Enefit Green AS (EGR1T) Earnings Call Transcript & Summary

Hello, and welcome to Enefit Green's 2025 Quarter 1 Results Presentation. I am Juhan Aguraiuja, the CEO of Enefit Green. And with me today is Argo Rannamets, our CFO.

Pleasure to be here. Hello.

Today, we are doing this in the format of Teams. So if you have any questions, please enter them to the chat function of Teams and later after the presentation, we will address them. If we look at our production portfolio, where we have where we have arrived in Q1 in this year, we see that the green box on the chart before, you see that, we have had another increase in the phase of final construction, meaning those are the assets that are already in production, but still some of the permitting or the tests are needed to be finished. The main additions in this quarter compared to last quarter were the wind park of Kelme I in Lithuania and also the solar parks in Latvia. And if you compare this to Q1 2022, when we had just been stock listed, this is almost 2x the growth on installed capacity. And those with a sharp eye see also that, we have increased the total height of the column here on the chart, and that is because we have made a new final investment decision regarding 1 solar park in Poland called Strzalkowo and this will more than double our current production portfolio in Poland. At the moment, we have 33 megawatts installed in Poland. And why we did this investment was that as told before, we see Baltics and Poland as our home markets. We invest there and into projects that have good visibility and are with a sizable capacity. What we see more and more is the fluctuations in the energy market and only deepening discounts on the profiles. And that is why that to make this project happen, we have secured a 15-year index CfD, a Contract for Difference, granted by the Polish government for 75% of our production volume. It should be operational next summer. And this is the largest part for us so far in Poland. But we are not moving only further in solar. In Poland, we are still continuing our sizable onshore wind portfolio together in partnership with RES Global in Poland. If we look at the electricity market in the region at a wider scope, then of course, the first thing to highlight from the quarter 1 was the desynchronization from the Russian frequency grid and resynchronization with the Central European grid. This has shifted the market a bit as it has opened the ancillary services markets in the Baltics, and this is more and more shaping how the market is looking. If you look at the electricity prices, then we still see a big gap between the prices in the Nordic countries and in Central Europe and the Baltics. Although, both Central Europe and the Baltics have seen an increase in installed renewables, both in wind and solar, the prices still remain at a higher level. And this has a lot to do with wind, meaning that there was just less wind in the first quarter. On the other hand, we also see that the outage of Estlink 2 cable between Estonia and Finland has decreased the volume of cheaper electricity we could import from the Nordics, meaning that usually when we can cover the hours of low wind with power from the Nordics, this has not materialized in that size. And on the other hand, it means as well that we have to produce more locally, the power missing from renewables and as the CO2 prices have increased, that also means higher production prices for the peak and reserve fossil-based generation. When we come more to wind, we see that the wind measurements or the results of the wind speed were below last year. We see it in Estonia and Lithuania, a bit over the last year's results in Finland, but only a small matter and it also comes with a big discount on the profile. But what we -- what has made this result happen was extremely poor wind conditions in February, where basically there were more than -- I guess, it was about 2 weeks where we had basically no production from wind. So it was an extremely un-windy month and especially for February. What we also see here is the largest ever discounts for quarter 1. Of course, we have seen similar discounts in other quarters, but this is expected, but not so deep discounts that were in the first quarter. And this has mainly been caused by 2 factors. One of them that was already mentioned was the weather of just happening that way. But on the other hand, it has been more and more renewables introduced into the market. And this is an expected outcome when more renewables are coming to the market. This is, of course, from our point of view, a negative development, but for the consumers, it means lower electricity prices. When we look at our operating assets, we see that the results were there for the wind parks in Estonia and Lithuania as expected. We saw a bit of lower result in Tolpanvaara in Finland and -- but also good result from our CHP in Europe. The only main negative side here is the solar farms availability, but this has been caused by the newly opened park in Sopi in Estonia is our largest PV park and there it has just been launched as operational and it still has its first, so to say, growing phase, meaning warranty works need to be carried out on those assets. And what we see from the production volumes is that, as a total when we compare the quarter -- first quarter of '24 with the first quarter of '25, we still see a significant increase. But this is exactly what we have been doing for the past years, investing to create new assets and that effect we see here very clearly that how much we have really increased our production. Those most of the assets that have been under construction are all now constructing. And as you can see from the list on the right as well, it was the Kelme wind farm and the Carnikava solar parks in Latvia that added to production in the first quarter. We still see a drop compared to last quarter in Q4 2024, and that has been caused by, as mentioned before, lower wind conditions firstly. On the new asset, it has been balanced out by the 2 new mentioned parks. But on the existing assets, we see the wind conditions influencing it. But more and more, what we see has a significant impact on the production is the different kinds of down regulations, meaning those are either very low or negative prices or they are for providing the ancillary services to give the frequency and the quality of our -- networks. But with this, I give word to Argo to explain about the financial results.

Thanks a lot, Juhan, for covering this. Let's dig into the financial numbers now. And although, it will be a generic overview and -- without any specific details, the details can be found in the reports and the reports are available on the websites, if you like to read them further. But to start out, the generic overview of quarter-to-quarter comparison. So as Juhan already said, the production has grown from new assets and the total has grown. But on the other side, the price level has decreased, if we compare just 2 quarters. And it's a significant decrease. We are talking about a quarter, which has decreased in the comparison. Operating income pretty much stayed at the same level. And when it comes to profitability side, EBITDA and the net profit both are lower compared to what it was in the first quarter of last year. Once again, those primary highlights, which were already mentioned, which happened in the first quarter for us, or took place in the first quarter, the investment to Strzalkowo was decided and a big cooperation with Sumitomo Corporation was started. To proceed from here, the overall capture price due to deeper wind discount and both the PPA price and the higher purchase price, all of that had an effect on our results. And if we just compare the numbers, the price of electricity we sold to the market was a bit lower compared to what it was in the same quarter of last year. The PPA sales price is certainly different because of the new PPA agreements coming to force in the middle of last year. The sales price, what we had to pay for purchases needed to govern the PPA volumes was remarkably higher compared to what it was previously. And all in all, the captured electricity price dropped by 33%. It has a remarkable impact on the results. And if we first of all, go into the operating income, the operating income, as I said, stayed pretty much on the same level. Here is the column for last year. Here is the column for the first quarter of this year. There are ups and downs. But all in all, the size of the column is pretty much the same. One of the biggest impact is coming from the sold assets. We -- last year, we came out from a business area, which doesn't exist anymore. And therefore, of course, the operating income is not coming from those assets anymore nor the gross profit. So the positive income -- positive effect came from wind part, some parts also from solar and euro and then the lower -- lowering part came from the sold assets. EBITDA. As was already mentioned, the EBITDA compared to last year, the same period is 27% lower. And the biggest impact is actually coming from price of electricity sold and price of electricity purchased. We add those together and come to 12.8% altogether. And then the other part, sold and purchased quantities. So on one side, the net impact of the price and on the other side, the quantities and also the quantities add up to EUR 9 million altogether. So only those 2 effects are having a remarkable impact on our results in comparison to last year. And adding the sold assets also to here, we come to a remarkably lower EBITDA level. Investments overall are also -- were also smaller in the first quarter, but this is primarily due to the phase of the investments or the phase of the projects -- investment projects we are having. Last year, in the beginning, we had very many things in the pipeline. Today, there are less in the pipeline. Sopi-Tootsi was one of the projects where the investments were going to and also Kelme and different parts together. So the investment in the first quarter was smaller. But if we just look further to the future, to complete everything what we have in the pipeline, the investment capacity in total will be or is estimated to EUR 200 million approximately, which means that still quite a lot is in the development. Coming to the net profit. The net profit, -- as was already mentioned is lower compared to last year. And the -- on top of the lower EBITDA, also the interest expense was a bit higher and the corporate income tax had an effect. So the total amount of net profit is lower compared to previous period. But all in all, if you compare the similar companies in the renewable area, and think about the net profit margin, then what clearly stands out, if we look the Enefit Green is that, our margin -- net profit margin is clearly above the average of the comparison group. In terms of EBITDA and some other parts, we are among the average, but net profit clearly stands out. Since the net profit or the cash we are earning is very much needed for the investment projects that we are continuing, with Management Board has proposed the Annual General Meeting not to pay out dividends for the financial year of 2024. There is -- instead of paying the dividends, let's put into the growth of the company and into the fixed assets through the investments. A slide and the picture of different charts and a lot of information compiled into the same view. But a couple of things to point out from here is the return on equity and return on invested capital. Return on equity, which is presented here is, again, something that is -- which is above the average, if we compare with similar companies. So it's better in Enefit Green compared to the others. And the financial leverage, which is the black line over here, is pretty much impaired with the average in the same group, or in the same industry. Also, some of the columns are pointed out here are reflecting the repayment schedule, which we see ahead of us as it is agreed right now. Coming to the summary.

Thanks, Argo. So yes, if I look back at the quarter and its results is that, we have come now to the result that we have been expecting from the production volume, meaning that all the -- basically all of the investments that we have been doing are now producing electricity. And even, if we compare the total operating income without the assets sold, there has been an increase. But this has been spoiled a bit on what has happened in the electricity market, meaning that the -- although, we have generated more electricity, we are getting lower price for it. And that is due to the discounts going deeper. And on the other hand, the coverage that we need to have for our PPA contracts comes with a higher cost because the peak hours when we are not producing enough are covered by more -- higher prices of electricity. When we look at the future, we see Kelme I and Latvia and PV Park start of production, and those will contribute positively to the next quarters to come. And for a longer horizon as well, the investment decision to Strzalkowo will increase again our production volume and revenues starting from the summer of next year. But before we go to the Q&A, just a reminder to all of our investors that our main shareholder Eesti Energia has announced the investors about the bid for taking over the all of the shares that are currently on the stock market for other investors, and they want to gain 100% ownership of the company again to create integrated business model where both the renewable assets and the tangible assets are all on the same portfolio together with the sales portfolio. And that is to help to increase the competitiveness on the electricity resale market. The bid -- the takeover bid period is ending soon. So if you, as an investor, like to make a decision on that, you still have until the 12th of May until 4:00 Estonian Time to take on the bid, if you are willing to do that. And on the same week, also the announcements and the settlement should be done. So that is all about that as well. And if you have any questions, we can answer them.

Looking at the chat, we don't have any questions in the chat. So it's now the last chance to enter a question, if you have something just wait for some seconds. It seems that there are no questions. So thanks for listening. It has been a pleasure doing the presentation for you, and thanks for staying on the same path with Enefit Green.

Thank you all. Thank you, Juhan.

Thanks.