AES: 2014 Adjusted EPS & Guidance

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ARLINGTON, Virginia - The AES Corporation (AES) reported Adjusted Earnings Per Share (Adjusted EPS, a non-GAAP financial measure) of $1.30 for full year 2014, an increase of $0.01 from full year 2013. The Company benefited from improved operating performance at its Andes and Brazil Strategic Business Units (SBUs). The Company also benefited from its capital allocation decisions, including share repurchases and debt prepayment, as well as lower global general and administrative expenses. These positive drivers were largely offset by the increase in the Company's adjusted effective tax rate, to 30% versus 21% in 2013, which had a negative impact of $0.14 per share.

Full year 2014 Diluted Earnings Per Share from Continuing Operations increased to $1.09 from $0.38, driven primarily by gains on asset sales, lower impairment expenses and lower general and administrative expenses. The Company's GAAP tax rate was 27% in 2014 versus 33% in 2013.

"Despite the volatile global macro environment, we will capitalize on our accomplishments in 2014 and continue to execute on our strategy. Today we announced a new $400 million share repurchase authorization, which combined with the recent doubling of our dividend, reflects our confidence in our ability to continue generating strong and growing cash flow," said Andrés Gluski, AES President and Chief Executive Officer. "Over the last three years we have positioned AES for the future, by bringing in $2.5 billion from strategic and financial partners, exiting 10 countries and raising $3 billion in equity proceeds from asset sales. We have invested our discretionary cash in de-leveraging, share repurchases, dividends and funding 70% of our equity commitment for more than 7,000 MW under construction, which will drive our earnings and cash flow growth over the next four years."

"We delivered on our 2014 Adjusted EPS guidance and while we expect macro headwinds to have an impact on our 2015 results, we are taking advantage of various opportunities that will mitigate the impact. Therefore, we are modestly lowering our Adjusted EPS outlook," said Tom O'Flynn, AES Executive Vice President and Chief Financial Officer. "Admittedly, our 2014 Proportional Free Cash Flow was disappointing, due to higher working capital requirements and increased receivables. However, we are reaffirming our 2015 Proportional Free Cash Flow guidance, as we continue to expect recovery of working capital and receivables, as well as contributions from new businesses coming on-line during the year. As we have demonstrated, we will continue to invest our strong cash flow, which we expect to grow 10% to 15% annually, to maximize shareholder returns."


Discussion of Operating Drivers of Adjusted Pre-Tax Contribution (Adjusted PTC, a non-GAAP financial measure) and Adjusted EPS

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.

 For the three months ended December 31, 2014, Adjusted EPS increased $0.12 to $0.41, as the Company benefited from higher contributions from its US, Brazil and Andes SBUs. The Company also benefited from its capital allocation decisions, including share repurchases and debt prepayment, as well as lower corporate general and administrative expenses. The Company's effective tax rate during the quarter was 25%, which was slightly better than expected, but higher when compared to the rate in the fourth quarter of 2013, which was 18%.

Fourth quarter 2014 Adjusted PTC increased $123 million. Key operating drivers of Adjusted PTC included:

    US: An increase of $22 million, primarily driven by lower maintenance and pension costs at IPL.
    Andes: An increase of $69 million, largely due to interest recognized on receivables in Argentina, as well as improved hydrological conditions at Chivor in Colombia.
    Brazil: An increase of $50 million, due to the recognition of a regulatory liability in the fourth quarter of 2013 for potential customer refunds at Eletropaulo and higher margins at Sul in 2014, partially offset by spot prices at Tiete, as a result of poor hydrological conditions.
    MCAC: A decrease of $15 million, primarily driven by lower gas sales and frequency regulation revenue due to a regulatory change in the Dominican Republic, partially offset by improved hydrological conditions in Panama.
    Europe: A decrease of $30 million, driven by outages and related costs at Maritza in Bulgaria and Kilroot in the United Kingdom, partially offset by contributions from IPP4 Jordan, which came on-line in July.
    Asia: A decrease of $28 million, due primarily to higher spot prices at Masinloc in the Philippines in fourth quarter of 2013, as well as the sale of 45% of our interest in Masinloc in July.
    Corporate and Other: An improvement of $55 million, primarily due to lower interest expense on recourse debt and lower general and administrative expenses.

For the year ended December 31, 2014, Adjusted EPS increased $0.01 to $1.30, as described above. For the year ended December 31, 2014, Adjusted PTC increased $114 million. Key operating drivers of Adjusted PTC included:

    US: An increase of $5 million, driven by lower maintenance and pension costs at IPL and higher contributions from wind businesses, partially offset by gains on the termination of the Beaver Valley PPA in the first quarter of 2013.
    Andes: An increase of $68 million, primarily due to higher interest recognized on receivables in Argentina in 2014 and higher generation and prices at Chivor in Colombia, due to improved hydrological conditions.
    Brazil: An increase of $30 million, driven by the reversal of interest and penalties related to a contingency and favorable margins at Sul, as well as the recognition of a regulatory liability in 2013 for potential customer refunds at Eletropaulo. This increase was partially offset by higher spot purchases at Tiete as a result of poor hydrological conditions.
    MCAC: An increase of $13 million, due to government compensation for spot purchases as a result of dry hydrological conditions in Panama and higher spot sales and better availability in the Dominican Republic. These positive drivers were partially offset by the 2013 Esti tunnel settlement in Panama and lower third party gas sales in the Dominican Republic.
    Europe: An increase of $3 million, due primarily to a favorable reversal of a liability in Kazakhstan.
    Asia: A decrease of $96 million, primarily due to the following at Masinloc in the Philippines: outages, the sale of a minority interest in July 2014 and the one-time retrospective recalculation of November and December 2013 spot prices that occurred in 2014.
    Corporate and Other: An improvement of $91 million, driven by lower interest expense on recourse debt and lower general and administrative expenses.

Discussion of Diluted Earnings per Share from Continuing Operations

Fourth quarter 2014 Diluted Earnings Per Share from Continuing Operations increased $0.52 to $0.29, principally due to lower impairment expenses and gains on asset sales. For the year ended December 31, 2014, Diluted Earnings per Share from Continuing Operations increased $0.71 to $1.09, as described above.

Discussion of Cash Flow

Fourth quarter 2014 Proportional Free Cash Flow (a non-GAAP financial measure) was $287 million, a decrease of $61 million from fourth quarter 2013, primarily driven by the impact of poor hydrology at Tiete in Brazil and increased receivables in Bulgaria. These negative drivers were partially offset by lower Parent interest expense and lower corporate general and administrative expenses.

Fourth quarter 2014 Consolidated Net Cash Provided by Operating Activities decreased $100 million to $575 million, largely driven by the impact of poor hydrology on Tiete in Brazil.

For the year ended December 31, 2014, Proportional Free Cash Flow was $891 million, a decrease of $380 million from the year ended December 31, 2013, primarily driven by $200 million in lower contributions, as a result of the sale of the Company's businesses in Cameroon and payments received in 2013 related to an amendment to a fuel contract in the Dominican Republic and the Beaver Valley PPA termination. 2014 results also reflect unanticipated higher working capital requirements in Brazil and Chile, as well as higher receivables in Bulgaria, the majority of which the Company expects to reverse in 2015.

For the year ended December 31, 2014, Consolidated Net Cash Provided by Operating Activities was $1.8 billion, a decrease of $924 million from the year ended December 31, 2013, primarily due to the same drivers as Proportional Free Cash Flow, as described above.

     2015 Guidance
        The Company lowered its Adjusted EPS guidance range by $0.05, to $1.25-$1.35, reflecting:
            Currency and commodity forward curves as of December 31, 2014 versus October 15, 2014 in its prior guidance, with an expected negative impact of $0.06 per share, net of hedging benefits of $0.04 per share;
            Current outlook for hydrological conditions in Brazil, with an expected negative impact of $0.05 per share; and
            Other factors, with an expected negative impact of $0.03 per share, including ongoing negotiations of the PPA for the Company's Maritza plant in Bulgaria.
            The headwinds described above have been partially offset by $0.09 per share as a result of steps the Company is taking, such as: cost savings initiatives and revenue improvements, including higher earnings from Mong Duong in Vietnam; benefits of capital allocation, including share repurchases; and tax opportunities at certain businesses.
        The Company reaffirmed its Proportional Free Cash Flow guidance range of $1,000-$1,350 million.
            Year-over-year growth is expected to be driven by the recovery of higher working capital and receivables in Brazil, Bulgaria and Chile from 2014, as well as contributions from projects coming on-line in 2015.
    2016-2018 Expectations
        The Company reaffirmed its growth expectations for Adjusted EPS, but off the lower 2015 base. The revised growth expectations assume:
            Currency and commodity forward curves as of December 31, 2014 versus October 15, 2014 in its prior expectations; and
            Other factors, including ongoing negotiations of the PPA for the Company's Maritza plant in Bulgaria.
            The headwinds described above have been partially offset by steps the Company is taking, such as: cost savings initiatives and revenue improvements, including higher earnings from Mong Duong in Vietnam; and benefits of capital allocation.
        The Company continues to expect 10%-15% average annual growth in its Proportional Free Cash Flow for 2016-2018, off its 2015 guidance.

Additional Highlights

    In 2014, the Company announced that its Board of Directors approved a 100% increase in its quarterly dividend, to $0.10 per share, beginning in the first quarter of 2015.
    In 2014, the Company repurchased 22 million shares, or 3% of shares outstanding, for $308 million at an average price of $14.06 per share.
        Since September 2011, the Company has repurchased 78 million shares, or 10% of shares outstanding, for $984 million at an average price of $12.69.
        Since the Company's third quarter earnings call on November 6, 2014, the Company has repurchased 11 million shares for $150 million, at an average price of $13.45. This includes $24 million repurchased in 2015.
    In 2014, the Company announced or closed ten asset sale transactions for $1.8 billion in equity proceeds to AES upon closing.
        Since September 2011, the Company has announced or closed 29 asset sales representing approximately $3 billion in equity proceeds to AES and the exit from operations in 10 countries.
    In 2014, the Company brought in four strategic partners to invest $1.9 billion in its subsidiaries.
        Since September 2011, the Company has raised a $2.5 billion in proceeds to AES, by building strategic partnerships at the project and business level. Through these partnerships, the Company aims to optimize its risk-adjusted returns from its existing businesses and growth projects.
    In 2014, the Company reduced its global G&A by $57 million, achieving its cumulative annual cost savings target of $200 million, one year early.
    The Company is on schedule to complete 7,141 MW of capacity under construction and expected to come on-line through 2018.

Non-GAAP Financial Measures

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

Attachments

Consolidated Statements of Operations, Consolidated Balance Sheets, Segment Information, Consolidated Statements of Cash Flows, Non-GAAP Financial Measures, Parent Financial Information, 2014 Financial Guidance Elements and 2015 Financial Guidance Elements.


 About AES

The AES Corporation (AES) is a Fortune 200 global power company. We provide affordable, sustainable energy to 18 countries through our diverse portfolio of distribution businesses as well as thermal and renewable generation facilities. Our workforce of 18,500 people is committed to operational excellence and meeting the world’s changing power needs. Our 2014 revenues were $17 billion and we own and manage $39 billion in total assets. To learn more, please visit www.aes.com.
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