Atlantica Sustainable Infrastructure PLC (AY) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Abengoa Yield third-quarter 2014 results conference call. Abengoa Yield is a total return company that owns a diversified portfolio of contracted renewable energy, power generation and electric transmission assets in North America, South America and Europe. Abengoa Yield focuses on providing a predictable and growing quarterly dividend or yield to its shareholders.

Just a reminder that this call is being webcast live on the Internet and a replay of this call will be available at the Abengoa Yield corporate website at www.AbengoaYield.com. Joining us for today's conference call is Santiago Seage, Chief Executive Officer, and Eduard Soler, Executive Vice President Chief Financial Officer.

As usual, at the end of the conference call we will open the lines for the Q&A session. I will now pass you over to Mr. Santiago Seage. Please go ahead, sir. Thank you.

Thank you very much. Good morning and welcome to our third-quarter results presentation of ABY. This morning we are going to be talking about two things, as you can see on page 3 of the presentation.

In first place we are going to go through our third-quarter results that were published earlier this morning, with the accounts and our press release that includes much more detail than this presentation. In second place we will cover our growth plan, our acquisitions plan, and we will be sharing new dividend guidance with you all. After that, we will be taking questions.

If we move to page 5, we can see that our third-quarter 2014 has been a very strong quarter in terms of revenues, as well as in terms of operational results and, more importantly, generation of cash available for distribution. In the quarter we have generated $28 million, which is more than the proportional part of the $92 million cash available for distribution that we gave as guidance at the time of the IPO. As you can see on this chart, growth is very significant regarding the previous year as some of our assets of started operation in the last year.

On page 6 we include a breakdown, both by geography and by sector, where we can see that in every geography the results have been in line with our expectations and guidance. And we have been able to achieve in the first nine months of 2014 growth of around 100% in terms of revenue and EBITDA in North America, higher even in South America, and lower growth in Europe where our assets were in operation already last year. But in general, very strong results from an operational point of view.

By sector, a similar picture -- good numbers in the three sectors with significant growth, and meeting or exceeding our expectations on the guidance provided to the market.

If we move to page 7 and we look at the operational metrics, what we can see is that in each of the three sectors our operational metrics have been in line with expectations or, in some cases like the conventional assets and transmission, exceeding our own expectations. Regarding our assets, as many of you know, all of our assets are in operation with the exception of Mojave, a large solar plant in California where, what we can tell you is that, construction is finished. Most of the startup and testing is over, as well. And at this point in time we are waiting to do the final tests of the complete plant which should happen in the very short term, within this month for sure. With that, we will have our assets in operation and delivering the operational and financial results we need to deliver.

In terms of our balance sheet, if you look at page 8, the first thing to point out is that as of the end of the third quarter of 2014 we did not have any debt at holding level, Abengoa Yield level. Actually we were cash positive [in by $86] million. That's why our net debt level was minus $86 million.

If we look at our operating subsidiaries where we have pressured finance in each SPB, our total net debt was around $2.3 billion. If we do the pro forma of Mojave that will be consolidated once it reaches COD, we think this month, this number will be roughly $2.8 billion.

Thank you. Eduard.

On page 9 we take a look at our cash flow generation. As you can see here, during the third quarter of 2014 we have been able to generate an operating cash flow of more than $67 million. That shows the strength of our performance during this quarter, operationally, but also in terms of cash generation. Take into account the other two cash flows, the financing and investing cash flow, our net change in cash has been positive $53 million. Again, this is in line or above our expectations for this quarter.

In fact, thanks to this performance on page 10, we can announce that our Board of Directors has approved the quarter three dividend for an amount of $0.2592 per share, which is exactly the same number that was shared as guidance in the IPO prospectus, and corresponds to a $1.04 annual dividend. This dividend will be paid together with the dividend corresponding to the period between our IPO and June 30, which was $0.037 per share for a total of $0.2962 per share, and will be paid to shareholders of record as of the end of November, and payable around December 15.

Again, here we are doing what we said we would be doing. And, as we are going to discuss in the next chapter, after having shown for these two quarters that our assets can deliver the cash and the dividends that we shared at the time of the IPO, we think that now is the time to grow and to increase our guidance.

That's why, on page 12, we can announce that we plan to close the acquisition of the assets of what we called the first drop-down. We expect to close this transaction in the very near future, in the next few weeks, for the first two assets. And the third asset, the wind farm, we will be closing it as soon as the asset reaches operation, which we expect by the first quarter of 2015.

In terms of acquisition financing, for this first drop-down and also for the potential acquisitions that we plan to do in the very short term, we have two facilities. One facility is a corporate credit facility that we are working with a small group of banks that is in the final stages of documentation, that will have an amount of up to $100 million, and with a very competitive cost of LIBOR plus 2.75%.

On top of that, as many of you know, we priced our corporate bonds last week for a total amount of $255 million with five years maturity with a fixed cost of 7%. When we put together these two pieces we have, as of today, an average cost of our holding level debt of around 6%. And our leverage, as I said earlier, we start from zero as of the end of September.

If we put together the corporate bond plus the corporate credit facility I explained, fully drop-down together, and we compare that with cash available for distribution, net debt service for the initial portfolio and just the first drop-down and, obviously we plan to do acquisitions that will increase that number, we end up with a corporate net debt to cash available for distribution of around 2 times, which is well below 3, which is our target in terms of corporate level. The corporate level debt to be always below 3.

Thanks, Eduard. Therefore, the financing that Eduard has described on page 13 we will have, when we close both financings, we expect to have a total of $355 million plus the cash available we have at the corporate level. And, as Eduard explained, we are going to use that cash for the drop-down that we announced in September and we expect to close in the very near future, plus a group of additional acquisitions in the coming months.

As a result of that, the operational performance of our assets on page 14, we share with you an updated guidance. This updated guidance means that we expect to increase our dividend per share by 18% in 2015 versus previous guidance.

As you can see on this page, specifically, we expect a new cash available for distribution guidance in 2015 of $142 million. This number is a net cash available for distribution. What I mean by that is net, or after the interest payment, of the financing we discussed before on page 13. That represents in terms of dividend per share $1.60 which is an 18% growth versus previous guidance.

We also included on this page guidance for what we called, at the time of the IPO, year one, and what we called at the time of the IPO, year two. This is simply to make your life easier so that you can compare our numbers with what we said in the prospectus.

If we move to calendar years, which we plan to do from now on, 2015 18% higher than previous guidance. And 2016 the guidance we are giving is 2016 should be between 20% and 25% higher than the new 2015, at least. At least because, between now and 2016, we plan to do further acquisitions, and we are not counting on acquisitions that we might do in late 2015 or early 2016.

Therefore, we feel confident that, thanks to the performance of the assets, thanks to the ROFO [one] acquisition and to new acquisitions we plan to discuss and close in the near future, we are going to be able to deliver at least the guidance we are sharing with you on this page 14.

With that, I will give it back to the moderator.

(Operator Instructions)

Stephen Byrd, Morgan Stanley.

Thank you very much. When we think about the growth that you're targeting for 2015 and 2016, can you discuss your equity needs to fund that growth?

For the 2015 guidance that we just gave you, we do not need to raise any equity. Obviously, we plan to do, like Santiago said, further acquisitions late 2015 and early 2016. And we will use a combination of equity and maybe debt to finance those.

But that would be beyond the guidance we have given you. So, the guidance on page 14 does not require further financing beyond the financing described on page 13.

Okay. And when we think about the accretion, this first drop-down had a free cash flow equity yield of about 8.3%, and you raised five-year debt at 7%, you've now raised bank debt, so your weighted cost to 6%. But, to be honest, the delta between the yield and the cost of financing is smaller than we had thought it would be. Going forward, can you discuss how you think about ensuring that there is a sufficient difference between the free cash flow yield that you drop down assets, and the cost of your financing, to make sure that we have confidence in ability to achieve the accretion?

Yes. I fully agree with your statement. The spread in this first ROFO is lower than what we are targeting, and our job now is to make sure that in the next ROFOs, we do have a higher spread.

In order to do that, we are going to be working on two things. Number one is: We need to lower our cost of financing. And in order to do that, what we need to make sure is that we do work on obtaining a rating, and we do work with the debt market to make sure that the debt market believes in Abengoa Yield, and we can achieve a lower financing cost going forward.

The second thing, when negotiating a ROFOs, we obviously need to make sure that we have enough of a spread. Each situation is different, and each geography and technology is different. But clearly, our target in terms of a spread is to achieve a higher number than what we achieved in this first ROFO.

Okay. And do you believe there is ability, from the Abengoa parent level, to accept that it may need to be a significantly higher yield going forward, in terms of the drop down relative to this 8.3% -- understanding you're also going to try to drop your financing costs. But just want to understand: Do you think there is room there for that yield to go higher, from Abengoa's point of view?

As any buyer and seller, obviously there is a negotiation there, and each -- Abengoa and Abengoa Yield there -- we will need to negotiate each [and singular] asset we purchase, and we'll see if we can achieve numbers that make sense for both. What I believe is that there is space for both companies to reach agreements that make sense for both parties, and their assets and technologies and geographies where our expectations as Abengoa Yield, and subject to Abengoa agreeing, is that we should be able to achieve, in some cases, higher yields, and in some cases, cheaper financing. And at the end of the day, looking at the market -- we are in a market where, of course, transactions -- we do need to take into account what's going on with prices in these assets.

Okay. And in terms of -- without asking for an exact number -- in terms of the spread that you want to achieve, can you give us an approximate sense of what kind of a delta would you need to be able to achieve these kind of -- I mean, the growth numbers appear impressive and it is significant growth. We just want to understand better how far -- how much greater does the yield difference need to be going forward between the drop down and the cost of financing? Is it a few hundred basis points different than where we are? I just want to get better confidence that this can be achieved.

I would say two things. One is, in the guidance we shared with you, we are counting on the ROFO, the first drop down, the way it is. And, therefore, we are not counting on things that could be materially better.

In general, going forward, as I said before, if you look at the market, and you know very well the market, we expect to have a spread similar to what you are seeing in the market. Once we work on our financing; that's what we expect to see going forward.

Sorry, could you just -- I'm sorry to take this much time -- but you said spreads similar to what we see in the market. You mean in terms of other yieldcos?

Exactly, in the yieldco market.

Understood. Okay, great. I'll get back in the queue and let others ask questions. Thank you very much.

[Andrew Hughes] from Bank of America Merrill Lynch.

Particularly with respect to some of the potential upside to that calendar-year 2016 dividend guidance that you're putting out there today, can you give us a sense of whether the assets necessary to hit that guidance come primarily from the parent or if there is any need to do third-party acquisitions?

For the [growth] from 2015 and 2016, we plan, as Santiago said, to do acquisitions. Some of them will be dropped down from Abengoa. And obviously, you have the guidance that we provided in the IPO, and recently during our road show. But we do expect that will be dropped down in the 2015 and early 2016. And obviously, we will always be looking into potential acquisitions from third parties. So, we don't have a mix in mind, but Abengoa will be a key component of that, for sure.

Thanks. And then, just given what is looking like an increasingly expensive cost of capital at the parent company, should we have any concerns about ability to complete any of the assets under development there to drop down? Or are you pretty confident in the ability to follow through at the parent level in the assets that we need to hit this guidance?

Can you repeat the question? Sorry.

Just given what looks like an increasing cost of capital at Abengoa, the parent, and the number of assets in the pipeline that remain under construction and development, do you have any concerns about the availability of all the assets in the ROFO pipeline to be realized and dropped into Abengoa Yield, in order to hit your growth targets?

I understand your question. At this point in time, we are not concerned about not being able to access assets from Abengoa. In fact, what we think is that, through the ROFO agreement we have with Abengoa, we are very confident that we are going to be able to access assets.

As you know, some of them are in operation; many of them are in [very advanced] construction. Therefore, what we expect, on the contrary, is that whenever we need, or we have cash available for making acquisitions, it shouldn't be difficult to reach agreements. In fact, at this point in time, once we close the bond and the debt financing with banks that we shared before, we are going to have an excess cash, if you want. And we expect to be able to reach agreements with Abengoa in the very short term, in order to put that capital to work.

Great. And then, just one more for me: Should Abengoa, the parent here, run into significant financing issues, is there any claim on the assets at Abengoa Yield, should that happen at the parent?

In that remote scenario you describe, I understand that there would be no possibility for claim on the assets of Abengoa Yield, in any of the events you can think of.

All right, great, thanks, guys. We will jump back in the queue.

John Quealy from Canaccord Genuity.

Thanks, it's Chip Moore for John. Wondering if you could maybe give a little more color, how far along you are in the process of trying to get a rating, et cetera, as it relates to lowering the cost of capital?

Our plan that actually is explained in the operating memorandum of the bonds that we issued is that we need to have a rating a year from now. Therefore, our plan is to start working with the agencies and obtaining that rating clearly before that.

Okay. That's helpful.

And just in light of slightly higher cost of capital than maybe we were thinking, any impact on how you're thinking about pace of future drop downs? Or too early to say? Thanks.

At this point in time, we don't see any effect whatsoever. But as I mentioned before, Abengoa has plenty of assets in operation and advanced construction, and therefore, what we believe is that we are going to be able to purchase those assets at the path we require. In fact, in the guidance we are sharing with you on page 14, for the 20% to 25% growth between 2015 and 2016, we are, at this point in time, only counting on [growth of one] and a very small growth for two, or drop down two, very small ones.

We are not counting on large acquisitions that we believe we are going to be able to do before 2016. Therefore, the guidance we are giving is only counting on the two things I described. But in theory, we should be able to do significantly more than that.

Great, that's helpful. Thanks.

Angie Storozynski from Macquarie.

Thank you. I have two questions. One was about the -- your recent debt offering and the 7% coupon. If you could explain to us what do you think (inaudible) the significant pickup in the cost? Was it associated with the type of assets that you were trying to finance?

And, secondly, even if you have assets that you can get from the parent in 2015 and 2016, as you know, the yieldco structures trade on long-term growth prospects. How do you see your long-term growth in light of credit concerns surrounding the parent? And would you potentially go for third-party acquisitions? Thanks.

Thank you. Regarding the coupon in the bond we issued, clearly, my personal reading -- and I'm trying to interpret the markets, which is not easy, and it probably hasn't been easy in the last few months with high volatility, at least in the high-yield area. My take on this is the fact that we went out with an unrated bond; being a new issuer has represented a higher premium than what we expected.

The way I like to think about it is we had to pay a price to get into the capitals market. Now we do have a bond, and now we need to work on making sure that bond performs better. And we did pay a price, as I was describing.

Regarding your second question, in terms of DPS growth, we gave you guidance for 2015, we gave you guidance in terms of growth in DPS from 2015 to 2016. Beyond that, we do expect to continue purchasing assets, both from Abengoa and from the market.

In the IPO prospectus, you have -- and in many other places -- but you have a list of the assets that Abengoa has under construction, development, and even operation, where all the numbers we shared in terms of the size of those assets and the potential growth in terms of capital available for distribution remains valid. In fact, there are more assets today than there were at the time of the IPO. And we believe that we are going to achieve growth in terms of DPS beyond 2016 of double-digit number, easily, let's say.

Okay. Just following up on these answers, first of all, do you think that the inclusion of the solar-thermal assets with towers might have triggered the higher-than-expected costs of debt financing? We had some other yieldcos issuing debt at lower coupons; that's one.

And, two, again, the growth prospect in the long term -- would you go outside of the ROFO assets, and then consider actually buying third-party projects in light of your relatively expensive cost of both debt and equity?

Regarding the assets, I do not believe that the nature of the assets or the technologies or the geographies have meaningful impact in terms of cost of debt. As I explained, my reading is that it was more linked with an unrated new issuer that the market wasn't familiar with. And we didn't hear investors coming back and being concerned because of the types of assets, let's say.

Regarding third-party acquisitions, yes, of course, we count on third-party acquisitions. In the guidance we give from day one, we always tell you that we give you guidance as if we didn't make any third-party acquisitions, and all third-party acquisitions will be on top of. But, of course, part of our job is to make sure that we grow, and, provided that we find the right opportunities, we grow from third-parties acquisitions, as well.

Okay, thank you.

[Jerry Klon], Nomura.

Good morning. My question has actually been asked and answered, thank you.

There are no further questions. Thank you.

Thank you very much to everyone. Thanks to the moderator, as well.