Grenergy Renovables, S.A. (GRE) Earnings Call Transcript & Summary

Good morning, and welcome to Grenergy's First Half 2023 Results Presentation. I am Alberto Sanchez, Head of Investor Relations. I'm joined today by David Ruiz, our CEO; and Daniel Lozano, our Chief Strategy and Capital Markets Officer. They are going to take you through your business, financial and ESG review. At the end of the presentation, there will be a Q&A session for sell-side analysts. I hand over to our CEO, David Ruiz.

Thank you, Alberto, and good morning, and thanks for attending. I'm going to kick off with the presentation. So moving to Slide 3. Going to the key messages. I think we've had very strong operational execution with further expansion in solar assets, both in operation and under construction and as a total platform. And also storage tied in the 3 core geographies where we are in Latin America and the U.S. and in Europe. Talking about the PPAs, we have so far signed 1.5 gigawatts. I think this is quite remarkable, and we have 1.5 gigawatts under negotiation -- with negotiations going on in the 3 geographies. In this semester, we have signed 825 megawatts. And I think having this amount of contracted revenues, is giving us high earnings visibility and well, I think, predictability. We have EUR 2 billion of revenues signed over the next 15 years. And I'm saying as long as a sign keeps shining as we always say, and offtakers, which are most of them in investment grade on other commitments. I think we have -- we are giving a lot of visibility. Talking about Valkyria, it's -- I'm sure we -- there will be some questions in the Q&A but it's fully on track. We have rotated 100% of Belinchon, I think planned. This is 150 megawatts at an excellent price. We are getting close to EUR 90 million of cash proceeds. And I think this deal will be reflected in the second semester and the rest of Valkyria, it's ongoing. We will give more light further on in the presentation. And in the Capital Markets Day, we will have in November. We have, I think, a solid set of results in the first half in the first semester. Strong revenues driven by development and construction. We've already more than 1 gigawatt of assets under construction. EBITDA up 8% driven by the Energy business. There were no disposals, no farm downs in the second quarter. So we expect an exponential growth in Q3, both in our IT division and build to sell, the rotation of Belinchon. Going to IRRs, right, they remain stable at double digits. I think we are in a very good situation now with PPAs being signed and being closed at good prices. And we are having all-time lows in CapEx, right, per megawatt. I think we'll have -- we'll give more information in the presentation, right? There is going to be once we consider the rotation of Belinchon, which is not yet reflected at the end of June, but it will definitely be reflected in the second semester. There will be a substantial deleverage on a pro forma basis, and our leverage will be below 3x EBITDA debt, right, in pro forma terms. And at corporate level, it will be below 1x. So it will be a dramatic change in the global situation of our balance sheet. We can say we are fully funded for 2023, 2024. That's the key message. Now we are not expecting any capital increase, at least in the next 2 years. And well, thanks to the equity -- to the asset of patiently we are doing, we can say we are fully funded at least for the next 2 years. Going to -- well, I leave the ESG messages, I think Daniel will be -- will give more light later in the presentation. But the objectives of Q2 have been really accomplished. The objectives we had in the road map -- there is a new road map in progress, right? It will be approved in November. And I think we'll give more information in our Capital Markets Day. And once again, we are very proud we keep receiving extremely high good ratings in the major ESG ratings. I think Daniel will give you more information like the CDP, MSCI and system analytics. Moving to the next slide, just very quickly. Our total platform reached 15.7 gigawatts. This is 1.7 gigawatts higher quarter-on-quarter. We continue feeding the pipeline in identified opportunities and early stage, which is the basis for future growth. We will see a dramatic increase in a number of advanced development projects in the coming quarters and also backlog. And I think in the next update, some large new projects will be under construction as well, right? Once again, we like to stress that it's very important we start developing the right today, the right staff, the right projects. We're going to need for 4, 5 years from now in the 3 regions where we operate. Well, in the next slide, you can see we have a very balanced portfolio between the 3 regions. We have 4.5 gigawatts with the new additions -- we have 4.5 gigawatts under development in the U.S.. We have a little bit more than 5 gigawatts in Europe, right? And that's mainly Spain, but also Italy and Poland are catching up. Those will be very important markets for us in the future as early as 2025. And in Latin America, which for us is mainly Chile, we have more than 4 gigawatts. And I think -- well, the good news is Mexico is back, still is not very mature pipeline. But we have -- we believe that it will be an important market for us once again from 2026. So again, it's very important we start developing now. We were very hard in the projects we're going to need in 3, 4 years from now. There is -- looking at Europe, it's also very important -- also very important in Germany. For the first time, we are showing identified projects and identify opportunity. We are doing a very important effort. We have close to 20 people in our development team in Berlin. And again, we believe it's a long-term debt, it's a long-term -- part of our long-term strategy, but we hope it might become also a very key market for us as early as 2026. Moving to the next slide. Storage, it remains very important for Grenergy. I think we are early movers here. We expect really to be a game -- expect Storage to be a game changer for the industry. Our pipeline reached for the first time was 10.7 gigawatt hour, right? This is about 10 gigawatt hour and this is mainly driven by Chile. Chile is going to be one of the greatest testing laboratories for worldwide for colocation of solar and BESS. It's also happened in other parts of the world like California, right? But other regions are also catching up. We are already active in 6 markets. And I think one point, we will be developing storage in every single market where we are, both in stand-alone and in colocation, hybridation with solar. And once again, we believe it's going to transform our industry. And we will give a lot of information in the Capital Markets Day about our strategy in Storage, right. Going to the next slide about PPA. You know it's so important, PPAs are critical to obtain financing. It's all about developing the right projects, matching the projects with the right PPAs in every region where we are. And we are very active in the 3 regions. We've been announcing more PPAs. Better recently, we announced our first PPA in Peru for solar with Enel. And there will be new announcements in the 3 regions in the next few weeks. Even in the U.S., I think before the end of the year, we will announce our first PPAs. We have several ongoing negotiations with -- mainly with corporate and utility offtakers, right? Just to, again, to give some of the figures, we have signed only in the first half of the year, 825 megawatts of PPAs. We have already signed more than 1.5 gigawatts globally. This is 1.1 gigawatts Spain, but also [ 0.3 ] gigawatts in Chile, 0.1 gigawats in Peru. And we have 1.5 gigawatts under the negotiation in the 3 geographies, most of them will be signed and announced before the end of the year, right? It's -- we keep contracting on average around 75% between 75% of 80% of the output of the project, right? It's a case-by-case strategy. But on average, we are contracting between 70%, 80%, and we are living 20%, 25% maximum merchant, right? Again, we have already EUR 2 billion of contracted revenues for the next 15 years, and this figure keeps growing by the day as we sign more contracts, right? Valkyria, Belinchon deal was announced in June. I think we are very close of finalizing the deal. The moment is fully signed, we'll let you know. It will definitely happen in the second semester. It's the first milestone of Valkyria proposes, right, and Escuderos. We decided, right, to break up the process in 2 buckets, as we stated in this slide. Assets in operation on one side, assets under construction on the other, right? Because we found out that there were different buyers, different investors with different interests and different risk profiles. So within the first bucket, we rotated finally, instead of rotating 49% of everything, which was our recent idea. We finally rotated 100% just of Belinchon due to the excellent price conditions received and it was much higher than our initial valuation, right? And well, as we already explained, we are getting close to EUR 90 million in cash proceeds, EUR 70 million in capital gains. We're talking about 1.7x enterprise value compared to invested capital. So those were excellent figures, and we decided to keep 100% in Escuderos. Escuderos is an operational plant. As you know, we have applied for the next generation for funds for BESS and we believe it could be our flagship of Storage in Spain as early as maybe 2 years, 1 or 2 years short from now, right? And the second milestone remains very well on track. We expect restricted now, but we expect to provide information very soon. Yes. Well, I think about the key operator in financial data, we are providing a lot of information. We might be able to get more in detail in the Q&A. I think we are expecting a very good considering we are already I think its 27th of September. We already have some information about the third quarter, right? We've had an excellent quarter in terms of generation, right, considering that all plants are full speed, Belinchon is already operational from [indiscernible] and we've had a very good summer also in some of the assets in Latin America. And I give the floor to Daniel for the financial review. Thank you.

Thank you, David. So let's move to the financial review. If you look at Slide 10, we can see that in Q2 2023, total revenue reached EUR 225.8 million, that is a 110% increase more than twice the previous year figures and EBITDA increases to EUR 21.7 million, that is 8% increase. The Development & Construction division was driven by the disposal of 2 PMGDs budget distribution asset in Chile with EUR 11 million with high margins, even though during this quarter, there has not been any rotation. This division is expected to generate record cash flow contribution from rotation of assets like Belinchon producing around EUR 70 million EBITDA. The Energy division was driven by higher output, 44% of new capacity, mainly in Chile and Colombia and better load factors. Retail supply business in Chile is still negative at EUR 1.7 million. However, we expect a positive second semester of the year that will enable this division to be EBITDA neutral in 2023 and to be EBITDA positive from 2024 onwards. Moving on to Slide 11. We can see that in the first semester, total CapEx reached EUR 187.6 million, that is more than 2x the previous year figure, reflecting the acceleration of our execution. Credit CapEx was EUR 172.4 million, split 37% in Spain, mainly Belinchon and the rest Latam. Development CapEx is expected to accelerate in the second semester of the year. CapEx per megawatt is at all time low with panels, as you may know, at $0.15. Now CapEx is around EUR 0.44 million, thanks to the expansion of the global industrial capacity, polysilicon production. Due to CapEx deflection and PPA levels that we are now closing, returns remain stable and attractive at double-digit levels that is offsetting the impact from higher interest rates. So let's go to the next slide, which is #12, which explains the cash flow for the period. Significant working capital recovery, EUR 24 million outflows in first semester versus EUR 51 million in Q1 2023, due to the unwinding of supplier debt. An increase in CapEx that has been mainly funded with project financing for Belinchon EUR 90 millions and Gran Teno, Tamango, EUR 150 million that were signed in first semester and we are closing the period with a cash position of EUR 123 million. Net proceeds from Belinchon will have a positive effect in our treasury balance position of close to EUR 90 million. Now if you can look at Slide 13. Our net debt has increased to EUR 127 million, producing a 10.4 leverage ratio. This was mainly driven by the increase in CapEx. 2023 and 2024 will be capital intensive as we have large projects under construction in Spain and Chile mainly. However, if you consider the pro forma ratio after just selling one of the project considering Valkyria Belinchon, we will have had a pro forma net debt of EUR 354 million and a total ratio of 4.6x in first semester 2023. Likewise, our corporate debt will have been at EUR 67 million and our corporate leverage is just 0.6x. Also, bear in mind that our leverage ratio is also affected by the timing of our investment and when those investments become productive and producing EBITDA. We are fully funded for 2023 and 2024. Taking into consideration the contributions from our asset in operation, further recovery in working capital as well and the Valkyria transaction and the rest of build-to-sell strategy we have in place. We will host a Capital Markets Day in November, where we will present you with our growth plan that will be self-financed with our cash flow generation, as previously explained. So as explained before, I will present the ESG part of the presentation this time. Let's move on to Slide 14. So I'd like to begin emphasizing the importance of ESG Mata Grenergy as they can directly affect each of us. Today, I invite you to stay engaged with our ESG initiatives in the second quarter. I am delighted to announce the successful completion of our 3 objectives for the second quarter. We have developed and published our information security policy. We've presented results of the first employee performance evaluation process. We conducted ESG training focused on sustainability trend and regulation for our management committee and Board of Directors. Additionally, we are well on track to meet our goals for the third and fourth quarter, including development of new energy sustainability strategy 2024, 2026 which will be crucial milestone this year. It will be presented at the next Capital Market Day in November. Finally, in Slide 15, regarding our ESG performance and strategy, we are committed to maintaining our leadership position in prestigious ESG rating agencies like CDP, Refinitiv, Sustainalytics, MSCI, DJSI and ISS. Our scores has increased compared to the previous year and outperformed our [ pace ]. However, we keep working to others identify gaps an area for improvement to secure our top-ranked position in 2023. And that's all from my side.

Thank you very much, Daniel. We are now moving to the Q&A session. [Operator Instructions] Please unmute Fernando from RBC.

And thank you for taking my questions, I'm going to stick to just one with a little bit of some angle. They are not so -- in terms of asset rotation strategy, the state in Valkyria -- we can see some changes -- they are not. So it looks like now you are looking to sell 3 assets in Spain in the short term for these assets that we account for around 500 megawatts. So we expect they are 100% minority stake. I said this because I mean, we are talking valuations, let's say, of around EUR 1 million per megawatts, you do 100% taking into account that you have for one in Belinchon -- that means that you will be debt free. So they are probably one of the angles, I will try to speak -- try to ask about capital allocation. I know that is probably something that we are going to speak in the S&D, but you can put something there -- your thoughts at the moment about that, that will be [indiscernible]. And then as well, if you can tell us a little bit about valuations, probably it will be fair to say that maybe valuations at the moment are lower than you saw in Belinchon but taking into account the lower CapEx, maybe capital gains will be similar to that Belinchon asset sell or that would be fair to say. Thank you.

Thank you, Fernando. [Foreign Language] Well, as you say, well, with Valkyria, the whole idea is maximizing the value for the company, for our shareholders. And well, the initial idea at one point was finding a single partner for 49% of all the portfolio. But since the process has been advancing. I think we found that there were 2 very different buckets, right? On one side, the operational projects, already financed, so pure equity deals and at one point, we reached the conclusion that it was a very option for the company, maximizing value, rotating 100% of one of the assets, which is Belinchon and keeping the other 100% interest, right, in Escuderos, which is a fantastic opportunity to be our flagship in Storage in the next wave that we expect in the Spanish market. For the rest of you say 500 megawatts, we are not expecting lower, much lower valuations. Keep in mind that is 75% secured with the PPA and it's a fantastic PPA. I think it's something very unique, it's something impossible to get now, in the Spanish market. So I think this has helped to retain this high valuation. And it's true that CapEx has been down compared to Belinchon. So every asset has a different price, mainly based on the yield. The yield of Belinchon was nearly 2,200 hours and the yield of Tabernas is 1,800. So just if you're going to compare both assets, just only compared to the yield, the price is 15% lower. But still, the valuation, we are expecting a very good valuation. We're still looking at the option of 49% of 100%. I think we will give light very soon, right, on Tabernas, Ayora, Jose Cabrera. And as you say, it's something considering that, at this moment, we are not considering any capital increase. I'm not even -- on consider the price where the stock is now. But we have the fantastic option of rotating assets. There is a huge gap of valuation of assets in the market, valuation of stocks, right? So I think rotating assets now is a very smart way, very intelligent way of funding our growth. And as you say, once we announce all of Valkyria, we might become near close to net debt 0 company and we will have our balance sheet ready for the fantastic opportunities we have ahead from next year, mainly coming from Chile and from the U.S. in 2024 and 2025. So that's basically all about Valkyria. We also have Clara Campoamor project, which we'll be ready to build next year and it's also part of Valkyria. But we will give a lot more light in the Capital Markets Day.

Okay. Many thanks, Fernando. Our next question comes from Nash Cui from Barclays. Nash, please go ahead.

Good morning, David, and everyone. Sorry, I missed 3 minutes before Fernando asked his question. I apologize if this question has been asked. I have 3, if that's okay. So the first one is on CapEx. It's great to see the unit CapEx was down materially. I think I saw the number 0.44 per megawatt. That was great. Does that mean you will expect a lower CapEx per unit for 2023? I remember you provide a guidance last quarter around 0.47 per megawatt. So does that mean that 0.47 per megawatt is going to get lower. And what should we expect for the overall CapEx for this year? So that was my first question. My second question is on PPA. I think in one of the slides, you mentioned 1.5 gigawatts on PPA under negotiation. May I ask what sort of PPAs they are? Do we expect price level to be around mid-40s? Or do we expect those PPAs or part of the PPAs to begin Chile and will be combined with solar, you can get a higher price. So that's my second question. My third question is on capacity growth. Especially in the U.S. because I know in your slide U.S. will be 1 of the 3 key markets for you, but it looks like the first project will only be online by Q4 2025. I just wonder if you have -- and if you can provide any color on the U.S. market, why do you think that will be a very important market for you, given there's very little visibility on that?

Thank you very much for the 3 very good questions. Going straight to the first one, which is about CapEx. I think it's true we gave a guidance of 47. And finally, we have -- we are achieving even lower than that, and we're talking about 44. This is considering panels, panels have been going down more than USD 100,000 per megawatt in the last 6, 7 months. So it's been a dramatic decrease, and it's something we were not considering. So I think we are expecting this number to remain stable since we believe we always said in previous slide, that there was a very high overcapacity in all the super late -- the major manufacturers of panels. And I think we remain with that data there is more than the demand of this year is going to be around 300,000 -- 300 gigawatts of solar, but the total capacity is over 500 gigawatts. So there is an excess in supply, and this is what is really causing this decrease. We expect that and considering the forward prices we are getting, we expect those prices to remain stable, at least stable for 2024. We are looking more and more at the price of storage, right? I think it's going to be the key KPI in the future. Since we are -- I think we will have the chance to speak a lot in the Capital Markets Day about hybridation of plants and the most important KPI for CapEx will be definitely the cost of per megawatt hour, right? And this is also going down, not as rapidly going down as EV, but it's definitely going down. And a similar trend, we are looking at the electric vehicles, right now that you can see more and more EVs coming from China to Southeast Asia at very competitive prices and that prices will even go further down. So I think we have a very interesting conversation in the Capital Markets Day about CapEx. And as always, we try to be very, very transparent on market trends. About PPAs, every PPA is different from each other, right? And in this space so far, we have most of our pipeline that is currently under construction, fully contracted, right? And the PPAs we close with large corporates like Amazon, they were in the mid-40s. And I think those PPAs, it was a fantastic window of opportunity we had at one point at the end of next year, right? So -- and that's the reason why I think our projects are so valuable in Spain right now because they have the best PPAs for -- base produced PPAs for solar that I think has ever been signed in this market, right? Now prices of PPAs are going down in Spain, but we are fully contracted. So -- but I would say that our price is paying is more in the mid-30s now compared to mid-40s, right? So that's kind of changing. It's true that the CapEx price has also been going down. But every geographies, we have a different strategy. I think in Chile, we will announce new pure PPA solar for stand-alone solar PPAs. Those will be some of the large PPAs of this type that we will announce in Chile. And in Chile, we are in the mid-30s but indexed to inflation. So it's kind of -- if you compare a PPA in Europe, mid-40s, but flat compared to mid-30s, but linked to inflation for 50 years, you kind of get more or less the same returns, right? So it's different approach. And I think for the first time, and this will be a very important milestone for us, we will announce PPAs based on EV and Storage where we will move -- we will do arbitrage for at least 4 or 5 hours, and we will sell energy at peak, right? And this will be a game changing, right? This will completely new transformation in the industry, and it will be based on Storage. So keep an eye, I think, in the next few weeks, we will give information on these PPAs and it will be the way forward in many markets. Going to the U.S., okay, you're right. If you look at our Indian access, we give a lot of information of our projects. Those are the first -- the most material prices we have, Coosa Pines and Creed. In both cases, we have very advanced negotiations for PPAs. I think a lease grid will be announced very soon. I think we surprised as well the PPA structure. But I believe in the next update in November and especially in the beginning of next year, there will be a dramatic inflow of projects that are currently early stage. They will be moved to advance development and then our largest market in terms of deliveries as early as 2026 maybe 2025 will still be maybe Chile and to some part of Spain, but definitely at the end of 2025, we'll deliver our fresh projects in the U.S. and 2026 might be the big year for the U.S. and we may expect maybe some figure close to 2 gigawatts. And this is what we are targeting. We have a very intense activity of talking with offtakers in the U.S., some markets like ERCOT -- there are also some M&A opportunities. So we will -- we might incorporate some projects from third parties. So I think we will provide a lot of information in the Capital Markets Day with the U.S. and we are quite happy. We just returned last week from the [indiscernible] in Las Vegas and it's really amazing the activity of the U.S. market. You really need to focus in one particular market. And as you know, we purchased Sofos Harbert developers, now renamed -- is being renamed to Grenergy U.S.A. This is more targeting utilities, PPAs for 15, 20 years in the Southeast. But we are also targeting projects in MISO and mainly in our cut in Texas, where it's pretty similar to what we are doing in Spain. We are talking to the same corporate and it will be very similar PPAs.

Thank you very much, Nash. [Operator Instructions] Our next question comes from Tomas Reyes from CaixaBank BPI. Tomas, please, go ahead.

I have a question, if you don't mind. Could you maybe comment on your retail supply segment? I'd like to know basically about the generation you sold, specifically in the quarter. And the contribution you have from it in the earnings.

Okay. Well, about our retail segment is what we call [ GRE ] Power, right? Well, it only has activity in Chile, right? And I think we have already spent the rationale behind this business, is basically reducing this portion to merchant prices in the portion that is not contracted. By having a retail client base, we currently have close to 100 contracts with in Chile, we are delivering already around roughly 250, 300 gigawatt hour annually. We expect that to increase in the next few years. Our target is to reach 1 terawatt at one point in 2025, 2026. And the way this is designed, I mean, it's not breakeven yet because -- well, it's basically -- we are still -- during this year, we are still buying especially given the day energy in the market. And in the first semester, the energy price has been higher than we expected. This situation will change in the second semester, right? So we expect to get breakeven as early as Q3. We will give an update in November. But we will definitely will be breaking even once Gran Teno plant will be operational because our retail unit, basically, we are selling 60% of Teno, which is a large plant of 250 megawatts. We are selling 60% of the energy to a large utility investment grade, and this is -- this has really helped us to raise finance. And the remaining 40% will be sold to our retail units, and we are reselling that energy with -- for 10 years. So it is a very safe business. It will be a cash cow for us from 2024. And I think it's a great opportunity to maximize the -- so the strategy we're following instead of contracting 60% leaving 40% open merchant, right? We are contracting this extra 40% with our retail segment at a much higher price and I think it's a way that we will keep operating in Chile in the future and a fantastic opportunity. And I think everything really starts in Q1 next year when the first contracts start operating and a retail segment, we'll be buying from our utility scale plant in Chile. So that's basically a situation of year power, and we will keep updating every year. It's a unit that requires no CapEx, right? No debt. And we believe that from Q1 next year will be a very safe recurring source of cash for the company.

Okay. Many thanks, Tomas. Our next question comes from Anis Zgaya from ODDO. Anis, good morning, please go ahead.

Thank you, Alberto. So I have -- and I have one question on the 5 gigawatt target by '25, if I may. So given the Valkyria project, which includes project sales and the delay in some projects in Spain due to permitting. Don't you think that at this stage, target of 5 megawatt by '25 seems a bit challenging?

We don't think it -- if you consider our target in 2025, we are talking about projects connected at the end of 2025 or under construction 2025. We currently have -- looking at the appendix between projects in operation and under construction close to 2 gigawatts, right? So and I think all these will be connected at one point and mid-next year, right? Part of that, I think we will conclude this year with a figure higher than 1 gigawatt. Next year, with everything we have already under construction, we reached 2 gigawatts. It's true that if we rotate some assets like Belinchon, this will be very strategic operations that we think that will create a lot of value for the company. I mean, at one point, we are making more than EUR 0.5 million per megawatt. I think it's the right decision to rotate that asset at one point, right? But this only creates us -- give us more capacity to grow in other markets. If you look at our advanced development, most of those projects, particularly this in Chile and Clara Campoamor in Spain, we will be very soon under construction. So that's giving you a lot of visibility for our targets for 2024 and 2025. So we are talking about 2. We're talking about another 2 we have extra, and we have many more projects coming mainly from the U.S. but also from the new markets, I think what you already have the first project in Italy here. You see the first project in Poland, but there are many more coming that are now in early stage. If you look at -- and this PMA that it's very important to say how exponentially is. This is where we are now between operational -- under construction in backlog, we have more than 2 gigawatts. 2 gigawatts in advanced development, but most of them will be moved to backlog very soon but look at what we have in early stage. And early stage, you are talking about projects with COD mainly in 2026, but many of these could be under construction in 2025. So we feel that with the strong push we have from the new markets, plus what we already have in our more core markets like Spain, Chile, we are confident that 5 gigawatts is really achievable. Anyway, keep in mind also that there is the other target that is going to become more and more important and is the target for Storage. When we are talking about 1 gigawatts hour for 2025, I believe we have been very conservative on that target, and we will give some good news, I think in the Capital Markets Day, to increase that target higher and earlier than expected, right?

Thank you very much, Anis. [Operator Instructions] Okay. Apparently, there are no further questions. So this would be the end of the call. Thanks, everybody, for your participation.

Thank you very much. Have a great day.

Thank you.