Home Business & Finance AES Achieves 2016 Guidance; Sets Growth Target of 8% to 10% Through 2020
AES Achieves 2016 Guidance; Sets Growth Target of 8% to 10% Through 2020

AES Achieves 2016 Guidance; Sets Growth Target of 8% to 10% Through 2020

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The AES Corporation today reported financial results for the year ending December 31, 2016. Overall results reflected the impact from the devaluation in foreign currencies, lower electricity prices, certain gains that benefited 2015 results and higher non-cash impairment losses, partially offset by a lower effective tax rate. The Company also benefited from improvements in working capital.

Compared with last year, these results primarily reflect lower margins at: the US Strategic Business Unit (SBU) largely due to lower wholesale prices and lower contributions from regulated customers at DPL in Ohio; the Brazil SBU, reflecting the impacts from the expiration of Tietê’s Power Purchase Agreement (PPA) in 2015, as well as a liability reversal at Eletropaulo taken in 2015, which benefited 2015 results; and the Europe SBU, which was driven by a contracted capacity price reduction at Maritza in Bulgaria, following the successful settlement of overdue receivables in 2016, as well as the devaluation of the Kazakhstan Tenge.

Consolidated Net Cash Provided by Operating Activities for full year 2016 was $2,884 million, an increase of $750 million compared to full year 2015. The increase was primarily driven by higher collections at the Company’s distribution businesses in Brazil, Eletropaulo and Sul, and the settlement of overdue receivables at Maritza in Bulgaria. These positive contributions were offset by lower margins across the SBUs, as well as the recovery of overdue receivables in the Dominican Republic in 2015, which benefited 2015 results. Full Year 2016 Proportional Free Cash Flow (a non-GAAP financial measure) increased $176 million to $1,417 million compared to full year 2015, primarily due to the same factors as Consolidated Net Cash Provided by Operating Activities.

Full Year 2016 Diluted Earnings Per Share from Continuing Operations (Diluted EPS) was $0.00, a decrease of $0.48 compared to full year 2015. Full year 2016 Diluted EPS reflects higher impairment losses, primarily at certain merchant generating assets at DPL in Ohio and lower overall margins, partially offset by a lower effective tax rate. Adjusted Earnings Per Share (Adjusted EPS, a non-GAAP financial measure) for full year 2016 decreased $0.27 to $0.98, primarily due to lower margins, $0.06 lower equity in earnings of affiliates from the restructuring gain at Guacolda in Chile executed in 2015 and the $0.06 impact from a reserve taken in 2016 for recoverable costs incurred in prior years, partially offset by a lower adjusted effective tax rate of 23% versus 29% in 2015.

“We ended 2016 on a high note, achieving our guidance for all metrics, with cash flow coming in at the high end, and Adjusted EPS well within, our ranges. We also continued to make strides on our strategic objectives by completing 3 GW of construction projects, selling non-core assets and making further cost cuts and revenue enhancements,” said Andrés Gluski, AES President and Chief Executive Officer. “The recent purchase of sPower increases our long-term contracted, U.S. Dollar-denominated, renewable portfolio, which was one of our stated objectives for 2016.”

“Our solid results in 2016 position us well to deliver 8% to 10% average annual growth in cash flow, earnings and our dividend through 2020,” said Tom O’Flynn, AES Executive Vice President and Chief Financial Officer. “sPower is a credit-positive business that we expect to be accretive to earnings. Our continued execution on our strategic objectives puts us on track to achieve investment grade statistics by 2020.”

Table 1: Key Financial Results

Fourth QuarterFull YearFull Year 2016 Guidance
$ in Millions, Except Per Share Amounts2016201520162015
Consolidated Net Cash Provided by Operating Activities$702$629$2,884$2,134$2,000-$2,900
Proportional Free Cash Flow 1$347$293$1,417$1,241$1,000-$1,350
Diluted EPS from Continuing Operations$(0.30)$(0.11)$0.00$0.48N/A
Adjusted EPS 1$0.35$0.36$0.98$1.25$0.95-$1.05

1 A non-GAAP financial measure. See “Non-GAAP Financial Measures” for definitions and reconciliations to the most comparable GAAP financial measures.

Guidance and Expectations

The Company is providing ranges and expected average annual growth rates for Consolidated Free Cash Flow and Adjusted EPS in its 2017 guidance and its 2020 expectations. The Company previously had provided Proportional Free Cash Flow to reflect the Company’s ownership-adjusted share of free cash flow. As a result of recent interpretive guidance issued by the SEC staff, the Company will no longer be providing guidance and expectations for Proportional Free Cash Flow.

Table 2: Guidance and Expectations

$ in Millions, Except Per Share Amounts2016 Guidance & Expectations2017 Guidance2020 Expectations
Consolidated Net Cash Provided by Operating Activities$2,000-$2,900$2,000-$2,800N/A
Consolidated Free Cash Flow1$1,300-$2,200$1,400-$2,0008%-10% growth off mid-point of 2016 expectation
Adjusted EPS 1,2$0.95-$1.05$1.00-$1.108%-10% growth off mid-point of 2016 guidance

1 A non-GAAP financial measure. See “Non-GAAP Financial Measures” for definitions and reconciliations to the most comparable GAAP financial measures.

2 In providing its full year 2017 Adjusted EPS guidance, the Company notes that there could be differences between expected reported earnings and estimated operating earnings for matters such as, but not limited to: (a) unrealized gains or losses related to derivative transactions; (b) unrealized foreign currency gains or losses; (c) gains or losses due to dispositions and acquisitions of business interests; (d) losses due to impairments; and (e) costs due to the early retirement of debt. At this time, management is not able to estimate the aggregate impact, if any, of these items on reported earnings. Accordingly, the Company is not able to provide a corresponding GAAP equivalent for its Adjusted EPS guidance.

The Company is initiating 2017 guidance and providing its expectations for 2020 as follows:

  • The Company is initiating 2017 guidance ranges for Consolidated Net Cash Provided by Operating Activities of $2,000 to $2,800 million, Consolidated Free Cash Flow of $1,400 to $2,000 million and Adjusted EPS of $1.00 to $1.10. 2017 guidance is based on the following assumptions:
    • The dilution impact from the timing of planned asset sales is expected to be in the range of $0.03 to $0.04.
    • The Company expects to raise at least $500 million in equity proceeds from asset sales in 2017 that will be reallocated in 2017 and 2018.
    • The Company expects an effective tax rate of 31% to 33%.
  • The Company expects 8% to 10% average annual growth in Consolidated Free Cash Flow and Adjusted EPS through 2020 off the mid-point of its 2016 expectations and guidance.
    • The Company also expects 8% to 10% average annual growth in Parent Free Cash Flow (a non-GAAP financial metric) through 2020 off the mid-point of its 2016 expectation of $525 to $625 million. Subject to Board approval, and in line with this expectation, the Company expects its shareholder dividend to grow 8% to 10% annually on average, as well.

The Company’s 2017 guidance and its expectations through 2020 are based on foreign currency and commodity forward curves as of December 31, 2016. As a part of the Company’s strategic shift to reduce AES’ exposure to the Brazilian distribution business, the Company’s 2017 guidance and its expectations through 2020 assumes the deconsolidation of Eletropaulo.

Additional Highlights

  • In February 2017, the Company and Alberta Investment Management Corporation (AIMCo) agreed to acquire 100% of FTP Power LLC (sPower) for $853 million in cash, plus the assumption of $724 million in non-recourse debt. In connection with this transaction, AES and AIMCo will directly and independently purchase and own slightly below 50% equity interests in sPower. A portion of the acquisition will be funded with $90 million of subordinated debt to sPower, and the remaining amount of $763 million will be funded with equity from AES and AIMCo in equal proportion.
    • The sPower portfolio includes 1,274 MW of solar and wind projects in operation or under construction and a development pipeline of more than 10,000 MW, located in the United States. The operating assets and projects under construction are under long-term Power Purchase Agreements (PPA) with an average remaining life of 21 years. The offtakers under the PPAs have an average credit rating of A1. After closing, AES’ ownership of renewable energy projects in operation and under construction will grow from 8,278 MW to 9,552 MW, including hydro, wind, solar and energy storage.
    • This transaction is expected to close by the third quarter of 2017, subject to review or approval by the Federal Energy Regulatory Commission, the Committee on Foreign Investment in the United States and the expiration or termination of any waiting period under the Hart-Scott-Rodino Act. The acquisition price is subject to customary post-signing purchase price adjustments.
  • In 2016, the Company’s Parent Free Cash Flow was $579 million, within the Company’s expectation for $525 to $625 million and up 9% from 2015.
  • In 2016, the Company used $312 million to prepay and refinance Parent debt.
  • In 2016, the Company returned $369 million to shareholders through dividends and share repurchases.
    • The Company paid $290 million in quarterly dividends. The Company also increased its quarterly dividend by 9.1% to $0.12 per share beginning in the first quarter of 2017.
    • The Company repurchased 9 million shares for $79 million, at an average price of $9.07 per share. All share repurchases were executed during the first quarter of 2016.
  • In 2016, the Company successfully completed 2,976 MW of projects on time and on budget.
    • The Company currently has 3,389 MW of capacity under construction and expected to come on-line through 2019.
  • In 2016, the Company announced or closed approximately $500 million in asset sale proceeds to AES.

Non-GAAP Financial Measures

See Non-GAAP Financial Measures for definitions of Consolidated Free Cash Flow, Proportional Free Cash Flow, Adjusted Earnings Per Share, Adjusted Pre-Tax Contribution, as well as reconciliations to the most comparable GAAP financial measures.

Attachments

Consolidated Statements of Operations, Segment Information, Consolidated Balance Sheets, Consolidated Statements of Cash Flows, Non-GAAP Financial Measures, Parent Financial Information, 2016 Financial Guidance Elements and 2017 Financial Guidance Elements.

Source:businesswire
Anand Gupta Editor - EQ Int'l Media Network

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