Atlantica Sustainable Infrastructure PLC (AY) 2016 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Atlantica Yield first-quarter 2016 earnings presentation conference call. Atlantica Yield is a total return company that owns a diversified portfolio of contracted assets in the energy and 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 webcast live on the internet and the replay of this call will be available at the Atlantica Yield corporate website, www.AtlanticaYield.com.

Joining us for today's conference call is Santiago Seage, Chief Executive Officer; Francisco Martinez-Davis, Chief Financial Officer; and Leire Perez, Director of Investor Relations. As usual, at the end of the conference call we will open the line for the Q&A session.

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

Thank you. Good morning and thank you, everybody, for joining us today in Atlantica Yield's first-quarter 2016 conference call.

Please proceed to slide 3, where we will start the presentation with the key messages. In first place, we are very pleased to announce that we have closed our first quarter of the year with excellent operating results in terms of revenue, further adjusted EBITDA, and cash generation at the project companies. Our assets, in general, have shown a very good performance, in line with expectations. In fact, the assets have generated more than $18 million of cash in the quarter.

In second place, we have generated a CAFD, a cash available for distribution, in line with expectations, taking into account that this was the first quarter and its seasonality. With this, we are on track to meet our guidance for 2016, all the metrics shared at the beginning of the year.

In addition, we have made good progress when working towards achieving full autonomy from our sponsor and managing our sponsor-related risks.

Regarding waivers that we require in our project finance agreements, we continue our negotiations with lenders in order to obtain those waivers on the cost default provisions and we have additionally secured four more waivers regarding our sponsor ownership in Atlantica. We still have clearly significant work to be done, but we have made very important progress on this very important front of increasing autonomy and securing the waivers required in our project finance agreements.

And finally, we would like to spend some time at the end of the presentation regarding our view of the valuation versus the price of our equity today. We consider that the intrinsic value of our current portfolio, even without including any growth, is not reflected in the current share price. In fact, we do plan to grow.

As we explained in our last quarterly presentation, we do plan to grow towards the end of the year and in 2017. And we believe that that is not reflected either in the current price.

With that, if we turn to page 6 in the presentation, we are going to now review the main results for the quarter. As you can see, in the first quarter we have achieved what we consider are excellent results. First, on revenues, where we have recorded $206 million in revenues, representing a 74% increase period over period.

Further adjusted EBITDA has reached $155 million compared with $105 million in the same quarter of 2015. The decrease that you see there in EBITDA margin has been mainly due to the fact that our mix of assets is different now and to the fact that we have not received in the first quarter of 2016 our dividend from the preferred equity investment in Brazil.

Additionally, we have generated $18.7 million of cash available for distribution in the quarter, including a one-time impact of $14.9 million coming from the partial refinancing of our project ATN2 specifically. As we will see later, CAFD in first quarter of the year is typically lower than in the rest of quarters, due to seasonality in cash distributions. In fact, our CAFD in the month of April has already been similar to the complete Q1.

On slide 7, you can see our revenues and further adjusted EBITDA breakdown by geography and business sector, showing good results across all segments and all geographies. In our EMEA region, the very high growth is driven by the integration of recent acquisitions, as well as operational excellence in many of these mature assets.

In North America, the increase in revenues was mainly driven by higher production in our two solar plants in the US, Solana and Mojave. In South America, growth was mainly explained by the acquisition of our last transmission line in Peru, ATN2.

Looking at further adjusted EBITDA margins, you can see the impact of not receiving the dividend in Brazil that I mentioned before. And looking at the results by business sector, we can see that in renewal energy revenues have more than doubled thanks to the acquisitions made during the last year, while in conventional power our asset in Mexico, ACT, continues delivering excellent results above expectations.

In transmission lines, higher revenues are driven by primarily by the acquisition of the line I mentioned before in Peru during 2015. And, finally, water assets have delivered again very good results.

Moving on to slide number 8, the good financial results are based on the solid overall operating performance of our portfolio. Within renewables, production reached 514 gigawatt hours in this quarter, compared to 319 gigawatt hours in the same quarter last year.

Our solar assets achieved operating results in line or above expectations during the quarter. In Solana, we are currently implementing the previously-announced enhancements needed at the plant. We still have a significant work in front of us to improve and optimize this asset.

Mojave has delivered very good results in the quarter after a scheduled stop for maintenance in the month of January. In fact, in February and March in many days Mojave has been able to beat the technical model, the expected technical capacity. Kaxu, our asset in South Africa, has completed its first year of operations, exceeding expectations for the quarter, thanks partially to very high levels of summer solar radiation.

Finally, in Spain our portfolio of solar assets has continued to demonstrate very strong performance and maturity. Wind assets have shown very good operating results, although wind has been lower than expected in the first quarter due to El Nino phenomenon. In April, on the contrary, we have had a very good month in terms of wind resource and the assets have been producing above expectations.

Our conventional power-generating facility in Mexico, as I mentioned before, exceeded its contractual targets in spite of the fact that they had a scheduled maintenance stop during the quarter. Finally, our transmission lines and water plants have either comfortably achieved or exceeded forecasted availability levels.

I will now turn the call to Francisco, who has a cold today and is going to try to go through the financial metrics.

Thank you very much, Santiago. On slide 9 we have included updated guidance on our EBITDA and CAFD seasonality.

Regarding EBITDA, seasonality and solar assets in the US and Spain is balanced by our availability-based contracts in conventional, transmission line, and water segments, which provides stability to the portfolio. And also by wind assets and the South African solar plant, both delivering higher EBITDA in quarter one and quarter four versus solar assets that peaked in quarter two and in quarter three.

In our cash flow and our cash available for distribution, however, seasonality is higher. As you know, we define cash available for distribution as cash distributed from project companies to Atlantica Yield holding level less corporate G&A and corporate interest. In most of our projects, cash distribution from project companies occur at specific times of the year, defined in general by the terms of our project financing agreements. As a result, CAFD is typically lower in the first quarter and higher in the third quarter of the year.

On slide 10, as you can see we have achieved operating cash flow of nearly $85 million during the first quarter of the year, a significant increase with respect to the first quarter of last year. The increase is driven by good cash generation of the assets acquired during 2015. Investing cash flow corresponds mainly to the scheduled closing of the transaction of our 13% stake in Solacor 1 and 2 that we announced in 2015 and movements in our restricted cash accounts classified in financial investments.

Financing cash flow includes $14.9 million of proceeds from the partial refinancing of ATN2 and scheduled principle debt repayments.

Moving on to the next slide, page 11, our total liquidity has increased by approximately $76 million to $667 million, thanks to a strong cash generation by our project companies. Our total liquidity includes $45.4 million of corporate cash at Atlantica Yield; $529.4 million of cash at project companies, of which $210 million are restricted; and a further $93 million are also restricted in the former short-term financial investments.

As you know, we have currently negotiated with some of our lenders several waivers and, as we explained on our 2015 results presentation, we expect that the final outcome will require us to maintain some additional cash at the project level. Taking a conservative approach, we have classified as restricted cash our best estimate at this time, which explains the increase in restricted cash. Despite this reclassification, our unrestricted cash at the project companies had a healthy increase of $41 million.

Turning to slide 12, we have included a reconciliation of our corporate cash from December 31, 2015, through the end of March. As you can see, our corporate cash position has remained constant. In the first place, our project companies generated $87.5 million during the quarter after servicing their debt obligations. From that amount, we used $34.4 million to increase our restricted cash accounts as we have explained earlier.

In addition, our available cash at the project companies increased by $41.1 million. As you know, we define cash available for distribution as cash that is distributed from project companies to Atlantica Yield holding company level. Given that these distributions are lower in the first quarter due to seasonality, there is an increase in cash that, as of March 31, is sitting at project companies.

Furthermore, we paid $8.5 million in G&A and corporate interest and we have obtained $14.9 million from the partial refinancing of ATN2, as we previously explained.

Finally, we used $19.1 million to close acquisition of our 13% stake in Solacor 1 and 2 from JGC, our Japanese partner in the project. As a reminder, Solacor 1 and 2 is a 100-megawatt solar asset in Spain, where we already own 74%, and this acquisition was part of our fourth round of acquisitions announced in 2015.

The following slide on slide 16 -- 13 you can see the details of our net debt position, which consists of net corporate debt of $625 million and net project debt of $5.1 billion. Net debt increased from December 31, 2015, mainly due to the $113 million of translation differences in our euro-denominated project debt. With this level of corporate leverage and considering our expected CAFD before corporate interest for 2016, our corporate leverage continues to be below 3 times CAFD.

As you know, our strategy is to use nonrecourse project financing in all assets. We intend to limit corporate debt.

Thank you very much for your attention and now I will pass it back to Santiago.

Thank you, Francisco. So in summary regarding results for the quarter, a very strong quarter in terms of revenues, EBITDA, but also cash generation at the project level, where part of that is in CAFD this quarter and the rest will be seen as CAFD in the remaining quarters when we distribute that cash from the project companies to the holding level.

We are now going to continue with the second part of our presentation on page 15, where we want to update you regarding our progress to mitigate risks from our sponsor and to achieve autonomy in all dimensions.

As announced in our last earnings call, in the first half of 2016, our focus remains on execution. Executing on this, obviously on an operational performance but also executing regarding autonomy from the sponsor and risk mitigation.

In terms of risks, the one we have been talking about now for a couple quarters are the waivers that we require in some of our project finance agreements. As you know, there are two types of waivers; the first one refers to cross-default clauses with our sponsor. At this point in time we have four assets where these provisions still apply: Solana, Mojave, Kaxu, and Cadonal. Negotiations are ongoing and we are optimistic regarding the resolution of these waivers or a clear majority of these waivers.

Regarding the second type of waivers, those that are related to sponsor ownership minimum levels in some of our projects, we have made a significant progress and we have obtained another four waivers for our projects. Therefore, in total we now have waivers for 10 of the projects regarding sponsor ownership and we are working towards achieving the remaining 10 waivers. Overall, progress has been good and we are well advanced, but we still need some time to reach our objectives in terms of waivers.

In second place, regarding our preferred equity investment in Brazil, in April Abengoa has presented a consolidated restructuring plan in front of the court in Brazil on behalf of the company where we own a preferred equity investment and on behalf of two other of their subsidiaries. We, therefore, continue working on defending our interests and, as you know, we additionally have a right to retain dividends to Abengoa under certain scenarios.

In terms of our process of gaining autonomy from our sponsor, our back-office separation is in a very advanced stage. Additionally, regarding IT separation, we have created an experienced team in-house that is working together with external consultants and we expect to finish this separation process before the end of the year.

Finally, our annual shareholders meeting approved last Wednesday the change of our legal name to Atlantica Yield plc, as expected.

On slide 16 regarding dividend, in February 2016, as we informed you, our Board of Directors decided to postpone the decision regarding the fourth-quarter 2015 dividend. Considering the uncertainties caused by Abengoa's situation, the Board has now decided not to declare it. Regarding the dividend corresponding to the first quarter of 2016, the Board of Directors has decided to postpone the decision on that dividend until we have obtained a sufficient number of waivers, a majority of -- a clear majority of those waivers.

We know that this is a very sensitive topic and we know that many of our shareholders have strong points of view regarding dividend. However, at this point in time, the Board of Directors considers that this is the best option to protect the value of the Company and to position the Company for a successful 2016. In fact, we currently expect that in our next quarterly results presentation we will have achieved enough waivers.

Additionally, we currently expect to meet our guidance regarding dividends and to declare four quarterly dividends corresponding to their respective quarters in 2016.

Going to slide 17, we want to finish today's presentation with a few comments regarding the valuation or the value in the market of our stock. In our opinion, as I mentioned at the beginning, the stock price does not reflect the intrinsic value of the existing assets in our portfolio, even if you do not include any growth whatsoever. In fact, we believe that if you perform, let's say, a bottom-up DC evaluation of our portfolio you should arrive to a significantly higher number than our market price.

Additionally, as management we believe that we will be able to grow accretively towards the end of the year and in 2017 and going forward. We do have and we are working on a number of significant opportunities for accretive growth and we plan to pursue some of them, starting with the smaller ones towards the end of the year.

On slide 18, we want to show you some data that you are obviously familiar with, but we want to point out that currently our shares are trading well below our accounting equity book value. In fact, if you look at our financial statements, our total equity book value is close to $2 billion. If we deduct noncontrolling interests, which does not belong to us, and you add the cash grants collected in the past -- this as you know is the cash collected that we don't have to reimburse -- we get to an equity book value per share which is close to $27. Obviously without including any growth, as I started with the equity book value.

This demonstrates that our shares, or we believe that this demonstrates that our shares are currently trading significantly below this accounting book value. In fact, today our market capitalization is around 60% of the equity book value including cash grants.

On slide 19, we have presented another way to look at the same situation. If you look at our run rate CAFD that we expect from the existing portfolio, you will remember that this number -- this was shared in the last quarterly presentation. The number we shared was between $205 million and $215 million. If you compare that with our current market cap, you will see that our CAFD yield is around that 13% without considering any improvement in the existing assets beyond run rate, without considering any refinancing, without considering any growth ever again.

Now if you remember that many of our long-term PPAs have inflation-based price increase provisions, or if you consider that the asset can be optimized going forward, or if you consider that at some point in time we should be able to grow accretively again, either from third parties, from our current sponsor, or from other sponsors, we believe that a CAFD yield of 13% shows that there's a gap here between value and price.

We obviously understand that in order for you to see, for you investors to see this valuation gap, we need to help those of you who run the models. In fact, we have been working on recommendations from many of you and in the appendix of this presentation you will find some additional disclosures regarding a number of areas that we believe will help you in your valuations.

One of the important points for us is the cost of equity that you use when you do your discounted cash flow valuations. We believe that, in our case, a company that owns assets contracted in the long term that are in operation, the right way to calculate the cost of equity is by taking the cost of debt of our off-takers. Remember that in most cases our off-takers have bonds trading in the market and our finance team has spent some time putting together averages of the yields of those bonds as a few days ago and providing you in the appendix averages for each of our off-takers.

We believe that that cost of debt, plus a small risk premium, operating risk premium, however you want to call it, is the right way to come up with a cost of equity for our portfolio that makes sense.

Like always, our team is available for questions regarding this or the additional disclosures or any other topics. In fact, next week we plan to spend time in New York and Boston meeting investors and we will be happy to guide you through these questions.

With this I would conclude the presentation of our first-quarter 2016 results and leave the call open for questions. Thanks a lot for your attention. Operator, we are ready for Q&A.

(Operator Instructions) Stephen Byrd, Morgan Stanley.

Thanks for taking my questions. I wanted to start with what you mentioned about dividend payments. It's encouraging that you believe by next quarter you will have enough waivers to pay dividends and you made a statement that the intention is to pay four quarterly dividends in 2016. I was just a little confused at that.

Does that effectively mean that you would target catch-up payments for the quarters that weren't paid, such that you did have store payments? Or did it mean something else? I just wasn't sure.

Okay. What I said is that our current intention, obviously subject to all the things I mentioned before, is to declare for dividends corresponding to each of the quarters in 2016. Obviously, the last one would be a dividend declared for the fourth quarter which is payable in the following year.

Understood. But if you're not paying a dividend in the first quarter, would you then have one additional payment in the calendar year 2016 or how would that --? Given that you're going to be off by one payment, how would that play out?

Let me try to explain myself again. Our intention, if things work as I explained before, would be to declare a dividend for the first quarter later than usual, but it would still be a dividend, let's say from a business point of view, corresponding to the first quarter.

Perfect, that's very clear. And that's great. Wanted to shift over to Solana. Could you just give us a little more detail on the status of operations in terms of time to have that asset performing as you want? What sort of risk around being able to have that asset be fully at the level you expect do you see?

At this point in time, as I mentioned in the call, we are implementing a number of enhancements of improvements that we have been discussing for the last few months. Our expectation at this point in time is this is going to take a few months to this year. We are not going to -- we don't expect to see Solana this year reaching run rate and we expect that with improvements we are making now, next year we should be at or very close to run rate.

That's our current expectation. Obviously with the caveat that we are still implementing those changes.

Understood. And does your guidance reflect Solana not being at full operations in 2016?

I didn't understand you, sorry.

In terms of your expectations for cash flow for 2016, does that already factor in (multiple speakers)?

Yes, it was factored in. I'm talking versus run rate. I'm not talking versus our expectations or our guidance.

Understood, understood. Just one last one and I will get back into the queue. You had given a restricted cash estimate, which was helpful for us to understand the amount of cash that you would expect to be restricted from negotiation.

Does that include an estimate for all projects in terms of what you expect, I guess this $210 million? Is that your best estimate of total restricted cash following all negotiations or is that just for some of those negotiations?

As Francisco explained, we have included an estimation which is our current best estimation for all the assets where we believe we might end up having to restrain some cash.

That's great, thanks very much. I will get back in the queue.

Sean McLoughlin, HSBC.

Thank you, two questions from me. In highlighting the difference between what you perceive as your value and how the market sees it, have you considered the possible sale of assets to try to crystallize in the market to the value that you hold in your portfolio?

Secondly, I wanted just an update on the O&M side. At what stage are you in, let's say, fully detaching Abengoa from this process and when you expect that to be completed? And any, let's say, short-term operational concerns that we should be aware of related to this, thanks.

Thank you. Regarding the possibility of selling an asset or assets in order to demonstrate the value in the portfolio, this is clearly an option that, as a Board, we need to consider. At this point in time we are not engaged in a proactive process to do this. The way we think about this is, as we shared with the market, the first half of the year is about focusing on execution, managing the risks, and the autonomy. We expect that with that the price should start to reflect that.

Now if we at some point in time in the future, a few quarters from now we have not seen improvement regarding the price, we will need to consider all options to demonstrate the value in our portfolio. And what you mentioned, selling an asset, is clearly one of the options, but it's an option we would consider as management and as a Board of Directors.

For some time we can live with this dislocation, but we cannot live with this dislocation forever, as you can imagine. And, therefore, we will take whatever action is required to demonstrate the value of the portfolio.

Regarding your second question, you are asking about operation and maintenance contracts where Abengoa is providing that service. As of today, Abengoa is performing in those contracts and, therefore, we do not plan and we cannot cancel existing contracts for operation and maintenance.

What we have built, as you know, are backup plans in case that at some point in time in any of the assets where they are the operator they would not perform. Those plans are in place, but as of today, Abengoa is performing in this activity vis-a-vis our assets. And in fact, the numbers regarding the quarter or regarding April show that, at this point in time, we don't have issues on that front.

Back-office functions is separate, is different. In back-office functions we are totally splitting things. In O&M, for the moment, we are keeping the contracts we have.

Okay, thank you.

Stephen Byrd, Morgan Stanley.

I just wanted to touch on the guidance that you had laid out on the last call where you had indicated the 2016 dividends of $1.45 to $1.80 a share. Are you still in line with that guidance?

As I mentioned during the call, we are keeping the guidance we gave last quarter, which are the numbers you mentioned.

Okay, that's great. Sorry, just going through my list again. The ownership waivers you mentioned, I think you have collected 10 waivers and I just wondered if, in those waivers that you've already collected for new ownership, are some of the major projects in that group of waivers?

We do have 10 out of 20 and some of the larger assets are not in that list. So some of the larger assets are -- we are still working on them.

Okay, that's great. I guess just going back to the prior questions on O&M costs. As you look out overall I just wanted to make sure I understood at a high level the cost that you see. Do you see any unforeseen issues in terms of the O&M cost structure that you'll have as a separate company?

At this point in time we do not expect any significant change in any scenario from a cost point of view. We don't expect a higher cost; we don't expect a lower cost.

Okay, that's great. Then just last one for me. In terms of the cash from the refinancing, I just want to make sure I heard that correctly. Was that $14.9 million that you received from the refinancing?

That's correct.

Okay, that's great. That's all I have, thank you.

Brian Taddeo, Baird.

Good morning. A couple for me; one more as it pertains to the separation. I think on the last call you talked about migrating some of the FX contracts from Abengoa to third parties. Can you just give us an update as to where that stands?

It's Francisco Martinez-Davis. We currently have a five-year hedge agreement with Abengoa. That's still in place. That is an agreement under the financial support agreement that will continue once Abengoa is restructured.

And what we have done and we mentioned on the other call is we have evaluated different alternatives in case Abengoa was not there to provide the service. We have received other offers so that we would have coverage on CAFD coming out in euros out of Spain. So we do have a backup plan, if needed.

So you're not looking to move them over unless Abengoa does not perform? That's the way I should understand that?

That is correct.

Okay. Another question with regard to the ongoing -- receiving the ongoing waivers. It's good to hear you expect to have a lot of them by next quarter. What is the time horizon? When does it become an issue?

If you don't have them done by the end of the second quarter, does that become an issue? What sort of leeway do you still have in terms of timing to get those done?

So what we're asking for here are something I would define without being a lawyer, sorry for that, as a preemptive waiver. The event did not happen, but we are asking for a waiver regarding a potential change in ownership.

As you know, Abengoa today owns 41% of the Company; therefore, there is no event of nothing. But we are preemptively approaching all lenders saying can you give me a waiver today for an event that might happen in the future? Therefore, if Abengoa continued having a 41% we could go on like this for a long time, but obviously if Abengoa sold or lost part of its shares, there would be a reason for asking for that waiver.

How about on the four remaining financial waivers as well?

It's the same thing. We have approached as well asking can you give me a waiver because there's a cross-default there with a potential default by the sponsor.

Okay. Then another one with regard to your CAFD guidance for the year. Can you just remind us how much of that is tied to operational cash flow versus how much of that is tied to refinancing the project that cash coming back?

In principle, the guidance we gave you, obviously, is for operational CAFD. We -- at this point in time, we don't plan to do any other refinancing but the one you saw in the Q1.

So was that $14 million, is that in the annual CAFD number?

$14.9 million, yes.

Okay. So that's part of the original guidance?

Well, obviously when we did the guidance we didn't count on this. Therefore, later in the year we will need to see if we can increase the guidance thanks to this one-off or not. But we didn't count on a refinancing when we calculated our guidance. We normally do guidance based on ongoing CAFD without one-offs.

Okay. So the way I should understand that is really the operational, at this point, is about $14 million lower and then we will assess as the year goes on?

The way I would look at it is we might be able to increase our CAFD guidance later in the year because we did have a one-off, or we are being $14.9 million more conservative than what some investors would like us to be.

Got you, okay. Then one last one for me. As you talked about the growth potential at the end of the year into 2017, would you expect that being done via M&A, organic growth? And then how would you think about funding any of those possibilities?

So the pipeline we are looking at now, especially for the end of the year, is made up of small acquisitions in a much less competitive environment than larger acquisitions. And, therefore, regarding financing, we could be considering either some cash on hand or a small transaction somewhere.

We are not thinking about doing any large transaction. We want to go back to growth by making sure that we show to investors that we know how to do growth accretively. We believe, at least in the short term, it's going to be much easier to do accretive growth through small transactions where some of our big competitors are not spending their time.

Okay, thank you much for all the information.

There are no further questions. Thank you.

Okay then, thanks to everybody. And as I mentioned before, we will be in New York and Boston a couple of days next week. If you want to meet us, let us know.

Thank you very much, operator.

Ladies and gentlemen, this now concludes our conference call. You may now disconnect your lines. Thank you.