AES Corp (AES) — Q2 2017 Earnings Call Transcript

Thank you, Brendan. Good morning and welcome to AES's second quarter 2017 financial review call. Our press release, presentation and related financial information are available on our website at aes.com. Today, we will be making forward-looking statements during the call. There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors. Joining me this morning are Andrés Gluski, our President and Chief Executive Officer; Tom O'Flynn, our Chief Financial Officer; and other senior members of our management team. With that, I will now turn the call over to Andrés.

Thank you, Ahmed. Good morning, everyone and thank you for joining our second quarter 2017 financial review call. Today, I will discuss our financial results and provide updates on our projects under construction, capital allocation, and cost savings. These actions are the foundation of our expected 8% to 10% average annual growth in earnings and cash flow. Since our previous call in early May, we have made significant progress on a number of key objectives for 2017. At the same time, we experienced a setback at one of our construction projects Alto Maipo in Chile. I will discuss Alto Maipo in detail in a moment, but first I would like to highlight our accomplishments since the first quarter call. In the second quarter, better availability and lower Parent interest contributed to an $0.08 improvement in our adjusted EPS of $0.25. Based on our year-to-date performance and outlook, we are reaffirming our 2017 guidance and expectations through 2020. We successfully completed the expansion of our DPP gas-fired plant in the Dominican Republic. We secured $2 billion in non-recourse financing on favorable terms and made ground on our 1.4-gigawatt Southland Repowering project in California. With the exception of the 531-megawatt Alto Maipo project, our 4.7 gigawatts under construction are progressing well and remain on track to be completed through 2020. We closed the acquisition of sPower, the largest independent solar developer in the United States, to increase our long-term contracted U.S. dollar-denominated renewable portfolio. To take advantage of our leadership position in energy storage, we announced a 50-50 joint venture with Siemens, to create a global energy storage technology and services company. We are on track to achieve our $400 million per year cost reduction and revenue enhancement program. Not turning to Alto Maipo on slide four. As we've discussed in the past, the project has experienced construction difficulties, resulting in projected cost over and above 22%. Since our previous call in May, productivity by the construction contractors has been slower than anticipated. Alto Maipo terminated one of the project's contractors for performance reasons. Nonetheless, construction of the project is continuing and Alto Maipo has been engaged in discussions with potential replacement contractors and the non-recourse lenders to address these challenges. The Alto Maipo project is looking for modified construction contracts and flexibility in financing terms. But it is uncertain if efforts will ultimately be successful. Having said that, I would like to emphasize that. First, our total exposure to the project is approximately $415 million, 87% of which has already been invested. Second, as we were for the challenges at Alto Maipo, we will be disciplined when it comes to evaluating any incremental investment from AES in Alto Maipo. And third, we do not expect any material impact on our 2017 guidance and expectations through 2020. As we had already substantially reduced our expectations from Alto Maipo when we provided our long-term outlook in May. The developments at Alto Maipo are obviously very disappointing. Over the past five years, we have completed 6 gigawatts of projects on time and on budget. Turning now to the rest of our construction program, beginning on slide five. We recently completed the 122-megawatt expansion of our DPP gas-fired plant in the Dominican Republic. By closing the cycle DPP now has 358 megawatts of capacity. There will be one of the lowest cost generators in the Dominican Republic. The additional 122 megawatts are contracted under long-term U.S. dollar-denominated PPAs. The budget cost of $260 million was 100% funded through non-recourse debt at AES Dominicana. Next, turning to our 671-megawatt Eagle Valley CCGT in Indiana, on slide six. We remain confident this project will achieve commercial operations in line with our prior expectation of the first half of 2018. The EPC contractor, CBI has created positive momentum by subcontracting some of the critical work and right now there are presently a thousand workers on site. CBI is working to achieve substantial completion by year-end 2017. Now turning to our 1.4-gigawatt Southland Repowering project in California, on slide seven. As you know, the $2.3 billion Southland Repowering project is a key component of our strategic objective to increase our U.S. dollar-based long-term contracted position. In June, we issued $2 billion in non-recourse debt with a 4.5% yield and a 14-year average life. This financing demonstrates the strength of the project, which has 20-year PPAs with Southern California Edison. The project not only includes the 1.3 gigawatts of gas-fired capacity, but also includes 100 megawatts of 4-hour duration energy storage, 400 megawatt-hours. Making it the largest energy storage facility in the world as well as the largest non-recourse financing ever that includes battery-based energy storage. The Southland CCGT will be constructed by Kiewit under fixed-price turnkey EPC contracts. Kiewit is one of North America's largest engineering and construction contractors with a successful track record of completing similar projects in California. We recently broke ground on the project and expect completion in the first half of 2020. Turning to slide eight. As I said earlier, aside from Alto Maipo, we are making good progress across all of our construction projects, including our thermal plant OPGC2 in India and our CCGT and LNG regasification terminal, Colón in Panama. These projects will be key contributors to our earnings and cash flow growth through 2020. Beyond our current construction program, we're primarily focusing our growth investments on natural gas and renewable projects with long-term U.S. dollar-denominated contracts. This will contribute to our growth in cash flow and earnings while also reducing our average carbon intensity. To that end, over the last few months, we have made significant progress towards repositioning our portfolio. Specifically, as you can see on slide nine, we completed the acquisition of 1.7 gigawatts, which includes sPower's 1.3 gigawatts of solar and wind projects in the United States. We also recently closed on the acquisition of the 386-megawatt Alto de Sertão spinning wind farm in Brazil. This project will help diversify Tietê's fuel mix and hydrological risk. With an average remaining contract life of 18 years, the project will also help to reduce future exposure to short-term price movements. These R$600 million acquisitions were funded entirely with debt capacity at Tietê. With these acquisitions, AES's operating renewable portfolio increases to 9 gigawatts for approximately one-quarter of our durable portfolio. Finally, through our efforts to capitalize on our development pipeline across our portfolio, we expect at least 1.5 gigawatts of solar and wind growth through 2020. In fact, we have already signed PPAs for 400 megawatts and we're in exclusive negotiations for another gigawatt. We have sufficient internally generated cash to fund our equity contribution for both our projects under construction and the development projects I just discussed. Turning to our energy storage business on slide 10, ten years ago we saw a market need and created and deployed the first utility-scale lithium-ion battery on the grid. Since then, we have remained a market leader having 476 megawatts of energy storage deployed or under contract in seven countries. Today, the worldwide install base for energy storage is around 3 gigawatts, but it is projected to grow to 28 gigawatts over the next five years, as energy storage prices decline and the penetration of intermittent renewables increases. To take advantage of our leadership position in this unique market opportunity, in July we joined forces with Siemens to create Fluence, a global energy storage technology and services company. The new 50-50 joint venture combines the scale, experience, and resources of AES and Siemens and will offer both AES advanced and Siemens sea storage battery-based energy storage platforms. Fluence will continue to develop new storage solutions and services while leveraging the reach of Siemens' global salesforce, which is active in more than 160 countries. The joint venture is expected to close in the fourth quarter of this year following regulatory approvals. Finally, turning to slide 11 and our cost savings and revenue enhancement initiative, as you know since 2012, we have achieved an annual run rate savings rate of $215 million. We are on track to achieve $50 million of incremental cost savings in 2017 and our $400 million run rate target by 2020. There are a number of work streams that we've established to capture these savings, ranging from asset management to global sourcing to heat rate improvements. We're also continuing to standardize our processes across all functional areas allowing for organizational consolidation. As a result, this year we're combining our Europe and Asia strategic business units, which will drive significant savings. With that, I will turn the call over to Tom to discuss our second quarter results, capital allocation, and guidance in more detail.

Thanks Andrés, and good morning. Today, I will review our second quarter results, capital allocation, and guidance. Overall, we had a strong quarter benefiting from higher availability in several of our businesses and lower Parent interest expense. Turning to adjusted EPS on slide 13, second quarter results were $0.25, an $0.08 increase from 2016. Year-to-date, we've achieved 40% of guidance point consistent with our historical pattern. The quarter-over-quarter increase was primarily driven by higher margins, as availability improved at several of our businesses, primarily in MCAC in Argentina. They also benefited from paying down approximately $500 million of Parent debt since a year ago. Now to slide 14 and our adjusted PTC and consolidated free cash flow. We earned $243 million in adjusted PTC during the quarter, an increase of $83 million largely driven by higher margins and lower Parent interest. We generated $106 million of consolidated free cash flow, a decrease of $448 million from the second quarter of 2016, which was driven by large collections receivables in Europe and Brazil SBUs in 2016. Now I'll cover SBUs in more detail over the next six slides, beginning on slide 15. In the U.S., our results reflect slightly lower margins primarily due to a true-up for deferred fuel cost following the rate case of IPL in 2016, as well as lower regulated ESP rates at DPL. Adjusted PTC increased marginally largely due to growth in our distributed energy business. Lower consolidated free cash flow also reflects the timing of working capital requirements at DPL. At Andes, our results reflect higher margins primarily due to higher availability in Argentina where our CTSN plant completed a major plant outage in the second quarter of last year. Although, margins increased adjusted PTC decreased due to lower capitalized interest related to completed construction projects in Chile and lower interest income in Argentina. In Brazil, our results reflect steady margins with lower cash flow due to the recovery of high purchase power costs in 2016 from prior droughts and our distribution business Eletropaulo. It's worth mentioning on a full-year basis, we continue to expect low hydro conditions in Brazil, but the impact will be much less than prior years due to changes we've made to our hedging strategy. We now have about 80% contracted in 2017, which leaves us well-positioned to absorb hydro shortfalls. In Mexico, Central America, and the Caribbean, our results reflect higher margins driven primarily by availability in the Dominican Republic, Mexico, and Puerto Rico. As you may be aware, our offtake in Puerto Rico, PREPA recently filed for bankruptcy, which resulted in a technical default of our non-recourse debt. AES Puerto Rico continues to provide the lowest cost generation on the island and accordingly is being fully dispatched and paid. We're working constructively with the lenders and continue to monitor the bankruptcy proceedings closely. In Europe, our results reflect higher capacity margins in the United Kingdom. Consolidated free cash flow decreased due to the collection of overdue receivables in 2016 at Maritza in Bulgaria. Finally, in Asia, our results reflect steady margins and slightly higher working capital primarily due to the timing of fuel payments at Masinloc in the Philippines. Now to slide 21, an update on our filing at DP&L in Ohio. As you may know, in March, we reached a settlement agreement with the Commission's staff and certain interveners in our EFP case. The agreement includes a distribution modernization rider totaling $105 million per year over three years with a two-year extension option. The ultimate goal is to transform DPL into a stable and growing T&D business. To that end, DPL is selling or exiting all of its 2.1 gigawatts of coal-fired capacity by mid-2018 and is exploring strategic options for the remaining 1 gigawatt of gas-fired peaking capacity. The post-hearing briefing in the EFP case concluded on May 15th and we expect final approval by the Commission this quarter. Ruling consistent with the settlement agreement, we helped DPL continue to reduce leverage and transition to an investment-grade rating. Now to slide 22, and our improved credit profile. This year, we have prepaid $300 million of Parent debt targeting some of our highest coupon bonds resulting in an annualized interest rate savings of $20 million. This brings our total Parent debt to $4.4 billion, which is a $2.1 billion or about a one-third reduction since 2011. Also in the second quarter, we refinanced an additional $500 million Parent debt, which will reduce our interest expense by $15 million per year. Through disciplined debt reduction and strong growth in Parent free cash flow, we expect to attain investment grade credit metrics by 2020. We continue to believe this will help us to not only reduce our cost of debt and improve our financial flexibility, but also enhance our equity valuation. Now to our 2017 Parent capital allocation on slide 23, which is in line with our prior disclosure. Sources on the left-hand side reflect $1.5 billion of total available discretionary cash, which includes about $625 million of Parent free cash flow. As we discussed last quarter, in addition to the $300 million we received from the sale of Sul in Brazil, we continue to target $500 million in asset sale proceeds. We expect to announce by the end of the year, however received proceeds may take a bit longer, possibly into early 2018. One of the uses on the right-hand side of the slide includes the dividend increase we announced in December, returning almost $320 million to shareholders this year. We allocated $340 million to prepay Parent debt, as I just discussed. We've allocated $382 million for our acquisition of sPower and plan to invest $350 million in our subsidiaries, the majority of which is for new projects under construction in late-stage development. After considering these investments in our subsidiaries, debt repayment, and our current dividend, we are left with roughly $100 million of discretionary cash in 2017. Now looking to our capital allocation over the next four years on slide 24. Our portfolio will generate $3.8 billion of discretionary cash through 2020, which is largely driven by Parent free cash flow. This internally generated cash is sufficient to fund our dividend and construction projects. It will also provide capital to further create shareholder value through dividend growth, reducing leverage, and opportunistic investments in our development pipeline including renewable projects, as Andrés has discussed. Finally, at slide 25, based on our performance year-to-date in foreign currency, in commodity forward curves as of June 30th, we are reaffirming our 2017 guidance and expectation for 8% to 10% average annual growth through 2020 for our metrics. Overall, we remain confident that we can deliver attractive growth to our shareholders in 2020 and beyond. With that, I'll now turn it back to Andrés.

Thanks, Tom. Before we take your questions, I would like to summarize today's call with the following takeaways. We're encouraged with the performance of our portfolio during the first half of the year. We're exploring all options to address the construction challenges at our Alto Maipo project in Chile, and we are hopeful that we will reach a resolution before year-end. To drive our near-term growth, we are on track to complete our remaining projects under construction and our revenue enhancement and cost reduction initiatives. We have made significant progress towards repositioning our portfolio by adding renewables and natural gas with long-term, U.S. dollar-denominated contracts. We have continued to reduce our leverage to improve our credit profile and achieve investment-grade metrics. Accordingly, we are reaffirming our 8% to 10% annual growth through 2020 in all key metrics including free cash flow earnings and dividend. Now, we'll be happy to take your questions.

Thank you. Good morning.

Good morning, Ali.

Good morning, Andrés Gluski and Tom. First question, when we look at the first half results, how does that position you when you look at the range for the year? Now that half the year is over, can you give us some more color on how you're trending within that range?

Well, it's a - most of that is 40% of year-to-date, we tend to be somewhat seasonal towards the second half, so it puts us right within the range and right within our guidance.

Okay. And Andrés on Alto Maipo, as you mentioned, expect to have a resolution before year-end, assuming you choose to walk away from the project and take the write-off as opposed to the risk of further construction delays, would that in any way impair AES Gener's ability to dividend cash up to the Parent, if there is a write-off?

No, we expect to receive the cash from Gener. I mean there may be somewhat of a difference in terms of dividends versus return of capital. But otherwise, it will not affect our expected cash from Gener. In the short term, it actually provides more cash at Gener, and Gener is doing very well from a cash basis.

And so, I know that the rating agencies had put them on some credit watch. Any rating downgrade would not impair their ability to dividend cash up?

Well, it's important that and Gener maintain its investment-grade rating. I would expect AES Gener to take all steps to maintain its investment-grade rating.

Okay. And final question, your message is pretty clear, you're executing, you're hitting the guidance laid out for us. Yet your stock stays caught up in a very narrow range and doesn't seem to be reacting to the results you're posting. Does that cause you to take a more holistic or a bigger picture view on what it will take to get your stock up? Given your capital allocation pie chart, does that cause you to rethink how you'd like to reinvest some of that unspoken-for cash or take other steps that you think are required?

It's a great question, Ali. Periodically since I became CEO five years ago, we have used third parties to look at our strategy and execution, talking about banks and consultants, to see if there is anything we can do to increase value creation for our shareholders. So, we continue to evaluate our portfolio and our plans. Based on what we see, if we execute our plan, we expect our stock to react. We have to demonstrate a few quarters of hitting our numbers, and we believe if we do that, our stock will respond positively. Obviously, we are 70% overseas, approximately 50% in Latin America, and over the last five years, you've seen a secular decline in commodity prices. Now, we are starting to see a turnaround in some countries. I mean, Brazil has actually stopped declining in terms of GDP; it's flat and starting to turn up. Argentina is doing much better. Our forecast relies on the continuation of these trends, but if you start seeing a turnaround in some of these countries, that could provide upside.

Yes, thank you.

Thank you. I have a question about - but first okay. So, you just acquire sPower, can you tell us how it adds to the 8% to 10% earnings growth? And basically, just give us a sense of what are the biggest drivers behind the earnings growth for 2020?

Sure, Angie. I think for sPower, as you know, has a pipeline of around 10 gigawatts. What we are forecasting is we have about less than 2 gigawatts over the next three years of growth coming from renewables, and a good part of that is sPower. So, sPower has a number of facilities currently under PPAs to be built. It also is in exclusive negotiations for quite a lot of gigawatts. So, that's one way we see it. We also see that it gives us a scale to be more competitive on renewables, especially solar around the world, allowing us to buy panels and balance of plant as cheaply as possible; improve our designs and the same thing with wind. We've been expanding our renewable projects, not only in the U.S., but also in other countries like Mexico. Outside the U.S., the returns tend to be higher, especially when using our platform. Specifically, we're looking at mid- to higher-teens returns outside the U.S. and looking at lower double-digits in the U.S. for returns. So, this is how sPower contributes. Tom, would you like to add something?

No, I think that covers it. Angie, we showed some of the growth on page nine. These are relatively conservative because we focus on signed PPAs and things with exclusive negotiations. The team is focusing on bigger projects, and I think we're consistent with sPower's expectation of about 500 megawatts a year of new projects over the next three to four years. So, slide nine would be generally consistent, along with our growth driven by new projects, continued cost management, and capital allocation invested in sPower.

Okay. With the assets that have already PPAs, have you procured or has the company procured panels so that you don't have an issue with any tariff changes for imported panels?

Yes, we have procured the panels; we have secured the panels for everything we have under PPAs. Of course, in terms of the projects under advanced negotiation, we will match up the purchase of the panels with having the contract; we don't want to be long or short on panels.

Okay. And for Alto Maipo, you keep showing that you've largely paid your equity investment into the project, but is this a signal that there is basically no scenario under which you're going to increase the equity commitment to the project?

Well, this really would be a decision at AES Gener, and it would strictly be an AES Gener decision not an AES contribution. It would have to be part of the complete solution, which includes greater financial flexibility and a modification of the contracts we have with our contractors to ensure they meet the expected milestones and progress. So, these are two changes we need to occur. Now having said this, if Alto Maipo is completed, it will give AES Gener 750 megawatts of hydro to serve the country's load in Santiago, and it's an asset that will last 100 years. So, we're evaluating the possibilities and trying to align all stakeholders, and as I said, AES and Gener will exercise a lot of discipline when it comes to any additional money beyond what has been committed.

Okay. Thank you.

Thank you, Angie.

Hi. Good morning.

Good morning, Steve.

Just two quick follow-ups on Alto Maipo briefly, just so I understand. If you were able to secure construction contractors in place that could firmly commit to the existing timeline with this higher budget, is that sufficient to make it economic to complete the project? Or do you need further concessions of some sort to make the project worthwhile to complete?

If I understand your question correctly, if the contractors comply with the restructuring that we did earlier this year, that would be enough to meet funding needs and have some contingency. So, yes, that would be adequate. Our concern is we had to terminate one contractor — the smaller of the two contractors — but we really need to ensure performance is in line with what they dedicated to.

Understood. Andrés, so essentially either the current contractor could assume that obligation or you could bring in another party but you would need that commitment in order to be able to move forward?

That's correct. We have to have modification of construction contracts to ensure that they're meeting the milestones and targets.

Okay, understood. Just shifting to the U.S. in terms of the remaining generation assets to be disposed of, is there potential for significant tax loss that could be beneficial in the event of a disposition, whether it's pull for cash or shutting down some of the assets?

Stephen, it's Tom. There may be a potential; remember we already have a large NOL, so anything we have would really add to that NOL. But our NOL is over $3.5 billion at year-end.

Just be additive to that, yes...

Yeah, I don't know the specifics of the closure of the coal plants. But it would be a longer-term NOL benefit.

Okay, understood. Lastly, regarding your storage joint venture, very interesting development; assuming the business is successful on a joint venture basis, how generally would that impact your financials over time?

Sure. As I said, this is a market that is expected to grow almost by a factor of 10 over five years. This will grow very quickly and require funds at the JV. We don't expect significant contributions from the JV for the first two years; it might present a slight drag. Afterwards, we expect it to use those funds to continue to grow slightly. It will take time before we get cash back from the JV if successful and growing quickly. However, we expect to have the earnings from that JV over the next two years. This is a unique JV; we have significant experience, and Siemens has a global reach. Together, we'll be able to provide a comprehensive offering. What we have in our guidance is conservative, so if the JV performs well, there will be upside. But I would expect it to take two years to really start materializing, which we think is very promising. We will also utilize energy storage on our platform and be a client for our projects, such as Southland.

Understood. Just in terms of the types of margin you would expect from this joint venture, could it be servicing margin? Or what is more likely to be product sales margins? What kind of margins generally should we expect there?

It will be a combination of both. Siemens has considerable experience in this. There will be margins on both the sales and services, and obviously we aim for the right balance. There are many interesting opportunities. Siemens has financing capabilities as well. So, we'll see how the market develops and options emerge. We have a great team, and there's tremendous energy between the two companies, so stay tuned.

Thank you. So, going back to Alto Maipo very quickly I have a couple of follow-up questions. Does the new investment increase AES ownership we have in, and with all 40% now it is 62% really grown up until if you make additional investments?

Let’s see; we owned 67% of AES Gener. AES Gener to cover for a nominal's amount of 40% that our local partner had in Alto Maipo. So, now we have about a 93% share. So, depending on how negotiations go, the contract can have a 7% stake. So, as part of the solution, they could take a greater stake. So, I don't see anything meaningful happening to the sort of 62% like we one or two up but or down. So, we will have to see but now it's not going to go up materially.

And if any changes, I know just started beside to answer more important continue to invest, you need to modify your long-term interim contract, offtake contract?

No.

Okay. So, how do you preserve your ROE or ROI results?

I'm sorry, the question is how do we preserve the ROE on Alto Maipo or overall on our...

Alto Maipo if you are investing more money, but you're not...

That's fair. Alto Maipo will not fulfill ROE expectations. We have been reducing them over time. The decision was made based on marginal returns from marginal investments.

Okay. Also, just on Fluence, is one of the objectives to research funding and R&D for energy storage or Fluence experimentation.

Fluence is a commercial operation. We've always seen our energy storage as a business and a need to profit from it. Fluence will continue to upgrade design, look for ways to reduce costs, and explore new applications. There are many applications for energy storage that we haven't deployed yet. Those are all elements of innovation Fluence will focus on. It's not just for R&D sake; it has a strong commercial orientation.

Yeah. I'm just wondering if you'll be having an R&D component. One last question from a long-term perspective, 8% to 10% growth; there are some utilities in the U.S. that are doing that kind of rate risks? What can AES do to boost that 8% to 10% growth rate going forward?

I think again, we're paying a 4% dividend and looking at 8% to 10% growth puts us in the sort of 12% to 14% range. We think we have upside from recovering the cycles in some of the countries where we operate. There is always cyclical behavior in Latin America where we operate and it's been challenging the past five years. However, we can expect better growth; for example, Brazil is flat and beginning to increase while Argentina is also improving. Our growth estimates are conservative, and we're using forward curves. We think the cycles are beginning to turn.

Excellent. Thanks very much.

Thanks, Lasan.

Good morning. You've touched on this a little bit, and you definitely touched on it in the press release and the announcement of Alto Maipo from a couple of weeks ago. But how can we think about the kind of exact contribution to your guidance from that project? You have substantial growth over the next couple of years; according to my calculations, that project could have reasonably been a major contributor to that growth rate.

On the numbers we're providing, the impact is absolutely minimal and insignificant through 2020.

So, when you say minimal, should we think about that as you pushing out an online date past 2020 or into the middle of 2020 or just substantially lowering the returns from a fully operational project?

Yes. When we looked at it, we dialed back significantly within our guidance range in February. It had some modest contributions in 2019 and 2020. So, while we don't want to significantly dwell on it, we had already dialed back those expectations.

Okay. That's great to hear. And also, obviously, your long-term guidance is still marked off of December 31st foreign exchange curves and things have gone very much in your favor since that time. Considering the sPower acquisition, should we think about there being additional tailwinds to that growth rate versus your original expectations as well, totally separate from Alto Maipo?

Sure. There are a variety of puts and takes. Our reaffirmation of guidance today is based on forward curves as of June 30th. We’ve done a lot of work to mitigate some of the volatility in foreign currencies; now we're 80% U.S. dollar. To the extent there's any uplift, that's less than we have hedges in place for on a rolling one to three-year basis. So net-net, we're analyzing the forward curves as of June 30th.

Okay. Lastly, you mentioned in your prepared remarks that there's still a $500 million placeholder of asset sales this year that might spill over into early next year. Can you remind us strategically where you are in the process of divesting non-strategic assets, how far along you are in that process? And does the decision to merge the Asia and Europe business units reflect that direction a little bit as well?

Sure. As we said, we’ll continue to sell assets and churn that capital. This year we are likely to exit Kazakhstan, one less country. We have a number of pending sales; some are for entire assets and some are partial sell-downs. We'll announce those when they occur. We are cautious about announcing them in advance due to operational impacts. We're working to refine our portfolio. We've moved from 30 countries and expect to operate in about 16 by the year's end. We think a range of between 12 and 15 is optimal. What's critical is that we have platforms from which we can expand and create economies of scale, rather than managing many disparate assets. We will continue to focus on markets where we can add value and explore synergies.

Okay, great. Thanks, Andrés.

Hey, good morning.

Good morning, Greg.

Just one quick question on the slides. Looking at the first quarter versus the second quarter slides, your committed investments in some regions have gone up from $425 million to $700 million. That came out of an allocated discretionary cash, I'm presuming that's capital commitments to the renewables business?

Yeah, Greg, it's Tom. We incorporated Southland.

Right, that's right.

Because we're quite literal with our commitments. We are ready to finalize the financing, which is a firm commitment.

Okay. Thank you.

And back to the Southland financing; it's going to be pretty close to COD late 2019 to 2020.

Got you. Okay, great. It's a merger sort of strategic question, do you see your renewables development platform and footprint as being strategically complete? Or if there were opportunities for a significant step into a renewables platform in the U.S., would you participate, considering there are many portfolios for sale? There is at least one growth-type format that is looking for a partial or complete sale?

What I would say, Greg, is we've made significant strides. We have a good growth platform. Not to say that we wouldn't be opportunistic with some purchases that would add-on. However, it must provide tangible operating synergies and other advantages. We are now well-positioned with sufficient scale, especially when considering our global presence. We don't necessarily need to pursue acquisitions right now, but we’ll remain disciplined. Establishing a firm foundation allows us to tap into growing markets, but we’re not under pressure to make follow-up acquisitions.

Okay. But there is still a lot of activity regarding assets for sale; I mean, let's be frank, NRG Yield is for sale. They are looking at the sale of their entire platform, including their wind development business. This sort of opportunity could significantly shift your business mix toward renewables, which aligns with your long-term goals. How much can you comment on the potential impact of a strategic deal like that?

That's certainly not high on our list right now. What I can share is we are on a gradual transition. Our coal plants are under contract, and we will be disposing of those that are merchant over the next couple of years. We've already reduced our coal fleet by a quarter in recent years.

Okay. Thank you. Take care.

Thank you. One clarification question on the long-term guidance — I thought on the long-term guidance that you don't update to the current June 30 marks, it goes back to December. So just on the long-term guidance, with currency forecasts having improved, maybe commodities have worsened, but generally if you did update, would you still be in the rough ballpark of your growth rate?

Yeah, I think, Steve, bottom-line we would. It's various puts and takes; currencies have been helpful while some commodities have offset. We have a careful assessment of these factors as of June 30, 2017.

I see, okay. Got it. Okay, and then on the growth rate with sPower renewables generally, I think you mentioned 400 megawatts to PPAs already for 2020, is that correct?

Yes.

Is that, can you give us a breakout of that a little or at least kind of regionally U.S. versus non-U.S.?

That's primarily U.S.

That's all U.S. Okay. And then just in terms of funding the growth of sPower, your plan is to basically fund that through internal cash?

Yes. To clarify, about 80% of capital is funded through non-recourse debt and equity; we’ll consider other sources of funding as opportunities arise.

Okay. Thank you.

Thank you, Steve.

Good morning. Alto Maipo, Andrés, is that still a tunneling issue?

Yes, Alto Maipo, yes, we've completed about 40% of the tunneling in the project. If you take everything else, civil works are more like at 53%, 54% completed. So, the main issue is the productivity rates on the tunnels. Since a contractor left, we've had actual manufacturers working on the boring machine making better progress than they had. The issues really revolve around our tunneling rates and costs.

Okay. And then just a second question, the fact that you're combining Europe and Asia signals a commitment to the development pipeline being not as strong, or it could be interpreted as not going as hard in the development? Is that a correct assessment? Or do you have anything else to say about why you're doing this?

I think it's a correct assessment; we're focusing more on certain markets where we have the bigger footprint. Certainly, we have opportunities in the northern region and in Vietnam, which is quite attractive, as well as some add-ons in India. We’re engaging in the first grid-scale energy storage project in collaboration with Tata Group in India. These are the three areas where we have ongoing development activities. Other countries have seen decreased activity, which explains the movement in focusing our business.

Okay, that's all I had. Thank you.

Thanks, Charles.

Thanks everybody for joining us on today's call. As always, the Investor Relations team will be happy to answer any questions that you may have. Thank you and have a nice day.