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Edited Transcript of ABY earnings conference call or presentation 3-Aug-17 8:30pm GMT

Thomson Reuters StreetEvents

Q2 2017 Atlantica Yield PLC Earnings Call

Leeds, Aug 13, 2017 (Thomson StreetEvents) -- Edited Transcript of Atlantica Yield PLC earnings conference call or presentation Thursday, August 3, 2017 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Francisco Martinez-Davis

Atlantica Yield plc - CFO

* Santiago Seage Medela

Atlantica Yield plc - CEO & Director

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Conference Call Participants

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* Anthony Christopher Crowdell

Jefferies LLC, Research Division - Equity Associate

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Presentation

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Operator [1]

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Welcome to the Atlantica Yield Second 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.

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Santiago Seage Medela, Atlantica Yield plc - CEO & Director [2]

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Thank you very much. Good afternoon and thank you all for joining us today for our second quarter 2017 earnings conference call.

Please proceed to Slide #3, where we will start the presentation with the key messages. In first place, we are very pleased to announce excellent operating results for another quarter. Our revenues for the second quarter reached $285 million, an increase of 9% versus the same quarter last year. And a further adjusted EBITDA including in unconsolidated affiliates that reached $228 million, representing at 10% increase compared to the second quarter of 2016. The performance of our portfolio was largely in line or better in some cases than expectations. CAFD generation was excellent reaching $95 million in the first half of the year.

In addition in the first quarter as you know we received certain debt on equity instruments from our sponsor Abengoa resulting from the restructuring for ACBH investment. In this second quarter, we have sold a large portion all both the instruments generating until June 30, an additional $25 million of cash. Additionally, we have signed the acquisition of a small dollarized hydro plant in Peru for an equity value of $9 million. Finally our board of directors have declared a quarterly distribution of $0.26 per share, which is 4% higher than the prior quarter.

If we now turn to Slide #6, we will review our main financial results. Revenues for the second quarter reached $285 million, a 9% increase over the previous year.

This increase was mainly driven by the outstanding results in our solar assets in Spain and in the U.S. Further Adjusted EBITDA including unconsolidated affiliates reached close to $228 million in the quarter, a 10% increase versus the same quarter in the previous year. CAFD in the second quarter reached close to $35 million in line with the same period last year. If we now look at the 6 month period year-to-date operating results have also been very positive, with revenue increasing by [2%] reaching $483 million and further adjusted EBITDA increasing by 8% up to $393 million. CAFD for the 2 quarters, for the first half of the year reached $95 million. With these results up to June we are on track to meet our guidance for the year 2017.

Let's move on to Page #7. In North America, EBITDA for the first 6 months of the year increased by [3%]thanks to our very strong performance of our solar plants in Arizona and California. In fact, for our solar assets in the U.S. the second quarter of 2017 has been the best quarter since we started operations, reaching a capacity factor in excess of 40%.

In South America, revenues remained fairly stable and further adjusted EBITDA increased mainly due to the compensation received in the first quarter regarding our ACBH investment. In the EMEA region, revenues of EBITDA increased, thanks to the good performance of the assets in Spain, in this second quarter solar radiation was above expectation and the assets performed very well. The increase was partially offset by a lower generation in our solar asset in South Africa, which as you know experienced technical problems in the first quarter of 2017 and that has been fixed already.

Looking at our results by business sector, we can see the same effects. In renewable energy revenue had a solid increase of 6%, thanks to the good performance of the solar assets in the U.S. and Spain. In conventional power EBITDA was very similar to last year. When we look at transmission lines, revenues remained stable and again further adjusted EBITDA had the impact of the compensation received in Q1. Finally, water had similar performance to last year. Overall, all our segments and geographies have delivered excellent results in the quarter.

Turning to Slide #8, we will cover the operational performance of the assets. In first place, within renewable energy production reached 1,560 gigawatt hours in the first half of the year, a 5% increase compared to the same period in 2016. In the U.S. as I mentioned before we had the best quarter ever. In Spain, we also have the best quarter ever with a very good production, thanks in part to very good solar radiation. Our fleet of mature assets in the Spain have again demonstrated a very good performance. Finally, our wind assets continue to perform in line with the same period of the previous year.

Moving on to conventional power, ACT, our cogeneration plant in Mexico has continued to operate close to maximum levels, reaching an availability of 99.8%, we had very good levels of production. In transmission, availability decreased slightly versus last year because of the heavy rains Peru experienced in the first quarter of 2017. Finally, the water plants have exceeded forecasted availability levels.

I will now turn the call over to Francisco, who is going to take us through the financial section.

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Francisco Martinez-Davis, Atlantica Yield plc - CFO [3]

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Thank you very much Santiago and good afternoon everyone. Please turn now to Slide 9 to discuss our liquidity position. As of June 30, 2017 our corporate cash reach $178.9 million, an increase of $56.7 million from the beginning of the year.

Cash at project level companies amounted to $435.4 million of which $238.5 million was restricted and the remaining in $196.9 million non-restricted. Non-restricted cash at the project level corresponds to the cash at the project level that is required to run our business or repay our project debt or wait until the next distribution window. Restricted cash corresponds mainly into debt service reserve accounts required by project financing at the asset level. Short-term financial investments are also restricted accounts. With this total liquidity at June 30, 2017 was $691.9 million.

Moving on to the next Slide, you can see the cash flow for the first 6 months of 2017. Operating cash flow for the quarter reached $104.3 million, which is slightly below the same period of last year. Further adjusted EBITDA as we mentioned previously increased by 8% represented almost $393 million in the first half of 2017. Interest and income tax paid correspond almost exclusively to interest paid and it's in line with last year. Variations in working capital have been a negative $79.9 million. Working capital is subject to seasonality, caused by the seasonality in production and invoicing in our solar assets, thus negative variation was expected. It was more negative than last year primarily as a result of higher revenues in the second quarter. Nonmonetary items and others correspond mainly to noncash EBITDA related to grants in our U.S. solar assets and remain in line with last year. Investing cash flow for the first 6 months of 2017 correspond primarily to the $24.7 million of the net proceed from the sale of the financial instruments, we received from Abengoa. Finally, we used to $123.7 million in financing activities, which corresponds primarily to schedule project debt repayments as well as to dividends paid.

Looking at Slide 11, we showed a reconciliation from further adjusted EBITDA included unconsolidated affiliates to CAFD. Starting from further adjusted EBITDA including unconsolidated affiliates of $393 million in the period, deducted interest paid, debt amortization, movement in restricted cash accounts and other effect, we arrive (technical difficulty) cash generated in the first half of the year of $55.9 million, significantly higher than in 2016.

Then as we define CAFD as cash distributions for projects to the holding level, which depends on the specific windows, we need to add changes in the non-restricted cash at the project level to reach CAFD. With this in the 6 month period, our CAFD reached $95.5 million, a 64% increase compared to the first half in 2016. In addition, as explained before, during the second quarter we have sold part of the instruments that we received from Abengoa. In particular, we have already monetized $24.7 million, which added to the CAFD figure, drives a total amount to $120 million.

We believe this is an excellent result for the first half of the year.

On Slide #12, we present our debt position at the corporate level and at the project level. We closed the second quarter of 2017 with net corporate debt of $505.7 million while the position as of December '16 was $546 million. Our corporate debt, corporate ratio now stands at 2.3x CAFD, precorporate debt service well below our internal target of 3x. Our project debt at the end of June 2017, totaled approximately $5 billion. The variation versus December 2016, it's mainly due to currency translation differences, which will be explained in the following slide.

Turning now to Slide 13, you can see the consolidated net debt bridge. Our net debt position has increased slightly from December 2016 to June 2017. We would like to clarify that the reason for this increase has been depreciation of the euro against a dollar, which artificially increases our consolidated net position when converted into U.S. dollars. Although we have not issued any new debt other than the corporate refinancing we did at the beginning of the year. We closed the fourth quarter 2016 with the net debt position of $5.4 billion. In flow from our project operations in the 6 months period is $274 million.

The main outflow is during the period has been interest and income tax paid for approximately $170 million and the corporate dividends paid for $42 million. Translation differences arising from the conversion of our project in corporate debt in euros to U.S. dollars amounted to $204 million. Foreign exchange translation differences are just a result of converting assets and liabilities of euro denominated series to U.S. dollars in the consolidation process and this movement is purely on accounting effect.

Without considering the foreign exchange effect or net debt, we have been reduced by $64.3 million. This effects together with monetization of Abengoa instruments as well as other smaller effects in our net debt position resulted in our net debt being $5.5 billion at the end of June, 2017.

I will now turn the call back over to Santiago for the dividend and strategic update.

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Santiago Seage Medela, Atlantica Yield plc - CEO & Director [4]

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Thank you, Francisco. Moving to Slide 14, we announce a quarterly dividend of $0.26 per share, this represents an increase of 4% quarter-over-quarter. As we discussed in previous quarters, our board of directors is maintaining a conservative dividend approach until we secure all the waivers required for uneventful reduction of the stake of Abengoa in us as of today. With this dividend increase the board wants to convey a positive outlook regarding the resolution of some of the last remaining waivers. And as previously discussed, we expect to continue increasing the distributions one we secure these last pending waivers.

On Slide 15, we half signed an acquisition of a small asset, mini hydro plant, we contracted revenues in U.S. dollars in Peru. The investment will be around $9 million with an expected equity IRR of around 10%.

This asset is in operation has been in operation for several years already and the acquisition represents, we believe an attractive opportunity for us to diversify into a new technology with limited risks. In fact, we believe that the asset meets the criteria, we want for our portfolio. In terms of the long-term contracts denominated in dollars with a fixed price (inaudible) to inflation and reliable offtakers with investment grade credit ratings. Even though it is a small asset, it generates geographical synergies with our existing assets in Peru. The operation and maintenance will be performed in-house and the current non-recourse financing at the project level gets amortized before the end of the PPA. Closing is subject to the approval of the relevant authorities in Peru.

As we said that the beginning of the year, we expected to work during this year during 20 17 on the small accretive acquisitions and on setting the foundation to deliver a higher growth starting as soon as possible. With this, we conclude our presentation of the second quarter of 2017 results, which we believe have been very encouraging and positive. Next week, our CFO and our Investor Relations team will be meeting investors in New York. Please contact them in case you are interested.

Thank you very much for your attention, and now we will open the lines for few questions. We don't have much time today, but we will try to take a few questions if we have them. Operator, we are ready for Q&A.

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Questions and Answers

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Operator [1]

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Ladies and gentlemen, the Q&A session starts now. (Operator Instructions) The first question comes from Anthony Crowdell from Jefferies. Please go ahead.

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Anthony Christopher Crowdell, Jefferies LLC, Research Division - Equity Associate [2]

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I just want to know, if you can give us a status, I mean, everyone has been waiting for the waivers, it's -- we're now in August, just an update of what's happening with that one waiver?

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Santiago Seage Medela, Atlantica Yield plc - CEO & Director [3]

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I guess are referring to the Mexican waiver in ACT. As I mentioned before, the board is increasing the dividend to make sure that everybody sees that we believe that the outlook regarding that waiver is positive, meaning that we believe that this quarter we should be able to get it, it doesn't completely dependent us obviously, as you know, but the outlook being cautious would be within this quarter again knowing that it doesn't on us only.

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Anthony Christopher Crowdell, Jefferies LLC, Research Division - Equity Associate [4]

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So, is there anything that change your outlook on -- that you're going to get it?

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Santiago Seage Medela, Atlantica Yield plc - CEO & Director [5]

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Yes, in general, we have been making reasonable progress so that's way -- I dare to say that we expected with (inaudible) as I mentioned within the quarter.

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Anthony Christopher Crowdell, Jefferies LLC, Research Division - Equity Associate [6]

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Next, I move on, Abengoa still owns some shares in Atlantica, any update on what they plan or timing of what they plan to do with that asset?

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Santiago Seage Medela, Atlantica Yield plc - CEO & Director [7]

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Yes. Abengoa has publicly said that they have launched a process to sell their stake in Atlantica and that process is ongoing. We cannot comment more than that because obviously the one selling the stake is Abengoa and not us, but that's what Abengoa has said publicly.

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Anthony Christopher Crowdell, Jefferies LLC, Research Division - Equity Associate [8]

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And then if I just move on to the strategic objectives you acquired at mini hydro plant in Peru, any other, like thoughts or plan of acquiring anything larger or you think 2017 is more of trying to get the waivers, I guess secured?

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Santiago Seage Medela, Atlantica Yield plc - CEO & Director [9]

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So in the short-term our priority are the waivers and hopefully seeing Abengoa selling their stake to another shareholder or shareholders. And we will continue working on potential acquisition if we find the opportunities that would be good enough. And as we mentioned for example in the last quarter, our priority is to be able to build a growth pipeline including the ROFO agreement, we have today from our sponsor, but also new partnerships and acquisition opportunities that can help us to grow much more significantly in 2018 and beyond.

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Operator [10]

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Thank you very much. (Operator Instructions). The next question comes from (inaudible). Please go ahead, sir.

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Unidentified Analyst, [11]

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This is [David Emami]. I would like to ask, do you guys -- are you guys expressly confirming the dividend guidance the payout ratio of 80% on the CAFD of $200 million to $250 million?

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Santiago Seage Medela, Atlantica Yield plc - CEO & Director [12]

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You're asking, David, about the run rate CAFD?

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Unidentified Analyst, [13]

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Yes.

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Santiago Seage Medela, Atlantica Yield plc - CEO & Director [14]

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We will have at that point time, yes, that the numbers you mentioned are the numbers we shared at the beginning of this year, that continue to be the most updated estimation regarding run rate CAFD and payout. We have no more questions, operator. We can leave it here.

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Operator [15]

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Thank you very much. We have no more questions in today's conference call. Ladies and gentlemen, this concludes today's conference. Thank you all for attending.