Acciona Earnings Call Insights: Working Capital, Repayments

On Friday, Acciona,S.A. (MCE:ANA.MC) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Working Capital

Flora Trinidade – BPI: My first question is on the working capital if you could give us the exact figure of the duration in the quarter and how much has come from the construction units? The second one is considering the EUR 37 million losses at the EBITDA level you reported in the industrial segments in Energy, what could be your expectation for full year losses at this unit, and if your strategy for this unit has not changed in the meantime? Then finally just to give us an update, if you have any feedback from government representatives on the potential changes in terms of solar and what are your expectations for the final review of regulation by the government?

Juan Muro-Lara – Chief Corporate Development and IR Officer: Let me maybe first address your last question, because we were expecting some questions regarding the regulatory uncertainty. Basically I think it’s worth highlighting where we’re coming from, because we have been hearing a lot of statements recently through different agents in the market and mainly the incumbent utility is claiming that the tariff deficit has been caused by the growth in the renewable generation, which we believe does not reflect the reality of the structure of the system and the cost within the system. It’s very difficult to justify how 15% of the cost of the system or 8% if we exclude the impact of solar PV can cause all the tariff deficit and all the problems of the cost of the system. Again, to highlight where we’re coming from, renewable energy has the sector within the electricity market in Spain that has again taken one of the (largest set of the) effort recently with the first royal decree of the new government that has basically put there the whole (indiscernible) at complete halt. The moratoriums that we’re having in the Spain in the sector come on top of previous message as we highlighted in the full year 2011 results, that has been penalizing the renewable contribution by EUR 3.8 billion already. That has been already reflected in 2011, which you have probably seen that the whole renewable sector and the quantum of incentives from the renewable sector has declined for first time 4.4%, despite an increase in renewable capacity in the system above two new gigawatts. So that changes that we have been experiencing through different royal decrees over last couple of years have been already reflected in a reduction of incentives paid to the sector despite an increase, a significant increase in renewable capacity for two gigawatts. Also it’s worth to highlight that if the government decision to return the island costs and subsides from the state budget to electricity system had not been taken this year we’ll be very close to achieve the tariff deficit objective. Also its worth to highlight that wind premiums in Spain are at the very low end of the European markets level and comparable feed-in-tariff countries. So having that in mind or where we are coming from, I would like to handover to Joaquin Mollinedo, which is the Head of Institutional Relations at ACCIONA Group and he is in-charge of our regulatory activity at the Group level. That will take you through how we see the current uncertainty and what are the measures that we think could help to improve the tariff deficit pressure. Joaquin?

Joaquin Mollinedo – Chief Institutional Relations Officer: Good morning, everybody. Just to try to summarize what’s our vision about the current regulatory situation. All of you are aware probably that the government is now analyzing the different options – different regulatory options to guarantee the economic sustainability of the electricity system, and mainly focused in the short-term the tariff deposit problem. So, first of all, I would like to say that there is no a formal or open dialog between the government and the sector with regard to those issues. We have had different contacts with public representatives that gave us the opportunity to express our position, but we haven’t any concrete reply and we have no public information about what will be the position of the government with regard to this problem. Anyway, we do not foresee new measures – new regulatory measures concentrated in renewable sector for different reasons. The first one is as Juan Muro has mentioned before because the renewable incentives represent only 15% of the total electricity system cost and is not reasonable to expect it to be the only source for a permanent solution for tariff deficit. Second, and Juan Muro has mentioned it as well the renewable energy sector has already made its contribution to result in the tariff deficit problem through different measures that have been implemented during 2010 and 2012, and we are now seeing the effects of these measures in the reduction of a quantum of renewal incentives in 4.4%, during the last year. The reason is because one change in the care rent, especially in the car rent resolution scheme for installation per registered or currently in operation would be absolutely inconsistent with the government’s position on preserving legal security and investments protection both in Spain as in international markets, which as you know, is a very sensitive issue here in Spain today. Finally, we think that other additional measures can be considered to solve the problem of tariff deficit. The first one in order to avoid and in excessive pressures on the sector in the short term it would be possible to push back the tariff deficit caps by one-year to the earliest, achieving the serial tariff deficit objectives in 2014 instead of 2013. The second measure could be to share the cost of complying with the Spanish 2020 European commitments between all energy sectors, all energy players and not only we think the electric system. It can be considered as well more significant reduction in capacity and interoperability payments, which amount currently roughly EUR 800 million and EUR 500 million per year and this payments from our perspective are not justified in the current power supply situation. Future sale through auctions can be as well allocated as an income of electricity system, and some other cost not directly, some electricity cost not directly related to generating electricity, such as the (Ireland System) subsidies and the coal subsidies can be excluded from the electricity cost systems and allocated in other part of the public sector. So, we think that for all these reasons, we shouldn’t expect new measures, new regulatory measures that can concentrate in renewable sector the pressure of solving the problem of tight deficit, which is the priority of the government today.

Juan Muro-Lara – Chief Corporate Development and IR Officer: Thank you. Again regarding your first two questions, related to the working capital, the increase of the period was slightly above EUR 210 million for the total group, EUR 150 million related to the Infrastructure division. And as I said, with the funding plans of the government for local public administrations and regional public administrations, we expect that too is a bit throughout the year. Your second question, regarding ACCIONA Windpower configuration for the full year, at EBITDA level before the internal adjustments, so before consolidation adjustments for the turbines manufacture for ACCIONA Energy Division itself, we expect an EBITDA negative contribution similar to the one we have experience in the first quarter. So, around $10 million negative contribution, EBITDA before consolidation adjustments.


Shai Hill – Macquarie: I’ve got a few questions if I might, Juan. Firstly, and it relates to the slide 10, I just want to check here, are these – is this you said of your intended repayments or is it basically the debt that falls due? I mean, they may be one and the same thing, but is this a schedule of when actually will payments, mandatory repayments fall due and is the bulk of that in energy? Are those nonrecourse project financed structures that are maturing in terms of sort of EUR 350 million debt repayable in the next 12 and then again the next 24 months? So, that’s the first question on the repayments. Secondly…

Juan Muro-Lara – Chief Corporate Development and IR Officer: Shai, sorry to interrupt you because I think it’s a very relevant question and we want to make it very clear. The answer is to both questions. So, it’s not our intention is that same amount due in every single project finance and is nonrecourse. On your question, yes, it is nonrecourse and related to project finance, so it’s not unintended, is the actual deal payment every year for the different project finance nonrecourse for the Company.

Shai Hill – Macquarie: The second question I wonder if you could give us a bit of an explanation on changes to the tax shield on debt interest payments, and how that might, if it does, affect the tax charge of ACCIONA following the last budget? My other question is just on CapEx guidance for the full year, do you still intend to spend close to $1 billion on CapEx, and my final simplest question is do you think you’ll clear EUR 1,400 million of EBITDA for the full year?

Joaquin Mollinedo – Chief Institutional Relations Officer: I assume that your question, your first question regarding the tax relates to the new government measures, approval of the cut?

Shai Hill – Macquarie: Exactly.

Joaquin Mollinedo – Chief Institutional Relations Officer: Yeah. Marginally affected by new measures, so I would say that basically not materially affected cut. That’s in a group level. On your second question on CapEx, as we see from the first quarter from today, we expect to have wind projects in the Energy division. It might be that we develop less megawatts in 2012 that we expected (indiscernible), and that may reduce the CapEx by anything between EUR 100 million or EUR 200 million for the full year, and regarding your last question. As you know, we don’t give guidance in numbers we gave some outlook in the previous call, but yes, we feel comfortable with the figure you mentioned of 1,400 EBITDA level. As of today, without any, let’s say, regulatory change or any hard measure. Business as usual, we feel comfortable.

Shai Hill – Macquarie: Excellent. Thank you very much.