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spk01: Welcome to the Atlantica's 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 and water assets in North and South America and in certain markets in EMEA. Just a reminder that this call is being webcast live on the internet and a replay of this call will be will be available on Atlantica's corporate website. Atlantica will be making forward-looking statements during this call based on current expectations and assumptions which are subject to risks and uncertainty. 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, And in our latest reports and 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 are Atlantica CEO Santiago Cis and CFO Francisco Martinez-Davis. As usual, at the end of the conference call, we will open the lines for the Q&A session. I will now pass you over to Mr. Cis. Please, sir, go ahead.
spk03: Good morning and thank you for joining us for our second quarter conference call. I will start with a few opening remarks. During the first half of this year, 2021, we have had what we believe is a strong performance with CapBee growing at close to a 13% up to close to $110 million. Following that, our board of directors declared a quarterly dividend of 43 cents per share. And additionally, we have been able during this second quarter to successfully issue $400 million in green notes that have allowed us to extend part of our corporate maturities from 2025 to 2028. Regarding growth, we have closed two previously announced investments, 135 megawatt contracted renewable energy plant in California and a 49% stake in a wind portfolio in the U.S. So in general, we believe making good progress regarding our plans for this year 2021. I will now turn the call over to Francisco, who will take you through our financial results.
spk09: Thank you, Santiago, and good morning, everyone. Please turn to slide number four, where you will be able to see our key financial statements for the first half of 2021.
spk10: Revenue in the first half of 2021 reached $611.2 million, which represents a 13.5 percent growth on a comparable basis. excluding foreign exchange and a non-recurring impact in our renewable sector. Adjusted EBITDA, including unconciliated affiliates, increased by 6.3% up to $404.2 million. Regarding cash available for distribution, we generated $109.9 million in the first half of 2021, an 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 in the first half of 2021, thanks to the recently acquired assets and higher solar radiation, while EBITDA decreased by 5%. In South America, revenue in EBITDA increased by 5% and 1%, respectively, also due to recent investments. EBITDA in the MEA region increased by 18% compared to the first half of 2020 thanks to new assets, higher revenue in CACHU, and higher solar radiation in Spain. Regarding results by business sector in renewable energy, our largest sector, EBITDA increased by 7% thanks to the reason previously mentioned. Now let's please turn to slide number five where we will review our operational performance. Electricity produced by renewable assets reached 1,984 gigawatt hours in the first half of 2021, an increase of 34 percent compared to the same period of 2020. The increase was largely due to the contribution of assets recently acquired. Production also increased in EMEA in North America where solar radiation was higher. Looking at our availability-based contracts, efficient natural gas transmission line and water assets have contributed to achieve high availability levels in the first half of 2021. Now let's move to slide number six 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 of 2020, mostly thanks to an improvement in variations in working capital. Investing cash flow for the first half of 2021 was $327 million and reflects the acquisitions closed during the period. Financing cash flow for the first half of 2021 includes a positive impact of 42 million from the 400 million green notes issued in May that we used to prepay our 2019 note issuance facility, extending the maturity from 2025 to 2028. Financing cash flow also includes a positive impact of 131 million corresponding to the second tranche of the equity raise closed in January. They scheduled the project debt repayments for approximately $164 million and $106 million of dividends paid to shareholders and non-controlling interests. All in all, the net change of consolidated cash for the first half of 2021 was a decrease of approximately $177 million. On the next slide, number seven, we would 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, our net corporate debt to CAFTI pre-corporate debt service ratio stood at 3.4 times. Net project debt as of June 30th, 2021 was $4,771 million. Let me turn the call back over to Santiago.
spk03: Thank you, Francisco. I'm turning to the last page, page eight. As previously announced, we have closed the acquisition of several renewable energy assets as part of our growth strategy, exceeding the growth or 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 opportunities. With that, operator, we are ready for questions.
spk01: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone or To withdraw your question, press the pound hash key. Your first question today comes from the line of David Quesada, Raymond James. Please go ahead. Your line is open.
spk07: Thanks. Morning, everyone. My first couple of questions here, just on 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, it seems like they've been falling, but there has also been a fair amount of M&A in the region recently, portfolios changing hands. Just wondered if you could give us your thoughts there, what kind of opportunities you see for Atlantica there today.
spk03: Great. Good morning, David. So, regarding Spain, probably we would agree with the short summary you made. you made meaning a hot market with all the advantages and disadvantages of a hot market. So it's a market where obviously we are present. We have a significant position, as you know. So we have always been looking at opportunities and we continue looking at opportunities. And if we find opportunities with the right numbers, the right synergies, we will 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. Um, but like always, even numbers make sense.
spk07: Okay, great. That's great color. Thank you. And then just, uh, 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 see things changing in terms of the outlook in the U.S., in terms of there being more opportunities, or does it, considering that you've been primarily looking at M&A so far, is it primarily kind of status quo for you there on the outlook?
spk03: No, going forward, we do expect North America and the U.S. specifically to be a significant source of growth for us. So we are very active. The market keeps growing and by now is very large in all the different phases from, if you want, development, including operating assets changing hands. So we do see opportunities and we continue spending a lot of time in developing around different opportunities in different markets within the U.S., and we do believe that the next few years we are going to continue seeing lots of opportunities, among other things because many current owners of assets have been and will continue selling or looking to sell what they own, and that creates opportunities for players like us.
spk07: Okay, excellent. Thank you. And then just a quick question on the U.S. wind portfolio you acquired recently. I think one 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 recontracting or how you could go about recontracting that asset now that that acquisition is closed.
spk03: Yeah, in general, that portfolio... as you know has strong contracts with very good off-takers but shorter than our usual contract and we believe that there's a significant upside in in that and obviously in each of the situations in each of the states the answer could be different and the answer to regarding how we are going to extend the life of those assets. In some cases, it might be about repowering, a full repowering of the asset. And in some other cases, it might be about simply extending the life of the asset through new PPAs, shorter or longer. So we are not worried at all. On the contrary, I think that what we need to do is make sure that with our partner, we choose the best option in each of the four assets. And it's going to be different by state, and it's going to depend, obviously, on what tax advantages we have going forward and how each of the markets behaves going forward. In any case, I think that recent events in the sector are going to be helpful, meaning recontracting prices, that outlook probably today is... better than six months ago for a number of reasons, and we expect to be able to benefit from that.
spk07: Okay, excellent. That's great, caller. Thank you. Maybe just one last one for me. We know the topic of inflation is getting a lot of attention today, and I know that your contracts are almost all indexed to inflation, but I'm just curious if you see any impact to your business elsewhere as a result of some of those rising costs we've seen in solar and wind lately?
spk03: No. For better or worse, as you know, we are a heavily contracted company. Within the existing portfolio, as you mentioned, we have escalation factors in many contracts, so we are We believe we are well protected against inflation and for new assets, our exposure to construction is very, very small. So again, we are a low risk value proposition and the advantage and disadvantage of that is that with things like inflation happening now, the impact on us probably significantly lower than in other companies you or your colleagues typically cover in the U.S. or elsewhere.
spk07: Excellent. Great. That's perfect. I'll get back in the queue.
spk01: Thank you. Your next question comes from the line of Julianne Jamal Smith from Bank of America. Please go ahead. Your line is open.
spk02: Hi. Good morning, team, or good afternoon, as it may be. Thanks for the opportunity.
spk03: Good morning, Julian.
spk02: Good morning. So 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 Aliyah's win deal? Just thoughts about that perspective. Obviously, you find value in North American markets that are a little bit more competitive. But how do you think about that, A, signaling towards future deals, and B, what that means in terms of recontracting expectations and maybe implicit opportunities therein?
spk03: So I don't think, you know, the fact that that specific transaction has shorter PPAs, there's no signaling at all. Actually, the previous one was a 19-year PPA, the one in California. So each situation is different. As you know, for us, making sure that the numbers work is extremely important. And in some situations, the number will work with very long PPAs, and in some other situations, the numbers might work with slightly shorter PPAs, but it doesn't mean that there's a change anywhere. In this specific situation, as I mentioned before, the key is that there are four different assets in four different situations in four different states subject to different dynamics in each case, and 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 a few years down the road. What we know is that regardless of whether there could be a full repowering or whether we are going to be signing shorter PPAs without doing a repowering or whether part of the production is going to go merchant, who knows? What I can tell you, Julian, is that in any of those scenarios, the value creation would be significant for us because it's an asset that should be competitive in each of those markets whenever the PPAs come to the end of their life. So we are not worried about that re-contracting. The average of the portfolio, as you know, continues being 16 years. So I don't think we are signaling a trend or anything. We just thought that... there was value to be created here in an investment that, from that point of view, is a bit different than the rest of our portfolio.
spk02: Understood. Fair enough. Quick related question here. If you think about COSO here, expansion opportunities or, frankly, just desire to expand your portfolio out west as well, obviously a very interesting setup vis-à-vis resource adequacy and just their underlying need therein. Does that drive any considerations in your mind, especially as you think about, you know, just reinvestment in existing assets?
spk03: Yeah, so probably the answer from a desire point of view would be yes to all your questions, meaning we have made this investment and following a little bit your reasoning, we believe that California, the product you need to sell in California is a 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. And going forward, we would love to invest more in the Southwest. We have critical mass. There are some operating synergies. There are some commercial synergies. We would love to be able to expand some assets whenever the 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.
spk02: Yeah. Understood. Excellent. And then last question here, if I can sneak it in here. PTS, just what's the status there? Update there and then maybe ATS as well?
spk03: Yeah. So in PTS, as you will see in our longer disclosure, We have reached an agreement with the partner, and we have left that project. The financing has not closed, the project financing, and therefore the asset does not fit that criteria, and 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 a few quarters.
spk02: Right, an ATS?
spk03: Which one, sorry?
spk02: ATS, sorry. I'll take that one.
spk03: Okay.
spk02: Excellent.
spk03: Thank you, guys. Thank you, Julian.
spk01: Thank you. Your next question comes from the line of Stephen Bird from Morgan Stanley. Please go ahead. Your line is open.
spk06: Hi, good afternoon. Thanks for taking my questions.
spk03: Thanks to you.
spk06: I wanted to build on a couple of questions that have been asked. Thinking about repowering opportunities in the future, I've been thinking through, in some ways, I guess the cost inflation environment is actually potentially beneficial for repowering, just in the sense that the cost of repower is typically quite a bit lower than the cost for completely new installations, could that be an area of benefit where you could essentially offer a repowered product that's really even more advantageous compared to new projects that may face sort of greater cost escalation issues? Or are you really not in practice seeing that as an impact?
spk03: I think it's too soon. At least myself, I'm not sure how much of this inflation is going to be permanent. and how much 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, should be positive because probably that PPA increase should be higher than cost increases. But we need to wait a few quarters and see where costs settle and where PPA prices settle. It's not only the inflation trend. Also, what happened in Texas during the winter, I think, explains also some inflation in terms of PPA prices that probably should be positive for situations like the one you described. But I wouldn't draw too many conclusions. I think that it's difficult today to see exactly where PPA prices are going to land and where costs for solar and wind are going to be a few quarters from today.
spk06: That's helpful to get your feedback on that. And then maybe building on a question about sort of grid reliability, I mean, we're noticing really all over the world issues 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, you know, 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. How are you thinking about that opportunity set?
spk03: I think this is going to be extremely important going forward. Obviously, we are already seeing significant growth around what you're describing around the storage and in general firm power. The answer today is quite different by geography. So you're seeing states where regulators are pushing for batteries. You're seeing geographies where regulators are changing regulation. to make sure that they get more firm power. And over the next five years, I think that we are all going to witness significant growth around here. In many cases, you guys tend to think about batteries as the solution for this problem. And probably reality is going to be a bit more complex. So I think that we're going to see different flavors of storage. Batteries clearly are going to be there, but I think that we are going to see other technologies providing longer storage, probably. We are going to see combinations of different technologies. We are going to see new regulations, and probably still lots of things need to happen there. On our side, we plan to be part of that. And we do believe that in the next five to ten years, a significant percentage of our investment is going to be around storage or around solutions that are able to offer firm power. It's not only storage. There are many other ways to give firmer power. But the times of selling kilowatt hours in many geographies start to be over. And now it's about how you can really sell dispatchable power, dispatchable clean power.
spk06: That's really helpful. Maybe just following up on that. So it sounds like, you know, that makes a lot of sense that contracts will evolve and there will be more sort of firm or semi-firm. And when you think about the risks of delivering sort of firm or semi-firm, you feel comfortable with those risks given your experience, given, you know, what these various types of storage technologies can do. In other words, the risk reward could be favorable for moving into more of those sort of firmer, semi-firm contract structures?
spk03: So my answer would be yes, but we plan to be able to achieve that by trying not to be a pioneer on some of the things you are discussing. So I personally do believe that some players are taking some significant risks, at this point in time, because obviously there's some technology risk in what we are discussing, and there's 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, and it's a different situation. But in Texas, many people discovered that a hedge agreement is not a BPA contract. Storage is an area where you need to be careful because PPAs get more complex and you need to understand what you're assigning in order to be able to assess the risk you are taking. So yes, we believe we've been doing this long enough to manage the risks, but clearly you need to be careful because it gets more complicated.
spk06: That's fantastic, Carlos. Thank you very much.
spk01: Thank you. Your next question comes from the line of Colton Bean, Tudor Pickering Holt, please go ahead. Your line is open.
spk08: Afternoon. Just to 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?
spk03: Yeah. At this point in time, we have, for example, a battery system equipment let's say in one of our assets and we are comfortable from a technology point of view with batteries and going forward we will be considering other technologies providing storage including things like thermal storage or other technologies as they prove obviously that the risk is low enough so probably at this point in time it's mostly batteries where from a technology point of view we feel that they have been fully proven.
spk08: Great. And then just to follow up there, a similar question to the one 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 you're seeing in-country?
spk03: Yeah, Colombia is a new market for us. As you know, we are making our first investments now. We intend to grow over the next few years. so that Colombia becomes a market for us, let's say. It will never be a huge one from a portfolio management point of view. We want to grow in Colombia, but we don't want Colombia to be huge for us. We think it's an attractive market for a number of reasons, including the fact that renewable energy penetration is very low at this point in time. And in that market, you have options run by, let's say, the regulator slash government where prices have been coming down, but you are still able to sign TPAs with private companies at reasonable numbers. So the pricing you might see coming from those auctions might not be at this point in time an 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 you don't have visibility, and we do have visibility that tells us that as of today, the market is still attractive enough.
spk08: Great. That's helpful. And then just a quick final one. 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?
spk03: So, we could. It's difficult to, you know, to be precise. We continue the target, the $300 million target we share with you. It's more for you, you know, when you run your models to use a number than for us internally. We try to deploy capital when we see attractive opportunities. So it might be that we still do more investments this year, and it might be that the opportunities we end up closing are more for 2022. But we don't stop when we get to 300 and take a nap until the following year. We try to continue working.
spk08: Yeah, I would appreciate the time.
spk03: Thank you.
spk01: Thank you. Your next question comes from the line of William Grippin from UBS. Please go ahead. Your line is open.
spk05: Great. Thank you very much. So the first one here is just in terms of the growth strategy that you laid out last quarter with the three tiers of growth, I was hoping you could talk a bit about the AAGES 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.
spk03: So with Aegis, as you know, we are not a shareholder. In Aegis, we have a role for agreement. It's one of our sources of growth, and we don't control the shareholder structure or anything like that. We have a good partnership. 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 than that. In any case, I think that we have enough growth levers as we try to share with you in the presentation you are referring to, which is the year 2020 result presentation, where if AGES does lots of things and offers us lots of opportunities, let's say life will be easier. But if that doesn't happen, we'll be able to grow through the other levers. So it's not something that keeps us awake at night at all.
spk05: Got it. And then I guess maybe this one's a little more specific to the U.S. market, but just wondering if you could comment on any changes in cap D yields for new acquisitions that you might be seeing. I think some of your peers have announced acquisitions at 8% cap D yields recently relative to the historical kind of 10%-ish yields that we're used to seeing. Could you just comment on what you're seeing there?
spk03: No, I think that with interest rates where they are, I have seen the announcement you are referring to, and I was not surprised. I think that probably if I were an investor, in that other company, I would think that an 8% there probably is enough of a spread. So I have not been surprised. In our case, we have the advantage that we invest in different geographies, so probably we are able to access some opportunities that have better numbers than if we invested everything in the US. But given where interest rates are, I don't think that anybody can expect forever that cut the yields will be exactly the same. In our case, we end up investing not only looking at a cut the yield, as you know. In our case, our primary metric is an IRR. So we want to make sure that we create value long term. And then we look, obviously, at a shorter term cut the yield. And in some cases, numbers are a bit higher. And in some cases, numbers are a bit lower. But I'm not surprised with with what you're referring to.
spk05: All right. Appreciate the time. Thank you.
spk01: Thank you. As a reminder, if you would like to ask a question today, please press star and one on your telephone keypad. Your next question comes from the line of Eve Siegel from Siegel Asset Management. Please go ahead. Your line is open.
spk04: Good afternoon. Thank you. Two quick questions. One is leverage has moved up a little bit. Can you talk about your targets and what you're thinking longer term? And the second question is that the EBITDA margin looks like it came down a bit. Can you talk about what's going on per se?
spk03: Yeah, so regarding leverage, as we closed two large investments this quarter, the number is higher than the previous quarter. Our target, as you probably know, is to be in the three-point-something region in terms of net corporate debt versus CADDI. That's where we are, and we intend to continue in that region, so it's not I would say probably we are where we had told the market we would be and where, for example, rating agencies we believe expect us to be. I don't know, Francisco, if there's any other color you want to add there.
spk09: No, I just think you expressed it. I mean, then the discussion with the rating agencies, I mean, the three-point something works. We do have lower leverage than peers, so as I said, I think we have signal the three points on San Santiago. Okay.
spk03: And then EVDA margin. EVDA margins for us obviously are different by geography and by sector, but on average they tend to be fairly consistent. This quarter we have a bit of a one-off in revenues. That's why the percentage you're looking at is a bit lower. But if you look at the absolute numbers, you see what we believe is a healthy EVDA growth versus last year.
spk04: So there's nothing really going on as far as expenses or anything? No.
spk03: I mean, nothing large, significant, or whatever. We might have had this quarter a bit of higher expenses in an asset here or there, but there's no trend, there's no change, there's no deterioration if you want anywhere.
spk04: Okay. Well, thank you very much.
spk03: Thank you.
spk01: Thank you. I will now hand the call back for closing remarks.
spk03: Great. Thank you very much to everybody for attending today. Thank you, operator.
spk01: Thank you. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
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