Abengoa's CEO Discusses Q3 2013 Results - Earnings Call Transcript

| About: Abengoa SA (ABGB)


Q3 2013 Earnings Conference Call

November 11, 2013 11:00 AM ET


Manuel Sánchez Ortega – Chief Executive Officer

Irene Sánchez Aizpurúa – Investor Relations


John Quealy – Canaccord Genuity Inc.

Jose Manuel Arroyas – Banco Santander


Good afternoon, ladies and gentlemen. Welcome to the Abengoa Third Quarter 2013 Earning Results Conference Call. Abengoa is an international company that develops innovative technology solutions for sustainable development in the energy and environmental sectors. Just as a reminder that this call is being webcast live on the internet. And a replay of this call will be available at the Abengoa corporate website at www.abengoa.com.

Joining us for today's for the conference call is Manuel Sanchez Ortega, Chief Executive Officer, and Irene Sánchez, from Investor Relations. As usual, at the end of the conference call, we will open the lines for the Q&A session.

I will now like to pass the conference call over to Mr. Manuel Sanchez Ortega. Thank you.

Manuel Sánchez Ortega

Yes, thank you very much operator. Good afternoon and good morning to everyone joining us today for our third quarter 2013 earnings call. And of course, thank you very much for your continued interest in the company. I also want to thank our people for the amazing job that they are have done one more quarter such for our limited commitment that they show every day. They represent for sure the real value of our company. The first nine-months of the year proven successful with our continued growth achieved in our key metrics and delivering on this strategy we have been sharing with you during in the year.

So let me briefly review the figures with you on Page 5. Number one revenues have reached €5,233 million at 17% increase over the same period of last year. EBITDA has grown by 29% up to €860 million and number three, net income is up by 12% which is €73 million. In terms of our main operating key performance indicators, we are in a solid position to continue enjoying significant visibility for the remainder of the year and for the future.

We have managed to increase our pipeline to €125 billion, 13% above the already record levels reached in June. Despite another semester of a strong execution in E&C, our successful contracting activity have led us maintain our backlog at high levels, standing at €7,069 million.

And last, but not least, we are already delivering on the strategy that we had been announcing through this year, assuming growth while the leverage. Our corporate leverage pro-forma of the equity increased construction carried out in October stood up 2.5 times our corporate EBITDA as of September. The capital increase concurrently with our least in the NASDAQ, is a landmark transaction for Abengoa, as shown in this report on confidence our current and new shareholder is have in the [indiscernible] of the company.

Please turn the presentation to the next slide for the key message for the period. First of all, the business momentum for Abengoa continues to be impressive. The E&C division is delivering on time the projects awarded, with excellent execution levels and outstanding technical performance. At the same time, booking activity continues to be steady, guaranteeing a stable backlog level compared to Q2.

The biofuel business, is on the way to a strong recovery, with better crash spreads and going back to the capacity utilization rates pre-crisis. Further more we have brought into operation during 2013, six new concessional assets, of which I would like to highlight Solana. Not only because it is the largest thermal solar plant in the world, but because thanks to the storage capacity that it has, it can deliver sun power energy at moon light. And there is a major break through for renewable energies. In second stance we are delivering on the word we have given to the markets through 2013. First of all, we have leveraged the company to the levels we wanted it to be by year end, with the ratio of 2.5 times the corporate EBITDA.

And we have already closed two evident transitions including our [indiscernible] plan. The financing of Solana 1 and 6 were €200 million and the entry of Liberty Interactive as a tight security with investor in our Solana plant for $300 million. At the same time we are reducing our CapEx investment and reiterate that for the future we are tapping taping our total corporate equity investment to €400 million, without harming growth that I will later explain in the presentation.

And finally, we have reinforced our capital structure through the year. In October, we have raised €516 million of new equity in order to accelerate bank debt repayment on our credit rating [indiscernible], recovery, which is in turn expected to result in a transfer of additional value to EPS level. Additionally, we are increasing liquidity in current stock by 53%, and listing our shares in NASDAQ which is expected to result in deeper trading in a large industrial base.

On the next slide, and regarding the geographical exposure, it is remarkable that during the first nine months of 2013, we have consolidated our geographical footprint with using our dependency on a single region. U.S. confirms itself at our top revenue contributor representing 30% of total revenue.

Latin America amounts to 28% of our revenues followed by Spain 18%, rest of Europe 12%, and then 8% from Africa Middle East and 4% from Asia. We expect to continue seeing the trend that you can see in this slide for following quarters, which means the experience growth in all of the Europe is in which we have a presence that in Spain.

Now, I would like to focus on the segment analysis starting in the next slide from the E&C division. During the first nine months execution has remained strong, which has resulted in growth both at revenues and EBITDA levels with an increase of 26% and 19% respectively over the same period of last year. Revenues for the division stood up €3,254 million while EBITDA reached €524 million in the period.

Excellent bookings of €3,564 million during the period, a 57% increase year-over-year have helped and maintain a stable backlog of €7,069 million. For the future existing pipeline of EPC opportunities has reached €125 billion, a 15% increase over the last quarter, allowing excellent visibility for the future contracting activity.

One key point, I would like to focus on is that the exiting backlog requires lower equity investment than what we have seen in the past. So let me analyze these in deeper detail in the foregoing slide. We have accomplished great engineering and technology gap feats. For example, this accessible construction of E&C projects for over €16 billion during the last five years. This however, has come with a cost requiring significant investment to undertake some projects as demonstrated by our past corporate investment track record a trend that now is coming to an inflection point.

The ability to own and operate the asset has led us to accumulate significant know-how on EPC expertise, making us more competitive at the time of bidding for new projects, as well as reducing the execution risk perception by the customer. There is a baseline that is allowing us to limit the equity that we take on the concession of projects that we engage. Here couldn’t that we take under concession of projects that we engage. This is not just an intention, the decrease in investment has already started.

As of September 2013, we are planning to close the year with a range of E&C sales reinvested in projects between 11% and 13% considering the €418 [ph] million in bested so far and depending corporate CapEx committed through December 2013 for €110 million.

For the future the outlook is even better based on existing backlog and current corporate CapEx commitment we are expecting an equity investment equal to 9.1% of total expected execution for next year. All these considering our historical EPC margins of approximately 10% to12% and the upside returns offer by the operation and maintain the services and technology care – and technology fees set the raise for sustainable future growth.

Proven technology and track record of building and operating assets will the definitely allows us to minimize our equity contribution in projects was securing growth. As it has been indicates in recent awards and we have the opportunity to this GAAP in previous meeting.

Next slide, we can see the pipeline of concrete opportunity that we are building four, which have reach nearly 125 billion worth of opportunities. These opportunities are will diversified as you can appreciate on the charts of the right side highlighting the 21% coming from the water sector and 62% from projects in the energy sector 35% being combination our generation particularly combined cycle gap power generation, 21% water, 13% renewables and 14% transmission and distribution.

Our geographical foot print its also well diversified with nearly 40% coming from Latin America, 17% from the U.S. and 9% from Africa. It is important to highlight that 83% of the projects included in the identified pipeline we will not require any equity contribution.

Please turn to the next slide for a number view on the concession segment. Revenue in these segment increase it up €412 million over the last year, up by 30% the most significant contribution comes from our solar assets for 62% of the revenues, 17% from our co-generation plant, 13% from our transmission assets and 8% raised from our desalination plants. EBITDA recorded 28% increase in September reaching €255 million due to new assets coming in to operation six in the whole year and full contribution from projects that drop it up recently.

I would like to mention in particular the enter in operation fairly October of Solana, the 280 megawatt CSP trough plant in Arizona and the largest of its kind in the world. They start up of financing of Solaben 1 and 6, CSP plants in the Spain entering into operation on time and budget. It is remarkable to note that as up today we have in operation 1,223 megawatts of renewal or generation to top and 693 megawatts of commission or generation capacity.

We currently have 42 assets and operation and another 2,400 construction. The equity book value of these projects expands of €3302 million as of September 2013. This is a result of our investment efforts, with have amounted to an equity investment for the nine-months of €418 million, which represents 30% decrease of last year €649 million.

Constructional assets represent the significant book of our 3 billion rotation plan from which we have already started to crystalize volume. In September our financial before we have announce the financing of Solaben 1 and 6 the last 2 CSP trough plants entering operation fairly October of Solana into we have be [indiscernible] in the Spain. First [indiscernible] €200 million of equity in invested upfront.

Additionally at the beginning of October liberty interactive as contributed $300 billion into the Solana plant through tax equity investment and order improved our capacity to our lower value from our asset portfolio. So step-by-step we have created a well balanced portfolio of transitional assets with the remainder life time of 26 years. With no volume risked mostly index to inflation and with a very positive outlook to continue growing during to the next few years because of the projects under construction at this time. It is also remarkable there as week at more concession being in operation for three to five years these division will start generating more and more cash every year.

Please go the next slide for an outlook on biofuels. Q3 as continue showing science of improvements in the bioethanol sector with across the spread showing a higher level then what we saw in 2012. Revenue is slightly decrease compared to the same period of 2012 down by 1% up to €1567 million we are EBITDA have increased by 213% and €80 million on the back of higher crush spreads. U.S. average crush spreads, margin have reached $0.76 of dollar during the first nine months of the year, compared to an average of $0.40 of dollars for the first nine months of 2012. Capacity utilization for the division is getting back to full scale with 95% average production capacity of our plants utilized in the period.

Regarding the future evolution of the business, I would like to highlight two drivers for the short-term. Number one, in terms of market outlook, we are awaiting the confirmation for the environmental protection agency on the renewable fuel standard targets for 2014. Current standards require a mandatory blend of 14.4 billion gallons of ethanol and 1.75 billion gallons of cellulosic biofuels. If these targets are confirmed and gasoline demand remains stable together with low corn price, we should constitute a key recovery driver for the U.S. business for next year.

However, we have to remain cautious until we don’t see the final numbers being released by EPA, particularly those related to corn ethanol, where we believe that cellulosic ethanol, advanced ethanol and biodiesel should be adjusted to the actual production capacity, we don’t see any reason to adjust the corn ethanol targets.

Second, cellulosic ethanol, where we are at the cusp of ramping up our first commercial scale second generation ethanol plant which will be located in Kansas, thoroughly it is completed at more than 92% and we expect to start for recent cellulosic ethanol by April. Meanwhile, we’re working on the cost reduction on of the enzymes needed in the process with incredible products achieved as we’ll be explaining in a few minutes.

Please turn to the next page for more generality on the topic and an update on our technology development. Starting from solar we are announcing that our Molten Salt power is waiting for commercial phase after more than 2,000 hours of testing with our Eureka pilot plant, reaching a stable working temperature of 565 ºC. And an increase in efficiency of 13% compared to the previous framework up to 43%. We are in parallel carrying forward testing of our air tower plant which has reached stable operating temperature of 800ºC and which will constitute one at which the commercial scale and major a change a major step forward in the thermal solar industry.

In relation to PV, photovoltaic, we are developing new solar cells that use [indiscernible] and organic and inorganic materials in their structure, which have reached an improvement in terms of efficiency of 25% compared to standard silicon products.

Moving to butanol, we have achieved our first production of butanol from ethanol with 99.8% purity, sent to potential customers, at the same time we are preparing our commercial breakthrough basic engineering package for commercial plant in Ravenna, Europe – excuse me in Nebraska is finished and we are proceeding steadily towards the launch of our commercial scale production in 2015.

Waste to biofuels is a promising business opportunity and a valuable solution for the waste management issue and energy supply security in big cities. We have achieved in our pilot plants in Salamanca, Spain, a production batch with 100% security and purity, having treated more than 374 tons of waste for an output of 1,565 liters of advanced biofuels, of advanced bioethanol with the raw material being municipal solid waste.

Our water business which is working towards the development of more accurate membrane systems for Reverse Osmosis pre-treatment desalination plants, adapting to different water typologies. This is a valuable business solution to adapt the desalination process to various types of water resources.

And before moving as anticipating into a close outlook for our enzyme program, I would like to remind you that all these is not just words. Our patents are there to testify and protect our R&D work; we have applied for 39 new patents in the year, with more than 242 patents applied as of September, representing an increase of 46% year-over-year on patents applications.

Please go to the next slide for an insight on the enzyme products. The enzymes is a key component of the cost equation for cellulosic biofuels and it is a most relevant development to be achieved to make cellulosic biofuels and meeting innovation in the fuel sector. We have been working for more than eight years in the development of our Abzym via Abengoa enzyme for cellulosic ethanol production and you know what its ready.

Since 2009, we had been able to achieve staggering 84% cost reduction on our Abzym, that certainly would make our 2G ethanol production process more competitive and non-dependant on external providers and monopolies positions. This is a result of a structure and organic research process, will position our company as a relevant biotechnology provider as well as improving our exiting business through the application of the innovations we have came up with.

Our full range of capabilities ranging from by biochemistry, to fermentation optimization to benchmarking of production processes make Abengoa being in the right path to move from a commodity business to a biotechnology business in our biofuel area. A lot of work yet to be done, there is no question about that that’s I will keep you update as we move forward.

I will now hand the call to Irene for the financial analysis of our Q3, results and I will be back with you at the end of the call.

Irene Sánchez Aizpurúa

Thank you, Manuel. Good afternoon or good morning to everyone joining us for the call today. Slide 16, contain most relevant financial highlights for the period. During the first nine-months of the year we will have been enable to achieve double-digit growth both at revenues EBITDA and net income level. At the same time we will have successful executed different corporate actions in order to accelerated the leverage process of the company. In previous calls will have the sharing with you this strategy that will bring us to corporate free cash flow positive in 2014 reduce our corporate leverage and generate significant cash to the crystallization of their value embedded in our assets and we are already delivering on that.

During the year we are rotated assets amounting to approximately €800 million of cash proceeds, managing to analog significant value from our [indiscernible] asset portfolio. Additionally, in October the reinforce the equity of the company was €517 million to the easy of new shares which will be mostly applied to repayment of bank debt in 2013 and 2014.

Pro forma for the capital increase will have reduce corporate leverage to 2.5 times. A significant improvement compared to the 3.7 of December 2012. The sensible improvement has not been achieved have expense of the underlying fundamental of the business, which continues to be supported by a solid pipeline and the contract that we have already secured through the year for our backlog which is analyzed in the next slide.

Slide 17, out backlog which represents we are contracted growth opportunities continues to be at record high levels, with expected execution of €7069 million 2016 and representing approximately in 19 months of E&C revenues. Again, excellent stability for the business, backlog perfectly reflect to the diversification achieved by the business. Geographically 57% is coming from Latin America out of which 19% from Brazil, 16% from Mexico and 13% from other countries notably [indiscernible], 10% is coming from U.S., 12% from Europe and 21% the rest of the world, countries where we are establishing the solid footprint such as Israel, South Africa or the Middle East.

By activity 34% is coming from transmission and distribution, 20% from conventional power, 17% from solar projects, 11% from water and 2% of industrial plant and the remainder compose mainly of other renewable projects, civil engineering and installation.

Please turn to Slide 18 for an update on the net debt levels of the company. We have been able to reduce our corporate net debt level to €1957 million pro-forma for the capital increase which is approximately 500 million lower than 2012. Out non-recourse net debt has reached €5028 million as expected taking into account we execution of the current CapEx plan.

It is more highlighting that have managed to close recourse financing for the last 2 CSP plant in Spain. Solaben 1 and 6 for €200 million which have be use up stream cash to corporate level. Our CapEx plan under construction it’s a significant variable to be taken into consideration when analyzing the leverage of the company with more than €3 million of debt pre-operational phase which is not producing still in EBITDA but which is expected to contribution more than €500 million to the business ones in operation.

Before analyzing the leverage ratios are you spotlight the increasing EBITDA last first month achieving already €1142 million compared to €949 million during 2012 with €770 million of corporate EBITDA.

Now please turn the slide to leverage ratios. Slide 19 we see a reduction in the corporate – in the business leverage which is event analyzing the key ratios. Our corporate net ratio pro forma for the capital increase is already at 2.5 times compared to 3.7 times as of December 2012. Our consolidated ratio which includes non-recourse debt decrease to 6.1 times compared to 7.1 as of December 2012.

If we exclude that we operational debt from those projects under construction which are not yet generating EBITDA the consolidated net debt ratio was decreased to 3.3 times a substantial difference when analyzing the company’s capital structure.

Let’s now move the liquidity section were you can see that we are not facing any significant maturities until meet 2015 after giving effect to the net proceeds of the capital increase and bonds issued during the year. We have manage the reinforce our capital structure and extend our corporate debt maturity profile as well as to reduce our exposure to commercial banks in favor of capital market, resulting in a balance next our financing sources.

As we have explain for marketing the recent capital increase we are targeting an improvement in our grades rating profile and a reduction of our finance incomes. Our current delivery on the targets we have set in this direction on our plants to the lever company have be in factor in the latest bont up being 140 basis points tighter than the original bond issued ten months ago. Let me now finish with the review of the cash flow for the period. We’ve been able to generate in the first nine months of the year €285 million from operating activities out of which €860 million came from EBITDA generation adjusted by €117 million of cash yield for working capital. We’ll update interest expenses of €340 and taxes and other cost next of discontinued operations of €121 million.

During the year, we have invested €1,161 million out of which €618 million have been invested some corporate funds which places us on track to achieve our corporate investment targets of €760 million year end.

Finally, we have raised a net amount of €688 million to finance our activities both at corporate and non-recourse level. As a result, our cash balance stands at €2,088 million as of September from €2,430 million back in December 2012.

With this I will give now the word to Manuel for his final remarks.

Manuel Sánchez Ortega

Thank you, Irene. And before handing the call back to the operator for a Q&A Session, let me review with you the main targets that we have for the remainder of the year and for the future. We’re confirming our guidance of revenues consolidated and corporate EBITDA. So we are changing nothing. We expect revenues to be in the range of €7,250 to €7,350 million representing an unexpected midpoint growth of around 16% against last year results.

Our consolidated EBITDA is expected to rage between €1,180 million to €1,230 million mid point growth of 27% more or less over comparable three years of 2012. And also for the corporate EBITDA the revenue is expected to reach between €800 and €825 million in December, representing a growth of approximately 23% versus the similar number of 2012.

We also continue the financial target that we have shared with you. Number one, the net corporate leverage is expected to stay at 2.5 times at corporate EBITDA by year end to be additional reviews to two times from 2014 on. Let me remind you that equity rise at two targets were at respectively three times and 2.5 times and that we close December 2012 at 3.7 times. All-in-all, a serious commitment towards deleverage. Corporate CapEx for 2013 is confirmed at maximum of €750 million including everything, I mean, R&D recurring CapEx what our plans in operation and growth CapEx for our new constructions. These are €750 million compared to the €1189 million from 2012 and almost 40% reduction year-over-year. And for 2014 they took our CapEx including everything we will be €450 million another 40% reduction compared to the expected amount for 2013. Finally, we continue to target 2014 as a [indiscernible] to generated positive free cash flow at corporate level excluding the proceeds from disposals.

Thank you very much for your attention and now operator, please open the Q&A session.

Question-and-Answer Session


(Operator Instructions) Our first question comes from the line John Quealy from Canaccord. Please go ahead.

John Quealy – Canaccord Genuity Inc.

Hi, good afternoon folks.

Manuel Sánchez Ortega

Hi, good afternoon.

John Quealy – Canaccord Genuity Inc.

Hi, Manuel, a couple questions first on the asset rotation plan sounds like everything is on track. Can you give us a little bit more detail on the recent offering, but you gave details around timing and scope I imagine from prices are in the process have been said, can you just give us some more qualitative update where you are with rotation?

Manuel Sánchez Ortega

Yes, and the second question you are going to ask both now or…

John Quealy – Canaccord Genuity Inc.

Yes that’s fine, so the second question the biofuels in the U.S. you mentioned RFS they have – EPA is a statutory deadline of November 30, number one do you think they will make that statutory deadline they didn’t last year. Number two talk to us about sensitivity is a little bit about the ebb and go of biofuel portfolio what would that do if EPA flat line the mandate for gen one ethanol what is that do to the ebb and go of business and then I have got a couple follow ups.

Manuel Sánchez Ortega

Okay, on the asset rotation do you have on Page 25 of this presentation in this part of the appendix. The basic time line that we have been sharing in the past or in the past recent months during our different meetings and we continue to maintain that similar level of targets which is you know from the moment that we announce the plan which was the beginning the end of July of 2013 what we were targeting was to deliver about more or less at €500 million – €560 million asset rotation for the first six months of which we have already €420 million.

So we expect to complete the remaining €140 million before the end of those six-months and then the 12 months to 18 months is exactly the same that we have in the past, so we keep working in all the different opportunities and the different processes with different potential buyers, I think that in some cases we’re moving other faster than expected, some cases are little slower than expected, but in general say that we could move in similarly to where we thought we’re going to be by this time of the year. So we feel pretty much encouraged to achieve the targets that we said, I mean the €1.5 billion all for cash equity rotation by the end of 18 months from all most 2013.

On the ethanol, I mean, you know never who knows, EPA they may get stick to the target that they have of November 2013 or not, we don’t know. I think that, however, they will this time that but I have no certainty about that. Well the potential outcomes of that what we are expecting a reduction on the targets for cellulosic ethanol, there’s no question or other doubts, there no surprises.

They may be considering also to reduce the targets for advanced biofuels, particularly because most of the advanced biofuels today are coming from Brazil, so they may decide to reduce at little bit the targets for the advanced biofuels, and also probably they will adjust the biodiesel because of the special situation that biodiesel is having regarding the ending of the incentives that they have been having for the last year’s and until the next few months.

So in general we say that more of those will be neither a surprise not a bad news for us, indeed, the reduction on the cellulosic ethanol targets is a good news for us, because it means that what we’re saying that Abengoa is becoming one of the first company generating at commercial scale cellulosic ethanol that is absolutely true. So for next year we’re expecting our plant, we’re expecting forward plant, and we’re expecting to formed plant to timing to operation.

And therefore the targets need to be adjusted. So the concern that we have mainly its on the third generation ethanol this year the mandate was request in lending 13.8 billion gallons of third generation ethanol and we will say that on the mandate for 2014 according to RFS must be 14.6 I would say that any number between 13.8 and 14.6 will be renews without from EPA any number below 13.8 will be an expected I will be some kind of negative outcome from EPA analysis. So may as you can imagine we have people to any kind of possibilities but truth is this time when it have a nuclear indication from EPA on the value which deductions they are going to take.

John Quealy – Canaccord Genuity Inc.

Okay. And then just my last question on the E&C business. It's actually two questions. First, on the deal announcement announced today, that looks like it was for commercial water, not potable water. And I'm wondering, is that true? And are you looking at other potable water applications in South America? And then, number two, the margins on combined cycle business, are they right in line with what you would expect historically, that sort of 11% to 12%? Or it seems like that's a much more competitive business. Thanks, Manuel.

Manuel Sánchez Ortega

The second question is the margins were under…

John Quealy – Canaccord Genuity Inc.

And the combined cycle, you know, traditional combined cycle gas. Yes, that's a more competitive market.

Manuel Sánchez Ortega

Well, I would say its I mean regarding the water the good new is that you are right this is commercial so there is going to be water for a power plant and this is a first time that we do desalination for commercial application because up to now all the desalination water that we have grown has been for human consumption so very good news it confirms that they need for clean water is needed not only for human drinking but also for the industries we have seen not only in Chile, but in many other places and that confirms that otherwise one of the few companies desalination of water we don’t know has been for at commercial and human consumption.

The second question the margins on combined cycles what we have trying to do is basically is to be part of their combined cycle process so the larger that the combined cycle is the last competitive space that we final usually because and they expect this are going to experience are require for those big commercial – its much higher than for small one. So I would say that in the space at we are managed then what we are playing we are able to maintain singular levels of margin to the rest of the activity level we have in the company.

John Quealy – Canaccord Genuity Inc.

Okay thank you.

Irene Sánchez Aizpurúa

Thank you John.


[Operator Instructions] Our next comes from the line of Jose Manuel Arroyas from Banco Santander. Please go ahead.

Jose Manuel Arroyas – Banco Santander

Good afternoon gentlemen. And four questions from my side please. The first one is clarification on the order intake taking the Q3. And €1.1 billion order taken in Q3 are almost one time book to be leased. You have very good performance indeed, I think. Can you please walk us through the main contract that we’re seeing in the Q3, this is a slide you have recently included in your pack and then missing it today? That’s my first question.

And my second question is on a Slide 10, where you show your views of your pipeline. I understand pipeline is very difficult to define or calculate. But what parameters have changed over the Q3 to have let you to see the who mode of domestically announced that our core tire grow and to let you to raise a percolation by 13% more than quarter.

My third question is on the E&C EBITDA margin is in the Q3 at 16% and versus 14.5% from memory I think your historical margins having the [indiscernible] obtain 11%. Can you give us an indication of what you see you can get out of your backlog at the moment for the next two years in this point? And my last question is have other is a house keeping question, what are the financial charges that you have booked in the Q3 associated with mark-to-market of your convertible bonds this quarter? Thank you very much.

Irene Sánchez Aizpurúa

Hi Jose Manuel. To start we do have questions there E&C margins we have recorded a purely E&C margin of 12.6% and this might excluding the portions that relates to a technology and others including a 16.1%, okay. We’re seeing a similar margins in the backlog contracts that we have been awarded in the quarter and in the whole backlog in general. So you will not be seeing a changing trend in the margins going forward for the remainder of the year or during next year, in general.

And second, which relevant contracts we’ve been awarded during this quarter and you are right the €1.1 billion figure of contracts it relates to a mix of the contracts in different areas. One contract different contracts for equal generation in Mexico some more transmission line, plant in Brazil is from combine cycle plants in Middle East and a smaller assets in other geography. So all in all, all of this has added up to the around €1 billion of order intake. The…

Jose Manuel Arroyas – Banco Santander


Irene Sánchez Aizpurúa

Yes, pipeline has increased,,,

Manuel Sánchez Ortega

What was the question about the pipeline Jose Manuel?.

Jose Manuel Arroyas – Banco Santander

Yes, my question is what is led to you become more optimistic about the pipeline in just one quarter to half rates go or it actually made by 13% what is that you see differently now than quarter ago?

Manuel Sánchez Ortega

Well In the pipeline we are not include in our sentiment I mean in the pipeline we are including just the list of opportunities in which we are working presenting proposal. So its not we are more optimist I mean we are showing is that the amount of projects that the companies working right now in different phases presenting proposals and the result I mean the recent for the increase in 13% is basically the huge business development activity that we have been doing – during the last I would say one year and half so I mean the more people that we are having the larger of the presence is in different geographies the more [indiscernible] finishing the high level reputation of the company is being in the market its giving as the opportunity to identify forward.

A larger number of projects and also projects of larger amount so this is result of the business development activity of the companies doing but we clear main this is not any kind of estimation or with an include here an optimism feelings the current rate, this is yes one by one each of the projects and with the – which the company is engage today present in a proposal or that we have already present in our proposal its being to the result the top of projects that will working on which is – which have been you know the since we started present the pipeline and that’s it.

Jose Manuel Arroyas – Banco Santander

Thank you. And I had one more question. It's on the financial charges that you have booked in this quarter. Are there any items linked to the convertible bonds and your collections on your own shares?

Irene Sánchez Aizpurúa

There is impact on the valuation of embedded convertible and to be own share that are used to cover our application content and we have recorded a loss in the quarter of 16 million related to the valuation.

Jose Manuel Arroyas – Banco Santander

Sixteen. Okay and, Manuel, if I may follow up on the EBITDA margins in the E&C segment, and with your migration to a more asset-light business over the next two years at least, is there a risk to your mind that the EBITDA margin of the E&C business may perform differently than we have been seeing over the past two to three years? Or do you see it – a reasonable outcome that you believe are kind of a similar level of profitability there? Thank you.

Manuel Sánchez Ortega

No, I don’t expect any change in the margins from the E&C because, they are not really related to the equity, I mean the projects in which we are going to be participating that will require some equities, they are going to be still requiring some equity. What we are saying is that we are Abengoa is going to put all the portion of the equity in all the times will put that the rest of the equity.

So I don’t expect any change in the EBITDA margins from those projects and that should have an impact. What I would say is that to for us the most important thing right now is to establish the level of the stable EBITDA coming from the technology that we are selling, I mean that you have seen we have not decreased in any of the years, no matter how tight the crises have been, the impalement in R&D we have continued increasing the technological patents in the company, so we have strong basis to believe that we are going to continue maintaining or increasing the level of revenues coming from the technology that we are incorporating more and more in our projects I mean that we are developing.

However, still we did have enough track records to make a proper five year projection on how much that could leave. We are going to continue working very tough to continue succeeding on the technology kind of programs in order to have more and more in-house technology to be incorporated as part of our projects and I mean based on common sense that should help us to continue improving the amount of fees of technology cloud fees that we have receiving, but still I would say its too soon for us to give any forecast for that portion of the – that we report as part of E&C.

But clearly it has different partners that the rest of the E&C which we see strongly based on the level of 12% that these technology [indiscernible] obviously is having and is helping to increase even more. But I would say that some other over the next few quarters we will be having more and more visibility on the level of technological and license that we are – that we can expect to project over the future for the company.

Jose Manuel Arroyas – Banco Santander

Great thank you very.

Manuel Sánchez Ortega

Okay thank you.


We have no further questions.

Manuel Sánchez Ortega

Okay so thank you for your time and will be in touch in the next few weeks. Thank you.

Irene Sánchez Aizpurúa

Thank you.


The Abengoa’s third quarter 2013 and annual results conference call is over. You may now disconnect your line. Thank you.

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