Good day, and welcome to the AES Q3 Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note, this event is being recorded. I would now like to turn the conference call over to Mr. Ahmed Pasha, Vice President of Investor Relations. Mr. Pasha, the floor is yours, sir.

Thank you, Mike. Good morning, and welcome to AES’ third 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. Andrés Gluski: Well, good morning, and thank you for joining our third quarter 2017 financial review call. Today, Tom and I will discuss our results for the quarter and year-to-date as well as our progress on our strategic and financial goals. We are reaffirming our prior guidance for 2017 and our expectations through 2020. During the third quarter, we made significant progress on our construction projects and the integration of our renewable acquisitions. This morning, I will provide some color on the returns we expect to realize from these investments. I will also discuss our plans to accelerate and expand our asset sales program and cost-cutting and revenue-enhancement initiatives. Before turning to these areas, I’ll first discuss the impact of the recent hurricanes on our businesses in the Caribbean. Our sympathies are with the people of Puerto Rico, many of whom are still without power and water. Our number one priority before, during and after the recent hurricane was the safety of our people and their families and impacted communities. Fortunately, our people and their families are safe, and our two plants in Puerto Rico sustained only minor damage. Both plants are currently available to…

Thanks, Andrés. Good morning. Today, I'll review our third quarter results, capital allocation and guidance. Overall, our results were lower than the prior year for the quarter largely due to a higher intra-year tax rate and the impact of recent hurricanes. However, based on our year-to-date performance and outlook, we remain on track to deliver on our 2017 guidance and expectations through 2020. Before moving on, I want to provide a brief update on the hurricanes on Slide 16. As we disclosed in October, the estimated impact from hurricanes in 2017 is $0.03 to $0.05 a share. We recognized $0.02 in the third quarter, mostly related to reserves taken at our corporate captive insurance business for estimated property damage in our solar plants in Puerto Rico and the U.S. Virgin Islands. To a lesser degree, it also reflects a loss of operations at our thermal plant in Puerto Rico, which was down for 11 days in September. Our business in the Dominican Republic was not affected. Since mid-October, the Puerto Rico plant has been available to meet its obligations under its Power Purchase Agreement. The plant can resume delivering much-needed energy to the grid as soon as the local transmission lines are repaired. On that front, we're pleased with the resources and attention federal and local officials are allocating to restore the power grid, which is a top priority. Repair work is underway, and we're seeing real progress. Momentum should continue to build as EEI in various U.S. utilities have begun to assist in PREPA's restoration efforts. We expect the majority of the grid to be operational by the end of the year. When the plant is reconnected to the grid, we expect it to be dispatched since it's the lowest cost producer of energy, highly reliable and its location…

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question we have comes from Ali Agha of SunTrust. Please go ahead.

Thank you. Good morning. Andrés Gluski: Hi, Ali.

Good morning. First question, with regards to the 2018 guidance, earlier in the year, Tom and Andrés, when you had talked about 2018, you had told us, net-net, it’s about $0.20 higher than 2017. [Indiscernible] somewhere $1.25 range. But now you’re telling us low to mid-teens, which implies a lower implied number for 2018. So what has changed for 2018? Tom O’Flynn: Yes. Good morning, Ali. It’s Tom. I mean, yes, if you cut through the dis from the percentage increase, it’s part of our $0.05. I mean, first I’d say that we’re still in the final stages of our budget process, and we’ll come up with firm numbers in Feb. We just want to give people a general ballpark. There’s nothing major. I’d say, there’s – perhaps, there’s a couple of cents in the U.S. DPLs may be a little softer from the regulatory outcome and some plant closure numbers. And the rest is kind of a $0.01 here and a $0.01 there. But we’re still grinding through it.

Okay. So I mean, could you get back to that $0.20 delta? Or do you think that’s a bit unrealistic here? Tom O’Flynn: I mean, I think that’s certainly – we certainly always look for things to do more of. Andrés talked about really doing a very heavy look at costs across the company that we’re in the process of. So we certainly look for that. But that said, I think we want to give people a general expectation of where things were trending to. And so we’d probably be closer to $0.05 below. So it’s still a fair amount above 2017.

Right, right. Second question, with regards to the asset sales, I just wanted to be clear. So previously, we had thought there would be a $500 million sale this year, which, I think you’ve confirmed, will be Masinloc. But now what you’re telling us is that probably still gets announced by year end, but you get the proceeds next year. Did I hear that right? Tom O’Flynn: Yes. And just to be clear, earlier on in the year, we put a placeholder in for $500 million. There were different things that we were considering. It’s not clear that we can do $1 billion, that Masinloc will be – can do $1 billion and close that $1 billion by the end of 2018 and that the Masinloc process is quite deep in the process. We got very heavy interest. So yes, specifically with Masinloc, we expect to announce Q4 in the next, what, six weeks, and we expect to close it in the first half of 2018. But that $500 million was done before we had thought about a specific candidate. We think that Masinloc will be well in excess of that.

Yes. And broadly speaking, when you look at the $2 billion number, I mean, is the motivation to essentially exit non-core markets, can you give some sense of [indiscernible] Andrés Gluski: Yes, Ali, well, when we started, we were in 28 countries. When we exit the Philippines, we’ll be in 15. We’ve always said that somewhere between 12 to 15 countries is kind of our probably we thought that where we would end up. So I think it’s looking more like a dozen. And of course, we never announce anything before the sale is actually done. So some of it will be exiting some countries, and some of it will be selling down from certain assets. And in some cases, may be selling down a portion of the assets. For example, as we did recently in the Dominican Republic, to realize value. I think the important thing is that where we want to end up and what does that portfolio look like. And as we said, it will be simpler. It will be in less countries. It will be less carbon-intensive. And we will be, if you will, sort of turning capital into growth areas where we get higher returns and then sitting on some existing assets.

Okay. Last question, Andrés, if I could. I’m sure you’ve been keeping an eye on what’s been happening in the IPP merchant power space. Companies have basically concluded that the public markets are not giving them credit for their portfolios. Many are going private. They’ve been sold. Major restructurings happening. Are there any lessons learned for AES given how your stock gets valued in the public markets today? Andrés Gluski: Well, I will say – well, I think the lessons – I mean, we moved to get out of merchant generation, I think, on a timely basis. I think we’ve exited a number of markets that since I’ve been troubled on a timely basis, and I think we’ve generally sold our assets at very good prices. So we didn’t do really any sort of fire sales. We waited in some cases until the contracts ran out. Now if you look at our strategy, we’re moving into much more contract, and we’re lengthening our average contract versus what we have even today. So I think we have a quite different strategy from most. I think we’re changing our risk profile. We’ve significantly derisked. I’m sure you’ll notice that on this call, we did not talk about the weather in Brazil. That used to be the main focus of these calls, quite frankly. And we have been able to derisk from the way we’ve contracted. I think, as Tom mentioned, when we deconsolidate Eletropaulo, it will make a better correlation between really our economic, our financial profile and our consolidated profile. And lastly, we’re moving aggressively to become investment-grade. So I think on all these fronts, I think our strategy has been considerably different from other firms, which have remained less contracted and also, quite frankly, which aren’t moving into the newer technologies. So I think we have the advantage of being in more rapidly growth markets and being well-positioned. Having said that, ever since I’ve been CEO and Tom’s been CFO, I mean, we have looked at all alternatives, and we periodically have third parties come in and look and say is there any way we can sustainably add value to the company? So we’re always open to these any ideas, but we’re only going to do things which makes sense for the company in terms of a sustainable company. So we’re open to all alternatives. I’ve seen the – some of these. And obviously, in the sector, there’s been a lot of consolidation to take out costs, but we’ve taken a lot of costs. And we’re also, as we’ve said on this call, going to be aggressively looking at our cost structure. This is partly the result, I’d say, of the actions we’ve taken, the systems we’ve put in place and also the simplification of our portfolio.

Thank you, Andrés.

The next question we have will come from Julien Dumoulin-Smith of Bank of America Merrill Lynch.

Hey, good morning. Andrés Gluski: Good morning, Julien.

So maybe let me follow up a little bit on the asset sale strategic positioning here. Can you talk about how you think about the – let’s not talk about the IPP peers but the YieldCos and just the overall market subsector there. How do you think about yourself relative to that sector? And how do you think about desirability that you recycle capital in that direction, i.e., I hear you guys talk about more asset sales. I hear you expanding your renewable platform as it stands today. Can you provide any further thoughts just putting all these pieces together? Andrés Gluski: Yes. That’s a great question. When you remember, when YieldCo’s first started, it was a lot of, I’d say, questions we were getting from various people like, why don’t you do a YieldCo? And one of our concerns was not to have a – to be sort of committed to growth in case markets turned. And I think, in general, that has been the, right now, the right decision. Now if you look at what we’re doing today, we did mention, for example, that on sPower, we are looking at selling down a portion of the operating assets to enhance our returns and be able to move that money into new projects, the 10-gigawatt-plus pipeline where we think we can improve our average return. So in that sense, we, I think, have shown that we can access private money. We’ve raised about $3.8 billion over the last six years of partner equity, including – from the large Canadian pension funds. So in that sense, I think that our view is that we are very interested in coming up with ownership structures, which are win-wins, where we provide for people looking for long-term, stable, investment-grade assets. And at the same time, it allows us to reduce our participation and improve our returns be it through management fees or promote – or development fees. So that is part of the market. Now I think where we’re somewhat different is that we see the advantage of having a platform in these countries. So for example, having a strong partner in Mexico opens a lot of opportunities for us in renewables. Having a strong position in various markets opens that up. So we want to use our scale and in cases, integrate the new renewables with our existing assets because, obviously, energy prices from renewables, in many cases, are lower. But if you can integrate that with the capacity from existing assets, you can have some very interesting propositions for your customers. In the longer term, we think batteries can supply that in many markets. But right now, we see that opportunity. So to answer your question, we have approached the problem from a sort of customer-centric position. We’re taking advantage of our platforms, and we’re bringing in capital and selling down when we see the opportunity that, that would improve our returns.

Excellent. Now just in thinking through committing to any kind of structure, would you be open to investing in a third-party structure to establish an independent acquisition vehicle? And if so, to – how would you think about establishing that just given the discrepancies in multiples and the perceived accretion or dilution involved just at the outset? Andrés Gluski: Well, I think, again, if you think of something like sPower, we have a partnership with them. sPower, as we’ve said in the past regarding acquisitions, we would look opportunistically at that. If we think that there are acquisitions where we have significant synergies, it’s 2 plus 2 equals 6, add to that portfolio. On the other hand, we’re not looking right now at sort of big acquisitions, et cetera. We’re sort of looking at asset acquisitions that could enhance that portfolio. And as I said, if there are interested parties in taking a portion of that from the sPower JV, that’s fine as well.

Got it. All right. Excellent. I’ll leave that there. Can I move a little bit further down to the Gener level? Just curious, in light of the developments on the Alto Maipo side, how are you viewing cash distributions back to the parent right now? Obviously, things are somewhat fluid there vis-à-vis finalizing up the EPC, et cetera. I suppose plan – you’re moving ahead with plan, and you don’t necessarily anticipate any limitations in terms of distributions given any credit concerns that, that’s up. Andrés Gluski: I think this is a – the negotiations in Alto Maipo are proceeding. The Alto Maipo team and Gener team are doing a great job. I would say that Gener will remain an investment-grade company, that any equity contributions from Gener to the Alto Maipo project would maintain that investment grade, will be very – looking at the sort of marginal returns of that investment. And we don't expect it to significantly affect any dividend distributions from Gener into the future. So those are the things. Now we've also said that should we decide not to proceed with the project, that would also, in terms of the cash distributions from Gener, those would continue, although they might take a different form in terms of like return of capital. So we're looking at both. We will be very disciplined. On the other hand, we think that there is a win-win solution here, which would be good for all parties, including, obviously, Chile and Chile electric system from completing the project.

Got it. And is there anything, just lastly, coming back to what Ali was talking about, reason why you're not including the full $2 billion in your pie chart there around use of cash? I imagine maybe it's just too early to anticipate what exactly and what form it takes or you tell me how specific you are in your asset sales at this point.

Yes, Julien, it's Tom. I'd say that traditionally, we put things up here when they're either announced or close to being announced. So I think we feel very comfortable that we've got a good line of sight on $1 billion. Execution is underway. Good comfort with being able to sign near-term close, certainly next year, if not in the first half of the year. So as we continue to think through more businesses, assets, et cetera, that make a win to that, then we would expand that piece accordingly.

And just a quick... Andrés Gluski: I mean, you know that when we first announced that we'd be doing asset sales, I believe we used a number of around $1 billion. I think we're at $4 billion now. We announced Cal's, as we've said, $100 million. We're at $200-million-plus now. So generally, we just want to be, as Tom was saying, have a real clear line of sight. Now obviously, we have a number of opportunities that would make sense from a strategic plan that I outlined that we think can easily get us to that $2 billion number by 2020.

And just to be clear, in setting an expectation here, would you expect any of this to be EPS dilutive or accretive to the extent to which you kind of know which assets you're thinking about here against the plan?

Yes. I think it's a mixture. Certainly, some could be accretive, some that could be dilutive. I think if you look at the overall group, there is some modest dilution. I think we factored that into our overall growth rate. I think some of the incremental cost efficiencies we plan to put in place may give us the offsets to be able to transition the portfolio and also meet our numbers. Andrés Gluski: Yes. And what I'd say is we are – our overriding objective is to meet that 8% to 10% growth rate we've committed. So there will be puts and takes, like Tom said, but it won't affect us reaching our objectives.

Got it. And you guys didn't raise your cost target for the long term here, right? Obviously, there's some shifts, but. Andrés Gluski: No, not specifically. We just – it's something we're evaluating, and we'll talk more about it on our year-end call in Feb.

Thank you for taking some of the questions. Appreciate it. Have a good day.

Next, we have Greg Gordon of Evercore ISI.

Hi, guys good morning. Andrés Gluski: Good morning.

So just want to make sure I heard you correctly in the response to Julian that the – you see the incremental cost cutting announcement as supplementing your ability to hit the 8% to 10%. You don't think you'll be in a position to move that range as a function of that, and that's partly because of the friction that might happen when you reposition the portfolio through these assets sales and redeploy that capital. Is that a fair summary? Andrés Gluski: What I'd say as a summary, the additional cost cuts that we're working on and will announce in the fourth quarter will give us additional comfort of hitting that range. So this is – it's additional to what the cost cuts we've announced in the past. On the other hand, we're not changing that guidance range. It will give us additional comfort. Because as we – as Tom said, there's puts and takes, so we want to make sure that we hit our numbers.

Well, what are some of the takes that happened since you last gave the guidance that are – where these cost cuts are going to fill in there?

Yes. No. Greg, my comment on puts and takes is more on EPS impact from certain sales. Some are accretive, some are dilutive.

Got you. And I just wanted to make sure that was clear. The second question I have is, and I feel like it's déjà vu all over again with this, the stock is obviously down a lot. It's performing okay today. But if consensus expectations for your earnings are right, the return on buying back your stock is in excess of the return – average expected return on the investments you're making. There's no placeholder in your capital plan, whatsoever, for buybacks. Just I really am a little bit agitated by that, and I want to understand your thinking. Andrés Gluski: Well, we have done a considerable amount of buyback over the years, and we do have an outstanding approval. So we're not saying that we're – won't do buybacks. We're just not announcing any specific buybacks at this point in time. So obviously, we are not happy at all with where our stock is trading, and we always consider that. But I think that at this point, we're undergoing a transition program, and I think it will be very important that we deliver on our numbers. But certainly, we're not saying that we won't do stock buybacks.

Can you remind us what the outstanding authorization is for the buyback? Andrés Gluski: Currently, we have $250 million still remaining on our prior authorization.

Okay. Look, Andrés, I look at the reinvestment you're making in the business and how you're repositioning it, and I think it's very attractive. So I'm not arguing that what you're doing to reposition the company is not well thought out and obviously you have a plethora of opportunities. The issues that the return on a buyback at these prices is like a mid- to high-teens ROE. And the return on the investments you're making, even though they're very attractive, is not as attractive as the stock. So I think you really need to consider being more aggressive with the market and show them that you have confidence you can hit your targets by buying back the stock when it's attractive. Andrés Gluski: Point taken, Greg. As I said, we've – today, we're returning through the dividend about 55% of our parent free cash flow. So I think we remain committed to giving money back to our shareholders, and we have done, I believe it's about $1.5 billion of stock buybacks, at least over the past five years. So I certainly don't want to say that this is off the table, and point taken.

Okay. Thank you.

[Operator Instructions)] Next, we have Lasan Johong of Auvila Research.

Hi Andrés, Thanks for taking my question. I just want to make a quick comment. I am very much opposed to share buybacks. It does not create value. It's a waste of money. You're shoving money out of your left pocket and putting in your right pocket. And other than signaling purposes, it's a waste of capital. Moving on, please. I'm assuming, since you're selling the Philippine, you're not doing Masinloc 2? Andrés Gluski: Masinloc 2 is under construction. The construction is going well, and that would be part of...

No, I understand that. But are you going to finish that construction? Or is that part of the sale of Masinloc? Andrés Gluski : Well, we would finish the construction under our contract for the new seller.

So we'd expect the – it's Tom. Just to clarify, we'd expect the sale to close before the construction is complete. And it's – the construction is going very well. It's pretty clean. It's got an EPC, so it's not a material issue.

No, I understand that. But when you say you're selling Masinloc, are you're selling Masinloc 1 only? Or Masinloc 1 and the construction project?

No, 1 and 2. We're selling the business. We see this one...

Okay. Great. The – a couple of years ago, Argentina instituted an accounts receivable financing of new generation, and people were kind of skeptical. Can you give us a view as to whether it's working out or not working out in Argentina with that accounts receivable financing? Andrés Gluski: Sure. I’d say, first to say that Argentina has really made a comeback. I think, starting from the top level as the – politically, as you know, they had a recently elections for Congress, and Macri’s party got 40% of the vote, much more than people had expected. So the reforms are going forward in Argentina. In our sector, they’ve made very important reforms: one is dollarizing; second is increasing moderately, prices – retail prices but also generation. And they will move towards a liberated market. People forget, but in the 1990s, Argentina had one of the best regulations on the planet in terms of liberated markets. So Argentina is doing much, much better. Our business is doing much, much better. We had two years where we did not receive dividends from Argentina, even though the business has always made money. So it’s obviously, we perceive much more dividends and making much more money. Getting to your point about this was the FONINVEMEM, one of the more difficult acronyms we have to pronounce. They have been paying the interest on the FONINVEMEM. These are actualized. Part of the bonds are tied to the completion of actual generation assets. In this case, it was the Guillermo Brown as being the largest one. So that plant is up and running. So that whole – and what I would put it was basically part that the CAMMESA would take part of your payments and essentially give you these bonds and use the funds to build a new asset. But they have paid interest. The plants have been completed, so that – that’s going well.

Okay, great. I’m a little confused about Fluence. The existing energy storage facility, is that part of – going to be – going forward, is it going to be part of Fluence? Or is that separate, and then Fluence will be a new stock with new projects?

Yes. What I’d say is, look, we have about 228 megawatts of energy storage facilities on our platform. Those are not being sold. Those remain with AES because they’re our assets. Fluence is a joint venture to develop and to sell our Advancion 4 product, and Advancion 5 that will be coming out, and Siemens’ Siestorage product. So we both contributed a product to this. With the net result is that we’re the only, let’s say – Fluence is the only firm which can offer the full gamut from commercial and industrial small units to the largest utility scale, 100-plus megawatt energy storage. So we’ve combined those two. So we’re moving R&D together. Fluence will be doing that. We will be taking advantage of Siemens’ platform, and we’ll be taking advantage of Siemens’ sales force. Siemens is active in 160 countries. It’s been selling electric equipment for more than 100 years, so it has a great brand name. So we think bringing these together is very, very powerful. And we really don’t see anybody else like it in the market, at least today. So the point is this will be a separate company, a JV. It’s 50-50. Siemens and us. We’re both contributing people to that project. It will use Siemens’ sales force. When we put energy storage on, say, our solar projects, that sPower, we’re a client. So it’s separating the two. So we expect this to grow very quickly. As we say – have said in the past, we don’t expect any cash or earnings contributions for, say, two more years during this rapid growth phase and thereafter. But we think it should be a very valuable company within a time period of five years. We’ve done things like this before, just to remind people, in the case of Brazil, we had rights of way. We developed a broadband supplier. This is a company we sold for $1 billion to Telecom Italia a couple of years ago So we think this could grow very rapidly. But again, it’s separate from us. We will continue to do energy storage. For example, on Southland, we have a contract with Southern California Edison for 100-megawatt facility. That will be ours under potentially a contract with Southern California Edison. That’s not part of Fluence. It will buy the equipment from Fluence.

Got it. One last question. AES stock lag, if you leave the DOE report for August, they’re pretty much suggesting that in a high renewables area, base-load plants are either going to be obsolete or they’re going to have to get paid for things that are not currently being compensated for, such as Brazilian characteristics and reliability characteristics. Does that worry you that AES Southland is being built as a CCGT, not as a SCGT facility? Andrés Gluski: No, because of the contract we have. I mean, I think that when you speak about it, it would – what I think is interesting is that with energy storage, we’re seeing that regulations. And they have a lot of – they do a lot of things, which aren’t translated in the current regulation. All over the world, what we’re doing is, let’s say, testing and actually, certifying some of our coal plants to run at lower MINs [ph] to give them greater flexibility to be ready for that future. But I don’t know, Tom, do you want to add anything?

Yes. No, Andrés said, I’d just add that our California plant, the one that’s under construction in Southland, has got very good flexibility. That’s what the SoCal Ed was focused on. So it’s got quick ramp capacity and low MINs, and it’s also in a very critical location in the transmission infrastructure. Just, what is it, 30 miles south of L.A. So those are all things that I think we’re taking into account in our proposal and SoCal Ed’s request for bid now two years, two and a half years ago. Just in terms of the overall DOE proposal, given that we’re essentially getting out or will be out of the merchant generation business mid-next year, we don’t see it as a major impact. I suppose we’re closing a couple of coal plants down to the extent that another party looks and says that’s an opportunity for them to step in, we’re certainly open to those kinds of ideas.

Great. Thank you very much.

Well, at this time, we’re showing no further questions. We’ll go ahead and conclude our question-and-answer session. I will turn the conference back over to Mr. Ahmed Pasha for the closing remarks. Sir?

We thank everybody for joining us on today’s call. We look forward to seeing many of you next week at the EEI Conference. As always, the IR team will be available to answer any questions you may have. Thank you, and have a nice day.

And we thank you sir and to the rest of the management team for your time also today. Again, the conference call has concluded. At this time, you may disconnect your lines. Thank you, again, everyone. Take care, and have a great day.