uploads/// Cash Generation

AES Is Streamlining Its Balance Sheet to Generate Cash

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Nov. 2 2015, Published 7:31 a.m. ET

Asset sale targets for AES

AES (AES) is currently taking steps to reduce the complexity of its business, and to streamline its operations. Through its restructuring activities, AES is exiting many businesses and markets where it doesn’t have a competitive advantage.

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Cash flow from exits

You can see some of the company’s planned exits in 2H15 below. These sales are expected to generate cash flow of $295 million:

  • $58 million from 100% interest in Armenia Mountain, a 101 MW (or megawatt) wind project in Pennsylvania in the United States
  • $135 million from the sale of a minority interest in Indianapolis Power & Light in the United States (strategic partnership)
  • $30 million from 40% interest in the 247 MW Jordan IPP4 gas-fired plant
  • $32 million from 50% interest in Solar Spain, a 31 MW peak capacity in operations
  • $40 million from the sale of Sonel, Kribi, and Dibamba (56% each) in Cameroon

Free cash flows

As compared to 2Q14, AES’s free cash flow (or FCF) fell by 76% to negative $855 million in 2Q15. Its competitors in the Utilities Select Sector SPDR Fund (XLU), Duke Energy Corporation (DUK) and Dominion Resources (D), saw an improvement in their FCF in 2Q15 compared to 2Q14 while American Electric Power (AEP) saw a fall in its FCF.

Lower operating cash flow and higher capex (capital expenditure) led to negative FCF for AES in 2Q15. Higher operating performance and sales of assets in 3Q15 are expected to improve its cash position.

Other factors that can drive cash flow in 3Q15 are:

  • lower fuel and pension payments at Indianapolis Power & Light in the United States
  • receivables collection higher for the Dominican Republic and Bulgaria
  • VAT (value-added tax) collections in AES Gener, a subsidiary of AES

Improvement in FCF for AES can help the company make new acquisitions, repay debt, and pay dividends to its investors on a regular basis.

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