愛依斯電力 (AES) 2008 Q4 法說會逐字稿

Good morning. My name is [Kalea] and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 and full- year 2008 financial results conference call. (Operator Instructions). Mr. Pasha, you may begin your conference.

Good morning, everyone, and welcome to our fourth-quarter 2008 earnings conference call and webcast. Joining me today are Paul Hanrahan, President and Chief Executive Officer; Victoria Harker, Executive Vice President and Chief Financial Officer; and Andres Gluski, Executive Vice President and Chief Operating Officer.

Before we begin this morning, I would like to remind you that any statements made herein about future operating results or other future events are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from such forward-looking statements. A discussion of factors that could cause actual results or events to vary is contained in the filings and in the investor section of our website, www.AES.com.

With that, I would like to turn the call over to Paul.

Thanks to all of you for joining us this morning. During our last call, we discussed three key things to describe how we expected to govern the Company during the next several quarters, and possibly longer, depending on the conditions in the global economy.

Today, I plan to keep my message simple by providing an update on our progress on these themes during the past four months. After Victoria's discussion of our 2008 results, I will then conclude the call with our 2009 guidance and some comments on our longer-term prospects, including the construction projects we expect to come online in the next few years.

The first theme is liquidity management. We continue to be a Company that generates strong cash flow and we met our cash flow targets for the year in a tough economic environment. In the past four months, we've also taken measures on the operational side to improve liquidity. We reacted quickly to the changing environment, and we will benefit from these actions in 2009 as well.

Second, I will discuss the progress on our development pipeline. Because of the market conditions, our strategy has evolved to develop only select projects that are both strategically important, such as many projects in our wind and solar businesses, which are likely to experience high-growth rates in the current environment, and likely to attract nonrecourse financing in a difficult credit environment.

Third, I'll briefly highlight our cash flow results for the year. Victoria will then provide a broader analysis of our 2008 operating performance.

I want to return to the first theme, liquidity management. Today, everyone is more focused on cash and capital adequacy than most other financial metrics, largely because of reliance on capital markets is not prudent in the current environment. One of the advantages we have is that our global portfolio provides reasonably predictable cash flows, much of which comes back to the parent company.

In addition, the steps we took to protect liquidity early in the year have served as well. We refinanced a substantial portion of our debt to extend maturities and have taken steps to streamline our operations. We will continue with these and other liquidity preservation measures for the foreseeable future, since the duration and severity of the financial market conditions going forward are uncertain.

As a result of these and other efforts, our parent liquidity improved by 21% in the fourth quarter to $1.4 billion at year end. While we expect that liquidity will have some incremental movements up and down over the next few quarters, overall we believe that it will be more than sufficient to meet our needs.

This means that we do not have to be dependent on the proceeds from asset sales or the health of the financial markets to meet our liquidity needs at the parent level or any of our significant subsidiaries.

We've always been and will continue to be opportunistic in our financing, investing, and portfolio management activities. If attractive opportunities arise which could further enhance our liquidity, increase our financial flexibility, or allow our capital to be redeployed in a more appropriate fashion, we are prepared to act.

We have a fairly straightforward waterfall approach to our priorities for capital and cash. Our top priority remains the active management of our future debt maturities, in addition to managing our liquidity. With total liquidity at nine times the 2009 current debt maturities, we feel confident about managing this priority.

Our second priority is to complete those projects that are currently under construction. They make good economic sense. We have funding commitments related to our construction program and equipment purchases of approximately $260 million, the majority of which will be funded in 2009.

In 2008, we broke ground on more than 1,300 MW of thermal power and renewable energy projects, bringing our total construction program to more than 3,400 MW. More than 90% of these projects' capacity is contracted under long-term agreements. These contracts substantially reduce our risk and contribute to a more predictable earnings and cash flow. I'll describe these projects in greater detail later on in the call.

To the extent that we do have excess cash available beyond the first two priorities, our third priority is to deploy those resources to their highest and best use, where that would be the repurchase of debt or equity securities, to fund new projects, or to keep on hand as a form of insurance in an uncertain economic environment.

This is a good lead into the second theme, which is targeted development. We believe that, even in these markets, attractive business opportunities can be financed. In addition to financing the Angamos project in Chile in the fourth quarter, we also closed financings for wind and solar projects outside of the United States, raising more than $1.4 billion of long-term project debt.

Because of these successes, we will continue to pursue select development projects that represent low-cost options to invest in the future. For example, increased demand for renewable sources of energy in the U.S. will clearly create opportunities for us to expand our growing renewables business platform.

The third topic is our 2008 results. As we pointed out in our last call, we were very much focused on generating cash flow and returning cash to the holding company in the last several months of 2008. What I would like to highlight, before turning the call over to Victoria, is that in 2008, we did in fact meet our targets for operating cash flow, consolidated free cash flow, and subsidiary distributions.

Achieving these goals was a critical part of our plan to strengthen our financial position in an uncertain environment. It involved a rapid response by all of the people in AES to cut back on cash spending, not only in our operating businesses but also in our overhead and development spending. As a result, we were able to deliver on our cash commitments.

Now I'll turn the call over to Victoria Harker, our Chief Financial Officer, who will provide a broader overview of our results for 2008.

Good morning, everyone. As Paul mentioned, there are a few key priorities guiding our actions over the next several quarters. As I review our operating results in more detail with you today, I'll be touching on some of these focus areas, since many of them were key drivers of our 2008 results as well.

The ongoing themes of preserving liquidity, actively managing our portfolio of businesses, continuously assessing key risk factors, and driving financing activities will be very familiar to you as they were throughout the second half of the year.

But first, let's review the full-year 2008 results. Since cash generation and capital adequacies are such important themes in the current economic climate, our overview of 2008 results begins with a discussion of cash flow. We're very pleased to report that we met our guidance for key cash flow metrics in 2008 with net cash from operating activities of $2.2 billion and consolidated free cash flow of $1.4 billion.

Subsidiary distributions at $1.1 billion were in the top half of our range. And it's worth noting that we set our cash flow guidance in March of 2008. Even though the credit markets and global economies deteriorated dramatically since that time, we focused on taking actions quickly that enabled us to meet our free cash flow and subsidiary distributions guidance for the year.

We believe this speaks volumes about the durability of our businesses and our operating practices, which help protect our cash flows. Just as an example, the majority of our cash flows are produced by our regulated utilities and contract generation businesses, where fuel price is generally a passthrough. In addition, we hedge a significant portion of our merchant portfolio's commodity prices.

When fuel prices are highly volatile, as they were in 2008, these are critical elements of our strategy. On March 17, when we issued our guidance, natural gas prices were $9 per MMBtu. They climbed to a peak of $13 in early July and ended the year at around $6.

As you may know, other companies experienced extremely volatile cash flow swings as a result of these commodity price changes. By contrast, we delivered the cash flows that we originally projected.

Now, turning to gross margins. In addition to our strong cash flows, it's notable that we also improved our gross margin in a very challenging economic environment. As with our cash flow results, our gross margin was in line with our guidance of $3.7 billion to $3.8 billion. Absolute gross margin for the year increased by $300 million, or 9%, primarily due to improved performance at our generation businesses in Latin America and in Europe.

In addition, earlier in the year we were able to benefit from our positions in the Southern Cone, where demand for power and corresponding prices was high. In Chile, we captured the benefit of higher prices by increasing production and selling excess output to the spot market. Our thermal and hydroelectric facilities in Argentina also increased production, in response to higher demand and electricity prices.

We saw similar trends in other businesses, including Central America and Europe. We also benefited from favorable foreign currency exchange rates.

Our 2008 full-year adjusted earnings per share were $0.99, including $0.19 of foreign currency transaction losses, $0.14 of which were non-cash mark to market changes. We reported GAAP earnings from continuing operations of $1.80 per share, including the gains from the sale of our northern Kazakhstan businesses.

As we've noted in the past, active portfolio management remains an important part of our business model, and the Kazakhstan sale provides a good example of this. Back in 1996, AES invested approximately $200 million in the acquisition of and subsequent capital improvements in these assets.

The 4,000 MW power plant was operating at less than 20% availability when we purchased it. Through operational improvements and changes in processes there, we increased availability to 60%.

In 2008, we then sold the assets for more than $1.1 billion, resulting in a gain of $905 million. This demonstrates just one way we create value for our investors, using a variety of our core operating and transactional skills. We identified the opportunity, we acquired the assets, we used our expertise to improve operations, and then we locked in the value for sale.

Now let me briefly touch specifically on our fourth-quarter 2008 results. During the quarter, despite foreign exchange headwinds, our Brazilian utilities benefited from higher volume. For example, Eletropaulo, one of our utilities in Brazil, we had a 4.4 increase in volume during fourth quarter in 2008 versus fourth quarter 2007.

Overall, results for the quarter were in line with our expectations. Net cash from operating activities was $579 million, increasing by $97 million, primarily driven by the results of our efforts to improve working capital.

In anticipation of the deterioration of some markets in early 2008, we took fast action to improve collections that reduced receivables. This resulted in a remarkable decrease in our days sales outstanding, or DSO, which measures our ability to collect cash and quickly convert it into all-important working capital.

As a result, consolidated free cash flow for the quarter was $314 million, increasing by 11%, or $31 million, reflecting an increase in operating cash flow.

Gross margin for the quarter was $674 million, a decrease of $135 million, reflecting weaker foreign currency exchange rates and $81 million of non-cash charges, primarily from mark to market derivative losses.

We reported a loss from continuing operations of $0.10 per share, which included about $0.25 of non-cash losses resulting from three main drivers -- impairments, FAS 133 mark to market changes, and a sale of the small stake in Chile.

First, $0.07, or $85 million, resulted from non-cash impairment charges. As we discussed in our last call, in response to macroeconomic conditions, we took the opportunity to reassess our development pipeline and canceled some early-stage projects, allowing us to pursue liquidity and prioritize our other, more strategic projects.

Second, $0.05, or $31 million, resulted from the sale of a 10% stake in our Gener business in Chile. We sold a portion of our stake for $175 million in order to fund our share of the growth projects currently under construction in Chile. Funding the Gener construction obligations using the capital markets allowed us to preserve corporate liquidity.

Third, $0.13 resulted from FAS 133 mark to market derivative losses.

For the quarter, our adjusted earnings per share was $0.18. This included $0.08 of losses resulting from foreign currency transaction losses, primarily related to mark to market valuation of our net monetary assets in Chile.

Overall, we are pleased with both the quarter and full-year performance and expect to continue to see the positive ongoing results across our portfolio in 2009.

Turning now to our broader financial strategy. As Paul noted, changes we made to our capital allocation early in the cycle this year have enabled us to adapt the financial markets quickly. We continue to focus on liquidity, targeting only select development projects, and managing risk.

I'd like to provide more detail on these priorities. First, liquidity at corporate and our subsidiaries continues to strengthen. At the parent level, we have increased our liquidity by $245 million to $1.4 billion in the fourth quarter. This was driven by both our efforts to decrease the amount of discretionary capital expenditures, supplemented by the closing of several nonrecourse financings, which allowed us to reduce our letter-of-credit obligations.

In 2009, we have only $154 million of recourse debt maturities, representing only 11% of our year-end parent liquidity, which puts us in a very strong position going into 2009.

At the subsidiary level, we have scheduled nonrecourse debt maturities of approximately $1 billion. Our year-end liquidity at the subsidiaries is approximately $2 billion. This beginning liquidity, combined with our expected operating cash flows of approximately $2 billion in 2009, gives us comfort that we can meet our current debt obligations.

Second, our decision to prioritize our development pipeline and to target only bankable projects, or those capable of obtaining financing on attractive terms in the near term, has served us well. In fact, we raised approximately $2 billion in debt to fund these kinds of projects. $1.4 billion of that amount occurred during the fourth quarter, well into the credit crisis.

In November, we closed a $1 billion financing for a coal-fired project in Chile for 17 years on reasonable terms, given the market climate. In addition, we financed two wind generation projects, in Bulgaria and in Scotland, raising $300 million in December. Our solar joint venture also raised $90 million in December for solar energy projects in Spain on similarly favorable terms.

Our success with these financings is encouraging, as it validates our belief that quality projects will continue to attract capital in a wide variety of markets and technologies that we operate in worldwide.

Third, like our financing strategy, our approach to risk management continues to hold up in the face of volatile markets. As an example, one of our strategies has been to match the currencies of debt to the revenues of subsidiary businesses. This protects these subsidiaries from volatile foreign exchange movements that would make it difficult or expensive for them to service debt.

For year end, approximately 94% of our subsidiary debt was matched to the same currency as the revenue generated by that business.

Likewise, we also manage the risk associated with variable interest rates. At year end, 81% of our total debt consisted of fixed-rate instruments, or debt that has been hedged against short-term interest rate movements.

Before I turn the call back over to Paul, I'd like to provide color on some of the Company's other initiatives. During the quarter, I am very pleased to report that we completed the remediation of our final two remaining material weaknesses, as we had anticipated.

With a clean bill of health on all of our financial controls and our remediation work behind us, we expect to achieve significant savings in 2009. Our focus now is on improving and streamlining the efficiency of our finance organizational platform, as we move toward 13 financial centers of excellence worldwide.

Two other quick items to note in our ongoing effort to improve our reporting transparency. As discussed during the third-quarter call, effective January 1, 2009, we are clarifying our definition of adjusted EPS to exclude any non-cash unrealized mark to market foreign currency transaction gains and losses from all the countries we operate in, not just Brazil and Argentina, as had been done previously.

So while we may be somewhat penalizing ourselves with regard to our 2008 adjusted earnings per share by not making this change sooner, we believe it's appropriate to make the change prospectively to avoid confusion in the market.

Based on this new definition, our adjusted earnings per share for 2008, just for reference, would've been $0.13 higher, or $1.12.

Further, as part of our continuing efforts to improve our disclosures, we're introducing select financial metrics on a proportional basis to reflect AES's direct economic interest in gross margin, operating and free cash flow, as you will see in the online investor presentation. We believe these measures will provide additional insight to our investors.

In conclusion, our year-end cash flow results were in line with our expectations. We believe our results reflect the key themes Paul mentioned in his remarks -- strong cash flows, improving liquidity, and effective risk management practices.

With that, let me turn the call back over to Paul, who will discuss our 2009 guidance.

Thank you, Victoria. Before we open the call to Q&A, I'd like to discuss the 2009 outlook, and while we're not providing long-term guidance, I will provide some comments regarding our longer-term prospects.

Let me start with our 2009 outlook. During our third-quarter earnings call, we provided our preliminary 2009 guidance for subsidiary distributions and adjusted earnings per share. This guidance was based on the then-current spot rates for currency exchange rates and commodity prices.

Today, I will update that guidance and provide our forecasts for additional financial metrics as well.

Let me start with our subsidiary distributions. For our subsidiary distributions, we are reaffirming our guidance of $1.1 billion to $1.3 billion. Our ability to reaffirm our prior guidance for this metric is particularly important in this environment, since subsidiary distributions and our strong year-end 2008 liquidity position enable us to fund current interest, committed investments, as well as repay our debt maturities.

Our guidance range represents a year-over-year increase in subsidiary distributions, which is a direct result of our strong 2008 performance, since subsidiary distributions typically lag other financial results.

Second, as you are well aware, we continue to see tremendous volatility in the currency and commodity markets. Therefore, in order to provide a consistent base throughout the rest of the year, we are anchoring our 2009 guidance to the exchange rate and commodity price forwards and forecasts that existed as of December 31, 2008. We think it will be easier to follow the sensitivities during the remainder of the year by doing so.

I am now going to walk you through the changes from our last call, which was held on November 5, to the end of 2008, and then I'll take you from year end to this week.

Between the time when we provided preliminary guidance in the third-quarter call and year end, various currencies and commodities have fallen. Overall, we saw about a $0.10 negative impact on adjusted EPS as a result of changes in currencies and commodities from the spot rates on November 5, on which our previous guidance was developed, to the forward [cursive] forecast as of December 31, on which our base guidance as of year end has been developed.

Movements in currencies accounted for about $0.08 of the unfavorable impact. This decrease was primarily due to devaluations in the Brazilian Real, Argentine peso, British pound, and Colombian peso. Also, because of recent volatility of currencies and unusual correlations of movements, we will provide a more straightforward method to estimate future impacts of currency movements on our financials.

To do this, we have provided individual sensitivities for six key currencies, rather than for an overall currency basket. We think this approach will be more useful to investors during times of unusual volatilities of multiple currencies.

With respect to commodity prices, we experienced a net $0.02 negative variance due to commodity price movements overall between November 5 and December 31.

As a result of rapidly changing oil prices, we are also updating the sensitivity related to oil price movements, as this sensitivity behaves in a non-linear fashion as we encounter low oil prices. We have adjusted our oil sensitivity to include this potential variance going forward.

There's also a second factor that contributed to our $0.02 overall negative variance for commodities, and that was a decline in CERs, or carbon credit prices. This had a $0.01 negative variance with a $0.02 variance on our adjusted EPS expectation for 2009. We're now also providing a CER sensitivity -- CER price sensitivity, to help you estimate the impact of fluctuations in this commodity in the future.

With this background, let me now walk you through how our 2009 guidance was being adjusted through the end of this year -- or through the end of 2008, and then we will bring it current to today, based on exchange rates and commodity prices that exist as of this week.

On our third-quarter call, we provided preliminary adjusted EPS guidance range of $1.15 to $1.20 per share. To bring the guidance to 12-31, we are both widening the $0.10 share range due to increased uncertainty with respect to economic growth and, quite frankly, to be conservative. We're also adjusting for changes since November 5.

At the top end of the range, we are lowering our guidance as of 12-31 by $0.13 a share, so it goes from $1.20 to $1.07. This $0.13 reduction is primarily due to the $0.10 in unfavorable currency and commodity movements through the end of the year, as I discussed just now, as well as the $0.03 due to potentially lower electricity demand that had been assumed during our last call.

Using the wider range of $0.10 per share, our guidance revised to 12-31-'08 for adjusted EPS is therefore $0.97 to $1.07 per share. Throughout the year, this base guidance can be used by investors to run analysis using the updated sensitivities we are providing today.

In addition to our reaffirmed guidance on subsidiary distributions, and our updated adjusted EPS guidance, today we also issued guidance on some additional financial metrics, such as consolidated free cash flow, which is $1.4 billion to $1.6 billion, as compared to $1.4 billion in 2008.

As Victoria noted, consistent with our efforts to provide additional transparency, and to provide other metrics to aid in the valuation of our equity, we are also issuing guidance for proportional free cash flow of $650 million to $850 million. As I mentioned earlier, all of our 2009 guidance is based on forwards and forecasts for currencies and commodities as of December 31.

There has been significant volatility in currency and commodity markets since the beginning of the year, and we expect that this volatility will continue for the foreseeable future.

Now I'd like to walk you through the impacts of those changes since year end. Using the updated sensitivities for full-year 2009, adjusted EPS, for the key currencies and commodities, we have estimated that changes in FX and commodity forward curves, a forecast from December 31 to Tuesday's close, have had a further unfavorable impact on adjusted EPS of approximately $0.07 per share.

This implies an adjusted EPS range of about $0.90 to $1 per share. About $0.04 of the negative variance is related to currencies and about $0.03 to commodities. The $0.04 currency impact is primarily due to devaluations in the Hungarian forint, Colombian peso, and the Kazakh Tenge. Of the $0.03 negative commodity variance, about half is to the net impacts of changes in coal, oil, and natural gas prices, and the other half is due to lower CER prices.

While we do not provide sensitivities for other guidance metrics, it's reasonable to assume that a $0.01 move in adjusted EPS will roughly translate to a $10 million change in our proportional guidance metrics, such as proportional gross margin, operating cash flow, and free cash flow.

Current-year subsidiary distributions are less sensitive to changes in currencies and commodities because of the lag effect and the fact that a larger relative portion of our subsidiary distributions are U.S. dollar denominated.

At this time, we are not providing guidance beyond 2009. I realize that in prior years, we have given longer-term guidance; however, given the current market conditions, we do not think it makes sense to do so until much of the current uncertainty in the markets is reduced.

While we are not providing a long-term forecast, I would like to share some observations regarding our long-term prospects, including the built-in growth that we have in the form of projects under construction. As we have discussed in prior calls, we have approximately 3,400 MW of capacity under construction in nine countries.

The construction pipeline includes 25 projects, the majority of which will start contributing earnings and cash flows in 2010 to 2011, as shown on slide 11. One thing I would like to point out is that we have secured a significant portion of the capital for these projects through long-term nonrecourse financing, such as Angamos in Chile, where we raised 70% of the project cost, or approximately $1 billion.

It's important to note that 90% of this capacity will be sold under long-term contracts. For this reason, we believe these projects will contribute stable and predictable cash flows.

As I mentioned earlier, we have modest capital commitments to complete our construction program, which means we have built-in growth in our business without placing our liquidity position at risk. By 2011, the projects under construction are projected to contribute annual earnings per share of roughly $0.25, proportional free cash flow of $300 million to $400 million, and subsidiary distributions of over $150 million.

In addition to the construction program, other drivers will help our long-term prospects, including organic growth in some of our markets, operational improvements, better working capital management, and interest savings from debt repayment.

This brings me to some final remarks regarding the durability of our business model as a whole. Clearly, 2008 was a challenging year for business. We did not foresee the severity of the current global credit and economic crisis.

However, we benefited from decisions early on to refinance short-term maturities, to focus on operational improvements, and to target only select development projects that have long-term strategic value. We believe that our ability to meet our cash flow targets in 2008 is a testament to the health of our business, which is built on a strong and diversified portfolio of assets and fuel sources both renewable and conventional.

I continue to believe that we have a very valuable portfolio of businesses in operation and construction. Our goal is to protect that inherent value of this business by continuing to meet our cash flow targets, and thus provide us with much greater financial flexibility in the future. I recognize that we have to deliver our projects and construction on time and on budget, as well as run our existing businesses extremely well. We have the right team in place and we are committed to delivering this value to our investors going forward.

Thanks again for your time this morning, and Operator, why don't we open up the lines for Q&A now?

(Operator Instructions). Lasan Johong, RBC Capital Markets.

Good morning. I wanted to ask you a couple questions on a more big-picture item. Obviously, the economy is a little bit less than robust right now. But there is still a lot of need for electricity around the world. In your travels, what have you been hearing from governments? Are they saying we're kind of tight so we can't do anything and we're pushing back all projects? Or are they saying we know the economy is going to recover and so we want to invest in the future, come on down and let's continue to move forward together?

It's actually interesting. I'd say the desire to get companies like AES involved in electricity projects now is probably greater, and it's because, I think, governments, particularly emerging-market economies, are under a lot of pressure themselves in terms of having adequate capital.

The issue with respect to are we seeing economic growth slow down the need for projects, not -- most of the places we're operating, they already have shortages. I think you could see, potentially, the need for these projects being deferred slightly, and actually, that works a little bit to our benefit.

And that's because, I think, as we're developing these projects, one, they take time. We continue to push them forward, but they do take time to get all the approvals, to get the commitments, to get the financings done. So any deferral of the need actually fits better with our approach towards managing liquidity.

But I'd say, generally, in terms of the need for companies like AES, it's much greater in today's environment than it was, say, six months ago.

That's good. It's actually very good. There's been some talk about AES putting additional assets up for sale. Given your comment just now about not necessarily needing to rely on the capital markets in further asset sales, is there some basis to this discussion about potential asset sales going forward?

I think we've always talked about the possibility of -- we talked about how do want to fund our investments going forward. And we're always looking for the lowest-cost way to do that, the best way, the optimal way to do it. I think asset sales is clearly one of the tools we would use.

Clearly, the equity -- selling equity would be crazy in today's environment. So to get additional capital, it really would drive us towards asset sales as one source of capital that we could then use to grow the business.

I think the issue we have, however, is just what is the market for asset sales? I think we think in some areas it continues to be reasonably robust, although I think that's one of the things we're exploring right now in terms of how -- with people out there looking at the asset markets, it was very robust before, how does it look today. I think that's one of the things we're exploring.

So I can't tell you for sure whether or not it's going to make sense to sell assets. But if we can obtain reasonable prices for certain assets that we would look at as being nonstrategic, that would clearly be a source that we could use to grow.

The tougher issue, then, is what do you do with that money? As we point out, the number one priority is to make sure we maintain strong liquidity position so that we can repay all debt maturities. We're not counting on being able to refinance anything at this point, either at the parent or at our subsidiaries.

But then, how do you put that capital to use? We could buy back debt, we could buy back equity, or we could invest in new projects. I think that's one of the things we'll balance as we look at the world going forward. But right now, we're looking at all possibilities in terms of how do we enhance our liquidity position.

Generally, it sounds like you're in no rush to go out there and sell any assets.

I think that's right. One of the things I think Victoria and I tried to do in our comments today is just making clear that we don't need to sell any assets to keep going, to complete construction, to pay back our debt maturities. So it's an option we have to grow the Company if we decide to do that.

But it would only be if we can find prices that we think are, quite frankly, value accretive in the process. And if they're not, we're perfectly happy, and don't need to do anything with respect to our existing portfolio.

Excellent. When do you intend to update the long-term growth guidance again? Because that, obviously, is a key, central theme to your stock price.

We thought real hard about should we do that. Just looking at the changes we've seen since November 5 to today, due to commodity prices and currencies, we just thought trying to go out and predict what the situation would be in two years, three years is going to be extremely difficult. And that's really the reason we decided to hold off on giving longer-term guidance.

I think it's really going to come down to when we -- when all of us here on the phone today have a better sense of what the future looks like. And as soon as we do, we will continue to do that.

I think, over time, we will be able to provide additional guidance. But just in terms of thinking about it, you can take where we are today, you can make the adjustments on the base portfolio based on the sensitivities we gave, you can look at what -- if we just take our free cash flow and pay down debt, in addition to the $0.25 that comes from construction, that's probably worth another $150 million, roughly.

So you would say just the growth due to construction and paying down interest, if we make no new investments with our free cash flow, that would get you another $0.40 a share. Then it really comes down to how does that base move with commodities and exchange rates? And there's probably some additional things we do with respect to operational improvements, but I would say those are the big drivers.

It's really going to be commodities, exchange rates, the $0.25 for construction, and then $0.15 sort of worst case of redeployment of capital into paying down debt.

Last question for you. Any chance that you have a marketing schedule that will allow you to discuss directly with investors future plans for AES in the next six to 12 months?

In other words, are you --

Yes.

-- planning to do any non-deal road shows?

Yes. I think it's important that we do that. I'd like to have a little bit more certainty as to how things look, but I think it's critically important, in this period of time, to keep people updated.

Main reason for that is, quite frankly, we see a lot of value in the underlying portfolio. If you look at the free cash flow metrics, and as we can update them in the future years with what's coming online from our construction portfolio, I think you'll be able -- and from debt repayment, I think you'll be able to see there is some substantial value there.

So it's really our job to go out there and communicate what that value could be to investors. When we feel comfortable enough to go out and talk about those numbers with a little bit more specificity, we will be on the road to do that because I think the intrinsic value of the Company we look at as being substantially higher than our current market price, but it's up to us to, one, deliver on what we say we're going to do, and then, secondly, to convince you and educate people on what that value is in terms of looking at cash flows and future earnings.

Would you be personally involved in these?

Just quickly on logistics. We're pretty quickly coming up onto quiet period for first-quarter results, so obviously we will be talking to you all more one off in the interim here. But most likely, a non-deal roadshow would be subsequent to the first-quarter call. We will be in quiet period beginning of April, so --

Who will be involved in these non-deal roadshows? Will it be Paul, Andres, Victoria? Who will be involved?

We will negotiate that. But basically, I think it would be all of us. We'd be involved. It's important to us.

I agree. Thank you.

Brian Russo, Ladenburg Thalmann.

I think earlier you mentioned some cost-cutting efforts. I was wondering if you can quantify that for 2009.

Our target for 2009 is $150 million.

And that's embedded in your guidance?

Yes.

It is.

I talked on the third-quarter call to a number of the initiatives that we had in place. So they're not new things that we're doing. That's the pullthrough based on some of the actions that we took from '08, including going to the financial hubs and some of the other reductions that we took end year.

Okay, and I'm sorry if you discussed this earlier. I might have missed it. How do you plan on addressing the nonrecourse debt maturities in 2009?

This is Chip Hoagland, our Treasurer. He can give you some specificity there.

The most -- I think it's important to note that, on the nonrecourse debt, almost all of that is amortized through cash flows, internally-generated cash flows, so we have very little refinance risk for nonrecourse finance in '09.

Okay. And you -- are some regions more robust in terms of asset sale activity versus others? And if so, maybe you could talk about some of the individual regions.

It's hard to tell at this point. We're exploring a couple of different areas. And we just don't know. I think we could probably give you a better update on the first-quarter call.

I would say the better markets are likely going to be -- Middle Eastern region is one area where I think things remain robust. Fairly developed markets remain reasonably robust. I think what's unknown is if you go outside of those two areas how robust those markets would be. But we don't have expectations they would be terribly robust right now.

Okay. And then, just to be clear, your adjusted earnings guidance for '09 and the currency sensitivity you laid out, that is -- that's the cash impact. There is no non-cash impact embedded in that guidance, right?

That's correct. In the guidance, there's no non-cash impact embedded.

Is there any way you guys can manage that currency risk better to prevent weekly, monthly, quarterly swings in that cash impact?

Really the only way you can do that -- and we've done a lot with respect to trying to match the debt with the functional currency of the business. But that's never perfect.

The only other way to do it, really, is through hedging, and I think we would do that depending on how we see the forward markets move relative to our expectations. We did that last year. We saw numbers move up, for example, with the Real. It strengthened and we hedged out that position for 2009.

So really, the only way you can do that is through hedging. We will just have to watch those markets. But with the high volatilities, the forward markets -- it just tends to be a fairly expensive thing to go hedge. And if you're going to lock in unattractive prices, that's really the trade-off we have.

So we will watch that carefully. But I think as we see things that appear to be attractive, we'll probably do some hedging. But hedging more in terms of cash flow than earnings.

And do you have any opinion on forward currency markets relative to the dollar?

No, I don't. We recognize that we're probably not the best ones to go out and predict what's going to happen with currencies.

What we do look at, though, is we look at various forecasts relative to the forwards, and you do see some situations where, because of liquidity -- and the further out you go on the forward curves, you may see something that deviates from the forecast. You're seeing that a little bit with the Brazilian Real, potentially, and the peso. But the forwards have actually moved closer to the forecast over the past couple of months.

But generally, we don't have these strong views as to which direction currencies are going. I think -- we're just trying to make sure that no matter which way they go, from a liquidity standpoint, cash flow standpoint, we're as protected as we can be.

Thank you very much.

James [Heckler].

It's actually Neil Stein from Levin Capital. My question is about -- just your latest thoughts on the share repurchase program. I know your last authorization expired in February, and there wasn't any update on whether or not you're going to reauthorize it, and what your overall thoughts are there.

My overall thoughts are the stock is terrifically priced and I wish we could go back and buy a bunch. The trade-off is liquidity.

We just think it's more prudent at this time to make sure we -- there's a lot of value in the stock, we believe, but the value -- and from a shareholder standpoint, we want to protect that value for shareholders, as opposed to going out and trying to just buy a few more shares and potentially jeopardizing liquidity.

Until we see things stabilize, we're probably not going to be buying back any more shares. And we have not gone back to the Board for any additional authorizations at this point.

The other thing we have is we have covenants that will restrict us from buying back more than $350 million worth of shares. So that would be a limit as to what we could actually go out and buy, unless we went out and changed those covenants. So I don't think you'll be seeing anything in the near term on that front.

Can you talk about how you're thinking about liquidity and what is adequate liquidity? Observing that, your liquidity hasn't really deteriorated much. It's been pretty consistently strong over the last several quarters. And the sensitivities that you point in your guidance don't point to any major cash flow swings on a going-forward basis.

So I'm just wondering why that should be such a deterrent to purchasing stock, particularly when your stock is down almost 70% without any major deterioration in your forward earnings power?

I think it's a couple things. One is, we want to make sure -- our basic premise is that any debt maturity that comes through, at the subsidiaries or at the parent level, cannot be refinanced and can be paid off.

It's possible we could do some refinancings, and if we could do so attractively, we might go ahead and do that. But we're sort of planning for the worst case.

On top of that, we've got some construction projects that are in progress. I talked about them needing $260 million. We want to make sure we've got the money to go fund those construction projects. To the extent that some of those can actually raise additional recourse -- non-recourse financing, that frees up more capital.

Bottom line is, until we can get these things done, we're assuming the worst case. We're making sure we have an adequate buffer to handle the things that could go in the wrong direction, just because we've seen so much volatility. We want to make sure that no matter what happens, we can, one, get through this with a comfortable cushion, and then we will start thinking about how do we optimize the cash flows to increase the value by buying back shares, making new investments, whatever.

But it's really for that reason that we -- until we know we've actually gotten the refinancings done, we've gotten past the maturities, we're going to assume we have to repay those.

Could you -- on the issue of capital allocation, I think on the November call you referred to the possibility of canceling all of your projects, development projects, not currently under construction. Could you confirm you actually did that?

No, we didn't cancel the projects not under construction. What we -- basically, you could think about those from a shareholder standpoint, is that there are options to make investments in the future.

What we did is we pruned the projects -- we pruned the projects that were not the high-priority projects, so a number of them we took off and said, okay, this isn't worth spending development money on because we wouldn't possibly have enough capital to go forward.

But we are keeping a number of projects going forward. We're probably spending about $70 million on development, and we're doing that because we continue to see a real opportunity in the wind sector, in the solar sector, and I think in a number of projects that we think have potential that would not likely be able to close until the 2010, 2011 timeframe anyway. So we want to keep those options alive, so that if we get to a point where the world comes out of this, capital is more readily available, we've got some good projects that have substantial returns, good net present value, that we can then add to our portfolio.

But I think what's important to recognize is we don't commit to invest until we're sure we have the money. That's the -- the basic rule of thumb is, we don't start committing to invest in a project until we have that money on hand and ready to go, both with respect to the nonrecourse project financing as well as having the equity on hand.

And I think that's what will enable us to be sure that we've got adequate liquidity to meet our needs. And it really was that rule of thumb that allowed us to enter this period of time where we have 3,400 MW in construction but be able to say we've got comfortable liquidity to get through this, in the sense that we've got built-in growth without having to jeopardize that liquidity.

Just a little bit more specificity. We did talk on the November call about the process we were going to go through relative to those projects, and I alluded to it in my commentary.

Between that call and the end of December, and you'll see this in the 10-K, we went through a pretty rigorous review of project by project, and we did impair about $85 million, or $0.07, specifically associated with those types of projects that we determined on a going-forward basis were non-strategic and we had less upside opportunity from.

So that's how that ties out in terms of what we specifically said we were going to do.

Two last questions related to that. You said you're spending $70 million on a going-forward basis. How much had you spent in the last couple of years? How much of a reduction?

On a cash basis, I am guessing -- and I'm looking at Chip a little bit -- probably $50 million. Probably. And in terms of cash spending on development, we're probably talking about $150 million or something like that. Maybe in some cases, maybe some years it might have been somewhere between $150 million and $200 million in terms of the amount that we would expense and also capitalize. And we have now just taken it down to about $70 million.

And of the $70 million, could you talk about it in terms of how much was expensed, like how much of it was expensed in prior years and how much will be expensed going forward?

It's about $100 million expensed and then, the remainder would have been capitalized. And some of those projects actually went into construction, so some of that -- some of those that we had capitalized are actually in construction. The ones in Chile, for example -- some of the wind projects have actually been put into construction. They've actually been converted to construction projects.

And the last one here , given your stock trading close to $6 and the potential return, possibly, that you see from your equity, is there any development project that exceeds the potential return from your own stock price today? And can we assume that if the stock price does not improve, you're not going to move forward on any of these development

The answer to your first question -- is there any development project that gives you the same returns -- the answer to that is no. Clearly, it's the best investment we have out there.

We do have this restriction of $350 million, however, so my guess is, as you look at this -- we also believe there is some business lines that, as business lines, have a lot of growth potential, a lot of value creation potential, and we want to keep those going forward too. I specifically note the renewables ones as areas that have a lot of potential.

But I would see the two competing against each other, but for that first $350 million, that's pretty clear that that would be the best -- the highest-return projects in the very short term.

But I think we'd probably keep some solar and wind projects going forward, because we think just having those in the portfolio with the recent environment -- we're seeing this all over the world, quite frankly, the continued push, even in this economic climate, the continued push towards renewables, towards low carbon technologies, continues to be something that we think, in the long run, we want to have a platform that makes sense to do that, and will result in good returns on the platform, as opposed to just the individual project.

So we will probably keep some of those going forward just so that we can keep the ability to grow that platform down the road.

Thank you very much.

Raymond [Leong].

A couple of questions. Can you talk a little bit about what potential relationship to the subsidiary distributions to the parent? What kind of uses are we're looking at for SG&A? I guess the run rate was about four hundred some odd -- 414 in '08. What can I start thinking about there? And what type of -- what other uses should I think about as well as parent interest?

I'm not sure -- are you asking what is the use of current distributions to the parent?

What are the potential use of funds, or outsources of fund requirements up at the parent (multiple speakers)

Obviously, beyond debt service, what we -- the spending is on a variety of different areas that actually provide support to all of the businesses. For example, we are doing all of our financial operational support on a going-forward basis out of the corporate SG&A, which has been transferred up from the businesses. Likewise, we're doing purchasing on a worldwide basis in a number of operational areas. (multiple speakers)

So (multiple speakers) the SG&A, the 414 you showed in one of your slides here, slide 16, is that sort of a good run rate for 2009, or how should I think about that? I'm trying to mesh up what kind of cash flows you'll have at the parent level relative to the distributions up there. Does that make sense?

I think it's fair to assume about $350 million for your analysis. G&A.

Great. And I just look at your maturities and whatever interest -- else you have, the other key drivers, right, in terms of mesh?

Yes.

Yes.

Could you also -- I don't know if you guys have this, but what's the historical trough of sub distributions over the past six, five, seven years -- maybe we'll go back to '02, '03 timeframe? Would you happen to know that number?

It's roughly about in the same range, about a $1 billion range.

Just under $1 billion.

So it's stayed pretty consistent over the last, like, six -- five to seven years. Okay. Great, thank you.

[Wen Lindroth], [Tempco].

Could you explain your guidance moving from '08 to '09? Gross margin is moving down, but OCFs and your distributions from subsidiaries is going up. Could you just explain how that works? Why the discrepancy?

The distributions -- the OCF -- is coming up from a lot of the operating businesses. It's based on their '08 results. So we had strong results in big operating companies, such as Gener Brazil, etc., which will be paying -- Argentina, which will be paying this in the first half of the year.

I guess what I don't quite get is if, in 2009, you're going to be earning a lower gross margin, and your guiding from $3.7 billion this year to $3.4 billion, why then is your cash -- or your cash -- why is your cash guidance going up?

There's always a time lag, as you may know, because, for example, our operations in Kazakhstan, we have about $80 million that we will get in 2009. That is one factor.

And also, a dividend, the businesses normally can pay their dividend after they service their debt, which is normally at the end of the year, so there's always a time lag. So the performance in '08 will reflect, in our POCF, higher contributions in 2009.

The other piece of it, and we can walk you through this off-line if it's helpful from a modeling perspective, but gross margins, obviously, heavily impacted by both FX and commodities. We can help you size that. But that's -- from a year-over-year standpoint, that's probably one of our single largest drivers.

I think the other part in how to fix the cash flow is -- I mean, one of the benefits of lower commodity prices is it flows through the working capital, and you see some -- if you remember back in the beginning of last year, we saw some negative impacts of that. But actually, we're getting some of the positive impacts of that coming through working capital.

Adding to that, there has been -- this has really been something Andres and Steve have been working on for a couple of years, just managing better working capital practices. That's had an impact over the past couple years, too. But those things combined really do influence the cash flow.

Okay. That's understandable. My second question is about debt reduction. You've made reference to it, and could you be a little bit more clear? When you talked about debt reduction, do you mean buying bonds in the market or just paying off your maturities this year? What did you mean by that?

What we're talking about is -- first step is we'll pay off all the maturities. And as we get additional cash flow, we would have the option to go back and repay debt, or buy it back on the market.

So when we talk about the debt reduction, it's really assuming we'll repay the maturities when these things come due, and then we will take any additional amounts, and then buy back the most -- the best debt to buy back that make the most sense.

And then, would you be looking at parent debt?

Yes, we'd definitely be looking at the parent debt. The subsidiary debt -- the subsidiaries may elect to do something, but generally they won't need -- they'll just reduce it according to their maturity schedules. But otherwise, they wouldn't be reducing debt.

Okay. And my last question is about your commodity sensitivity. My understanding is most of your generation is contracted, so there shouldn't be that much commodity sensitivity. But if you could pinpoint which projects are the ones that have that sort of sensitivity, and I assume that Energy East is one of them (multiple speakers)

Right, Energy East is one of them. I think also in Argentina, we've got -- and it gets a little bit complicated because you've got some, effectively, price caps that are in place, but when you drop down below a certain oil price, you go below the price caps, so you actually are tied a little bit more to oil prices.

A few places where we do -- we have about -- I think the number is maybe sort of between 15% and 20% is merchant activity. Do you have the additional notes there?

No, I just said, obviously, just in terms of the swing in the most recent periods, besides Argentina, we obviously -- Brazil continues to be as well as in our Hungarian as well.

Sort of clarifying in terms of the Argentina, it's the CTSN, which is the only coal plant in Argentina, and below certain oil prices, there is an adjustment to the price.

Also part of that sensitivity is the market in which we're in, in which you have oil or diesel at the margin. So even though we don't have a -- specifically that commodity in our fleet, it will be affecting our forecast. Because that's what's margin.

The way to think about it, just to keep it very simple, say 15% to 20% has commodity exposure, so the hydro plants, for example, would have that in the New York plants, but there is effectively dark spreads for hydro plants and coal plants where they are merchant and competing against gas or oil.

I meant to refer to Eastern Energy before, not to confuse you there. What are you seeing in terms of performance and margins on those plants? Is there any kind of displacement going on from gas plants to the lower gas prices? And if you could give any kind of color around short-term hedging you have around those plants.

We have seen -- and somewhere in my pile of papers here, I've got a chart -- but the dark spreads have come down just because gas prices have come down. The coal price is not coming down as rapidly. So, clearly, that's having an impact on how much coal plants are running and what kind of dark spread they get. Looking out the future, we typically hedge -- Andres, help me with this (multiple speakers)

It's about 60% hedged for '09.

60% for '09. And then, less so in 2010, 2011 going forward. But that's one of the things we are continuing to look at, as to when do we lock in the hedges for the future years. But we're 60% hedged for 2009.

Thank you very much.

We should probably just take one more question so people can get on with their days.

Peter St. [Dennis].

I was wondering what kind of rate did you guys have to pay on your recent nonrecourse debt deal?

And then, as a follow-up, as far as you're saying that your share price offers the best return, better than any of your projects there, it might be a positive if some of the insiders actually stepped up to the plate and started buying some shares.

To answer your first question, the Angamos project in Chile was financed at LIBOR plus 2%. That was the rate -- financing rate.

And in terms of insiders stepping up to buy some shares, actually I think I did -- a couple of months ago, I did -- I stepped up and bought some because it looked like too good of a deal. The market proved me a little bit wrong. It's actually dropped a little bit since then.

But I agree with you. It's clearly an attractive investment. So -- a number of the directors also have stepped up, and -- when they've seen the prices, they've stepped in at times to buy some shares.

There really hasn't been that much, though. It's cheaper now, though, so -- .

I agree with you. I think that wraps up the questions. Thanks.

I want to say thank you very much for everyone for participating today. If you have any follow-up questions, please don't hesitate to contact us at investor relations. Thank you and have a good day.

This concludes today's conference call. You may now disconnect.