AES Reports First Quarter 2016 Proportional Free Cash Flow of $253 Million and Adjusted Earnings Per Share of $0.13

The AES Corporation recently reported Proportional Free Cash Flow (a non-GAAP financial measure) for the first quarter of 2016 of $253 million, a decrease of $12 million from the first quarter of 2015. This was driven primarily by lower margins, partially offset by improved working capital. First quarter 2016 Consolidated Net Cash Provided by Operating Activities increased $203 million to $640 million, driven by the favorable timing of working capital in Brazil at Eletropaulo and Tietê.

First quarter 2016 Adjusted Earnings Per Share (Adjusted EPS, a non-GAAP financial measure) decreased $0.12 to $0.13, due in part to an increase of $0.04 in tax expense, reflecting an adjusted effective tax rate of 50% in the first quarter of 2016, versus 33% in 2015. The Company continues to expect a full year 2016 adjusted effective tax rate of 31% to 33%. First quarter 2016 Adjusted EPS was also driven by the $0.04 impact from the devaluation of foreign currencies in Latin America and Europe. First quarter 2016 Diluted Earnings Per Share from Continuing Operations (Diluted EPS) was $0.19, a decrease of $0.01 from first quarter 2015. In addition to the decline in Adjusted EPS described above, Diluted EPS also reflects lower unrealized foreign currency transaction losses, unrealized derivative losses and losses on retirement of debt. First quarter 2016 Diluted EPS was higher than first quarter 2016 Adjusted EPS primarily due to unrealized derivative and asset sale gains.

“We have already delivered on several of our strategic objectives for 2016. Most notably, we received payment for all outstanding receivables at Maritza in Bulgaria. We are on track for the $50 million in cost savings that we expect to achieve this year, ramping up to $150 million by 2018,” said Andrés Gluski, AES President and Chief Executive Officer. “Our cost savings initiative, combined with our projects currently under construction, are the largest contributors to our at least 10% annual growth in Proportional and Parent Free Cash Flow through 2018. Beyond 2018, development projects in high-growth markets, including Masinloc 2 in the Philippines, the Colon LNG terminal and CCGT in Panama and the contracted Southland CCGT in California, will drive growth.”

“During the quarter, we continued to generate strong free cash flow; however our Adjusted EPS results were weaker, primarily due to timing. With our first quarter performance and our outlook for the remainder of the year, we are reaffirming our 2016 guidance for all metrics. We remain committed to disciplined capital allocation and will continue to invest our free cash flow in dividend growth, de-levering and select high-growth opportunities,” said Tom O’Flynn, AES Executive Vice President and Chief Financial Officer. “To that end, we are seeing positive results from our efforts to simplify our portfolio and de-lever, which is reflected in the recent improvement in our credit ratings and outlook.”

Discussion of Drivers of Consolidated Operating Margin, Proportional Free Cash Flow (a non-GAAP financial measure) and Adjusted Pre-Tax Contribution (Adjusted PTC, a non-GAAP financial measure)

The Company manages its portfolio in six market-oriented Strategic Business Units (SBUs): US (United States), Andes (Chile, Colombia and Argentina), Brazil, MCAC (Mexico, Central America and the Caribbean), Europe and Asia.

First quarter 2016 Consolidated Operating Margin decreased $217 million to $504 million, compared to $721 million in the first quarter of 2015. This decrease was driven primarily by lower contributions from Brazil and the US, as well as the impact from the devaluation of foreign currencies in Latin America and Europe.

¹ A non-GAAP financial measure. See “Non-GAAP Financial Measures” for definitions and reconciliations to the most comparable GAAP financial measures.

² Includes $6 million and $14 million of after-tax adjusted equity in earnings for first quarter 2016 and first quarter 2015, respectively.

First quarter 2016 Proportional Free Cash Flow decreased $12 million to $253 million and first quarter 2016 Adjusted PTC decreased $80 million to $172 million. Key drivers of this decline included:

• US
  • Proportional Free Cash Flow decreased $22 million, primarily due to:
    • Lower margins: lower wholesale prices and contributions from regulated retail at DPL, lower retail margins driven by unfavorable weather and the impact of the partial sell-down at IPL and the sale of Armenia Mountain in 2015; and
    • Unfavorable timing of accounts payable at IPL, partially offset by higher collections at DPL.
  • Adjusted PTC decreased $21 million, primarily driven by lower margins.
• Andes
  • Proportional Free Cash Flow decreased $13 million, primarily due to:
    • Lower margins: the 40% devaluation of the Argentine Peso, the 24% devaluation of the Colombian Peso and lower volumes at Chivor in Colombia, partially offset by lower spot prices for energy and coal purchases and lower fixed costs at Gener in Chile; and
    • Higher tax payments in Chile, partially offset by higher collections at Chivor in Colombia.
  • Adjusted PTC decreased $30 million, primarily driven by lower margins and lower equity in earnings at Guacolda in Chile.
• Brazil
  • Proportional Free Cash Flow increased $81 million, primarily due to:
    • Higher collections at Sul and Eletropaulo and the favorable timing of energy purchases at Tietê; and
    • Lower margins: the impact of the expiration of Tietê’s PPA with Eletropaulo, lower demand at Sul and Eletropaulo and the 26% devaluation of the Brazilian Real.
  • Adjusted PTC decreased $30 million, primarily driven by lower margins.

• Mexico, Central America and the Caribbean (MCAC)
  • Proportional Free Cash Flow decreased $101 million, primarily due to:
    • Lower collections and higher tax payments in the Dominican Republic and lower collections in Puerto Rico.
  • Adjusted PTC decreased $2 million, primarily driven by lower margins.
• Europe
  • Proportional Free Cash Flow decreased $63 million, primarily due to:
    • Lower margins: the 48% devaluation of the Kazakhstan Tenge and lower dark spreads at Kilroot in the United Kingdom; and
    • The timing of payments to the fuel supplier at Maritza in Bulgaria, the unfavorable timing of collections at Ballylumford in the United Kingdom and non-recurring cash taxes paid at Kilroot, partially offset by higher collections in Bulgaria.
  • Adjusted PTC decreased $16 million, primarily driven by lower margins.

• Asia
  • Proportional Free Cash Flow increased $39 million, primarily due to:
    • Higher margins: commencement of operations at Mong Duong in Vietnam in April 2015; and
    • Lower working capital requirements at Mong Duong in 2016.
  • Adjusted PTC increased $10 million, primarily driven by higher margins.
• Corp/Other
  • Proportional Free Cash Flow increased $67 million, primarily due to the timing of premiums received at the Company’s captive insurance business and lower Parent interest expense as a result of the prepayment and refinancing of debt.
  • Adjusted PTC increased $9 million, primarily driven by lower Parent interest expense.

A non-GAAP financial measure. See “Non-GAAP Financial Measures” for definitions and reconciliations to the most comparable GAAP financial measures.

2016 Guidance and 2017-2018 Expectations

• The Company’s 2016 guidance and 2017-2018 expectations are based on foreign currency and commodity forward curves as of April 30, 2016.
• The Company is reaffirming its 2016 Proportional Free Cash Flow guidance range of $1,000-$1,350 million.
  • The Company is reaffirming its 2016 Parent Free Cash Flow expectation of $525-$625 million.
• The Company is reaffirming its 2016 Adjusted EPS guidance range of $0.95-$1.05. The Company expects to earn 70% to 75% of its 2016 Adjusted EPS in the second half of the year, compared to 2015, when the Company earned 59% of its Adjusted EPS in the second half of the year. In 2016, the stronger second half will be partly due to a lower adjusted effective tax rate and fewer plant outages at certain businesses.
• The Company is reaffirming its growth rate expectations for 2017-2018 for both Proportional Free Cash Flow and Adjusted EPS.

Additional Highlights

• In April, the Company received payment of €309 million ($350 million) in outstanding receivables at Maritza in Bulgaria. Maritza will use the majority of the proceeds to pay the local coal mine that supplies the plant, as well as repay the lenders of the plant’s non-recourse debt.
• Year-to-Date 2016, the Company has repurchased 9 million shares for $79 million, at an average price of $9.07 per share.
• Year-to-Date 2016, the Company prepaid $125 million in Parent debt.
• The Company currently has 5,945 MW of capacity under construction and expected to come on-line through the first half of 2019.
  • In March 2016, the Company broke ground on the 335 MW Masinloc 2 expansion project in the Philippines. The project is expected to come on-line in the first half of 2019.
• In the first quarter of 2016, the Company received $249 million in asset sale proceeds.
  • In March 2016, the Company received $134 million from La Caisse de depot et placement du Quebec (CDPQ), completing CDPQ’s investment in IPALCO, the Parent Company of IPL in the United States, bringing its direct and indirect interests in IPALCO to 30%.
  • In February 2016, the Company also sold a 24% interest in IPP4, one of its generation businesses in Jordan, for $21 million.
  • In January 2016, the Company sold Kelanitissa, its generation business in Sri Lanka, for $18 million, and exited Sri Lanka.
  • In January 2016, the Company sold DPLER, its retail energy business in the United States, for $76 million.

Non-GAAP Financial Measures

See Non-GAAP Financial Measures for definitions of Proportional Free Cash Flow, Adjusted Earnings Per Share, Adjusted Pre-Tax Contribution, as well as reconciliations to the most comparable GAAP financial measures.