Atlantica Sustainable Infrastructure PLC (AY) 2015 Q2 法說會逐字稿

Good morning and thank you for joining us in our second-quarter earnings conference call. Please proceed to page 3. I start with an overview of what has been achieved since our last call.

It has been a quarter of solid execution and continuous growth. Regarding our solid execution, overall we have reached a strong levels of EBITDA and CAFD for the period. Our portfolio of assets has performed according to expectations.

I am glad to announce that the Board of Directors have approved a dividend of $0.40 per share, meaning an 18% above the guidance of $0.34 we have provided for the second quarter. Thus, we are anticipating part of a $1.60 per share of dividend promised for 2015.

In terms of executing previously-announced transactions, we have closed the acquisition of all the assets included in ROFO 3, which are Helios, Solnovas, the pending stake of Helioenergy and Kaxu. In addition, after our commitments last fall, we have obtained the credit ratings from S&P and Moody's which have resulted in BB+ and Ba3, respectively.

In relation to our ability to deliver continuous accretive growth, a few days ago we announced our fourth asset acquisition for a total price of approximately $370 million, generating $31 million of incremental CAFD before any related financial expenses.

Firstly, the acquisition comprises the drop-down from Abengoa of Solaben 1 and 6, two solar assets very similar to the ones we already own. Secondly, after the project economics have improved significantly, we have closed the acquisition of Abengoa's stake in ATN2, plus the stake of a financial investor, owning now 100% of this transmission line in Peru.

And ultimately, we have reached an agreement to acquire 13% of the stake owned by the Japanese firm JGC in our asset Solacor, where we already own 74%. These two last acquisitions are the first proof of a third-party acquisition. We expect to finance the three assets with the proceeds of the recently expanded revolving credit facility, already signed with a syndicate of banks, and cash on hand. We will continue pursuing third-party acquisitions through the end of the year within the target segments and geographies.

Moving to page number 6, we will now review the quarterly results. In the first half of the year our revenues and further adjusted EBITDA have reached $309 million and $265 million, respectively, showing very significant growth, in the range of 80% to 90%, with respect to the same period of the previous year. In the six months period we have also been able to generate $83 million of cash available for distribution.

On slide 7 you can see our revenues and further adjusted EBITDA breakdown by geography and business segment, showing a strong performance across businesses and geographies quarter after quarter. We have experienced a very significant growth across all geographies, very much in line with our expectations.

Looking at the results by business sector, in the renewables segment we have had a very high growth, mainly driven by the assets we have acquired since our IPO and the entry into operations of Mojave. In the conventional segments, ACT in Mexico continued delivering excellent results. In the transmission segment, results have also been as expected.

Moving to the next slide, number 8, these results have been achieved due to a good operating performance of our overall portfolio. Within renewables it is worth mentioning that Mojave has been reaching production levels well above 90% of its performance model, which reflects the production of what a fully optimized plan produces. This is an excellent result for a plan that has been in operation only since December and is now going through its first summer.

Solana is also performing in line with its target, having reached record daily productions above 4 gigawatt hour per day. Solar assets in Spain have been producing well above its target levels, with good radiation conditions throughout the period.

On the other hand, wind assets in Uruguay have experienced weak wind resource, particularly during the first quarter of year, similarly to what has happened in other areas of the Americas. But given its small weight in the portfolio, this did not have meaningful impact on us.

Regarding our availability-based assets, which provides resilience to our portfolio, performance has also been very solid. ACT, our conventional power plant in Mexico, continues showing excellent operating results. Our transmission assets have also show very high availability numbers, and the water assets have achieved availability levels in line with targets.

I turn now to Eduard, who will continue with our main financial figures.

Thank you, Javier. Moving to slide number 9, regarding our cash flow generation, you can see that we have achieved operating cash flow of around $79 million in the first half of the year. And this is after deducting $151 million of interest payment, which includes a full semiannual interest payment for the assets recently acquired.

Our investing cash flow of $572 million corresponds mainly to the acquisitions completed during the period. And the financing cash flow of $675 million corresponds mainly to the capital increase that we closed in May 2014 to finance those acquisitions.

If we move to the next slide, regarding our financial position, we closed the first half of 2015 with around $155 million of cash at holding level, with a net corporate debt position of approximately $222 million corresponding to the tranche A of our banking credit facility and to the 2019 bonds issuance.

As Javier mentioned in the initial overview, we had increased our bank rate facility with a new tranche B of up to $290 million to be used as a revolving credit facility to finance acquisitions. The numbers as of June 2015 obviously do not reflect any amount of this tranche B, as it remained fully undrawn. With these levels of corporate leverage and considering our run rate CAFD before corporate interest, our corporate leverage is around 1.3 times, well below our target ceiling of 3 times.

If I move to the next slide, slide 11, on page -- what you see there is a net debt bridge where we show that our consolidated net debt position has grown from $3.8 billion to close to $5.1 million (sic - see slide 11, billion) in December, mainly driven by the acquisitions we have completed during the period.

All the assets we have acquired come with its project finance in place. As a result, our project debt has increased by a total amount of close to $1.3 billion. It is worth noting that our corporate debt position has not increased during this period, as we have financed our largest acquisitions with equity.

And if we move to slide 12, as Javier also mentioned in the initial overview, what you can see is that the Board of Directors had approved a dividend of $0.40 per share for the second quarter, which is 18% above the initial guidance of $0.34 that we had provided for this second quarter. This way we are anticipating part of the $1.60 per share of dividend we have promised for the full-year 2015.

Thank you, Eduard. We move now to slide 14. In relation to acquisitions, we are going to start with an update on previously-announced acquisitions. Specifically regarding ROFO 2, as you might recall, we have closed the drop-down of our Abengoa stake in Honaine and Skikda, two desalination plants in the North of Africa, and the first 30% of Helioenergy. These three assets generate $9.4 million of cash available for distribution before acquisition financing, which represents an acquisition yield of around 10%.

In addition, we have completed the acquisition of ATN2 as part of a much larger transaction we announced last Monday. The terms of this asset acquisition have changed with respect to what we announced in February. As revenue generation for the period has improved after the renegotiation with the offtaker, and due to the acquisition of the stake in the period of a financial investor called Sigma, which was not previously part of the perimeter of this transaction.

Regarding the drop-down of the 20% stake that Abengoa owns in Shams, the solar plant in Abu Dhabi, we have not secured all the necessary waivers at this point. Consequently, we have decided to put this on acquisition hold. And considering its small size, it has no impact on the guidance provided at all.

Moving to the next slide regarding ROFO 3, all the assets part of a third drop-down from Abengoa have been already acquired. The remaining 70% stake in Helioenergy, the solar plants Helios, Solnovas, and Kaxu in South Africa. This transaction has been closed at an acquisition yield of 9.4%.

The CAFD generated by the euro-denominated assets is hedged for five years by the currency swap agreement signed with Abengoa that locks in CAFD at the exchange rate of the moment when we closed the acquisition. This swap also covers all the euro-denominated assets in our portfolio. The acquisition of this group of assets has been financed, as you all know, with the proceeds of a capital increase closed in May.

Moving to slide number 16, as mentioned earlier and continuing delivering on growth, we announced on Monday our fourth acquisition, which includes for the first time to acquisitions from third parties other than Abengoa. This fourth acquisition consists of Abengoa's stake in Solana 1 and 6; a 100-megawatt solar complex co-located with Solana 2 and 3 plants already owned by us, what will generate important synergies in operation; the 100% of ATN2 I already mentioned, which is a transaction that is larger and more attractive than initially announced due to two main reasons -- higher revenues negotiated with a client and the acquisition of the stake owned by Sigma, a financial investor in the project which was not originally foreseen; and finally, the agreement to buy an additional 13% stake in Solacor 1 and 2 from a Japanese firm, JGC, where as you may recall we currently own 74%.

Total consideration for these acquisitions will be $370 million, generating a run rate CAFD of $31.4 million before acquisition financing expenses, representing an acquisition yield of 8.3%. CAFD from Solaben 1 and 6 will also be covered by the currency swap agreement signed with Abengoa.

We will fully finance this acquisition with our revolving credit facility, recently expanded, plus cash on hand. Then, when market conditions might be favorable, we will refinance the revolving credit facility, most probably with long-term debt. It is clear that at current share prices, we will not raise equity. We will update our 2016 dividend per share guidance as a result of this acquisition later in the year, once we have closed long-term financing to repay the revolving credit facility.

Going to slide number 17, with this fourth acquisition since our IPO, we have acquired $1.5 billion worth of equity in assets, mostly from Abengoa, increasing our run rate CAFD before corporate interest by 85%, up to close to $219 million. Our acquisitions have been [agreed] at an average acquisition yield before the impact of any leverage of around 9%, which we consider is above industry average.

In addition, we have performed all the acquisitions in industries and geographies where we have extensive experience over many years of operations and business. We continue growing, being loyal to our DNA disclosed at the IPO, counting with long-term contracts with creditworthy customers and a portfolio mostly denominated in dollars. Having always project financed with nonrecourse to the corporate level to isolate risk, while having a conservative leverage policy at the corporate level. All this, together with the fact that we don't have IDRs in our structure, positions ABY to continue delivering accretive growth to our shareholders as we become a larger company.

In slide 18, you can see an update of our pipeline of assets coming from Abengoa's portfolio. As we acquire assets, Abengoa has incorporated new assets under development that are under our ROFO agreement and will be candidates for acquisitions when they reach operation date. Since our last earnings call, Abengoa has publicly disclosed that it has won a new conventional power plant in Mexico and a transmission line in the United States, sustaining the $350 million of cash available for distribution that will be available for drop-down in the future.

Going to our guidance in page 20, today we reaffirm our guidance of $1.60 per share for 2015 and $2.10, $2.15 per share for 2016 -- what provides 30% growth year over year. This guidance will be updated after securing long-term financing for ROFO 4. Based on the visibility we have of the current pipeline of assets under operation, construction, or development by Abengoa, we also reaffirm our DPS growth target for 12% to 15% after 2016. We feel comfortable with what we consider a very conservative target and expect overachieving it in the future, as we have done since the IPO.

We move now to slide number 21. And to finish this earnings call, I share with you a few remarkable points that makes Abengoa Yield notoriously different in this market -- and, in my opinion, a very attractive investment opportunity. First, positive economic results and cash flows have already been improved, overdelivering since the IPO. The strong performance of all our assets is the result of many years of expertise and a very committed team.

Second, our existing portfolio will continue delivering its strong cash flows in the future, what provides Abengoa Yield with a very solid underlying value well above current stock prices. This fact makes Abengoa Yield a very attractive investment at this point in time.

Third, in addition, the geographical diversification into countries with good track record of economic growth and political stability, together with the nature of our contracted assets, plays in our favor, contributing to the resilience of our business.

Fourth, the number of ROFO assets bring significant visibility on growth, making cash flow generation highly predictable without the need to compete aggressively in the market, and thus reducing the risk of overpaying for assets. Fifth, we have been strengthening our portfolio with continuous drop-downs from Abengoa at the solid 9% acquisition yield, above industry average.

Sixth, driving with high beams into the future for the clear benefit of our shareholders, we have set a conservative policy around leverage with nonrecourse debt at the project level and a moderate corporate leverage below 3 times cash available for distribution.

With all this, I conclude the presentation of our second-quarter results and leave the call open for questions. Let me suggest to make one concrete question at a time to facilitate adequate answers on our side.

Thank you so much for your attention. And operator, we are ready for the Q&A.

(Operator Instructions) Andrew Hughes from Bank of America Merrill Lynch.

I'm curious; you mentioned looking potentially at third-party acquisitions for the rest of the year. Wondering what pro forma liquidity position is to go out and tackle that, and how you would think about financing additional acquisitions going forward, if they are from third parties?

Okay. Thank you for your question. Well, at this point we are just exploring different market opportunities in line with our geographies and business segments. There's nothing to be closed in the following weeks, and therefore we don't need additional liquidity what we have today to conclude that acquisitions that we have announced.

So by the time we could have any tangible acquisition to be closed, we will record again to market to get the right financing. Or, if we have already refinanced on a long-term basis the acquisition of Solaben 1 and 6, we will come with the flexibility that the revolving credit facility allow us in terms of decoupling the acquisition and the financing timing in the market.

Great, thank you. And then just a clarification on ROFO 2 -- the $9.4 million in incremental cash flow -- that does not include contributions from ATN2, right?

No, no.

Because that is now included in ROFO 4?

No, exactly. The number has been done with remaining assets under ROFO 2, and ATN2 has been included in ROFO 4.

Great. And then just one last one. In terms of Shams and the waiver issue there, is that a complication between you and Abengoa, or something to do with asset in particular? And just noticing the return profile over the last three acquisitions, ROFO 2, 3, and 4 has compressed as your cost of capital has not necessarily declined. So thoughts there -- and if that's anything to be concerned about in terms of relationship with Abengoa?

No. It's not the cause of Abengoa, neither because of the assets. It's just the shareholders, the other shareholders which are not willing to, let's say, move on and facilitate this acquisition. That's it.

Thanks, guys.

Stephen Byrd from Morgan Stanley.

I wanted to just make sure that I understood the leverage position from here in terms of your targeted debt level for -- and this is following up on the last question. In terms of additional acquisitions, how should we think about additional leverage versus equity? Would you imagine for future acquisitions that it would be a mixture of debt and equity? Or do you feel that even for future acquisitions, even after the ones that you announced that's all debt -- do you think you could potentially finance one or two additional acquisitions all with debt? Or how should we think about cap structure for future acquisitions from here?

With the existing leverage that we have, which is very (technical difficulty) and you know that our target is go up to 3. So we thought with just that, we could raise $500 million of debt easily without -- for the acquisitions. And obviously, that's more than enough to refinance the proceeds -- the price that we would pay now for the assets of the [full] drop-down. So we will have plenty of space with our existing portfolio pro forma of the [full] drop-down to raise even more debt to do acquisitions. And obviously, when you do acquisitions, that one brings extra CAFD that you can re-lever. And on top of that, we will have the revolving credit facility.

So to your question, yes, we could finance further acquisitions only with debt. Obviously, in the long-term, like any other yield corp., we will balance both debt and equity as we execute our growth plan.

Understood. And then just on the returns on the drop-downs, we've seen a trend down somewhat in returns. I do take your point that on average your yields on drop-downs have been above the industry average.

Can you just talk about the rationale for the targeted yield that you have had on recent acquisitions, given it's a challenging environment in terms of the implied cost of capital for yieldcos overall? How you think about the appropriate drop-down in the future? Should we expect this trend downward to continue, or will it be really case-by-case, depending on the asset? How should we think about that?

We feel comfortable with an average 9% yield in our portfolio. Of course, it's case-by-case, and it will depend on market situation. It is clear that we will always do accretive acquisitions, and therefore there must be a spread between the position yield and the cost of financing -- would be equity or it would be debt.

And it is clear also that, for example, at current levels of the share price, we will not do any capital increase. And as Eduard was saying before, we will record to any kind of debt at the right time and when the market might be appropriate for that. So I think at this point in time we feel comfortable with the average yield that we are having throughout all the acquisitions we've done.

Understood. That makes sense. And just last question, just on the relationship with the parent: there have certainly been some investor questions about the financial strength of the parent. In the event of financial distress at the parent, can you remind us of how, from an Abengoa Yield shareholder point of view, we should think about protection and certainty that these assets that are eligible will, in fact, be sold to Abengoa Yield?

Well, first of all, I'm not really familiar with exactly what is going on with Abengoa. So I don't want to extend much on that. With regard to the hypothetical situation of financial distress, I think we should keep in mind different considerations.

First of all, the assets under construction right now -- they are mostly financed through the warehouse, they have said, with another financial investor, a PW one. So I foresee that somehow the financing for those projects is somehow secure and available for them to get to final conclusion.

Then, in the situation in which Abengoa might not continue providing the operation and maintenance service for our assets, we can always record to the market, find for someone else doing that, or take over the operations directly. And keep in mind that we have strong cash flows coming from 20 assets in our portfolio, which has a pretty strong underlying value. And therefore our growth might be slightly impact -- I say slightly, because we always can record to the market for third-party acquisitions. But I don't foresee any major inconvenience or stress for the ABY shareholders.

That's great. Thank you very much.

(Operator Instructions) Andy Gupta, HITE Hedge.

Congratulations on the quarter. I just wanted to walk through a quick math with you. I'm trying to understand the $1.60 guidance. Based on your CAFD for the first half of $83 million, and I assume that will continue the second half, I get a total of $1.66. And then if I add the additional ROFO 3 and 4 that even adds -- that's another 45 -- and I subtract additional interest expense, I get about $207 million of CAFD. And if I apply a 90% payout ratio, I get to about $1.82 for dividends. So, one, I wanted to see if, ballpark, this is right; and, second, why maintain $1.60 after having increased your second-quarter distribution?

The $1.60 per share guidance implies a CAFD for the year of $178 million or $180 million. Okay? So we are very well on track to reach that. But you know that summer is a very important season our business. And before increasing our commitment to the market, we want to make sure that everything works out properly, and we go through the summer season with results similar to the ones we have been delivering up until now. So we will delay the decision on our potential increase of the $1.60 for later in the year.

That makes sense, Eduard. What about -- what could impact your summer? Is it above or below the long-term average in solar? Is that what is a sticking point here?

We don't expect any impact at all at this point. But just -- we prefer to be conservative and go through the summer. You know, there's a peak in solar generation in summertime. And therefore we want to see how all the assets are performing and how do we get closer to the end of the year. So that's why we want to be conservative at this point.

I understand. And the impact for Shams is about $2 million in EBITDA for the full year. Is that about right? I know it was a very small amount.

On EBITDA it's actually zero, because it wasn't -- we will not hit the 20%, so you don't consolidate that stake in any case. In CAFD, it's a very small impact, more than compensated by the better ATN2 that we just closed.

Understood. And then one last thing is -- I just want to confirm again on a previous answer that you could raise, based on the financing, after the financing of this acquisition [four], you still have capacity to raise another $500 million of debt to fund further acquisitions and still be within your leverage levels?

If you do the quick math, you know that we are close to $290 million of CAFD [pre-debt service] once accounted for this transaction, and our target level of leverage is to be below 3. So if you do the math, that means that we could raise $500 million, counting on this portfolio and respecting our policy.

We need much less to execute these transactions in order to refinance the drop-down -- sorry, [revolving facility] that will be used for the drop-down. And then, of course, we will do an acquisition with that money. And that acquisition will bring extra CAFD that will be levered 3 times.

Got it. Well, thank you again.

Michael Morosi with Avondale Partners.

First off, one of the pushback that I've received from investors has related to the performance of concentrating solar projects. So maybe if you could just speak about how your assets have performed over the quarter and what you guys are doing operationally to maintain a high level of output?

Okay. Well, of course, CSP is much more difficult to manage than PV; that's quite obvious. Nothing new under the sun. Having said that, we have been operating CSP plans for the last 15 years, especially with parabolic troughs, which we consider is a very consolidated technology in the market -- not only owned by our sponsor, Abengoa, but also by other participants and competitors in this market.

So it is true that is more difficult, but it doesn't mean it's an impossible mission. So going through the summertime, our assets are performing pretty good at this point. Radiation has been higher in some pores than expected. Therefore, our European assets are about 100% of the expectation.

When looking at the assets in the United States, I think, as I mentioned before, we are pretty comfortable with the ramp up of Mojave, which has achieved [about] 95% over the last two months, which is pretty good. And Solana is starting to generate up to record levels of, as I said before, 4 gigawatt hours of production in the last days. So I think in general all our CSP portfolio is performing even above expectations.

Okay, thank you. And then as it relates to your third-party acquisition strategy, and just looking at the evolution of your portfolio as you progress through the ROFOs, it seems like conventional assets and transmission assets are going to take a larger percentage of your overall CAFD and portfolio. So I'd just like to see how that will, in turn, influence maybe the assets that you pursue in terms of M&A in the different markets and the different segments that you are pursuing, and what that could mean for transaction yields.

Well, I am not sure if, as you are anticipating, there will be a much higher weight of conventional generation and transmission line in our portfolio. It will depend on what speed Abengoa is dropping down those assets after completion.

And it is true that we are trying to find synergetic assets which might be adjacent transmission lines to the ones we already own in Chile, or Peru, or any other type of generation asset that might generate some kind of synergy, cost benefit, or similar when operating with our existing assets.

So it's not easy. We feel we are not forced to do acquisitions at any price. And we feel comfortable that we can deliver the growth and the DPS we promised with the existing portfolio. And therefore we will be cautious when acquiring assets. We're looking at right now different alternatives in South and North America. Some other parts of Europe might be a target -- not clear, because they have to be mostly in US dollars. And there will be other opportunities in other markets in Africa as well. But it's still unclear.

All right, thanks for the questions. Great quarter.

John Quealy from Canaccord.

So in terms of your plans and Abengoa's plans to drop-down assets, given some of the liquidity concerns that debt holders have had over that stock recently, what's the likelihood that you could accelerate ROFOs, Javier, in the next of years? And just if you'd walk us through some scenarios there? Thanks.

Well, I would like to accelerate ROFOs, but I don't think it's going to be up to us just exclusively, John. So it will be mostly dependent on Abengoa and the speed at which they can execute the completion of the projects. From what it refers to our capability to acquire, of course, it's going to depend on how the stock is trading -- of course, at the current prices it's going to be difficult to make any capital increase and to do accretive acquisitions; and how open the debt markets are going to be. So I think it will depend mostly on the market to get the financing for acquiring the ROFOs or the ROFO assets. But mostly we'll depend on Abengoa to speed up the execution of those assets.

Great. Thanks, folks.

Our next question comes from the line of Chris Malone from Palmerston Capital.

I was just wondering if you could give us some detail on the fees in relation to the service agreement on the Spanish assets in ROFO 3 and 4, given that we have so many Spanish assets now.

Yes, we got it. We got a service support agreement with Abengoa because some, let's say, commodity activities, let me call, are subcontracted to Abengoa. And this is why we are paying the service support fee to Abengoa. I'm talking about accounting, and some kind of tax support, and things like that. But apart from that, I'm not aware of any other additional fee. I don't know if you have something specific.

No, no. I just noticed that the time of the IPO that the service fees payable to Abengoa on the non-Spanish assets is 1% and for the Spanish assets it was 2.5%. Specifically related to the assets that were in ROFO 3 and your 6-K filing, it seems like there was a 15% revenue fee paid to Abengoa. I was just wondering, is that part of the old regime that's going to be re-struck at a new level? Just trying to get a sense for what that --.

Each asset is different in that regard. And you are correct; some assets pay 1%. Some of the initial Spanish assets that we have in our portfolio are paying closer to 2%. But that's different in each assets. And in the new ones it tends to be in the low side.

I'm sorry? I missed that last bit. It tends to be what? Sorry.

In the low side of that range.

Okay, of the 1% to 2%. Great, thanks very much. And maybe just one more question. The revolver that has recently been upsized -- is there a clean-down provision in that?

You mean a period after -- where we could not redraw again on it after paying it down? You mean --?

That you -- once annually where you have to drain it down, pay it off, and -- before you can redraw it?

No, no.

Okay. Great.

When we repay, we need to wait -- I think it's 10 business days to redraw again. But it's a very minor thing.

Okay. And maybe, if you don't mind, one last one: the third-party transactions that you just done -- were they executed in relation to any tagalong rights or put/call structures?

No.

Or did you just go in unsolicited? Okay.

No. It was an unsolicited proposal. They accepted and we closed the deal.

Great. Okay, thanks very much.

Henry (sic - Andrew) Hughes from Bank of America Merrill Lynch.

I just had a quick follow-up on one of the earlier questions about scenarios of financial distress at the parent and how that might impact their ability to complete projects going forward. If I look on slide 18 and the list of your replenished ROFO opportunity set, can you give us a sense for what in the 2016 to 2020 time frame, perhaps, is coming online? What is being built within the warehouse? What is not? So just -- we have a sense of what assets are not sensitive to true financial distress at the parent?

Well, I would love being able to answer that. But I think this is more a question for Abengoa, I guess, because you are asking which of those are part of the ABW-1, or which ones will be part of any other warehouse they might be working on right now. And this is an answer that, regretfully, we don't have.

All right. Understood. Thanks.

(Operator Instructions) There are no further questions at this time. There are no further questions.

Thank you very much to everyone for the attention. And we will be looking forward to see you within three months.