Q4 2010 Earnings Call

February 28, 2011 10:00 am ET


Paul Hanrahan - Chief Executive Officer, President, Executive Director and Chairman of Finance & Investment Committee

Ahmed Pasha - Vice President of Investor Relations

Andres Gluski - Chief Operating Officer and Executive Vice President

Victoria Harker - Chief Financial Officer and Executive Vice President


Brian Russo - Ladenburg Thalmann & Co. Inc.

Brian Taddeo - Broadpoint Capital

Jason Mandel - Chapdelaine

Jeffrey Rudner

Gregg Orrill - Barclays Capital

Ali Agha - SunTrust Robinson Humphrey, Inc.

Ben Sung

Maura Shaughnessy - MFS Investment Management

Brian Chin - Citigroup Inc



Welcome, and thank you for standing by. [Operator Instructions] Now I'd like to introduce your host for today, Mr. Ahmed Pasha. Sir, you may begin.

Ahmed Pasha

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Thank you, Chandra, and welcome to AES Corporation's Fourth Quarter Earnings Call. We appreciate you being with us this morning. Joining me today are Paul Hanrahan, our President and CEO; Victoria Harker, our Chief Financial Officer; Andres Gluski, our Chief Operating Officer 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 and uncertainties. For a complete discussion of these risks, we encourage you to read our documents on file with the SEC. Our presentation is being webcast and the slides are available on our website, which you can access at, under Investor Relations.

With that, I would like to turn the call over to Paul Hanrahan, our CEO. Paul?

Paul Hanrahan

Okay. Thanks, Ahmed, and good morning to all of you joining us today. On this morning's call, I'll first comment on our performance for 2010, both from a financial and an operational viewpoint. Victoria will then review the financial performance for 2010, as well as our expectations for 2011 in more detail. Following her comments, I'll discuss our plans for allocating capital in 2011 in ways that we believe will increase the value of the company on a per-share basis.

First, our 2010 performance. I'm pleased to announce that we have achieved our 2010 guidance for all key metrics. We are $0.94 a share of adjusted EPS, which was at the high-end of our guidance range of $0.90 to $0.95. Also our proportional free cash flow of $1.3 billion exceeded guidance by approximately $200 million. I think our results very simply reflect the fact that economic growth and power demand increased and some of the emerging markets in which we operate were stronger than anticipated, particularly in Asia and Latin America.

Power demand and improved operations in these two markets helped to offset the continued erosions of our profitability in North America, primarily driven by continued low gas-based electricity prices and high coal cost. Our financial results were also driven by strong operational performance, supported by the continued implementation of initiatives across our portfolio, including the global sourcing of solid fuels and freight, long-term service agreements, transformers and other major capital equipment. Our asset management program, which maximizes the efficiency of our capital expenditures also helped drive the strong performance for the year.

In 2010, we also improved operating cash flows to strong collection rates and increased sales. For example, our Dominican Republic business benefited from new power purchase agreements and a high collection rate due to the receipt of past due government receivables.

In our Generation businesses, our fundamental metric to assess operational performance is the forced outage rate, which captures unplanned outage time at a plant. A lower outage rate is better as it results in higher profitability by increasing the ability to generate kilowatt hours and lowering unplanned maintenance cost. In 2010, our global forced outage rate improved to 4.3% from 7.3% in the prior year and was significantly below our five-year average of 5.9%. Much of this improvement can be traced to the performance turnarounds of the plants we acquired during the past few years, such as our coal-fired plants in the Philippines and Mexico. And this is one of our skill sets that gives us a unique competitive advantage in the marketplace.

In our Distribution businesses, a key indicator for operational efficiency is the ability to reduce non-technical losses or power which was supplied to final users but was never billed due to theft, fraud or billing system issues. As a result of the focused efforts in this area in 2010, non-technical losses declined to 3.1% from 3.4% in 2009, contributing to an improvement of 15% over the prior five-year average of 3.7%. The significant driver of this performance came from our Brazilian utility, Eletropaulo, through the use of new metering equipment, improved collection rates and customer connection activities. The results of these efforts can be seen in the operating cash flow trends for Latin America in 2010.

Turning to the construction side of our portfolio. We brought approximately 800 megawatts on-line last year. We currently have just over 2,000 megawatts capacity under construction, of which 1,800 megawatts is expected to come on-line by the end of 2011, and over 95% of our current construction capacity is under long-term contract for its output. While construction milestones continue to be achieved, including the resumption of coal activity in our Campiche plant in Chile, the strong performance has been somewhat dampened by continuing delays at our 670-megawatt coal-fired Maritza plant in Bulgaria.

As you will recall, we expected Maritza to be fully commissioned by year end 2010. To date, however, we have not achieved commercial operations at Maritza. The ongoing delays in terms of reaching full commercial operations have also resulted in a dispute with our EPC contractor, who was late in delivering the completed plan. Resolution and mitigation of the impacts of this delay are a top management priority for us in 2011. And once we resolve the legal and technical issues and the plant is fully operational, it should be expected to have $0.105 per share per year on a steady-state basis.

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