Abengoa's (ABGOY) CEO Manuel Sanchez-Ortega on Q2 2014 Results - Earnings Call Transcript

Aug.12.14 | About: Abengoa S.A. (ABGOY)

Abengoa S.A. (OTCPK:ABGOY) Q2 2014 Earnings Conference Call August 12, 2014 12:00 PM ET

Executives

Bárbara Sofía Zubiría Furest – Chief Financial Officer-Capital Markets & Investor Relations

Manuel Sanchez-Ortega – Chief Executive Officer

Santiago Seage Medela – Chief Executive Officer-Abengoa Yield

Analysts

Nuno Estacio – Banco Espirito Santo de Investimento SA

Denis Lepadatu – Kempen & Co. NV

Sean McLoughlin – HSBC Bank Plc.

Fernando Lafuente – N+1 Equities

John Quealy – Canaccord Genuity Inc.

José Manuel Arroyas – Exane BNP Paribas SA

John Sedgwick – Laurent Epson Partners

Operator

Good afternoon, ladies and gentlemen. Welcome to the Abengoa First Half 2014 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’s corporate website at www.abengoa.com.

Joining us for today’s conference call is Manuel Sanchez Ortega, Chief Executive Officer, and Bárbara Zubiría, Executive Vice President for Capital Markets and Investor Relations and Santiago Seage from Abengoa Yield, CEO. As usual, at the end of the conference call, we will open the lines for the Q&A session.

I will now pass your over to Mr. Manuel Sanchez-Ortega. Thank you.

Manuel Sanchez-Ortega

Thank you very much, operator, and good morning and good afternoon to everyone joining us for the presentation of the results for the first half of 2014. As usual, I’d like to start with a few words of gratitude to the people of Abengoa for their outstanding job on another quarter.

Also, let me remind you that today Santiago Seage, the CEO of Abengoa Yield is joining us, and will provide an update on Abengoa Yield as part of this call. From now on, Abengoa Yield will hold every quarter its own earnings call, normally the day before to Abengoa’s call.

The first half of 2014 has proven successful and thence – of a strategic milestone, with a solid set of results and important milestones achieved. As you can see on the Slide #5, after slower Q1, certain items; in Q2 the business has delivered stronger revenues, margin and cash flows on the back of the disability we have shared with you in previous quarters.

Leading the H1 numbers are following. Consolidated revenues stood at €3,405 million, a slight increase over H1, 2015 delivering a strong and improved margin which have driven a 31% year-over-year growth in EBTIDA reaching €695 million.

Net income grew by 2% over the first six months of 2013, up to €69 million with a diluted EPS of €0.09 pro forma of the mark-to-market of deliveries. Finally, our corporate leverage is improving up to 2.5 times our corporate EBTIDA, down from the results of June of last year by 0.7 times.

In terms of operating milestones for the business, the first half of the year has shown a strong performance, both in terms of contracting activity and business development. Despite the strong execution in the second quarter, we had been able to further increase the backlog to over €48.2 billion, including €40.5 billion of contracted revenues on concessions and €7.7 billion of our E&C business, an 8% increase year-over-year. Furthermore, we are increasing our market insight and positioning with our pipeline growing by 49% on a year-over-year basis reaching close to €165 billion.

As you can see on Page #6, we have been awarded approximately €3.3 billion in new projects in the first six months of the year driving an increase in backlog up to €7.7 billion a field that allows us to feel comfortable of execution through year-end and setting a solid base to start building the results for 2015.

In addition to the positive financials during this past Q2, the key landmark for the company has been by far the successful listing of Abengoa Yield in the NASDAQ. And not only because of the approximately €570 million raised for the corporate, but because it strengthens our business model, and will help us to maximize the value of Abengoa for several reasons.

Number 1, it reduces our cost of capital. Number 2, it increases the visibility for the recycling of the equity that we invest in Greenfield construction of projects. Number 3, it provides even more transparency to the [indiscernible] financing of all our projects, helping to understand the difference between the corporate leverage and the project finance leverage. And finally, it provides a tangible market reference to the value of our asset portfolio.

On a different matter, I’m also glad to share with you that we have been working on the refinancing process of our syndicated loan for the last three months. And that, it has already been secured, extending its maturity and producing the financial cost.

Our E&C segment, as you can see in Page #7, has performed solid during the second quarter, helping to catch up and softer beginning of the year. In terms of revenues, for the first six months, we stood at €267 million, a 5% decreased compared to H1 2013. Revenues for the second quarter alone were €1016 million, an almost 1% higher than during Q2 of 2013.

EBITDA for the first six months increased 5% up to €366 million, compared to €350 million of last year, as a result of the increase of the EBITDA margin up to 17.7% as a consequence of our business model, which as you know, benefits from vertical integration, technology leverage and a strong positioning in each sectors on geographies where we are present.

The bookings achieved during the first six months of the year, €2942 million have helped the backlog maintaining at very healthy levels, standing at €7671 million at the end of the period representing an 8% increase year-over-year. It is remarkable, the great contribution of the water projects to the bookings of the period.

As you can see on Page #8, the pipeline of opportunities reach at €164.6 billion at the end of Q2, of which €45 billion are coming from concessional project bids, meaning a great number of prospects that will contribute to the future revenue for the E&C division; later on for potential drops down to Abengoa Yield.

Normally, we continue to see a strong interest in private transmission lines thermosolar energy generation with opportunities being promoted Latin America, North America and Africa.

Further on, Mexico is a country of key focus for us at this moment, given our strong positioning and track record up to more than 40 years in the country. The new legislation is promoting new public/private partnerships, are locking a number of new opportunities in our areas of expertise.

Regarding our concession business on Page #9, total revenues increased up to €346 billion in the first half of 2014, up by 46%, while EBITDA grew by 74% compared to the same period of last year, up to €244 million. This increase both in absolute fees and in margins was driven by three main factors. One, new office ramping up through the second half of 2013 and first half of 2104. Two, the excellent operational performance of all our plants and transmission lines. And three, better weather conditions in Spain for our solar plants.

As you can see in this Slide, we will provide from now on, the detail of the revenues and EBITDA of the group of assets that we hold through Abengoa Yield. During this first half of this year, Abengoa Yield revenues were €124 million, compared to €51 million for H1 2015, and EBITDA stood at €100 million compared to €34 million year-over-year. Meanwhile, we keep on delivering on our investment reduction commitment, with €162 million of equity invested during the period, down 70% compared to H1 2014.

As a result, as of June 30, 2014, we had an accumulated in our concessions assets a total equity book value of €3653 million, which have been invested in ten assets hold at Abengoa Yield and 49 assets hold at Abengoa, of which 22 are still on construction phase.

It is clear that Abengoa Yield now represents a strong component of our strategy and that we are committed to maximize the growth of Abengoa Yield. Because of that, we are redefining the profile of the partners that we would invite to invest with us in the Greenfield projects and our priority will be to partner with investors willing to exit at a time of a potential drop down of the assets into Abengoa Yield in order to increase the options for Abengoa Yield to grow.

As anticipated, and as of today, Abengoa can count on a total equity book value of €3653 million. Well, as detailed on Page #10, €1345 millions out of them have already been dropped down into Abengoa Yield, of which we own 64%. The remaining €2308 million are still sitting at parent company thereof. This significant value can provide a win-win situation for Abengoa and Abengoa Yield. On one hand, it will present significant value to recrystallize through drops down to Abengoa Yield in the future, until it’s a huge growth for Abengoa Yield in the winter.

Our – current Abengoa’s portfolio, we have €1681 million of equity book value in assets already in operation, most of which will be offered to Abengoa Yield in the next 24 months.

Regarding our biofuels segment, in the second quarter of the year, the business has demonstrated the same trends shown in Q1 as you can see in the Slide $11. U.S., very good performance with average gross margins up $0.84 of per gallon compared to $0.57 during the first half of 2015.

And overall, the business has shown a very positive performance in all our plants with a sensible increase in volumes sold. I would like to remind you that we are still waiting for final mandatory blend in numbers from EPA now expected to re-release during next months.

Cash yields, good. After the traditional Q1 break for plantation purposes, our plants in the region have achieved a meaningful contribution. And Europe weak, triggered by still low ethanol consumption and the lack of a definitive political support despite the ambitious target that Europe had set itself in terms of renewable energy development.

This has resulted in stable revenues of €191 million until June 30, 2014; meaning a 1% increase above the same period of last year, and €105 million EBITDA increase up to €84 million reaching a margin of 8.5%.

Regarding our Hugoton plant, we continue working on the start-up of the facility expected to begin producing ethanol during the following weeks. Once that construction has been completed, and we are now in the commissioning phase. Meanwhile, we have already secured, started the production of our own enzymes and will be delivering the first lot to the plant later this week.

Regarding the geographic, our footprint of our total revenues for H1, you can find on Page #12 that America represented a 64% of the total, being North America 39% and South America 25%. The remaining 36% of our revenues came from Spain 14%, the rest of Europe 13%, Africa 7% and rest of the world 2%.

To round off and before handing the line to Bárbara, I’d like to give you a quick update on some of the technological flow downs we are handling. On solar technology, we’re encouraged by the improvements we are finding on the thermal storage capacity by adding certain nanoparticles to the molten salt, which will have a positive impact on both the CapEx and efficiency of the future solar plants. Also, we continue developing our small solar plant design, which will combine the thermosolar affordable type technologies to benefit from the best of each, providing utilities which are reliable, disposable and lower cost solar energy.

On water sector, we have started the manufacturing process of our Micronet Porous Fiber modules allowing cost reduction in water treatment plants. And finally, on bioenergy, we are concentrated in ramping up our Hugoton facility to demonstrate the availability of our second generation ethanol technology, while at the same time, we’re also doing great products improving the efficiency of our enzymatic cocktail.

Now, I’m happy to turn the call to Bárbara for a deeper analysis of the financial performance of the business.

Bárbara Sofía Zubiría Furest

Thank you, Manuel, and good afternoon or good morning to everybody joining us today. I will try to be short and to the point as we also have Santiago Seage, the CEO of Abengoa Yield with us today, and I want him to share his thoughts on Abengoa Yield’s results.

On Slide 15, you have a summary of our key financial metrics for the first half of the year. Some of them have already been by Manuel. Overall, I would say that this has been a positive quarter from an operational standpoint with our metrics improving versus the previous year, with the exception of revenues, which have remain flat year-over-year, while we have been continuing to build the backlog for future periods.

As of June, total backlog including both the amount of long-term contracted revenues and concessions and our E&C backlog stood at €48.2 billion, up 11% compared to the previous year.

Furthermore, our business development efforts are allowing us to identify additional opportunities, and we have closed the quarter with a pipeline of €165 billion, which represents a 3% quarter-over-quarter growth, and an 18% growth if compared to the same period of last year.

Along with a positive performance on the operating side, the company has been able to continue delivering on its financial commitments, and has been preparing itself for delivery of its leverage and cash flow target.

That last four month’s corporate EBITDA has increased 28% year-on-year, reaching €967 million while we keep on reducing the investment in concessions down by 70% year-over-year, reaching up to €162 million while delivering growth at the same time.

On top of that, we have invested €60 million in R&D and other maintenance type corporate CapEx being very selective in the process and decreasing the amount spent by 16% compared to the first half of 2013.

As you all know, another way to achieve our cash flow leverage targets with the equity recycling program that we announced last summer. And I am glad to say we have successfully completed our target through the listing of Abengoa Yield where we have raised €611 million this past quarter.

I wouldn’t go into details as for the benefits beyond just the IPO, since Manuel has already covered this.

All in all, we are today 0.7x less levered, our corporate levels than one-year ago, flat with respect to Q1 and we maintain our target to end the year at 2x. Working capital has been the swing factor in the quarter. but as you know, we have always done much better in Q3 and Q4 in terms of cash flow generation from working capital.

In the cash flow statement in a few slides, you will see the evolution per quarter. From a cash flow standpoint, I can say that we have all the right levers to continue on the past of increasing free cash flow delivery.

First, we have a strong and growing corporate EBITDA generation. Second, we can now start counting with the dividends from Abengoa Yield. Until now, dividends have been very limited, as you know, since we had a very young asset base, or we have sold fully some of the more matured assets.

Third, we have a tremendous opportunity to reduce our financial costs, and that is going to be our key focus of 2015 for us. Fourth, we will continue to be selected in corporate CapEx and limit our investment to the range of €450 million provided. And last Abengoa yield has created the most efficient way, we can look to recycle equity going forward as it is a buyer with a very competitive cost of capital, and that should allow for a significant yearly flow from equity recycling.

With all of them, let me take you – let me take the next few minutes getting into a little bit more detail on some of these topics. Manuel has spoken about E&C and concession backlog, and also about the pipeline in E&C, both for turnkey, as well as for concession type projects.

In the next slide, I want to share with you some details on E&C backlog. As anticipated, during the first of the year, our business development efforts have proven extremely successful, driving our backlog to record €7.7 billion, a 13% increase quarter-over-quarter on 8% increase year-over-year. this spans great visibility on the E&C business with €2.4 billion worth of projects expected to be developed through the rest of 2014, covering more than 80% of the expected revenues of year-end for this division.

Looking at the two charts on slide 16, we can appreciate a significant diversification in the E&C business, within its areas of expertise and geographical reference. Talking about sector mix, our backlog is well diversified within our key areas of know-how with a major participation by transmission power line, conventional and renewable power generation and water.

Water, which during the second quarter of the year has driven the growth in the backlog figure things to a solid new flow in terms of awards. By geography, I would like to highlight the strong contribution of North and South America, which as of June 2014 was close to 70%, indicating that growth will continue to come from these two strategic regions for us.

And on top of the E&C backlog, we cannot forget that we have over €14 billion of contracted revenues in concession supported by long-term PPAs, or similar take of pay arrangements. The average life of the outstanding contracts and concessions today is over 26 years, providing very solid, stable and predictable cash flows from this division going forward.

Please turn now to the next slide to provide you with further details of our leverage position. Starting from the left hand chart, our corporate leverage is showing a decrease in past, compared to the same period of last year, going from 3.2x to 2.2x corporate EBITDA, with a goal to end the year at 2x. In the cash flow statement, you will see the reason for net debt has been flat quarter-over-quarter, the most significant of which like we mentioned is working capital, which tends to be our use of cash in the first half of the year.

One thing that we feel is important to mention is that when we look at corporate leverage at Abengoa, we need to remember that we now have a listed asset with a clear market valuation reference. Our intention is to hold the significance taken of Abengoa yield going forward and if we include the value of our stake in Abengoa Yield in our corporate net debt analysis. We would be talking about, reducing leverage by 1.5x down to 1x. We think this the way to look at corporate leverage.

From a concession standpoint and excluding the debt at Abengoa Yield. So that the leverage process is also visible, driven by the ramp up and maturity of our assets. The leverage of the concessions we have into operation that have not yet been transferred to Abengoa yield after annualizing their EBITDA contribution, stand at 7x, in line with leverage on Abengoa yield asset.

Please turn now to the following page for an update on our corporate debt maturity management on another keep point in the way we are deploying our financial plan to enhance cash flow generation. During 2013 and 2014 the company has demonstrated a proactive approach to maturity management. We’ve continued access to capital markets and improvement of terms, with approximately €2 billion of maturities successfully refinanced, while diversifying our financing sources. It is remarkable to mention that we have earmarked of repayment approximately €1.3 billion of outstanding debt, for which, we have already secured the funds and cash driving in the future months at consistent reduction in corporate financial expenses.

And most importantly, as many of you know, a few months ago, we began discussions with the leading banks of our forward start facility for the refinancing of the outstanding balance. I am pleased to say that we have been able to secure a new term loan for over €1 billion with an average life of four years and an improvement of more than 100 basis points from the previous facility. We expect to close this refinancing process by the end of the third quarter and that will leave us with no refinancing risk for all of 2015, as the slide shows.

I will now end my review with a look at cash flows. Going to Slide 19, as promised in the previous quarterly call, we are providing our corporate cash flow for the first part of the year. As you can see, we used €540 million by our operation in the first quarter and €88 million in the second quarter. Mostly as a result of the seasonality in working capital that we’ve been anticipating, leaving us with an accumulated working capital cash consumption of €804 million through June. We expect to turn this around by year-end, as we continue to execute on our backlog.

In the second quarter, we completed successfully the listing of Abengoa Yield, generating €611 million in cash to compensate for new equity invested in concession. The above has resulted in negative free cash flow of €630 million in the first quarter of positive €391 million in the second quarter, including equity recycling.

Remember that Abengoa yield will be the vehicle through which we expect to recycle on a recurrent basis, our equity and concessions going forward allowing us to reinvest in new Greenfield.

In the following slide, you have the consolidated cash flow for the first half of the year, as compared to the same period in 2013. And point here again is the impact from the seasonality in working capital, which like I mentioned, we expect to reverse in the second half of 2014.

Furthermore, we recorded higher net financial expenses, compared to last year driven mainly by two factors. One new assets that have come into operation and have begun to pay interest and two, our activity is that our capital market in 2013 and 2014 with proceeds spending to be applied to pay down outstanding debt as they matures, causing a temporary increase in this line item.

As a result, these circumstances had reduced the operating cash generation reaching a negative €531 million for the first six months of 2014. compared to last year, we have invested €1,193 million versus €1,012 million during the same period of 2013. Although the corporate CapEx has represented only a minor stake of the investment spending at €222 million.

I mean the difference has been financed either to non-recourse debt, or to partners. And with total proceeds from financing activities of €1,743 million, which includes the €611 million from the Abengoa Yield IPO. We have ended the quarter with the consolidated cash balance of almost €3 billion, the majority of which is corporate cash.

With that, I will now pass the call to Santiago Seage, who will cover the results of Abengoa Yield before Manuel’s final remarks. Santiago?

Santiago Seage Medela

Thank you very much, Bárbara. We are very pleased to report for the first time Abengoa Yield adventure. Abengoa Yield resolved results today and we are very happy to have long least of top notch investors joining us in our Abengoa Yield adventure. As you know today, we are reporting the results of mostly our predecessor. So what we have today are the combined results of the assets that we are part of the Abengoa and are today part of Abengoa Yield after the IPO.

Performance in the first half of the year, has been in line with expectations. we have achieved CLD in the assets where we expected to reach CLD, namely ATS, Quadra 1, Quadra 2 and Palmucho. The revenues of Abengoa Yield have nearly doubled, which in close to $170 million in the first half, while the EBITDA has reached $137 million, which is more than 100% growth in these first half of the year. Mojave, the asset where we are about to which CLD is expected to reach that CLD by October. As a result, we confirm our guidance included in the perspectives at the time of the IPO, in terms of cash available for distribution of $92 million in the 12 months from July 2014 until June 2015 and $150 million in the following 12 months.

If we move to page 23, we have a split by both geography and sector where we see that performance has been similar across our assets with North America multiplying by $0.02 to the fact, and thanks to the fact that we have had in both Solana and ACT in operation, South America multiplying by more than $0.02 to the new assets that reach the CLD and Europe delivering significant growth as well.

From a sector point of view, similar comments, renewable energy with the strong growth thanks to new assets that are now in operation, conventional showing very good performance in the asset on the transmission lines multiplying by more than two again cents to the CLD of the new assets. In the press release, that has been posted in our webpage abengoayield.com, you have details, if you want to see a cash flow balance sheet and further information.

Manuel Sanchez-Ortega

Okay. Thank you very much, Santiago. Thank you very much, Bárbara. And before starting the Q&A, I’d like to confirm the business guidance for year-end, as reported by positive first half of the year, and obviously higher visibility for the rest of the year that we have at this moment.

Thank you very much and operator, please open the Q&A section.

Question-and-Answer Session

Operator

Good afternoon, ladies and gentlemen. the Q&A session starts now. (Operator Instructions) Thank you. The first question comes from Nuno Estacio from BPI. Please go ahead, sir.

Nuno Estacio – Banco Espirito Santo de Investimento SA

Hi, (indiscernible). Just a couple of questions if I may, the first one on the cash flow, in terms of what happened with the Solana in the first quarter and then second quarter, the reversion of that moment. If you can just give us some explanation on that first to understand. And will that happen also with Mojave and that is the first team; the second one, working capital in the corporate level is now very negative, Bárbara, you mentioned that you’ve expected recovery for second half, but should we expect it to be positive. Can we give us any indication of what to expect for full year? And the final question on your guidance of becoming free cash flow positive, for the end of this year. This is including the proceeds from the sale of the yield curve, or being free cash flow positive X, the proceeds from the sale of assets? thank you.

Bárbara Sofía Zubiría Furest

Sure, Nuno. regarding the first question around the moment in the corporate cash flow statement on Solana, this was just cash that came in at the end of the quarter, but then when immediately to repay, or was transferred to yield curve, basically in April. So it’s a moment within quarters as you see there has no impacts on the H1 accumulated figures. So we just wanted to show it, because it helps in the understanding of the individual quarterly cash flow statement.

Nuno Estacio – Banco Espirito Santo de Investimento SA

But it’s related to tax rate equity partners or something like that?

Bárbara Sofía Zubiría Furest

No, it’s related to the grand.

Nuno Estacio – Banco Espirito Santo de Investimento SA

Okay, okay. Okay.

Bárbara Sofía Zubiría Furest

The working capital for Q1 was negative as you said, Q2 being negative, but much better than and I mention that the expectation for your end continues to remain to be around flat year for the full year. So recovery should mean a significant cash generation from working capital in the second half of the year. And then in terms of guidance, the definition that we have with free cash flow, UC includes equity recycling. and so it would include the proceeds from the Abengoa Yield IPO and that’s what I deliver significantly positive, what I give you the exact figure for significantly positive.

Nuno Estacio – Banco Espirito Santo de Investimento SA

Okay. Thank you.

Operator

The next question comes from Denis Lepadatu from Kempen & Co. Please go ahead.

Denis Lepadatu – Kempen & Co. NV

Good evening. I have quite a few questions. I think it’s best to ask them one-by-one. First of all, looking at the engineering and construction division, you mentioned in the slides that you currently have visibility for about 80% of the revenues for the full year. If I recall correctly from the Q1 results, you were already having visibility for flat revenues year-on-year for the E&C division, I was wondering if there is any delay, versus Q1 expectations regarding the execution of any particular project and whether to keep projects in the pipe line, which actually produced growth for the division for the full-year.

Bárbara Sofía Zubiría Furest

You want to take a one by one, or if you run through all the questions and then we’ll respond to.

Denis Lepadatu – Kempen & Co. NV

Whatever you prefer.

Bárbara Sofía Zubiría Furest

Go ahead. you can – you can give us the format, and then I will be answering one-by-one.

Denis Lepadatu – Kempen & Co. NV

Okay great, Secondly also on the E&C part, I noticed that in the slide, you don’t provide a separate section for the technology and others results, so I was wondering, if you could review what is the underlying margin in the actual engineering business, taking out the technology and others part, certainly, on the Sugar Tone if there are – if they have been any bottom mix with the start up of the plan, because my impression was that was supposed to start up in June. and then the last question is on the underlying results, there is quite a bit on EBITDA margin for the engineering and construction division, I was wondering if there is any one-off there creating that extra bit for the second quarter?

Manuel Sanchez-Ortega

Okay. regarding your first question, I mean it’s slow quarter in terms of revenue for E&C, if you marry what the Q1 where we had a 10% decrease over, compared to last year. we with a visibility that we have with the backlog today and the revenues that we have at this moment overly accumulated. We are targeting to achieve the budget that we have with the E&C division, obviously. I mean we have to start the new projects through this year and the bookings that we have are already secure, are very healthy level and we need to start up on those projects, but I would say nothing different to what we have in any single year in terms of, as far as our projects and the execution.

So I will say that we are at a very good space at this moment to target the guidance that we’ve provided. in terms of our third question on Hugoton, I mean I want to remind you that the part of the plan has already been in operation since January, which is about 40% of the photovoltaic plant, which is intermitted the coal generation side (indiscernible) and we are not in the progress of commissioning our start-up the external portion of the plan.

By the end of June, we were expecting to complete the construction of the plant, something that we did, and obviously, I mean we are talking about some unexpected if you want events that are happening to plant, which is normally in a complexity plant of this size, nothing I would say to be worried about, and Ageas, I will say that about fixed eight weeks of delay, compared to the plant that we said three years ago for the start-up of Hugoton. As I said, during my intermission report, data and science have been – are in the way to be delivered to the site during this week, and we expect to start the ethanol plant that’s up during the next few weeks.

So I would say everything normal, considering the complexity of a project of this kind, which is the first time that we have been built into operation. And Bárbara?

Bárbara Sofía Zubiría Furest

Sure. The second question you have was around technology and other. as you know, we’ve had to split Abengoa Yield as our new segment and what we were finding was that. People were not fully understanding, how to predict [indiscernible] and other going forward and that it was becoming more and more difficult to discuss margin separated, in particular when we manage the margins together within the E&C. So we decided to begin recording E&C, combined with technology and others.

I would tell you that these splits of all – I don’t have the exact figure, because or in a longer reporting it that way, but I would tell you that. The former purely E&C is in the range of the 14%, which is – have been kind of the average margins over the last few quarters and technology and other continues to contribute with significantly nice margin, because of the technological component, as well as the manufacturing that is reported within that line item.

Going forward, this is the way we’re going to report and we will guide you towards our combined margin, which I will tell you, we are seeing very healthy like you have been able to see over the last few quarters. And then related to that question is whether there have been any one-off reported in EBITDA in E&C and the answer is no.

Denis Lepadatu – Kempen & Co. NV

Okay, great. Maybe one short follow-up on sugarcane, I recall you have provided some guidance for annualized EBITDA for the sugarcane plant, and I was wondering if sugar gets some indication on the actual ramp up that we could see throughout 2015 and 2016, and what is the year that we should see full contribution of the plant?

Manuel Sanchez-Ortega

Well, it’ll be 2015 for sure.

Denis Lepadatu – Kempen & Co. NV

Okay, great. Thank you.

Bárbara Sofía Zubiría Furest

Thank you.

Operator

The next question comes from Sean McLoughlin from HSBC. Please go ahead sir.

Sean McLoughlin – HSBC Bank Plc.

Good afternoon, a couple of question from me firstly on ethanol, we’ve seen pricing come down during Q2, but your margin has – back down to pricing which looks to be level at the end of last year, which would probably translate the margin coming back down about 5%, is that correct. And again do you have anything in place due to hedge against that. Secondly, just a question on you new equity partners, so you are looking at the partner that are willing to exit on dropdown on projects to…

Bárbara Sofía Zubiría Furest

Sean, I apologies, we didn’t get your first question fully. Do you mind repeating so we don’t miss it?

Sean McLoughlin – HSBC Bank Plc.

Sure, okay. Very briefly then ethanol pricing has come down through Q2 to a level at the end of last year would suggest that your ethanol margins are coming back down to low single-digit margins. Is there anything that you can do to hedge against that? And the second question was on the equity partners, just understanding there’s a negotiations process for the transferable of assets into Abengoa Yield. And I’m wondering what guarantee you would provide to these equity partners if Abengoa Yield actually refuses to buy or at a deal sale isn’t agree to them to yields for these individual projects that they invest in.

Manuel Sanchez-Ortega

Okay, regarding your first question in terms of the ethanol margins would I mean the margins are combination obviously price of the core grain and the price of the ethanol. And is providing a much higher margin that we saw in some times of last year and 2015, is that combination. So we expect right now to continue seeing for the following months on this core margins in U.S. and taking into configuration the balance of supply demand that we are seeing in the market in the U.S. and per agents, for the price of our core that obviously I mean it’s a bullet train market anything can change. But we are seeing a very healthy and supportive market in the U.S. at this point.

It is a different question. In Europe, were the margins are in the level of about 100 units per cubic meter and which is lower than we should be having at this time. So the combination is what you have of the high single-digit in EBITDA margin at this time. We have hedged some of that position that we have in terms of the nature gas for the rest of the year and corn supply in some of the plant; we have our long-term ethanol contracts in place. So we try of course to secure as much as possible that the margins are and the plans going forward. That it is impossible to secure 100% of the margin. So we will continue seeing some profitability and it is normal in this market. So I’d say that what we expect from here to year-end is a solid market in Brazil and the U.S. and we don’t see any signal to make us feel optimistic regarding the European market. So probably I mean what we are anticipating for the rest of the year in Europe is similar to what we have seen up to now.

Regarding your second question, I mean what we are obviously negotiating and with our partners and discussing with them is that in case that at the end the commitment that we have with our Abengoa Yield is that we would be offering the assets to Abengoa Yield, but Abengoa Yield has no obligation at all to buy any of the assets that we will offer. That’s an option, that’s independent directors of Abengoa Yield. We can see that and we’ll make a decision. So therefore we are not take any commitment within one that any of the assets that we’re developing will be acquired by Abengoa Yield, because we have not the power to commit that. What we are obviously making very viable to all of them is that an opportunity of that happening is something remarkable. Therefore, the situation is in any case better than it was before. Although, there is not any obligation from our Abengoa Yield to acquire any of their assets from Abengoa.

Sean McLoughlin – HSBC Bank Plc.

That’s great. Thank you.

Bárbara Sofía Zubiría Furest

Thank you, Sean.

Operator

The next question comes from Fernando Lafuente from N+1. Please go ahead, sir.

Fernando Lafuente – N+1 Equities

Hello, thank you so much for taking my question. Just three quick question, first one on the E&C margin, what is your expectation for combined division your margin by year end. Secondly on financial costs they have increased significantly this quarter versus both in the last quarter and Q2 2013. I was wondering what is the reason of increase. And the third one on the tax rate, what do you expect for year-end, specialty tax or what is your best guess? Thank you so much.

Bárbara Sofía Zubiría Furest

Thank you, Fernando. The first question on E&C margin I would tell you probably something in the range of 16%, 17% is something reasonable to consider on a blended basis with technology and other. For the full year on financial cost the reason for the increase is that new assets have been brought into operation and therefore the project financing kicks in and we start paying interest on that as well as a fact like I mentioned, we have had – we’ve been active in the couple of markets. And we’ve currently $1.3 billion of cash that is year marked for debt repayment, but we are repaying that as it matures and some of for example (indiscernible) et cetera.

And so those are the two main reason then the third question on tax rate. I would tell you expect very little taxes to be paid for very low effective tax rate for the full year.

Fernando Lafuente – N+1 Equities

Thank you very much. Just a follow-up on the financial cost, last year we paid reported financial cost of €721 million, €722 million, what do you expect for this year should be more in this more or less flat or should we expect that’s increasing the figure.

Bárbara Sofía Zubiría Furest

No, I would expect an increased like you are seeing already in Q1 and Q2 for the reasons I mentioned before, although going forward is where I was saying that you would expect a significant financial cost reductions as we do repay that $1.3 billion of debt that we have here as well as are we for example the facility that I mentioned we’ve secured $1 billion with the 100 basis points improvement. So as that new facility kicks in and we’ll take the old one as well as – as we continue to approach the refinancing of our current capital markets that which has still a high average cost of that we would expect. So but I think the savings you should expect to start seeing in 2015 and not probably for the remainder of this year.

Fernando Lafuente – N+1 Equities

Okay. Thank you so much.

Bárbara Sofía Zubiría Furest

Thank you, Fernando.

Operator

The next question comes from John Quealy from Canaccord Genuity. Please go ahead, sir.

John Quealy – Canaccord Genuity Inc.

Hi, do you hear me.

Bárbara Sofía Zubiría Furest

Hi John, we hear you. Thank you.

John Quealy – Canaccord Genuity Inc.

Yes, I’m sorry. I’ve had some phone issues here. So first of all on the dropdowns Manuel, what’s the condition that you’d need to accelerate the dropdowns to yield curve. Also, I guess for Manuel, can you give us an update on the potential monetization of the Brazilian gain assets, how that process is moving. And then, maybe one for Bárbara, can you give us a number for the San Antonio water asset, what that might be. And then once those are done I got just two quick ones for Santiago.

Manuel Sanchez-Ortega

Okay. In terms of the conditions to accelerate the dropdown if there is to have the plans and then ready to produce cash available for distribution and offering that to the board of Abengoa Yield for the consideration. So we made an estimation that before June 2015, we are expecting to have the first dropdown of Abengoa Yield and I mean it could be accelerated, because as you have seen, we have a lot of plans already in operation although, not of them are in the stage for completed the ramp up and therefore, fully producing the cash flows that will be achieved after two, three years of operations.

So I’d say that we have some assets already ready and not all of them and we’ll be considering the moment on when to offering to Abengoa Yield. For sure I mean I don’t see any reason and not to meet the targets that where announced by Abengoa Yield in the time of the IPO. Relating to sale of the biofuels in Brazil, and we continue discussion with counterpart I mean it’s taking I’d say longer than we anticipated and we don’t think we’ll see anything being closed before year end. And we are trying to maximize the value for Abengoa shareholders in any of these related transaction and obviously we don’t have right now the pressure that we have, for example I mean two years ago. And therefore, we’ll try to maximize as much as possible any potential transaction of this or in any other assets that we may have in Abengoa.

Bárbara Zubiría

And on your question on San Antonio water, we have to respectful of the customer who has requested that the amount be kept confidential. So unfortunately John, as of yet I cannot share with you the amount.

Manuel Sanchez-Ortega

Yes. I think that San Antonio will relate and that’s so important.

John Quealy – Canaccord Genuity Inc.

Okay. And then, Santiago, if I could just two questions, first Mojave from your perspective is there potential to monetize makers like you folks did with Solana. And then the second question I’d was looking to the appendix it looks like three key COD is Q1 2017 and I was thinking that was more closer to Q4 2016. That’s all I have, thanks.

Santiago Seage

Okay, thanks, John. Regarding the second one, the second question sorry at this point in time, Q4 2016, Q1 2017 is probably far away to be very precise. This is the estimation, the last estimation of Angola had made public and it’s one quarter sooner or later actually than what we estimate. Regarding a Mojave there is a potential to optimize the project at some point in time, the way you are describing that will depend on the cost of the tax equity market. If at some point in time, we see that we can create volume, by doing that we would analyze it and this point in time, we don’t believe it’s a case.

John Quealy – Canaccord Genuity Inc.

Okay, great. Thanks folks.

Bárbara Zubiría

Thank you, John.

Operator

The next question comes from José Manuel Arroyas from Exane. Please go ahead, sir.

José Manuel Arroyas – Exane BNP Paribas SA

Hey, good afternoon, everybody. I had three questions. At first one, is a point of clarification on your corporate leverage target of two times by year-end. If I don’t recall incorrectly this target was given in February when I think more deals did not exist. And how does that target changed and now include asset disposals that we should expect for the remainder of the year. And also in relation to corporate free cash flow. Can you explain to us the corporate cash movements that we should expect in relation to the cash currently in Mojave? And my second question is on Linha Verde some news came out a few days back. Can you please update us on the status of negotiation of Petróleos. And lastly, an update on the biofuels sector, as Angola has been working on two initiatives and the second generation biofuels in Hugoton on bioethanol project.

Can you please give us your view as to how confident you are about their EBITDA outcome having Angola in 2015 and 2016? And how much of that EBITDA will be the recourse and how much will be non-recourse? Thank you very much.

Bárbara Zubiría

Sure. I may ask you to repeat the last question, but let me begin with your first two, corporate leverage target, you said we announced in February. We already – that we announced earlier than February, it’s true that Abengoa Yield did not exist, but we did have an equity or asset location program announced since December of 2013, which is when we committed to these targets and when we committed to the equity recycling plans. So the target does include that equity recycling it was part of the way to get there.

The second one was whether to expect any movements from Mojave in the corporate cash flow, I don’t believe so the Solana movement was punctual for the quarter between Q1 and Q2. I don’t foresee any movement expected for the Mojave coming from Mojave. And then, your third and fourth question I think are better from Manuel.

Manuel Sanchez Ortega

Linha Verde I mean that has been approved actually we’ve been able to read and we expect to be closing that transaction in the next few weeks. And also the information that you read that was correct. And what was the last question.

Bárbara Zubiría

The last question is the one I didn’t get.

José Manuel Arroyas – Exane BNP Paribas SA

Can I repeat?

Bárbara Zubiría

Sure, please.

José Manuel Arroyas – Exane BNP Paribas SA

I was just wondering if you can update us on the EBITDA outcomes that you expect to paying from the second generation by acquisition that came up earlier. And also on the bioethanol, how much EBITDA should we expect in 2015, 2016 or beyond that and if you could tell us how much of that EBITDA would be non-recourse or how much would be recourse. Thank you.

Bárbara Zubiría

So the EBITDA outcome for second generation is what Manuel mentioned earlier, it’s around $50 million for the full year 2015. The EBITDA from the bioethanol right now we haven’t yet disclose the figure. We need to finalize the pilot and to be able to actually commit to our particular figure, right now a both of them would be corporate EBITDA, unless we are able to close financing on a non-recourse level in particular for Hugoton.

José Manuel Arroyas – Exane BNP Paribas SA

Okay. Thank you.

Bárbara Zubiría

Thank you.

Operator

The next question comes from John Sedgwick from Laurent Epson Partners. Please go ahead, sir.

John Sedgwick – Laurent Epson Partners

Hi, guys. Barbara, if I could just kind of go through the corporate cash flow just real quick to make sure I have this right, so when I look at your guidance for the full year, can you guys did just under $700 million of EBITDA and your guidance is $1.4 billion, but in the Mojave coming in probably some contributions for EBITDA and hopefully you guys are able be a little conservative with that. When I kind of run that out to get your working capital that flat. You think our 450 of CapEx, looks if they are going to be pretty close to break-even maybe just shy of a break-even even before the $611 million coming out from the yield curve EBITDA numbers right there is that kind of the right way to think about that?

Bárbara Zubiría

Your math is accurate. I’m not providing a target specifically, but your math is accurate.

John Sedgwick – Laurent Epson Partners

Thanks, okay. And then just in terms of the EBITDA in the second half is there any reason as we think about kind of the cadence of that in any of the areas would sort of have any reason for a sequential decline half on half because they do have some things that are coming through. Obviously, the biofuels can fluctuate to the margins in the U.S. right now they are better actually in the second quarter. So would bring it down on our – something?

Bárbara Zubiría

I’m not sure if I understood, we are expecting anything that for EBITDA to drop in the second half of year, was that the question.

John Sedgwick – Laurent Epson Partners

Yes, as you think about the way your new projects are coming in, that actually should grow the EBITDA in the second half.

Bárbara Zubiría

Yes, but remember John one thing, projects that come in are coming in confessions and that’s non-recourse EBITDA. That’s not going to be impacting the corporate EBITDA, and the corporate cash flow, and the corporate cash flow target. The corporate EBITDA comes from E&C. So 100% of E&C is corporate. And then, it comes from not fully all of biofuels because there are five plants within bioethanol that are financed through non-recourse that and so that EBITDA it treated as non-recourse EBITDA.

So, having said that, we don’t expect anything to happen in E&C, or in biofuel and not biofuels probably, the opposite to make a thing that the second half of the year would be worse than the first half of the year if anything would be the opposite.

John Sedgwick – Laurent Epson Partners

Great, okay. And then just on the biofuels, you mentioned that you are restarting one of your plants?

Bárbara Zubiría

Coal.

John Sedgwick – Laurent Epson Partners

I think is that in terms of gallons.

Bárbara Zubiría

It’s a small plant. It’s 20 million gallons.

John Sedgwick – Laurent Epson Partners

20 million gallons, but the EBTIDA there I mean it looks like if I look at today’s margins in the U.S. they are somewhere between $0.70 and $1 of gallons. So it actually could be a reasonable contributor as we kind of roll forward.

Manuel Sanchez-Ortega

Yes. I mean indeed, we have a worthy hedge margins for that plant for the next two quarters assuming that the plant would be starting in September. So basically, we are not taking any risk in the margins kind of from the plant for the next two quarters, which is important considering that we are restarting that out there almost 20 months of having it ideal. So we have seen good conditions and we are also working on improving that plant in order to quantify four advanced biofuels, which will make that ethanol being eligible for a premium according to the actual conditions. We are working on that that could happen on the second half of 2015. So basically, we are not taking any risk followed by restarting that plant because we always secular margins for the next two quarters.

John Sedgwick – Laurent Epson Partners

Perfect. Okay, thanks a lot, guys.

Bárbara Zubiría

Thank you, John.

Manuel Sanchez-Ortega

You are welcome.

Operator

There are no further questions. Thank you.

Manuel Sanchez-Ortega

Okay. So, well thank you very much for being today with us and I hope that we can meet some of you or most of you as you may have seen in our website, we would be running to update of our strategy one in London and one in New York. That’s going to be September 3 and September 4 in New York. So that will be a great opportunity to continue updating you with the view that we have not only for the rest of the year, but also I mean for 2015. And we expect to give you also during that meetings that will be – more information on what we expect to see happening from now on considering the positive impact that we are seeing from Abengoa Yield in the business model of Abengoa. As I said, thank you very much for your time and we’ll be in touch. Thank you.

Bárbara Zubiría

Thank you.

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