Atlantica Sustainable Infrastructure PLC (AY) 2017 Q1 法說會逐字稿

Welcome to the Atlantica Yield First Quarter 2017 Financial Results Conference Call. Atlantica Yield is a total return company that owns a diversified portfolio of contracted renewable energy, power generation, electric transmission and water assets in North and South America and certain markets in EMEA. 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 corporate website. Joining us for today's conference call is Atlantica Yield CEO, Santiago Seage; and CFO, Francisco Martinez-Davis. As usual, at the end of the conference call, we will open the lines for the question-and-answer session. I will now pass you over to Mr. Seage. Please sir, go ahead.

Thank you, very much. Good afternoon, everybody and thank you for joining us today for our first quarter 2017 earnings conference call. Let's just start on Slide #3 where we are going to be sharing with you the key messages regarding this quarter. In first place, we are very happy to announce strong operational results for another quarter. Our revenues in the quarter reached $198 million and further adjusted EBITDA including unconsolidated affiliates reached $165 million, 7% more than in the first quarter of 2016. In second place, our operational performance was very good overall. Additionally, the first quarter has been outstanding in terms of CAFD, in terms of cash available for distribution, with nearly $61 million generated in the quarter. This is the highest ever and reflects the impact of some of the waivers we secured in some of the project finance agreements in the very last part of 2016. Finally, we announced that our board of directors has declared a quarterly distribution of $0.25 per share. If we move to the Slide #6, we will now review the main financial figures. Revenues for the quarter as I mentioned before, amounted to $198 million, representing a slight decrease of 4% over the previous year which is due in part to currency translation, euros versus dollars and partially due to lower generation in Kaxu, our asset in South Africa where as you know, we discussed last quarter about some performance issues at the very end of 2016. Regarding further adjusted EBITDA, we reached $165 million, 7% higher than the same quarter in the previous year. And finally, as I mentioned before, CAFD was $60.9 million, an excellent level in what is our key performance indicator. With this, we are on track to meet our guidance for the year 2017. On Slide #7, we show a detailed breakdown of the results by geography and sector. Starting with geographies, in North America, EBITDA increased by 7%, thanks to a strong performance of our solar assets in the southwest of the U.S., in spite of lower solar radiation during the first part of the quarter. In South America, revenues remained fairly stable and further adjusted EBITDA increased by $10 million. In EMEA, revenues and EBITDA decreased mainly due to the currency effect mentioned before and to the lower performance in Kaxu, South Africa in the quarter. Looking at these numbers by sector, we see that in renewable energy, revenues decreased again due to the same currency translation difference and due to the lower performance in Kaxu. Nevertheless, that lower performance in Kaxu was compensated by improved performance of our solar assets in the U.S. and in Spain. EBITDA was slightly higher, thanks to that performance. In conventional power, EBITDA was very similar to the same quarter last year while in transmission lines, revenues remained stable and further adjusted EBITDA again improved significantly. Finally, our water segment had similar levels of revenue and EBITDA to the first quarter 2016. Overall, all our segments and geographies have delivered strong numbers in the quarter. If we now move to Slide #8, we will cover the operational performance of the assets. Starting with renewable energy, generation reached 460 gigawatts hours in the first quarter, a slight decrease compared to the first quarter of 2016. As I mentioned before, the main reason -- the only reason in fact, is a lower production level in Kaxu, where we had technical issues at the end of 2016 after the asset had performed very well during most of that year. We are now carrying out the necessary repairs and we expect to see a higher performance in the third and fourth quarter of 2017. In the U.S., we were able to increase production despite lower levels of solar radiation in the region. Although we remained prudent, Solana has performed well in the quarter. In fact, Solana has reached its daily production record ever in April 2017. In Spain, production was in line with expectations. Our fleet of solar assets as you know, more mature than in the rest of the other geographies has demonstrated a very reliable performance. Finally, our wind assets which as you know, represents a small proportion of our portfolio, continued to perform below expectations due to lower than expected wind availability. Moving to our conventional power segment, our core generation plant in Mexico ACT has continued to operate close to its capacity levels, reaching in fact, availability of very close to 100%, with very good levels of production. In transmission, availability has decreased slightly versus the same quarter last year due to the effect of heavy rains in Peru in February. Finally, our water assets have exceeded forecasted availability again. With these very good operating results, I will now turn the call to Francisco who will take us through the financial section.

Thank you, Santiago, and good afternoon, everyone. Please turn now to Slide #9 to discuss our liquidity position. Before we enter into the numbers review, let me remind you that back in the third quarter of 2016, we reached an agreement with Abengoa related to a preferred equity investment in Brazil. Basically, we agreed to waive the dividend retention right related to this financial instrument and in exchange, Abengoa recognized a financial liability with us, subject to restructuring. According to the terms of the restructuring agreement, that debt was converted into Abengoa's equity and junior debt. After analyzing the situation, we decided to invest in Abengoa new money in order to elevate the status of our Abengoa debt from junior to senior. The Abengoa super senior new money in which we invested consist of super senior debt which is guaranteed by Atlantic Yield shares and another asset in Mexico. Since our business does not consist in holding financial investments, as of March 31, 2017, we reached agreements with different financial institutions to sell our new money but the settlement of these agreements does not happen until early April. Thus, as of March 31, 2017, our financial statement show the cash out required for the investments in the new money but not the cash in resulting from its sale. As a result, we believe it's appropriate to show an adjusted liquidity position including the proceeds obtained from the sale of the new money in early April, amounting to $44.9 million. Taking this into consideration, total corporate cash adjusted post new money sale in early April reached $146.9 million. In addition, cash at project level companies remain strong, amounting to $487 million, of which $223.6 million was restricted and the remaining $263.8 million nonrestricted. Nonrestricted cash corresponds to cash standing at the project level, waiting for time window to be distributed. Restricted cash corresponds mainly to debt service reserve accounts required by project financing at the asset level. Short-term financial investments also restricted accounts. With this, total liquidity adjusted post new money sale reached $718.6 million.

Moving on to the next slide, you could see our cash flow for the first quarter of 2017. Operating cash flow for the quarter reached $86.4 million which is in line with the same quarter of last year and reflects the solid performance of our portfolio. Interest and income tax paid correspond almost exclusively to interest paid and in line with last year. As a reminder, there is some seasonality in our project debt. A majority of our assets pay debt service in the second and fourth quarters and as a result, interest payments are lower in the first and third quarters. Variations in working capital have been negative, with almost $29 million in the quarter. Working capital is also subject to seasonality caused by the seasonality in production and invoicing in our solar assets, thus this negative variation is expected. Nonmonetary items and other are negative $22 million and correspondingly to the noncash EBITDA related to grants in our U.S. solar assets. Reported investing cash flow as of March 31, 2017, includes investments made in the new money which I've previously described. Similarly, as shown in the previous slide, we have adjusted the amount including the amount received after its sale. The remaining $13.9 million correspond mainly the variations in short-term financial investments which are basically movements in restricted budget accounts. Financing cash flow amounts to negative $36 million and corresponds primarily to the dividends paid as well as scheduled project debt repay. Taking this into consideration and if you look at our reported numbers, you can see a decrease in consolidated cash of $8.6 million. But if we look at the first column, adjusted by the proceeds of the new money sale in early April, consolidated cash flow has increased by $36.2 million, a much more realistic picture of our first quarter. Looking at Slide 11, you can see the bridge from further adjusted EBITDA including our consolidated affiliate for CAFD. If we start with our further adjusted EBITDA included and consolidated affiliate of $165 million and we deduct interest paid, debt amortization and other effects, we arrive to our cash generated in the first quarter of $88 million, significantly higher than in the first quarter of 2016. Then, we go from cash generation of CAFD. We remind you that we define CAFD as cash distribution from projects to the holding level which depend on specific windows. Typically these distributions are not significantly in the first quarter. However, in the first quarter of 2017, we have higher distributions than usual thanks to some of the waivers secured in late 2016. As a result of the strong corporate liquidity position, we can see, turning now to Slide 12, that our adjusted net corporate debt has decreased. We closed first quarter 2017 with a net corporate debt of $566 million, while the position adjusted for the new money sale in early April amounts to $521 million. In addition, net projects debt total approximately $4.9 million at the end of the quarter. The variation is due to interest accrual that are not paid which is also part of our debt balance. Our corporate net debt ratio now stands at 2.6x CAFD precorporate debt service, below internal target of 3x. I will now turn the call back over to Santiago for the dividend and strategic update.

Thank you very much, Francisco. Regarding dividend, we are pleased to announce that our board of directors approved a quarterly dividend of $0.25. As a reminder and as we have discussed in previous quarters, our board of directors decided to maintain a conservative dividend policy until we secure all the waivers for cross defaults and change of ownership provisions that's still contained in a few of our project finance agreements. During the first quarter, we have obtained a new waiver in Kaxu which covers potential past cross defaults in the project finance agreements as of late March and allows a reduction of ownership by Abengoa below the 35%. Since this is a partial waiver, it doesn't cover potential current default situations in the future. The board of directors has decided to remain prudent until the company secures the last remaining waivers and has decided to maintain the same dividend as last quarter, $0.25. We obviously expect to increase the distributions once we secure the last pending waivers.

Turning on now -- moving to Page 14. I would like to provide here, a brief update regarding our strategic priorities for the year. In first place, our main priority continues to be to meet our targets for 2017. After a good first quarter, from an operational point of view, we are having an even better first part of Q2. And we are going to continue working for the rest of the year to make sure that we do meet our targets and that all our assets reach their full potential as soon as possible. Our second priority is securing the remaining -- the very few remaining waivers. After we have obtained a waiver in Kaxu, as I described, we are now clear of cross-default risks in our portfolio which is obviously good news. In terms of minimum ownership waivers which, as you know, we would need if and when Abengoa sells their stake in the company. We believe that the very few waivers missing should be obtained in the coming months. But it is difficult to forecast when. In third place, we plan to maintain a conservative corporate leverage while we monitor closely, value-creating opportunities within our existing portfolio and existing financial instruments, both at the corporate and the project levels. And finally, regarding growth, our priority is to build during this year, a growth pipeline that will allow us to grow through acquisitions in the remainder of '17 and in the years to come. In fact, if we move to the next page, and as we have discussed in the past, infrastructure investing is a key theme today in most of the geographies where we operate. And we do expect to play an important role in that space and capture opportunities that will come in the next few years. With the know-how and the capabilities we have as a long-term infrastructure owner and manager in power and water, we are confident that we can put together the strategy that will allow us to grow through 3 key strategic priorities. In first place, we plan to grow through the current ROFO agreement we have. The ROFO agreement we have can provide us attractive opportunities that could fit in our portfolio. As an example, all the assets that are within the current ROFO agreement, we can include or the ROFO includes a 300-megawatt cogeneration asset in Mexico, physically very close to the asset we own today at 20% interest in a water transportation asset in the south of the U.S. or at 210-megawatt solar complex in Northern Chile, among other assets. At this point in time, we do not have complete visibility on these projects but nonetheless, we will be monitoring these assets and others that are included in the ROFO and we will be more than willing to exercise our ROFO rights if the conditions are reasonable. Therefore, these ROFO agreements should provide us a certain growth in the years to come. Obviously, this is not enough and therefore, our second growth strategy is to partner either through ROFO agreements or other partnership structures with developers or financial players who need a long-term holder of their assets as a partner. We have been working on these for several quarters now and we are convinced that we will be able to reach reasonable accretive agreements with players like the ones I have described. And this agreement will be complementary to the ROFO we have today. Finally, as a third growth pillar, we have invested a very significant amount of time and effort, building a strong local presence in several markets that is allowing us to look at acquisition opportunities that, in many cases, are probitory. Given our broad geographical and technological exposure, we expect to be able to close reasonably attractive opportunities. In this context of partnerships and acquisitions, during the first quarter of 2017, we completed the acquisition of a 12.5% stake in a transmission line located in the Southwest of the U.S. between California and Arizona. We have invested a very limited amount at this stage and we have, as well, an option to acquire an additional 12.5% interest once the asset reaches commercial operation. We believe that now is the time to focus on accretive growth and we are and will continue to devote our time to capture opportunities during the second part of 2017. And more importantly, to build a growth pipeline that can demonstrate the growth potential through acquisitions going forward. With that, I conclude the presentation of our first quarter results. We will be meeting investors in New York. Please contact our Investor Relations team if you're interested. Thanks for your attention. And now, we open the lines for questions. Operator, whenever you want, we are ready for Q&A.

(Operator Instructions) The first question today comes from Anthony Crowdell from Jefferies.

My first question is on the waiver agreement. So for Kaxu, you got a partial waiver agreement. How should we look at that? And also, it seems that the final agreement is taking longer than expected, is that accurate?

Anthony, I didn't get the second part of the question. Which one did you say is taking longer?

It seems like the final waiver agreement, it appears that is taking longer than expected, is that accurate?

So in Kaxu well, I mean, Kaxu is good news, obviously, because we did sign a waiver agreement. The waiver is not total, so it's covering minimum ownership completely. So in Kaxu, there will be no impact if Abengoa reduce or sold their stake in Atlantica. Nevertheless, regarding cross default, it covers any past potential cross defaults. But it doesn't cover future potential cross defaults. So it's not 100% what we wanted but clearly, it's a very important step in the right direction. In general, the last few waivers are taking us a bit longer than expected. That's I think, it's fair, your comment. As I mentioned before, we believe we are on the right track. It's a question of time but yes, it's taking us a bit longer than anticipated.

Are you still working with Kaxu to get a full waiver or you look at it now as getting this partial waiver as being completed and that there is no impact to increasing the dividend to this partial waiver?

We received -- we [thumb] signed and secured. We will obviously continue working with the lenders to see if we can get a full cross default going forward so that we can have a totally complete waiver in that project.

Does this partial waiver prohibit you from paying out more our am I misunderstanding the partial waiver?

There is no prohibition anywhere. So with this waiver, we are finding the asset. We can make the distributions if asset is performing, no issue whatsoever. A different decision is what kind of payout or dividend does the board want to approve when it hasn't secured all the waivers yet.

Okay. And my last question is, what are the issues with this I believe, solar in the -- was it solar in the U.S. the first quarter or you made some repairs at the end of the fourth quarter. What are the actual issues that are happening?

So what I tried to explain was a little bit the opposite, Anthony. I tried to explain that the first quarter in the U.S -- in solar in the U.S. has been very good, and I talked about repairs in Kaxu in South Africa. This is an asset where we have some technical issues in the very last part of Q4 2016, and we have been making the repairs needed to go back to normal. So the U.S. doing well, Kaxu in South Africa having some technical issues.

The next question comes from Sophie Karp from Guggenheim Securities.

Maybe you could give us a little color on what drove the performance and the EBITDA margin expansion this quarter. It was quite a bit higher I think, in the margin level versus last year. And also, if you apply sort of regular seasonality, it would imply the full-year guidance above your midpoint. So I'm kind of looking to get some color on that.

Yes. Regarding the EBITDA margin, probably the main effect and correct me if there's something else but I think the main effect in the higher EBITDA margin is the fact that during Q1, we were able to retain the dividend payable to Abengoa, following the agreements that we have in place at the time. So that's an extra $10 million of EBITDA that we didn't have the previous year. And that should be nonrecurrent if you want. This happened in Q1 but it should not happen in the rest of the year.

The next question comes from Julien Dumoulin-Smith from UBS.

So perhaps, just to come back on the waiver, just to be very clear about this. As I presume, it's the Mexican waiver that is one of the critical issues still in terms of deciding future dividend policy, if that's correct?

Correct.

And what's the status in that conversation? Is it still relatively status quo from the last quarter?

Yes. The situation is, we expect to receive this waiver in the coming months but it's unclear when we will be able to secure it. So it's a similar situation to what we described a few months ago. Then, I'd say we are not worried about the waiver itself, the issue is the timing.

Right. Cash is still accruing at a restricted account at the subsidiary?

Actually, the Mexican asset is generating cash and has been able to distribute that cash. This asset is making payments because remember, the waiver we are missing in Mexico is a waiver for minimum ownership. So as of today, we are fully compliant because Abengoa owns more than the minimum ownership. So this is if you want, the waiver we are discussing is something we are asking for to be ready in case and whenever Abengoa sells shares in Atlantica. But as of today, we are fully compliant and therefore, the asset is making distributions to the holding company.

Got it, excellent. Can you elaborate a little bit on what you need to see in order to get the dividend up further? Is it simply the Mexican minimum ownership or do you need it...

It is mainly the Mexican waiver, Julien. The Mexican asset as you know, is a significant part of our cash flow and therefore, our board believes that we need to have that waiver in order to be able to increase distributions.

Excellent. Can you discuss a little bit more, your growth plans? I'd be curious, as you I think about the liquidity that's accumulating on your balance sheet through the last few quarters, given the reduced dividend, how do you think about priorities? You obviously articulated a number of new opportunities out there. How near term are subsequent acquisitions as drop-downs, practically speaking?

So regarding acquisitions, our expectations should be -- we should be able to make some small acquisitions in the early short-term from third parties, things accretive as we have discussed in the past, perhaps not large but clearly accretive from third parties. Regarding timing for drop-downs, still, the visibility we have is not enough to give you an accurate answer. And use of cash, as we have mentioned in the last quarter, our intention would be to invest some money in clear value-creating strategies within our own portfolio, plus spending some money in these small acquisitions that are accretive and I mentioned before.

Right, absolutely. Then a further follow-up question, just very small nitpicking. Revenue for South America versus EBITDA, EBITDA's higher for the quarter, can you just elaborate just quickly on that?

It's the same answer I gave to, I think it was Sophie. EBITDA is higher overall and specifically in South America this quarter because of this dividend retention we could do to the Abengoa dividend.

Got it. That make sense. Lastly, just a follow-up if I can. In terms of the potential ABG sell of your shares, what are the risks or implications? I presume largely in a sense, once you have these waivers in place, there are almost practically no implications for your day-to-day operations, whether it be a change in control or whatever. I just want to make sure that's correct.

So regarding a potential sale by Abengoa, the key thing is to obtain the waivers obviously on a transaction I understand would only happen if we do have those waivers. And regarding implications elsewhere, we do have a number of contracts in place and in our public filings, we described implications in each of them. The main one, the R&D operation and maintenance contracts where our intention would be to continue working with Abengoa as a supplier as if we were working with any other supplier. There's a contract in place, they need to do a number of things, we need to do a number of things. And as long as we both do what we need to do, we will continue working with them.

Right. Sorry, just to be clear, clearly, the operational maintenance contracts would be set at market rates. But to the extent to which there are any detrimental impacts in terms of contract resets, et cetera, I just want to be abundantly clear about this.

And what's specifically is the question, Julien? I don't know if I understood you. If there are what?

There's no issues with regards to specific PPAs, et cetera, on any change of control?

No, no. There are no -- this is included in our public filings, there are no provisions in our PPAs which would be impacted by changes in ownership.

Thank you very much. Ladies and gentleman, there are no further questions in the conference. So you may now disconnect your lines. Thank you very much.

Thank you.

Thank you.