Q4 2016 Real-Time Call Brief

Highlights

are on track to achieve a run rate of $350 million in cost savings and revenue enhancements through 2018.

're expanding this program by targeting an additional $25 million of annual savings in 2019, ramping up to a $50 million incremental run rate in 2020.

exited non-core assets to bring $500 million in proceeds to AES that we will reinvest to continue to deliver sustainable long-term growth to our shareholders.

're initiating 2017 guidance for adjusted EPS of a $1 to $1.10.

are introducing our expectation of delivering 8% to 10% average annual growth in free cash flow, adjusted EPS, and our dividend through 2020.

Brazil demand is expected to grow 1% in 2017 versus a decline of 3% in 2016.

Chile demand is expected to grow 2% to 3% versus 1% in 2016.

a result of improved confidence in Argentina, we recently placed a $300 million 7-year bond at seven and three quarters, utilizing a portion of the debt capacity we have at our Argentine businesses. In 2017 we've already received $57 million in dividends from Argentina through February following $20 million in 2016.

2016, we commissioned capacity of 3 gigawatts, all of which were completed on-time and on-budget.

have another 3.4 gigawatts currently under construction, where we are generally making good progress although we are experiencing delays at some of our projects.

projects under construction represent total capital expenditures of $6.4 billion. However AES's equity committed is limited to $1.1 billion. Of this, all but $250 million have already been funded. Roughly 70% of our investments are in the Americas mainly in the US, Chile, and Panama.

may recall from prior calls Alto Maipo and expansion of our existing Alto Maipo power plant in Chile is by far our most complex construction project underway. Since our last call, we've made significant progress on a number of fronts specifically the project is about 49% complete, versus 40% at the time of our November call.

on further validation over the last three months by independent engineers and our discussion with EPC contractors, we continued to expect cost overruns to be in the 10% to 20% range we discussed on our last call.

expected three large projects to come online in 2017. Two of the projects or the closing of the cycle at DPP in the Dominican Republic and the IPL waste water upgrades with a combined total project cost of $500 million.

last week we announced that we've agreed to acquire sPower the largest independent solar developer in the United States. sPower brings 1.3 gigawatts of installed capacity with an average remaining contract life of more than 20 years with very credit offtakers and a first class management and development team with a pipeline of more than 10 gigawatts. Our partner on this acquisition is AIMCo, a $95 billion Canadian pension fund with experiences in making direct investments in global infrastructure. We intend to fund our $382 million share of investment largely from excess discretionary cash that we received from the sale of ASO in late 2016.

January Tiete's Brazil agreed to acquire 386 megawatts of wind from Renova which has an average remaining contract life of 18 years. This acquisition is an important strategic milestone for AES as this business is our only diversifies generation mix, from a 100% hydro but also contributes stable, long-term cash flows. Furthermore, this acquisition which is a 100% levered using Tiete's existing R1.5 billion debt capacity.

on to the Dominican Republic on slide 11; leveraging our success with Engie in Panama, our LNG supplier for our Colon project, in December we signed a partnership agreement with Engie to market our excess LNG storage and regasification capacity at our Andres terminal in the Dominican Republic. Engie will be able to offer competitive and flexible natural gas products tailored to meet the needs of downstream customers and do fuel oil fire generators in the Caribbean.

2016, we achieved our incremental $50 million reduction target. We are on track to reach $350 million in annual savings by 2018. We are now announcing that we are targeting an additional $25 million in annual savings in 2019, stepping up to an additional $50 million in 2020 for a total annual run-rate of $400 million from our base year of 2011.

asset sales program has raised $4 billion in cash to the parent since September 2011. We have exited 11 markets including the riskiest countries in our portfolio.

2011, we have reduced our parent debt by 28% and we expect to achieve investment-grade statistics by 2020.

to adjusted EPS on slide 16, full year results were $0.98, just below the midpoint of our guidance range. Most of the $0.27 decline from 2015 was anticipated.

our tax rate was lower than normal in part due to restructuring completed in the fourth quarter as expected as well some other tax items that were not anticipated but went in our favor. This was largely offset by an unanticipated $0.06 onetime reserve taken against certain reimbursements in MCAC in connection with a legal matter.

generated $1.4 billion of proportional free cash flow which was above the top-end of our guidance range and represents an increase of $176 million from 2015.

earned $842 million in adjusted PTC during the year, a decrease of $335 million.

'd also like to note that the new tariff in Argentina has linked prices to the US dollar effectively eliminating our exposure to the Argentine Peso. Our earnings in US dollar equivalents has now increased to 80%, up from 74% as of our last call.

part of rolling hedging strategy we've had in place since 2014 Tiete is about 80% hedged for the next two years.

Europe our results reflect lower margins due to the contracted capacity price reduction following the collection of outstanding receivables at Maritza in Bulgaria as well as the 35% devaluations at the Kazakhstan Tenge.

turning to capital allocation I want to provide updates on a couple of other developments beginning with our filing at DP&L in Ohio on slide 24. As you may know last month we reached a settlement agreement with certain interveners in our ESP case. The agreement includes riders totaling $125 million per year over five years earmarked for debt reduction, and investment and distribution infrastructure.

2016, we prepaid $300 million impairment debt and refinanced another $500 million of floating rate debt with 10-year notes at attractive fixed rates.

2011, we've reduced parent debt by $1.8 billion or 28% and reduced interest cost by 125 basis points resulting in annualized interest savings of $180 million.

nearest maturity at the parent is $240 million in 2019.

steps have helped us reduce our parent leverage ratio from almost 6.5 times to 5 times, debt to parent free cash flow plus interest.

now to our 2016 parent capital allocation on slide 27 which was materially in line with prior disclosures. Sources on the left hand side reflect $1.2 billion of total available discretionary cash which includes $579 million of parent free cash flow just above the midpoint of our expected range.

've allocated $400 million for investment in our subsidiaries the majority of which is for new projects driving our future growth.

prepaid $300 million of our near-term maturities and with 10% growth in our dividend and completed share repurchases.

we're initiating guidance for ‘17 providing expected average annual growth rates through 2020 of 8% to 10% for all key metrics.

rate for 2017 in the range of 31% to 33%, in the low 30s for 2020, and at least $500 million in assets sales proceeds in 2017 with $0.03 to $0.04 dilution from the timing lag before the capital is redeployed, the deconsolidation of Eletropaulo in ‘17 as I mentioned earlier, and use for discretionary cash in line with our capital allocation framework shall discuss in a moment.

2017 our consolidated free cash flow guidance is to $1.4 billion to $2 billion, going at 8% to 10% through 2020.

expect free cash flow attributable to non-controlling interests to be 30% to 40% of consolidated free cash flow through 2020.

free cash flow is expected to be $575 million to $675 million in 2017, a 9% increase over 2016, consistent with our 8% to 10% range.

adjusted EPS guidance for 2017 is $1 to $1.10, going at 8% to 10% from 2016 through 2020. For ‘17 this represents 5% growth of the midpoint of our 2016 guidance range. As we said previously we expected growth to be stronger in 2018 and 2017. As I mentioned 2017 includes $0.03 to $0.04 dilution from asset sales due to the timing lag until proceeds are redeployed.

terms of our long-term growth we are expecting to 8% to 10% from 2016 to 2020. Primary drivers of this growth are contributions some projects under construction coming online through 2019, the benefit from our ongoing cost savings and revenue enhancement initiatives, and capital allocation including investment in new businesses like sPower.

the profile of growth over the period we see stronger growth in 2018 and expect to be at the low end of our prior range of 12% to 16%. In 2018, we bring on line 70% of our current projects under construction.

parent capital allocation on slide 32 beginning on the left, sources reflect $1.5 billion of total available discretionary cash. Parent free cash flow the foundation of our dividend growth and value creation is expected to be $575 million to $675 million, up 9%. Sources also reflect asset sales and as I mentioned we expect to raise at least $500 million this year in addition to the almost $300 million we received in 2017.

increase we announced in December we'll be returning almost $320 million to shareholders this year.

expect to pay down at least $200 million to $300 million of debt.

have allocated $382 million for acquisition of sPower. This represents our share of the $853 million purchase price less $90 million in acquisition debt fund provided by our partner.

also plan to invest $250 million in our subsidiaries the majority of which is for projects under construction and in late stage development.

considering these investments in our subsidiaries debt prepayment in our current dividend we are left with almost $300 million discretionary cash.

slide 33 you can see we expect to have $3.7 billion of discretionary cash primarily from growth in parent free cash flow. After current shareholder dividends, 2017 planned parent debt reduction as well as investments in projects under construction and the sPower acquisition, we will have $1.5 billion available for other discretionary uses. Our guidance assumes targeted 8% to 10% annual dividend growth consistent with parent free cash flow.