This summary is based on the first quarter fiscal 2008 earnings call conducted by AES Corp. (AES) on May 9, 2008.
Management:
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President and CEO: Paul Hanrahan
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EVP and CFO: Victoria Harker
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EVP and COO: Andres Gluski
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Vice President of Investor Relations: Ahmed Pasha
Key Investors Issues
- Earnings were $233 million or 34 cents per share, up from a loss of $461 million or 17 cents a share in 2007.
- Net revenues were up 33% to $4.1 billion.
- Gross Margin up 23% to $1.0 billion.
First Quarter Highlights
Earnings were $233 million or 34 cents per share, up from a loss of $461 million or 17 cents a share in the prior year driven by some unexpected factors.
- These factors include Southern Cone in Latin America, where the combined effects of gas and hydrological conditions in Chile and Argentina led to high power prices allowing portfolio plans throughout the region to capitalize on these conditions.
- AES also adjusted the timing of certain outrages in the region to take advantage of this attractive power prices.
- The firm will also continue to make some substantial progress in the development of the growth pipeline in the three areas of strategic focus, those being core power, renewables and climate solutions.
AES benefited from strengthening operations across the global portfolio of businesses particularly in generation businesses in both Latin America and in Europe.
- In addition, the Latin America and European generation segments revenue benefited from both higher spot and contract prices as well as higher volumes due to increased demand in those geographies.
- Further, the firm’s portfolio management activities have gained momentum and it is making significant progress in completing the sale of the Northern Kazakhstan businesses and expects this transaction to close later this quarter.
- It also expects to close the sale of the oil-fired Hefei plant in China in third quarter 2008.
Revenue increased by 33% to $4.1 billion from $3.1 billion in 2007 due to favorable foreign currency rates, higher tariff, fuel price pass-throughs, and increased volumes in the Latin American, Asian, and European generation businesses.
- The firm also benefited from a full quarter of operations from the TEG and TEP plants in Mexico, which were acquired in February 2007.
- Gross margins on a year-over-year basis increased by $197 million, or 23% to a full $1 billion, attributable to favorable foreign currency rate with higher prices and volumes for the generation businesses in Latin America and Europe.
- Net cash from operating activities was $471 million, increased by $3 million year-over-year as the firm benefited from improved operations which were generated by higher energy sales.
- There was a commensurate increase in receivables of $292 million, which are generally payable within 30 to 60 days from the time of sale.
Gross capital expenditures, combined with acquisitions were $640 million and comprised projects under construction, including the Maritza project in Bulgaria, and the wind development projects in the U.S.
- It also now includes the acquisition of a 67 megawatt Mountain View wind farm in California and the Nejapa landfill gas project in El Salvador.
- A total of $232 million of the gross CapEx was financed through non-recourse debt.
- Maintenance CapEx was $179 million, including $30 million of environmental upgrade, the majority of which were at IPL and at the plants in New York.
Expenses increased $20 million, to $99 million or 2 cents per share, with the increase in expense associated primarily with the plant ramp and business development activity.
- Expenses were also driven by higher corporate overhead costs, related to the strengthening of the financial reporting and analysis functions, as well as the implementation of SAP, worldwide.
- The consolidated tax rate was 38%, as compared to 43% in 2007, with the decrease due to a $35 million non-deductible charge taken in 2007, associated with the company''s investment in AgCert and changes in tax laws from 2007 to 2008.
Operational Highlights:
- The firm realized 10 cents per share improvement from the generation businesses located in the Southern Cone of Latin America and 4 cents per share from the generation businesses located in Europe.
- The improved operating results in the Southern Cone of Latin America came primarily from Chile, where the firm benefited from both higher regulated note prices for contract sales as well as higher stock market prices.
- This was due to significantly drier than expected hydrology and reduced gas from Argentina.
In Argentina, the firm responded to the unseasonably higher spot market prices by increasing both the thermal generation at Central Termica San Nicolas as well as the hydro generation at Alicura reservoir facility.
- It was able to increase the hydro generation at Alicura despite comparatively low rainfall, due to higher than normal snowmelt.
- The higher capacity payments at Tisza II reflected the fact, that the firm is now receiving the full contract pricing from the Hungarian government there.
- The arrival of colder weather is expected to increase the demand for gas in Argentina, potentially tightening supply and limiting ability to sell power from the TermoAndes facility in the Northern Chilean spot market.
Segment Highlights:
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Latin American generation revenues increased by $468 million, 75% of which was generated by the Chilean and Argentine businesses.
- Higher spot prices and volumes of $36 million at the Dominican Republic and Panama businesses contributed as well.
- Gross margin increased by $150 million in comparison to 2007, primarily due to increased contract and spot market sales and volumes.
- Consistent with the increased revenues, the Chilean and Argentine businesses, contribute the majority of the $150 million, year-over-year improvement, in gross margins.
