Atlantica Sustainable Infrastructure PLC

NASDAQ:AY

Earnings Call Transcript 2019-Q4

[Operator]

Welcome to 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, that this call is being webcast live on the Internet and a replay of this call will be available at the Atlantica Yield 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 based 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'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.

[Santiago Seage, CEO & Director]

Good afternoon. And thanks for joining our fourth quarter 2019 conference call. On the 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 a $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 a 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 a fourth quarter of 2018.

For the full year 2019, the dividends declare 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 our 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.

[Francisco Davis, CFO]

Thank you, Santiago. Good afternoon. Please turn to slide 5 where we present our key financial for the year 2019. Revenues in 2019 reached $1,012 million, a 3% decrease versus 2018 primary 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 one-time non cash 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 degenerated 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 number 6. Overall, our portfolio 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 continues solid performance of our assets and the contributions of the new assets acquired. The revenue decreased in EMEA region was mainly due to a foreign currency translation effect. EBITDA increased by 3% on a like for like basis. In Spain, production increase year-over-year mostly due to higher solar radiation. Also, the Kaxu solar plant continued delivering a strong operating performance.

Looking below at the results by business sectors, we can see similar effects. In renewable energy, revenue decreased to currency translation, and EBITDA decrease for the same reason. And also due to the extraordinary item in the second quarter of 2019 that I have previously mentioned. An 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 asset.

Finally, our water segment keeps showing strong EBITDA levels growing 3% year-over-year. If we look now, at the following Slide number 7, we can review the key operational matrix of our assets. Electricity produced by our renewable assets reach more than 3,200 gigawatt hour in 2019. A 6% increase compared with 2018. Overall or 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 two other sectors where our revenues are based on availability, we continue to achieve high availability levels above 100%.

Let's move on to Slide number 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 as 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 and new assets. It 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 and consolidated cash in 2019 was a $65 million decrease.

On the next slide number 9, we would like to review our net debt position. We close to 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 to cap the pre-corporate debt service ratio, stood at 2.9x. On the other hand, net project at after December 31, 2019 was $4, 355 million approximately $200 million lower then at the closing of 2018.

Now I will turn the call back to Santiago

[Santiago Seage, CEO & Director]

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 strong 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 partners equity interest in Solana.

As you know, Solana is 280 megawatt gross solar electric generation facility in Arizona. The asset has 30-year PPA of which 24 years are remaining. That PPA has a fixed price with an escalation factor with a APS, Arizona Public Service as an off taker. We believe that this is a clearly accretive investment that will yield respect 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, rich financing and a potential project debt refinancing.

Another important source of cash 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 of the project on the corporate level. In that regard, we have recently priced a private placement for approximately $320 million dollars of green notes that will be used if on one closed to refinance existing debt, achieving very significant interest cost savings starting next year. We have also refinanced the existing debt for project APN 2 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.

[Francisco Davis, CFO]

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 equivalent of an equivalent of approximately US $320 million of U.S. senior secure notes, denominated in euros and euros to be solely subscribed by private 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 a 2017 NIFA. The new green notes consist of bullet maturity expected in June 2026. That is, they have 6-year tenure and bear a coupon or 1.96% per annum.

We have been able to leverage our strong ESG focus to price a green bond fully aligned with the 2019 green bond principles. And we also counted with a second party opinion by Sustainalytics. The private placement notes have three advantages, a cost improvement of approximately $10 million per annum, expected from 2021 and extension of the tenure of approximately three years in average life compared to 2017 NIFA. And finally, we obtained a natural hedge for CAFD generated in euro

As I mentioned, we're extremely price to have priced our first green financing because it shows how committed we continue to be to live sustainably sustainability.

I will now pass a call back to Santiago.

[Santiago Seage, CEO & Director]

Following with CSG 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.

These 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 one, two and three and we have been able to reduce our emissions by a 14% versus the previous year. In fact, if we compare emissions with the mission rate 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 quarterly dividends 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]

[Operator Instructions]

The first question comes from line of Julien Dumoulin-Smith, please ask your question.

[UnidentifiedAnalyst]

Hey, this is Anya [ph] filling in for Julian here. So firs, on the new 2020 guidance, how do you think of your dividend growth strategy? Does it 8% to 10% CAGR target that you previously had does that still hold?

[SantiagoSeage]

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 a 10% higher than the actual 2019. So I see no reason why the dividend should go very differently from that.

[UnidentifiedAnalyst]

Okay, is there any reason why you chose not to publish an official 8% to 10% rule forward than?

[SantiagoSeage]

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

[UnidentifiedAnalyst]

Okay, thanks. And on a strategic review of 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?

[SantiagoSeage]

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

[UnidentifiedAnalyst]

Okay, thanks. 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 from these efforts?

[Francisco Davis, CFO]

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 they are.

[Operator]

Thank you. The next question comes from the line of Praful Mehta. Please ask your question.

[PrafulMehta]

Thanks so much. Hi, guys. So maybe in terms of just a 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?

[SantiagoSeage]

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

[PrafulMehta]

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

[SantiagoSeage]

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. Obviously, we are very happy with the performance of a share at least until last week. We do believe that for a company like us having; let's say competitive currency in the form of shares is important, of course.

[PrafulMehta]

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

[SantiagoSeage]

Well, it will depend on what opportunity we find and we tackle.

[PrafulMehta]

Got you. Fair enough. So it's at least open to that. And then just finally, on the PG&E situation, clearly that seems to be heading towards the solution from your perspective, is there anything we should be thinking off around Mojave? Or 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.

[SantiagoSeage]

So based on public information what we know, as you know PG&E seems to be on a path to leave the 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.

[Operator]

Thank you. The next question comes from line of David Quezada. Please ask your question.

[DavidQuezada]

Thanks. Hi, everyone. 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 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 option?

[SantiagoSeage]

Like any investment 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 is because we see the opportunity as attractive but as we execute, we will continue working on the opportunity.

[DavidQuezada]

Okay, great, thank you. And then my second question just believes you have a ROFO on the remaining 70% of the Monterey 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.

[SantiagoSeage]

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

[DavidQuezada]

Okay, great. Thank you. And then just one last question. I guess you've had some time now with the battery asset at Monterey now in you 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 because you deployed elsewhere on your footprint on some of your existing renewable facilities.

[SantiagoSeage]

Sure. We do we 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 remain stream 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 early stages. And you need to be careful so that you invest when the technologies mature. 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, in midterm we do think that it will be a very important opportunity for companies like us

[Operator]

Thank you. The next question comes from lines of Stephen Byrd. Please ask your question.

[StephenByrd]

Hi. Good afternoon. Most my questions being covered. I just want to go back to Solana just to make sure I understood the financing approach. Slide 11 gives a lot of a good information just to make sure I'm clear could you go back through the strategy for permanent financing of that 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 rather sources of capital that can finance that I just want to make sure I'm clear on that.

[SantiagoSeage]

So I will make a couple of comments and Francisco, if you want to build on that. First of all, it's a bit earlier stage, from that point of view, we have an option, and therefore we have time. And the second thing is refinancing assets. We expect is 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, I'm missing 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.

End of Q&A

[Operator]

Dear speakers, there are no further questions at this time. Please continue.

[Santiago Seage, CEO & Director]

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

[Operator]

So that does conclude our conference for today. Thank you for participating. You may now disconnect. Have a nice day.