuances.
Relative to our prior plan you may notice that we have increased asset sale proceeds by $500 million and future parent debt by 300 million, which will be utilized to fund our future growth and repay drawings on our revolver had funded the higher growth from 2020 one.
In summary.
We accelerated a S growth in 2021 and executed on our financial and strategic commitment.
Going forward, we will continue to deliver on our strategy, including.
Executing on asset sales to Decarbonize and exit coal.
Maintaining the strength of our balance sheet.
And allocating capital to maximize per share value for our shareholders.
With that I'll turn the call back over to Andres.
Thank you Steve as you can see we're not only delivering on our commitments and accelerating our transformation.
Our near term actions will enable us to achieve our three goals for creating additional shareholder value.
First.
Turning on investment grade rating from Moody's in 2022.
Second increasing the proportion of earnings from the U S to 50% by 2023 and third exiting coal generation by the end of 2025.
With that I'd like to open up the call to questions.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad.
If for any reason you would like to remove that question. Please press star followed by two.
We do have questions lined up so our first question today comes from LNG Sarnowski from Seaport Angie. Please go ahead. Your line is now open.
Thank you. So my first question, Oh, and I see your disclosures on sensitivities, but I'm just wondering if you could do.
<unk> described the impact of the higher power price environment that were C pretty much everywhere in the world on your existing.
Existing assets and growth prospects.
I mean, any sort of increased economic dispatch and in house.
And the appeal of renewables and how those are embedded in your 'twenty two guidance and long term growth.
Well good morning, Angie and thank you.
Basically as you know we're highly contracted.
But what we're seeing in terms of higher prices for.
No.
Oil based generation in many of our markets that favors us because we're much more hydro and renewables are and even coal.
In places like where we have a big plant in Europe in Bulgaria, you know our plant is now very much cheaper than you.
The other generations and in the country. So we're seeing you know it improved prospects for for a lot of our generation because.
We are not a big generator using international price gas most of our gas units are running on Henry hub or almost all.
And so we're basically competing against those very high prices. So even though we're highly contracted there's always some margin. So that's positive. It's also positive on the renewable front and on the innovative front because I think people are saying that renewables are in an environment, where gas prices can be more volatile.
As favorable so in the net net you know overall, it's it's.
A positive for us in the short run and you know certainly even more so in the long run.
Because as I said, you know we're highly contracted.
Okay, just one follow up how about your LNG business.
Is there any near term or longer term impact.
Well you know we are contracted now in Panama, and the Dominican Republic, I'm basically at Henry hub, Henry hub plus of course.
So you know, it's it's favorable to us in that prospect now you know when those contracts burn off in a couple of years, then we have to see when the re contracting levels will be and hopefully that'll be a more supply of gas at that point in time.
Okay, Okay, and just one other question so you show the.
The impact or the other.
The drag on earnings from asset sales.
If you could comment a little bit. It does that include any of those accelerated coal plants are shut downs or sales.
Again, I'm trying to just I'm just trying to reconcile the earnings impact with the transactions you already announced let's say.
Yeah, Hey, Andy This is Steve So, yes, I mean, we are.
And consistent with the announcement to exit coal we are increasing our total asset the asset sale plan, two 1 billion and then increase the sale.
The target this year to $5 million to $700 million. So yes. It does reflect in.
In part the announcement that we made today, we had prior announcements in the past about Vietnam and in Jordan. So that's a that's a portion of it but the additional portion reflects the updated strategy to accelerate our exit.
To be clear, it's fully reflected so some of it had been included in the past it reflects 100% of the additional yep.
Okay and my last question on Ohio.
Delay and a resolution of the rate case is fair.
Sure.
Is there something that we should be concerned about or is this just the process.
Longer.
Sure Angie this is Amit I think no I don't think there's it's it's a process because previously we were hoping to settle.
And now we are going through because we could not reaches settlement. Although the staff had recommended a reasonable increase in response to our request.
And one of the Intervenors OCC subsequently argued that the weight piece should remain in fact in all we are going through the process, but we think our request is fair and is driven by the cost which are out of our control and.
Frankly, primarily to deliver a more reliable and economic.
Power to our customers. So we think we will get through this by mid this year.
With the approval from the commission so net net our rates are the lowest in the state and will remain in the west with this requested increase so we feel pretty good that commission will approve our request by mid to late.
'twenty two.
So in summary, it's just the timing issue yeah, yeah at the time and in fact, the Pogo staff did support and increase as part of the process digitally ready.
Okay. Thank you thanks.
No.
Thank you Angie.
Next question today comes from Richard <unk> from J P. Morgan Rich. Please go ahead. Your line is now open.
Yeah.
Hi, good morning, Thanks for the time today.
Starting on 2022 guidance could you walk from the outlook a year ago at the Investor day. So now in terms of.
Next the rate case and other factors separate from.
The equity units issued called out.
Terms of changes from the 7% to 9% growth rate versus the growth embedded in the in the current guidance.
Yeah sure Hey, this is Steve.
No.
The really the two primary drivers.
Well a couple so our growth is faster so we we've accelerated our renewables growth.
Now that's been offset by the additional share count of course, which we talked about last year.
Now again, we took advantage of the the value opportunity with Andy So we've largely offset the share price share count dilution with our acquisition of the additional shares and Andy So really what's doesn't change on a net basis is more on the asset sale program, which we just talked about.
And how we are accelerating our de carbonization of our exit of coal and then the other real driver is the is what we also just talked about which is the detailed rates, which were previously assumed would be in effect. Early this year and now are assuming assuming late this year. So those are really the two.
Primary drivers and then and then there is a.
There is an uptick in the tax rate you know from from you know from the past at this point, we're guiding to 26% to 28%.
On the on the tax rate. So that's a piece of the story as well.
Understood and then just kind of walking forward in terms of regaining the 7% to 9% trajectory.
The second half of the plan.
I guess, you called out the rate cases, and timing factor could.
Could you just speak a little bit more to how you see that the growth coming in to kind of regain the 7% to 9% earnings trajectory.
Sure. This is Andre I'll give a sort of high level look we have a backlog of 9.2 gigawatts of projects.
This year, we'll be commissioning a 2.3 gigawatts.
So obviously in a steady state these two have to be about equal.
So what's you're going to have is a real pickup in commissioning <unk> 'twenty three 'twenty four going forwards so.
We feel very confident about that because those are already signed projects we already have.
No.
The the sites and it's a question of executing on on building them. The other one is that we expect a S. Next as Steve mentioned is going to be a neutral.
Neutral to positive by 2024.
So that's a driver as well so you know the drivers R. R.
Our growth, which you know is part of our backlog what we're talking about and then we're also talking about you know the other things you mentioned your M. D. P. L. A rate case and an I P. L. O again, when we build all the wind and in rate base that is well you had the smart grid and D. P. L. So our growth projections are based on things that.
We have in the bag.
Got it understood and just one more for me.
The unannounced asset sales that the incremental portion versus the prior plan is that solely related to the coal exit or is there anything else, you're looking at maybe LNG or elsewhere.
Look we tend not to talk about exact assets that we're going to sell you know as you know we've been always turning capital.
We've made a major transformation of our portfolio and I can think back.
We peaked out at probably 22000 megawatts of coal we're down to seven a we have a basically sales for three of those so we're down to four so yes part of it is selling those cold assets, but also the continual churn that we have so it might include other assets, we don't like to comment on them.
But you know we will be hitting our you know, 50% U S, 50% renewables on an accelerated basis.
And you know those those sales help us achieve those goals.
Great. Thank you for your time today.
Oh, thank you thanks.
Thank you rich. The next question today comes from <unk>, Kim from Goldman Sachs and Sue. Please go ahead. Your line is now open.
Okay. Thank you my first question going back to that 9.2 Gigawatts of backlog seems unchanged from the mountain Dew.
Set out in the third quarter earnings.
Just wondering if there's any read through in the current.
Felt inflationary environment at least just for this year with any resistance or unwillingness for additional contracts to be signed for now.
No. That's a good question no we're not seeing that at all we're seeing strong demand.
Of course, if the backlog remains constant yeah, we we commissioned a quite a lot of projects between you know the third quarter now.
So you know already this year, we have 600 megawatts of new Ppas signed in the under a S clean energy.
We're seeing strong demand, especially for our tailored projects. So.
No I don't think there's you know what we're seeing in the market is again, especially for a differentiated products. There's a lot of demand, it's a matter of being able to have all the <unk>.
Project, let's say in pipeline to be able to meet that demand meet the structured project a product that they want.
I would say that yes, PPA prices are going up.
To reflect the increase in prices.
But as you know we've handled the.
Supply.
Constraints, you know first I would say the importing of solar panels from China PV panels from China that we were able to first move out of China and then second you know we're diversifying the source of our polysilicon away from China as well and so you.
No we're not seeing that as a constraint as we said you know we have an inventory of everything that we need to fulfill.
Certainly this year's.
Construction and also really are assigned a lot of the backlog. So if you have a good position I would just also add on the on the number specifically so as you've said the Andre alluded to you know they're there they're subtraction is coming from out of that backlog. So as we're completing construction completing acquisitions. So there's if I wanted to have gigawatts that we actually pulled out of the backlog because of.
Completions so.
There's significant additions going into.
Okay.
That's good color there, thanks, and maybe just a broader question for you.
I think the three key points that you guys made on this call, but the accelerated collection plan. The U S. You know our earnings being 50% earlier and then the plan you know those are all definitely get strategies.
But I guess when we think about you know you had the investor base and how over the past few years the structure of growing EPS and having a consistent dividend and all of that to mirror kind of a utility like structure. I think it's served you well as you have consistently executed at least over the past.
A few years.
Just wondering.
When you think about strategy and the the cost benefit of you know the actions you're taking on the assets held and whatnot.
Maybe having a near term dilutive impact.
Yeah.
I just wonder I'm, just wondering your strategy on that going forward and whether.
That's a worse you know taking the head now versus you know kind of trying to make a more consistent or a a predictable growth profile.
Well that's it that's a great question look we are laser focused on delivering on our commitments. So you know we haven't changed our growth profile, maybe to some extent a little bit back end loaded because of the dilution that we're putting in for earlier sales.
However, you know I think the strategy has served US well you know we've gone from a 22000 megawatts of coal you know to completely exit by the end of 'twenty to 'twenty five and we think that's what.
A lot of new investors will like you know so we think it will have the triple investment grade we have a growing dividend.
We are continually derisking as we get out of it.
We are more concentrated in the U S and more concentrated on renewables. So we think this will be.
A company that will attract a new additional shareholders and continue to serve our existing shareholders well.
Understood. Thank you so much.
Yeah.
Thank you. Our next question today comes from Julien Dumoulin Smith from Bank of America Julien. Please go ahead. Your line is now open.
Hey, good morning team, thanks for the time and the opportunity here.
Good morning, Julien good morning.
Okay.
Excellent perfect.
So just a.
Couple of follow up items here, if you can.
So when you talk about asset sales, but more specifically driving to a neutral to positive outcome for a S. Next I mean, how does one do that are further divestments and sell downs of your stakes part of how you manage those earnings or is this really about managing it organically to make sure that whether it's fluid and other pieces of the business. They ultimately.
All cohesively drive an.
An inflection in earnings contribution here in that 'twenty four time frame.
Clarify that.
Yes, no that is organic you know we expect the business to a turnaround you know a lot of would've occurred.
This year you know.
One time related to Covid.
Both on the supply chain.
You know of course include shipping as well.
Though we expect the business to turn around as they said on their call. They expect to be at a gross margin run rate.
By the fourth quarter.
And so we will hold them accountable for that you know and through the board and you know we we continue to innovate together. So both the you know the big companies are our fluids and Uplight and we.
We expect them both to execute on their plans and that is is inorganic you know again, what we were mentioning is that we always have many levers to pull.
So what we're saying is by 'twenty 'twenty four is this will be positive or neutral at worst.
Hopefully positive.
Yeah.
I would just add Julian Yeah. If you think about the stage of these businesses, they're investing in their product development and in their market expansion. The digital IQ for fluids. For example, so you would expect them to be bottom line losses. At this point are there they're their lifecycle and as Andre said they have a plan to get back to the gross margin.
<unk> targets by the fourth quarter, and then with the added volume as that grows in the topline has been very successful as the volume at the margin grows then the bottom line of that business will overcome it's R&D and G&A costs and get to get to a you know.
Positive place.
Got it and if I can come back to one of the the underlying points. You. Obviously you have a long term earnings trajectory.
Growth in 'twenty, two is a little bit slower than that trajectory would otherwise indicate.
So if if you will there's gotta be a pickup at some point here you've talked about some of the timing related issues specifically in 'twenty two.
How do you think about that sort of inflection that catch up period is there a bigger step up in and say 23 or 24, just curious about the sort of the profile against that line the average CAGR fill out there.
Of course, we can't guide to 'twenty three 'twenty four it specifically, but you know obviously if you look at the number of Ppas, we have signed which will come online in 'twenty three 'twenty four you know that.
That's a big driver behind that if you also look at the rate cases that we have in the utilities in the U S. That's a big driver of that as well. So that's the pick up I mean realize that.
'twenty two we're also making up for the.
<unk> and how it is.
Accounting.
The COO.
Counting it.
Issue that we had for the share count.
So you know actually we are.
More than delivering on what we had set out say two years ago. So you know, where we're making up a nine cent hit for this year based solely on you know how you account for the number of shares yeah, Yeah, and I think in addition to that the.
The opportunity to take advantage of the value and in a S. Andes and increasing the shares that was significantly earnings and cash accretive immediately and we will continue to be so that's a that's a big help to us too.
In fact, if if I may and I again, I may go to provide longer term guidance, but you know given what you've just said a moment ago and you know you offset some of the 'twenty two impacts you know that that is somewhat technical here.
To what extent can we expect you know an extension or acceleration if you will implicitly given what your your successes on renewables the ability to drive that catch up against your seven and nine.
In the later years and what that means for sort of an exit rate trajectory subsequent to 70.
In 'twenty and beyond you get what I'm, saying if the platelets.
What does that mean about the longer term.
Well again, we're very optimistic about the longer term.
We feel we're in the right.
Place in the market you know that we have differentiated products we have.
Growing very fast in renewables, we're in the right markets and you know we have upside potential from projects like in Green hydrogen we have a number of projects that we're progressing there.
I think something that will give us additional juices the pass of the climate plus plan, which will clarify what are the various subsidies or if you want tax tax percentages tax.
I T C. P. T C etcetera. So once that's clarified that could give us.
Outside and then also as Steve mentioned in his speech you know greater.
Use of our facilities in southern California are longer and the extension of it which looks technically possible. So there certainly are upsides from that you know what we're doing is saying you know based on the situation that we're in today. This is this is our plan.
Only thing I would Julian I would add this is Amit is that back in March last year on Investor Day, We had already assumed significant dilution because we said our goal is to go below 10% call. It by 25, so our growth rate already had embedded at that time decent dilution, we shored that roughly 30 cents at that time.
So so I think now we are saying we are down to zero. So I think we and the factors that we've discussed today.
The positive things that go in our favor like increased sharing sandys accelerated growth in renewables things like that will help us offset that so we don't expect any hockey stick if you wish.
High profile.
If that was your question and the share count changed.
Change was baked into it to 24 and 25, so that's relative to the near term guidance, that's having a disproportionate effect on 22 and 23, but it is a 24 shares were assumed to be converted anyway. So we're already baked in.
Right clearly, but again you gave me no reason to be less confident here. Thank you guys appreciate it.
I do.
Thank you Julien.
The next question today comes from Digression Chopra from Evercore ISI to crash. Please go ahead. Your line is now open.
Hey, good morning team. Thank you for taking my question I wanted to go back to the renewable backlog.
And I think Steve you said I mean, there are projects that that are you.
You know were completed and taken out and then few new AD.
There's a fair bit of gas.
In that 9.2 gigawatt number.
Can you elaborate what those are gas fired plants LNG projects, what does that comprise of.
Yeah. So so we do have so we have a the the project that we acquired in and Panama in those numbers the Gatun project.
Is included otherwise so it's it's a ring.
Renewables, yes.
And just so you know that.
One.
25%.
Of the project the gas project in Panama.
So we actually actually it's you know we own higher percentages of the renewables.
Yeah, the whole the whole amount is reflected here, but yeah from an economic standpoint, we own more of the renewables.
Okay, maybe I can just follow up with Amit on that Okay. And then just can you talk about what sort of you know how should we think about the financial impact if any of the community energy acquisition.
I mean in terms of financing costs.
And things like that on you know 2022 guidance and you know future earnings projections.
Yeah. So the community look we've grown.
Our aes clean energy.
Very quickly we've had we've merged our S power with distributed energy and then we've also acquired community energy now community energy comes with a.
Pipeline of 10 gigawatt.
And 70, you know seasoned professionals. So it was very important at this time of rapid growth to have first the people and secondly, secondly, the pipelines. So that's going to help our growth now in terms of their projects you know when those will be offered to our customers and come online.
No backlog is coming from community energy, but certainly we think that we can get better financing terms and better cost for equipment and <unk>.
Improve execution, so that's that's upside.
So I don't know if that answers your question, but basically you know that theyre now part of that unit.
And you know what they've done is help us accelerate that growth.
Got it okay guys. Thank you for that color I appreciate the time.
Thank you.
Thank you.
Next question today comes from Stephen Byrd from Morgan Stanley . Steven. Please go ahead. Your line is now open.
Hey, good morning.
Hey, good morning, Steve.
I wanted to first just talk about Chile, and just wondering if you could expand a bit on the dialogue you've had with the Chilean government in terms of helping the nation to decarbonize and pursuing green ammonia and just a little bit more color on the nature of that dialogue.
Sure.
Well, let's see we.
We know we know that the new president of mortgage.
Through the council of Americas, We know about him I would say that it's very much aligned with our plants because he wants to.
Continue to Decarbonize the mining sector.
That would fit in well with our project to supply the mining sector with hydrogen fuel for their large machinery.
Also it fits in very well with our planned shutdowns of our coal plants.
And their replacement for.
With our pipeline of renewables, so I think where we're very much aligned with that would that plan and I think he wants to increase and accelerate the carbon tax.
We don't see you know our contracts have pass throughs or the higher carbon tax and in most cases.
And you know our renewables would benefit from it so you know we.
Felt that there was a tremendous opportunity at a S. Andes.
And you know, we're rolling a lot of new technology out in Chile in terms of batteries in terms of the Maverick products for five b.
You know we have we believe the most efficient solar farm in the world that are close to 38% in Chile. So we got a lot of good things happening in Chile, which weren't reflected in the market price and in terms of the government. Our plans are very much aligned with what they want to treat.
Very good and then just another topic I've been.
Getting some questions on is just El Salvador and the the state of the economy and you know I guess I've been seeing that there has been fairly good economic growth in El Salvador, It's an important country for you.
There was some concern about the linkage with with bitcoin and just sort of the the overall sort of growth and stability potential there I wonder if you could just expand a little bit on what you're seeing in El Salvador and sort of the outlook there for your business there.
Look our business in El Salvador has been very stable.
You know the dollar is the currency of the country. So.
You know bitcoin is not going to replace it and certainly with the.
You know volatility that bitcoin is houses is not feasible. They did do one financing in bitcoin that I am aware of.
So I don't see a change there that you know the biggest export of El Salvador's people, especially if you live in the D. C area. So its remittances that drive the economy.
So a big factor there is the U S economy is doing well so I'd say the thing to watch in El Salvador, you know as you know, we always have to be on top of our collections.
And those are doing very well so I know, there's some noise, there's some political noise.
And you know there's been some announcements like bitcoin, but we don't see anything that would substantially affect our business.
That's very clear and very helpful. Thank you so much.
Thanks, Steve.
Thank you as a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
The next question today comes from Greg <unk> from UBS. Greg. Please go ahead. Your line is now open.
Thank you.
I'm, sorry, if you've covered this but.
What was the last 10%.
On.
They're related to the exit of coal by 'twenty five.
What would the steps.
Steps get you there.
Yeah. So that that was our previously stated goal. So we're just above.
20% round around 20% this year and so our previously stated goal was to get below 10% by 2025 and that is through a combination of asset sales retirements fuel conversion. So if the what we've talked about today is really just a full exit.
By the end of 2025.
That's a that's really the difference there.
Can you be any more specific.
Plant life.
Uh huh.
Greg what I would I'd put it this way is again in the big in if you look over time I mean, we've gone from 22 to seven we've already signed.
Of that seven about half of it is already you know basically sold and we have to just close the sales so you're you're left with a.
A number of plants and there's a combination of.
Replacements are let's say for renewables, there's fuel conversions, you know, where we can start running those plants on gas and.
And in those few cases, where you know we that that does not work and then there's obviously the possibility of asset sales. So just like we've been doing.
Overall, we're just accelerating that and saying look.
Rather than have you know.
10% linger on for a couple of years, let's just go ahead and bite the bullet and say we're out of coal by by end of 'twenty five.
Got it thank you.
Thank you.
Yeah.
Thank you Greg.
No additional questions registered at this time, so I'll hand, the call back to Ahmed Pasha for closing remarks. Please go ahead.
Thanks, everyone for joining us on today's call as always the IR team will be available to answer any questions you may have.
Thank you and have a great day.
This concludes today's conference call you may now disconnect your lines.
Yeah.
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