Atlantica Sustainable Infrastructure PLC (AY) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Abengoa full year 2014 earnings conference call.

Abengoa Yield is a total return company that owns a diversified portfolio of contracted assets in the energy and environment sectors 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 the 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 and 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 very much. Good morning, everybody, and welcome to ABY's 2014 results presentation.

As a summary, our 2014 results that we published earlier this morning are in line with expectations, with a very solid performance in terms of cash available for distribution for the period.

As you can see on page five of the presentation, we have been able to achieve revenue north of $90 million in the last quarter of 2014, with total revenues for the year above $360 million.

In terms of EBITDA, the last quarter $81.6 million, with the total year around $308 million. This shows obviously a very significant growth versus the previous year, and shows that the business is performing very well and in line with expectations.

We have been able in the fourth quarter to generate cash available for distribution, which as you know is our key metric, of $28.4 million, for a total since the IPO of $56.5 million.

In terms of dividend per share, our Board of Directors has approved a dividend for the fourth quarter of 2014 of $0.259 per share, as expected and communicated to our investors in our last update in November. So, in general, solid results, no surprises.

If we take a look at results by geography and by sector on page six, what we see is that the three geographies have performed during 2014 in line with expectations, with North America delivering revenues close to $200 million with an EBITDA of around $175 million; South America $83 million in revenues, $77 million in terms of EBITDA; and Europe $83 million revenues with $55 million EBITDA.

In the cases of North America and South America, very high growth versus the previous year, thanks to the fact that we had new assets coming online during 2014.

By sector, renewable energy a very high growth again, reaching $170 million in terms of revenues with $138 million in terms of EBITDA; in conventional $119 million with $102 EBITDA; and transmission, our third segment, reaching $73 million revenues with $68 million EBITDA. So, a good performance across geographies and sectors.

From an operational point of view, on page seven what we see is that, in renewable energy, we were able to generate more than 900 gigawatt hours, which is a very high growth versus the previous year.

In conventional, we have been able to reach close to 2,500 gigawatt hours, again with a significant growth versus 2013 and a very high availability, higher than expected. In transmission, availability has been in the 99%s, specifically 99.1%, including the new assets we brought online during the year.

If we move to our debt position, by year-end we had a net debt position at holding level of around $223 million, and net project finance debt in our operating subsidiaries of around $3.6 billion.

If we compare this leverage, particularly the one at holding level that is the one that is more relevant for us, we are well below our target of always being below 3 times net corporate debt to cash available for distribution target. In particular, we are between 1.5 and 2.2 in that metric, depending if you include or not in the calculation the acquisition of the second dropdown that we just announced after December 2014.

If we move to the next page, we show a net debt bridge of our financial position during the last quarter of 2014. We started the period with around $2.2 billion of net debt, which was completely -- we only had debt in our operating subsidiaries.

Then during the period when Mojave came online, when Mojave reached COD, we consolidated Mojave. So, that means that we are adding roughly $820 million of additional debt, and then we make the -- we completed the acquisition of our first dropdown. And that added additional $530 million of net debt.

In addition, during the last quarter we issued two pieces of corporate debt. Number one is a bond, a higher bond. Number two is a credit facility. We used that corporate debt to make the first dropdown acquisition, and that adds additional $312 million of net debt.

Then obviously we have generated cash during the period which reduces the net debt in $114 million. And obviously we have paid interest and we have paid dividends, the dividend corresponding to the third quarter of 2014. That was paid by mid December 2014.

So, we are closing the year with a total net debt position on a consolidated basis, including both corporate debt and project debt, of around $3.847 billion.

Since the IPO, if we move to next page that shows the cash generation since the IPO, in the second half of 2014 we have generated $113 million of operating cash flow, including interest paid.

And then we have invested around $266 million, mainly coming from the first dropdown that we completed during the year, as I mentioned. And we have received net proceeds from financing of around $295 million, which mainly includes the corporate debt we have raised, net obviously of repayments of debt that we have also done.

If we take into account minor FX differences, that was $6 million, which brings the net change in cash to around $137 million.

If we talk now about the acquisitions, potential for new acquisitions and ROFOs going forward, in the first place we have been able, on page two [sic -- page 12], to complete our first set of acquisitions ahead of plan in 2014.

Specifically, we have acquired three assets, three dropdowns from Abengoa, two solar assets and a wind farm. All of those acquisitions were closed before year-end in 2014 for a total purchase price of $312 million.

Additionally, we announced recently a second dropdown, an agreement with Abengoa under which we expect to be purchasing four assets, including two solar -- two water plants, desalination plants, that have already been acquired. This has been closed. And we also expect to acquire a stake in a solar plant in Abu Dhabi plus a stake in a solar plant in Spain, Helioenergy, and a transmission line.

All of these acquisitions should have a purchase price of around $140 million, with an incremental cash available for distribution of $14 million. Our expectation is to have closed two-thirds of these acquisitions in the coming days, including Helioenergy.

And for the other assets, the transmission line and the solar plant in Abu Dhabi, we need to obtain authorizations from several parties. And our expectation would be to be able to make these acquisitions in the coming two or three months.

Regarding future growth, we believe that we have a very favorable environment to continue growing through acquisitions and to do that from two sources. Number one, Abengoa will continue being for us our main source of acquisitions, because we believe that we have a very good framework to be able to reach agreements with Abengoa for future dropdowns.

In fact, we are now -- as we have made public already, we are in the process of negotiating a third ROFO. It's still under negotiation. This ROFO will most likely include the 12% call option for $100 million of equity that we agreed in late 2014.

And beyond that, our framework ROFO agreement allows us to continue growing because we believe that we are very complementary for Abengoa and for whatever investment vehicles Abengoa develops in the future.

Specifically, Abengoa announced recently that they are creating an investment vehicle called APW-1 with a financial partner, and that some of their assets under construction or development are going to be built through this vehicle. This vehicle will be signing the same ROFO agreement we have in place with Abengoa.

And in that ROFO agreement, we have a number of provisions under which it's in the interest, we believe, of Abengoa and this vehicle to negotiate in good faith with us based on market prices. And therefore, we expect to continue reaching agreements with Abengoa going forward.

Additionally, we are working on a number of acquisitions from third parties, and we believe that third party acquisitions are going to be a very good complement to Abengoa's ROFO portfolio.

In fact, on page 15 we have summarized how much has the ROFO portfolio with Abengoa grown since the IPO. So, this is a list of assets that were not listed in our list of ROFO assets at the time of the IPO and that to date are part of that agreement simply because Abengoa has won or advanced in the development of these assets.

Specifically, Abengoa now has 400 megawatts of solar more in Chile and South Africa that are now part of our ROFO scope. Abengoa has 1,500 megawatts of conventional power in Mexico that are part of our ROFO scope. Abengoa has close to 300 miles of transmission lines in Brazil, and Abengoa has got a desalination plant that it didn't have eight months ago.

This is the proof of the fact that having a developer and builder of assets like Abengoa as a sponsor is a very good idea for a yield co. And we feel very strong about the capabilities of Abengoa to continue replenishing the ROFO going forward to make sure that we can grow as much as we can in the coming years.

Finally, on page 16 we are illustrating the growth we have been able to achieve through the first and, once closed, the second dropdown. In renewable energy, we have been able to grow from 700 megawatts to close to 1,100. In transmission, we have been able to grow from 1,000 miles, more or less, to close to 1,100. And we have been able to include water as a new category, as we shared with you since the very beginning.

With all of that, today we reaffirm our guidance. We gave in November updated guidance of $1.60 per share for 2015, and between $1.92 and $2.00 for 2016. And based on the closing of 2014 and the performance of the business in these early months of 2015, we reconfirm our guidance.

With that, I would like the moderator to open the floor for questions.

Thank you, Santiago and Eduard. We will now open the line to all the participants for the Q&A session. (Operator instructions.) John Quealy, Canaccord Genuity.

Good morning or good afternoon, folks. How are you doing? So, a couple questions. Santiago, on APW, can you comment on -- I think Abengoa is talking about their deal with APW closing in March. Can you talk about your side of the transaction? Do you think that's the similar timeframe for APW?

And then also, when Abengoa moves towards that sort of 40% ownership interest in ABY, if you could talk to us about any governance changes. Does EIG have a potential seat on the Board, or how should we think about some of the corporate structure perhaps in the next six months or so? And I have a follow up.

Okay. Well, regarding your first question, Abengoa, as they have publicly stated, is negotiating with a financial partner, with EIG, in order to create this investment vehicle, APW-1.

Regarding when they will close the negotiations, obviously we have nothing to do in that negotiation. This is between Abengoa and EIG. And from our point of view, the fact that Abengoa creates an investment vehicle is positive for us, because it means that probably Abengoa is going to be able to invest more and to build more contracted assets, which is going to be good for our ROFO.

But, obviously we are not part of that negotiation, and we are not part of such agreement. That's an agreement between Abengoa and EIG. The only thing that matters for us is APW-1 is going to sign the same ROFO agreement. And therefore, for the assets that go to that investment company, we will be -- in the future when the assets are built, we will be negotiating with this entity under the same ROFO agreement.

And as I said before, we feel very strong about our ROFO agreement. And we believe that, regardless of with whom those negotiations happen, we have the tools to reach reasonable agreements at market price.

Obviously, that agreement doesn't affect our corporate governance in any way. APW-1, I understand, will have its own corporate governance and this is something that Abengoa is working on. But, obviously our corporate governance is not affected in any way.

And then, the second part of the question in terms of when Abengoa gets below 50%, in the near term here, of ownership, can you talk to any planned change in the Board or anything from a corporate governance perspective, irregardless of APW?

Yes. So, what we announced in December is that Abengoa Yield and Abengoa reached an agreement by which Abengoa would be moving, in Abengoa Yield, to a minority from a directors' point of view.

So, currently we have 10 directors. Five are representing or related somehow with Abengoa. Five are independent. Abengoa agreed with Abengoa Yield that they would move to four directors related to Abengoa. Therefore, the majority of the Board of Abengoa Yield is going to be independent directors in any case, regardless of whether or when Abengoa loses its majority in terms of shareholding in Abengoa Yield.

And just the last one, Santiago, obviously the ROFO agreement with Abengoa is providing very good growth and visibility. Can you talk to your efforts on third party potential acquisitions, relative prices, relative geographies? There's a lot of infrastructure assets being shopped right now and I'd like to hear your perspective. Thanks very much.

Okay. So, regarding third party acquisitions, we have been working in the last months on a number of opportunities. We are looking at things in several geographies, including the US but not only in the US.

The US market is fairly competitive at this point in time and has been so over the last year because of a number of new yield co's or potential new yield co's very active in M&A and fairly aggressive on top of the traditional players. Therefore, we do look for opportunities, but we need to find situations where we are sure that we are going to create value.

And additionally, we are looking at other geographies where competition is less intense; obviously it's never easy, but where competition is a bit less intense.

(Operator instructions.) Andy Gupta, HITE Hedge.

Santiago, congratulations on the quarter and also the drops you guys have announced. Great execution there. A couple questions from me. One is in the past you've guided to your long term CAGR or distribution CAGR of 12% to 14%. What should we expect past 2016? Should we expect that sort of growth once you get the incremental from Mojave and some of the other projects coming online in 2015 and 2016?

So, beyond 2016 in terms of growth for our dividend per share, as many of you know, we are a little bit less aggressive than some of our peers, and we like to answer that question without being very specific.

Now, what I can tell you, when you look at our growth opportunities, is that finding acquisition opportunities is not going to be the problem. The ROFO with Abengoa is huge, and the rate at which Abengoa has been able to renovate it and win new assets is very high.

Therefore, if you want, our store is going -- is pretty full and is going to continue being pretty full. So, we can grow significantly. How much is that? At the very least a low double digit. Hopefully it will be more.

But, in any case, together with the assets which can still grow in terms of cash generation and these acquisitions, we should have a good number of years with a very significant growth.

And that fact that I don't drop numbers as high as some of our competitors does not mean that we don't target that internally. It simply means that probably we are more cautious regarding midterm and long term targets.

That makes a lot of sense. One other question is around Brazil. And from what I understand, again, your exposure is pretty mitigated at least over the next five years with the pref. But, how are you guys thinking about Brazil, given the current economic situation there, rising inflation, possibly increasing rates there? How are you thinking internally about Brazil as a risk, if at all, or it's five years out?

The way we think about it is, first of all, what you mentioned at the beginning. For the next four years and a half, our investment is fairly protected. As you know, it's in dollars. And that should cover, we believe, a good part of the economic cycle if Brazil went through an economic cycle, let's say, less favorable than the last years.

The second thing is the fear of inflation in Brazil. Actually, we like inflation in Brazil. Remember that in our contracts in many places, but specifically in Brazil, there are provisions by which prices get increased with inflation. Therefore, if Brazil had some inflation it would be good for the underlying assets in our investment in Brazil.

Of course, what's good is some inflation, not a situation that gets out of control. But, we believe that the country is far away from anything like that.

Great. Santiago, thanks again for taking my questions.

Thank you.

Andrew Hughes, Bank of America Merrill Lynch.

Hi, guys. Just in terms of the ROFO 3 acquisition that you have opened negotiations for, can you give us a sense of whether that means the specific ROFO negotiation window is now open and there's some sort of timeline under which that process needs to unfold, and whether or not that potential acquisition presents upside to the calendar year 2015 DPS guidance or if it's more of a 2016 contribution to dividend?

Okay. So, let's say timing from a contractual point of view should not be an issue. So, our expectation is that it should take us, I don't know, a couple of months maybe to reach agreements.

But, if it took us a bit longer, it would not be a problem. Let's say both Abengoa Yield and Abengoa, we are being very constructive regarding that, and we shouldn't have any issue there.

Regarding whether the acquisitions could mean growth in DPS in 2015, it's too early to tell now because we are still in earliest stages, and it would depend exactly on how the final acquisition or acquisitions look like.

Most obviously, there would be an impact in 2016, and I wouldn?t be able to tell you today how much of an impact we could expect in 2015.

Great, okay. And then, just in terms of looking at third party acquisitions, thanks for the color on geographies in particular. Can you give us a sense of what -- how much seasonality in the production profile of the entire portfolio that you guys are operating comes into play, whether or not you look at, for instance, more wind to offset the solar concentration, or if that's a key consideration in the assets that you're looking at?

I mean, it is. One of the things we always say is that we like wind, but we like wind up to a certain size in our portfolio because it's the most volatile part of our portfolio, and we have a high payout ratio. Therefore, wind is something we can look at, but we would not do a massive acquisition in wind because of volatility.

Thanks to the fact that our portfolio is very international, let's say exposure to climate is lower than in other peers. So, I don't know. In the first two months of 2015, the wind in some regions in South America has blown less than historically, but the sun in Southern Europe has been extremely high.

And that's why ourselves, we didn't feel anything because we have our folio where we compensate effects across technologies and across geographies. Therefore, I think that we can look at many potential acquisitions.

We love boring assets like transmission lines where you don't need to look at the weather. We also like solar where volatility is lower and, especially with geographic diversification, from a portfolio point of view you cover that volatility. And we like wind up to a certain extent. And today we are still far away from that wind limit, if you want, so we are very open at this point in time.

All right. Thanks, guys.

Sean McLoughlin, HSBC.

Yes, good afternoon, good morning, gentlemen. Just a question around the operational performance. We've seen good EBITDA margins across the various divisions. I'm thinking particularly in terms of solar, thermal, and the US with Mojave still in ramp. I mean, how should we think about the EBITDA margin in 2014, and what are the -- kind of any operational risks that you can highlight on the ramp that we should be thinking about?

So, I will answer your second part of the question first. Mojave started operations in late November, early December, and things have gone fairly well.

At this point in time, for example, our expectation is that February we are going to be where we should be, so with a very high capacity already and being able to either meet or slightly beat our budget for the month. Therefore Mojave -- obviously things can break, but Mojave, in principle the ramp up is very, very advanced and is nearly behind us.

Now, in terms of what margin you should expect, I don't know how we can help there. Perhaps 2014 has been a little bit higher than the average we should expect, but I don't see a big difference either.

And in terms of the actual duration of the ramp in Mojave, is this -- you say it's on track, but how much longer before you can say that you are fully ramped?

So, typically the way this works is, in the first two, three months, you do most of the ramping up, and you reach a plant that is able to deliver nearly the production that your technical model is saying the plant should be doing.

And we are there. We are in the 90%s, let's say. And then, the last few percentage points, it takes you some time because you need to fine-tune and debottleneck some equipment in the plant. And it can take you a few months, let's say. But, in general, most of the ramp up is behind us.

Fantastic. Thank you. Lastly, just I think on -- we've had some concerns in the market about fires. I'd just like hear your comments on that, please?

Yes. I guess you are referring to Solana.

Yes.

And we did have two incidents there. The impact of those incidents was very small. These were two small fires that got extinguished through the automatic systems in the plant.

These are things that obviously we don't want to happen but can happen in large installations like the ones we own. That's why we have obviously safety systems and fire systems at our facilities.

After those incidents, we have done the normal analysis to understand why they happened, and we have taken advantage of the winter to reinforce our systems to make sure that this doesn't happen and that we take no risks.

As you know, during December, January, and February, generation in that solar plant is significantly lower. So, we took advantage of that to reinforce a number of our systems in Solana.

That's great. Thank you.

Thank you.

Ladies and gentlemen, there are no further questions in the conference call. Thank you.

Thank you very much.

Thank you.

Abengoa Yield for the year 2014 earnings conference call is now over. You may disconnect your lines. Thank you.