Atlantica Sustainable Infrastructure PLC (AY) 2015 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Abengoa Yield third-quarter 2015 earnings presentation 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, in certain markets in EMEA. Abengoa Yield focuses on providing a predictable and growing quarterly dividend 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's corporate website at www.abengoayield.com.

Joining us for today's conference call is Javier Garoz, Chief Executive Officer and Leire Perez, Head of Investor Relations.

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

Good morning and thank you for joining us today in ABY's third quarter earnings conference call. Please proceed to page 3 where we will start this presentation with an overview.

Firstly, we are very pleased to share with you today that Q3 has been a quarter of a strong cash available for distribution generation. ABY has generated almost $59 million of CAFD, an increase of 31% quarter over quarter.

Our Board of Directors have approved a quarterly dividend amounting to $0.43 per share in line with our expectations. Based on the good performance of the assets the strong cash generation at this point and the positive trend onwards, we reiterate our guidance for 2015 and maintain it for 2016 too.

Secondly, factoring in the current challenging situation of the yieldco industry and the fact that ABY has all necessary in place to achieve the run-rate in 2016, concentrating in the execution and delivery of the expected cash flows and returns for our shareholders must be our top priority during the following quarters.

Management is and will continue to be focused on achieving maximum operational performance in our assets in order to generate the expected cash flows. In addition, we want to reinforce our autonomy from Abengoa to become a completely independent Company. We will incorporate the necessary resources at the corporate and staff functions to avoid the current dependency and thus being able to perform always in the best interest of our shareholders.

And finally, we announce the active search for another sponsor, in addition to Abengoa, that would nurture future growth and perhaps becomes an investor.

Moving to page number 6, we will now review the quarterly results. In the third quarter of 2015, our revenues have reached $267 million, which is a 41% increase quarter over quarter and the further adjusted EBITDA has reached almost $219 million, which represents a 37% quarter over quarter.

We have also been able to generate $58.6 million of CAFD representing a 31% increase versus the past quarter due to the strong seasonality of our solar plants. If we look at the cumulated period of the nine months ended September 30, results have also been very good and we can see very significant increases versus the same period of the previous year, due to the acquisition of new assets in the last quarters.

On slide 7, you can see our revenues and further adjusted EBITDA breakdown by geography and business sector, 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 renewable segment, we have experienced high growth, mainly driven by the assets we have acquired since the IPO and the entry into the operations of Mojave.

In the conventional segment, ACT in Mexico continues delivering excellent results. In the transmission segment, results have also been as expected with revenues growing mainly due to the acquisition of ATN2 in Peru.

And ultimately, the water assets have also delivered very solid results since their acquisition with no negative surprises.

Moving to the slide number 8, this positive results have been achieved due to the good operating performance of our portfolio. Within renewables, after recent acquisitions, we have a bit more than 1,400 megawatts of installed capacity and the associated production has reached over 2,000 gigawatts hour in the nine-month period.

In the third quarter, Mojave has continued to deliver very well. We have performed maintenance works in some of the equipments and reinforced its reliability which is normal in an asset that has been in operation for just 10 months.

Due to this, we have reached a production in the quarter of 92% versus budget. Also it's worth mentioning that Solana achieved its historical daily generation record and its monthly generation records since commissioning in August, thanks to the excellent performance of the solar field and the power block and the contribution of the thermal storage.

With solar field and power block having reached mature performance, we are going to take advantage of the winter season when the storage contribution is lower to develop some maintenance and on the storage system to have it at full capacity for next summer.

Regarding our assets in Spain, solar radiation has been good during the nine-month period, particularly in the second quarter and as a result solar assets in this region have been producing well above its target levels.

Kaxu which has started operations in February is going through its ramp-up and reached 80% production versus target in the month of September.

Finally, our wind assets are recovering from the first half of the year of low wind, thanks to a good performance and higher wind resource.

Regarding our availability based assets, which provide resilience to our portfolio, performance has also been very solid. ACT, our conventional plant in Mexico, continues to show excellent operating results.

Our transmission assets have also achieved availability levels in line with targets. And the water assets have shown very high availability numbers too.

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

Thank you, Javier. Going to slide number 9, regarding our cash flow generation, you can see that we have achieved operating cash flow of $158 million in the quarter, a very significant increase with respect to the first and second quarters when we reported $37 million and $42 million, respectively. These numbers show the good cash generation of our recent acquisitions.

Our investing cash flow corresponds mainly to the acquisitions completed during the period, both in the quarter and the nine months. Our financing cash flow in the quarter corresponds mainly to the proceeds from Tranche B of our revolving credit facility that we used to finance the acquisition of Solaben 1/6.

In the nine months, financing cash flow also includes the proceeds from the capital increase we closed in May which was used to finance our ROFO 3.

Moving to the next slide, we can see how our cash available for distribution has increased progressively up to $58.6 million in the third quarter, significantly higher when we compare it to the first and second quarters. This is mostly due to the seasonality in distributions in our solar plant. With this, we are on track to meet our target of $178 million for the complete year.

Regarding our financial position in the next slide, as you know, our strategy is to use non-recourse project financing in our assets. We intend to limit corporate debt and use it exclusively to finance the equity portion of some of our acquisitions.

We closed the third quarter of 2015 with a comfortable level of consolidated liquidity of $662.5 million, out of which $43.6 million are at Abengoa Yield corporate level.

Net corporate debt amounted to $625 million as of September 30, 2015, after we used $290 million of Tranche B of our revolving credit facility to finance the acquisition of ROFO 4. As a reminder, the rest of our corporate debt is comprised of Tranche A of our credit facility and the 2019 bond.

Also I'll remind you all that Tranche B of the revolving credit facility has maturity in December 2017.

In addition, net project debt amounted to $5,088 million at the closing of the quarter. This number if pro forma of the repayment of the current portion of Mojave loan amounting to $335.9 million which was paid in October with the proceeds of the ITC cash grant we collected from the DOE.

With these levels of corporate leverage and considering our run-rate CAFD before corporate interest for 2016, our corporate leverage is 2.2 times CAFD, still well below our target ceiling of three times and at the low end of the peer group.

Moving to the next slide on page 12, you can see a net debt bridge where we explain how our consolidated net debt position has grown from $3.8 billion as of December 2014 to $5.7 billion in September 2015 pro forma of the Mojave payments made in October.

Starting with acquisitions, net debt has decreased by $664 million with a capital increase we closed in May. We have made payments for acquisitions amounting to $1,122 million. This amount represents the price paid for the equity value of the assets acquired.

In addition, project debt has increased by a total amount of close to $1.9 billion as a result of the acquisitions completed during the period as well as the assets -- as all the assets we have acquired come with its project financing in place.

Looking at our operations, our operating cash flow in the nine months amounting to $237 million that we divided here in pure operations and interest rate. In addition in the nine months period ended September, we have paid $95 million of dividends to our shareholders.

The other amount as you can see in the footnotes corresponds mainly to translation differences in our euro-denominated debt, dividends paid to non-controlling interest and other.

Finally in October we repaid the short-term portion of the Mojave debt with the proceeds of the ITC cash grant.

On the back of these results, on page 13, you can see that our Board of Directors has approved a dividend of $0.43 per share, on track to meet $1.60 per share dividend guidance for 2015. It is worth mentioning that since the first dividend we declared after the IPO, we have been able to increase our quarterly dividend by 66%.

I turn now the call back to Javier.

Thank you, Leire. Let's go to page number 15. In relation to the acquisitions previously announced, during this quarter we have closed the acquisition of Solaben 1/6, a 100 megawatt solar plan in Spain. This acquisition has been financed with Tranche B or the revolving credit facility which matures in December 2017, as Leire explained before.

The acquisition of ATN2 in Peru was already closed in June. So the only acquisition pending to close is the 13% stake in Solacor 1/2 that we expect to close in the first quarter of 2016.

Moving to our next slide, we are reiterating today our dividend per share guidance of $1.6 per share for 2015 and $2.10 to $2.15 per share for 2016. We would like to remind you that this guidance is achievable with the current portfolio. So we do not depend on any additional acquisition to meet this target.

The 30% to 34% growth 2016 over 2015 will be due to having all the assets previously acquired contributing to a full year of results and all of them will be fully ramped-up and distributing cash for the complete year.

By reaffirming our guidance, we are demonstrating our confidence in the stability of the cash flows generated by our portfolio and our strong commitment with our shareholders in -- despite of the market situations.

Going to the slide 18, given the current market conditions and concerns around the yieldco space, I would like to spend some time now explaining the quality of our portfolio.

Our view is that the stock price of ABY is significantly undervalued. Even considering a hypothetical worst-case scenario where ABY has no access to growth for some time, our current portfolio of assets has a very significant value not recognized by the market at this point.

We expect to reach $287 million of CAFD before corporate interest in 2016 with the current portfolio. Such run-rate, coming from a resilient portfolio, has a much higher intrinsic value not reflected in the current stock price. Let me make a few points to reinforce this statement.

Our existing portfolio of contracted assets has an average remaining life of 22 years, which is well above the yieldco industry average. Our contracts are with investment grade offtakers. 93% of our total run-rate CAFD is denominated in US dollars. The diversification in technologies and geographies provides a better risk balance portfolio. The current exposure to wind is just 4% of the total run-rate CAFD for 2016.

64% of our CAFD comes from pure availability-based assets. 90% of the cost of debt is either fixed or hedged. We have no commodity risk at all, we have indexation mechanisms that provide a slight growth in our portfolio, the debt is mostly at the project level, ring-fenced and self-amortized over the course of the PPA and we have limited the corporate debt to three times CAFD.

We count with a very lean and efficient tax structure. We do have IDRs and there is a second life in our assets that is not accounted in our valuation, representing a potential upside in the future.

Based on all that I mentioned, we believe the current price doesn't reflect the true value of our portfolio. Even factoring in a downside scenario, we are still below that value and that is why we have decided at the Board level to concentrate our best efforts in the following priorities that we believe will unlock the current situation in the future quarters.

I invite you to turn to page 20. As already mentioned, the yieldco industry is at the cross roads with a business model that fail to prove in some regards. I personally believe that it will surface the situation and become the right owner of renewable assets in the near future, but still needs to prove its value proposition and deliver on the promise. ABY in particular is also affected by the situation, but additionally by ongoing concern around Abengoa.

In such a scenario, we understand the need to regain the confidence of the market, consolidating our operational performance and ultimately recovering the growth path. That's precisely why our top management priorities get around the following three areas.

Firstly, execute a strong operational performance in all assets, making sure we deliver the expected dividend per share for 2015 and continue working to achieve the run-rate in CAFD for 2016 with all the assets fully ramped-up and contributing to a full year of cash generation.

Secondly, ABY needs to reinforce its autonomy from Abengoa to operate as a completely independent Company. We are already working in having all back-office functions completely separate from Abengoa and relocate to different offices.

In this sense, it is also crucial to dissociate from the current change in the brand and corporate identity for ABY, which will happen in the following weeks, and ultimately hire a new CFO non-affiliated to Abengoa.

And thirdly, we are starting a process to find another sponsor in addition to Abengoa. We expect to mandate a Tier 1 investment bank as broker advisor who will help us among other things in the search of this new sponsor. We keep as a priority to grow in the US market and don't [discard] other geographies.

This way, our future pipeline of contracted assets will combine potential drop downs from Abengoa and from this new sponsor. With all this, I conclude the presentation of our third-quarter results and leave the call open for questions.

Leire and me will be on the road in the US the week of the 16 of this month and look forward to meeting with you there.

Thank you very much for your attention. Operator, we are ready for the Q&A.

(Operator Instructions).

Chris Malone, Palmerston Capital.

I have a question about the evolving relationship with Abengoa and I'm just wondering if you might be able to tell me if you've started getting the necessary waivers in relation to any change in their stake in your Company and if you could talk to us about that process?

Okay. Well, the relationship with Abengoa is, as it has to be, is correct, is professional and we are maintaining a fluid conversations with them in relation to the performance of our assets. Nothing has changed.

And in relation to the waivers, what I would say is this process hasn't been started. You know Abengoa disclosed their intention to divest or monetize somehow their participation in ABY, but I think that prior to start any process of asking for waivers we should have a much clear scenario of who might be acquiring or taking over that stake that Abengoa owns in ABY and therefore depict the right picture for the lenders when asking for the waivers to allow Abengoa to divest below 35%.

Got it. Okay, thank you. And there's one other question. Abengoa Concessions Investments Limited, if the main shareholder in your Company has $100 million short-term deposit that they report in a statutory account as a financial asset held in escrow for the US subsidiaries of Abengoa Yield, I'm just wondering if they sell down their stake in you do you get that $100 million back or could you maybe explain what that amount of money is in relation to?

I am not completely sure about that point you are bringing here. I would probably prefer to dedicate some time and answer you offline.

Okay, I think they are the only questions I had. Thank you.

Thank you.

Matt Niblack, HITE Hedge.

This is Matt Niblack from HITE. Congratulations on really a good quarter here and continuing to distinguish yourselves in the operating area from other yieldcos, really nice work. One -- so question on the distinguishing and I guess continued separation between yourselves and the parent, what stage are you at in terms of finding alternative sponsors? So it sounds like in the press release you're really at stage one, you're looking to hire a bank to help you with this process. Is that a correct understanding or you're further along where you have specific prospects?

Thank you very much. Well, in terms of how advanced are we at this point in the separation process, I can tell you both Abengoa and us independently we have approached the market and definitely we have detected that there is interest in the market for any kind of relationship or transaction. So right now we are in stage one as you well described, mandating Tier 1 investment bank to start officially the process that I just announced.

Okay, great. But this is on the basis of there being real signals of interest from real potential counterparties?

Yes, exactly. So there is a real interest and what I would say is, what is different is the interest from Abengoa and ours is clearly that Abengoa might be pursuing a financial investor, not necessarily a sponsor for us, while we would be and we are indeed pursuing a deal with an industrial investor or a pure sponsor who'll turn to be also an investor in the Company. We both have been approached in the market and there is real interest. So I am quite confident that this is a viable process that could conclude in the future with, let's say, a valuable deal for all the ABY's shareholders.

And in terms of the CFO, again I applaud the effort of getting a CFO who is not affiliated with the parent, I think that is going to be quite meaningful for you going forward. What timeframe do you see for achieving such a hire?

Well, we've been approaching many candidates in the last weeks and we've been negotiating with some of them. We haven't been able to close anything for multiple reasons at this point. We're still looking for the right candidate and we hope that in the following weeks we should be able to close a deal. So it shouldn't take much, much longer than has already taken.

Wonderful, thank you.

Thank you Matt.

Sophie Karp, Citigroup.

Congrats on a great quarter and thank you for taking my question. Can you maybe give us little more color on how do you envision your future relationship with the potential other sponsor? Is that -- will that sort of include the capital infusion or just a ROFO agreement or what is your goal there?

Well, I think -- first of all, thank you for your question, Sophie. And I think it's premature to anticipate what the deal will be and how are we going to, let's say, manage the arbitration between the two of them. So I would prefer to leave this for the future once we have something more tangible rather than now trying to speculate about how are we going to manage their relationship with the two of them. It's clear that what we want is a ROFO, a strong ROFO with a strong pipeline from both of them and that's what we are pursuing at this point. But how that relationship will be managed I think is too early to anticipate.

Thank you. And then also have you given any thoughts to refinancing the revolver that you have right now?

Pardon me, could you please repeat that?

Yes. Have you given any thought to how are you going to refinance the revolver that you have, corporate debt?

Yes, we give a thought to that every single day and it's clear that right now issuing a high-yield bond is not a possibility. We don't want to run on the risk of being priced at the current level and this is on a hold, it is ready to go. So at the right time, we might be approaching the market but not now.

And therefore as we are comfortable with the RCF and we can stay with it until the end of 2017, as Leire and me explained during the call, we are not rushing to do anything. So we will keep it for a while until the market opens.

Great, thank you.

Thank you, Sophie.

Andrew Hughes, Bank of America Merrill Lynch.

Congrats on the strong quarter. Just following-up on that last question, is it fair to assume that you're willing to push out long-term financing on for ROFO 4 assets to as late as December 2017 or is it your desire to close that much sooner?

No, no, no. Our desire is to close that much sooner of course, but again we don't need to do it in 2016 if the market doesn't open. So we will wait for the right window to do it.

Okay. And then just in terms of an alternative sponsor here, can you give us a sense of who in your mind would be a great new sponsor or if not identify them, what characteristics in a sponsor are you looking for?

Well, clearly without naming anyone, what I would say is we would like to see potential growth in the US, we would like to see a strong sponsors in renewables and probably some other technology segments that would be attractive for us in which there would not be, let's say, operational or significant operational risk.

We don't want to change the risk level of our portfolio from what it is today. We understand that the risk of a yieldco should be, from the portfolio standpoint, it should be pretty low and just related to pure on and off, switching on and switching off the operations but not being related to volume or commodity or things like that. So this is another point.

And my desire would be that they would end up being also an investor in ABY, so they probably would achieve as well in addition to the strategic relationship with ABY a good deal with Abengoa to buy a portion of the stake that they own in ABY.

Okay. Would you say the parties that you've interacted with thus far sort of check all those boxes?

Many are, indeed. Some of them are also positioned in other geographies which you know we are diversified yieldco and we benefit and we are proud of that. We think it is a big advantage and a core competence in our value proposition.

So some others are also located in other geographies and they are ticking the boxes as I described. So yes, there's a bunch of them that probably would be suitable for a nice deal and it will be a matter of finding and structuring the right deal.

Okay. One last one if I may, if you are able to secure an additional sponsor and Abengoa sells down its stake as expected, can you just help us understand what happens to some of the O&M agreements that are carried through Abengoa and as well as the ACBH preferred dividend that is being paid out of escrow by your current sponsor? Thank you.

Yes, okay. Let me state clear that we are not rejecting to our relationship or denying our relationship with Abengoa as the prime sponsor and therefore they will continue providing the O&M and the ROFO will remain intact and in life as it is today. So what we are thinking is Abengoa might get diluted to certain stake; that will be up to them and not our decision of course.

And at least if Abengoa maintains something like 15% -- 10% to 15% ownership in ABY, there won't be any negative impact in the [preferred] from Brazil or in the currency swap that we have with them. And of course the O&M contract will remain in place independently from how much ownership they have in ABY. Hello?

Michael Morosi, Avondale Partners.

Would the potential new sponsor involve any equity injection in addition to a partial or potentially full exit of Abengoa stake?

You mean in ABY? Any potential equity injection in ABY?

Yes.

Well, again, that's too early to anticipate something like that. So I don't foresee any scenario like that at this point.

Okay. And then when you look at your growth plans in United States, is that going to be focused on any one particular asset class or is that just a kind of a broader growth objective?

Yes, it is a much broader growth but always related to the segments that are the interest of ABY.

All right, thanks a lot. Great quarter.

Thank you.

Maura Shaughnessy, MFS Investment Management.

Yes, a couple of questions. The first one being just in terms of the standalone operations relative -- you talked about the back-office and the like. What are the incremental expenses expected to be as a standalone Company?

We are not planning to incur any incremental expenses. So every change we are planning to do to become more autonomous and independent in the way we manage the business from Abengoa will run according to the existing budget and everything we are paying today. So we are not expecting to have any significant or any meaningful economical burden on the budget because of that change.

Okay. And just in terms of the timeline on getting an additional sponsor, you already mentioned some of the criteria that you're using. But how does that go with your parent Company's promises about selling their stake or selling some of the assets that are otherwise under your ROFO agreement which you potentially may not be interested in? So how does that timing work as we go into next year?

Well, I think the time works well and the reason I believe that is basically because if Abengoa were not interested in divesting in ABY, of course trying to pursue a deal like this would be extremely difficult for us to consolidate. So I think the timing is appropriate. Abengoa has already disclosed their willingness to monetize or divest and we are clearly in the need of finding additional growth in the future. So the combination of both situations, I think, is perfect in terms of timing.

How long it will take, I don't know exactly. But I think it's the right time to pursue an action like this.

And what does your parent promise in terms of timing, in terms of selling the stake?

I don't know, I just can't tell you what they disclose which is they want to do that within the following --

Before Q1 2016.

Yes.

Okay.

So this is what they disclosed, but again this is up to them, not up to us.

Okay. Great, thank you.

Thank you, Maura.

There are no further questions. Thank you.

Thank you so much.

Thank you.