bank of america 36th annual investment conference aes … · 2015-10-16 · bank of america 36th...

1www.aes.com

AES CORPORATION Bank of America 36th Annual Investment Conference Paul Hanrahan

President and Chief Executive Officer

September 18, 2006

2www.aes.com

Safe Harbor Disclosure

Certain statements in the following presentation regarding AES’s business operations may constitute “forward looking statements.” Such forward-looking statements include, but are not limited to, those related to future earnings, growth and financial and operating performance. Forward-looking statements are not intended to be a guarantee of future results, but instead constitute AES’s current expectations based on reasonable assumptions. Forecasted financial information is based on certain material assumptions. These assumptions include, but are not limited to continued normal or better levels of operating performance and electricity demand at our distribution companies and operational performance at our contract generation businesses consistent with historical levels, as well as achievements of planned productivity improvements and incremental growth from investments at investment levels and rates of return consistent with prior experience. For additional assumptions see the Appendix to this presentation. Actual results could differ materially from those projected in our forward-looking statements due to risks, uncertainties and other factors. Important factors that could affect actual results are discussed in AES’s filings with the Securities and Exchange Commission including but not limited to the risks discussed under Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 as well as our other SEC filings. AES undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

3www.aes.com

AES is Among the Largest Global Power Companies

Note: 2005 results exclude businesses placed in discontinued operations as of June 30, 2006. Countries and locations include projects under construction.

AES OPERATIONS

$11 billion revenue power generation and distribution business$2.2 billion net cash provided by operating activities

4www.aes.com

Focus on global growthAlternative energy markets (LNG, renewables, global climate change) complement traditional growth strategiesPortfolio management opportunities given current high asset values

Strong operating model supports growth programsDiverse generation portfolio largely contracted with limited fuel cost riskUtility portfolio offers exposure to emerging market demand growthRegional accountability supported by global process improvement

Key financial metrics: EPS, free cash flow and ROIC (1)

Incentives aligned with shareholder interests

AES Value Proposition

(1) Free cash flow and ROIC are non-GAAP financial measure. See Appendix for definition.

Contains Forward Looking Statements

5www.aes.com

Electricity Sector Leads $5.5 Trillion Global Energy Investment through 2015

Source: International Energy Agency World Energy Outlook


Electricity 61%

Coal 2%

Oil 19%

Gas 18%

Breadth of experience across regions, technologies and fuel sources positions AES to participate in over $3 trillion of global electricity capacity investment

needed by 2015 as well as adjacent markets.

Expected Global Energy Investment by Sector Through 2015

6www.aes.com

The Case for Global Investment

Source: U.S. Energy Information Administration International Energy Outlook 2006


Average Annual GDP Growth (2003-2030)

Average Annual

Growth in Energy

Consumption (2003-2030)

0%

1%

2%

3%

4%

0% 1% 2% 3% 4% 5% 6%

OECD Asia

AfricaMiddle East

Europe and Eurasia

Asia

South America

OECD North America

OECD Europe

Average Energy Consumption Growth Worldwide

Average GDP Growth Worldwide

AES has the presence, experience and expertise in markets with the greatest potential GDP and energy demand growth.

7www.aes.com

Growth Investment and Portfolio Management Strategy

TraditionalDevelopment

Greenfield projects

Platform expansions

Acquisitions

Privatizations

New andAdjacent Markets

LNG regasification

Greenhouse gas emission offsets

Alternative energy

Coal mining

PortfolioManagement

Minority interest sales to partners

Access attractive local capital markets

Asset sales


8www.aes.com

Development Stage

Strong Development Pipeline

EarlyAdvanced (1)

Engineering/construction

TotalProjects

93710

TotalCountries

3257

Traditional

5544

Alt. Energy/Adj. Mkts. (2)

3621

Envir./Other (3)

215

(1) Includes projects with signed PPAs or significant permitting completed. AES may not yet have announced some projects at this stage.(2) Includes alternative energy projects (e.g., wind, LNG, climate change), as well as projects in new and adjacent markets.(3) Includes environmental and other projects for existing portfolio with return on investment.

#*

1,0002,140

Gross MW

Project placement is approximate. Data as of August 2006.


9www.aes.com

Greenfield Investment Example: BulgariaContains Forward Looking Statements

Proposed AES Maritza Plant, Bulgaria670MW lignite-fired power plant$1.4 billion project costStrong commercial and financing terms

15 year contract with national utility15 year lignite supply agreement minimizes energy supply risksLetter of government support€790 million non-recourse financing closed in December with commercial and multilateral banks$600 million unsecured corporate credit facility for letter of credit support

In service 2009-2010$300 million+ expected annual revenues

Additional example: 1,200MW Cartagena, Spain power plant

10www.aes.com

New and Adjacent MarketsExample: Wind

Contains Forward Looking StatementsGlobal installed capacity expected toincrease by 100% over the next five yearsOperating 600MW of wind projects

121MW Buffalo Gap wind farm in Texas recently completed; 233 MW expansion underwayAcquired 54MW wind farm in CaliforniaAcquired 600 MW development pipeline in Scotland

Pursuing over 2,600MW of new projectsUSChinaIndiaEuropeCentral AmericaSouth America

GW

Forecasted WorldwideInstalled Wind Capacity

Source: Emerging Energy Research

0

50

100

150

200

2005 2006 2007 2008 2009 2010 2011

11www.aes.com

New and Adjacent MarketsExample: LNG Regasification


Supply to the U.S. to increase from 3% today to20% in 2020Developing LNG regasification terminals in:

BahamasBostonBaltimore

12

16

20

24

28

2005 2010 2015 2020 2025 2030

TCF

U.S. Projected Natural Gas Demand

Source: U.S. Energy Information Administration Annual Energy Outlook.

LNG imports

Conventionalsources

12www.aes.com

New and Adjacent Markets Investment Example: GHG Emissions Offsets

Contains Forward Looking StatementsNew environmental regulations expected to create a $10 billion a year market for emission offset credits$300+ million in investments expected to generate over 50 million tons of carbon reduction through 2012

2005 2008 2012 2020

Allocation Below Business as Usual CaseTons per Year

EU ETS60 Million

KyotoPhase I

550 Million

Kyoto Phase II(Proposed)

1.5 to 3.0 Billion

Source: AES estimates

13www.aes.com

Portfolio Management Example: Gener Secondary Offering


January February March April May$75

Gener Stock Price

$100

$125

$150

(Chi

lean

pes

os)

4/25 Secondary offering of 7.6% of AES’s Gener

shares at CP$130.5

Liquidity Discount

US$500 MM

Market Capitalization US$1.7 billion

Market Capitalization US$1.2 billion

Additional example: Kingston, Canada plant investment sale

Gener Stock Price Performance

14www.aes.com

Why Invest in AES?

Global demand for power continues to grow– $3 trillion in new generation capacity expected by 2015– Feeding growth in new and adjacent markets

AES is well positioned to leverage market opportunities and industry dynamics– Global reach, local insights– Portfolio diversity, financial flexibility

Focused on long-term value creation with sustained growth in EPS, free cash flow and ROIC

www.aes.com


15www.aes.com

AES: The power of being global.

Thank you.

16www.aes.com

2006 Mid-Year Financial Scorecard

Revenue growth

Gross margin growth

Diluted EPS from continuing operations

Net cash provided by operating activities

ROIC (1)

AES vs. S&P 500 total return (2006 YTD)

+14%

+39%

+174%

+16%

13.2% vs. 7.3%

14% vs. 1%

Comparisons for the six months ended June 30, 2006 vs. June 30, 2005(except total return)

Note: Total return information from Bloomberg.

(1) Non-GAAP financial measure. See Appendix.

17www.aes.com

Meeting Our CommitmentsContains Forward Looking Statements

GuidanceElement

Original 2008 GuidanceFrom 2003 Analyst Meeting

2005Actual

Updated2008 Guidance

2003Actual

$ billions except per share amounts

Gross MarginGross Margin $2.5 $2.9 $3.2 $3.5

Net Cash FromOperating Activities $1.6 $2.1 $2.2 $2.6 - 2.9

Diluted EPS FromContinuing Operations $0.49 $1.03 - 1.34 $0.96 $1.18 - 1.34

Note: 2003 results and 2005 EPS include businesses placed in discontinued operations effective June 30, 2006.

18www.aes.com

Strong Cash Flow Trends Continue

(1) Non-GAAP financial measure. See Appendix.(2) Based on midpoints of 2006 guidance of $2.2 to $2.3 billion net cash provided by operating activities, maintenance capital expenditures of

$800 to $900 million, and free cash flow of $1.3 to $1.5 billion.


2005 highlights

Net cash provided by operating activities $2.2 billion

Free cash flow (1) $1.5 billion

2006 guidance reflects:

Higher maintenance capital expenditures

U.S. environmental projects that are expected to generate positive returns

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

2003 2004 2005 2006E

Net cash fromoperating activities

Maintenance capitalexpenditures (1)

Free cashflow (1)

($ b

illion

s)

(2)

Over $5 billion free cash flow (1)

2003 – 2006E

Note: Results exclude businesses placed in discontinued operations as of June 30, 2006

19www.aes.com

Improving Credit Statistics

Credit Statistics Support Strong BB/Ba2 Rating Goals

Recourse Debt/Subsidiary Distributions (1)

Recourse Debt

(1) Non-GAAP financial measure. See Appendix.

Recourse Interest Coverage Ratio (1)

Subsidiary Distributions (1)

Rec

ours

e D

ebt (

$ m

illion

s)

5.6x5.1x 4.9x

$0

$6,000

$3,000

0x

12x

6xR

ecou

rse

Deb

t/S

ubsi

diar

y D

istri

butio

ns (1

)

$5,950

$5,163$4,892

Sub

sidi

ary

Dis

tribu

tions

(1)

($ m

illion

s)

1.9x2.1x 2.3x

$0

$1,500

$750

0x

4x

2x

Rec

ours

e In

tere

st C

over

age

Rat

io (1

)

$1,054 $1,004 $993

Getting Better

Target Recourse Debt/Subsidiary DistributionsCoverage Ratio 4.5 to 5x

Target Recourse InterestCoverage Ratio 2 to 2.5x

2003 2004 2005 2003 2004 2005


20www.aes.com

Operating Model Drives Core Business Performance

Currency, Interest Rate and Other Risk Management

Overhead Cost Management

Utilities

Tariff Process Management

Reduce Commercial Losses

Demand Growth (non-US)

Generation

New Contracted Capacity

Reduce Forced Plant Outages

Competitive Supply Dispatch

Asset Utilization

Working Capital and Debt Reduction

Asset Utilization

Optimize Operating & Sourcing Costs

Performance Drivers Implemented Regionally With Global Process Support

Fuel Purchase Risk Management

Revenues

Operating Costs

Below Gross Margin

Asset Management

GrossMargin

EPS,Free Cash Flow and

ROIC

21www.aes.com

Appendix: Definitions

EPS – Earnings per share.Free Cash Flow – Net cash provided by operating activities less maintenance capital expenditures. Maintenance capital expenditures reflect property additions less growth capital expenditures.Interest coverage – The ratio of subsidiary distributions to parent interest expense.O&M – Operation and maintenance.Parent debt is the same as recourse debt.Recourse interest expense – Interest expense associated with parent holding company debt, defined as Interest expense less non-recourse interest expense.Return on invested capital (ROIC) – Net operating profit after tax (NOPAT) divided by average capital. NOPAT is defined as income before tax and minority expense plus interest expense less income taxes less tax benefit on interest expense at effective tax rate. Average capital is defined as the average of beginning and ending total debt plus minority interest plus stockholders’ equity less debt service reserves and other deposits.Subsidiary distributions – Cash distributions (primarily dividends and interest income) from subsidiary companies to the parent company and qualified holding companies. These cash flows are the source of cash flow to the parent to meet corporate interest, overhead, cash taxes, and discretionary uses such as recourse debt reductions and corporate investments.

22www.aes.com

Appendix: Assumptions and ForecastsForecasted information is based on certain material assumptions. Such assumptions include, but are not limited to: 1) no unforeseen external events such as wars, depressions, or economic or political disruptions occur; 2 ) businesses continue to operate in a manner consistent with or better than prior operating performance, including achievement of planned productivity improvements including benefits of global sourcing, and in accordance with the provisions of their relevant contracts or concessions; 3) new business opportunities are available to AES in sufficient quantity so that AES can capture its historical market share or increase its share; 4) no material disruptions or discontinuities occur in GDP, foreign exchange rates, inflation or interest rates during the forecast period; 5) negative factors do not combine to create highly negative low-probability business situations; 6) material business-specific risks as described in the Company’s SEC filings do not occur. This presentation also uses market data and industry forecasts obtained from the International Energy Agency, Emerging Energy Research and the U.S. Energy Information Administration as well as from other publicly available information. We have not independently verified any of this information and cannot guarantee the accuracy and completeness of such information.

In addition, benefits from global sourcing include avoided costs, reduction in capital project costs versus budgetary estimates, and projected savings based on assumed spend volume, which may or may not actually be achieved. Also, improvement in certain KPIs such as EFOR and commercial availability may not improve financial performance at all facilities based on commercial terms and conditions. These benefits will not be fully reflected in the Company’s consolidated financial results.

Also, the cash held at qualifying holding companies (QHCs) represents cash sent to subsidiaries of the Company domiciled outside of the U.S. Such subsidiaries had no contractual restrictions on their ability to send cash to AES, the parent company. Cash at those subsidiaries was used for investment and related activities outside of the U.S. These investments included equity investments and loans to other foreign subsidiaries as well as development and general costs and expenses incurred outside the U.S. Since the cash held by these qualifying holding companies is available to the parent, AES uses the combined measure of subsidiary distributions to parent and qualified holding companies as a useful measure of cash available to the parent to meet its international liquidity needs. AES believes that unconsolidated parent company liquidity is important to the liquidity position of AES as a parent company because of the non-recourse nature of most of AES’s indebtedness.

23www.aes.com

Appendix: Reconciliation of Subsidiary Distributions

See Definitions for further information. Results include businesses placed in discontinued operations effective June 30, 2006.

Total subsidiary distributions& returns of capital to parent

Subsidiary distributions to parentNet distributions to/(from) QHCs

Total subsidiary distributions

Returns of capital distributions to parentNet returns of capital distributions to/(from) QHCs

Total returns of capital distributions

Combined distributions & return of capital receivedLess: combined net distributions & returns

of capital to/(from) QHCs

Total subsidiary distributions & returns of capital to parent

2005

$9885

993

4413

57

1,050

(18)

$1,032

2004

$99113

1,004

11611

127

1,131

(24)

$1,107

2003

$1,00846

1,054

242--

242

1,296

(46)

$1,250

24www.aes.com

Appendix: Reconciliation of Non-GAAP Financial Measures

2005 2004 2003

Net cash from operating activities $2,165 $1,571 $1,642

Maintenance capital expenditures (631) (507) (542)

Free cash flow $1,534 $1,064 $1,100

Free cash flow reconciliation

Total interest expense $1,896 $1,932 $1,984

Non-recourse (parent) interest expense 426 473 569

Recourse (parent) interest expense $1,470 $1,459 $1,415

Recourse interest expense

reconciliation

Property additions $1,143 $892 $1,228

Growth capital expenditures 512 385 686

Maintenance capital expenditures $631 $507 $542

Maintenance capital

reconciliation

See Definitions for further information. Results include businesses placed in discontinued operations effective June 30, 2006.

25www.aes.com

Appendix: Return on Invested Capital (ROIC)

Average Capital (6)

$19,562$19,915Total Capital

(515)(617)Debt Service Reserves and Other Deposits(855) (101)Stockholders’ Equity

885995Minority Interest$20,047$19,638Total Debt

December2002

December2003Total Capital (5)

7.7%ROIC (4)

44%Effective Tax Rate (3)

1,551Net Operating Profit After Tax(1,203)Income Tax Expense (2)

1,932Reported Interest Expense$822IBT&MI

2004Net Operating Profit After Tax (1)

$20,234

$20,355

(611)1,6491,611

$17,706

December2005

$20,014

$20,112

(737)956

1,305$18,588

December2004

11.3%

32%2,284

(1,070)1,896

$1,458

2005

9.0%

33%1,767(861)1,984$644

2003

$19,739(1) Net operating profit after tax is defined as income before tax and minority interest expense (IBT&MI) plus interest expense less income taxes less tax benefit

on interest expense at the effective tax rate.(2) Income tax expense calculated by multiplying the sum of IBT&MI and reported interest expense for the period by the effective tax rate for the period.(3) Effective tax rate calculated by dividing reported income tax expense for the period by IBT&MI for the period.(4) Return on invested capital (ROIC), a non-GAAP financial measure, is defined as net operating profit after tax divided by average capital calculated over rolling

12 month basis.(5) Total capital is defined as total debt plus minority interest plus stockholders’ equity less debt service reserves.(6) Average capital is defined as the average of beginning and ending total capital over the last 12 months.


26www.aes.com

Appendix: Return on Invested Capital (ROIC)

6256591,461201

491Reported Interest Expense

Effective Tax Rate(3)

Net Operating Profit After Tax(1)

Net Operating Profit After Tax

Income Tax Expense(2)

IBT&MI

Average Capital(6)

Total Capital

Debt Service Reserves and Other Deposits

Total Capital(5)

Stockholders’ Equity

Minority Interest

Total Debt

(1) Net operating profit after tax is defined as income before tax and minority interest expense (IBT&MI) plus interest expense less income taxes less tax benefit on interest expense at the effective tax rate.

(2) Income tax expense calculated by multiplying the sum of IBT&MI and reported interest expense for the period by the effective tax rate for the period.(3) Effective tax rate calculated by dividing reported income tax expense for the period by IBT&MI for the period.(4) Return on invested capital (ROIC), a non-GAAP financial measure is defined as net operating profit after tax divided by average capital calculated over rolling

12 month basis.(5) Total capital is defined as total debt plus minority interest plus stockholders’ equity less debt service reserves.(6) Average capital is defined as the average of beginning and ending total capital over the last 12 months.

($ Millions except percent)

ROIC(4)

Rolling TwelveMonths

Second Quarter2006

$21,592

(612)

2,451

2,256

$17,497

$20,879

SecondQuarter

2006

SecondQuarter

2005

$20,072

$20,165

(593)

$18,086

1,462

1,210

497

330

28.2%

2,752

(1,080)

1,824

$2,008

13.2%

$484

(285)

FirstQuarter

2005

448

ThirdQuarter

2005

502

$408

FourthQuarter

2005

29.3% 31.4%

(273)(284)

475

$186

SecondQuarter

2005

43.0%

377

$226

(494)

ThirdQuarter

2004

$204

FourthQuarter

2004

39.2%

511

(330)

466

$375

7.3%

1,929

$991

49.9%

(1,459)

Rolling TwelveMonths

Second Quarter2005

54.4% 71.1%

(393) (203)

442

$483

SecondQuarter

2006

21.9%

722

432

$633

FirstQuarter

2006

30.0%

(320)

745

SecondQuarter

2004

$19,978

(574)

$18,185

981

1,386


bank of america 36th annual investment conference aes … · 2015-10-16 · bank of america 36th...

Documents