Atlantica Sustainable Infrastructure PLC (AY) 2015 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the Atlantica Yield fourth-quarter 2015 earnings presentation conference call. Atlantica Yield is a total-return company, that earns a diversified portfolio of contracted assets in the energy environment sectors in North and South America and certain markets in EMEA. Atlantica Yield focuses on providing a predictable and growing quarterly dividend to its shareholders.

Just a reminder, that this call is being webcasted live on the Internet and the replay of this call will be available at the Atlantica Yield new corporate website at www.AtlanticaYield.com. Joining us for today's conference call is Santiago Seaga, Managing Director; and Francisco Martinez-Davis, Chief Financial Officer. As usual, at the end of the conference call, we will open lines for a question-and-answer session.

I will now pass you over to Santiago Seaga. Please go ahead, sir.

Thank you. Good morning. And thank you, everybody, for joining us today in Atlantica Yield's 2015 earnings conference call. Please proceed to page 3, where we will start the presentation with the key messages. In first place, we are very pleased to announce that we closed the year 2015 delivering very strong operating results confirming the trend of previous quarters and our own expectations.

Business has been strong. Nevertheless, net income has been negatively affected by the impairment of our preferred-equity investment in Brazil. Given the current uncertainty regarding the company where we own our preferred equity stake, we have decided to take the hit, from an accounting point of view, and obviously, as you all know, this is a non-cash one-time loss.

In second place, we have generated close to $37 million of CAFD during the quarter, reaching the announced guidance for the year of $178 million. This is again a remarkable achievement that shows that the business is strong. Despite the solid cash generation, our Board of Directors have decided to postpone the decision regarding the dividend corresponding to the fourth quarter of 2015 until next quarter.

Considering the potential implications and risks related with our sponsor's situation, we simply want to be prudent. We have been managing the risks and we are managing the risks. But at the Board, we have considered that it is prudent to postpone the decision until we have put to rest for good the key risks.

In third place, as I just mentioned, we continue working on making progress towards achieving full autonomy from our sponsor, and mitigating the risks related to their situation. Our team is stronger now with a new CFO and a new VP for Strategy and M&A. Some of our systems start to be independent and we have action plans in place in all areas.

Additionally, we have a Board of Directors fully engaged with a clear majority of independent directors supervising and supporting our plans in great detail. And finally, we believe that 2016 is going to be a year where management of the Company will focus on operations and cash generation. We are confident that, with the measures we are undertaking, we will be able to deliver inorganic growth again towards the end of the year, even if it is through small transactions incrementally executed in the last part of the current 2016 year.

Moving to slide number 6, we will now review the main results for the year. In 2015, operating results have been very solid. Our full-year revenues have exceeded $790 million, more than double the previous year, while further adjusted EBITDA has reached $666 million, a 107% increase year on year. Cash generation was also strong with $178 million in cash available for distribution in the full year, meeting our guidance.

On page 7, you can see our revenues on further adjusted EBITDA breakdown by geography and business sector showing very good results across all segments and geographies. 2015 has, in fact, been a very important year in terms of growth and in terms of the successful integration of our acquisitions. As you can see, North America has been our largest region in terms of EBITDA, reaching close to $300 million with a very significant growth versus 2014.

Additionally, EMEA shows an impressive growth thanks to the acquisitions made in 2015. And, as I mentioned before, those integrations have gone very well. These are mature assets with excellent operating results. Looking at these results by business sector, we can see that in renewable energy, we have achieved an increase in revenues and EBITDA driven mostly by acquisitions made since the IPO and thanks to the effect of the start of operations in Mojave.

In conventional power, this segment continued delivering excellent results. In transmission lines, results have also been as expected with revenues increasing, mainly due to the acquisition of a new line during 2015. And finally, water assets have also delivered good results as expected.

On page 8, we can get a bit deeper into the operational metrics. Within renewals, our portfolio has reached over 1,400 megawatts of installed capacity and the associated production generation during the year has exceeded 2,500 gigawatt hours in the full year, which is nearly 3 times what we achieved in 2014. Some of the assets within renewable energy should include their performance in 2016 as they are still young and they still have improvement potential; specifically Mojave, and the solar plants in Spain, have been able to achieve operating results in line or above expectations during 2015.

In the case of Mojave, we expect this asset, which is doing very well, to maintain this solid operating momentum in 2016 in order to continue advancing in the ramp-up curve and achieve its run rate as soon as possible.

Solana and Kaxu have been slightly below forecast. We expect to see an improvement in their performance in 2016 and, in fact, January 2016 has shown that trend.

Wind assets in South America have shown a stable operating performance in line with expectations. However, the lower wind resource in the first half of the year resulted into a slightly lower generation than forecasted. Wind, in fact, is a small part of our portfolio because wind resource volatility tends to be higher.

Regarding our availability-based assets which provide, as you know, resilience to our portfolio, performance has also been very solid. ACT, our conventional power plant in Mexico, continues to show excellent operating results, exceeding once more it's constructional targets regarding electricity and thermal generation. Our transmission and water assets have also easily achieved or exceeded forecasted availability levels. Overall, solid operating results but with improvement potential in a couple of our younger assets. 2016 should, therefore, be even better.

I will now turn to Francisco, our Chief Financial Officer, who will continue covering our main financial figures.

Thank you very much, Santiago. Let's please turn to slide 9. First of all, I would like to start my presentation saying that it's a pleasure to be here. I look forward to meeting you in person in the near future. As I mentioned, in slide number 9, regarding our cash flow generation, we achieved operating cash flow on nearly $300 million for the full year, a very significant increase with respect to last year.

This figure shows the good cash generation of the acquisitions closed in 2015. Our investing cash flow corresponds primarily to the acquisitions completed during the period and the financing cash flows corresponds mainly to the proceeds from the capital increase that we closed in May and the proceeds from tranche B of our revolving credit facility. Once you take into consideration the previously mentioned elements of the cash flow, our net cash position increased by $181 million.

Please turn to slide 10. Cash available for distribution in the fourth quarter amounted to $36.8 million, in line with expectations, which means the full-year result is $178.5 million. As a result, we have met our 2015 guidance of $178 million.

In slide number 11, you can see our financial position as December 31, 2015. We closed 2015 with a comfortable level of total liquidity of $591.8 million, considering the short-term financial investments in our projects, corresponding to liquid investments. From that amount, we had $45.5 million of cash available at Atlantica Yield PLC corporate level and the balance is at our project companies.

From the cash at the project companies, $191.3 million is restricted cash and the rest is non-restricted and we'll be distributed progressively to the holding company over time. At the right of this slide, you have our net debt position including our breakdown between corporate and project level. Please bear in mind that Atlantica Yield has long-term contracted assets with 22 years weighted average remaining.

Net corporate debt amounted to $619 million, as of December 31, 2015, corresponding to our revolving credit facility in our corporate bonds. It is important to mention that the maturities of the revolving credit facility is December 2017, and another tranche in December 2018, and finally, the corporate bond in November 2019. In addition, net project debt amounted to $5.001 billion at the end of the closing year.

With these levels of corporate leverage, and considering our expected CAFD for 2016 before corporate interest, our corporate leverage is below 3 times the cash available for distribution. As you know, our strategy is to use non-recourse debt financing in all of our assets. We intend to limit corporate debts and use it exclusively to finance the equity portion of some of our future acquisitions.

Moving to this next slide, on page 12, you can see a net debt bridge where we explain how our consolidated debt position has increased from $3.8 billion as of December 2014, to $5.6 billion in December 2015, primarily as a result of acquisitions during the year. Compared to September 2015, total net debt has been reduced by approximately 7%, mainly due to translation differences and the repayment of the short-term tranche of the Mojave financing with the proceeds of the ITC cash grant.

Looking at the debt bridge and starting with our acquisitions. Net debt decreased by $664 million as a result of the capital increase we closed in May. We have made payment for acquisitions amounting to $1.1 billion. 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 all the assets we have acquired came with its project finance in place.

Looking at our operations, our operating cash flow in the period amounted to approximately $300 million that we have divided in the presentation between operations and interest paid. In addition, in the year ended December 31, 2015, we paid $137 million of dividends to our shareholders and minority shareholders. Translation differences, which correspond primarily to differences in our euro denominated debt, amounted to $232 million as a result of depreciation of the US dollar. The other amount, as you can see in the footnote, corresponds mainly to capital expenditures.

Finally, as I have previously mentioned, the repayment in October or the short-term portion of the Mojave debt with the proceeds of the ITC grant.

Thank you very much for your attention and now let me pass it back to Santiago.

Thank you, Francisco. On slide number 14, we explain that this year our guidance, for some months at least, is going to be based on wider ranges than usually. As you all know, we are managing a number of risks originated by our current sponsor's situation and until we fully manage those risks, we will be maintaining these wider ranges in our guidance. Once those risks are managed, will go back to a standard ranges when we talk about guidance.

Regarding Brazil, we are monitoring very closely the situation of Abengoa subsidiaries in the country and we will be looking after our interests in ACBH in the company where we have our preferred equity investment. Meanwhile we have decided to record an accounting impairment, as I mentioned before, on that preferred-equity investment even if it is too soon to have all the elements to assess properly the impact of the legal process that Abengoa initiated in Brazil. As I mentioned before, we have preferred to take the hit and move forward.

Regarding the cross default provisions contained in some of our project financing agreements, we are working with all parties and making good progress. In fact, we have also made good progress in terms of autonomy, in terms of human resources, in terms of systems and we have put, or are putting in place, contingency plans for many of the service agreements we have in place with our sponsor.

As a result of the current situation and the risks that we are managing, our Board of Directors, taking what many of you might consider a very prudent approach, have decided to postpone the decision on the dividend corresponding to the fourth quarter of 2015 until the second quarter of 2016. Again, this delay is simply because we want those risks managed regardless of our sponsor's situation. Once that is done, our Board will make the decision in the second quarter of this year.

If we move to slide number 15, you have, in front of you, our guidance for 2016. What we are doing here is putting in front of you in a scenario where we have tried to be conservative, assuming that we will never receive again a dividend from our investment in Brazil. Obviously, each of you and ourselves as management will have a point of view regarding that, but this is the way this guidance that you have on pages slide has been built.

We also assume in this guidance that we don't make any acquisitions. So it's built with a current portfolio. Therefore, the impact when we look at 2016 guidance versus the previous guidance we shared with the market and this is net CAFD, so net of G&A expenses and net of corporate-interest expenses.

And what we can see is that we have three negative impacts. Number one is Brazil, as I mentioned. We are assuming that we do not get the dividend this year.

Second, we are assuming that we could have impacts in terms of cash which would be one-time 2016 impacts because of cash or distributions being delayed in some of the assets, due mostly to the cross-default provisions and we are assuming that this could represent $20 million to $35 million while there is a smaller impact in other expenses or small changes in operating performance for $5 million to $10 million. That's how we come up with our guidance for 2016 net CAFD of $170 million to $200 million. Regarding, obviously, this will not be our run rate and the run rate we have estimated, again, on a net-CAFD basis and, again, assuming that Brazil never pays a dividend would be between $205 million and $215 million.

On slide 16, we are initiating guidance regarding further adjusted EBITDA including unconsolidated affiliates with a range of $750 million to $800 million, again, assuming no Brazil, no new acquisitions. As I mentioned before, the CAFD and guidance for the moment would be $170 million to $200 million. If we assume a payout of 80% to 90%, we are giving a guidance regarding dividends of $1.45 up to $1.80 per share. And again, once we manage fully some of the risks related our current sponsor, we expect to be able to narrow these ranges in the next quarter.

We are now going to cover briefly our strategic objectives on page 18. On page 18, and as we mentioned already in our last earnings call, 2016 is about focusing on execution, ensuring that the younger assets continue to perform and it's about delivering CAFD. Additionally, 2016 is, the first half of 2016, is about working towards achieving full autonomy from Abengoa where we have taken a number of important steps, including the corporate rebranding, Atlantica. We also have now a new independent CFO on board and a very busy one.

And we continue working on the rest of work streams. This will keep us very busy during the first half of 2016. And this should allow us to be ready to earn the right to grow again during the second half of 2016.

In fact, assuming that things go as planned, we should be able to capture accretive growth opportunities in the second half of the year. In fact, we are seeing very good opportunities in several of our sectors. Additionally, we will continue working on opportunities to secure a second sponsor.

In summary, two clear phases. First, earn the right to grow by focusing on operations and CAFD and by managing our sponsor-related risks in order to demonstrate the intrinsic value of the current portfolio. Later, gradually and prudently capture accretive growth opportunities.

In this quarter, we have made some difficult decisions. But we are now much better positioned to move forward as an independent Atlantica Yield.

With this, I conclude the presentation of our 2015 full-year results. I'll leave the call open for questions. Thank you very much for your attention.

(Operator Instructions)

Andrew Hughes, Bank of America Merrill Lynch.

Hi, guys. Thanks for taking the question. Just a question on the dividend guidance for 2016. Just curious how many dividends does this assume you pay on a quarterly basis? Is this assumption here just in the back half of the year in the third quarter or the fourth quarter or is this a smoother range over Q1, Q2, Q3 and Q4?

So this assumes that we pay a dividend quarterly.

Okay. Great. Thanks. And as a follow-up, can you just speak to your level of confidence in the quantity or the amount of the one-off impacts from the sponsor situation that you have incorporated in guidance; your confidence in that actual amount and in the range and in the fact that it'll only be a one-off. Thanks.

So we are confident that the real impact should fall within that range. As I mentioned before, we have made significant progress, although we haven't really closed everything to be sure of the number, but we believe that this is a reasonable, realistic expectation. What was your second part of the question, Andrew, sorry?

Just your confidence in whether or not those impacts would in fact be one off and if you could actually just specify what exactly you're assuming in that 20 to 35, that would be helpful as well. Thanks.

Without getting into too much detail, what we are assuming is that in one way or the other, this cash, or hopefully part of this cash, will be trapped temporarily in some of the projects that have crossed default provisions. Lenders, one way or the other, will delay distributions for demand, request us to put some cash in some sort of reserve accounts for some time. At this point in time, we believe that these will be one offs and this is the way we have been working with all of them. And obviously, once we've closed things, we will be sharing them with the market.

Paul Kroya, BGC Partners.

Hi. Thank you for your time. Please comment on whether you believe the Solana and Mojave will trip any cash sweeps by the US Federal financing Bank or do you expect the dividend to use up all the cash flow from these assets?

Okay. So regarding this specifically, the Solana project, our expectation at this point in time is that it would fall within the definition and the description I just made regarding assets with core default provisions in general. We are not foreseeing anything more than what I described.

Okay. And one other question, what is the status of the $100 million that has been in the escrow account to refund the ABY-preferred dividends?

So the question is regarding the amount of cash that our sponsor is obliged to maintain in order to guarantee our dividends in Brazil, right?

For the preferred dividends, correct. Yes.

So this is an information that obviously should be asked to our sponsor. As you know, according to our agreements, they are obliged to keep that amount of money and if they don't, we have a number of rights that we can exercise and this is public in the documentation that is filed with the regulator.

Okay. Thank you very much.

And one clarification. It is not an escrow account. It is an account but it is not technically an escrow account.

Okay. Thank you.

Andrew Hughes, Bank of America Merrill Lynch.

Thanks, guys, for letting me go again. Just in terms of the growth opportunities you are seeing in the second half of the year, can you be a little bit more specific about the geographies and asset types that you're seeing and then what you would consider viable financing options for those assets, whether you would try to tap debt markets or equity? Thanks.

Sure. We tried to be realistic, Andrew, regarding where we are and that's why we talk about two very different phases. We are finding good opportunities in, what I would call, smaller assets in the sectors where we operate.

I would say in the US, but also in the Americas and several other countries where we operate in the Americas. And what we are seeing is that, thanks to our position in some of those sectors and geographies, we are seeing nice add-ons. I'm not talking about large acquisitions. I'm talking about the small add-ons that I believe is the way we should use to demonstrate to the market that we can do smaller acquisitive acquisitions in the second part of the year that are easier to finance than now trying to come up with disruptive huge acquisitions which is not what 2016 is going to be about for us.

We want to be prudent. We want to go step by step and we need our stock to trade at the right price to make sure that everything we do is accretive. And if it is not accretive, we will not do it.

We currently have no further questions.

Thank you couple operator. Then we can close. Thanks to everybody for joining the call. We'll be in Boston and New York this week, meeting whoever you want. You can contact our Investor Relations department, if you haven't done that and you want to meet us later this week.

Thank you.