Atlantica Sustainable Infrastructure PLC (AY) 2018 Q4 法說會逐字稿

Welcome to Atlantica's Fourth Quarter 2018 Financial Results Conference Call. Atlantica is a sustainable 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 webcast live on the Internet, and a replay of this call will be available at the Atlantica Yield's corporate website.

Atlantica will be making forward-looking statements during this call based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect or because of other factors discussed in today's earnings presentation or the comments made during this conference call, in the Risk Factors section of the accompanying presentation, on our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our website. Atlantica Yield does not undertake any duty to update any forward-looking statements.

Joining us for today's conference call is Atlantica CEO, Santiago Seage; and CFO, Francisco Martinez-Davis. As usual, at the end of the conference call, we will open up the lines for the Q&A session.

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

Thank you very much. Good afternoon, and thank you for joining the call today. We are going to start on Slide #3 with the key messages. We have delivered very strong operating results in 2018, meeting our EBITDA on our CAFD guidance once again. Our revenues for the year were $1,044,000,000, an increase of 4% compared with our 2017 revenues. And further adjusted EBITDA, including unconsolidated affiliates, increased by 9%, up to $859 million. Cash available for distribution, CAFD was, in 2018, $172 million. In addition, our Board of Directors has declared a quarterly dividend of $0.37 per share, representing an increase of 19% compared with the fourth period of 2017, or a 3% increase versus the previous quarter.

Regarding DPS growth, we maintained our strategy and we maintained our targets. And finally, as you know, we have recently formed a strategic review board committee with the objective of evaluating strategic alternatives available to Atlantica to optimize the value of the company and to improve returns to shareholders. The committee has been mandated to review a wide range of alternatives and to make proposals in these regard to the board. The committee just started working, and we, therefore, will not be able to enter into many more details.

If we start by reviewing our results on Page 6, we can see there revenues in 2018 versus '17, as I said, a 4% increase. Further adjusted EBITDA, including unconsolidated affiliates, up by 9%. And CAFD closed to $172 million. In summary, we are very pleased with the strong results achieved in the year. We have met our guidance this year as well, demonstrating the solid operating performance of Atlantica and the advantage of having a diversified portfolio where a significant percentage of our revenue is based on availability and not only on generation.

Let's move to Page 7 where we see that, overall, the portfolio delivered a solid performance in 2018, both by sector and by region. By region, in North America, both revenues and EBITDA have increased with respect to the previous year. It is important to mention the strong performance of our U.S. solar assets with increased production in Solana and Mojave, reaching the highest yearly combined production ever, and a capacity factor of more than 28% in 2018. In South America, revenues increased by 2%, thanks to a solid performance of our assets once again. EBITDA decreased year-on-year due to the $10 million one-off impact we had in 2017. Without taking into consideration that effect, EBITDA in South America would have also increased by 2%, in line with revenues.

If we look at our EMEA region, revenues increased by 2%, thanks to higher production in our solar plant in South Africa, Kaxu. We have also benefited from the appreciation of the euro against the dollar. And regarding EBITDA, this metric has benefited from the same effects. If we look at the results by business sector, we can see similar trends. Renewable energy revenues increased by 3%, thanks to higher revenues throughout the portfolio, with the exception of Spain, where production in 2018 decreased due to lower solar radiation, although the economic effect is limited, thanks to the fact that a high percentage of the revenues are based on availability.

Kaxu in South Africa delivered a very strong operating performance in 2018, reaching a capacity factor of 36% compared with 25% in the previous year. In efficient natural gas, our asset continues to show excellent performance. The EBITDA decrease is simply due to a scheduled major overhaul at the beginning of the year -- of this year since operation and maintenance costs are typically higher in the quarters prior to a major maintenance.

In transmission lines, revenues remained stable, while the variation in EBITDA corresponds to the one-off in 2017. It is also worth mentioning that the transmission lines acquired recently and the acquisitions announced recently have no contribution in 2018.

Finally, our water segment keeps showing a strong EBITDA performance.

On Page 8, key operational metrics. We see that electricity produced by our renewable assets reached over 3,000 gigawatt hours in the year, slightly below the production generated in 2017, mostly due, again, to lower solar production in Spain because of lower radiation. On the other hand, solar assets in the U.S. and South Africa had a very strong performance in 2018.

Finally, our wind assets generated production broadly similar to what they did in 2017. Our third wind asset, the acquisition was closed in mid-December, and therefore, the contribution in 2018 was very limited. Overall, our renewable energy assets delivered what we believe is a strong operating performance in 2018.

If we now look at our availability-based assets, we see that ACT keeps showing very strong, consistent performance with high availability, and our transmission lines and water assets have also shown very high availabilities once more.

I will now turn the call over to Francisco who will take you through the financial figures.

Thank you, Santiago, and good afternoon, everyone. Let's move on to Slide 9 to walk through our cash flow for the year 2018. Our operating cash flow reached $401 million, improving 4% from 2017. This was mainly due to better operating results and lower interest payments.

Net cash used in investing activities amounted to $14.9 million, of which, 72 -- $73.2 million correspond to acquisitions previously announced, including the acquisition of Melowind, our third asset in South America, the first payment related to our ATN Expansion 1 transmission line, the acquisition of a mini-hydroelectric plant in Peru earlier in the year and the acquisition of Chile Transmission Line 3. Also, as we discussed in the first quarter call, this figure includes $67.9 million we received in Solana from Abengoa mostly in March, in relation to the DOE consent, which was mainly used to repay project debt.

Net cash used in financing activities in 2018 amounted to $405 million and corresponded mainly to the scheduled repayments of principal of our financing agreement as well as the debt repayments by Solana using the proceeds received from Abengoa. We also paid $143 million of dividends to shareholders and noncontrolling interest.

On the next slide, #10, we would like to review our net debt position. We have significantly reduced our consolidated debt in 2018. We closed 2018 with a net corporate debt of $577.4 million after having paid part of the acquisitions closed in December 2018. With this, our net corporate debt to CAFD pre-corporate debt service ratio stood at 2.7x, below our internal target of 3x. On the other hand, net project debt as of December 31, 2018, was $4,566 million, which represents almost a $400 million reduction versus December 2017.

I will now turn the call back to Santiago, who will go over the strategic update and provide further details on our commitment to grow DPS and the guidance for 2019.

Thank you, Francisco. On Slide 12, we can review how we are delivering on our commitment to grow our dividends, obviously, a priority for us. First of all, our Board of Directors has approved a quarterly dividend of $0.37 per share for the fourth quarter of 2018. This means an increase of 19% compared to the fourth quarter of 2017, and an increase of 3% compared with the previous quarterly dividend. Business as usual.

As you can see on the chart, we have made -- or we have significantly increased quarter-over-quarter our dividends during the last years. As a result, the total dividend per share for the year 2018 has been $1.39, up 25% more than in 2017. And with the fourth quarter dividend, our annualized dividend is now $1.48 per share, demonstrating the confidence we have in our business and in our growth prospects, including our midterm guidance.

Finally, before concluding our presentation today, I would like to share with you our guidance for the year 2019 on Page 13. We are now estimating our 2019 further adjusted EBITDA in the range of $820 million to $870 million. And we are estimating 2019 CAFD guidance in the range of $180 million to $200 million. Our guidance for 2019 reflects our expectation for the year, including the contribution from our Mojave project, estimated at $30 million to $35 million of CAFD within the CAFD guidance for the year.

As you know, PG&E, the off-taker in our Mojave asset, filed for reorganization under Chapter 11 on January 29, 2019. This week, PG&E made the first payment for power delivered to them by our Mojave plant after January 29, as per the contract. For us, and as of today, Mojave operates normally. Business as usual.

In our guidance, we do not expect distributions from the asset until Q4 2019, and we, therefore, have time to work with our lender as the situation develops. But we want to be clear, even if the 2019 distributions were delayed in the future, our current intention is to remain committed to dividend and to DPS, dividend per share, growth, given our current payout ratio. In other words, Atlantica was designed for situations like this one. Diversification, nonrecourse finance and a reasonable payout ratio are there to allow us to navigate through situations like this one. And this is what we plan to do.

In summary, your board and your management remains fully committed to dividend and DPS growth. Thank you for your attention. We will now open the lines for questions. Operator, we are ready for Q&A.

(Operator Instructions) Our first question today is from Julien Dumoulin-Smith from Bank of America.

This is Anya filling in for Julien. So I guess, first up, to start, I just wanted to get from your results maybe the latest update on discussions with the DOE. And then, your thoughts on the possibility of receiving some sort of waiver for distributions at Mojave?

So regarding discussions with our lender, we see in the case of Mojave, DOE, at this point in time, it's too early in the process to be able to report much. As you know, we have extensive experience in similar situations. And therefore, we feel reasonably comfortable that we know how to deal with the situation and that we have a lender that will be reasonable and supportive, irrespective of what happens in the future. In the case of Mojave and DOE, our expectation is between now and the end of the year, we will be able to work with our lender and be able to find a solution, depending on the events, obviously, finding a solution that would allow us to make our distribution. In any case, as I mentioned in the call, even if that distribution was delayed, our strategy doesn't change and our DPS policy doesn't change.

Okay. And just a follow-up again on Mojave. In terms of the dividend growth, I just wanted to get a sense of your commitment to DPS growth there. Is that more in terms of a long-term growth target? Or could there be some growth for 2019 as well? And just your expectations for being able to achieve that in 2019.

Sure. Our expectation, what we're saying is that we are maintaining the guidance we have given regarding midterm growth. And we plan to do it, if you want, gradually. So we expect that every year, we'll be able to increase our dividend. And we expect that the Mojave/PG&E situation will not represent a change, and of course, assuming that events develop in the way we think they should develop.

Okay. And on the 2019 CAFD guidance you provided, what are your assumptions there for CAFD contributions from Solana and Kaxu?

So in the case of Solana, we are not expecting distributions. In the rest of the assets, we do expect distributions, and we have built for all the other assets reasonable assumptions regarding those distributions, including Kaxu.

Our next question today is from the line of Praful Mehta from Citigroup.

So maybe just following up on Mojave a little bit. Clearly, the -- it sounds like any decision on the bankruptcy and rejection of contract and the discussion with DOE could take some time. So if you don't have a decision from DOE and PG&E hasn't taken a decision and you still have uncertainty and you're moving into, let's say, 2020, I'm assuming it's difficult to continue to increase the payout. So you will have to take a decision at some point on what you want to do with the dividend. So how should we think about the timing of a dividend decision if there continues to be uncertainty around how Mojave and PG&E play out?

So the message we are sharing with you is that with the current payout we have, we believe that we have enough room to continue, let's say, growing our dividend in a reasonable way but growing our dividend even if the uncertainty you described lasts beyond this year. So could we have a higher payout ratio temporarily because of that? Yes. But that's, as I said before, that's why we were designed to have a reasonable payout, to be able to temporarily increase it if needed. Having said that, again, we have plenty of time between now and the end of the year. We do not plan a dividend before the end of the year, and therefore, we will be able to work with our lender, with our client to find solutions before then. And we are not in a rush whatsoever. And we have a lender that has proven to be supportive in the past and who has several projects, not only us with PG&E, and who we believe will be a good partner in the developments we will be facing in the coming months.

Got you. Fair enough. Maybe just a second question on the strategic review because that sounds clearly interesting in terms of -- it sounds like it's pretty broad in terms of scope. It could include, I'm assuming, asset sales or getting some other owner on an equity basis. If you could just give us some context of what is the width or breadth of the review on the strategic side and is that connected with Mojave, as in do you need to do something strategically to avoid kind of any payout issues further down the road? Or do you still completely disconnect it?

So I don't think that it has to do with Mojave. The decision to create a strategic review committee is coming from a board who will, I believe, has done what is normal. Meaning, as a board, when we feel that there's a disconnect or a large gap between the value of the business and the price in the market of the business, I believe that, responsibly, the board has decided to create a committee to review, as you mentioned, a broad set of options to increase the value of the company because that, obviously, is very important for us as management and as board. And therefore, we proactively decided to take the step of reviewing all options and putting together a plan to make sure that we can maximize the value of the company. And that's the reasoning. And I think that it's a proactive step to do it at this point in time, without any real reason more than the gap between what we consider is the value and the price.

Our next question today is from David Quezada from Raymond James.

My first question here, just related to Mexico, I know that there's been some fuel theft issues and supply disruptions in certain parts of the country. I'm just wondering if you can talk about or just confirm that you don't have any exposure there. And talk about how that colors your view on potentially deploying capital there in the future.

So it doesn't affect us in any way. Our asset in Mexico receives natural gas from the client who has a facility nearby and there have been no operational issues there. Nothing to do with the situation you described. Going forward in Mexico, as you know, there's a new government since late 2018, our point of view regarding Mexico continues being supportive. We believe there are significant opportunities locally in our markets. And our intention or our view of the market continues being positive and we continue analyzing a number of opportunities. And obviously, we will monitor the evolution of the market from that point of view.

Okay. Great. And then, I'm wondering if you can provide any just broad comments on -- with some of the investments you made recently, how you feel about your availability of growth capital currently and the outlook there?

So we have announced, as you know, a number of acquisitions, many of them have been closed already, and others we are in the process of closing now. And we continue analyzing many of those acquisitions. We continue seeing attractive areas where we can deploy capital at reasonable returns. And how to finance that, we're working on a number of options. And as part of that is where we want to make sure that we have a competitive cost of capital. And obviously, the initiative of our strategic review committee is part of that, how to ensure that our cost of capital is going to be competitive by looking at all the options.

(Operator Instructions) Our next question is from Abe Azar from Deutsche Bank.

With your EBITDA up 10% year-over-year and the leverage down 10%, do you see any opportunities to either relever or refinance as a potential source of capital?

Do you want to take this one, Francisco?

Yes, I'll take this one, Abe. You see there that we have both the holding company leverage at 2.7 and the debt has decreased by almost $400 million with operating company. So one of the levers set that we always look, Abe, is to be able to refinance some of the assets in the portfolio. That is something that during 2018, we refinanced 2 assets in the portfolio in Spain, and we're actively looking for other opportunities to create value by refinancing other operating assets that we have in the portfolio. That's something that we're looking. And with regards to holding companies, Santiago mentioned how important it is to have the lowest cost of capital, that component is important to that. So we are also looking at what are the best alternatives to finance the growth component of future growth.

And in fact, Abe, I mean, the reason why we are confident, following the question we had before from David and putting it together with yours, the reason why we feel confident about being able to deploy more capital in the future is because we have a number of sources. We have a number of levers, including the one you mentioned. Clearly, in a portfolio as large as ours, by refinancing assets or by financing the company in other ways, we believe we can free up capital to do a number of new investments. And that's part of the kind of initiatives we'll be looking at and other things Francisco and his team are working on.

Currently, there are no further questions waiting, sir.

Okay. Thank you very much to everybody for joining us today. Thank you.

Thank you very much, sir. Ladies and gentlemen, that does conclude the conference for today. Thank you all for participating. You may now disconnect your lines.