Enefit Green AS (EGR1T) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and thank you for joining us today on this investor conference call where we discuss in more details about the intention to make the voluntary takeover bid to acquire the outstanding shares of Enefit Green AS. My name is Danel Freiberg. I am the Head of Treasury and Financial Risk Management. And with me is the Chief Financial Officer of Eesti Energia, Marlen Tamm.

Hello from my side as well. And nice to have you here and to give you some overview about the background, why we are in the process of that kind of change and also all the questions and answers what you might have as investors of Enefit Green or Eesti Energia as a whole. Okay. And let's start with a bit of background. I won't be very long here because all of this was already published yesterday by our CEO, Andrus Durejko, in different media channels. But just to give you a bit of background today as well. So first of all, what we are aiming is to make Eesti Energia as a group stronger financially. And how we want to do it is to merge together all our electricity business that is currently divided into separate total companies.    Our Enefit Green is currently building and operating renewable energy and Enefit Green is a listed company. So it has different rules, how to operate and how to make internal transactions with Eesti Energia. Then we have dispatchable power units, which are also in a different total company. And we also have client portfolio, which is the largest in the Baltics, but that one is also separated in a different business unit. Now we want to bring all those different parts of business together. And this is how we hope to get better profitability to our company as a whole and also to restore our investment capacity.    Energy companies always need to invest into new production units and investment capacity is differently a must for us to go on. And that's why we want to do this change. And how we do it is, currently, we are on the first step. And the first step is to acquire Enefit Green shares from stock exchange through voluntary takeover bid. And this is what we are discussing in more detail today. And in addition to that, what we are planning to do is to offer an opportunity to subscribe to Eesti Energia Group bonds listed in Baltic Stock Exchange. Just to note here, it will be retail bond. So it will be just for retail investors in our region.    Okay. And a bit of a time line, how we are moving on. We published our disclosed all these plans yesterday. Currently, we have intention to do a voluntary takeover bid and the bid will start most probably on April 8 and will last around 1 month. After that, it will be followed by a mandatory takeover bid and that procedure will take around 3 to 6 months. And also, as said, we plan to issue a bond and the bond will be issued after settlement date of voluntary takeover bid. So it will be somewhere in mid-May. Okay. And now a bit about the price.

Yes. Thank you. The price, which we have stated in our intention to make the voluntary takeover bid is at EUR 3.40 per stock. It is important to note here that the tier takeover bid price already includes the expectations of dividends. So this is something that all the investors have to consider when considering whether they're going to participate in the takeover bid or not. How we arrived at the price? Well, the methodology was based on 3 criteria. Firstly, we analyzed the market, and we analyzed the last 3 years in our region as similar sector companies and similar takeover bids and what were the premiums paid over an average market closing price for a certain period.    Secondly, we analyzed the target prices from different analysis firms, different banks. And thirdly, we looked at the shareholders of Enefit Green stocks and analyze their opportunity and the level of profitability where they can exit the transaction. And that's how we arrived at EUR 3.40. And what this EUR 3.40 means is that if we look at the day before yesterday's closing price, then against that price, the voluntary takeover bid would offer a 47% of premium. But obviously, we cannot use this very short-term market volatility where the price has taken the plunge and use that to price the takeover bid price. So I would say this accurate premium calculation was done over the 3-month average closing price, which would give us a premium of 27%. Now, those Enefit Green investors who have been investors since the IPO, who bought the shares at the IPO price who have, during the period received also dividends from Enefit Green 3x and who now accept the takeover bid, they will achieve a yearly yield on the investment at 9.3%.    And a little bit more details about the bonds as well, which we plan to issue. As Marlen stated before, this is an issue only targeted for retail investors. The maximum size of the issuance is EUR 50 million. The bond nominal value is quite small. It's EUR 100, and that is targeted so that as many retail investors who would want could potentially participate in this offer. The coupon rate stands at 5% and the tenure of the bonds is set to be 3 years. That's shortly about it. So we will move on to the questions.

Firstly, we have a pretty interesting question. I'll read the questions out loud as well. At the same offer buyout share price, could we by consolidating other shareholders, also buy out Eesti Energia stake? Short answer is yes. Anybody basically can make a voluntary takeover bid. What you have to consider is that you have to prove that you have the necessary funds available to make the voluntary takeover bid, meaning that if you have about EUR 1 billion on your account, then yes, you can make the voluntary takeover bid yourselves. Is this offer a binding offer if you reach over 90% stake? Or is the offer still voluntary even though you reach over 90% stake. So can this offer be withdrawn at any point of time? I would answer this such that the current intention that we have to make this voluntary bid, we stand strong on this intention, and we do intend to make the voluntary takeover bid. If we do achieve over 90% stake, then our end goal, as we have stated, is to acquire 100% of the company and delist the company. So if we do acquire the 90% stake, we will continue with the mandatory takeover.  It seems that there are no further questions currently.  What's the expected net leverage impact funding mix will be in the EUR 50 million local bond and the rest is cash? Well, the net leverage impact considering these inputs will be a negative EUR 150 million, taking into account that the voluntary takeover bid is successful. It will amount to roughly EUR 207 million, if I calculate -- EUR 205 million. And if the bond division is also successful and in the amount of EUR 50 million, then yes, roughly negative EUR 155 million will be the net leverage impact.

Here, we have to take into account short period and long period. In short period, it definitely will have negative impact to our leverage. But as I explained in the beginning, we really hope to get better profitability after this transaction as our business model should work much better as it currently does. And if the profitability goes up, then also it eases the leverage.

Another question has come in. Have you had any discussions with credit agencies? Is there any expected rating actions? Yes and no. Now that the information is public, we will engage in discussions with the rating agencies. Currently, Eesti Energia has 2 credit ratings outstanding, one from S&P and one from Moody's. Moody's is currently in the process of renewing its credit rating. And with S&P, we will have new meetings in the coming next week. Also, we are currently at a situation where we have a split rating, which is not ideally a situation where we want to be, and we are strongly considering onboarding Fitch as well to acquire a third rating.  Will Eesti Energia Group list its shares at some later date?

This is also a very good question. At the moment, there is no clear intention or plan to do it. But let's say, it might happen one day because, let's say, our aim currently is to make this company financially strong to have our profitability stronger, also investment capacity stronger. And if it leads to one day to that kind of plan, it might happen. Currently, there is no concrete steps taken to do it.

What happens if 90% is not reached by mid-May? Well, we can say that reaching 90% is our plan A. This is something that we are committed to. If for some reason, we do not reach the 90%, then we have some additional plans.

Plan B and Plan C, but we cannot say yet what it will be. Currently, we stick with Plan A.

Perfect. If we can buy Enefit Green ourselves, it's a very good deal even still to buy up Enefit Green from Eesti Energia, invest a little more in the future maybe in battery storage and raise money, and it's a long investment dream. Well, yes, of course, feel free. No obviously, yes, we cannot restrict anyone from making a voluntary takeover bid. So like we said before, anybody can make a takeover bid.

To any company, they feel that it's the dream, it's always possible. And if you offer a price good enough, it might happen.

Wouldn't the hybrid bond be a fair replacement for shares that the investors hold? This is a very good question. The answer is yes and no. From my professional side, I would say that, yes, it will be a more suitable alternative. But unfortunately, since this bond is targeted at regular retail investors, then making a hybrid bond would classify this instrument as say, how to say in English? Yes, as a complicated financial instrument. And thus, we wouldn't be able to offer this bond to just regular everyday normal retail investors. And this is our goal to -- so that everybody who was a Enefit Green investor and basically all the retail investors in Eesti Energia that they could subscribe to this bond.  What exactly is the key issue with the current business structure that you aim to correct with the proposed actions?

As I tried to explain in the beginning, the main issue is that our electricity business is currently fragmented to different business units, and we cannot operate our plant portfolio, renewable energy portfolio and dispatchable power unit portfolio as one portfolio. They are very separated. But at the current energy situation on the market, you can be profitable only if you add all those components into one portfolio and then operate it as one portfolio. And then this is what would give us this additional business model effects that we hope to get.

Any comment on electricity sales market shares? How are you positioned versus Ignitis and [indiscernible]

Let's say that this is also a very good question, and this is one maybe reason behind this change that currently, our market share is declining. And it's mainly because we cannot offer good enough prices for our clients. And then why we cannot offer enough good prices is that currently, our retail business is operating so that they are buying electricity mostly from energy stock exchange, but -- from north pole and then selling it to our retail clients. And this is not the operational model that really works well in our current situation. If we could have our own production and then our own clients and we merge them into one portfolio, it would enable us to offer more competitive prices. And then we also hope that our market share would at least stay on the same level or even increase.

What are the key drivers for the potential synergies by having a fully owned Enefit Green on Eesti's books? And I guess the comment is target at EUR 40 million to EUR 60 million savings. First of all, I would say it's not savings. It is the EUR 40 million to EUR 60 million is a boost to EBITDA that we are predicting. But about the potential synergies, I don't know, Marlen, do you want to add something, but...

I think I pretty much already -- at least I tried to answer the question. But let's say that -- and we cannot also open our future business model in very detail at that moment, if the transaction is finished, after that, we are able to maybe give some more details about how we plan to operate in the future.

Does this deal alter [Audio Gap]  your EBITDA and CapEx guidance and how? Well, on the EBITDA guidance, I think we pretty much covered it. We expect to have an EBITDA positive impact up to EUR 60 million in the coming years. How it will affect CapEx, well, in the current year, I would say it does not materially affect any of the CapEx plans. In the future, if we do achieve the EBITDA increase that we aim for, then the EBITDA increase will allow us to acquire additional debt, which would give us an opportunity to make new bigger investments as well.    Maybe we wait a couple of seconds for any question coming. Well, it seems that there are no further questions at this point. So if there are any questions, please feel free to reach out to us by e-mail or by phone, and we will be more than happy to answer any questions. But in that case, from our side, thank you a lot for joining us on this call.

Thank you from my side as well.