The AES Corporation (AES) Q4 2011 Earnings Report, Transcript and Summary

Good morning. Thank you, all, for standing by. [Operator Instructions] Today's conference is being recorded. If you do have any objections, you may disconnect at this time. [Operator Instructions] I would now like to turn the call over to Ahmed Pasha, Vice President of Investor Relations. Thank you, and you may begin.

Thank you, Angie, and welcome to our Fourth Quarter Earnings Call. We appreciate you being us this morning. Joining me today are Andres Gluski, our President and CEO; Victoria Harker, our Chief Financial Officer; our Chief Operating Officer for Generation, Ned Hall; and Andrew Vesey, our Chief Operating Officer for Utilities; and other senior members of our management. Before we begin our presentation, let me remind you that our comments today will include forward-looking statements, which are subject to certain risks. For a complete discussion of these risks, we encourage you to read our documents on file with the Securities and Exchange Commission. Our presentation is webcast, and the slides are available on our website, which you can get at www.aes.com, under Investor Relations. With that, I would like to turn the call over to Andres Gluski, our Chief Executive Officer. Andres?

Thanks, Ahmed. Good morning, everyone, and welcome to our Fourth Quarter Earnings Call. As you may have seen in our press release this morning, we reported solid performance in the fourth quarter. For the full year, adjusted earnings per share grew 6%, and we achieved record subsidiary distributions of more than $1.3 billion. Despite a volatile macroeconomic and commodity price environment, we met or exceeded our 2011's guidance of all key earnings and cash flow metrics. We also delivered on our key strategic initiatives, including several large asset sales, closing on a major acquisition and commissioning 2000 megawatts of new generation capacity. Before I delve into the detail of these initiatives, I would like to share my thoughts on 2 key questions that I heard repeatedly during our meetings with investors and analysts during our East and West Coast Roadshows. The first was asking for greater clarity regarding our capital allocation strategy and the second was projected earnings and cash flow growth beyond 2012. As I said on our last call, we intend to maximize shareholder value by flowing our businesses in those markets, where we have – or have a heavy plan to create a competitive advantage, exiting over time, those markets where we do not and focusing on creating value on a per-share basis by competing investment in growth with debt paydowns and share buybacks. Our discretionary cash consists of our distribution from subsidiaries, plus proceeds from asset sales, less corporate overhead, taxes and interest payments. We will allocate our discretionary cash to 3 primary uses: first, repayment of recourse debt at the parent. I believe that decreasing our leverage will help improve the market's perception of AES' risk profile. In a volatile global financial environment, less perceived risk should improve our valuation. Here, our goal is to achieve at least a one notch upgrade to double-B over the medium term, and we intend to pay down at least $500 million of parent debt. Second, we will use our discretionary cash to fund growth projects and/or repurchase shares. Our goal is to invest to create the most value on a per-share basis. I want to make it very clear that when it comes to investing in growth projects, these will be benchmarked against debt paydowns and share repurchases. For any investment, we will consider its strategic fit, its adjusted earnings per share and dividend contributions, as well as the net present value created and its capital efficiency, measured as NPV over AES equity investment. In order to ensure the optimal allocation of capital, we have formed an investment committee, which evaluates our pipeline of all possible investment alternatives in light of the criteria I previously mentioned. To align individual incentives with our objective, we revised compensation plan to be based both on project NPV and capital efficiency metrics. We expect that these changes will improve our return on invested capital and create significantly more shareholder value over time. Regarding the development and construction of new assets, our primary focus will be on platform expansion in those markets where we believe we have a compelling competitive advantage. As a reminder, our core markets are Brazil, Chile and United States. In addition, we have growth projects underway in Turkey, the Philippines and India. By focusing on platform expansions rather than entering new countries, we can improve the average returns and hit rates while spending less on business development. I would like to highlight a few important projects in our development pipeline. In Chile, we are making good progress in developing the Cochrane project, a 552-megawatt coal project, including a 24-megawatt lithium battery, energy storage system adjacent to our new Angamos facility and Alto Maipo, a 531-megawatt hydroelectric project near Santiago. Both are essentially expansions of existing facilities. In Turkey, we announced an agreement to develop a 625-megawatt coal project with our partner Koç, and in addition, Oyak, one of the leading pension funds in the country. Finally, in the Philippines and India, we are well positioned to add up to 1800 megawatts by expanding our Masinloc and OPGC plants. In certain markets such as Brazil, Chile and India, we have cash on hand and the ability to tap local funding sources, both equity and debt, so we can grow without depending on additional cash from the quarter. With regard to share repurchases, we've been buying back our stock since July 2010, and as we discussed on our third quarter call, we have repurchased a total of 33.9 million shares at an average price of $11.14. However, in the fourth quarter, we used our liquidity to fund our Dayton Power & Light acquisition and as a result, we have not bought back stock since. Therefore, as of today, we still have $122 million remaining under our current authorization for share buybacks. Third, as you know, we intend to initiate an annual dividend of $120 million in the third quarter of 2012 with the first payment expected in the fourth quarter. I realized that we're starting with a relatively low yield of approximately 1.1%. However, as our earnings and current free cash flow grow over time, we expect to increase the dividend to be more in line with the average yield in the market. Now turning to our expected long-term growth rate. As we announced in our press release, we expect to achieve a 21% adjusted EPS growth rate this year. Beyond 2012, starting from our guidance midpoint of $1.26 in earnings, we expect to deliver average annual total returns of 8% to 10% through 2015. This total return to shareholders will consist of 2 components. First, we expect a compounded annual adjusted EPS growth rate of 7% to 9% from 2013 through 2015 from the following: our existing portfolio of assets. This will be driven primarily by demand growth in our faster growing markets and profitability improvements across the portfolio; completion of the 2300 megawatts of new generation under construction. Although this will be a modest contributor to the growth rate as the largest of these projects, Mong Duong in Vietnam, will not come online until 2015; achieving an additional $50 million of cost savings by the end of 2013 as we discussed in our last call; and improved allocation of our discretionary cash through a combination of parent debt repayment, share buybacks and investments. The base case assumes a mix of debt repayment and share repurchases that is target to achieve our credit metric goals. Investments and acquisitions would have to be accretive to the base case scenario. The second component of our total annual returns is a $120 million annual dividend we will declare starting the third quarter of this year. The dividend represents 1.1% of our total average annual return target of 8% to 10%. I would note that our average annual total return target of 8% to 10% does not assume any expansion of our P/E multiple. Any improvement of our P/E multiple, as a result of an improving risk profile, would represent upside to our total return commitment. Now I would like to provide you with an update on our portfolio and other initiatives, including recent asset sales, integration of Dayton Power & Light and our completed construction projects and construction pipeline. For asset sales, we are executing on our plans to narrow our geographic and line of business focus by exiting nonstrategic markets over time. We believe that we can create more shareholder value by selling nonstrategic assets and redeploying those proceeds in accordance with our capital allocation strategy. As I discussed in the past, we're targeting up to $2 billion of proceeds through AES from asset sales over the next few years. I am pleased to announce that we are more than 1/3 of the way towards achieving that goal. Since September of 2011, we have closed 4 asset sales, representing approximately $530 million in proceeds to AES: Atimus, the Brazil Telecom, 2 Argentine distribution companies and our plants in the Czech Republic and Spain. We have also announced 2 new transactions in the past few weeks: the sale of Red Oak and Ironwood, 2 gas-fired plants in the U.S. for a total net proceeds of $230 million. These transactions demonstrate the potential value creation of asset sales. Collectively, these businesses represent $32 million of net income to AES in 2011. With proceeds of approximately $760 million for all the asset sales closed or announced since September, we achieved a P/E multiple of 23x 2011 earnings. Now let me update you on our Dayton Power & Light acquisition. As you know, the deal closed in November of last year in record time, only 7 months after its announcement. The integration of DP&L is on track, and we are preparing for the Standard Service Offering filing with the Public Utilities Commission of Ohio in late March, with a new tariff to be effective in January 2013. We remain pleased with the strategic fit that DP&L will provide, and we look for sourcing opportunities and other platform benefits to be derived over the medium term. DP&L is well positioned to benefit from coming environmental regulations as the majority of its fleet has already been scrubbed. In addition, as we explained in the past, the acquisition will help us monetize our $2.1 billion of net operating losses. Since the acquisition closed in November, however, we have seen margin reduction at DP&L, primarily driven by lower gas prices, as well as increased customer switching. To that end, lower gas prices have negatively affected our 2012 outlook for DP&L's earnings contribution to AES by approximately $0.03. As is the case with other Ohio utilities, DP&L is experiencing higher customer switching rates, primarily due to the impact of weak gas prices on power prices. This also makes customer shopping more attractive. To give you some perspective, in 2011, 47% of total retail sales had switched to alternate suppliers, up from 32% in 2010. Although DP&L's retail arm was able to capture 87% of the switch load, switching reduced gross margin by $58 million last year. Going forward, we have adjusted our forecast to reflect the current market conditions. Although we do not expect DP&L to be slightly dilutive to earnings this year, excluding one-time noncash transaction charges, we still project $180 million in cash contributions from DP&L in 2012. Now let me allow -- now allow me to provide some color on our construction pipeline. I am pleased to announce that we have commissioned more than 2000 megawatts of new capacity in 2011. Our 3 largest projects were the 545-megawatt Angamos coal project in Chile, including our 20-megawatt lithium ion battery energy storage system and the 223-megawatt Changuinola hydroelectric power plant in Panama, and finally, the 670-megawatt Maritza facility in Bulgaria. In addition, we completed the 120-megawatt Laurel Mountain wind and energy storage project in the United States, and, in addition, we've had 477 megawatts of gas and solar projects during the year. AES is now operating 72 megawatts of lithium ion battery as a grid resource, making us a market leader in this innovative use of technology. In 2012, we will have full-year contribution from all of these projects. New capacity is the primary driver of our 21% earnings growth we are expecting for 2012. Contributing to future growth, we have more than 2300 megawatts of capacity under construction. In 2012, we're expecting to complete 250 megawatts of new wind and solar generation capacity. The 270-megawatt coal fire Campiche project in Chile is ready to come online in 2013 and the 1200-megawatt Mong Duong project in Vietnam is scheduled for completion in late 2015. It is important to note that we have already fully funded the equity for all of these projects under construction. With that, I will turn the call over to Victoria to discuss our 2011 financial performance and the outlook for 2012.

Thanks, Andres, and good morning, everyone. I'd like to briefly cover the following topics: 2011 full year results and the comparison to guidance; fourth quarter results, including key operating drivers; earnings per share, cash from operations and free cash flow and parent liquidity; and then finally, our 2012 guidance. As Andres mentioned, we met or exceeded our 2011 guidance targets for all key financial metrics. Our adjusted earnings per share of $1.04 represents a 6% increase over 2010 and exceeds our guidance range. Importantly, AES' 2011 proportional free cash flow of $932 million is also at the high end of our range, allowing us to achieve an all-time high for subsidiary distributions of more than $1.3 billion. Key drivers of this performance are the contributions of several new businesses, which came online in 2011; strong demand and volume growth in Latin America; as well as favorable foreign currency exchange rates. These positive trends offset the expense related to the acquisition of Dayton Power & Light, the impacts of the reserves required for the terror-free sale at Eletropaulo in Brazil, coupled with lower volumes and rates at several of our European businesses. As a reminder, as we discussed on our third quarter earnings call, we had anticipated that the tariff in Eletropaulo was to be reset in July 2011, impacting the next 4 years. Although the formal tariff notification is still pending, we expect it to be finalized by July 2012, retroactive to July 2011. Given that most of the terms of the tariff have now been determined by the regulator, we've been accruing for the projected impact of these changes since July 2011. As also previously mentioned last quarter, this cost is approximately $104 million per quarter, resulting in an earnings per share impact of $0.015. Now let's discuss results for the fourth quarter in greater detail, starting with the most significant drivers of operating results. There are 3 key operating trends to highlight in our fourth quarter results. First, we recorded higher volumes at our Generation businesses in Latin America, particularly in Brazil, Colombia and Chile, compared to the same period last year. In particular, at GSA in Brazil, volumes grew 2% due to favorable weather conditions and higher demand at Eletropaulo. Gener, with 4800 megawatts in operation in Chile and Colombia, also recorded higher electricity volumes due to beneficial weather and hydrological conditions, as well as continued energy demand growth supporting mining activities in the north of Chile. Second, in Panama, we benefited from higher energy spot prices due to the demand growth of approximately 5% and system supply constraints elsewhere, as well as business interruption insurance proceeds. Third, our new businesses also added to our strong fourth quarter results. These include the Maritza facility in Bulgaria and the Angamos power plant in Chile, which commenced operations in June and April 2011, respectively. Both of these businesses made first-time contributions to fourth quarter results in 2011, as did DP&L. Turning to our quarterly earnings per share. During the fourth quarter, adjusted earnings per share declined by $0.02 to $0.23. This was the result of the DP&L expenses incurred prior to closing, with an impact of approximately $0.06, which offset the positive operating trends I just outlined. Similarly, compared to a year earlier, diluted earnings per share from continuing operations declined $0.04 to $0.12 for the quarter, driven by positive operating performance in Latin America, but offset by DP&L transaction costs and unrealized foreign currency losses. Now to address cash flow. I'm pleased to report that we achieved our guidance targets on all of our cash flow metrics for the year. This is a very positive indicator of our healthy and growing operations. However, our cash flows from operations and free cash flow metrics declined from 2010 to 2011 on both a consolidated and proportional basis. As you may recall, 2010 cash flows benefited from several one-time items, such as $107 million tax credit in Brazil, collection of outstanding receivables from the Dominican Republic, as well as regulatory asset recoveries in Brazil. In 2011, we did not assume the recurrence of similar one-time benefits, and in fact, in 2011, our cash flows were reduced by some one-time impactors. For example, we had a large one-time tax payment in the fourth quarter of 2011 related to the sale of our Brazil telecoms business. In addition, the losses incurred in Eastern Energy, a business no longer part of the AES portfolio, reduced our 2011 cash flow year-over-year. However, neither of these impacts will be ongoing and instead, both reflect positive actions taken within the portfolio as clearly indicated in the $284 million in pre-tax proceeds coming from the Brazil Telecom sale. Furthermore, our strong operating cash flows are quite apparent in our subsidiary distribution results, as we achieved an all-time high of $1.3 billion in 2011. Now turning to parent liquidity. As you recall, in the second quarter of 2011, we had issued $2 billion of recourse debt at the parent to finance the acquisition of DP&L, which we closed in November. As a result, we finished the year with $693 million in liquidity. During the fourth quarter, we also invested $110 million in construction and development projects, primarily to fund our renewable construction projects. In summary, 2011 was a strong year with the completion of 2000 megawatts of construction projects, the acquisition of DP&L and $15 million in permanent cost reductions achieved. This puts us well on track to achieve $50 million of savings per year in 2012 due to reduced business development costs and support function efficiency efforts. As a result, we are well positioned to deliver a significant earnings growth in 2012. Now I'll spend a few minutes on our guidance for 2012. Since we affirmed our 2012 guidance in November, commodity prices and foreign currency exchange rates have moved. As we typically do each year, we've updated our guidance to reflect changes in the forward curve for both commodities and foreign currencies through the end of the prior reporting period. Using the forward curves as of the end of December and consistent with the sensitivities we provided in November, the impact to our midpoint of adjusted EPS is a net reduction of approximately $0.06. Since that time, the forward curves have rebounded somewhat. We'll continue to monitor this, as well as all other factors impacting our guidance and update you accordingly. Thus, our updated adjusted earnings per share guidance range for 2012 is now $1.22 to $1.30, with the midpoint of $1.26, primarily reflecting these updated forward curves. The midpoint of $1.26 for this year reflects growth of 21% over the $1.04 we achieved in 2011. Significant drivers of this will include: in 2011, we incurred $0.13 of acquisition and financing costs related to DP&L prior to its close. The largest driver of year-over-year growth is the contribution of new businesses, primarily Maritza in Bulgaria, Angamos in Chile and Changuinola in Panama, in total, adding $0.17 to 2012. In addition, from our existing businesses, we expect to benefit from operational improvements and cost reductions of $0.05 mix in 2012. Further, a reduced share count due to our 2011 share buybacks adds $0.02. As an offset to this factor, we have lower rates in 2012, primarily Eletropaulo in Brazil and at Ballylumford in Northern Ireland, which will reduce adjusted EPS by $0.06. We expect the slightly higher tax rate will negatively impact adjusted earnings per share by $0.02. And we are currently projecting unfavorable foreign currency and commodity price movements of $0.07 versus the rates for full-year 2011. Keep in mind that our adjusted EPS guidance assumes the extension of TIPRA, tax legislation which impacts some part of the income and an effective tax rate for 2012, which is in line with our tax rate for 2011. As in prior years, we expect Congress will extend this tax exemption sometime during the year, but it has not been passed as yet. If TIPAR is not extended, the impact to our 2012 adjusted EPS guidance would be approximately $0.12. However, we believe that there may be additional actions we can take to help reduce this drag if necessary. Also note that only the cash and earnings impacts of closed asset sales, including Brazil Telecom, the Bohemia plant in the Czech Republic, the Argentine distribution companies and Cartagena in Spain are incorporated in our 2012 guidance at this point in the year. For example, the impacts of the pending Red Oak and Ironwood sales are not yet included and will not be until they close. We believe the adjusted EPS impacts of these transactions are limited, as a result of the attractive valuations we expect to achieve. However, as we progress further in our asset-sale program, we may experience some near-term dilution in our earnings until we can redeploy the proceeds. As a result of all of these factors, our 2012 adjusted earnings per share guidance midpoint is now $1.26. Similar to adjusted earnings per share, cash flow trends are projected to be very strong in 2012. Driven primarily by the contributions of our new businesses, we're expecting a range of $1 billion to $1.25 billion proportional free cash flow. Our guidance midpoint for this metric represents an increase of 23% over 2011 results. With respect to subsidiary distributions, we're projecting a range of $1.3 billion to $1.5 billion. Based on the midpoint, we're expecting to achieve an increase of 7% in subsidiary distributions over our record-high levels produced in 2011. Turning now to our 2012 near-term capital allocation plan. Over the course of 2012, we expect to generate approximately $600 million of organic parent free cash flow. This will be used to fund dividends, growth investments, share repurchases and parent debt repayments, based on the return price profile of opportunities available. In addition, we expect to receive $460 million or more of asset-sale proceeds over the course of 2012. Much of this cash is expected to be received in the second half of the year. The cash will be allocated in the total return framework for 2015, as Andres discussed. With that, let me turn the call back over to Andres.

Thanks, Victoria. Last fall, we announced our plan to unlock shareholder value and I am pleased with our execution over the past 6 months. In 2011, we achieved or exceeded our guidance for our earnings and cash flow metrics. 2012 should be another good year as we expect to deliver 21% growth in adjusted EPS. Furthermore, we will use the multiple levers at our disposal to deliver on our average annual total return target of 8% to 10% from 2013 through 2015. We'll remain focused on executing on our business strategy and growing per-share cash flow in earnings in a disciplined way. I am very encouraged with the potential for growth that exists in our core markets. In addition, we are committed to strengthening our balance sheet and returning cash to shareholders through a dividend to be initiated later this year. I look forward to seeing many of you as we continue our investor outreach efforts over the next several months, including a visit to investors in London next month. Operator, we will now open the line for questions.

[Operator Instructions] Our first question comes from Julien Dumoulin-Smith.

Julien Dumoulin-Smith, UBS. Why don't you -- great quarter guys. I wanted to ask first, here, with regards to redeployment of cash, you guys talked about potential near-term dilution. What are you seeing out there in terms of organic opportunities. And then maybe on the second -- the other hand, what about timing of debt buyback and potentially, greater share buybacks? At what point should we start this bidding kind of building that into our models and thinking about that -- achieving that EPS growth rate you guys just described?

Okay, Julien, in terms of the redeployment of cash, what we have done to date with the money we have received from the asset sales is to repay the revolver at the parent. So currently, we had used the revolver to help with the acquisition of DP&L. And currently, we only have a balance of around $50 million outstanding. In terms of the sort of organic opportunities, that's a very good question. We think that in our key markets and from our platforms, there are opportunities to make relatively small investments to help boost profitability, and we will be looking at these as well. And in terms of the buybacks, that will depend in debt buybacks or other buybacks -- it will be dependent in terms of when these monies come in. So I think the framework is very clear. Of course, any of these transactions have to go through FERC approval, so the timing of this is probably in the later half of the year.

Great. And then maybe addressing the EPS growth rate that you guys just threw out there. I mean, knowing your underlying organic growth projects that you've described, would you imagine that, that EPS growth would be backward, sort of backloaded, if you will, to get to the, call it, $1.50, $1.60 that you're talking about?

Again, we're committing to this 8% to 10% and we feel very confident about it. The exact profile of that, we will update over time as we see things progress and that will include, of course, what assets we sell and what other sort of investments we've made, where do we redeploy that cash. Obviously, some uses will be more immediately accretive than others. So we'll get back to you that -- over time as things develop.

Great. And then maybe just in terms of the organic projects, you guys have talked a little bit about it on the call. In Chile, how are the permitting and TPA processes going? When should we think about closing those transactions and seeing a financial closure and moving forward?

Well, I think they have different timelines. I think the fastest timeline would be the Cochrane project in the North. As you know, there's a very big expansion of a mining sector in Chile. People have talked about numbers of $50 billion of new investments coming into the mining sector. They will need energy and so, we are, right now, talking with various counterparties to see if we get the PPA. This is a -- basically, an Angamos 2 project, if you think about it. And we have the best track record in Chile of delivering plants on time. So we -- we're in a very strong position right now.

Great. And final question here and then I'll leave you guys. At Masinloc 2, you guys, I believe, in the quarter, got a contract on Masinloc 1 -- just be curious to hear to what extent that's impacted earnings? And then secondly, what is the latest on expanding Masinloc 2? You've kind of alluded to it a little bit.

Regarding Masinloc 2, right now, we're quite advance in the permitting stage. The contracts that you were referring is with the big distribution group of Meralco in the Philippines that we're in sort of final process of closing those. So I would say that going forwards, to do a Masinloc 2, there's very strong demand for growth on Luzon, which is, really, this is the Luzon grid that we're talking about, and we think this is one of the projects that can come online fastest to meet that growing demand. But -- so right now, we're advancing with the permitting and we will be looking at contracting some of this event -- some of this capacity.

Ali Agha.

I'm from SunTrust. A couple of questions here. Just first of all, I wanted to just get a little more clarity on the assumptions you laid out for your 2012 guidance? If I have read it correctly, you're assuming no more share buybacks or debt reduction from what's already been done in the '12 guidance, is that right?

In the baseline, that's not to say we won't use cash for those purposes once it's available and on hand. But in the baseline set of ranges that I spoke to, that is not assumed as an uplift.

Yes. Also, as I recall, when the DPL acquisition was done, you had assumed, originally, I think it was 6x of accretion in '12. Andres, in your remarks, you mentioned that gas prices and switching has impacted it by negative $0.03, but then I also heard you say that DPL would actually be dilutive in '12. Could you just clarify exactly DPL's contribution in '12 versus the original $0.06 you had assumed?

Let me clarify it. The $0.03 that I referenced, that is the sensitivity to lower gas prices. Did it make that clear? I don't know, Victoria, you want to comment on the second part of the question?

Yes. See, right now, our current projections, which are still being assessed since, obviously, we are just only a month or so into operating DP&L. So the remainder of the $0.05 to $0.07 that we had assumed, the $0.03 down for the commodity prices is -- probably puts us another $0.04 or below in terms of customer churn and rate erosion that we've seen. That said, obviously, the team has just gotten underway in terms of their efforts on the retail side, so we're continuing to assess that. But embedded in the baseline plan, we have it at 0 to slightly dilutive.

I see. Also, Victoria, I guess, for you. You mentioned, of course, TIPRA extension is still built into your guidance and then you alluded to the fact that if TIPRA does not get extended, there were some offsets. Could you elaborate a little more on what those are? And let's just make it clear that if TIPRA doesn't get extended, are we still looking at a $1.26 midpoint for '12?

The question, pull [ph] on this, as we have talked about in the past, is that, obviously, that part of income comes from the Latin American, the countries Argentine, Brazil and Chile predominantly. So as we look at mitigation strategies, as we go into the latter half of this year, we could choose to make other decisions relative to repatriation of cash and using it for investment locally, which will obviously have some other flow-through impacts from a parent operating cash flow and use of funds standpoint. So my point was to layout what's assumed in the baseline. If we took no further mitigation actions, it would have a $0.12 full-year impact. As we go further into the year, we're obviously accruing, assuming it is going to occur and then we will take those actions as we see fit later on this year.

Yes. To answer the question, I mean, we feel very confident that TIPRA will be extended. We lived through this in 2010. So to realize, we will have to accrue it to higher tax rates until it gets actually passed and then we, of course, make the adjustments. But what would this mean for us? Well, basically, it would mean that if you had some major tax changes and you no longer have the subpart and TIPRA exemptions, then you would basically have to, I think, upstream less cash and use more of the cash locally to grow that way. So it's something that we've thought about very well and it's differing structuring opportunities. And we would do so, again, seeing what's going to happen here. But again, we feel quite confident that once again, TIPRA will be extended.

And Andres, just to be clear. If it is not, you're still committed to the $1.26 guidance for '12 -- the midpoint?

We would have to come back to you at that time and see what are the changes that are made. And as Victoria said, probably, from sort of the baseline, where we are today would be the $0.12 and then we would have to have mitigations and we would have to see what's the timing of those mitigations for 2012.

Okay. And my last question, going back to your longer-term guidance that you laid out. Again, just to be clear on the assumptions there. So while in '12, you’ve not assumed in your base case any more debt or share reduction or buybacks over that '12 through '15 period -- or '13 through '15. You have assumed some additional paydowns coming from the debt or share buybacks happening. Also a little bit from that is indeed the case? And then secondly, just on a high-level basis, over that period of '12 through '15, how should we be thinking about the DPL contribution? Is it flat, is it declining, is it going up? Just directionally, how is that playing out?

Okay. Let me answer sort of the multiple questions if I remember them all. First, starting from the growth rate, from, again, 2013 through 2015. So this is off the base of 2012, which already has grown 21%. So starting from that base, our assumption is that our -- that we are using 50-50 debt paydown and share repurchases. That's what we've modeled in there with some very sort of modest asset sales. Then the -- so then next question, sorry, which was...

Debt paydown versus share buyback, it depends on, obviously, the asset-sale proceeds and amounts that we received and the timing, that we've essentially modeled as a convention of 50-50 split between share buyback and debt paydown.

Yes. And the second one about DP&L. What we're -- basically, the view is that we will be, again, filing in March. We'll have to see the outcome of that filing. I think if you look at the capacity of price auctions, these have improved for '14 and '15. So we think that probably '12 and '13 would be the 2 most difficult years at DP&L and then we see improvements after that.

And last question, sorry for that. On the dividend, Andres, should we assume -- the payout -- the $120 million that you have laid out is about 20% payout on your midpoint parent [ph] free cash flow for '12? Is that the payout, ultimately, you're comfortable with? Or what is your comfort level on the payout for that dividend?

Yes. I would say we're comfortable with at least that at this stage. And I would like to clarify that when I was talking about sort of the market -- more in line with the market, I was talking about the S&P, sort of the 2% range.

Gregg Orrill.

Barclays Capital. I was wondering if you had looked at what the impact on the sensitivities would be to the 2012 guidance? I know you used end of year -- end of 2011 as a benchmark for your guidance. But it looks like it would be a more positive driver at this point?

Yes, this is -- Gregg, this is Victoria. I think the -- our view right now is somewhere in the $0.05 to $0.06 range for the combination of the 2. That was as of year end and we'll obviously continue to update that, as we go through the year, with other factors along with commodities, as well as currencies.

Yes. We've really chosen sort of the year end, that's what we've always done. And it has been moving back and forth. So we couldn't sort of up -- what is today's. But you're right, they have moved in the other direction since the end of the year.

And in your earnings drivers for 2012, there was also -- Victoria called out $0.02 for the tax rate as well. Was there anything specific there? Or were...

You're talking about from a year-over-year standpoint?

Right, right.

Yes. We had a change in income mix between the 2 years relative, as well as an evaluation allowance release in Brazil at the end of 2011. So that naturally improved 2011 on a one-time basis.

Okay. And then when should we look for the DP&L filing, the ESP filing?

Maybe, Andy, who's with us here and he's Chief Operating Officer of the Utilities, he should be able to answer.

It should be a short answer. We're targeting that stipulation, March 31. So that's when the final will be made.

Brian Russo. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Ladenburg Thalmann. Just to be clear on the 7% to 9% earnings CAGR, is that based -- is that supported by yet-to-be-announced asset sales and the corresponding use of that as a sale proceeds to pay down debt or buyback stock?

No. No, I mean, basically, you were laying out that target, there's a lot of organic growth there. But if we do asset -- additional asset sales in line with what we have announced, again, there'll be lumpiness as Victoria had noted, between the sale and redeploying that cash in some instances. So I think we've played out in terms of what's the criteria we're going to use about redeploying that cash. We do think that -- what we're looking at now, we think, we'll get a much better sort of capital efficiency in terms of the NPV created for AES equity use and we really want to use those -- our ability, where we have either trapped cash, cash on hand or unused leverage at the local level. All of these ways is really a way of leveraging even more AES returns. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Okay, great. And just also -- in terms of -- you've spent -- you've targeted about $2 billion of asset sales, and I think you've achieved roughly 1/2 of that. Can you talk about non-core markets or particular assets to help get you to that $2 billion target?

Sure. I mean, we've been quite careful about we announce. Obviously, our primary focus is to sell well and to optimize our operations until the sale. What we -- what is out there is we're selling all of our China assets and I think that's out there as well. And what we consider non-core, I mean, or, let's say, nonstrategic, I think the real key is, do we have a compelling competitive advantage or can we get one? Because we may be in some new markets, we just started. Now, where we think we'll get to have to be really -- the size and the scale and the diversity to have an advantage in that market. But when we see that we can't have that, we will sell. So take the 2 gas plants that we sold in the U.S., those are plants that were contracted for a long time and we really felt that we could better redeploy that cash and increase our shareholders' reserves. So that's sort of the view. I mean, if you look at the sale of the telecoms in Brazil, we really thought that the market had peaked. If we wanted to stay in that market, it would require very significant investments. That's not one of our -- telecoms is not a core market for us. So we will sell out. The long-term view is to simplify our portfolio and that also feeds into our cost reduction targets here in terms of corporate overhead and cost of goods sold. But we have to do it in a prudent manner. We really don't want to go and have a fire sale of markets – some markets have been quite depressed. But we've been, I think, very effective at executing well on sales like in Cartagena in Spain.

Maura Shaughnessy.

Maura Shaughnessy, MFS. A couple of questions. First, can you just characterize -- I know the initial start to Maritza was a little bumpy. And how is that operation is doing now? And you had mentioned some issues in your Panama facility last year and what the status of that asset is as well?

Okay. I think both are doing well. So let's start up with Maritza. With me is Ned Hall, our COO role for the Generation Groups and give a little update on what's happening in Maritza.

Maura, on October 7, we passed 600-megawatts test and then on December 30 of 2011, we achieved 690 megawatts of gross output. So we're fully commercial dispatching into the market. We have had a couple of outages to continue to improve the operations but it's operating under its PPA updated.

It's going well. I mean, there was even a coal miners strike in the midst of the winter in Bulgaria. We produced fully through out it. I think our Maritza operations are going well and we're getting paid. And now we're getting Panama, I'd like Andy to sort of give you update on some of, let's say, the repairs at Estí and just the general Panamanian markets.

Maura, this is Andy Vesey, excuse me. With Estí, just, and just to remind you on the call, this was the -- it's 120-megawatt running river plant in Panama. We suffered a tunnel collapse, the intake tunnels, repairs are underway. We're basically on target to return that to service in the early quarter second half of this year. So that continues to go well. We have some exposures there because we have PPAs that are recovering as Hydro plant and spot pricing was relatively high during the outage. But through business interruption insurance and negotiations, with the supportive Panamanian government, we’ve managed to eliminate most of that exposure. So it's been relatively smooth to date. There's actually been some issues in Panama regarding indigenous protests, which has to do with certain legislation that President Martinelli has been moving forward, but it hasn't impacted our operations so as, again, we continue to believe we'll have that plant back in commercial operations by early second quarter of 2012.

Great. Any update on the infamous Braziliana estate sale?

No. Not really. I think we're -- again, what I would report is that our relationship with BNDES is very good, and that we're really working hand-in-glove together and I think nothing succeeds like success. So I think that they have seen their investment and Braziliana is probably one of their best and they have received a lot of cash back through the sale of Atimus. So I think that's -- nothing new to report. But I would say that we feel very much -- that we have a good working relation with BNDES in terms of working together to create more value there.

Great. And last question. Can you tell us a little bit more about this capital investment program? And you talked about changing compensation on project NPV and capital efficiency measures trying to drive better returns on invested capital? Can -- is there a return invested capital goal? Or what are you trying to do here? And how does it actually work?

Great question. What we've basically done -- I think, traditionally, we've been compensated on the basis of NPV created on new projects. And what we are changing is to not only have the NPV created, but what is the capital efficiency. So it's not the same to produce $100 million of NPV if it's going to require $300 million of corp equity in, as it's 0, right? So basically, the idea is to try to favor and get people more motivated to see ways that we can create NPV without requiring AES equity. And we think that's the way we're really going to improve our return on invested capital. Our return of invested capital in the last -- in the short term, we've had a number of impairments, and the like, in 8% to 9% range. I think we can do substantially better over time. This is not something -- this is -- we have a lot of assets, it's going to take a while to move it. But we think with this new focus -- what does that mean? That means, for example, if you have $1 billion of leverage capacity at Chiate [ph] that is a key way of improving returns to AES. It doesn't require any money. If you have, essentially, cash in India with our partner or the state of Orissa, which is not being utilized in OPGC, you've got to utilize it there. So you're absolutely right. We really haven't had a sort of -- say, what was going to go from, say, 9% to 12%, but we will be looking at this and seeing how fast we can change that. And just wanted to sort of complement. One area where we haven't -- we're looking at is, for example, what can we do with our renewables portfolio in the sense that we have about $1,250,000,000 invested, are there ways that we can unleash some of that value there, too?

And what does that mean?

What does that mean? Well, that means that that's one the focuses we have in terms of seeing how we can structure things differently to have better earnings from that invested portfolio right now.

Carlos Rodriguez.

Hartford Investment Management. Victoria, I wanted to understand how to reconcile the guidance for 2012 subsidiary distributions? It looks like it was noted in the press release as $1.2 billion to $1.3 billion and then in the presentation, it looks like it's substantially higher than that. How do I reconcile those 2?

In the -- I'm sorry, which presentation?

2012 guidance metrics on Page 17, subsidiary distributions, looks like $1.325 billion to $1.525 billion versus the press release -- looks like -- Oh, I'm sorry, that was the full year 2011 guidance. Apologize for that. Another question for you. The run rate expenses at the parent level, what are those running at right now?

It's about $300 million to $350 million.

And we have taken the metrics that you're looking at, assume that we will continue along the path of the $100 million reduction program, which is $100 million by the exit of 2013. So the $50 million that I had referred to, we will be generating over the span of 2012, and then another $50 million will be coming online after that.

And, Carlos, what I think is important is that we're really looking at just reducing expenditures in terms of the classification, some of it might cost of goods sold, et cetera. So what we're counting on is we are targeting $50 million for this year, and by the end of next year, we're having another $50 million. So if you thought of sort of the base of 2011, actually, you'll have a run rate of about $100 million.

Okay. So $100 million run rate including the expense reductions at the parent level?

Yes.

Okay. And lastly, Andres, you talked about the core markets being Brazil, Chile and the U.S. with, I assume, the latter with the utilities focus in the U.S. Some of these growth markets that you've embarked on, perhaps under your previous leadership in the Philippines and India, how should we think about those in terms of the strategic nature of those? Are those sort of opportunistic growth projects? Or do you view those as core markets like you do Chile and Brazil and the U.S.?

Well, again, I think that the key -- when we say core, those are our largest markets, that's what our primary focus will be. If you look at the value of those -- basically, Gener, which includes Colombia as well, Brazil and the U.S., about 70% of the value of AES, so that's where our focus is going to be on. So you're right, I mean, we do have projects underway in places like Turkey and we have to see how this flow, let's say, develops. Do we really develop a compelling competitive advantage? In the case of the Philippines, we're very well positioned. We have been very successful in that market and we expect that we can add on to there and we have some of these other opportunities like in India. But you're right in the sense that our focus is going to on expanding platforms. We will execute on these other -- these upper growth markets that we have. We don't plan to enter any new markets that haven't been announced to date.

Raymond Leung.

Yes, Goldman Sachs. A couple of questions. One, with respect to your comment on reaching a possible one notch upgrade target, can you sort of talk a little bit about what you're financial leverage targets are at the parent? Can you sort of give us an update what you guys are thinking there? And then also, can you talk about -- you've mentioned about $500 million of potential debt maturities. I know that is predicated on some asset sales, but can you talk about how you would go about that? It doesn't look like you have any significant maturities until 2014.

Yes. And we were -- just to be clear, I wasn't referring to maturities. We were talking about the expected use of cash, whether it be organic cash in the businesses or asset sale proceeds, depending on the timing of when those occur using $500 million for debt paydowns in the relative near-term, so over the span of 2012 and then into '13. So the sign of maturity driven is the use cash, where we think that, that would be an improvement to our credit metrics, obviously, reducing interest costs as well. In terms of the ratios that we look at in terms of coverage, we have historically been in sort of the 3.5x to 4.5x, but we've got slightly higher than that in terms of DP&L acquisition when we raised about $2 billion. And so far, the intent is to debt paydown to get back to roughly that same 3.5x to 4.5x debt-to-cash ratio.

I think, Raymond, as is also seen, our paper tends to trade better than our credit rating. And the other -- over time, as we do these portfolio, let's say, sales of certain assets and growth and others, I also think that our -- the quality of our cash flow continues to improve.

Okay. And as you think about credit ratings, is the double-Bs' sort of that optimal rating for you guys, then?

This is what we're saying over the medium term, yes. Today, we're talking about double-B. And I think, again, we expect to be trading better than that, but we also think it's -- the general perception of risk of AES. Okay, with that, I want to thank everybody for being on the call, and the questions and I would like to turn it over to Ahmed.

Thank you all for joining us in today's call. Please call us for any follow-up questions from this call, and we look forward to speaking to you. With that, I will ask Angie to close the call. Thank you.

Thank you. That does conclude today's conference. Thank you for your participation. You may now disconnect from the audio portion.