Q2 2019 Earnings Call
Welcome to the content.
Continue to standby yeah.
I'm trying to look and shortly.
Welcome to the Atlantic Coast second quarter 2019 financial results Conference call.
Atlantic a is this sustainable total return into for 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 the call will be available on at the atlantica yield corporate web site.
Atlantic I 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 the forward looking statements. If any of our key assumptions are incorrect or because of other factors discussed in todays earnings presentation or the comments made during this conference call.
In the risk factor 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 Atlantic tariff C O Sunshine usage and C. S O Francisco Martinez Davis as usual at the end of the conference call. We will open the lines for the Q and a session.
I will now pass you over to Miss each please Sir go ahead.
Thank you very much.
Good morning, and thank you for joining us for our second quarter Conference call.
If we start on page three we can see that we have continued showing a strong performance in the first half of 2019, where we have the lever girls in terms of revenues and further adjusted EBITDA, including unconsolidated affiliates on a like for like basis.
Gasoline available who is dilution gabi also increased in the first half of 2019.
In the second quarter, we continued delivering on several strategic initiatives.
Within our existing portfolio in first place, we have internalized operation and maintenance services in our us solar assets.
This initiative.
Should deliver immediate additional kathy even before considering any efficiency or cost savings.
Second we successfully refinanced the project that all of our assets in Chile.
As a result, we expect to increase the Kathy we obtain every year from these assets starting in 2020.
In third place, we signed our first years dealing financial guarantee line.
That will help us to progressively released restricted cash in some of our projects as discussed last quarter.
Finally, we recently signed a $125 million.
Limit increase for our revolving credit facility.
Now the limit is $425 million, providing us with significant liquidity to continue growing accordingly.
Finally, our board of directors has declared a quarterly dividend of 40.
Sense, whereas share representing an increase of 18% compared with the second quarter of 2018.
The board and management remain fully committed to dividend growth.
On slide five we present, our key financials revenues.
Reached in the first half of the year $505 million, a 2% decrease.
Primary due to currency translation effects on a constant currency basis revenues increased by 3% compared to the same period last year.
Regarding further adjusted EBIT da.
The decrease by a 7%.
The decrease was due to currency translation effects again on a one time non cash gain recorded in the second quarter last year.
Excluding these effects on a like for like basis, our EBITDA for the first half increased by a 6%.
Finally got the in the first half of the year increased by a 5% year over year.
Up to $94.5 million in line with our expectations for the year.
Once again, the solid operating performance in the first half demonstrates the advantage of having a diversified portfolio where significant percentage of our revenues is based on availability and not only on generation.
Moving on to page number six.
We can see that overall our portfolio delivered a good performance in the first half of the year.
Starting.
By geography in North America, EBITDA decreased by 5%.
Mainly due to lower production from our us solar assets due to two lower solar radiation in the first quarter of the year.
In the second quarter.
It will be a.
Increased by 2%.
In South America, both revenues and EBITDA increased significantly thanks to the continued solid performance of our assets and the contribution of the newly acquired assets in the region.
The revenue decrease in EMEA was mainly due to currency translation translation effect in Spain production increased significantly thanks to higher solar radiation.
In our catch you asset we continue to see our various strong operating performance.
Looking below the results by business sector, we see similar effects in renewable energy revenue decreased.
Due to the same currency translation effect on EBITDA decreased for the same reason.
On due to the extraordinary item I mentioned before on a constant currency basis revenue in renewables would have increased by 3% and EBITDA would have increased by 4%.
Inefficient natural gas the asset continues to show very solid performance, you're going to see.
In that page.
And in transmission revenues increased by 7% with EBITDA growing by an 8% mainly thanks to our good operating performance and the contribution from the assets. We recently acquired.
Finally, our water segment keeps showing a strong EVD.
Levels.
If we look now at the following page number seven.
We can see that electricity produced by our renewable energy assets increased by a 14%.
Versus the same period last year.
Overall, our renewable energy generation assets delivered a strong performance in the first six months of the year.
Regarding.
Our availability based contracts ACB.
Continues showing solid performance.
The scheduled major overhaul happened in the first half of the year one turbine in Q1, the other turbine in Q2.
And this explains the lower availability and production compared with the first half of 2018.
Nevertheless, since the overhaul was a scheduled it did not have any impact on business or revenues.
Finally in transmission lines and water availability is have been once more very high.
I will now turn the call over to Francisco, who will take you through the financial highlights.
Thank you Santiago and good morning to all.
Let's move on to slide eight to walk you through our cash flow for the second quarter and for the first half of 2019.
Our operating cash flow for the first half of 2019 reach a 149.1 million.
Compared to $163.2 million in the first half of 2018.
Which include approximately 17 million corresponding to one off payments received in Solana.
With no corresponding amount in the first half of 2019, which explains a decrease.
In the second quarter of 2019, we generated record operating cash flow for our second quarter of $52.2 million compared to 32.7 million in Q2 2018.
Net cash used in investing activities in the first half of 2019 with a $119.4 million and correspondent mostly to investment in new assets and should be seen in conjunction with the net cash used in financing activity as it includes investments made by our partners.
Our net cash invested in new assets in the first half of 2019 amounted to approximately 40 million.
Net cash used in financing activities in the first half of two 2019 amounted to 84.4 million and included the impact of the refinancing are part of our corporate debt earlier this year.
All in all the net change in consolidated cash for the first half of 2019 with a decrease of 54.7 million.
On the next slide number nine we would like to review our net debt position.
Our consolidated net debt as of June Thirtyth 2019 is approximately 33 million lower than the than at the end of 2018.
We closed the first half of 2019 with net corporate debt of 582.6 million.
In line with net corporate debt as of December 31, 2018.
With this our net corporate debt to cap the pre corporate debt service ratio stood at two and a half times.
On the other hand net project debt as of June Thirtyth 2019.
Was for 4500 28 million, which is 38 million lower than at the closing of 2018.
I will now turn the call back to Santiago, who will review the progress achieved in the second quarter on some of our priorities.
Thank you on page 11 am we can review the progress we have achieved.
On several initiatives within our portfolio.
In first place we have internalized on them services.
For our us solar assets by acquiring the MTD, providing those services from our previous one NIM supplier.
Additionally, we intend to internalize part of the activities contracted into wind assets.
Maintaining a direct relationship with the supplier for the turbine maintenance services.
These initiatives will be accretive from day, one thanks to the fact that we will avoid service fees, even before considering any cost savings.
In addition in the second quarter of 2019, we have refinanced the project that of our assets in Chile.
The new financing agreement is a us dollar denominated.
12 year loan.
For a total amount of around $75 million with a group of local banks.
With these new project debt refinancing, we expect to achieve an average garvey improvement of around $2 million per year going forward.
Third as we discussed last quarter, we expect to be able to achieve our copy guidance in 2019, even even more hobbies distribution to us were delayed as a result of BG a nice situation.
In this regard Atlantic are signed its first yes gene linked financial guarantee line to be exclusively used for renewable assets. We expect in fact to use these guarantee line.
To progressively release restricted cash in some of our projects.
In any case I am talking about beginning.
The recent legislation in California.
He is a very important step in the right direction.
We believe.
That highlights the probability of BG any exit in chapter 11 before June 2020, with no impact on existing renewable energy PPH.
In fourth place obviously as a D. review Committee continues working on the analysis of a strategic alternatives to optimize Atlantic as value.
And finally, our recently announced acquisition of our 30% stake in Monterrey has recently closed I suspected.
If we move to page number 12.
You will see that our board of directors has approved a quarterly dividend of 40 cents per share.
For the second quarter of 2019 or $1.60.
Fair share.
Annualized.
This represents an 18% increase compared with the same quarter in 2018.
Thanks for your attention we will now open the lines for questions. Operator, whenever you want we are ready for Q and a.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone keypad and with your name to be announced if you wish to take back. Your question. Please press the ASCII once again Thats star and one on your telephone if you wish to ask a question.
And your first question comes from Praful Mehta from Citigroup. Please go ahead.
Thanks, so much guys.
Hi, Praful.
Hi, So maybe just.
It would be on M. contracts, just wanted to understand given what's been done so far and what you expect to continue to achieve around the internalization of these owned them on tracks what kind of gas fee benefit should we expect to see from a run rate basis. Just so we can kind of build that into our models as well.
So what we have discussed today is the fact that we are we have internalized our U.S solar contracts and we are working.
On a couple of a wind assets is the is this is Bart obviously offers throughout the year to optimize our costs wherever we can and going forward. We will see you we.
Have more opportunities to do so the financial impact of these.
The two contracts the two large ones in the U.S. under some smaller ones in the wind is not a very significant amount, let's say from from a million dollars point of view is that the fees. We are going to be saving Rowley are around half a million dollars per year or something.
Additionally, there will be.
Synergies and cost reductions that we expect or we expect to to get over time.
Gotcha. Thank you thanks for putting that in context, maybe secondly.
On the strategic review side, I know that you're saying that it's still ongoing just wanted to understand given the strategic review started more with you know where the stock was and how.
The PGT uncertainty was impacting the stock and overall valuation now that the stock has performed better does the scope of the strategic review change in any way or how should we think about the strategic review now given where the stock is.
So.
My answer to your question would be no is the scope.
And has not changed.
From the very beginning we said that this strategic review.
Committee was about optimizing value and that is what the.
We have been working on.
And what we can continue working on.
Got you fair enough and that's unexpected Q3 Q4 announcement.
So probably.
Without committing too much but I would say that role is reasonable to expect some kind of communication before the end of the year.
Got you and just finally on the refinancings.
Given they have been successful so far are there other projects, where you believe that there are opportunities to refinance and how should we think about that opportunity.
Hey, Paul This is San Francisco, a we're always looking at the at the portfolio last year, we refinanced a couple assets in Spain.
This year, we you saw that we refinanced the high yield on the corporate side. So yes. We will we are always looking at the existing portfolio to see whether that where there is the refinancing opportunities.
Gotcha, Thanks, and congratulations guys.
Thank you.
Thank you. Your next question comes from Julien Dumoulin from Smith. Please go ahead.
Hey, good morning, it's Julien here.
Good morning Julien.
Hey, so perhaps just to follow up on Paul's question with respect to the strategic review I just want to clarify couple of things here first off.
On optimizing value. The when you think about the potential for asset sales specifically is one of numerous.
Outcomes, how do you think about sustaining the dividend in that context in growing the dividend and basically finding a use of proceeds in a sort of a concurrent manner to keep.
The pair ratio venture intact, if that makes sense and maybe you can speak to the that specific route.
Amongst other avenues being evaluated in the strategic review.
Okay. So as you can imagine I should not be very specific.
Regarding in all potential avenues, there are many ways to optimize value.
Hey, you mentioned one of many.
What I can tell you is that.
As I mentioned to you on the call.
Our priority continues being to make sure that we will be able to grow our dividend going forward.
And therefore.
Our study and our actions should be consistent with that.
Nevertheless in the example, you mentioned.
I think that both things you mentioned could be compatible assuming that that was part of our study or the things. We did so again you mentioned one of the many options and I will then like anybody to believe that Thats.
What they're studying rigorous about because it could be about many other things.
And just clarifying this I mean with respect to the board actions et cetera, Weve seen anything different on change of control or anything like that.
I I didn't I don't understand exactly.
When I was referring to.
Just curious what the status of the change of control.
The payouts are with respect to any strategic outcomes.
I see.
I don't see any change of control implications anywhere on I don't know Julien what youre after exactly.
So payout ratios.
Are where they are.
We don't have any change of control provisions beyond the normal once in the corporate financing.
I don't know if I'm missing something.
Rather executive change of control.
Again I don't.
Okay fair enough just to bring it back to the core business real quickly.
In focusing on the dividend payout ratio actually could you elaborate a little bit further just with respect to your expectations for scaling dividend.
Obviously, just a penny a quarter here increased our views.
It's tough to get ahead of the board process here in evaluating dividends on a quarterly basis, but how do you think about continue to see the trajectory of the dividend increase even at a penny a quarter kind of trajectory here.
So as you know is the Dps growth target, we have out there, Nick Durham, and let's say high single digit and therefore, thats, what we expect to be able to achieve in the midterm at this point time, we have a $1.60.
On an unrealized basis.
So our expectation would be.
To continue having a payout ratio similar to the one we have hot lately, so call it the navy or or.
An 80 something percent.
And therefore, not much new there our expectation is to continue having that kind of rate payer ratio by being able to grow the Kathy.
At a similar pace to the growth in Dps using the target we make public sometime ago.
Indeed, rather if I could clarify just with respect to the Penny a quarter, Hey could you see reacceleration.
Obviously that would imply closer to 3% off the current dividend, but I'm. Just is this is more of a function of timing of of asset acquisitions et cetera.
And cash deployment.
A question Mark.
So again, our objective is to be able to achieve the cost the growth that we have out there and therefore, there could be quarters with the number you mentioned on quarters higher quarters lower.
Fair enough excellent. Thank you all very much I appreciate it.
Thank you.
Thank you and your next question comes from the line of David Chris Dodd from Raymond James. Please go ahead.
Thanks morning, guys.
My first question here on Capex it sounds like operations have been going quite well. There are you are you all the way that they're now in terms of where you expect to be with that asset and can you just provide us any update.
If at all on when you expect distributions from that asset to start flowing.
So the answer has been performing very well for for some time in the performance. We've seen in the last quarters are in line with our expectations is for and for 2019, a we did expect distributions and we have had distributions already.
Okay, great. Thank you and then.
A follow up question just on the.
On the SG guarantee line any color you can provide on the pace of cash that can be moved off restriction going forward.
Hey.
It is difficult to be very specific there and as we mentioned last quarter. This is part of our strategy to be able to compensate formal how business solution.
If they were delayed because of PG any.
It will take time to to release money from those accounts. So it will happen over the next few quarters, how many and at what pace is more difficult to to foresee.
Okay. Okay fair enough and then just my last question your.
Wonder if you could just comment on on how your development team has been doing what you've been seeing in terms of the market for acquisitions.
In the regions, where you've been focusing.
So in general we are rather optimistic regarding that.
At this point in time, we are working on a number of.
Opportunities that we can see there attractive.
And the fact that we have been.
We have been increasing.
Our financing.
On the fact that we now have available a significant amount of funds lets say.
Probably suggests that we expect to deploy some capital if we are able to close some of is the opportunities. We are working on like always with reasonable numbers.
Thank you very much for that that's all that.
Thank you.
Thank you there are no further questions at this time once again as a reminder, if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced.
And we have no further questions at this time I would now like to hand over to your host for closing remarks.
Okay. Thank you very much to everybody.
In some ways you can reach out to our Investor Relations team. If you want any follow ups. Thank you bye.
That does conclude the conference for today. Thank you all for participating you may now disconnect speakers. Please stay on the line.
Yes.
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