Q2 2021 Atlantica Sustainable Infrastructure PLC Earnings Call
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Welcome to the Atlantica second quarter 2021 financial results conference call Atlantica is a sustainable infrastructure company that owns a diversified portfolio of contracted renewable energy storage efficient natural gas transmission lines on water assets in north and south.
America, and then sets of markets in EMEA. Just a reminder, that this call is being webcast live on the Internet on the replay of this call. We will be available on Atlantica is corporate website atlantica will be making forward looking statements. During this call based on current expectations and assumptions, which are subject to risks.
I'm on such on T. Actual results could differ materially from other forward looking statements if any of our key assumptions are incorrect or because of other factors discussed in today's earnings presentation or because of other factors discussed, including the risk factors section of the accompanying presentation and in our latest report.
On filings with the Securities and Exchange Commission, all of which can be found on our website atlantica does not undertake any duty to update any forward looking statements joining us for today's conference call on Atlantica, CEO, Santiago, <unk> and CFO Francisco Martinez Davis as usual.
The end of the conference call, we will open the lines for the Q&A session I will now pass you over to Mr. C. P said go ahead.
Good morning on thank you for joining us for our second quarter.
Quarter Conference call I will start with a few opening remarks during the first half of these year to date from 'twenty 1.
How hot what we believe is a strong performance with coffee growing us close to a 13% up to close to $110 million.
Following that our board of directors declared a quarterly dividend of <unk> 43 cents per share.
Additionally, we have been able during this second quarter 2 successfully issue $400 million in Green notes.
That hum allowed us to extend part of our corporate maturities from 2025 to 2000 on 28.
Regarding growth we have closed the 2 previously announced the investments a 100 on 35 megawatt contracted renewable energy plant in California on a 49% stake in <unk>.
<unk> portfolio in the in the U S. So in general we believe making good progress.
4 regarding our plans for this year 2000 on 'twenty 1.
I'll now turn the call over to Francisco, who will take you through our financial results.
Thank you Santiago and good morning, everyone.
Please turn to slide number 4 where you will be able to see our key financial statement for the first half a point people wouldn't be 1.
Revenue in the first half of 2021 reached $611.2 million, which represents a 13, 5% growth on a comparable basis.
Clothing for net change in a non recurrent impact in our renewable sector.
Adjusted EBITDA, including unconsolidated affiliates increased by 6.3% up to 400.
$4.2 million.
Regarding cash flow for distribution, we generated $109.9 million in the first half a point people on P..1 on increase of close to 13% year over year.
Regarding our performance by geography and sector in North America revenue increased by 13% to $178.8 million from the first half of 'twenty 'twenty..1 thanks to the recently acquired assets and hired a solar radiation, while EBITDA decreased by 5%.
In South America revenue and EBITDA increased by 5% and 1% respectively also due to recent investments.
EBITDA in the med and the EMEA region increased by 18% compared to the first half of 'twenty 'twenty. Thanks.
2 new assets higher revenue and cultural and higher solar radiation in Spain.
Regarding results by business sector.
Renewable energy, our largest sector EBITDA increased by 7% sales.
Thanks to the reasons previously mentioned.
Now lets please turn to slide number 5 where we will review our operational performance.
Electricity produced by our renewable assets reached 1984 gigawatt hours in the first half of 2021 an increase of 34% compared to the same period, a 20 point day. They increase was largely due to the contribution of assets recently acquired pro.
<unk> also increase in EMEA, and North America, where solar radiation was higher.
Looking at our availability based contracts efficient natural gas transmission lines and water assets.
Contribute to achieve high availability levels in the first half of 'twenty 'twenty 1.
Now, let's move to slide number 6 to walk you through our cash flow.
Our operating cash flow in the first half of 2021 reached 246 million showing a very significant increase versus the same period on 'twenty 'twenty, mostly thanks to an improvement in variations in working capital.
Investing cash flow from the first half of 2021 was $327 million and reflects the acquisitions closed during the period.
Financing cash flow from the first half of 'twenty 'twenty..1 includes a positive impact of $42 million from the 400 million Green notes issued in May that we used to prepay. Our 2019 no ratio on facility extending the maturity from 'twenty to 'twenty 5 'twenty 'twenty.
Yeah.
Financing cash flow also includes a positive impact of 131 million corresponding to the second tranche of the equity raise closed in January.
The schedule the project debt repayments for approximately 164 million.
And 106 million of dividends paid to shareholders and non controlling interest.
All in all the net change in consolidated cash for the first half a point to point. The 1 was a decrease of approximately $177 million.
On the next slide number 7.
I'd like to review, our net debt position.
We closed the first half of 2021 with net corporate debt of $942 million after paying for most of the acquisitions that we have recently announced.
With this on.
Net corporate debt to cap the pre corporate debt service ratio stood at 3.4 times.
Net project debt as of June 30 years, 2021 with $4770.1 million.
Let me turn the call back over to Santiago.
Thank you Francisco on turning to the last page page 8 our ASP.
Previously announced we have closed the acquisition of several renewable energy assets as part of our Goldman strategy exceeding the growth on the investment target we had for the year. Obviously, we continue working on a number of growth opportunities that we believe.
Should allow us to continue delivering on growth targets.
Going forward.
And we remain optimistic regarding the opportunities.
With that operator, we are ready for questions.
Thank you as a reminder to ask a question you will need to press star 1 on your tell us saying to withdraw your question press the pound husky.
Your first question today comes from the line of David Katz Sadat Raymond James. Please go ahead. Your line is open.
Thanks morning, everyone My first.
Couple of questions here just on the the outlook for growth in your respective markets I'm interested in your thoughts on Spain, specifically it seems like it's a pretty hot market for renewable growth, but at the same time.
PPA prices are it seems like they've been falling but theyre. All has also been a fair amount of M&A in the region recently portfolios changing hands just wondered if you could give you give us your thoughts there what kind of opportunities you see for atlantica there today.
Great. Good morning, David So regarding the Spain, probably we would agree with the short summary U.
You made meaning a hot market with all the advantages from this a bunch of additional hot market. So it's a market where obviously we are present.
Significant position as you know so we have always been looking at opportunities on and we continue looking at opportunities on.
If we find opportunities with the right numbers the right synergies we would go on go ahead.
Although at this point in time, probably there are many other players who want to be part of that market, who have been on my continue being very aggressive regarding prices and we will only invest even numbers work. So we will see going forward.
But.
Like always EBIT numbers and it makes sense.
Okay, Great. That's great color. Thank you and then just thinking about the U S. Obviously, a lot of news lately about big renewable power and infrastructure plans there.
You've already been quite active obviously in that market do you do you see things changing in terms of the outlook in the U S. In terms of there being more opportunities or does it you know considering that you've been primarily looking at M&A. So far as is it primarily a kind of status quo for you there on the outlook.
No going forward, we do expect North America on on the U S. Specifically to be a significant source of growth for us. So we are very active in the market keeps growing on.
On by now is very large in even all of the different phases from from.
If you want development.
Including operating assets changing hands. So we do see opportunities on we continue spending a lot of time.
Around different opportunities in different markets within the U S. On we do believe that the next few years, we are going to continue see lots of opportunities on the other things because many current owners of assets.
Hum being on and will continue.
Selling or looking to sell what they own on that.
That creates opportunities for players like us.
Okay excellent. Thank you.
And then just quick.
Quick question on.
The the U S wind portfolio, you acquired recently and some of those like well I think 1 of those projects has a PPA coming up in I believe it's 2022 I'm. Just curious if you could talk about the potential for re contracting or how you could go about re contracting that asset now that that now that that acquisition is closed.
Yeah in general that portfolio.
As you know has a strong contracts with very good off takers, but are shorter than our usual contract on we believe that there's a significant upside in debt.
On obviously in each other situations in each other states the unsure.
Would be different in the onshore.
Regarding how we are going to extend the life of those assets in some cases it might be about repowering, a full repowering or all the assets on.
And in some other cases, it might be about simply extending and.
The the life will be offset through new ppas shorter or longer. So we're not worried at all on the country I think that what we need to lose make sure that with our partner.
We choose the best option in each of the 4 assets on its going to be different by state and it's going to depend obviously on what perhaps advantages we have going forward on how each other market behaves going forward in any case I think that recent events in the sector.
I was going to be helpful meaning.
We contracted prices that I would look probably today is.
Better than 6 months ago for a number of recent on on we expect to be able to benefit from that.
Okay.
Okay excellent that's great color. Thank you maybe just 1 last 1 from me and.
And we know the topic of inflation is getting a lot of attention today and I know that your your contracts are almost all index to inflation, but I'm just curious if you see any.
Any impact to your business elsewhere as a result of of you know.
Some of that some of these rising costs, we have seen in solar and wind lately.
No no no.
Better or worse.
No we are a heavy heavily contracted.
Company, so within the existing portfolio.
As you mentioned, we have escalation type sourcing many contracts. So we are.
We believe we are well protected against inflation on 4 new lawsuits are our exposure to construction is very very small so again.
We are a low risk value proposition on the on the advantage and disadvantage of are you just glad we've things like inflation happening now.
The impact on us probably is significantly lower than in other companies you on your colleagues are typically cover.
In the U S or elsewhere.
Excellent great. That's that's perfect I'll I'll get back in the queue.
Thank you. Your next question comes from the line of Julianna Tomorrow Smith from Bank of America. Please go ahead. Your line is open.
Hi, Good morning team Oh, good afternoon, maybe thanks for the opportunity.
Good morning Julien.
Good morning.
Perhaps just to follow up on some of the latest drops here. If you can expand a little bit how do you think about the shorter tenor here on a lease when deal.
Thoughts about that perspective, obviously, you find value in North American markets are a little bit more competitive, but how do you think about that a signaling towards future deal and b, what that means in terms of re contracting expectations and and maybe and implicit opportunity therein.
So I don't think.
The fact that that is specific cross section has shorter ppas, there's no signaling at all actually the previous 1.
What's on 19 year PPA, the 1 in California, so each situation is different.
No for us, making sure with other number for work is extremely important I mean, some of these situations. The number will work with very long ppas are on some other situations of numbers might work with with his lightly.
Short term ppas, but.
It doesn't mean that there's a change anywhere in visa specific situation as I mentioned before and the key is that there are 4 different assets in 4 different situations in 4 different states.
It is subject to risk and dynamics in each case on the we don't have a crystal ball. So it's difficult to be able to identify today, what is going to happen with each asset.
On a few years down the road, what we know is that regardless of whether it.
There could be upward repowering or whether.
We are going to be signing and short term ppas without doing a repowering or whether part of the production is going to go merchant who knows what I can tell you Julien is that in any of those scenarios the value creation would be significant for us because it's a nice day.
It should be competitive.
In each of those markets whenever the ppas come too.
To the end of their life. So we're not worried about that we contracted the average of the portfolio. As you know continues being 16 years. So why does 1 thing we are signaling a trend or or anything we are we just thought that oh.
Volume to be created here.
Net investment that from that point of view is a bit different on the rest of our portfolio.
Understood Fair enough quick other related question here as you think about it goes on here expansion opportunities.
Or or frankly, just desire to expand your portfolio out west as well, obviously, a very interesting set up vis vis the resource adequacy in their underlying needs there and does that drive any considerations in your mind, especially as you think about.
No just reinvestment in existing assets.
Yeah.
Yeah, So I, probably the answer from from other side your point of view would be yes to all your questions, meaning we.
We have made this investment on and.
Following a little video recently, we believe that California.
The product you need to sell in California is product that can help.
To turn on the light 24 hours. So you need to look at resource adequacy and you need to look at a number of things where these assets specifically fits very well.
On going forward, we would love to invest more in the southwest we have good nickel mass there are some operating synergies there are some commercial synergies, we would love to be able to expand some offsets whenever that time comes so probably at this point in time, it's too soon to be specific about that but clearly we'll be looking at opportunities.
To continue growing in the southwest not only in California.
Yeah.
Understood excellent and then.
Last question here, if I can sneak it in here P. T S. Just what's the status there.
Update there and then maybe a T S as well.
Yes. So in in Bts is you will see in our longer disclosure.
We have reached an agreement with the partner on the we have left and that project on the.
The financing wasn't on household closed the project financing and therefore, the asset does not meet that criteria on we are simply exiting without any positive or negative impact. So it's not part of our growth portfolio anymore as we have been.
At least hinting could be the case for quite a few quarters.
Right Yep.
Which 1 sorry.
Well on ACF sorry.
I think that all of them.
Okay.
Excellent. Thank you.
Thank you Julien.
Thank you. Your next question comes from the line of Stephen Byrd from Morgan Stanley. Please go ahead. Your line is open.
Hi, good afternoon, thanks for taking my questions.
Thanks to you.
I wanted to to build on a couple of questions that have been asked thinking about repowering opportunities in the future than.
And then thinking through it in some ways I guess, the the cost inflation environment as actually potentially beneficial for for Repowering just in the sense that the cost of Repower is typically you know quite a bit lower than the cost for for.
Completely new installations could that be an area of benefit where you could essentially offer a repower product. That's really you know even more advantageous compared to 2 new projects that may face sort of greater cost escalation issues or is that are you really not in practice seeing that has an impact.
I think it's too soon at least myself I'm not sure how much of the inflation is going to be permanent on how much. He is not going to be permanent. So I think it's difficult to be very precise regarding your question as of today I would agree with you I think that.
That trend, meaning PPA prices increasing.
It should be positive because probably the PPA increase should be higher than the cost increases.
But we need to wait a few quarters on C where costs settle on where PPA prices settle it it's not only the inflation trend also what happened in Texas during the winter I think it explains also some inflation in terms of PPA prices.
Probably should be positive for situations like the 1 you described but I wouldn't draw too many conclusions I think debt.
If you go today to see exactly where PPA prices are going to land on where costs for solar on on wind are going to be a few quarters from today.
Oh, that's helpful to get your your feedback on that and then maybe building on <unk> question about sort of grid reliability I mean.
We're noticing really all over the world issues with with grid reliability and you have really a fantastic footprint and I'm. Just curious in terms of you know potential for storage, what you're seeing both in terms of customer interest in sort of providing a you know on a semi firm product, but also just on the.
Technology side, you know storage technology storage cost reductions that you're seeing just I want to make sure I'm thinking about the opportunity around storage to provide better sort of grid reliability services for customers. What how are you thinking about that opportunity set.
I think this is going to be extremely important going forward. Obviously, we are already seeing significant growth around what youre describing number on the storage on in general for empower the answer today is quite different by geography, So you're seeing the states we're in regular.
Those are pushing for batteries you are seeing in geographies where is the price.
Later for a change in regulation.
To make sure that they get more from power on.
On over the next 5 years I think that we are all going to witness.
Significant growth around here.
In many cases.
You guys tend to think about batteries.
The solution for this problem on probably the reality is going to be a bit more complex. So I think that we're going to see different flavors of our storage batteries theory are going to be there, but I think that we're going to see other technologies providing.
Longer storage and probably we are going to see combinations of these new technologies, we are going to see it.
New regulations on probably.
There's still lots of things need to happen there on our side, we plan to be part of that on the and we do believe that in the next 5 to 10 years, a significant percentage of our investment.
He is going to be around the storage or around solutions, but are able to offer from butler, which not only of storage. So there are many other ways too to give firmer hour, but the times of EBITDA.
Selling kilowatt hours.
In many geographies start to be over and now it's about how you can really sell these possible power responsible clean power.
That's really helpful. Maybe just following up on that so it sounds like you know that makes a lot of sense of contracts will evolve and there will be more sort of firm on semi firm and when you think about the risks of delivering sort of affirm or semi firm you feel comfortable with those risks given your experience.
<unk> given you know what these various types of storage technologies can do in other words, the the risk reward could be favorable for from moving into more of those sort of firm on semi firm contract structures.
So my answer would be yes, but that.
We plan to be able to achieve that by trying not to be up by you on ear on on some other things you are discussing so I personally believe that some players are taking.
Some significant risks.
At this point in time, because obviously, there's something on your risk and what we are discussing and theres some market risk and.
I believe that those investments are going to fit our investment profile, but you need to be careful you cannot sign any contract. They put in front of you. We saw it on it's a different situation, but in Texas. Many people discovered that a hedge agreement is not that'd be a.
Storage is an area, where you need to be careful because EBITDA is getting more complex on you need to understand what you are signing in order to be able to assess the risk you a day.
So yes, we believe we have been doing this long enough to manage the risks, but clearly you need to be you need to be careful because it gets more complicated.
That's fantastic color. Thank you very much.
Yeah.
Thank you. Your next question comes from the line of Colton Bean Tudor Pickering Holt. Please go ahead. Your line is open.
Afternoon, just a follow up there on the storage discussion could you expand on which types of technology, you would consider investing in to solve that storage component.
Yeah at this point in time, we have for example, a battery.
Equipment, let's say.
In 1 of our assets and we are comfortable from a technology point of view with our batteries on.
Going forward, we will be considering other technologies, providing storage, including things like throw another storage or or other technologies as they prove obviously.
The risk is low enough so probably at this point in time, it's mostly batteries, where we're from a technology point of view we feel.
Sure.
They have been fully proven.
Great and then just to follow.
To follow up there are similar questions on 1 you received on Spain, but on the Colombian market. It looks like recent auctions have become increasingly competitive. So can you just update us on what youre seeing in country.
Yeah Columbia is on your market for US as you know we are making our first investments now we intend to to grow over the next few years show that Columbia becomes.
On a market for us and I'd say it would never be a huge 1 from a portfolio management point of view, we want to grow in Colombia, but when we go on 1 Columbia to be huge for US we think it's an attractive market.
So for a number of reasons and including the fact that renewable energy penetration is very low at this point in time on.
I mean that market you have options run by let's say the regulators last year government, where prices have been coming down, but you're still able to sign ppas with private companies.
On a.
Reasonable numbers so.
On the pricing you might see coming from Bose auctions might not be at this point on indicator of the average price in the market at some point in time it might be but today.
Most of the market is about private ppas, where use on how visibility on we do have a visibility that tells us that as of today the market is still attractive enough.
Great. That's helpful. And then just a quick final 1 you mentioned continuing to pursue growth opportunities. Despite having met your existing target would you characterize those primarily as 2022 or beyond or could we see additional investments through the balance of 2021.
So we could its difficult to you know to be precise we continue.
The $300 million target, we share with you. It's more for you you know when you run your models to use a number for us internally internally, we try to deploy capital when we see attractive opportunities. So it might be that we still do more investments. This year I mean, it might be that the opportunities we end up closing on.
For 2022.
But we don't just stop when we get to 300.
On the big enough on the following year, we tried to continue working.
Got it I appreciate the time.
Thank you.
Thank you. Your next question comes from the line of William quit pin from UBS. Please go ahead. Your line is open.
Great. Thank you very much. So first 1 here is just in terms of the growth strategy that you laid out last quarter with the 3 tiers of growth I was hoping you could talk a bit about the a G E S development arm and if any potential ownership structure changes with the parent there could be coming that might help accelerate some of the international development opportunities.
Yeah.
So with.
With Ags <unk> as you know we are not the share holder.
In Asia, we have a ROFO agreement, it's 1 of our sources of growth and on and we're going to control.
The other shareholder restructure or anything like that.
Have a good partnership we we are working with them in a number of opportunities and we expect that to continue being the case.
But at this point in time I cannot be more precise on that.
In any case I think that we have enough growth in leavers.
As we tried to share with you in the presentation you are referring to which is the year to lessen on 'twenty results presentation, where if they just started lots of things on offers us lots of opportunities let's.
Let's say life would be easier.
But he thought that that doesn't happen, we'll be able to grow through.
The other leavers, so it's not something that keeps us awake on Mike Arnold.
Got it and then I guess, maybe this 1 is a little more specific to the U S market, but I'm just wondering if you could comment on.
Any changes in.
Kathy yields for new acquisitions that you might be seeing I think some of your peers have announced acquisitions that 8% cash.
Captain yield recently relative to the historical kind of 10% ish yield set we're used to seeing.
Could you just comment on on what you're saying there.
No I think that you know with interest rates, where they are.
I have seen the announcement, you're referring to on the work not for price I think that probably if I were an investor in that other company.
I would think that on 8 or send their royalties.
Enough of a spread so I have not been for price in our case, we have the advantage that we invest in different geographies. So probably we are able to access some opportunities that hub and.
Better numbers than if we invested everything in the U S.
But given where interest rates are I don't think that anybody kind of <unk>.
Spec forever, but got the yields will be exactly the same in our case, we ended up investing not only looking at back on the loss you know in our case we are.
Our primary metric is on IRR. So we want to make sure that we create value long term.
And then we look obviously.
On the shorter term cash yield on the in some cases numbers are a bit higher.
And in some cases number are a bit lower but I'm not so price with with what you were referring to.
Okay.
Alright I appreciate the time thank you.
Thank you as a reminder, if you would like to ask a question today. Please press star 1 on your telephone keypad.
Your next question comes from the line of.
Ive Segal from single asset management. Please go ahead your line is open.
Yeah. Good afternoon. Thank you.
2 quick questions..1 is a language has moved up a little bit can you talk about.
Your your your targets and what you were thinking longer term and the second question is that the EBITDA margin. It looks like it came down a bit can you talk about what's going on.
Yes.
You know per se.
Yeah, so regarding leverage.
We closed 2 large investments this quarter is the number is higher than the previous quarter on target as you probably know used to be in the 3 point something region in terms of a.
Net corporate debt versus a GAAP, that's where we are on the on.
We intend to continue in that region. So each other.
I would say, probably we are where they are.
We had told the market we would be.
On where for example rating agencies.
We believe expect us to be either no Francisco, if there's any other color you want to other.
No I just think it's tested them in discussion with the rating agencies I mean, the 3 point something works, we do have lower leverage.
Then Peter so as I said I think we have signal the 3 point something somebody else.
Okay, and then EBITDA margin and EBITDA margins for US obviously are different by geography and on by sector, but on average they tend to be fairly consistent in this quarter, we have a bit of a 1 off fee in revenues. That's why the percent that youre looking at these you saw it would be.
Lower but if you look at the absolute numbers you see.
What we believe is healthy EBITDA growth.
Versus last year.
So on so there's nothing really going on as far as expenses or anything no debt.
I mean, nothing nothing large significant on whatever we might have had this quarter I'll be at the higher expenses in an asset here or there, but there is no trend. There is no change. So there was no deterioration if you want anywhere.
Okay, well, thank you very much.
Thank you.
Thank you I will now hand, the call back for closing remarks.
Great. Thank you very much to everybody for attending today. Thank you operator.
Thank you. Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
Okay.
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On this.
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