Q3 2022 Atlantica Sustainable Infrastructure PLC Earnings Call
Welcome to Atlantica is third quarter 'twenty to 'twenty, two financial results conference call.
<unk> is a sustainable infrastructure company.
Just a reminder, that this call is being webcast live on the Internet and a replay of the call will be available on Atlanta corporate website.
Atlantica will be making forward looking statements. During this call based on current expectations and assumptions, which are subject to risks and uncertainties.
Actual results could differ materially from our forward looking statements if any of our key assumptions are incorrect or because of other factors discussed in today's earnings presentation or because of other factors discussed, including the risk factors section of the accompanying presentation.
Our latest reports and filings with the Securities and Exchange Commission, all of which can be found on our website.
<unk> does not undertake any duty to update any forward looking statements joining.
Joining us on today's conference call or Atlantica, CEO , Santiago, Ashish and CFO Francisco Martinez Davis.
As usual at the end of the conference call. We will open the lines for question and answer session.
I'll now pass you over to Mr. <unk>. Please go ahead.
Thank you very much good morning.
You all for joining us for our third quarter 2022 conference call.
Few messages to start with in the first nine months of these year revenue has increased by close to 5% on adjusted EBITDA has increased by four 3% on a comparable basis, while cash available for distribution increased by six 2% up two one.
$179 million.
Net corporate debt.
The ratio stood at three times, so far at the end of September providing us with significant financial flexibility.
Regarding growth, we have committed close to $150 million in new investments in the storage.
TB.
With that I will turn the call over to Francisco, who will take you through our financial results.
Thank you Santiago and good morning to everyone.
Please turn to slide number four where I will present, our key financial for the first nine months of 2022.
Revenue reached $858 million, which represents a four 9% growth on a comparable basis.
Excluding the effect from the nonrecurring solar project, we discussed lab here and foreign exchange.
Adjusted EBITDA amounted to $631 million, representing an increase of four 3%.
On the same comparable basis.
Regarding cash flow for distribution, we generated $179 million in the first nine months of 2022, an increase of six 2% year over year.
On the following slide number five you could see our performance by geography and business sector.
In North America revenue increased by 5% to $324 million in the first nine months of 2022, while EBITDA increased by 6%.
To the assets, we recently acquired in the United States.
In South America revenue and EBIT, both increased by 5% to 123 and $95 million respectively. Thanks to the recent acquisitions.
Revenue in the EMEA region decreased by 20% in the first nine months of 2022 2022.
Mainly due to foreign exchange impact and the nonrecurring effect mentioned.
Previously.
EBITDA in the EMEA region decreased by 8% in the FERC five months of 2022, mostly due to FX impact and the one time gain in the first quarter of 2021.
Excluding this impact revenue would have grown at four 9% and EBITDA by two 6%.
Looking below at the results by business sector, we can see similar effects.
Let's now please turn to slide number six we will review our operational performance.
Electricity produced by our renewable assets reached 4155 gigawatt hours within the first nine months of 2022.
An increase of 20%.
Same period of 2021.
The increase was largely due largely due to the contribution of assets recently acquired.
Looking at our availability based contracts once again ACP continues to show solid performance.
In transmission lines and water the two other sectors, where our revenue is based on availability, we continue to achieve high availability levels.
Now lets please turn to slide number seven to walk you through our cash flow for the first nine months of 2022.
Our operating cash flow reached $560 million.
<unk> 16, 7% increase compared to the first nine months of 2021.
Investing cash flow in the first nine months of 2022, mainly includes the investments in new assets and the distributions we received from entities under the equity method.
Financing cash flow was $263 million and mainly includes the scheduled principal repayments of our project financing agreements for $196 million.
Dividends paid to shareholders and Noncontrolling interest for $178 million.
On the next slide number eight we would like to review our net debt position, which has decreased significantly significantly compared to 2021 year end.
Net project debt as of September 30th 2022 was 3940 $6 million a decrease of more than 500 million for December 31 2000.
'twenty one.
In addition, we closed the first nine months of 2022 with net corporate debt of $850 million with this our net corporate debt to cap the pre corporate debt service ratio stood at three times, which put some atlantica in a good position to finance new investments.
I will now turn the call back over to Santiago.
Thank you.
Regarding growth, we are happy to announce close to $150 million in new investments. These include among others, our first standalone battery storage system.
That investment in our solar PV planting operation on which we also plan to add storage.
If we look at.
<unk> number then.
We.
We'll talk briefly about the new battery storage project, which is going to start construction on these located inside our geothermal plant in California.
The battery system is expected to have a capacity of around 100 megawatt hours.
To start operation in 2024.
These projects will benefit from the inflation reduction.
Which we believe is.
This will be a game changer for the sector. In fact, we expect these projects to be the first one of our pipeline of projects in the southwest.
Is a region that presents a clear opportunity for storage.
With our experience in most renewable energy technologies storage, we believe that atlantica east and a very good position to take advantage of these sizable growth opportunity.
On the next page we review our first.
Investment in.
PV plant with batteries, we have closed recently the acquisition.
Chile or <unk>.
70 megawatt PV plant through a renewable energy platform.
There.
We expect to add about the it system and.
Next year.
Let me turn back the call to Francisco, who will cover the last part of our presentation.
Thank you Santiago, let's move onto slide number 10.
Since we are in a market environment with rising interest rates and a strong U S. Dollar we would like to spend a couple minutes reviewing how Atlantic us prudent financing their hedging policy limits our exposure.
First our caf the impact from the current Euro devaluation is limited.
Atlantica has a natural hedge since the distributions from its assets in Europe , and Europe , partially offset with euro denominated corporate interest and G&A.
For the net euro exposure, we have a hedging strategy through currency options by which on a rolling basis, we hedged 100% the expected net exposure for the next 2012 months.
75% for the following 12 months.
That being said after months of planning for that.
That potential impact.
Yes.
Kathy.
Would be approximately 3%.
This is calculated as the difference between the expected average.
Net euro exposure converted at the current euro dollar rate and our average hedge rate for 2022.
Second Atlanta gas protected against inflation, thanks to escalation factors approximately 50% of the company's portfolio has revenue index either to U S inflation index or to an inflation based formula or to a fixed number.
Third we are well insulated against interest rate risk.
94% of the company's consolidated debt is either hedge or fix.
And an increase of 100 basis points and interest rate with respect to current rates will have an impact of approximately one 5% of our Kathy.
And finally, given the regulated nature of revenue from our assets in Europe any potential capital market prices should have no impact in the net value of our assets.
In addition, our assets in Europe are not subject to new taxes recently MF with this I conclude today's presentation. Thank you for joining us and now we will open the lines for questions operator.
Operator, we're ready for Q&A.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad now.
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Our first question comes from Andrew <unk> from Seaport. Your line is open.
Thank you.
So first question.
Sure.
Again, I would say.
Slide.
Battery investment that you are proposing the PPA for these investments and if you could talk maybe about CAFTA yields you expect to device.
Thank you Andy so regarding the new investments, we have announced each situation is different.
Our project in California as you. So there's some other project which is in Chile.
In both cases these are geographies where.
Storage also technology makes a lot of sense.
And therefore in front of US we have different options in the case of the <unk>.
U S.
One option would be to go for a full PPA other options would involve.
Thanks.
<unk>.
Our a through resource adequacy.
Uh huh.
Together with market revenues and at this point in time, we are going to be working on the different options in front of us.
But in any case, both business models, we sold in.
Returns.
Both long term and short term, which are more than enough.
<unk>.
The objectives, we have as you can imagine 90, given current pricing.
Short term mid term outlook.
Investments should result in very good multiples.
Yields.
Okay.
Going back to the EBIT EBITDA yields.
Yields.
I mean.
How did the component what are your expectations of returns how did these components.
What you have been showing over the last couple of quarters.
Is that an uptick in those return expectations as you said.
One of.
The higher financing environment.
So if you look at our disclosure R&D.
You will see that in terms of EV to EBITDA multiple is one of the projects. We mentioned at 10 times. The other one we mentioned at six times.
So it should be.
That's why I'm mentioning that from an accretion point of view from a return point of view the projects do clearly meet.
<unk> requirement.
Okay.
And then secondly, yes slide on project financing.
So that you could pull forward Kathy by basically refinancing that.
Non recourse back.
So you haven't announced anything.
So is this like a lever.
Lasalle one once there is no additional growth in the asset base.
When could we expect an update on potential refinancing.
Sure. So this is clearly another lever that we have been discussing in the past we believe is going to help us too.
Increase.
Our distributions are in fact once you go throughout disclosure you will see that we have refinanced an asset in this quarter.
Yeah.
Okay, and then lastly.
I know that the easy comp.
On the fourth quarter call, but is there any update on your <unk>.
Growth projections so targeting.
The increase in the cost per se.
So the next couple of years, maybe a comment on 2023.
What about 2024, what would be derived from the projects growth projects you have already locked in a.
Sure.
So as you mentioned R&D, we typically give guidance.
When we announced results for the year, so there's not much I cannot there.
It will be.
Okay and all of that in February when we announce.
We sold nothing new.
In that regard.
Okay. Thank you.
Thank you.
We now turn to Julien Dumoulin Smith from Bank of America. Your line is open.
Hey, good morning team. Thank you so much.
If I made a follow up on Andy's question. There on the first one there. So you don't have an update commitment yet for California, If I hear it right you don't have a CPC arrangement.
The extent to which that you offer the latter with.
Fixed or a payment what kind of duration are you looking at getting.
And then just the throne and another related question the EV to EBITDA multiple of 10 times does that.
Exclusive of an ICC.
So in terms of off takers.
I mentioned before in both geographies.
You have the options of Ppas and you have the option of an <unk> or the equivalent of PRA.
And that would mean that the assets will be contracted in case in one case they could be.
In.
Nearly 100% contracted in the other case going through another eight it would be.
Smaller percentage.
Point in time, given the situation in the market, we want to keep our options open on both.
In both options as I mentioned before we believe deliver.
Very good economics.
You know our portfolio at this point in time is.
Nearly exclusively contracted.
And therefore, we believe that we have the option in these couple of new projects to look at.
Both situations.
In terms of your.
Your second question the multiple is the EV the.
Investment.
Divided by the EBITDA.
So we have got it.
Sure.
The gross investment if you want Julien.
Yes right.
Out of the ICU.
Excellent. Thank you.
And then if I may just given the subject here too.
The loans start to.
The wind project here can you talk about.
Just repowering and opportunities to re contract that asset I believe it's with EPR stands right now and it's coming up on contract terminations Garrett.
You can speak about the options ahead here.
Yes, so as you rightly mentioned, we have a partner there therefore, everything we do there should be done with our partner in the short term our intention is.
To sell to the market.
We think Thats short term, that's the best option available now given IRI.
We will continue analyzing options to go through.
Power in at some point in time and obviously.
<unk> opened new opportunities.
We didn't have when we made the investment in terms of.
When and how to do such.
Repowering, but short term, we think that the best option is to sell in the market for some time.
Got it.
Yes.
Why not a repowering if you can speak to.
Or are you about that.
Given the irate clarity that we've got now.
To help you.
<unk>.
Share with you some element of the reasoning you need to follow their the win in a repowering is extremely important.
And you need to look their inflation cost of supplies.
Force et cetera et cetera.
Plus you need to compare that versus short term prices in the market. So our intention is atlantica would be to have that as a contract with at some point in time.
But <unk> we are in no rush on our intention is to optimize the value of the asset.
Taking into account.
Market prices, especially in the short term.
Yes that makes sense alright elevated power price in the near term no reason to take the asset.
Or any kind of repowering or maintenance or otherwise.
Alright ill leave it there. Thank you guys very much.
Thanks Julien.
Our next question comes from David <unk> from Raymond James Your line is open.
Thanks, Good morning, everyone.
My first question here just on your.
Your comments around the growth outlook in the U S and potential benefits of the inflation reduction at <unk>.
Curious if you can.
Discuss your U S pipeline at all maybe even just qualitatively.
What kind of projects do you have that could benefit from the legislation there.
And even if possible or maybe as kind of a side question.
What your thoughts are around interconnection delays and challenges getting into that market.
Sure. So we do think obviously that ray is going to help the sector in general and Atlantic.
Specifically as well.
Our case the storage project, we are talking about today is the first of our pipeline we have been working on for the last few years. So we do believe that we have a number of projects you.
You have a couple of figures in our disclosure.
Regarding that pipeline in the southwest we believe that we are going to have opportunities in the next years to benefit from IRI.
And develop Unbilled AR number of assets, mostly around the storage.
PV as the portfolio is in the southwest.
Okay excellent. Thank you for that.
And then maybe one on.
On your dividend policy, just just high level I'm sure I appreciate that a lot of this is the board does.
Discretion, but.
As you are looking at more development projects and growing and building new projects I'm curious if you see a scenario where you might increase your proportion of retained cash.
In order to fund some of these projects in.
In the future.
Sure. So as you rightly pointed out obviously the board is the one the siding.
The dividend at this point in time, our policy is to be around 80%.
Payout ratio.
That's in our disclosure and Thats. The policy, we have obviously the board will do in the future.
I wouldn't like to comment, but that's the policy we have and we are following.
Okay. Okay understood. Thank you and then maybe just one last one for me and again as it relates to your opportunities throughout the U S.
And just any updated thoughts with respect to your.
Opportunities you could pursue with Algonquin.
Sure so.
We've Algonquin as you know in the past we have done.
A few project in South America.
Equally we analyze opportunities with them. So it's one of our sources of growth.
We intend to continue looking at opportunities with them, but again being one of the many sources of growth.
Okay excellent. Thank you I will turn it over.
Thank you David.
We now turn to Mark Strouse from Jpmorgan. Your line is open.
Yes, excuse me. Thank you very much for taking our questions.
Just a clarifying question following up on the IR array.
When you talk about most of your your U S pipeline being in storage going forward.
Is that because other technologies aren't clearing the required return hurdle or is that just a relative comment that storage looks better than other type of assets.
No I mean, it's not.
Not trying to say that the other technologies do not meet the benchmarks at all.
It simply given the fact that the pipeline and I'm talking about is in the southwest.
California neighboring states.
We do see an opportunity around the storage.
As you can imagine that.
Solar penetration of solar PV increases and you'll start to see opportunities for storage, probably California is one of the most advanced markets in that regard that's why our specific portfolio as of today in the southwest.
Haas more storage, but thoughtful.
It's very specific to that region.
Currently on.
For our portfolio, but obviously, we look at opportunities in many other technologies and in many other locations.
Got it Okay and then just following up on slide 12 on the hedging just want to be clear here. So the strategy moving forward.
Even given the recent volatility in FX has to continue to hedge 100% for the next 12 months and 75% for the following 12 months. So.
Youre not trying to.
The game FX essentially.
Looking out to 2024 and 2025 as we roll into next year.
That is correct Mark I mean, we do are.
The hedging strategy describe over the 100% over the next 12 months and a 75 months four months 12 to 24 on a rolling basis, and we'll continue to do that so there is no change in our in our hedging strategy.
Okay. Good to hear thanks. Thank you.
As a reminder to ask any further questions. Please press star one on your telephone keypad now.
Our next question comes from Mark Jarvi from CIBC capital markets. Your line is open.
Thanks, Good morning, everyone.
Santiago I Wonder if you could break down the $150 million of new investments and just clarify how much of that will be deployed in 2022.
Hi, Mark so that's not the tail we are sharing the skull.
Sure so I wouldn't be able to give.
A few numbers there.
Obviously.
Yes.
Some of our projects as I said are going to be online in 2004, so that would mean that a significant part of those projects be investment would happen more in 2003, then in 'twenty two.
Okay, and then can you comment at all in terms of where you think you might end up this year in terms of actually deployment, whether or not you'd hit the $300 million.
Target.
Yes.
The 300 is short of guidance there are years, where we do more and we do less at this point in time, it's a bit early to tell you, where we are going to land specifically.
Would probably be.
Sulfur 300, but at the same time for 'twenty three we already have a significant amount of money earmarked or are being invested.
Okay.
And then just to clarify one thing on these investments it does seem like.
So at least the one corso is unlevered, but what about the investment in <unk> in Chile.
Chile is that does that mean that attached to that or is that.
Unlevered at this point.
So at this point in time, VR Levered, our intention would be to lever them probably to lever them. Once they are operational.
Got it.
And then just last question.
With that pipeline you have in the southwest six projects PV and storage.
Any rough indication of when you think the next project could come to fruition and be able to announce something is that something that could come together next year or are these projects a couple of years out.
So I'm, reaching a final investment.
Decision, yes, yes.
Yes, it's up.
Portfolio, Unlike our portfolios and that there should be things coming in different dates.
Therefore.
It will depend on how we can advance further it will depend on the contracted contracting side of things.
There could be projects in the next few years.
Being ready to decide whether we invest.
Understood. Okay. Thank you.
Great. Thanks.
Our next question comes from William Griffin from UBS. Your line is open.
Excellent. Thank you first one just coming back to the battery projects.
Do you have visibility or contracts on battery supply there already locked in or.
As I said at least visibility too to securing supply.
Well.
Obviously the teams are working on that.
I would not comment on the specifics there, but given the size of the projects you should not be a.
Our problem at this point in time, when you are talking about battery supply.
You are able to lock in reasonable agreements.
And especially if you have been working with our suppliers for a long time.
On your working on sizes like the ones we are discussing.
Got it and then.
Specifically on the coastal <unk> project are calling that one standalone storage project, but.
Obviously locating it on the coastal side of it could you just speak to the benefits of doing that is it primarily just leveraging the existing interconnection and land or are there. Other other benefits you see potentially in doing that so those two those two are clearly important on the third one is.
<unk>.
Operation and maintenance of the asset obviously.
We'll be done with the same crew bodies today, taking care of a geothermal plant.
Thats a significant synergy.
In terms of costs.
For us.
Got it I appreciate the time thank you.
Thank you.
This concludes our Q&A on 100, which essentially accuracies CEO for final remarks.
Alright, Thank you very much to everybody for attending our call today.
Thank you.
Today's call is now concluded. Thank you for your participation you may now disconnect your lines.
Okay.
Okay.
Okay.
Okay.
Okay.
Yes.