Atlantica Sustainable Infrastructure PLC (AY) 2019 Q4 法說會逐字稿

Welcome to the Atlantica's Fourth Quarter 2019 Financial Results Conference Call. Atlantica is a sustainable infrastructure 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, this call is being webcast live on the Internet, and a replay of this call will be available at Atlantica Yield corporate website.

Atlantica will be making forward-looking statements during this call based on the 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 based on other factors discussed in today's earnings presentations, all the comments made during this conference call in the Risk Factors section of the accompanying presentation on our latest reports and findings 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's 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 go ahead, sir.

Good afternoon and thanks for joining our fourth quarter 2019 conference call.

On Slide 3, we'll start with the key messages. In first place, we have continued showing a strong performance in the fourth quarter of 2019 with a CAFD increase of 28% year-on-year, reaching approximately $50 million, driving CAFD for the full 2019 to more than $190 million. That represents an 11% increase when compared versus last year.

In second place, further adjusted EBITDA, including unconsolidated affiliates, for the full 2019 also increased, in this case, by 3% on a like-for-like basis.

In third place, our Board of Directors has declared a quarterly dividend of $0.41 per share. That represents an increase of 11% compared with the fourth quarter of 2018. For the full year '19, the dividends declared reached $1.61 per share, a 16% increase when compared to the dividends declared in 2018.

In fourth place, we are pleased to announce that we have completed the pricing of a green bond private placement for approximately $320 million. We expect to use the proceeds to repay existing corporate debt, achieving significant improvements both in cost and tenor, as we will explain later in the call.

And finally, we are encouraged by the strong pipeline of potential investment opportunities in the countries and sectors where we operate. In this regard, we have signed an option to buy out Solana's tax equity investor in 2020. I will provide further details in a few minutes.

With that, Francisco will now summarize our 2019 results.

Thank you, Santiago. Good afternoon.

Please turn to Slide 5, where we present our key financials for the year 2019.

Revenues in 2019 reached $1,012 million, a 3% decrease versus 2018, primarily due to currency translation effects. On a constant currency basis, revenues were in line with 2018. Further adjusted EBITDA, including unconsolidated affiliates, decreased by 4% to $822 million. This decrease was due to the currency translation effects and also to a onetime noncash gain recorded in the second quarter of 2018. Excluding these effects, on a like-for-like basis, our EBITDA for 2019 increased by 3%. Finally, CAFD generated in 2019 increased by 11% year-over-year to $190.3 million, meeting our guidance for the year once again.

Let's turn to next slide, please, #6. Overall, our portfolio of assets delivered a positive performance in 2019. In North America, 2019 EBITDA was in line with 2018. In South America, both revenues and EBITDA increased by 15%, thanks to the continued solid performance of our assets and the contributions of the new assets acquired. The revenue decrease in the EMEA region was mainly due to a foreign currency translation effect. EBITDA increased by 3% on a like-for-like basis.

In Spain, production increased year-over-year mostly due to higher solar radiation. Also, the Kaxu solar plant continued to deliver a strong operating performance.

Looking below at the results by business sectors, we can see similar effects. In renewable energy, revenue decreased due to currency translation, and EBITDA decreased for the same reason and also due to the extraordinary item in the second quarter of 2019 that I have previously mentioned. In efficient natural gas, our Mexican asset continues to show solid performance. In transmission line, revenues increased by 8% and EBITDA by 9%, mainly due to the contribution from the acquired transmission assets. Finally, our water segment keeps showing strong EBITDA levels, growing 3% year-over-year.

If we look now at the following slide, #7, we can review the key operational metrics of our assets. Electricity produced by our renewable assets reached more than 3,200 gigawatt hour in 2019, a 6% increase compared with 2018. Overall, our renewable generation assets delivered a good operating performance. Looking at our availability-based contracts, ACT keeps showing solid performance. Finally, in transmission lines and water, the 2 other sectors where our revenues are based on availability, we continued to achieve high availability levels above 100%.

Let's move on to Slide #8 to walk you through our cash flow for the full year 2019. Our operating cash flow for the 12-month period of 2019 reached $364 million compared to $401 million in 2018. The decrease was mainly due to a higher variation in working capital resulting from longer collection periods compared to the same period of the previous year. In addition, our payments to suppliers increased in 2019 as accounts payable were higher than usual at the end of 2018 due to scheduled overhaul in several assets.

Net cash used in investment activities in 2019 was $118 million and corresponded mostly to investments in new assets and should be seen in conjunction with the net cash used in financing activities as it includes investments made by our partners. Net cash invested by us in 2019 amounted approximately to $112 million. Net cash used in financing activities in 2019 amounted to $310.2 million, and that included the impact of the refinancing of part of our corporate debt earlier this year. All in all, the net change in consolidated cash in 2019 was a $65 million decrease.

On the next slide, #9, we would like to review our net debt position. We closed 2019 with a net corporate debt of $658 million, higher than the net corporate debt as of December 31, 2019, mainly due to the investments made in 2019. With this, our net corporate debt to CAFD pre-corporate debt service ratio stood at 2.9x. On the other hand, net project debt as of December 31, 2019 was $4,355,000,000, approximately $200 million lower than at the closing of 2018.

Now I will turn the call back to Santiago.

Thank you. On Slide 11, we can see the progress we are making in our growth strategy.

In first place, as I mentioned before, we believe we have a strong investment pipeline in front of us. We continue to target the $200 million to $300 million of equity investments per year. And as part of that, and as I mentioned earlier, we have signed an option to acquire our partner's equity interest in Solana. As you know, Solana is a 280-megawatt gross solar electric generation facility in Arizona. The asset has a 30-year PPA, of which 24 years are remaining. The PPA has a fixed price with an escalation factor with APS, Arizona Public Service, as an off-taker. We believe that this is a clearly accretive investment that will yield -- we expect to obtain a double-digit CAFD yield from the second half of 2020. And regarding financing, at this point in time, we expect to finance the acquisition with a combination of liquidity available, a bridge financing and a potential project debt refinancing.

Another important source of CAFD growth, of CAFD improvement in a context like the one we have today with low interest rates is the continued financial optimization of our portfolio. And as you know, for the last couple of years, we've been taking a number of initiatives to refinance and lower our financing costs both at the project and the corporate level. In that regard, we have recently priced a private placement for approximately $320 million of green notes that will be used if and when closed to refinance existing debt, achieving very significant interest cost savings starting next year. We have also refinanced the existing debt of a project, ATN2, achieving approximately $1 million improvement in terms of CAFD.

And finally, it is also important for us mentioning that our ESG ratings have continued improving during 2019. Our strong commitment to ESG and sustainability is, without any question, a very important aspect of Atlantica.

Now I will pass the call back to Francisco, who will discuss with us the announcement about the pricing of a green private placement.

Thank you, Santiago. We're very satisfied with the pricing of this new financing as it really bears significant improvement for the company. We have recently placed a private placement of an equivalent of approximately $320 million of U.S. senior secured notes denominated in euros, to be fully subscribed by private and institutional investors. Closing and funding are expected in April 2020, subject to certain conditions. And we intend to use the net proceeds to repay our existing 2017 senior secured note facility, what is known as the 2017 NIFA. The new green notes consist of a bullet maturity expected in June 2026; that is they have a 6-year tenor and bear a coupon of 1.96% per annum.

We have been able to leverage our strong ESG focus to price a green bond, fully aligned with the 2018 Green Bond Principles, and we also counted with the second-party opinion by Sustainalytics. The private placement notes have 3 advantages: a cost improvement of approximately $10 million per annum expected from 2021; an extension of the tenor of approximately 3 years in average life compared with the 2017 NIFA; and finally, we obtained a natural hedge for our CAFD generated in Europe. As I mentioned, we're extremely priced to have priced our first green financing because it shows how committed we continue to be with sustainability.

I will now pass the call back to Santiago.

Following with ESG on Page 13, you can see that earlier this month, we were rated by Sustainalytics as the best company within both the renewable power and the broader utility sector within what they call the ESG Risk Rating assessment. This rating represents an improvement versus what last year was already a remarkable rating.

Regarding greenhouse gas emissions. 2019 has been the first year in which we have reported scope 1, 2 and 3, and we have been able to reduce our emissions by 14% versus the previous year. In fact, if we compare our emissions with the emission rates of, let's say, traditional power generators, where generation is based on fossil fuels, we have avoided around 4.7 million tons of equivalent CO2 when compared with a 100% fossil fuel-based generation. So in summary, we continue making what we believe is significant progress on our commitment to ESG and sustainability.

On the next slide, you can see that our Board of Directors has approved a quarterly dividend of $0.41 per share for the fourth quarter, or $1.64 on an annual basis. This dividend represents an 11% increase when compared with the same quarter in 2018. Here as well, we continue delivering or exceeding on our DPS growth targets.

And finally, moving to the last page, we would like to share with you our guidance for the year 2020, where we estimate that further adjusted EBITDA would be in the range of $820 million to $870 million, and CAFD would be in a range between $200 million and $225 million.

Thanks for your attention. With that, we can open the line for questions. Operator, we are ready for Q&A.

(Operator Instructions) The first question comes from the line of Julien Dumoulin-Smith.

This is Anya filling in for Julien here. So first, on the new 2020 guidance, how do you think of your dividend growth strategy? Does that 8% to 10% CAGR target that you previously had, does that still hold?

So regarding dividend growth, we see no reason why dividend growth should be, let's say, similar to CAFD growth. If you look at the CAFD growth in our guidance, it's more than 10% higher than the actual '19. So I see no reason why the dividend should grow very differently from that.

Okay. Is there any reason why you chose not to publish an official 8% to 10% roll forward then?

There's no reason. We have -- we are publishing guidance for the year.

Okay. All right. And on the strategic review, with the latest set of updates, is this an indication that the strategic review is heading closer to some form of resolution? Are you looking at any other options? Are there any other options that are still on the table such as asset sales or anything else?

So the process is ongoing. And as you know, I cannot be more specific than that or make any comments.

Okay. And just one last one for me. On the green bonds, are you seeing any other refinancing opportunities similar to this? And any way to estimate CAFD benefit on these efforts?

Anya, this is Francisco. This green bond is one of the refinancing opportunities that we see for the holding company debt. We already refinanced last year the high yield with significantly improved terms, and we're always looking at the portfolio at the operating company actively to see if there is more refinancing opportunities, which we think there are.

The next question comes from the line of Praful Mehta.

So maybe in terms of just the strategic review, just wanted to ensure I understood. At this point, all the different options from refinancing to asset sales, all of them are still on the table, nothing has been eliminated at this stage?

As I mentioned, Praful, I shouldn't be making comments regarding a process that is ongoing, if you allow me.

All right. All right, fair enough. All right. So secondly, in terms of your stock price performance, clearly has been very good, even despite what has happened over the last week. Your stock price, clearly, in a much better position versus where you started the strategic review. Is that -- does that mean that you now have more flexibility around potential M&A -- acquisitions? And using your currency for acquisitions, do you think that this opens up more opportunities and venues for you to do that? Is that -- how should we think about that given your currency now is much stronger than where it was a year ago?

So I think that regarding growth for the last couple of years, we have been able to identify accretive opportunities. And we have been able to close on accretive opportunities, thanks to the fact that we have had ample liquidity and if you want, a conservative balance sheet. And as we have always said, our idea is to invest between $200 million and $300 million per year. And obviously, we are very happy with the performance of the share at least until last week. And we do believe that for a company like us, having, let's say, a competitive currency in the form of shares is important, of course.

Right. But there is no kind of plan to use or issue equity as a way to fund any growth opportunities, if you see anything that's viable at this point?

Well, it all depends on what opportunities we find and we tackle.

Got you. Fair enough. So it is at least open to that. And then just finally, on the PG&E situation, clearly, that seems to be heading towards a solution. From your perspective, is there anything we should be thinking of around Mojave? Or do you kind of see and expect all of that to be resolved once PG&E exits and kind of that freeing up and adding a little bit more flexibility from your cash flow perspective?

So based on public information, what we know, as you know, is that PG&E seems to be on a path to leave their process by June, hopefully. That's what we count on, and that would allow us to make distributions in the second part of this year. That's our base case.

The next question comes from the line of David Quezada.

My first question here, just on the option to purchase the Solana tax equity investment. I'm just wondering -- or just to confirm maybe what the deciding factors will be there. Is it mostly just completing the financing that you're negotiating right now? Or would there be other factors that you're considering before you go ahead and exercise that investment or option?

Well, like any investment, it will be -- I mean, we will be -- we have signed an option. So we will be analyzing and making a decision in the coming months, and we will be working on the financing where things are fairly advanced. So in principle, if we have signed an option, it is because we see the opportunity as attractive. But until we execute, we will continue working on the opportunity.

Okay, great. And then my second question, just the -- I believe you have a ROFO on the remaining 70% of the Monterrey gas asset. I'm just wondering if you have any recent thoughts on when you might decide on that and what kind of variables you're looking at there?

So it's a ROFO. Therefore, we will be able to look at that when our partner sells. Our partner is a financial investor. So at some point in time, they will exit. But obviously, it's up to them to decide when to exit. And from that point of view, we don't control the timing. If you ask me, my guess probably would be 1 or 2 years, but it depends on them.

Okay, great. And then just one last question. I guess you've had some time now with the battery asset at Monterrey now in your portfolio. I'm wondering if you could just give maybe some comments on how you see battery storage as an opportunity going forward. And if that would just be more likely on the M&A side? Or could you deploy it elsewhere on your footprint on some of your existing renewable facilities?

So we do believe that the storage, in general, is going to be a critical part of the power system in many geographies. And not only battery storage. We believe that there will be different technologies. And 5, 10 years from now, it will be mainstream. And for companies like us, we will be investing and deploying capital against the storage. Obviously, what we need is to be careful. It's a new technology -- or new technologies, better said. Financing is in earlier stages, and you need to be careful so that you invest when the technology is mature and when you can optimize the financing. Therefore, our intention is to make some investments in the technology, not very large for some time. But obviously, midterm, we do think that it will be a very important opportunity for companies like us.

The next question comes from the line of Stephen Byrd.

Most of my questions have been covered. I did want to go back to Solana just to make sure I understood the financing approach. I think your Slide 11 gives a lot of good information. Just to make sure I'm clear, could you go back through the strategy for permanent financing of that acquisition? And I guess, what I'm really focused on is trying to think through the sort of dry powder in terms of leverage or other sources of capital that can finance that. I just want to make sure I'm clear on that.

So I will make a couple of comments and leave Francisco if he wants to build on that. First of all, it's a bit earlier stages. From that point of view, we have an option, and therefore, we have time. And the second thing is refinancing assets. We expect it's going to be a significant source of financing for, I would say, a significant part. And still, I wouldn't be more precise on that because we are actually working, or Francisco and his team are working on this. So that should be a big component. Liquidity and using a bit of that liquidity should be another part of the component. And probably at this point in time, we shouldn't be much more specific than that.

(Operator Instructions) Dear speakers, there are no further questions at this time. Please continue.

So thank you very much for attending today. And we can close the line, operator, whenever you want. Thank you.

That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day. Dear speakers, please stand by.