Atlantica Sustainable Infrastructure PLC (AY) 2016 Q3 法說會逐字稿

Welcome to the Atlantica Yield's third-quarter 2016 earnings presentation conference call.

Atlantica Yield is a total return Company that owns a diversified portfolio of contracted renewable energy, power generation, electric transmission, and weather assets in North and South America and certain markets in EMEA.

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 at www.Atlanticayield.com.

Joining us for today's conference call is Atlantica Yield's CEO, Santiago Seage, and CFO, Francisco Martinez-Davis.

(Operator Instructions)

I will now pass you over to Mr. Seage (inaudible). Please go ahead.

Thank you very much. Good morning, and thank you for joining us today for Atlantica Yield's third-quarter 2016 conference call. Please proceed to slide number 3, where we will start the presentation with our key messages.

In first place, we are very pleased to announce very strong operating results for the third quarter of 2016. Our revenues in this quarter have increased by 10% reaching $295 million on further adjusted EBITDA, including unconsolidated affiliates grew by 21% reaching $264 million. If we look at the three quarters, the first nine months of 2016, growth has been both in terms of our revenue and EBITDA, more than 30%. This has happened because our assets have continued to generate a strong operating cash flow reaching $184 million in the quarter, demonstrating the good overall performance of our portfolio in the peak season for most of our renewal energy assets.

In terms of CAFD, cash available for distribution, we have generated nearly $54 million during the quarter. In addition, our Board of Directors has approved a dividend of $0.163 per share, maintaining a prudent approach until we achieve a majority of waivers and forbearances, but showing the fact that we expect some key waivers in the short term. Finally, regarding the operating separation from our sponsor, we consider that we are done.

Moving on to slide number 6, we will now review the main results for the quarter, and for the first nine months of the year. As you can see, the third quarter has been very strong in terms of operating results. Revenues for the quarter have reached $295 million, a 10% increase over the same quarter last year. Further adjusted EBITDA including unconsolidated affiliates has reached $264 million in the quarter, a 21% increase. Finally, we have generated $53.8 million of CAFD in this quarter. We do continue to experience certain delays in distributions from certain project companies to the Holding, but cash generation at the asset level has been really solid.

If we look at the nine-month period, operating results have also been very positive. Revenue of $763 million and further adjusted EBITDA of $627 million, with growth levels of 32% and 30%, with respect to the same period last year. Additionally, we believe that we are on track to meet guidance for the year on key metrics, understanding that regarding CAFD, we will need as we expect to secure some waivers to avoid delays in distributions into next year.

On page 7, we will look at the breakdown of the results by geography and business sector. What we can see there is growth and strong results across all segments and all geographies. In North America, the increase in revenues was mainly driven by higher production in Mojave, one of our solar plants in the southwest of the US, which had an outstanding performance during the summer season. In South America, growth was mainly explained by the acquisition of our last transmission line in Peru. In EMEA, the operating performance has been excellent, with all acquisitions made last year fully integrated.

If we look at the results by business sector, we can see that in renewal energy, by far our largest sector, revenues have increased by 45%, thanks to the assets acquired last year, and excellent production levels at Mojave. In conventional power, on our asset in Mexico, continues delivering very consistent results. In transmission lines, higher revenues are driven by the acquisition of the last line in Peru I mentioned before, in the second quarter of 2015. And finally, the water assets have delivered good results. Further adjusted EBITDA margins reflect the good performance of the portfolio as well.

Turning to slide number 8, we see that our portfolio keeps demonstrating a solid performance in line with our expectations. Within renewables, production reached close to 2,600 gigawatt hours in the first nine months of the year, compared to 2,041 gigawatt hours reported in the same period last year. If we look at solar energy within renewables, solar radiation during the third quarter of 2016 was very high throughout our geographies.

In Solana, we continue to perform the improvements required at the plant, and performance continued to be below expectations. On the other hand, Mojave keeps producing well above their targets for 2016. Mojave is, and we believe will continue being an excellent asset in terms of operating performance and cash generation.

In Spain, high radiation levels and solid performance in all of the assets have allowed to close an excellent third quarter this year. Wind assets have shown very good operating performance, although wind resource remained below expectations in the quarter. Our co-generation facility in Mexico continues to show our remarkable performance as mentioned before.

Finally, transmission lines and water plants have either met or exceeded forecasted availability levels. With that, I will now turn the call to Francisco who will take you through our financial numbers.

Thank you, Santiago. Let's move to slide 9 to discuss the nine-month operating cash flow. The good performance of the portfolio has resulted in a very solid operating cash flow. As you can see, we reached $302 million in the first nine months of the year, a 27% increase compared with last year.

In the third quarter, operating cash flow amounted to $184 million, a 17% increase period over period, investing cash flow, corresponding mainly to the closing in the first quarter of the transaction of our 13% stake in Solarcor 1 and 2, the acquisitions of a small photovoltaic plant announced last quarter, and a pending payment from the Solarben 1 and 6 acquisition. Financing cash flow corresponds mainly to the scheduled principal debt repayments and the dividends paid in the third quarter.

Moving on to the next slide, page 10, we have closed a quarter with a strong total liquidity position of $769 million, an increase of $177 million with respect to that of December 2015. $85.8 million of available cash are at Atlantica Yield plc Holding Company level. Cash at project-level companies accounted to $587.6 million as of September 30, of which $238.2 million was restricted cash flow at project level, and $349 million was non-restricted.

Turning to slide 11, here you can see the details of our net debt position. We closed September with a net corporate debt position of approximately $586 million, and a net project finance debt in our subsidiaries of a slightly over $5 billion. With this corporate net debt, and considering our expected CAFD before corporate interest for 2016, we continued to be below the internal limit of three times that we had communicated to the market.

On page, on slide 12, we show the reconciliation between EBITDA and CAFD that we always include in the appendix. In this quarter, we believe it is important to highlight that our assets have generated $168.7 million in the first nine months, which is a 20% increase compared to last year. However, we are experiencing certain delays in cash distribution from project companies to the Holding level, in particular, in some of the projects in which we are negotiating waivers. This is why CAFD for the period was lower than last year. However, the cash is just accumulating at the asset level, as you can see in the line Change in non-restricted cash at project level, and also in the significant liquidity position that we have. I will now pass the call back to Santiago.

Thank you. Francisco. Going to slide number 14, we would like to share with you the agreement we reached with Abengoa, subject obviously, to the closing of their own restructuring process which would allow us to recover part of the value of our preferred equity investment in Brazil.

So as a reminder, this is the preferred equity instrument in ACBH, a Brazilian subsidiary of Abengoa, which has been under insolvency proceedings in Brazil since earlier this year. As you know, on top of our rights as an investor in the Brazilian entity, we have a guarantee from Abengoa Holding, and we also had the right to retain dividends under certain conditions, the dividends payable to Abengoa, as a shareholder in Atlantica Yield, this in case Abengoa did or does not meet their obligations in ACBH. Up to now, we have retained a total of $21 million in accordance with these agreements.

During quarter, we have reached an agreement with Abengoa, under which Abengoa acknowledges that we are the owner of the dividends we have retained, and therefore those $21 million have been included or recorded as a cash available for distribution. Second, since our preferred investment in Brazil has a guarantee from Abengoa Holding, Abengoa recognized a credit of around $330 million.

Upon completion of Abengoa's restructuring, a 30% of that amount, a 30% of the $330 million more or less would be converted into junior debt, within the debt structure of Abengoa cost restructuring, and the remaining 70% would be converted into equity of Abengoa. Additionally, in order to convert this junior debt into tradable senior debt, and subject to a number of conditions precedent included in Abengoa's restructuring agreement, we have decided to participate in Abengoa's new money notes, subject obviously, to restructuring completion including the conditions precedent.

These notes would be tradable, super senior, and secured in a ring-fenced structure with Atlantica Yield's shares and other asset as guarantees. We have committed, a subject again to restructuring, the amount necessary to elevate all of the debt I described before into senior debt. The maximum potential commitment would be $48 million, nevertheless subject to a scale back.

However, we expect that the final investment will be significantly lower, and we expect our exposure after Abengoa's restructuring to the different Abengoa instruments I mentioned before, the senior debt, the equity, and these new money notes to decrease very quickly after closing, as all of the instruments are expected to trade. Obviously, the real value we will recover from Brazil including the 30% of the $330 million I mentioned before, will be determined by its trading value. And as of today, it's difficult to estimate. We believe that this is a positive agreement to Atlantica, since it should allow us to recover partially the value of our investment in Brazil.

If we move now, to page, the next page, 15, what we can see there is the progress we have made on the different strategic goals we defined for 2016. In place, in first place, the waivers, the waivers that we still need to secure for some of our project finance agreements for some of the assets. We continue negotiations, and we have made significant progress since the last quarter, although we have not closed any additional [work] a waiver. Nevertheless, we do expect to close and obtain several key waivers in the short term.

Second, our key functions have been separated from our sponsor, and we are taking the steps, the last steps to totally split, the last IT systems. As a result, the process to achieve autonomy is over, and we can now move towards our third priority. As we said at the beginning of the year, our objective was to be able to restart growth, and we believe that we are there, ready to restart growth, once we close some of the key remaining waivers, that again we expect to happen very soon.

We believe that this ability over our growth plans will come through a combination of our current sponsor's ROFO agreement, other partnerships, and third-party acquisitions. We believe that we have significant opportunities for value creation, for value creating growth going forward. Nevertheless, we also acknowledge that if our equity and/or our debt do not trade at levels that we consider sufficient, we will need to consider delivering growth in CAFD per share, or dividend per share through acquiring our own portfolio. Purchasing our own portfolio through equity or debt is probably easier. And if our equity or debt do not trade where we believe it should be trading, that would be the way to restart growth, until our instruments trade at levels that our Board consider reasonable.

If we move to slide 16, we can talk about dividend. Our Board of Directors has decided to remain prudent until a majority of the waivers and forbearances are secured, and has declared a dividend of $0.163 per share, $0.163 per share. The reasoning is the same reasoning that was shared last quarter. We are applying a percentage representing the proportional part of assets that do not require any waivers as of today.

Last quarter, we used a 40%, and since then we have not closed any additional waiver. However, the Board has decided to increase the percentage used from a 40% to a 45% to reflect the likelihood of securing some key waivers in the short term. We obviously expect to review the amount of future quarterly dividends, as we obtain those final waivers.

With this, we conclude the presentation of our third-quarter 2016 results, and we will be available for questions. Thank you very much for your attention. Operator, we are ready.

Thank you.

(Operator Instructions)

The first question is from Sophie Karp from Guggenheim Securities.

Hi, good morning, guys. Thank you for taking my questions. I wanted to ask you a little more about the waivers progress that you are making, and given the administration condition that's going to happen in the US in the next couple of months?

Is that something that you expect to accomplish before the transition occurs, or is it something that we should be maybe thinking about more, like first and second quarter of the next year, with the new administration in place? Thank you.

Our expectation, and obviously, we are no expert in US administration transitions, our expectation is that this should not affect our waivers. And this is a technical matter under discussion with technical teams within the DOE specifically. So we don't expect the transition to impact our expectation as I mentioned before is to secure several key waivers in the coming weeks.

Thank you.

The next question is from Michael Morosi from Avondale Partners.

Hi, thanks for taking the questions. First, with respect to the buyback, I was encouraged by your indication that you'd consider buying back stock, but could you share a little bit more about how you think about returns, or comparing buybacks relative to organic growth?

I think that, this reasoning from our point of view is obvious. Our Board of Directors when we are starting growth we need to consider opportunities of external growth versus let's call it, internal growth. And at that point in time, they will need, and we will need to compare expected accretion from transactions where we purchase assets from third-parties, versus transactions where we purchase our own instruments, being [that] equity [debt], or whatever.

It's difficult to be able to be more specific, but you know perfectly well how the Board will look at that, and what are the [maths] to compare accretion of one option versus the other. And the only thing I'm saying is that obviously, I want everyone to remember the Board will need go through that. And depending on the price of the equity and the debt, the decision might be to go for one or the other, depending on the value creation potential.

Yes, that's helpful. With respect to the waivers, it sounds like you're reasonably confident that we should have some progress here in the near-term. But let's say, again let's say, that it pushed into next year, and something happened say, with the political risk around the administration, what is the alternative in terms of maybe even being able to take out the existing project level lenders with new debt? And have you evaluated that, and what the implications would be say, for CAFD, and then, just in terms of thinking of contingency plans?

So our lenders, in all of the projects where we don't have the waivers as today have been supportive, and we see, at this point in time, we see no reason why we will need to consider what you're saying. We believe that the lenders we have are happy with the projects, with their performance, and we see no reason why we will need to consider, let's say a plan B, or C, or D, like the one you're mentioning. From a theoretical point of view, it's something we could do, but at this point in time, our focus is on securing the waivers we are missing.

Very good. Thanks a lot.

The next question is from Andy Gupta from HITE Hedge.

Hi, good afternoon. A couple quick questions. On the slide where you talk about the -- getting ABG equity -- are you disclosing, or is there an agreement on how many shares you're going to receive?

So as I mentioned, and subject to their restructuring, we would be receiving a debt and equity. You have some disclosure regarding some numbers, but as of today, it is extremely difficult to calculate how much we will be receiving, and how much it would be worth.

And this will be subject to them closing, to how well those instruments trade. As I have mentioned before in any case, it's obviously for us, is not as strategic. This is done to be able to recover part of the value in Brazil, which we think is a plus, but our intention would be to turn this into money as quickly as possible.

I understand. So one other clarification on slide 14, is you got $333 million of credit that will be restructured to debt and equity. I guess, I don't follow the bullet point below it.

Why only $100 million of debt and equity would be determined by trading price? Shouldn't it be all of the $333 million?

So it's difficult to understand you, you have a bit of noise in the background, but let me try to answer. What we are saying here is out of the $330 million debt, let's say, 30% would be converted into equity, and that equity will trade. And therefore, what we are saying is that those $100 million, which is more or less of a 30% of $330 million or $333 million, would be the face value of the debt.

And there will be a market, and that market will decide what's the tradable value of that piece of debt. And obviously, up to you to estimate what you think you will use. (multiple speakers)

So the remaining [30%], so $330 million will obviously be based on ABG equity value?

That includes a number of shares, and your initial question is valid, which is where we will (multiple speakers)

Go ahead.

Where will this share of ABG trade, and that therefore, what will be the real value of the 70%, which would be significantly lower than the [number] value obviously.

Yes. Yes. Okay, I understand. Thank you.

Thank you.

The next question is from Craig Gilbert from Linden Advisor.

Hi, thanks for taking my questions. Can you just talk a little bit about Solana? You said that it was meeting your expectations, but can you expand upon that? And additionally, as it relates to Solana, can you talk about the impact on CAFD, when that ownership percentage changes from 46% to 76%?

So in Solana, what I said, is that this year Solana is not meeting expectations. And on Solana, this year has been below expectations, because as we have been telling you for several quarters, we are making a number of repairs and improvements in the plan. And until that is finished, Solana will not be operating at the run rate. We will need to see going forward, if the repairs being conducted will result in the plant reaching the run rate.

Regarding your second question, if you don't mind, I would prefer to take it off line, simply because I don't have in front of me the details of the change with -- (multiple speakers).

That's no problem. When do you think the repairs and improvements would be completed, and we would get back to that, or up to that run rate type level that you previously expected?

So the repairs that have been ongoing cover several areas. Some of them have finished already, others are expected to finish before the end of the year, and a third group of repairs would continue into 2017. And therefore, by then we will know once, we see the 2017 summer, when we go through the summer, we'll know if the repairs are for good, or whether we need to look into other solutions.

Okay. And a question again, on the ACBH equity investment and your deal with Abengoa. The $333 million, the 30% of that gets you to about a $100 million, and that would be the senior debt. I mean, would that be effectively equivalent to the senior debt that we see quote, now at $0.04 to $0.05 on the dollar?

No. It should be -- without entering too much detail, because I'm talking about another company, the short answer would be no, because it's a senior debt versus the current debt you're seeing trading.

Okay, and my last question is just I saw, I think in the appendix it said, there was a $14.8 million payment for acquisitions. Were those new acquisitions that were made during the quarter, or was that a payment for acquisitions that have been made previously?

Oh, both, there's a payment for a small photovoltaic plant that happened this quarter, was announced three months ago, and there's a payment for an acquisition done in the past.

Okay. Thanks very much.

The next question is from Angie Storozynski from Macquarie.

Thank you. I have two questions, one about the waivers that you're hoping to secure shortly. Should we expect that there will be still be some amount of cash -- I wouldn't say trapped -- but held at the project levels as basically the condition for these waivers? That's one.

And two, could you talk about the policy going forward, why once those waivers are in, what's the dividend pay out ratio out of your CAFD, are you thinking maybe of lowering it, to allow this 85% to 90% level that you have in the past?

So regarding the first question, our expectation as of today, is the same we shared with you a few quarters ago, which is that we would have some cash trapped there. And our current estimation, in response with the one we gave you -- I think it was in the first quarter 2016 -- so around a $30 million more or less of the impact in 2016, that is already taking into account in our guidance, and our projections, and has been taking into account since the beginning of the year. And at this point in time, we believe that we will end up within that range that we shared with you.

Regarding the policy, the policy as you know is set by the Board. We expect to give you guidance when we present the results for 2016, like we always do. At this point in time, I don't see a reason to change our policy and our pay out.

Okay, thank you.

We have no other question for the moment. And gentlemen, back to you for the conclusion.

Okay, thank you very much, operator, and thanks, everybody for attending the call.

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.