The AES Corporation (AES) Q2 2017 Earnings Report, Transcript and Summary

Good morning, and welcome to the AES Second Quarter 2017 Financial Review Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, if you are listening to the webcast please mute your computer speakers before asking questions. Please note this event is being recorded. I would now like to turn the conference over to Ahmed Pasha, Vice President of Investor Relations. Please go ahead.

Thank you, Brendan. Good morning and welcome to AES's second quarter 2017 financial review call. Our press release, presentation and related financial information are available on our website at aes.com. Today, we will be making forward-looking statements during the call. There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors. Joining me this morning are Andrés Gluski, our President and Chief Executive Officer; Tom O'Flynn, our Chief Financial Officer; and other senior members of our management team. With that, I will now turn the call over to Andrés. Andrés Gluski: Thank you, Ahmed. Good morning, everyone and thank you for joining our second quarter 2017 financial review call. Today, I will discuss our financial results and provide updates on our projects under construction, capital allocation, and cost savings. These actions are the foundation of our expected 8% to 10% average annual growth in earnings and cash flow. Since our previous call in early May, we have made significant progress on a number of key objectives for 2017. At the same time, we experienced a setback at one of our construction projects Alto Maipo in Chile. I will discuss Alto Maipo in detail in a moment, but first I would like to highlight our accomplishments since the first quarter call. In the second quarter, better availability and lower Parent interest contributed to an $0.08 improvement in our adjusted EPS of $0.25. Based on our year-to-date performance and outlook, we are reaffirming our 2017 guidance and expectations through 2020. We successfully completed the expansion of our DPP gas-fired plant in the Dominican Republic. We secured $2 billion in non-recourse financing on favorable terms and make ground on our 1.4-gigawatt Southland Repowering project in California. With the exception of the 531-megawatt Alto Maipo project, our 4.7 gigawatts under construction are progressing well, and remain on track to be completed through 2020. We closed the acquisition of sPower, the largest independent solar developer in United States, to increase our long-term contracted U.S. dollar-denominated renewable portfolio. To take advantage of our leadership position in energy storage, we announced a 50-50 joint venture with Siemens, to create a global energy storage technology and services company. We are on track to achieve our $400 million per year cost reduction and revenue enhancement program. Not turning to Alto Maipo on slide four. As we've discussed in the past, the project has experienced construction difficulties, resulting in projected cost over and above to 22%. Since our previous call in May, productivity by the construction contractors has been slower than anticipated. And Alto Maipo terminated one of the projects contractors for performance reasons. Nonetheless, construction of the project is continuing and Alto Maipo has been engaged in discussions with potential replacement contractors and the non-recourse lenders to address these challenges. The Alto Maipo project is looking for modified construction contracts and flexibility in financing terms. But it is uncertain efforts will ultimately be successful. Having said that, I would like to emphasize that. First, our total exposure to the project is approximately $415 million. 87% of which has already been invested. Second, as we were for the challenges at Alto Maipo, we will be disciplined when it comes to the valuating any incremental investment from ASN [ph] in Alto Maipo. And third, we do not expect any material impact on our 2017 guidance and expectations through 2020. As we had already substantially reduced our expectations from Alto Maipo, when we provided our long-term outlook in May. The developments at Alto Maipo are obviously very disappointing. As over the past five years, we have completed 6 gigawatts of projects on time and on budget. Turning now to the rest of our construction program, beginning on slide five. We recently completed the 122-megawatt expansion of our DPP gas-fired plant in the Dominican Republic. By closing the cycle DPP now has 358 megawatts of capacity. There will be one of the lowest cross generators in the Dominican Republic. The additional 122 megawatts are contracted under long-term U.S. dollar-denominated PPA. The budget cost of $260 million was a 100% funded through non-recourse set at AES Dominicana. Next, turning to our 671-megawatt Eagle Valley CCGT in Indiana, on slide six. We remain confident there is a project we'll achieve commercial operations in line with our prior expectation of the first half of 2018. The EPC contractor, CBI has created positive momentum by subcontracting some of the critical work and right now there are presently a thousand workers onside. CBI is working to achieve substantial completion by year-end 2017. Now turning to our 1.4-gigawatt Southland Repowering project in California, on slide seven. As you know, the 2.3 billion Southland Repowering project is a key component of our strategic objective to increase our U.S. dollar based long-term contracted position. In June, we issued $2 billion in non-recourse step with the 4.5% yield and the 14-year average life. This financing demonstrates the strength of the project, which has 20 years PPAs with Southern California Edison. The project not only includes the 1.3 gigawatts of gas-fired capacity, but also includes a 100 megawatt of 4-hour duration energy storage. 400 megawatt hours. Making it the largest energy storage facility in the world as well as the largest non-recourse financing ever that includes battery-based energy storage. The Southland CCGT will be constructed by Kiewit under fixed price turnkey EPC contracts. Kiewit is one of North America's largest engineering and construction contractors with the successful track record of completing similar projects in California. We recently broke ground on the project and expect completion in the first half of 2020. Turning to slide eight. As I said earlier, a site from Alto Maipo, we are making good progress across all of our construction projects, including our thermal plant OPGC2 in India and our CCGT and LNG regasification terminal, Colón in Panama. These projects will be a key contributor to our earnings and cash flow grow through 2020. Beyond our current construction program, we're primarily focusing our growth investments on natural gas and renewable projects with long-term US dollar-denominated contracts. This will contribute to our growth in our cash flow and earnings, will also reducing our average carbon intensity. To that end over the last few months, we have made significant problems towards re-positioning our portfolio. Specifically, as you can see on slide nine, we completed the acquisition of 1.7 gigawatts, which includes sPower 1.3 gigawatts of solar and wind projects in the United States. We also recently closed on the acquisition of 386 Alto de Sertão spinning wind farm in Brazil. This project will help diversify Tietê's fuel mix and hydrological risk. With an average remaining contract life of 18 years, the project will also help to reduce future exposure to short-term price movements. These 600 million Real acquisitions, was funded entirely with debt capacity at Tietê. With these acquisitions, AES is operating renewable portfolio increases to 9 gigawatts for approximately one-quarter of our durable portfolio. Finally, through our efforts to capitalize on our development pipeline across our portfolio, we expect at least 1.5 gigawatts of solar and wind through 2020. In fact, we have already signed PPAs per 400 megawatts and we're in exclusive negotiations for another gigawatt. We have sufficient internally generated cash to fund our equity contribution for both our projects under construction and the development projects I just discussed. Turning to our energy storage business on slide 10, ten years ago we saw market need and created and deployed the first utility scale lithium iron batter on the grid. Since then we have remained a market leader having 476 megawatts of energy storage deployed or under contract in seven countries. Today, the world-wide install base per energy storage is around 3 gigawatts. But it is projected to grow to 28 gigawatts over the next five years, as energy storage prices decline and the penetration of intermittent renewable increases. To take advantage of our leadership position and this unique market opportunity, in July we're joining forces with Siemens, to create Fluence, a global energy storage technology and services company. The new 50-50 joint venture combines the scale, experience and resources of AES and Siemens and will offer both AES advance and Siemens sea storage battery based energy storage platforms. Fluence will continue to develop new storage solutions and services while leveraging the reach of Siemens global salesforce, which is active in more than 160 countries. The joint venture is expected to close in the fourth quarter of this year following regulatory approvals. Finally, turning to slide 11 and our cost savings and revenue enhancement initiative, as you know since 2012, we have achieved an annual run rate savings rate of $215 million. We are on track to achieve $50 million of incremental cost savings in 2017 and our $400 million run rate target by 2020. There are a number of work streams that we've established to capture these savings ranging from asset management to global sourcing to heat rate improvements. We're also continuing to standardizing our processes across all functional areas allowing for organization or consolidation. As a result, this year we're combing our Europe and Asia strategic business units, which will drive significant savings. With that, I will turn the call over to Tom to discuss our second quarter results, capital allocation and guidance in more detail.

Thanks Andrés, and good morning. Today, I will review our second quarter results, capital allocation, and guidance. Overall, we had a strong quarter benefiting from higher availability several of our businesses and lower Parent interest expense. Turning to adjusted EPS on slide 13, second quarter results were $0.25, and $0.08 increase from 2016. Year-to-date, we've achieved 40% of guidance point consistent with our historical pattern. The quarter-over-quarter increase was primarily driven by higher margins, as availability improved at several of businesses primarily an MCAC in Argentina. They also benefited from paying down approximately 500 million of Parent debt since a year ago. Now to slide 14 and our adjusted PTC and consolidated free cash flow. We earned $243 million in adjusted PTC during the quarter, an increase of $83 million largely driven by higher margins and lower Parent interest. We generated $106 million of consolidated free cash flow, a decrease of $448 million from second quarter of 2016, which was driven by large collections receivables in Europe and Brazil SBUs in 2016. Now I'll cover SBUs in more detail over the next six slides, beginning on slide 15. In the U.S., our results reflect slightly lower margins primarily due to a true-up for deferred fuel cost following the rate case of IPL in 2016, as well as lower regulated ESP rates at DPL. Adjusted PTC increased marginally largely due to growth in our distributed energy business. Lower consolidated free cash flow also reflects the timing of working capital requirements at DPL. At Andes, our results reflect higher margins primarily due to higher availability in Argentina where our CTSN plant completed a major plant outage in the second quarter of last year. Although, margins increased adjusted PTC decreased due to lower capitalized interest related to completed construction projects in Chile and lower interest income in Argentina. In Brazil, our results reflect steady margins with lower cash flow due to the recovery of high purchase power cost in 2016 from prior droughts and our distribution business Eletropaulo. It's worth mentioning on a full-year basis, we continue to expect low hydro conditions in Brazil. But the impact will be much less than prior years due to changes we've made to our hedging strategy. We now have about 80% contracted in 2017, which leaves us well-positioned to absorb hydro shortfalls. In Mexico, Central America and the Caribbean, our results reflect higher margins driven primarily by availability in Dominican Republic, Mexico and Puerto Rico. As you may be aware our offtake in Puerto Rico, PREPA recently filed for bankruptcy which result in a technical default of our non-recourse debt. AES Puerto Rico continues to provide the lowest cost generation on the island and accordingly is being fully dispatched and paid. We're working constructively with the lenders and continue to monitor the bankruptcy proceedings closely. In Europe, our results reflect higher capacity margins in United Kingdom. Consolidated free cash flow decreased due to the collection of overdue receivables in 2016 at Maritza in Bulgaria. Finally, in Asia, our results reflect steady margins and slightly high working capital primarily due to the timing of fuel payments at Masinloc in the Philippines. Now to slide 21, an update on our filing at DP&L in Ohio. As you may know, in March, we reached a settlement agreement with Commission's staff and certain interveners in our EFP case. The agreement includes a distribution modernization writer [ph] totaling $105 million per year over three years with a two-year extension option. The ultimate goal is to transform DPL into a stable and growing T&D business. To that end, DPL is selling or exiting all of its 2.1 gigawatts of coal-fired capacity by mid-2018 and is exploring strategic options for the remaining 1 gigawatt of gas-fired peaking capacity. The post-hearing briefing in the EFP case concluded on May 15th and we expect final approval by the Commission this quarter. Ruling consistent with the settlement agreement, we helped DPL continue to reduce leverage and transition to investment grade rating. Now to slide 22, and our improved credit [ph] profile. This year, we have prepaid $300 million of Parent debt targeting some of our highest coupons bonds resulting in an annualized interest rate as $20 million. This brings our total Parent debt to $4.4 billion, which is a $2.1 billion or about a one-third reduction since 2011. Also in the second quarter, we refinanced an additional $500 million Parent debt, which will reduce our interest expense by $15 million per year. Through disciplined debt reduction and strong growth in Parent free cash flow, we expect to attain investment grade credit metrics by 2020. We continue to believe this will help us to not only reduce our cost of debt and improve our financial flexibility, but also enhance our equity valuation. Now to our 2017 Parent capital allocation on slide 23, which is in line with our prior disclosure. Sources on the left-hand side reflects $1.5 billion of total available discretionary cash, which includes about $625 million of Parent free cash flow. As we discussed last quarter, in addition to the $300 million we received from the sale of Sul in Brazil, we continue to target $500 million in asset sale proceeds. We expect to announce by the end of the year, however received a proceed may take a bit longer possibly into early 2018. One of the uses on the right-hand side of the slide, include the dividend increase we announced in December will be returning almost $320 million to shareholders this year. We allocated $340 million to prepay Parent debt, as I just discussed. We've allocated $382 million for our acquisition of sPower and plan to invest $350 million in our subsidiaries, the majority of which is for new projects under construction in late-stage development. After considering these investments in our subs, debt repayment in our current dividend were left with roughly $100 million of discretionary cash in 2017. Now looking to our capital allocation over the next four years on slide 24. Our portfolio will generate $3.8 billion of discretionary cash due 2020, which was largely driven by Parent free cash flow. This internally generate cash is sufficient to fund our dividend and construction projects. We'll also provide a capital to further create shareholder value through dividend growth, reducing leverage and opportunistic investments in our development pipeline including renewable projects, Andrés has discussed. Finally, at in slide 25, based on our performance year-to-date in foreign currency, in commodity forward curves as of June 30th, we're reaffirming our 2017 guidance and expectation for 8% to 10% average annual growth due 2020 for our metrics. Overall, we remain confident that we can deliver attractive growth to our shareholders in 2020 and beyond. With that, I'll now turn it back to Andrés. Andrés Gluski: Thanks, Tom. Before we take your questions, I would like to summarize today's call with the following takeaways. We're encouraged with the performance of our portfolio during the first half of the year. We're exploring all options to address the construction challenges at our Alto Maipo project in Chile. And we are hopeful that we will reach a resolution before your end. To drive our near-term growth, we are on track to complete our remaining projects under construction and our revenue enhancement and cost reduction initiatives. We have made significant progress towards repositioning our portfolio by adding renewables in natural gas with long term, U.S. dollar denominated contracts. We have continued to reduce our leverage to improve our credit profile and achieve investment grade metrics. Accordingly, we are reaffirming our 8% to 10% annual growth through 2020 in all key metrics including free cash flow earnings and dividend. Now, we'll be happy to take your questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Ali Agha with SunTrust. Please go ahead.

Thank you. Good morning. Andrés Gluski: Good morning, Ali.

Good morning, Andrés Gluski and Tom first question, so when we look at the first half results, how does that position you when you look at the range for the year, now that half the year is over, can you give us some more color on how you're trending within that range?

Well, it's a - most of that is 40% of year-to-date, we tend to be somewhat seasonal towards the second half, so it puts us right within the range and right within our guidance.

Okay. And Andrés on the - on Alto Maipo, as you mentioned, expect to have a resolution before year-end, assuming you too decide to walk away from the project and take the write-off as supposed to the risk of further construction delays et cetera, would that in any way impair and Gener ability to dividend cash up to the Parent, if there is a write-off et cetera? Andrés Gluski: No, we expect to receive the cash from Gener, I mean there may be somewhat of a difference in terms of dividends versus return of capital. But otherwise, it will not affect our expected cash from Gener. In the short-term it actually provides more cash at Gener, and Gener is doing very well from a cash basis.

And so, I know that the rating agencies had put them on some credit watch et cetera, any rating downgrade et cetera would not impair their ability to dividend cash up.

Well, it's important that and Gener maintain its investment grade rating. And Gener I would expect AES Gener to take all steps to maintain its investment grade rating.

Okay. And final question, your message is pretty clear, you're executing, you're hitting what the track guidance that you laid out for us. Yet you stock stays caught up in this very narrow range doesn't seem to be reacting to the results that you are posting. Does that cause you to step back and take a more holistic or a bigger picture view on what it will take to get your stock up and especially when you look at that capital allocation pie chart that you've showed us over the next few years. Does that cause you to rethink how you'd like to reinvest some of that unspoken for cash or some other steps that you think are required given that your stock does not seem to be reflecting the results you're posting? Andrés Gluski: It's a great question, Ali. Periodically since I became CEO, five years ago, we have used third parties to look at our strategy and look at our execution talking about banks, I am talking about consultants. To look at our strategy, and to look at our execution and see if there is any that we can increase value creation for our shareholders. So, we've continue to do that to have a really so give them card plants and say, okay, this is our portfolio, this is our plan, what we can do better? Now based on that, what we are seeing, if we execute on our plan, we expect our stock to react. And so, we really have to have a development of several quarters of hitting our numbers. Here is hitting our numbers and execute on these projects. Then execute on our cost savings. And if we do that, we think that our stock will react. Now, obviously, we are 70% filled outside of the U.S. 50% approximately in Latin America. And the last five years have - you've seen a secular decline in commodity prices and in Latin America. Now, we are starting to see turnaround in some other countries. I mean Brazil has actually stopped declining in terms of GDP. It's flat and starting to turn up. Argentina is doing much better. And certainly, Argentina is one case where we've seen the country to do significantly better. So, our forecast is based on a continuation of the current situation, but I think if you start seeing a turnaround from some of these countries that would-be upside.

Yes, thank you.

Our next question comes from Angie Storozynski with Macquarie. Please go ahead.

Thank you. I have a question about - but first okay. So, you just acquire [indiscernible] can you tell us how it adds to the 8% to 10% earnings growth? And basically, just give us a sense of what are the biggest drivers behind the earnings growth for the 2020? Andrés Gluski: Sure, Angie. I think for sPower as you know has a pipeline of around 10 gigawatts. But as you saw in what we were forecasting we have about less than 2 gigawatts over the next three years of growth coming from renewables and a good part of that is sPower. So, sPower has a number of facilities currently under PPA to be built. And it also is an exclusive negotiation for quite a lot of gigawatts well. So, that's one way we see it. We also see that it gives us a scale to be more competitive on renewables especially solar around the world. So, giving us to that scale to buy panels and balance of plan as cheaply as possible, improve our designs and then the same thing with wind. So, if you see what we've done lately, I mean we have quite a lot of renewable not only in the states, we have it on our platform whether it'd be Jaite [ph]. We have another project in Mexico which are both over 300 megawatts. And I would say that outside of the U.S., the returns tend to be higher, especially when we use our platform especially when we are financing it locally. So, all these platforms expansions we are looking at mid to higher-teens returns and we're looking at sort of low double-digits in the states for return. So, this is how they contribute them. I don't know if Tom, you'd like to add something.

No, I think that covers at it mean. Angie, we showed some of the growth on page nine, I think those are relatively conservative because our focus on signed PPA and things with exclusive negotiations obviously we - the teams are focusing on bigger things, I think it's consistent from sPower perspective, it's consistent of what we said, we expect them to do about 500 megawatts a year of new projects probably three to four to start and six to seven of as you look over four to five-year period. So, slide nine would be generally consistent. And then also be generally consistent with our growth is driven by new projects, by continued cost management and few capital allocation and investments and things like sPower.

Okay. With the assets that have already PPAs have you procured or has the company procured panels so that you don't have an issue with any pair of changes for imported panels? Andrés Gluski: Yes, we have procured the panels, we have secured the panels for everything we have under PPA. Now of course you know in terms of the projects and advanced negotiation, we will match up the purchase of the panels with having the contract, we don't want to be long or short panels.

Okay. And for Alto Maipo, you keep showing that you've largely paid your equity investment into the project, but is this a signal that there is basically no scenario under which you're going to increase the equity commitment to the projects? Andrés Gluski: Well, this really would be a decision at AES Gener and it would be strictly again AES Gener not an AES contribution. But it would have to be part of a complete solution, which includes greater financial flexibility and a modification of the contracts we have where the contractors are say stick to the milestones and stick to the progress that we expect from them. So, these are the two changes that we have to occur. Now having said this, if Alto Maipo is completed, will give AES Gener 750 megawatts of hydro next is country's load in Santiago and it's an asset that will last 100 years so we're evaluating the possibilities and we're trying to get everybody lined up and so as I said, we will have ourselves and AES Gener have indicated we will have a lot of discipline when it comes to any additional money, in addition to what's been committed.

Okay. Thank you. Andrés Gluski: Thank you, Angie.

Our next question comes from Stephen Byrd with Morgan Stanley. Please go ahead.

Hi. Good morning. Andrés Gluski: Morning, Steve.

Just two quick follow-ups on Alto Maipo briefly, just so I understand. If you were able to have construction contractors in place that we're able to firmly commit to the existing timeline etcetera with this higher budget is that sufficient to make an economic to complete the project or do you need essentially further concessions of some sort to make the project worthwhile complete? Andrés Gluski: If I understand your question correctly if the contractors comply with the restructuring that we did earlier this year, that would be sufficient to me that we have sufficient funds to meet that plus have some contingency. So, yes that would adequate. What concerned us is we had to terminate one contractor it's the smaller of the two contractors but we really have to have a performance that's in line with what they had committed to.

Understood. Andrés, so essentially either the current contractor could assume that obligation or you could bring in another party but you would need that commitment in order to able to move forward. Andrés Gluski: That's correct. We have to have modification construction contracts to make sure that they're delivering and don't miss the milestones in the targets.

Okay, understood. Just shifting to the U.S. in terms of the remaining generation assets to be disposed of, is there a potential for significant tax loss that could be beneficial in the event of a disposition whether it's pull for cash or some of the assets are simply shutdown?

Stephen, its Tom. There may be, remember we already have a large NOL, so anything that we had would really add to that NOL, but our NOL is over $3.5 billion at year end so…

Just be additive to that yes…

Yeah, I don't know the details of the closure of the coal plants. But it would be longer term NOL benefit.

Okay, understood. And then just lastly on your storage joint venture very interesting development, assuming the business is successful on a joint venture basis. How generally would that impact your financials overtime? Would there be like I'm thinking about working capital contributions profits from project sales versus ongoing contracts in which you receive revenues? How, just sort a high level with this potentially impact your bottom-line knowing that it's early day still? Andrés Gluski: Sure. As I said, this is a market that is expected to grow almost by a factor of 10 in over five years. So, obviously it's going to grow very quickly and that's going to require funds at the JV. So, we expect - we don't expect as significant contributions from the JV for two years, it might be a modest drag, very slight. And then afterwards, we would expect it to use that funds to continue to grow slightly. So, it'd be some time before we get cash back from the JV, if it successful and growing very quickly. But we would expect to use as non-consolidated subsidiary to have the earnings from that two years of going forward. So, this is I think very promising. It certainly a unique JV, because nobody has our experience, 19-year platform which has been used for 10 years and Siemens is globally reach. And one thing to understand is Siemens has also contributing their energy storage solution which consist storage, which is more sort of C&I, just smaller. So, the two are complementary, so this will allow us to have the full gambit. So basically, what we have in our guidance right now is very conservative, so JV does very well, there will be upside. But I would expect it to take two years to really start materializing, but we think this is very promising. Now, we will also have energy storage of our own on our platform and we will be a client affluent for our own projects. For example, such as Southland.

Understood. And Andrés, just in terms of the types of margin you would get from this joint venture, could it be servicing margin what more likely to be essentially product sales margins? What kind of margin generally should we expect there? Andrés Gluski: It will be a combination of both. So, obviously Siemens has a lot of experience on this. So, there will be a margin on the sale and then there will be a margin on services. And obviously you try to have a balanced. Again, there is a lot of interesting possibilities here, as you know there is Siemens has a financing hour to make this. So, we'll have to see how the market develops and what are the different options. So, we have a great team I think there is tremendous energies between the two and stay tune.

Excellent. Thank you so much.

Our next question comes from Lasan Johong with Auvila Research. Please go ahead.

Thank you. So, going back Alto Maipo very quickly I have a couple of follow-up questions. Does the new investment increase AES ownership we have in Jan, and with all 40% now it 62% really grown up until if you make an additional investment?

Let see, we owned 67% of AES Gener. AES Gener to cover for a nominal's amount of the 40% that our share our partner had - our local partner had in Alto Maipo. So, now we have about a 93% share. So, it will depend on how the negotiations go, because the contract has 7%. So, as part of the solution, they could take a greater stake. So, I don't see anything meaningful happening to the sort of 62% like we one or two up but or down. So, we'll have to see but now it's not going to go up materially.

And if any [indiscernible] I know just start beside to answer more important continue to invest, you need to modify your long-term interim contract, offtake contract?

No.

Okay. So, how do you preserve your ROE or ROI results?

I'm sorry, the question is how do we preserve the ROE on Alto Maipo or overall on our...

Alto Maipo is you are investing more money, but you're not...

That's fair. Obviously, Alto Maipo will not fulfill ROE expectations. We have been reducing them overtime. The decision what we made on the basis of marginal returns from marginal investments.

Okay. Also, just on Fluence, is one of the objective to research of funding and research and energy storage or Fluence experimentation.

Well, Fluence is a commercial operation. We've always seen our energy storage is a business and a need to make profit for it. Now, Fluence will continue to upgrade the design, look at ways stripping out the cause, looking at new applications. I mean, one of the things we've only - I'd say there's a lot more applications for energy storage that have been deployed to date. So those are all those things that Fluence will do. So, there will be some design and some creations of innovation at Fluence. But it's not just a sort of or indeed for its own sake. It's exceptionally commercial orientation.

Yeah. I'm just wondering if you'll going to be R&D component. One last question from long-term perspective, 8% to 10% growth there are some utility in U.S. that are doing that kind of rate risk? What can AES do to boost that 8% to 10% growth rate going forward.

I think again we're paying a 4% dividend and we're looking at 8% to 10% growth, that puts sort of 12% to 14% range. And we think we have upside from things like a recovery in the secular sort of cycle that we've seen in the countries - some of the countries where we operate and there have always been cycles in the last five years it's basically even in one direction, it's been down.

Yeah.

The growth has been down in all these countries. We have things like Fluence, which would be upside. And the other thing to mention, if you compare us to U.S utilities is that I say two things, one, we're trading at a much lower PE, so as we improve our credit we would expect to have an uptick on our TE, same thing, if we deliver on our results. And the other thing, is we are in markets which are growing. Because it's in the states, we're doing what everybody is doing in terms of switching to gas, doing renewables. We have the upside of seeing with sPower and how can we incorporate more energy storage on to that base, but it's very - it's nice to be in countries where demand is growing anywhere from 5% to 10%. So again, we tend to be conservative on our estimates. We're using forward curves. And at some point, we think the cycles beginning to turn around.

Excellent. Thanks very much.

Thanks, Lasan.

Our next question today comes from Chris Turnure with JP Morgan. Please go ahead.

Good morning. You've touched on this a little bit, and definitely touched on in the press release and the announcement of Alto Maipo from a couple of weeks ago. But how can we think about the kind of exact contribution that's in your guidance right now through 2020 from that project? You have a substantial amount of growth over the next couple of year according my calculations that project could have released initially been a major contributor to that growth rate. Andrés Gluski: On the numbers we're providing, it's absolutely minimal and significant through 2020.

Okay. So, when you say minimal, should we think about that as you pushing out an online date passed 2020 or into the middle of 2020 or just substantially lowering the returns from a fully operational project?

Yes. I would say when we looked at it put our guidance in February through 2020 we had dialed it back considerably. It had some modest contributions quite modest in 2019 and 2020. So, within our guidance range here, it was very modest. Obviously, if we extend it goes forward, it could have more meaningful, but as Andrés said. It's certainly much lower ROE, IRRs than we initially envisioned three years ago, when we went with the project.

Okay. That's great to hear. And then, also obviously your long-term guidance is still marked off of I think December 31st ForEx curves and things have gone very much in your favor since that time and you've announced and closed the sPower acquisition should we think about there being kind of other tailwinds to that growth rates versus your original expectations as well totally separate from Alto Maipo? Andrés Gluski: So, there is various puts and takes our reaffirmation guidance today is based on four curves as of June 30th. We've done a lot of effort to reduce some of the evolve in foreign currencies we're now 80% U.S. dollar so to the extent there's any uplift that less than it has been also have hedges in place for on a rolling one to three-year basis depending upon where we are so net-net we're looking at forward curves as of June 30th.

Okay. And then lastly, you mentioned in your prepared remarks that there's still $500 million placeholder of asset of sales this year it might spill in terms of closure into early next year, can you kind of remind us of maybe strategically where you are in the process of divesting non-strategic assets, how far or long you are there and I don't know if the decision to, I guess merge the Asia and European business units kind of speaks to that directional a little bit as well? Andrés Gluski: Sure. This is Andrés. As we said, we'll continue to sell assets and churn that capital. As you know this year we're likely to leave Kazakhstan being one less country. We have a number of sales going on some are for the whole asset and some are partial sell downs. So, we will let you know when these occur, we don't like to let them know ahead of time because we can have operations impacts. Thinking about our portfolio what we've always said is that we've gone from 30 countries. We'll be down to 16 by the year end anywhere between 12 and 15 is the right number. I think what's most important for us is that we really have platforms from which we can expand that their true synergies and economies of scale and rather than just a number of countries so we have two adjacent countries and the market's being integrated say something like Central America it's placed where it's in the number of countries than really what does it take to manage these assets well. So, we really look at those situations where we can add more value, we're more likely to sell down and we don't see expansion opportunities for sell down where we don't see synergies to sell down. So, as I think we said in the past to give the numbers of $200 million to $300 million ongoing - we'll continue to do this and to perfect our portfolio so as we've said we've been moving much more into dollar denominated contracts. We have a big expansion of gas whether it be Southland, whether it be Eagle Valley, whether Colon in Panama and also obviously renewables and our vision is how do you integrate all of these renewables plus the thermal or conventional energy to provide more attractive and competitive solutions for our clients.

Okay, great. Thanks, Andrés.

Our next question comes from Greg Gordon with Evercore ISI. Please go ahead.

Hey good morning. Andrés Gluski: Good morning, Greg.

One just quick question on the slide, so looking at the first quarter slides the second quarter slides your commuted investments in some senior region has gone up from 425 to 700 and that came out of an allocated discretionary cash I'm presuming that that's capital commitments to the renewables business?

Yeah, Greg, its Tom. We incorporated Southland.

Right that's right.

Because we're fairly literal with our commitment so we certainly vision that we enclose the financing is a firm commitment so that's we got...

Okay. So, it's Southland it's not…

Yeah.

Okay. Thank you.

Right. And back to the Southland financing is going to be pretty close to COD late 1920.

Got you. Okay, great. It's a merger sort of strategic question, do you guys see your renewables development flat form and your sort of renewables footprint for sort of being strategically complete? Or if there is an opportunity to do another big step out into renewables platform in the U.S. would you participate in that sort of looking at that opportunity, because it looks like there is a lot of portfolios for sale. There are - there is at least one growth type format, now that you said that they are looking to sell it partially or completely?

What I would say Greg, we've made a big step-up, we have a good growth platform, not to say that we wouldn't opportunistic with some purchase that would add-on, but it would really, I have to provide operating synergies and other things. So, we're position with sufficient scale, especially when you think of us on a global basis. So, we certainly don't have to make any acquisitions at this time. And of course, we'll continue to be very disciplined, so I think it was very important to establish a beachhead which then allowed us to move to the direction of the market growing, but we certainly don't have to make any sort of follow-up if there were some assets that were adjacent to or provided synergies or gave us a bigger footprint with a particular client, we would look at those.

Okay. But there is not just asset for sale, I mean, let's be frank I mean NRG yield is for sale. And they're not just selling assets, they are looking the sale potentially the entire platform including their wind development business, their backlog of undeveloped projects, so theoretically that can really push your business mix into a whole different realm of tilting away from coal I mean in to renewables which is what you're trying to achieve here in first place, so I don't know how much you can comment on whether a strategic deal like that what you can be remotely in the ballpark of opportunity for you?

Well, that's certainly is not high on our list. And what I can say we are on a gradual transition, our coal plants are under contract. Those which are merchant which will be the disposing of over the next couple of years, so we're making that big transaction, we have - between those dispositions in the U.S. but we've done in Kazakhstan in some other places, we've already reduced our coal fleet by a quarter in just a last couple of years.

Okay, thank you. Take care.

Our next question comes from Steve Fleishman with Wolfe Research. Please go ahead.

Thank you. One clarification question on the - I guess it's for Tom on the long, I thought on the long-term guidance you don't update to the current June 30, marks, it's goes back to December. So just on the long-term guidance roughly the team currencies are [indiscernible] better commodities maybe worse, but just generally, if you did update would you still be in the rough ballparks of your growth rate?

Yeah. I think Steve, bottom-line we would. I mean it's various puts and takes. Currencies have been help some commodity offsets if you said so, I mean we're kind of bundle them altogether and do a check at June 30, 2017.

I see, okay.

Yeah.

Got it. Okay and then on the - in terms of the growth rate sPower renewables generally I think you mentioned 400 megawatts to PPAs already for 2020, is that correct?

Yes. Andrés Gluski: Yeah, yeah, that's correct.

Okay. And is that, can you give us a breakout of that a little or at least kind of regionally U.S. versus non-U.S.? Andrés Gluski: That's basically U.S.

That's all U.S. Andrés Gluski: Yeah.

Okay. And then just in terms of funding the growth of sPower, your plan is to basically would be able to fund that through internal year equity investment through internal cash? Andrés Gluski: Yes.

Okay. Okay you don't - you're not looking to find other funding vehicles for that? No. Okay. Thank you. Andrés Gluski: To the - sorry. Keep in mind about 80% of the capital is funded through non-recourse debt and equity, it would expect to fund but to the extent there is other sources of funding that could hands returns we'll certainly keep our eyes open.

Okay. Thank you. Andrés Gluski: Thanks, Steve.

Our next question is from Charles Fishman with Morningstar. Please go ahead.

Good morning. Alto Maipo, Andrés is that still a tunneling issue. Andrés Gluski: Yes, Alto Maipo, yes, we've done about 40% of the tunneling new project, if you take everything else civil works is more like at 53%, 54% completed. So, the main issue is the progress rates on the tunnels. Now, since one of the contractors left, we've had actual manufacturer working on the TBM internal boring machine, making better progress than they had. So, the issues really one of our tunneling rates and costs.

Okay. And then just a second question, the fact that you're combining Europe and Asia, that sort of sand and signal committed the development pipeline as probably not as strong or you're making that decision cannot go as hard in the development knows countries. Is that a correct assessment on my part or am I reading or do you have anything else stay out at about why you're doing now?

Well, I think it's a correct assess we're focusing more on certain markets, suddenly where we have the bigger footprint. So, sort of Eurasia Group, there is certainly some opportunities in northern island where we are looking at things in Vietnam, quite attractive and potentially some add-ons in India. We're doing our energy, the first grid scale energy storage project in India together with Tata Group. So, those are the three where we have the sort of some development activity going on in other countries we do not have any activity going on. But this is the result, we were leaving Kazakhstan as we've said and we've gotten out of number of countries as most of the countries that we've gotten out of actually we're in the Eurasia region. So, we will be making significant synergies. The headquarters will be in Amsterdam, which is better than from the States, you only have sort of six given our time difference with the region and its much closer from flights.

Okay, that's all I had. Thank you.

Thanks, Charles.

This concludes our question-and-answer session. I would like to turn the conference back over to Ahmed Pasha for any closing remarks.

Thanks everybody for joining us on today's call. As always, the IR team will be happy to answer any question that you may have. Thank you and have a nice day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.