Abengoa's (ABGB) CEO Santiago Seage on Q2 2015 Results - Earnings Call Transcript

Aug. 01, 2015 9:50 AM ETAbengoa, S.A. (ABGOF)
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Abengoa SA (ABGB) Q2 2015 Earnings Conference Call July 31, 2015 12:00 PM ET

Executives

Santiago Seage - Chief Executive Officer

Ignacio Garcia Alvear - Co-CFO and Head of Capital Markets and Investor Relations

Analysts

Pinaki Das - Bank of America Merrill Lynch

John Quealy - Canaccord

Nuno Estacio - Espirito

Jose Manuel Arroyas - Exane

Ben Burns - Citi

Julien Raffelsbauer - HSBC

Alberto Sanchez - Fidentis

Jason Leet - Deutsche Bank

Chris Malone - Palmerston Capital

Hayman Dobkey - Barclays

Kanar Shar - KPU Capital

Daniel Webster - SC LOWY

Operator

Good Afternoon, ladies and gentlemen. Welcome to the Abengoa First Half 2015 Results Conference Call. Abengoa is an international company that applies innovative technology solutions for sustainable development in the energy and environment sectors. Just a reminder that this call is being Webcasted 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 conference call is Santiago Seage, Chief Executive Officer; and Ignacio Garcia Alvear, Co-CFO and Head of Capital Markets and Investor Relations. As usual, at the end of the conference call, we will open the lines for the Q&A session. I will now pass you over to Mr. Santiago Seage. Please go ahead, sir.

Santiago Seage

Thank you very much, and welcome, everybody, to Abengoa's first half 2015 results presentation. We presentation. We are going to cover today two very different sections in the presentation. In first place, I'm going to summarize for you our strategy and goals building on the Abengoa 3.0 model, but going a step further. In second place, we will share with you our results in detail and update guidance.

The full account and the full quarterly report, including the limited review by the auditor, will be available later tonight, as always. In the appendix of the presentation, we also include detailed information that we believe is important to understand our business and that we also committed in the past to share with you every quarter. I hope that you will find useful the transparency and the amount of information we are going to be sharing with you today.

I'm going to start with the first section on page 5. Abengoa is today a much stronger company than a few years ago, both on the business and on the balance sheet side. On the business side, you're looking at a company that has proprietary technology on a number of sectors and markets that present very important opportunities for growth going forward. In second place, you're looking at a company that has in-house development capabilities. Abengoa is able to develop projects and assets in most markets globally.

In third place, Abengoa has got a very strong track record in its core skills, engineering, construction, and operation and maintenance of assets. But, together with that business, what we have is today a stronger balance sheet. With the new Abengoa 3.0 structure that has been created over the last two years, Abengoa is now able, as you know, to share investments and rotate those investments with partners.

Abengoa Yield, with over EUR1 billion in market cap for the 49% share that we own and EUR1.3 billion in rotations in less than – in a little bit more than a year since the IPO, has demonstrated its ability to purchase assets at reasonable prices from Abengoa. In second place, APW is today a reality with APW-1.

In second place, over the last year or year and a half, our financial structure has improved as a result of this new business model. And recently, one of the agencies, Standard & Poor's, has recognized that through an upgrade. Additionally, Abengoa has been able to increase its equity and reserves by close to EUR1 billion since late 2014. Therefore, Abengoa today has stronger business with a stronger balance sheet, all of this – I'm now on page 6 – based on APW, as I mentioned before, and Abengoa Yield.

And following the creation of APW-1, what we can tell you is that we have been working on APW-2. And we believe that, before the end of this year, we will be able to have a second warehouse in place. And our strategy will be to continue having more warehouses in the future with different focuses and probably different partners. This will allow us to continue sharing our equity investment the way we need to do it.

After this introduction, on page 7, I'm going to share with you the strategic headlines of our plan going forward. In first place, now that Abengoa 3.0 is in place, what we need to do is make sure that we take actions that increase cash flow generation in the very short term, in first place, by continuing to divest the way we have been divesting during 2015. Today, we are going to share with you some details under which we are going to be able to divest EUR1.8 billion to EUR1.9 billion versus the initial plan we shared with the market earlier this year.

In second place, we have recently launched a cost-reduction plan that targets a reduction of EUR50 million in G&A expenses once it's fully implemented, which should be 2016. In third place, we are going to complete the Abengoa 3.0 strategy. And in fourth place, we are going to focus on optimizing our bioenergy business, and optimizing meaning making sure that we generate more cash flow. That's our first driver, cash flow generation in the short term.

Our second driver is to make sure that we capture opportunities for profitable growth. And when I say profitable, I also mean cash-generating growth by doing two things: first, focus on our key development and E&C activities on the key markets where we believe we can capture a significant share of the growth in infrastructure in power and environment; and in second place, by continuing to growth in what we call our services and technology businesses that we currently report within E&C.

And third, we are going to work towards reducing our cost of financing. Those are the three drivers, increase cash flow generation in the short term, profitable growth that can generate cash flow going forward, and third, a lower financing cost.

If I start with the first pillar in our strategy on page 8, what you have is a summary of our divestiture plan. In the appendix, you have another page with the same information comparing in detail this plan with the last update we gave you when we presented Q1 results. As you can see here, year to date, we have managed to execute EUR1.4 billion of the plan. As we are in July, what we have done is review the plan, and we can commit today to grow it to EUR1.8 million/EUR1.9 million versus the EUR1.6 million originally shared with the market. Therefore, on divestitures, we are doing very well. We are going to exceed the plan we laid out at the start of the year.

Second driver on page 9 regarding our first pillar, we are going to be reducing costs. And specifically, the plan we have recently launched targets savings of EUR15 million in the short term and EUR50 million once it's fully implemented. The philosophy of the plan is to reduce costs in what we would call our staff or our back office functions by promoting efficiency among the different businesses by improving our processes a and by maximizing synergies.

And the other pillar within our first pillar of generating cash flow in the short term is bioenergy. In bioenergy, as you know, most of our business is what we call first generation. This is a mature business, where the plan we have prepared calls for no CapEx investment beyond obviously what is required because of reasons which are mandatory, but no additional CapEx whatsoever, plus a very severe cost reduction plan and the use of the second technology, the second-generation technology we have available today already to improve our first-generation business, to improve our production in some cases, reduce our costs in others, and make sure that we can offer products to diverse – new products to diversify our current product mix in first generation. This should allow us to become more competitive in first generation and to extract more cash at the same market price, market price meaning the price of products we sell in the market.

Additionally, regarding second generation, here, our priority is to complete the ramp up in Hugoton, which is our first second-generation plant and one of the very few second-generation plants in operation worldwide, and optimize the process so that we can use that process to develop with partners and nonrecourse project financing a second-generation facility. We believe that this technology is going to be competitive at reasonably low oil prices. And therefore, what we need to do now is improve the process, improve the costs, roll out the technology, as I said, with partners and nonrecourse financing.

With that, I have covered our first pillar, more cash flow generation in the short term. The second one, which is to grow profitably, on page 11, obviously, our strategy is to grow our business, but to grow our business respecting always two key principles. Principle number one – and on both principles, what they have in common is obviously financial discipline.

Principle number one, liquidity, we need to make sure that we manage our cash in a prudent way so that we can benefit from investment opportunities when we find attractive investment opportunities. The second principle, obviously, is to keep a reasonable corporate leverage, making sure that we comply with our policies.

One of the key ones when we invest, as many of you know, is to make sure that the equity we invest in a project is never higher than the EPC margin or the margin we are making on that project. And if we make sure that liquidity is reasonable and the leverage ratios are reasonable, then we are ready to invest, and we are finding very attractive opportunities to invest. But, if the first two principles are not correct, we will -- obviously, won't be able to invest.

With these two key principles in mind and with this discipline in mind, on page 12, what we can tell you is that, globally, the markets where we operate, namely power and water, are two markets that present very high growth globally, especially in some regions, and where we believe that we can capture very significant growth opportunities, both in projects where we are one of the investors and in projects where we build the assets for a third party.

And why is this the case? Because of four reasons. As I mentioned before, Abengoa has its own technology in several sectors. And therefore, in those cases, we are able to obtain a higher profitability because we have a lower competition in technologies that we dominate and where we compete with a few other players globally; in second place, because of our engineering and construction capabilities and our track record both in power and water; in third place, because we are vertically integrated. This means that, in some of our sectors, we design and manufacture some of the key technological elements that we use when we build a project. And therefore, we can make a second return, a second profit or cash flow generation through that vertical integration; and finally, because we are a global company, a company that is able to adapt every year and move resources to the regions where we are seeing growth and where we are seeing value creation opportunities. And this is what the global infrastructure market in power and water is requiring, technology – companies with technology, with construction capabilities, and with a global presence.

Actually, on page 13, we can tell you that the pipeline – pipeline, as you know, are the opportunities identified we are working on from a commercial point of view – continues being very robust at more than EUR160 billion, with very good distribution by region, the Americas being the main part of our pipeline.

And here, our strategy is about working on two types of markets, markets that we call priority markets. These are a number of countries where what we have are local companies, are companies that have been there for a long time that are able to compete with their own resources in most of our sectors, and where, when projects come, we are one of the strong local players that can compete for those opportunities.

Additionally, we have what we call next priorities. These are a number of markets or regions where we already have a local presence, where we typically have a strong local presence in one of our sectors. And what we need to do is build on that presence to be able to deliver, to develop and deliver projects in the other sectors, leveraging that local presence.

And these are high-growth markets, including Canada, where we won a large transmission line last year; North Africa, where we have done several very large projects in conventional power in water and in solar; the Middle East, where we have done a large renewable energy assets, large water assets, and where we are seeing huge opportunities in most of our sectors; or South Africa, where we have a very strong presence in renewal energy, and we are trying to develop since recently other markets.

This is where some of the growth is going to be coming from at a low investment because we're already there. We already have a local presence. It's about expanding and widening our presence to other sectors. And obviously, we're going to do this by continuing to improve our systems, tools, and implementing the way we work in the other markets.

With that in mind, on page 14, we give you a picture of our pipeline by sector, where the message is that we are seeing huge opportunities all across our sectors, from conventional to renewable energy to transmission to water, and where we have a combination of sectors where we have a technology edge with sectors where competition is higher and where we need to compete market share and critical mass and obviously being competitive from a cost point of view, but in general, a very strong pipeline and a very strong pipeline across all sectors.

On page 15, what we try to explain is that we compete in three different ways. In the businesses in the upper part of the chart, transmission and distribution and conventional generation, we compete based on the fact – the track record we have in those businesses, the credentials we have in the business, the market share in many markets, and the fact that we execute those projects with our own resources, with our capabilities, with our own systems. And there, we are able to be very competitive, although as we want to be, obviously, disciplined from a margin point of view, success rate is lower than in the second type of sectors.

The second type of sectors include several areas within renewable energy, include water. And here, we have our own technology. We have our own vertical integration. And there are -- the number of competitors is significantly lower. Therefore, our success rate here is higher. And our profitability is higher as well.

And additionally, there are a number of other sectors that today are smaller for us, where we compete selectively and where we try to do projects seeding the opportunity for the future, developing our skills and our capabilities because we believe that those could be growth areas in the future.

With that in mind, I move to page 16, where we have tried to do an exercise that some of our competitors have done, by the way, where we try to estimate what the volume, the – let's say, the commercial access that our network has today. What I mean by that is, on top of the EUR8.8 billion backlog that we have signed and that we are going to be executing in the next two or three years, on top of that, what we can tell you is that, from a probability-adjusted point of view, we are going to be able to grow that very significantly.

And let me try to guide you through this chart, starting from the right. On top of the EUR8.8 billion probability adjusted, we are going to be able to sign another EUR3.6 billion in the near future. Why? Because today, we have EUR29 billion of offers outstanding, outstanding meaning somebody has to decide if we are the selected project or if we are the winner. And based on our track record, based on our history, we will win around 12% of those. On top of that, during the next 12 months, we are going to submit another EUR62 billion in offers. Statistically speaking, we should win close to 7% of those, based on our history, another EUR4 billion.

And finally, there are another EUR200 billion of opportunities with different degree of development, where statistically speaking, again, based on the past, we should win 2% to 3%. In total, if you adjust this as I discussed according to probability, our commercial teams worldwide should be able to bring us more than EUR20 billion worth of E&C work.

And what value creation can we have with those EUR20 billion? On page 17, we have done – we have run a theoretical exercise, and some of you might find it useful, where what we do is we calculate the EBITDA margin we are going to be making with the engineering and construction business on that portfolio.

In second place, we estimate the EBITDA margin we are going to be making on the operation and maintenance. We don't do – we will not be doing operation and maintenance on all of these assets, on a percentage only. And this is what we have included here.

Third, in some of those assets, we are going to be one of the investors. If we take that into account and we assume that, after a few years, we are going to be able to rotate that equity to a long-term holder of the assets – that could be Abengoa Yield, or that could anybody else – that's also to represent a value creation.

And finally, those assets that go to Abengoa Yield, we are going to remain as a shareholder. And therefore, we are going to be able to create another EUR0.5 billion. In total, although these numbers, as you can see, cannot be added up directly, we are talking about a very significant value creation coming from the fact that we have from the fact that we have a global commercial team deployed and able to present and win offers worldwide, together with the projects they develop.

This is only trying to share with you the message that there's a lot of value to be created here. And now, I'm going to move to more specific examples.

And on page 18, I'm going to use example of a project in Chile. This is a solar plant where Abengoa has a partner. This project is part of APW-1. In this project, Abengoa is making a margin through construction, through technology supply, through vertical integration.

Part of that margin is invested as equity. And the partner is also investing equity. Therefore, at the end of construction, when operation starts at COD, Abengoa – if this forecast materializes, Abengoa will not have invested anything, but actually will have had a very positive cash flow. The partner, obviously, at that point in time, will have a negative cash flow.

Sometime after COD, the asset will be sold to somebody. And here, we are showing you what is for us our worst case. We are showing you a case where the partner is able to make a very high return, but we as an investor – and we as an investor, as an equity investor, in this case, would be making a lower return because the partner in APW-1 has a preferential right.

In this specific case, which as I said, is a worst case for us, is still, even in that scenario, we would have, once we sell the asset, a very high return. And the partner would be making the return you see there.

On top of that, we are going to be making a return over the life of the asset through the operating and maintenance. And if the buyer of the asset was Abengoa Yield, we would be making a return as an investor in Abengoa Yield. Therefore, in spite of the fact that, in APW-1, the partner has a certain preferential treatment according to our agreements, because of the fact that the first one who gets a return in the project is the one building, in the case of assets in APW-1, if things work well, we should be, or even if things don’t work so well, we should be getting a very high return on investments. Another example of an asset where we are investing today page 19 this is an asset in Mexico, where as you can see this is a very large combined cycle, where we have a PPA with CFE, and the PPA is paid mostly in dollars with as more a component in local currency to cover the operational maintenance.

Operational maintenance at Abengoa we will be doing over the next 25 years financing should be based on dollars and our target is to achieve a very long tenure there. This project for example should allow us to obtain a very high return counting on the equity recycling in the future. Another asset on page 20, this is a transmission line in Brazil where, this is a very large one, 1700 km where we have a concession agreement over the next 30 years. We get paid in local currency, but with an inflation adjustment provision in the pricing. And we do the maintenance over the next 27 years.

Therefore, we have been able to find opportunities that allow us that should allow us to make a good return when we invest our equity. On top of that on page 21, what we can tell you is that in the first part of this third quarter that means July, we have been able to win a few very large projects. The first one up there is our transmission line connecting California and Arizona in the U.S. where we have been able to whether we have partner to win one of the first concessions or concession like agreements in transmission in the U.S.

This for us is extremely important, our strategy going forward is to build the business of transmission institution in the U.S. that allows to make what we believe are attractive returns, and where were we have all the expertise of building similar transmission lines in many countries and where for us it’s relatively easy to move our skills and capabilities to the U.S. to be able to develop what we believe should be a very profitable business building transmission lines, but also investing with partners in transmission lines.

Additionally, during this first part of the third quarter, we have been declared winners or in a number of very large projects that are still not public and that we can still not make public because either formal communication or some other aspect is still pending. Our expectation is that these projects should be made public during the quarter. We just wanted to give you a glance at the fact that our third-party engineering and construction business is doing very well and therefore contracting on backlog of projects for third parties should do well, during this third quarter. You can see here that it is a EUR1.3 billion in size, composed of four different projects all of them without any investment on our side in renewable energy, and water and in conventional and covering as you can see here several geographies.

Therefore, the commercial machine is working very well these large projects without investing are going to help us to achieve our targets for this year and also for 2016 as a significant part of obviously of execution of these assets will happen next year. On top of this business, where we invest in assets with third parties or where we build assets for third parties without investment.

On page 22, we want to give you a bit more transparency on the services and technology business that we report as part of the E&C. These are the actual numbers for the first half of 2015, whereas you can see we have had revenues of more than $400 million in this services and technology segment, part of those revenues have been done intercompany, therefore they are eliminated, we are left with EUR300 million consolidated revenues, EUR96 million EBITDA. Therefore this is only first half.

Therefore this is a sizeable business, it’s a 500 million or 600 million business every year with very good margins. This is part of the reason obviously why we make higher margins on engineering and construction than some of our peers and this is a business that gives us recurrence, gives us margins, gives us cash flow and we have a very significant opportunity to continue growing in this business as we move forward. And obviously this is a business that has very limited to no requirements from our CapEx or an equity investment point of view.

And as a priority, what we are going to be doing in the next few years is to make sure that we grow here. With this we cover the second pillar, growing profitably in assets where we invest with other partners in engineering and construction for third parties and in technology and services where we don't require to invest equity.

On page 23, our third pillar, is to reduce our financial cost. And as I mentioned already you can now be assured that we will do whatever we need to do in order to reduce our cost of financing. This is a key priority for the company and therefore we will work and do what we need to do to see our cost of financing coming down to what we believe is where it should be.

In the short term, as we have said already we will prepay the EUR375 million of bond due in 2016 in our fourth quarter. In second place, we will continue doing and taking actions that great investors can see us positive, we will listen to great investors and we will work to make sure that whatever misunderstanding exists is solved in the near future.

Additionally, we will capture some savings, thanks to the recent upgrade in some of our facilities and we will work towards the objective of making sure that our APW's can have their own financing resources without recourse to Abengoa. This is our 2016 target. We're working on that with a number of institutions and we believe that in 2016 we will be able to see these at least partially. In the mid-term, this is about generating positive free cash flow, we have no question to believe or we have no question that this is a key priority and we will be generating a very significant free cash flow in the coming years. Thanks to the new structure and thanks to the position we have in our global markets in infrastructure in power and water.

And with a strong business that can grow profitably that can continue rotating assets because we have plenty of assets that we will continue rotating and with the reduced or more reduced risk profile we have with the APW's and reducing over time our corporate leverage, our key target is to make sure that over the mid-term we can reach our BB- rating. This is again a very important target for the company.

On page 24, we give you a glance of Abengoa today, so that we can talk about value and value creation opportunities. On page 24, you can see that Abengoa is made of up of five different businesses. On the left, the engineering and construction business, where in total including the technology and services we have generated in the last 12 months EUR890 million of EBITDA. In order to do a valuation, you can use whatever multiple or whatever valuation mechanism or method you want to use obviously.

In second place, we also have a business where we have invested more or less EUR1.1 billion in concessions. These concessions are in operation these concessions will be rotated over time to long-term holders of those assets. In third place, we have invested EUR1.6 billion in new contracted assets, new concessions under construction. These are 22 different assets in different geographies, different technologies, most of them with partners.

Additionally, we have EUR2.2 billion of non-recourse debt in process that is in those assets and obviously shows up as well in our balance sheet asset and you can see that same number in the upper part of the chart as a debt that, obviously, Abengoa has today. In fourth place, we own a 49% stake in Abengoa yield or a bit more than $1 billion; and finally we have a business, bioenergy business, mostly today our first generation bioenergy business with also our technology component in second generation that has generated around EUR175 million EBITDA average in 2013 and 2014. With that you need to remember that we have two main components of debt. We have the corporate net debt up there 2.5 and we also have obviously the nonrecourse debt in process, 2.2. This is Abengoa today from our point of view, it is clear that there is value creation potential here for equity holders.

On page 25, we have included an exercise where you can disagree obviously with many of these lines or you would do it differently, it’s an exercise trying to use a very conservative numbers, just to show that from a value point of view there should be a significant upside. We can discuss much, we can discuss when, we can discuss why, but it’s clear that there is a value gap here somewhere. With that in mind, I would like to move to the second part of the presentation and I will give the word to word to Ignacio.

Ignacio Garcia Alvear

Thank you Santiago. And good evening or good afternoon to everyone that has joined us today. Before entering deeper detailing the financial review, let me go through the main figures of the first half of results. Revenues increased 3% reaching EUR3 billion with improved operating performance at EBITDA up to 9% year-over-year reaching EUR650 million. In addition, corporate EBITDA stood at EUR463 million, and 11% increase versus the same period in 2014.

Finally, we closed the quarter with a net income of EUR72 billion, implying a 4% increase with respect to the first semester in the previous year. Positive performance also in the main KPIs of our engineering and construction businesses, booking of EUR3 billion of new projects through June or 3% more than the same period last year, which brought our engineering and construction backlog as of June 2015 to our record levels of EUR8.8 billion, 3% about the June 2014 level.

Our operational and maintenance backlog remained flat at approximately EUR3 billion. Very promising I look for the future opportunities in the energy and environmental [indiscernible] markets remain strong, our pipeline as of June 2015 remains EUR165 billion in line with June 2014.

Let's have a look now at the leverage position of the company. Our corporate leverage, slightly decreased by 0.1 times relative to the previous quarter standing at 2.5 times; and a performer cooperate plus non-recurring debt in process reached 4.8 times. On a consolidated basis, as a consequence of the increase on non-recourse debt in process leverage is slightly increased by 0.1 times, standing up 4.5 times by the end of June 2015.

Corporate free cash flow for the first half of 2015 was negative by EUR87 million, which represents an improvement of opportunity EUR150 million with respect to the same period in 2014.

Now I’m going to turn the presentation to Santiago who is going to explain you the following two slides.

Santiago Seage

Thank you. From a business point of view, on page 28 the only thing we can tell you is that business is doing well, business is growing in E&C as we have seen a strong backlog maintaining high margins. In concessions, things are going as expected a good operating performance actually better in some of the assets, no surprises. In biofuels, second quarter has been significantly better than first quarter, still behind our expectations for the year; third quarter should be slightly better because Europe is doing much better in Q2 and Q3.

Overall, the year will not be the best at all, but it should be a year that's better than what we saw in Q1. From a financial point of view, what we can tell you is that we will see the liquidity numbers later. We are being prudent managers of liquidity at least we believe so. We are maintaining reasonable numbers regarding leverage, 2.1 times corporate leverage after some of the transactions we announced in July.

And we have in the first half of the year, the company – the company’s free cash flow has been impacted by accelerated investments. Accelerated investments or higher investments than expected in the beginning of the year, due to the fact and this is very important that in some cases we have accelerated some of the projects we are doing. In some cases, we are putting equity that the partners will give back later and additionally in some cases we are investing more because of financing conditions, but overall the key message is the projects where we're investing more are very profitable investments.

Probably, we have never seen in the company a backlog with the profitability levels we see today. So it is true you will tell us later that we have done more CapEx than expected. The answer we can give you is that it has been done in very profitable projects. Additionally important, the net debt figure has been reduced versus December by EUR700 million and overall from a strategic point of view, as we have told you before we have been delivering actually exceeding our targets in terms of divestitures announcing ROFO with Abengoa Yield for a price of EUR277 billion and receiving a rating upgrade that will represent a small improvement in some of our financing.

If we move to page 29, as you probably saw a few days ago Abengoa and Abengoa yield have seen, signed an agreement under which Abengoa will be selling to Abengoa yield two assets, two smaller assets in Spain, for a total configuration of EUR277 million that Abengoa will be financing with that without requiring any capital increase. And Ignacio, we can move if you want to page 30.

Ignacio Garcia Alvear

Okay, thank you. Before reviewing with you the main items for the period, let me remind you that we have discontinued the Abengoa Yield. We have disconsolidated Atacama 1 and maintained as a helper sold the rest of APW assets. Together with certain assets that Abengoa’s Board has approved to disinvest.

Let's take across a look at the profit and loss account for the first six months of 2015. Consolidated revenue of EUR3.4 billion that represents a 3% increase versus the same period last year consolidated EBITDA growth of 9% to EUR650 million achieved from the back of a strong margins in engineering and construction and concessions. Solar and water projects with a high proportion of technology fees have followed us to book a high engineering construction margins of around 21% versus 18% during the first six months of 2014.

Operating profit with respect to the same period of 2014 has increased approximately 9%, reaching EUR440 million. We have experienced an increase in financial expenses, mainly driven by new projects coming into operation, Norte Brazil, Kaxu, Chana, Tenes, higher financial expenses at corporate level due to the payment on advance and accrued interest as a result of the convertible bond 2017, being put in 2015, also during the first half of 2015 we have some overlap between outstanding bonds and we also have a cause of the incentivized conversion of part of the convertible bond of 2019.

Further on, in line with other periods we have benefit from tax credits, resulting in net income tax of EUR60,000,000, 33% higher than in first half 2014. Finally, our net income for the period reached EUR72 million, 4% increase versus the first six months of 2014, with diluted earnings per share of EUR0.08.

Now let me turn back to Santiago.

Santiago Seage

On page 31, when we look at the evolution of our business by region what we can see is that the Americas continue representing the core of our business with 64% nearly two-thirds of our business in this first half of 2015 followed by Europe, which today represents around a quarter of our business with Africa growing getting close to 10%. On page 32, we're going to cover each of our three segments one by one.

In engineering and construction, revenues have grown by 4% with EBITDA growing significantly and reaching significantly higher margin than in the last year. We are looking at a number north of 20%. Bookings have done well this first half of the year with a 2% growth, and backlog as we mentioned before has grown before by the same percentage. Therefore, a solid first half of the year for our engineering and construction business. On page 33, when we look at concessions we see our revenues growing at 16% with EBITDA reaching more than 70% of revenues excellent performance across all technologies. Backlog remains very high more than EUR30 billion of contracted revenues over the life of the assets. Therefore, again a good, a very good first half of the year in concessions.

On page 34, when we look at the bioenergy revenues decreased by 2%, with an EBITDA margin that at the end of the first half was $16 million with Q2 representing $23 million of EBITDA. In general, what we are seeing are significantly higher crush spreads in Europe with a healthy market at this point in time. Regarding the visibility, we have looks like a good second part of the year, while the U.S. market remains with lower crush spreads than what we would like to see.

Hugoton, the second generation plant during this first half of the year has been generating ethanol and selling electricity is still at lower capacity factors than the signed capacity. The second half, in the second half of priority is going to be to continue working on improving the process on doing what we call the ramp up with the objective of reaching something close to full capacity in 2016.

Ignacio Garcia Alvear

Okay, now let me, in page 35, let me go through the corporate free cash flow. During the first six months of the year we have been able to generate tons from operations of EUR290 million and the key items are as follows. Operating EBITDA of EUR463 million and 11% increase versus the first half of 2014. Higher financial expenses that are the consequence of one off cost related to the convertible bonds in 2017 and 2019. Inflow of EUR25 million from dividends paid by ABY. The other item that is negatively impacting our cash flow is the change in working capital.

During the first six months of the year, we have had our working capital of outflow of EUR420 million, which is despite the negative impact represent a significant improvement, compared to the same period of 2014. It has historically been the case to have a negative working capital performance, during the first half of the year that gradually recovers during the second half.

This first six months represent a significant improvement compared to 2014 reaching cash flow for an operation of negative 201, a 68% improvement over 2014. Corporate CapEx that usually consists of the maintenance CapEx and R&D cost has increased EUR203 million, due to additional investment required. As a result, discretionary free cash flow for the first six months, which represents the cash generated by the business before any investment, the investment activities adds up to negative EUR304 million, a 46% improvement with respect to the same period last year.

Further below, we registered a positive net CapEx of EUR217 million during the period and we have invested more in equity for concessional project that has been raised from equity recycling. As a result of all the above, total free cash flow as of June 2015 reached a negative of EUR87 million which is a very significant improvement versus the previous year.

Abengoa has complete a number of transaction after the cutoff date of June 30 that have a relevant impact on corporate free cash flow taken into account the cash profits from divisional dropdown of to ABY growth of 4% and part of ROFO3 and the sale of 2% of ABY that has already been executed. The pro forma corporate figures will stand at EUR354 million. In summary, corporate free cash flow for the first semester of 2015 has been negatively impacted by negative working capital in line or actually lower than historical seasonality, higher CapEx than expected as a result of delay on contribution from equity partners and its relating investment due to the attractive returns in projects and new project opportunities that have arising during the period.

Now, let me please turn to the page 35 to go through the key indicators of net debt and leverage. On June 30, 2015 corporate net debt stood at EUR2,555 million which corporate net debt leverage at 2.5 times, an increase of 0.1 times compared to the end of December 2015. As I mentioned, with this current corporate cash flow, after the close of the first semester, Abengoa has closed transaction with significant impact on corporate liquidity. Taking those into account, pro forma corporate net debt decreased to EUR2,114 million with pro forma leverage at 2.1 times.

Moving on the next debt category, we have closed the first half of 2015 with EUR2,189 million of bridge loans, representing a corporate leverage ratio adjusted by non-recourse debt in process of 4.7 times, 0.2 times higher than by the end of December 2014. Again if we were to consider the post H1 event, the pro forma ratio would decrease to 4.3 times. Non-recourse debt continues to decrease as we continue to drill down operating concessions to ABY at the end of June 2015. Non-recourse net debt stood at EUR1,850 million, that has been the case since the full year forecast 2014 results. Abengoa Yield is considered a discontinued operation and as such non-recourse debt affiliated to those period is not consolidated in Abengoa. We expect to be able to disconsolidate ABY in the third quarter of this year.

Finally, looking at the leverage as a whole, consolidated net debt reached EUR6,553 million or leverage ratio of 4.5 times, a reduction of 0.6 times compared to the end of 2014. Once again taking into account the transaction that took place in July, pro forma leverage decreased to 4.2 times. Please turn to next slide for a quick analysis on the net debt evolution during the first six months of the year including the impact of the transactions finalized June 30.

As explained, want to review the corporate free cash flow during the first six months of the year, we have generated a negative free cash flow of EUR87 million with the main components have already been described. We have additional items that impact net debt cash such as dividend payments, ForEx, additional corporate debt to the conversion of the convertible bond 2019 net of associated cost and so on. As a result of what we described above, the total corporate net leverage by the end of June amounted to EUR2,555 million. Now, the two transactions that we announced after the end of the second quarter have a positive impact on cash, EUR385 million from ROFO4 and part of ROFO3 and EUR56 million of the sale of 2% of ABY. These will leave to the pro forma total net leverage of the company of EUR2,114 million as of June – after those events in July.

Now, we are going to move to the corporate liquidity. As discussed earlier, corporate liquidity at June 30, 2015 amounts to EUR3,095 million distributed amount. When we look at the liquidity split by type, we have EUR1,595 million are held in cash and equivalents, EUR1,385 million are held in short term financial investments and EUR115 million is represented by our treasury stocks.

The split of our liquidity by geography is as follows: Eurozone is 66%, U.S. 12%, Chile 6%, Brazil 6%, Mexico 4%, and Others (South Africa, Peru and Uruguay) is 6%. If we look, we have the liquidity, we have EUR1,410 million that are linked to suppliers, EUR831 million immediately available or EUR689 million are centralized cash, EUR142 million are cash in businesses, the remaining EUR500 million cash and short term financial investment in businesses are available to round the operations.

EUR240 million correspond to the EIG payment are currently held in escrow which we expect to be released between September 2015 and March 2016. EUR90 million of those expected to be released in 2015. EUR150 million represents by treasury stock at which we have already monetized EUR97 million.

Taking the June 30 liquidity position at starting point, we have identified besides a number of sources of additional liquidity. The strategic actions to raise total profits of EUR441 million, we have monetized 35 million shares in treasury stock and we maintain 5.5 million shares in shares. Additional payment from APW’s for approximately EUR308 million, the working capital generation in the second half of the year to offset the outflow of the first half of the year.

Now, let me turn continuation of the liquidity analysis to page 39 where we’re going to run through liquidity more in detailed analysis for the coming months. So we think it’s worth to spend some time looking at the current expectations for available liquidity by year end. First, we will run you through the management base case where we will look to the potential downsize scenario on the right side.

Let’s run through the management assumptions from the second half of 2015. Strong cash generation driven mainly by engineering and construction business to get to EUR285 million of fund from operations during the second half of 2015. We expect to see a recovering working capital such as the full year we assume a neutral impact. Based on this, we estimate our corporate operating cash flow of EUR685 million. With regard to the investing activities, investment net of contribution, we estimate to have EUR226 million and also considering that the EUR90 million that we will release from the escrow account.

Moving to the financing, we expect to be able to rollover to all of the short term facilities and assume we will have to remain cash outflow EUR96 million equivalent to one third of the commercial paper maturities that will now rollover and EUR365 million for the partial repayment of 2016 bond with funds raised in the new 2020 bond issued in April. The remaining of the bond will be repaid in 2016. All in all, we assume cash flow from financing activity of EUR440 million.

Taking into account the liquidity that we went through before and including the monetized all the treasury stock, we will end with an expect liquidity of EUR1,865 million. In the right side, we have gone potential downsize scenario arriving to the same conclusions. With this estimation for the second semester, we meet our guidance for operating cash flow generation between EUR480 million and EUR530 million for this – in 2016. There is no significant debt maturities other than remaining EUR125 million of the high yield of 2016 and with the cash flow generation that we are expecting even on the conservative scenario, we expect to maintain even higher level of liquidity.

Now, let me turn to page to the operating – let me turn to the free cash flow, operating cash flow for 2015. Looking into the second half of the year, in terms of operating, we expect improved cash flow from generation compared to the first six months. A strong funds from operation driven by the engineering and construction business and significant recover of the working capital leads to cash flow from operation between EUR680 million to EUR730 million in the second half of the year.

Our positive stands with regards to working capital is rated to main factors; closing of long term financing for some project, Ashalim, already announced, Manaus Hospital, transmission lines in Brazil, Atacama, and engineering and construction execution and new order intake to boost collection and advance payments. With these assumptions for the second semester, we will meet our guidance for operating cash flow generation reaching between EUR480 million and EUR530 million for the full year 2015.

Now, let me turn to the following slide. If we move to the following slide, we can review the main actions in terms of equity recycling. During the first half of the year, we raised cash for approximately EUR573 million in three large transactions namely the 13% stake in ABY, the EUR270 million to asset dropdowns to ABY for approximately EUR300 million. During the second half of the year, we are continuing asset relating the equity recycling actions to generate cash and sign new project partners that will compensate for the higher equity CapEx incurred in the first half.

We estimate we will rise additional between $476 million and $576 million during the second half of 2015. During the past month of July, we have closed transactions covering most of the target of equity recycling. We sold approximately 2% of ABY for EUR56 million taking us to the 49% stake required to disconsolidate it from our books together with other requirement that needs to be met for the deconsolidation. We did a fourth asset dropdown to ABY for a total protection of EUR277 million and received final payment of EUR108 million that was pending from the third dropdown, raising our total of EUR385 million. Once all of these transactions and action have been complete, the total proceeds raised in the year through equity recycling will be just over EUR1 billion exceeding our previous guidance. Additionally, we have launched a plan to further equity recycling beyond 2015 that could represent proceeds from approximately EUR400 million.

We move to the following slide. We're going to go through the CapEx. To finalize the cash flow analysis, during this year, a number of circumstances have arised that have led us to increase the amount of CapEx that we have initially budgeted. The net investment for the first half of 2015 amounts to EUR459 million. During the second half of the year, we expect investment to decrease, slightly taking the total net figure of the whole of 2015 to between EUR865 million to EUR935 million.

As I mentioned, there has been a change of circumstances that have required Abengoa to that in order to continue taking advantage of those business opportunities. We'll review now the main reason of the CapEx. In Brazil, new financing conditions for transmission lines have reduced the leverage, increase equity requirements. In Chile, we have execution and we are currently working on final terms on financing that will be expected by the second half of this year. Mexico, we advanced investment in 3T, the third trend and quarter trend, and Norte III that has – we expect to recover via equity partners in 2015 and 2016.

Now after detail review, we have done the main segments. Let's take a look at the full corporate free cash flow on page 43. Summarizing what we reviewed in the previous slides, good performance on engineering and construction and improved outlook for bioenergy together with a significant recovery of working capital and increased CapEx and equity recycling that we just review leads us to the corporate free cash flow for the full-year 2015 of the year between EUR600 million and EUR800 million. As explained before, the main difference with our previous target is a consequence of the increased CapEx figure. This additional investment has allowed us to continue capturing opportunities and construction of our projects that will partially recover in the remainder 2015 and 2016.

Now, before reviewing our target for the year, I would like to briefly go through our corporate debt maturity schedule shown in the next slide. Given the current liquidity position and the options we have reviewed with you to access additional liquidity, we believe we are in a comfortable position to face the future maturities of our corporate debt. Our refinancing risk was substantially mitigated with the issuing in April of a EUR375 million 2020 bond, the proceeds of which will be dedicated to partially refinance the EUR500 million bond maturity that – in 2016. We do not have a significant maturities until 2017 where we have EUR650 million bond, approximately EUR583 million, $279 million, approximately EUR250 million bond exchangeable ABY shares that we expected to sell by delivering ABY shares.

I would like to highlight that the share we show here does not include the bridge loan we classify as a nonrecourse debt in process, for which you find additional detail on page 54. To avoid any confusion, the October 2014 notes program is included under items revolving bilaterals for an amount of EUR295 million.

Now, I will turn the call back to Santiago to review the full-year 2015 guidance and targets and closing remarks.

Santiago Seage

Thank you very much. We will move to page 45, we are going to talk about guidance. Once we had the preliminary first half numbers available, we have conducted during the last week a very thorough analysis of our second half projections, going project after project, going CapEx item after CapEx item, and reviewing all the assets and all the projects in which we are working.

After this analysis, we have concluded that the guidance regarding revenues, at this point in time, we could meet the low range of the previous guidance, that EUR7.7 billion. But, we could also end up slightly below that, around EUR7.3 billion. The driver for one number or the other is going to be the execution and the speed of execution we can achieve in projects that have been won recently or are going to be won in the very near future. That's why guidance regarding revenues is EUR7.3 billion to EUR7.7 billion.

Additionally, regarding EBITDA, after these thorough analyses, we conclude that we can maintain guidance with the only adjustment of the fact that we are selling [indiscernible]. And that's where guidance for EBITDA remains unchanged, with the exception of that small adjustment, at EUR1.3 billion, slightly more than EUR1.3 billion. Due to the fact that, this year, we are executing a number of large projects that have good margins.

Regarding corporate EBITDA, we are maintaining our guidance unchanged, as well as regarding net income. Free cash flow, as we have seen before, we have decided to take a more conservative view after analyzing first half results and after updating our forecasts regarding the second part of the year. That is the reason why we are moving guidance from EUR1.4 billion to a range between EUR6 billion and EUR800,000 million. This we believe is a good number for Abengoa. But, we understand that clearly this is a number far away from the guidance we provided before.

As we discussed previously, the gap here, summarizing or simplifying a lot, has been invested. And therefore, this is the cash that will come back with a return in the coming in the short term, in the few next years. Because of this change in corporate free cash flow, we are adjusting our ratios. Corporate leverage we believe now should finish the year around 1.8 times, while net corporate debt, including nonrecourse debt in process, should be around – below 4, around 3.9 and consolidated net leverage should be around 4.5 times. Again reasonable numbers that we will be improving in coming years, result of a thorough review over the last week of all of our first half results and all our projections, project by project. This is a more conservative view for the second part of the year. And we believe that it was the time now to update our views regarding 2015.

To summarize, if I move to page 46, my key messages today would be you're looking at a good business in an excellent market that has invested significantly higher CapEx than previous guidance. We understand that we are missing guidance in a key item, free cash flow and you can rest reassured that we will do everything to make sure that that cash flow comes back in the coming years with a return. What we can tell you is that, that cash has been invested in very attractive projects. Some of them, we discussed them in the previous section in the presentation. We can also tell you that, this year and in the coming years, we are going to be able to deliver a significant free cash flow generation both at the operating level and at the investment level.

With this higher investment, we have today and will continue having reasonable leverage targets that will be improving in the future and a comfortable liquidity position. As a result, I will have a message to debt holders. This, again, is a company committed to continue improving the balance sheet and to reach a BB minus rating in the midterm. Because this is the way we believe that we will allow us to have a lower cost of financing which is what we need for our business. And a message to equity holders, there is clearly a value gap here.

Thank you very much. With that, we would like to open the floor for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Pinaki Das, Bank of America Merrill Lynch.

Pinaki Das

Yes, hi, good evening, everybody. Thanks for taking my questions. I have actually several, several question. So, I'll probably ask them one by one. Your presentation, it was quite detailed, but I think the market was looking for probably more on your liquidity and funding position. We know that you're well positioned in trying to get projects. But, what the market was probably looking for was how you fund those projects. So, from – can you confirm to me – from what it looks like is, essentially your free cash flow is basically quite small for the first half on whether you look at a corporate or consolidated level. I tend to look at consolidated.

The free cash flow before CapEx is quite small. What's happening is you've disposed a lot of assets or will dispose a lot of assets for the full year, which will essentially be invested in projects. And you'll probably get a little bit of funding from EIG as well to fund that CapEx. So, from my point of view, is it fair to say that, barring some working capital outflows in H1, which you plan to recover in H2, essentially what's happening is that you've disposed a lot of assets, but you're also investing that back in new assets?

Santiago Seage

Is that a question?

Pinaki Das

Yes, that's a question. Is that a way to look at it that you've invested most of your disposal proceeds into new CapEx?

Santiago Seage

During the first half, we have been investing part of our proceeds into new assets. Actually, the net between proceeds and CapEx invested is positive. It's around if I don’t get it wrong EUR170 million.

Pinaki Das

I'm looking at consolidated. You still have EUR1.7 billion of CapEx in H1.

Santiago Seage

Sorry.

Pinaki Das

On a consolidated level, you still have EUR1.7 billion of CapEx.

Ignacio Garcia Alvear

Okay. On consolidated levels, yes.

Santiago Seage

Consolidated is probably difficult to follow here as we – the numbers we have here with you are corporate. And as you know, in consolidated, we are including lots of CapEx that is not coming out of our cash flow. So from a corporate point of view, you can see that, during the year, we will generate a positive free cash flow at the investment level and we’re going to be generating a positive free cash flow from operations in specifically EUR500 million from operations and the remainder up to the EUR600 million to EUR800 million total coming from investments and because the working capital will be more or less flat.

Pinaki Das

Okay. So, can I ask you also on – just on the CapEx. I understand that you've invested EUR1.7 billion in the first half on a consolidated level. Even in H2, it will be quite similar, and you should get to about EUR3 billion, maybe EUR3.3 billion, EUR3.4 billion of consolidated CapEx. And that needs to be funded one way or the other. So, can you tell us, for H2, what are your funding needs? The one thing that the market has been worried about when you have recently issued some of the loans or even sold your treasury shares that you need to fund the business. So, can you tell us, for H2, will you come back to the market? Is there – what are your funding needs? Is it zero, or do you need – I don't know – EUR500 million to invest in new CapEx? I don't have a problem with investing in CapEx. I think it's fine. But, if you have a need, is it possible for you to make it clear to the market that, on a consolidated level, this is the amount of CapEx we need to spend, and this is how we'll fund it. We might come back to the market for an – I don't know – bond issuance or – I don't know – we'll sell more assets or maybe go for bank funding. So, that's for H2, H2 2015. Is there any funding? Do you need to come back for anything else?

Santiago Seage

So in H2, there is no need to fund anything. Obviously on page 39 we, Ignacio showed you on a scenario, a liquidity analysis, as he called it, where you can see that we don’t need to access the market for anything. The way we finance our consolidated CapEx, as you know, mostly is through nonrecourse debt and, in second place, with partners. On this page 39, we have taken into account the equity we need to invest ourselves. As you can see here, there's no need to access the market for any reason.

Pinaki Das

And how would you get that nonrecourse debt, because the equity sort of CapEx you've included here is about EUR650 million, whereas I understand, for the full – for the next half year, you probably need EUR1.5 billion. How would you get that extra EUR1 billion of nonrecourse finance?

Santiago Seage

I don’t have in front of me the consolidated numbers too. I was trying to see if I have the numbers, I don’t know. Obviously how to close the gap between total CapEx and our equity contribution is mostly with nonrecourse debt because that's, as you know very well, in our assets, typically we reach, I would say, on average, a 70% leverage coming from nonrecourse project finance. And the remainder is coming from the partners and from us. And you have the detail regarding how much we plan to invest both on page 39, and you have it as well on the equity contribution on page 42, where we are telling you that in the second half of the year, we expect to invest between EUR400 million and EUR475 million in our own equity. That’s all the equity, all the cash we need to use in projects, all the CapEx.

Pinaki Das

Okay. I think the whole issue here is around the total CapEx of the company I think. From what I understand is you've been spending about EUR3 billion of CapEx every year for the last five years. I don't have a problem with that. I think it's fine. You're investing in projects which are profitable projects. And you will sell it to EIG, sorry to ABY. That's absolutely fine with me. I think the whole point about moving to the asset-light model was funding that EUR3 billion of CapEx via – going through APW for the equity part and for the other EUR2 billion, which is –should be nonrecourse bridge financing. That takes time as I understand. You're trying to do it for 2016. But, this needs to be funded for 2015. So, my question is you – it's quite clear what you're going to do on your equity CapEx. But, I'm not entirely sure what's going to happen for roughly EUR1 billion of consolidated CapEx, which should be bridge financed.

Santiago Seage

I think that the part you're missing there is the nonrecourse project debt. So, obviously, in most of the projects you are referring to, we are closing debt, nonrecourse debt. You have on page – let me see which one.

Ignacio Garcia Alvear

Page 54.

Santiago Seage

On page 54, for example, you have the detail for the main projects of when we are going to be closing project finance for some of the key projects. And this is when the bridge you were referring becomes a long-term nonrecourse financing. And in some cases, this has happened already. Over the last – in this quarter, we have closed several project financings as it was described in the presentation and that’s the biggest contributor to the consolidated CapEx you were referring to.

Pinaki Das

Okay. And so, if I look at – so the third question is relating to 2016. If I look at 2016 – 2015 is obviously quite a difficult year to look at everything. You've got a number of disposals. You're still doing a lot of CapEx. But, 2016 is a clean year, where you essentially have only about EUR400 million of assets to sell in that year, according to your slide. But, you need to fund about EUR3 billion of consolidated CapEx. And effectively, you need APW-1 or APW-2 by that time to have also another bridge financing facility on the debt side. How confident are you that you can get that bridge financing, debt bridge financing for 2016 because that will make you asset light.

Santiago Seage

So in order to achieve our current plan, we do not need a second bridge financing. Okay? Remember that, when we close the long-term financing in a project, we free up the existing bridge financing. That can be redeployed to another project. So this is a rolling facility that…

Pinaki Das

I understand that. Not a lot of your projects are coming on stream in 2016. Most of them are 2017 and 2018.

Santiago Seage

Sure. But project financing doesn't happen in most cases when it comes on stream. Actually, if you look at one of our projects listed here, Ashalim, that's a project that has reached project financing nonrecourse before starting construction.

Pinaki Das

But, you were already a minority in that one. And in most projects, it's APW and yourself together with the majorities.

Santiago Seage

Well, but still, project financing happens in most projects either in the early phase of construction or during construction. But, the most projects or nearly all, you don't need to wait for COD for that to happen. Therefore, as we do project financing according to the dates you have on page -- the page 54 we refer to, you free up a lot of the bridge financing that you were referring to.

Pinaki Das

Okay. Cool. That makes sense. Okay. And lastly, as – two more questions. One is on restructuring. You even mentioned a little bit of cost cutting. I mean, in the scale of your business, I mean, EUR50 million, is that relevant? I mean, shouldn't it be much more than that? And the second question is why you're still paying a dividend when the whole market is worried about your liquidity?

Santiago Seage

If we are paying – sorry, the last part, I didn't get it. We are paying what?

Pinaki Das

What is the dividend policy for now, and why cost cutting is so small?

Santiago Seage

Okay. So, cost cutting, what we are announcing today is our first cost-reduction program. And this is the first part that has been launched already. We will be, obviously, working to increase that through new initiatives. And the cost-reduction potential, I will agree with you, over time, probably is going to be higher. The second part of the question, the dividend in Abengoa for 2015 was paid. For 2016, the Board will need to decide in 2016, what's the dividend that the Board wants to pay.

Pinaki Das

Okay. And lastly, on liquidity on your slide 39, I can see the EUR1.3 billion even under a more bearish scenario. Am I fair to say that, of that EUR1.3 billion, as per your previous slide, about EUR600 million is actually not readily available, which are in the projects?

Ignacio Garcia Alvear

Yeah, we are assuming here – so, that EUR1.3 billion comes from the EUR689 million and the EUR641 million.

Pinaki Das

Yes, I mean, and is readily available, but the EUR641 million is not. And also, in the bearish scenario, you're not assuming the repayment of the March 2016 bonds?

Ignacio Garcia Alvear

I’m not sure the last question that you made, but the – from that amount, we are saying that immediately available is EUR831 million. That is immediately. But, the other is available, too. So, that – in our assumptions over the following months, we are considering EUR1.3 billion because we're also considering that part of the liquidity. I didn't understand about the bond. We're assuming here…

Pinaki Das

Shouldn't it be – if you really think about it, shouldn't it be less the EUR600 million, which is in the projects?

Ignacio Garcia Alvear

Yeah, I think that – let me go back to the previous slide. You have EUR831 million, we say that is immediately available. The remaining is available, is in the business, but it's available, would be [indiscernible]. So, if you add those two lines, you had also the treasury stock is when you have ending with around EUR1.4 billion, even more cash. From there, in the management expectations, as we have said to the market, we are considering the payment of the yield bond during this year, although, as you know, it's mature in 2016. Okay?

Pinaki Das

Okay. Cool. Thank you so much. I might come back to you with another question. I'll let somebody else take. Thank you.

Operator

Thank you. The next question is from John Quealy, Canaccord.

John Quealy

Hey, good evening, folks. Thanks for the details and the sensitivities. Just a couple more detail questions. Santiago, APW-2, you talked by the end of the year. Can you just range it for us what sort of agreement size that you're looking there? And would there be similar restrictions in terms of letting out of cash? Secondly, and I’m sorry. If you put this in the detail, I didn't see it. What's the amount of R&D you're spending currently in the run rate? And does that change with the new corporate free cash flow guidance? And then lastly, Hugoton, any one-off CapEx that you need to get into that plant in the next year to get it up and running? And then I have a follow up.

Santiago Seage

Okay. Thanks. Regarding APW-2, we are currently in negotiations. So, I wouldn't like to get into too much detail. We are currently talking with potential partners there. The size we are looking at is significantly smaller than APW-1. The structure we are looking at is different from APW-1 as well, but we haven't closed an agreement. So, I would not be able to go into more detail than this. This is a market, the market of investors in warehouses that is developing now, and where what we are seeing is that companies using warehouses are going to be able to get better terms as time goes by. And that's our expectation for APW-2. But, forgive me if I don't get into more detail. You asked as well if we have one-off needs in terms of CapEx. We don't. You asked as well about R&D, we are investing currently in R&D around EUR70 million per year.

John Quealy

Okay. And that doesn't get touched at all.

Santiago Seage

In 2015, at this point in time, we have not touched our R&D investment, no.

John Quealy

Okay. And so, I guess the – my last point, so, Abengoa continually does developing of projects and continually with novel financing issues. And it doesn't seem like this is going to stop, right? The market, the end market is good. Your position is good. And you want that share to continue. Given the concerns in the equity and debt markets, even though you said there's nothing planned on capital market injections in the company in 2015, is it worthwhile putting an equity injection or something into this to just give a margin of safety to the marketplace, given that your end market seems fairly strong, and your position in it is strong as well. It's just a scrutiny around this business model. I can't see you guys slowing down project development, quite frankly. So, would you care to comment on that comment? Thank you.

Santiago Seage

Yes, so, the first part of my answer would be we obviously can commit to generate free cash flow, which is the first part to make sure that what we invest is less than what we generate. For 2016, our forecast is to generate positive free cash flow. In terms of CapEx coming from Abengoa, our needs for 2015, you have them in the presentation. For 2016, it’s going to be EUR500 million or slightly north of EUR500 million.

With the divestitures we have planned, there should be no problem to generate a very significant free cash flow next year. Remember that operating free cash flow in 2015 is – should be EUR500 million. Therefore, if you project that to next year, you are going to see that we should have no problem in generating a very significant number there. Going to your second part of the question, at this point in time, the company has no plan to do what you were suggesting, to tap the capital markets in any manner.

John Quealy

Thanks, folks.

Operator

Thank you. The next question is from Nuno Estacio, Espirito.

Nuno Estacio

Hi, good afternoon. A couple of questions, if I may. The first one is, today, you announced a completely different equity story. Why this huge change? And I understand there might be a lot of opportunities out there. But, you were focused on deleverage. Do you think that part is done? And considering especially where your bonds and CDSs are, do you think you can take this plan forward with the current situation? Also, asking that, if you are increasing CapEx in this manner, shouldn't we also expect the E&C targets in terms of EBITDA and revenues to be upgraded? And the final question, which relates probably to the first, is, how do you expect to regain the credibility of the credit markets? In the lunch that we had last week, you said that you expected this to happen throughout – until the end of this year or in the next – in the short term. With these measures that don't seem very credit friendly, how do you expect to turn this around? Thank you.

Santiago Seage

Okay. Thanks. Regarding the equity story, I think that we are trying to pass two messages. The first part of message that we are trying to pass is that we have very profitable opportunities out there, some of them requiring investment and others not requiring investments. It is true, in 2015, CapEx is going to be significantly higher. What we can tell you there is, number one, I told you that one of the key corporate targets is to improve our rating and lower our financing cost. And therefore, this means that our work regarding deleveraging is not done at all.

On the contrary, one of the key priorities this year is to continue divesting assets, is to make sure that we generate free cash flow reaching the target we gave you, EUR600 to EUR800 million of free cash flow at the end of the year, and next year to continue generating positive free cash flow. That should allow us to continue deleveraging Abengoa because our midterm target is a BB-minus. And to reach a BB-minus, we need to have better targets. Therefore, don't believe that we are not understanding what the market is clearly telling us. Deleveraging is a key target for us.

And as I mentioned before, CapEx needs in 2016 and beyond are significantly lower than this year. And therefore, we should be able to generate positive free cash flow. This should allow the debt markets to understand better our plans together with the visibility we gave today regarding liquidity. As we mentioned, liquidity is comfortable, even in the – with the CapEx investments we've been doing and we will still do in the second half of the year and with all of that, our expectation would be that the debt holders will understand that there's no higher risk here than what the rating implies and that over time together with credit friendly actions that we can work on in the coming months, we should be able to revert the situation in our debt to more normal levels.

Nuno Estacio

And on the E&C not being upgraded?

Santiago Seage

Yes, I’ve talked a lot about growth. And I agree with you that our E&C numbers for 2016 should look better. And we should continue seeing growth in that business. This is what we have been working for.

Nuno Estacio

Okay. Thank you.

Operator

Thank you. The next question is from Jose Manuel Arroyas, Exane.

Jose Manuel Arroyas

Good afternoon, gentlemen. I have three questions. The first one is on slide 42. You give there three reasons for your increased CapEx budget, the Brazilian power transmission lines, the Chilean project, and the Mexican project. If you could tell us how much of the increase comes from these three buckets, that would be very helpful. My second question is on the amount of confirming lines. Where do they stand now? And how much of the confirming lines is applied to group companies?

And lastly, on my third quarter is a little bit on the mechanics of the EIG deal. And there have been several reports in the press lately suggesting that EIG may get a promised return of up to two times their equity invested before Abengoa ever sees any return. And that is really at odds with what we've seen in the presentation. So, if you could tell us what the differences are between what you think the reality is and what the article suggests, that would be very helpful. Thank you very much.

Santiago Seage

Thank you. Ignacio will start with your second question regarding confirming.

Ignacio Garcia Alvear

Yes, the confirming, we stand at 2.2. And we have – what was your other question about the – from the 2.2, we have the 1.4 collateralized.

Jose Manuel Arroyas

No, my question is, how much is with subsidiaries in the group, E&C subsidiaries?

Ignacio Garcia Alvear

It’s even a little bit lower than previous level. So, it's around EUR660 million.

Santiago Seage

Moving to your first question, you're asking on page 42 to give more clarity regarding the reason for the CapEx increase in 2015. The first contributor to that CapEx increase is Brazil, where as you know, Abengoa is building a significant number of very large assets. And financing conditions in Brazil allow for a lower leverage than what was expected, in very good conditions, but a lower leverage. And this is the main driver behind the increase this year. The other two, Chile is, if I'm not wrong, less than 100, and Mexico, we are investing some money ahead of partner. Again, at the end of the year, this should be a very small impact. So, most of the impact is coming from Brazil.

And then your last question, you're asking about EIG. And you are quoting something that somebody has reported somewhere. If we go back to the page where we showed you the case of the Atacama project in Chile, which is page 18, what you have in front of are the numbers for the project. And in that project, EIG is the partner, as you know. Therefore, if you run the numbers, you will see that EUR182 million divided by EUR214 is not multiplying the return by two. And obviously, the numbers we are putting here are the numbers coming from the agreement in a very positive scenario for the partner. And the numbers on our side are real numbers as well. This is how the agreement with EIG gets to work in a scenario that is very favorable for the partner. Therefore, the information you might have read might not be accurate.

Jose Manuel Arroyas

Thank you.

Operator

Thank you. The next question is from Ben Burns, Citi.

Ben Burns

Good evening. I just wanted to ask about working capital, just for the E&C business. I guess 2015 was supposed to recover around EUR500 million from – of working capital that did not come in, in the fourth quarter. And even as recent as April during the bond road show, there was some talk from the former CEO that there's likely to be a working capital upgrade by the year end. Now, I guess you're telling us that working capital – I guess, as was originally guided, is going to be flat. But, that does sound like there has been some slippage. Can you just talk a little bit about that, please?

Santiago Seage

I think what we are telling is exactly what you said, so that working capital will remain flat at the end of the year as previous guidance. In general, in free cash flow, we have taken a more conservative view. So it might have some room for improvement if things work well and if business and financing works under, let's say, a normal business-as-usual scenario.

Ben Burns

So, at the original – next two questions are kind of related. When you first announced the EIG arrangement or deal with the first EUR460 million, I guess the market thought that that was coming in straight away. And then it was – it came out that it was – some was in escrow, and roughly half of it's been released. And there's still half outstanding. I think the expectations at the time were that was going to come in probably in the third quarter. I guess, now, you're talking about that some of that could actually be released through to March next year. What's causing the delay there? I guess that's first part. And then on slide 39, in the downside liquidity scenario, you talk about potential partner delays in providing cash or the coinvestment into some deals. So, Abengoa would have to actually pay for all of that CapEx themselves. Can you just talk about those two at the same time?

Santiago Seage

Sure. So, regarding the first one, I agree with you that probably expectations shared regarding EIG perhaps were a bit too aggressive regarding how quickly our financing partner can move in some of the projects. We are very happy with the relationship. Things are going very well. But, it is true that we are missing some of the dates we had at least internally.

Regarding this coaccount, the way it works is, project by project, there's an amount that gets released when we secure a number of permits and when we achieve certain milestones regarding financing. The plan is very clear, very detailed. We think we are going to be missing them according to the calendar we shared with you, which means EUR90 million this year and remainder in the following and again we have tried to put in front of you a very realistic, very achievable plan that hopefully we can beat. So, yes, I agree with your point. Believe me that, now, the plan you have in front of you, we should be able to meet it. Regarding the downside scenario, this is a one thing we have ever provided a liquidity analysis in a presentation.

So, this has been something new for all of us. And the investment bankers have told us that this is about putting very negative scenarios we believe are impossible. So, this is what we have put in front of you scenarios that we believe are very unlikely. If you ask me, why could this happen, I would have difficulties explaining why this could happen. But, obviously, there's always a reason why a partner could run way and not end up closing and you might not be able to find any other partner, whatever reason you can think of.

Ben Burns

So, just to clarify that, so, the partner I guess, they're – all indications all right looking positive, etc. But, at the end of the day, the partner could – can walk away. Is it possible that they could with the cash that's in escrow; could that actually come out of escrow?

Santiago Seage

So, in the cash in escrow for example, it could get delayed if we didn't secure a key permit for that project. Okay. The likelihood of that happening for a very significant time is very low because these are projects very advanced. But, this is, for example, a reason under which the release of part of that escrow could get delayed significantly.

Ben Burns

Okay. And just finally, have you got a very rough guide? Obviously, CapEx in 2015 is coming higher than expectation. I mean in terms of – at your expectation around what Abengoa's actual CapEx number will be, their contribution into concessions will be for 2016?

Santiago Seage

Yes, a very rough number because still we are bit far away from 2016. A very rough number would be EUR500 million of, let’s say, net equity contribution from Abengoa.

Ben Burns

Okay. Thanks very much.

Operator

Thank you. The next question is from Julien Raffelsbauer, HSBC.

Julien Raffelsbauer

Good afternoon. First, just I would like to come back to the slide on the corporate cash flow and page 35. And so, what I see is that, in Q2, the corporate free cash flow was negative minus EUR11 million. The way I got to that number is you had minus EUR87 million in Q1. And then you had minus EUR98 million at the end of June. So, I got minus EUR11 million. And what I – the cash as well is not moving I think from March to June. We had EUR3 billion end of March and EUR3.1 billion end of June. But, in the meantime, you did a bond deal around EUR375 million. So, I was wondering, what was the use of proceed of this bond? Did you repay some corporate debt as well in Q2?

Ignacio Garcia Alvear

Yes, we actually did and actually, we end with a very close figure in terms of gross debt between both quarter, so yes.

Julien Raffelsbauer

Okay. So, the use of this bond actually was used to repay corporate debt?

Ignacio Garcia Alvear

No, not – hold on a second, please. We haven't used to repay the corporate debt. What I mean is that the gross corporate debt, we ended similar. But, we didn't. But, what I wanted to say is that we didn’t raise it.

Julien Raffelsbauer

Sorry, I missed that. Sorry.

Santiago Seage

The cash proceeds from that bond will be used in quarter four to repay the bond due March 2015.

Julien Raffelsbauer

Yes, but the --

Santiago Seage

What Ignacio is saying is that the overall gross debt is similar to the previous quarter and therefore there has been a movement of gross debt being repaid as well.

Julien Raffelsbauer

Okay. So, just to try to rephrase that, so, you did receive the proceed, obviously, in April. And those proceed – anyway, money is fungible, but – and at the same time, you were repaying some corporate debt as well in Q2.

Santiago Seage

Yes, true, correct.

Julien Raffelsbauer

Okay. That makes full sense. As well, so, on the slide – sorry, on the slide 37, the EUR385 million that you are going to receive from ROFO3 and ROFO4, in brackets, it says, July 15. Does it – July 15 is actually the end of the month, today. Is it the cash proceed you expect in July, or is it the closing of a selection that you're mentioning happened in July?

Santiago Seage

It’s a date of agreement.

Julien Raffelsbauer

Agreement. And sorry to ask that, but I think there's been some delay as well about you receiving the proceed from various ROFO. I think what we notice is what not -- you don't receive it on the day. So, can you give us any guidance about when you intend to receive the bulk of those EUR385 million, please?

Santiago Seage

So, this is made up of two numbers. One is the remainder ROFO3, where we had one asset left. And this has happened either today or will happen on Monday. The second part, which is the ROFO4, the agreement has been closed. It's subject, obviously, to documentation on a number of things. And my guess without asking the guys actually doing this, is that, probably in August or in early September this should be done.

Julien Raffelsbauer

Early September. So, you received around EUR1 million on -- or you're going to receive around EUR1 million Monday and the remaining in August and early September then.

Santiago Seage

Yes

Julien Raffelsbauer

Yes. And then sorry, I've got last two questions. The working capital is -- so, I clearly understand the numbers you were giving to us. But, what I'm not sure I understand is, what is the control you have on the working capital, because why -- is there any reason why it's increasing in the first half, and you're getting back in the second half? I think it will be very interesting if you can spend just a few minutes to explain what control you have on the working capital to make sure that you have the way to achieve those numbers.

Santiago Seage

Okay. So, in general, in working capital, especially in our engineering and construction business, we do have certain seasonality. The seasonality is given or is typically a worse first half and better second half of the year. Collections, especially, in Q# tend to be higher, and that's why, in the second part of the year, we typically should have a better working capital.

Regarding how we control it, we are a company in the E&C side of business, organized by project, with project managers leading each project in a different part of the world, using common tools, so that, from a central point, we can actually know how we are doing regarding each line in the working capital. And we have a large group of people overseeing and managing working capital. Therefore, we do have, let's say, tools and ways to influence the working capital. Of course, at the end of the day, depending on how projects are going and how collections and payments are going, there's a certain fluctuation as well.

Julien Raffelsbauer

Okay. And for the last question is on nonrecourse debt in progress. So, it increase again by EUR200 million this quarter. The question is, where do you think it will stop the increase in nonrecourse of progress? It seems that there is one reason is -- this is Brazil. And you mentioned that you had to put as well more equity in Brazil. So, the question is, when does it stop, and when you expect to close the definitive -- the long-term funding on -- in Brazil?

Santiago Seage

So, you have that information if you move to page 53 and 54. You will be able to see most of the information required for that question. On page 53, you have a full detail of all our debt tranches, let's say. Nonrecourse debt in process, as you can see here, is close to EUR2.2 billion at the end of second quarter, with an average cost of 5.9%. And therefore, this is what we believe is a reasonable cost for the use we are giving – the use we are giving, as you know, is to finance – to bridge finance – the concessions or the contracted assets during construction. That's why we have decided to increase it to EUR2.2 billion.

Going forward, you should not expect to see this much higher. But, it could be higher or lower by a few hundred million Euros, depending on the needs of the business. This is a financing, as you can see, with a low cost that creates a lot of value because the use of that -- those proceeds is in the early stage of a project, when returns are very high.

On page 54, you have the detail regarding when we expect the long-term project financing for each of the uses of that bridge financing. Specifically regarding Brazil, it's the first line. You can see there that project financing is happening asset by asset because this is a large number of assets, starting this summer and finishing in September 2017. So, over time, we close one project after the other

Julien Raffelsbauer

Okay. And just so -- just to follow up on this one, what happened is a nonerecourse debt on progress in the T&D Brazil, which I see some is maturing in July 2015, that's mature, and then you don't have the long-term funding at the time.

Santiago Seage

As you can see, when you look at the maturity dates of the lines that we use to finance you have here dates, many of them well into the future. And additionally, many of them are flexible in terms of maturity. So, if the money is being used in a certain use, there's flexibility there in that situation.

Julien Raffelsbauer

Okay. That's clear. Thanks a lot. Thanks.

Operator

Thank you the next question is from Alberto Sanchez, Fidentis.

Julien Raffelsbauer

Hi, good afternoon. You have explained in the first part of the presentation that you invest equity in concessions and recovered it through executing those E&C works. You've invested a significant amount of CapEx in H1.

But, actually, E&C revenues have only grow by – grown by 4%. So, my question is, how long does it take to generate these E&C revenues, or another way of putting that is, when are we going to see a more significant acceleration in E&C revenues?

Santiago Seage

Okay. So, as I explained in the first section of the presentation, if you move back to page – sorry for the noise because I'm flipping pages, but if we go to page 21, what we are telling you here is that, in the first half of the year, the percentage of E&C revenues coming from assets where we invest, where we are one of the shareholders, has been slightly higher than historically.

And as you can see on page 21, this is going to change towards the end of the year as we are expecting to secure a large number of assets where we don't invest anything, where we build the asset for a third party. These four assets that we list here are part of a new wave of wins where we will be able to grow E&C without investment. Now, most of this will be seen earlier next year more than this year. And this is when we expect to see growth coming from E&C, in 2016.

So, operator, can we move to the next one, or – ?

Operator

Yes, thank you. The next question is from Rosen Averez [ph], Souza Sound Management[ph]

Rosen Averez

Great. Hi, Santiago. Thanks very much for the call. Just one very quick question. When we looked at your Q1 presentation, you gave the EUR1.4 billion of corporate free cash flow guidance. Embedded within that seemed to be EUR660 million from APW-1.

Now, when we look at your current corporate free cash flow guidance of EUR600 million to EUR800 million and just back-solving the math, it seems that you're no longer including that APW-1 agreement within your corporate free cash flow guidance. So, can a big chunk of the sort of change in this number be attributed to a definitional change as well, or is there something I'm missing?

And then the second question that I had was that, if you actually look at page 37, so this is the bridge of your adjusted corporate net debt, APW-1, I guess EUR434 million. EUR240 million of it is escrow. You've collected EUR194 million. How can I see or where can I see that EUR194 million come into this adjusted corporate net debt figure on page 37? Thanks.

Santiago Seage

Okay. We're looking at the numbers. My understanding with the numbers in front of me is that the amount we have is very similar to Q1. It might be labelled differently. But, if you look at one of the first pages in the presentation, 8, page 8, we have considered contributions for EUR434 million from APW and another EUR308 million. So, this is a number slightly higher than the one you quote from Q1. Regarding your second question, if you could repeat it, I would appreciate it.

Rosen Averez

Great. So, just one thing on that point. In your Q1 presentation, it's not that the overall amount, it's that, when you guided to corporate free cash flows, the number was EUR1.4 billion. And I guess, if that's on page 27 of your Q1 presentation. And then on page 26 of your Q1 presentation, you have a breakdown of all the assets, dropdowns, and agreements that go into that EUR1.4 billion number. And within that is EUR660 million associated with APW-1, so it seems that your EUR1.4 billion of Q1 guidance included EUR660 million from APW-1 whereas when I look at your guidance today with your Q2 presentation, I don't see any contribution from APW-1, either in your EUR600 million to EUR800 million guidance, and second, I don't see where the amounts that you collected from APW-1 is in the bridge that you show on page 37.

Ignacio Garcia Alvear

Okay. So, believe me that it is their, I think that what you're referring to is the fact that in this Q2 presentation, we are showing some numbers net of partners. So, we sure you our CapEx, our equity invested net of what we received from partners, but the number coming from partners in 2016 as around 700. So there is no material change there. We can address that separately if you don't find the numbers, but I think it is simply a question of presentation.

Operator

Thank you. The next question is from Jason Leet, Deutsche Bank.

Jason Leet

Hi there. Thanks for taking my questions. I've got a couple, please. The first one is just you talked about the accelerated CapEx. It sounds like maybe some of that's outside of your hands if leverage levels that are applicable in Brazil have changed. So, how should investors think that that might not happen again?

Santiago Seage

I think this is a very valid point. We can tell you several things there. One is we have decided to move forward with the Brazilian projects because they offer us a good return. If that was not the case, obviously, we would not be sharing with you that we are moving forward with the Brazilian projects at a lower leverage. In general, in the market where we operate, we have local teams who are very familiar with financing conditions. And therefore, this change in Brazil should be a one-off. And if in the future we found a similar situation, the first question we ask ourselves is, one, can we actually do this CapEx with the boundaries of liquidity and leverage that we always want to keep? If that's the case, is the profitability of the assets enough to justify that? In the case of Brazil, our answer has been - after carefully analyzing it our answer has been yes. In the future, we might have situations, if we did find market - financing conditions changing, we might have situations where we might drop assets. So, it's not that we are in love with CapEx or anything. We tried to make profitable investments.

Jason Leet

Okay. Thank you. And then related to that, for Chile, it - was that accelerated for the same reason, or was there some other reason to kind of push that forward?

Santiago Seage

In Chile, it's an acceleration this year that will be compensated next year. So

it's not doing more investment. It's simply doing more this year versus next year.

Jason Leet

Just kind of rolling forward your spend?

Santiago Seage

Yes.

Jason Leet

Okay. Okay. Thanks. On the EIG, I think, amount that you had spent on their behalf, I guess it was EUR200 million in Q1. And maybe, now, the number I think is EUR308 million. I understand maybe the timing of payments out of escrow. But, I would've thought that that cash would've come in sooner. So, that kind of reimbursement, if I understand it correctly, that - for the CapEx you've made on their behalf, what's the timing on that?

Santiago Seage

Yes, so, I think that we guided you towards second half for what you're referring to. In any case, our expectation at this point in time would that this is going to happen in the second half. It's difficult to tell you when because there are a number of conditions that must be met. My personal guess would be more in Q4 than in Q3.

Jason Leet

Okay. And then two others please. Just could you give the amounts of the amount drawn under RCF and the amounts available under the working capital facilities?

Ignacio Garcia Alvear

Yes, the revolving facility is already drawn. So, it's the same as the previous quarter.

Jason Leet

Okay.

Ignacio Garcia Alvear

And in terms of the working capital, you can assume that we have EUR300 million.

Jason Leet

Okay. Okay. Thank you very much.

Ignacio Garcia Alvear

You're welcome.

Operator

Thank you. the next question is from Chris Malone, Palmerston Capital.

Chris Malone

Good evening. It's Chris Malone from Palmerston. Can we spend a bit of time on Brazil? I want to get a sense for what the spend is going to be this year, this calendar year, and to the end of 2016 please, given that there's two extremely big projects that need to be completed by the end of the third quarter 2016, so not the equity CapEx, the actual spend?

Santiago Seage

You mean the total investment by Abengoa partners?

Chris Malone

Correct, yes. The total - yes, the concession spend, the investment, not the equity component.

Santiago Seage

Yes, so, if we look at the total investment, we are looking between the remainder of 2015 and 2016 at something like EUR1.5 billion.

Chris Malone

Thank you very much.

Santiago Seage

I am using rough numbers there.

Chris Malone

That's fine. That's fine. I just want to get a broad magnitude. And given the change in financing conditions, how do you think that's going to shake out between Abengoa equity CapEx, APW equity CapEx, and then nonrecourse debt? Like, what would the percentages be, do you think?

Santiago Seage

So, our expectation would be that, out of a total investment, leverage should be around half.

Chris Malone

Okay. And that would be primarily nonrecourse debt in process rather than third-party debt?

Santiago Seage

Yes. No, eventually, it will be project finance.

Chris Malone

Right. But, that's probably not going to happen until Q3 '16.

Santiago Seage

As I showed to be...

Chris Malone

The big guys. I'm really focused on ATE XVI and XXI, the big projects that you have.

Santiago Seage

Yes, so, this is going to happen using the calendar I shared with you before on page, whatever it was the page, 54. So, some of the financing is going to happen now and then they go project by project over the next two years.

Chris Malone

Okay. And with the leverage - so, the LTV is going to be about 50% when it's all fully done. Is that right?

Santiago Seage

Yes, it would - more or less half. I don't have the accurate number in front of me by it should be more or less.

Chris Malone

Okay. Again, I'm - just want to get a ballpark. Thank you. And so - and after 50% equity check that has to go in, half of that comes from you, and half from APW. How does that work?

Santiago Seage

No, in the case of Brazil the percentage from us is higher.

Chris Malone

Right. Can you give me an idea, just a ballpark?

Santiago Seage

Yes, our investment in Brazil probably should be in the high 30s out of the total investment as a percentage.

Chris Malone

And when you say...

Santiago Seage

High 30s.

Chris Malone

You mean Abengoa's investment rather than ...

Santiago Seage

Yes.

Chris Malone

...APW, just to be clear. Great. Okay. Thank you. Thank you very much for that. I appreciate it. Thank you.

Santiago Seage

Well, thank you.

Operator

Thank you. The next question is from Hayman Dobkey, Barclays.

Hayman Dobkey

Hello, good evening. Just continuing on from the previous point on the equity investment and the concessions, you mentioned also that there's a risk that your partners might walk away from those projects. Is there a risk that that could happen for further projects down the line, or are you confident that you will keep some of that equity investment from your partners going forward? That's my first question. The second question is regarding your liquidity and kind of slide 37 I think it was. If I look at your first quarter presentation, I think as adjusted at the end of March, you had reported a cash balance of about EUR3.7 billion, accounting for all the actions you've done in the second quarter. But, your cash balance has come in at about EUR3.1 billion. Can you account for the difference between the two numbers? And then the final question for now would be you mentioned that you're keeping aside EUR375 million to pay down the 2016 bonds in the fourth quarter. Is that set aside in a separate account, or is that part of the EUR831 million immediately available cash that you cite on slide 38? Those would be the three questions for the time being. Thanks.

Ignacio Garcia Alvear

So let me start with the second question. So the second question is basically in page 35 with a corporate cash flow for the first half of the year. So you realize that there is an outflow for the month of for working capital for the quarter that we explained. That is almost around 200. And besides there is another corporate CapEx that accounts for 100 that brings you to 300 and then you have a positive effect between equity recycling an investment of 200. And that gives you 87, which is more or less the difference between the net corporate debt between the wealth quarters.

Santiago Seage

Going to your first question regarding partners, as I mentioned before we think that the projects where we're working are very attractive projects with different profiles. What we're seeing is the opposite of what you were suggesting, what we're seeing is that the interest of the large infrastructure funds in partnering with companies who can actually create and develop new assets is increasing and if one day we have a situation where we need in more partners we believe that it will be fairly easy to find partners. And naturally every time we organize a process in this case to select a partner for APW-2 we have a great interest obviously some of them with better conditions than other, but we see no risk of not being able to find partners. On the contrary, there are some assets where we believe that in the future we are going to be able to increase the share of partners. And one example could be Brazil. Brazil at this point in time, the financing market is tougher, we have shared with you a lower leverage ratio. Do I think that in a couple of years we're going to be able to increase that leverage ratio and/or to increase significantly the share of partners by finding new partners in some of those assets, of course we don't believe that in two, three years we're going to have the leverage we are sharing with you. As I mentioned at the beginning we are trying to put in front of you very conservative scenario regarding our project so that from here we can actually improve in financing and in partners all across including Brazil. And then you were asking if the EUR831 million includes the money set aside for the bond repayment. That is included in the EUR831 million that we mentioned before.

Hayman Dobkey

Okay. And just a couple more questions. Obviously, again, going back to the net debt number you had reported at - just at the end of March about 1.4 times of leverage, and you're reporting about 2.5 times as of the end of June. And I believe the covenant under your bank facilities is 2.5 times as well. Can you just confirm that there are no issues with your covenants under your bank facilities? That's number one. And number two, on your E&C business, the EUR8.8 billion of backlog that you've reported, how much of that is reliant on your concessions activity, i.e. how much of that flows from your downstream concessions business? How much of that is third party? Thanks.

Santiago Seage

So, I will start with the second question out of our backlog around 43% or 44% is third parties, the remainder is concessions. The growth in backlog in the remainder of the year we expect it to be significantly higher in work for third parties. Regarding the first question, Ignacio is going to ask.

Ignacio Garcia Alvear

Yes it seems that you are you compared you are comparing probably the performance, so you compare the real figures for the last quarter and actually the ratio they call for net leverage was higher than the current one. So it was 2.6 and the current one is 2.5. So these are the reductions.

Hayman Dobkey

Yes, but, does that leave you in compliance with your covenants? Are there any issues around it, or can you confirm that there are none?

Ignacio Garcia Alvear

In terms of the facilities, the calculation of the covenants is in different way and actually we have much more headroom and the current one that we have for this quarter, at the end is 1.8. So we have a lot of room there.

Santiago Seage

So it’s 1.8 versus 2.5 limit?

Ignacio Garcia Alvear

Correct.

Hayman Dobkey

And one final question on the E&C business regarding the mix between third parties and your downstream concessions activity. Is there a difference in EBITDA margins between the two groups of activities that you do in E&C?

Santiago Seage

In general, there is some difference in products we develop it into have on average I would say probably a higher margin although the main difference is by technology, more than third parties versus concessions.

Hayman Dobkey

And one final thing. On slide 18, you talked about the example of the Atacama Desert versus - in terms of explaining your relationship with EIG. If I just look at the returns on equity that both parties are getting, the EIG is obviously getting a significantly higher multiple of equity contribution than Abengoa seems to be getting. Can you explain why that is the case? And would that EUR395 million that you're showing to EIG, would that flow through first to them, and then Abengoa would realize its EUR246 million, or is that a [indiscernible] interest? Thank you.

Santiago Seage

So regarding your page 18, what we tried to put in front of you here is as I mentioned before a scenario where the result is very positive for the partner and is not that positive for us from an equity investor equity investment point of view. So that you can see that even in the other scenario even in a scenario where from an equity point of view, we haven't achieved what we try to achieve is still there, our return a still high because of the fact that we make the margin in construction. The sequence in terms of preference here works as follows. Number one, obviously the construction company gets paid. So the first one that gets a return is the construction company, always. The second one, who gets a return would be in this case a partner and then the third one would be Abengoa. In this case, it is a case where the price at which you sell allows the partner to get the maximum return they can have in any scenario and leaves for Abengoa a much lower return than expected as an equity investor. This is not what we expect will happen in the project, but we tried on purpose to put in front of you and a scenario where are equity return is significantly lower so that you see that even in that case we are protected because we have the margins coming from construction and technology.

Hayman Dobkey

And generally for the asset sale that you've made so far to Abengoa Yield, could you just talk about whether those have been at equity book value or at a premium or at a discount?

Santiago Seage

So, on average probably and I’m going to use of number, probably it has been a 1.15 times book value perhaps, I am looking at people here in the room and they tend to agree with me. So in general that is the multiple we have achieved when selling to Abengoa Yield up to now. In many of the projects we have now in the portfolio our expectation is that we're going to be able to sell them at much higher prices than the one I’m referring to the 1.15 or 1.20 in the past.

Hayman Dobkey

Okay. Thanks a lot.

Operator

Thank you. The next question is from Kanar Shar, KPU Capital.

Kanar Shar

Hi. Thanks for taking the call. Most of my questions have been answered. I just wanted to clarify one point. I think, on last week's conference call, you suggested that all the 2016 bonds would be repaid by Q4. Are you now guiding to a different amount that would be repaid as of Q4? Can you just clarify that, please?

Santiago Seage

Abengoa's commitment from day one regarding this bond, from day one meaning from the time when Abengoa did the roadshow was that the bond that was sold earlier this year that had a total of EUR375 million would be used to prepay the outstanding bond that has some March 2006 2000 616 maturity and that continues being our commitment. That we're going to use the 375 million bond raised, I think it was in April to repay by Q4 EUR375 million out of the bond that matures in March 2016. Having said that obviously if in Q4 we see that we are in a position to pay all the bond, we will do it. And if we are in a position to pay more than the bond, which should be the case if we meet our targets, we will look at other possibilities to reduce debt. So, it’s not that we are happy, you know keeping that is that we want to be proven managers of our liquidity and making sure that we comply with our commitments with the market when we turn the market that we are committed, which in this case was Q4.

Kanar Shar

Okay. Thanks for that.

Operator

Thank you. the next question is from Daniel Webster, SC LOWY. Hello Mr. Webster your line is now open.

Daniel Webster

Sorry, Daniel Webster, SC LOWY. A few questions. One line item I asked about last time is this bank bonds and surety insurance deposited directly with financial institutions of EUR1.673 billion. And I was wondering what that actually is and if that's maybe a cash deposit, included in your cash, to collateralize guarantees. Secondly, your fixation on CDS in the last call, I was wondering if the current spread has any impact on your current business, for example, the collateralization you have to provide for your close to EUR 6 billion of performance bonds and guarantees or any hedging or ability to raise any project debt. And perhaps a more general question, the solar business and early stages of solar, I guess your technology was probably superior to photovoltaic because it also offers the storage ability. But, now, given that your cost per watt is roughly EUR7 as opposed to EUR1 to EUR2 for PV and more storage technology for PV is being developed, I was wondering if you can sort of see PV actually becoming - potentially rendering those obsolete or being the preferred technology. And then finally, some questions just on your working capital stats, your unbilled revenue kind of doubled from 2013, 2014. Your accounts receivables increased by 50%. And your sales went down in that year. So, I was wondering how to make sense of that.

Santiago Seage

Okay. So, I'll start I will take care of the second and the third question. Regarding whether we have had an impact because of the situation we currently have in our debt specifically the CBS, we have not had any impact on our business and whatsoever. Not the way you are suggesting and not in any other way. Your question regarding solar, CSP does not compete with photovoltaics. These are the only things they share is the fact that there work using the sun, but they have nothing to do. Photovoltaics is an intermediate source of power with a very low cost that competes with wind and similar renewable energy intermediate vacations while CSP gives capacity and gives a predictability to the operators have agreed as it offers a storage. Therefore to competent products, CSP competes more if you want with technologies conventional technologies. And additionally, CSP as you probably know works especially well and is especially cost efficient in regions where you have a very high solar irradiation. So, we believe that CSP as a market presents an opportunity in a few markets worldwide. Clearly photovoltaics will always be much larger than CSP, but CSP for us is a very interesting niche with a size large enough for Abengoa where we can do a few large projects every year with low number of competitors been able to make a very good return. So, will the market multiply by 100, it won't, but we're very happy in that market with growth focused in a regions worldwide with very high radiation where photovoltaics is doing something else and a storage of electricity for photovoltaics is still much more expensive than the storage we can do with thermal storage. I will give it back to Ignacio for your first and your fourth question.

Ignacio Garcia Alvear

And regarding with the unbilled revenues, the total balance does not increase actually has decreased, so as of December 2014 we had EUR913 million and now we have EUR836 million. And the balance is diversified around temporary [ph], I think that’s regarding with your first question you will see in the semi-annual report there is in the note 23 the third-party guarantee and those are 10 equal guarantees, you will see the detail there.

Daniel Webster

I'm sorry [indiscernible]. But, and it just - the way that's phrased, bank bonds and surety insurance deposited directly with financial institutions, makes it sound like you've put cash in deposits with a credit institution. How can I think of that? Sorry.

Ignacio Garcia Alvear

Now it is not the case.

Q - Daniel Webster

So, what is it then? Is that a guarantee?

Ignacio Garcia Alvear

Those are bonds that we provide and in the normal course of business.

Q - Daniel Webster

So, you provide this insurance, or you have capital locked away to that [indiscernible]?

Ignacio Garcia Alvear

It could be bought like a 50% each.

Daniel Webster

Okay. So, then it could be theoretically EUR800 million of cash that's part of your EUR3 billion that is escrowed for the purpose of guarantee.

Ignacio Garcia Alvear

There's no cash involved on those guarantees.

Daniel Webster

Is it something like a cash equivalent? It says bank bonds and surety insurance. So, it's not like - what is it, if I may ask?

Ignacio Garcia Alvear

Those are technical performance guarantees. Okay.

Daniel Webster

So, those are guarantees that you give to your customers, or are they - how does it work?

Santiago Seage

The way this works is, as Ignacio has said these are technical performance related guarantees. That involve no cash or anything that looks like cash in anyways. This is Abengoa saying I will stand technically behind this project I have built on a guarantee that this photovoltaic plant is going to work. This is what it is.

Daniel Webster

So, you give that insurance. But, do you have to then insure yourselves, again, or do basically your customers trust your credit quality?

Santiago Seage

So in general this is part of our core business as you can imagine when we build our photovoltaic plant, our combined cycle this is our core business, this is our métier, and therefore we are able to give them a guarantee that the plant is going to perform because what we build in life are lines or transmission lines of power plants or water plants. So that’s part of our expertise and therefore in general we don't need to ensure anything backwards.

Daniel Webster

Okay. So, just because the words financial institution is there. And it's just the way it's phrased makes it sound like you have deposited something with - directly with a financial institution, not your customer. So, there's some mechanism I'm not just - sorry, I'm just not quite getting my head around. Do your customers require you to put that half and half figure that you said, so maybe half of that in cash, and is that in escrow, or they want to see a certain amount of that EUR800 million of cash on your balance sheet to give them confidence that you will potentially honor that? I can trust that your builds work. But, do they want to see that cash there in case it doesn't, or that wording is confusing. I'm sorry.

Santiago Seage

So the reason for that being there is that in some cases you - the guarantee you provided by – through a bank, so the bank provides that big piece of paper that is technical guarantee on our behalf. But there is no cash involved, we don't need to deposit money with that bank or we don't need to freeze a line with the bank or anything like that. The bank, this is our business, the bank is giving that guarantee to the client on our behalf. It doesn't consume credit or anything similar to that.

Daniel Webster

Okay. And then what is the cost to them?

Santiago Seage

They are telling me that it is around between hours 0.5% and less than 1%, right?

Ignacio Garcia Alvear

Right.

Daniel Webster

Okay. Thanks. And so, just one final question. You talked about selling your projects at cost times 1.15. How does the formula - how do you determine what price you will sell your constructed assets to the EIG vehicle or to Abengoa Yield? Do they buy it at a certain equity IRR that they need to get, and that then determines the price, or do you have a formula to start with that says you will sell it at a profit, or how do you - and at what point do you actually have that visibility? There's probably some variables involved.

Santiago Seage

Okay, so regarding the first phase, the first phase is to move the assets or the development of the project to APW with a partner and in that case in the transaction, the key for the financial partner is to see whether they can get enough return out of the assets. And this is a discussion where we obviously try to make some money there and they want to make sure that their project is going to give them enough off our equity IRR over the life. So this is a discussion about what the price of the construction or what’s the price I pay you for the technology or what's the services you are going to provide or what’s - or whether this is a premium versus book value. And that’s a negotiation between two parties who are partners, but who have to discuss and agree prices. The second part when the asset gets transferred either from Abengoa from APW to Abengoa Yield, again that’s a negotiation between two companies, in these cases two listed companies that need to agree a price following what we call the roll for agreement, the role for right of first offer agreement signed between Abengoa and Abengoa Yield and the same one signed between APW-1 and Abengoa Yield. Under that agreement there are number of rules that at the end of the day say that both parties need to negotiate based on market prices and obviously there is no obligation to reach an agreement, Abengoa Yield would go to their board for approval of price, only independent directors would vote and Abengoa would go to its board and in some cases we will reach agreements, in others we will not.

Daniel Webster

Okay. So, in the case of Abengoa Yield, you produce something, and then it's at their discretion whether they want to buy it or not. In the case of the EIG vehicle, actually there's - as they're co-funding this, you have visibility from the outset as to what the price has to be for it to make sense for all sides.

Santiago Seage

Of course, so in general when we start developing a project we have a very good visibility regarding the first transaction and we have a reasonable visibility regarding the second one, so we know at what kind of price most likely Abengoa yield or a long-term holder of assets would be able to purchase although as that will happen a few years from now, we could, things could change in that regard, but every time we go after an asset we obviously have our business case, our model with those to variables inside. And in the first one we typically should get it right.

Daniel Webster

Okay. Thank you. And just the EIG formula, it's still confusing me. Is that - they are equity partners with you. And so, they have the same economic participation, or is there any difference in the way their economics work versus yours?

Santiago Seage

So as we mentioned before in terms of participation in APW-1 the partner owns 55%, we own 45% and as we mentioned before they have a preference versus us in returns from equity.

Daniel Webster

Sorry, what does that mean, preference in returns of equity, as in they - you only make a return if they have made a certain return, or how does that work?

Santiago Seage

I mean we cover this already, so in the cascade of payments they have a preferred return over the return that abengoa makes for the equity investment component. We are in front of them because we make the construction, we supply the technology and therefore the first one making money and getting cash out of any project is Abengoa. After that the equity holders and within the equity holders they do have are preferred return.

Daniel Webster

So, you are guaranteed a certain construction margin, or are you at risk with that construction margin?

Santiago Seage

We are obviously at risk like with any other project. Every time we build something for somebody we are at a risk that’s a business that's part of what we do, our bread and butter therefore we are at risk there as you can see if you look at the example we shared with you before on page 18 and the assets we have in this partnership the margin looks healthy enough to be able to observe any negative scenarios you can think of.

Daniel Webster

Okay. Thank you very much.

Operator

Thank you. This concludes the question-and-answer session.

End of Q&A.

Santiago Seage

Thank you very much to everybody.

Operator

Ladies and gentlemen thank you for attendance. This call is being concluded. You may now disconnect.

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