View
1
Download
0
Category
Preview:
Citation preview
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
Contains Forward Looking Statements
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
Contains Forward Looking Statements
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
Contains Forward Looking Statements
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.
Contains Forward Looking Statements
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
Contains Forward Looking Statements
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
Contains Forward Looking Statements
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
Contains Forward Looking Statements
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.
Contains Forward Looking Statements
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
Note: Results exclude businesses placed in discontinued operations as of June 30, 2006
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.
Note: Results exclude businesses placed in discontinued operations as of June 30, 2006
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
Note: Results exclude businesses placed in discontinued operations as of June 30, 2006
Recommended