AES puts Alto Maipo back on track as Q1 results open door to investment grade
AES posted strong first quarter financial results this week, showing uniform improvement across all markets, especially in Latin America, as well as celebrating the resurrection of the Alto Maipo hydroelectric project in Chile and a solid renewables pipeline.
The company said in a results call on Tuesday that it has significantly reduced the risk associated with Alto Maipo following the restructuring of the 531MW project and the signing of a fixed-price contract with Strabag, including guaranteed completion dates backed by a US$300mn loan and corporate guarantee from Strabag.
Completion of the Las Lajas & Alfalfal II units of the project is expected to take place in 2020. The project had stalled following problems with the previous contractor.
FINANCES
AES said in a first quarter review that its results in 1Q18 have put it on track to achieve investment grade credit metrics in 2019 and attain investment grade ratings in 2020. With 4GW of projects under construction, the firm continues "to transform, simplify and de-risk our portfolio while delivering attractive long-term growth."
"We are pleased with our first quarter results, including the significant margin improvement in South America and the US. We have implemented the reorganization we announced earlier this year, which will improve our efficiency and deliver US$100mn in annual savings," said Tom O'Flynn, AES executive vice president and chief financial officer, in a press release. "To that end, we remain confident in our ability to deliver on our 2018 guidance and 8% to 10% average annual growth through 2020. We are encouraged by recent credit rating improvements and we are on track to achieve investment grade ratings in 2020."
AES recorded net income of US$777mn in 1Q18, some 693% higher than the US$98mn seen in the same period of 2017. The firm also saw a 51.6% improvement in its adjusted pre-tax contribution (PTC), recording a figure of US$288mn in 1Q18 compared to the US$190mn seen in 1Q17. Among its South American businesses, the firm saw a PTC of US$136mn in 1Q18, up 7% from U$127mn in the same period of 2017.
AES GENER
The firm's South American subsidiary AES Gener reported a record first-quarter Ebitda of US$208mn, 10% higher than in the same period of 2017 (US$189mn), and profits were up US$32mn compared to the same period of the previous year, reaching US$79mn. The increase, the firm said, was due to the better performance from plants in all markets.
Accumulated gross profit as of March 31, 2018 was US$170mn, up 16% from the close of 1Q17, as a result of higher contributions from the Chilean, Colombian and Argentine markets of US$14.9mn, US$4.6mn and US$4.3mn, respectively. As of March 31, 2018, the firm's accumulated Ebitda was US$208mn, up 10% year-on-year.
The improved performance in Chile is mainly thanks to new energy contracts, the firm said. Meanwhile, in Colombia, the increases are primarily associated with a hike in sales prices to customers. Lastly, in Argentina, profit rose thanks to a rise in energy tariffs.
In Chile, "the average remaining contract term is around 10 years. Contract prices are above market but we believe that is more than fully reflected in Gener's current stock price," O'Flynn said in the call. "In fact, accounting for only the present value of Gener's PPAs, and our hydro assets in Chile and Colombia, we believe the net equity value of Gener is well in excess of its market cap."
PIPELINE
Looking forward, AES has signed 838MW of renewable projects with long-term, US dollar-denominated contracts in the US and Argentina, where the firm acquired the 100MW Energetica I wind project.
"In Argentina, the government has implemented profound reforms to improve the long-term sustainability of the power sector," said Ahmed Pasha, vice president of investor relations, during the call. "Electricity tariffs have been raised and are now denominated in US dollars."
The firm is also set to sign a long-term contract to sell a portion of the excess capacity at its LNG terminal in the Dominican Republic.
"We see ourselves as well positioned to take advantage of low-cost US LNG exports, due to our existing platforms, market knowledge and market partnership with Engie," said Pasha. "We own the only two LNG storage terminals in the Caribbean with export capability. We have annual storage capacity of 150TBTU [trillion BTU], only half of which is contracted. Our remaining capacity is available to reach customer demand in the region, which has the potential to grow eightfold to 800TBTU/year."
In Panama, progress has been made on the firm's LNG regasification and storage facility, as well as the Costa Norte 380MW CC plant, which both share the same site.
"In April, we achieved first synchronization and completed steam blow of one unit. The project is on track and we project a commissioning of this plant early in the second half of this year," Pasha said, "the regasification facility is complete and will receive Panama's first LNG shipment this month... LNG is going to play an important role in Panama, as it does today in the Dominican Republic."
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