MPC Energy Solutions N.V. (MPCES) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to MPC Energy Solutions First Quarter 2022 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Heike Hülle. Please go ahead.

Good morning, everybody. I have the pleasure to welcome you to the first quarter 2022 webcast of MPC Energy Solutions, I'll be guiding you through the presentation today, and also through the Q&A session later on. So this morning at 7:00, MPC Energy Solutions published its financial statements for the quarter ended March 31, 2022. And we'd like to, therefore, take the opportunity to walk you through some of the highlights of the financial statements and also share some insights into project updates over the last few weeks with you. [Operator Instructions] So before we get started, let me just remind you of the forward-looking statements certain statements made on this call, including financial estimates and comments about our plans, expectations, beliefs or business prospects and other statements that are not historical in nature may constitute forward-looking statements under the securities laws. We make these statements on the basis of our views and assumptions regarding future events and business performance at the time we make them, and we do not undertake any obligation to update these statements in the future. Forward-looking statements are subject to a number of risks and uncertainties, and actual results may differ materially from the results expressed or implied in light of a variety of factors, including factors contained in our financial statements, filings and other releases. Okay. Let me then introduce you to Stefan Meichsner, our CFO, who is going to start the presentation today. Stefan, over to you.

Thank you, Heike. Good morning to everyone listening and a particularly warm welcome to those of you joining for the first time. I would like to begin by talking a little bit about the highlights of the first quarter and to start off with a very important milestone right away, for the first time in our young company's history. We have now generated and sold electricity to 1 of our projects and concordantly generated revenues. This is a direct consequence of the acquisition of Los Santos I, a solar PV plant in Mexico, which has been operational since 2017. We acquired the project 100% of the project in early February. And in the first 2 months under our ownership, the project has generated 5.3 gigawatt hours in electricity, and generated a little more than $0.5 million in revenue. And during these first 2 months under our ownership, the asset has actually performed slightly above budget. I want to thank our team. I think this is now signaling a new stage for our company, which, of course, is still building and ramping up, but step-by-step, the hard work of the first 12 to 15 months since the IPO is paying off. And with more and more assets coming online over the next few months, we will see that being reflected in our financial performance. Speaking a little bit about the 2 acquisitions that we closed in the first quarter, I already mentioned Los Santos, maybe a few additional data points here. As I said, the asset has been operational since 2017, we expect the annual output to be 34 gigawatt hours for the remaining lifetime of the plant. And at the moment, we have PPAs in place with Leoni Cables and De La Salle Educational Network. So it should be mentioned that a large portion of the electricity and therefore, also a significant portion of the revenue comes from Leoni Cables, who is the predominant offtaker in this relationship. We also mentioned when we announced the conclusion of the acquisition that we acquired along with the asset a right of first refusal to expand the current setup of the plan by an additional 73 megawatts to roughly 19 megawatts in total. These additional megawatts are now under development by an external partner, and we do intend to make use of that purchase option down the line, but this is, of course, still out 1 or 2 years, depending on the development progress. Another acquisition that we closed, and this is the first project that was delivered to us, so to speak, by our strategic partner in Enernet Global, the microgrid operator from the U.S. is the Neol CHP plant, the combined heat and power plant in Puerto Rico, which will deliver steam and electricity to a pharmaceutical company in Puerto Rico. We closed the acquisition right at the end of the quarter. So therefore, there was, of course, no revenue or electricity generation from that asset yet, and it's therefore not reflected in Q1 numbers, but we do expect official commercial operation, which is still pending an approval from the backup grid operator to commence earlier next month so that we should then see first contribution from this asset in the second quarter of the year. Looking into our investing activities in the first quarter, we continue to deploy the capital that we still have available from the IPO. In the first quarter, we continued to fund construction for our projects in Colombia and El Salvador. We also, as just mentioned, closed the acquisition of Los Santos I and Neol CHP, and most of the purchase price is negotiated and most of the equity investments related to these projects have been made. And we did subscribe to a convertible note, which was issued in the first quarter by Enernet Global, our contribution was USD 1 million which would convert into equity when Enernet raises equity the next time, and I think they have that for later this year. And it's very noteworthy that along with this additional financing contribution to Enernet, we were also able to extend the asset development agreement we have with them, which gives us access -- exclusive access in the right of first refusal to the assets they developed and built by 1 year. And the plan that we had to use Enernet also as an access point to markets in Southeast Asia and Australia, has now also been added to the asset development agreement sooner than originally anticipated. So in return for the additional funding we provided, we also secured a prolongation of that strategic and exclusive partnership, which we value very highly. Overall, we had $72 million from the IPO in cash allocated to be invested into projects. And a total of $56 million has mostly been invested and the rest is pending certain conditions that need to be met by other parties. But that means that $16 million at the moment are remaining to be deployed. And if you remember our project update in early March. We put the project in Honduras, Nacaome on hold for the moment. We had $10 million assigned to that project. So that now out of the $16 million, the $10 million that we had reserved for Honduras will have to be reallocated, but we have already done that since -- and we will get to that Enernet is making good progress on additional Puerto Rico projects, the funding will very likely be -- or the now available extra funding will be invested into that backlog. We are often asked what has happened to the projects that our shareholder MPC capital contributed during the IPO and what will happen with these projects and other projects over the next 12 to 18 months. So let me take some time and briefly guide you through it. What you see here on the table are the projects that we own and that are part of our development backlog. So you see 3 projects in Colombia, 1 in Jamaica and 1 in the Dominican Republic. The first 4, the 3 in Colombia and the 1 in Jamaica, they are part of projects that were contributed by MPC Capital. All of the projects that were contributed during the IPO were still under development, and these projects are still under development. We expect major milestones to be achieved over the next 12 months, namely either a ready-to-build status, which is relevant mostly for the Colombia projects and also the ready to tender for the Jamaica project. And in addition to that, 2 projects that were part of this IPO pipeline, if you will, Santa Rosa and Villa Sol in El Salvador and Los Girasoles in Colombia. As we previously communicated in detail these are already under construction. So we took them from the development stage since the IPO owned. We are now in the construction stage and both projects will come online later this year. And in addition, we were able to add a development project in the Dominican Republic, very much a key market in the region also for us, and we partnered with Soventix Caribbean to develop a 50-megawatt solar PV plant in the Dominican Republic. So this is something that we added since the IPO, and that is also under our majority ownership. We own 51% in that project. So as you can see, while -- and we also previously communicated this, while we have seen delays, of course, following COVID on the development front and things are taking a little bit longer than originally anticipated, we are still making very good progress on these projects. And making progress means developing them to ready to build and thereby adding value to our pipeline. And this is what we have been doing, and we see that progress on, as I said, the project in El Salvador and Colombia and the others will soon follow. And we are also trying to actively add to our development backlog, for example, by partnering up with companies like Soventix Caribbean. If we look ahead 12 to 18 months, we will see that on top of the projects we already have under construction, which is 1 in El Salvador, 2 in Colombia. We will see our project in St. Kitts, the baseload project to commence construction over the next few weeks. And we also see that Enernet Global, our partners signed additional PPAs now for the projects in Puerto Rico that were also communicated during the IPO, and we would expect this to start construction this year as well. And then out of our proprietary projects, at least 2 in Colombia and the 1 in Dominican Republic will start construction next year. So if you look at the proportionate numbers that we report here, we would expect over the next 18 months to see another 135 megawatts proportion of capacity, meaning the stake owned by us to commence construction on top of the 49 that are already underway, and that will commence operations later this year. So I would say that overall, this also reflects the progress that we've seen. This reflects the value that we inherited, so to speak, during the IPO. And then we have now taken to the next level. We would like to give you a brief update on Mexico in our business, and this is my view, we consider the offtake risk to be much more visible and tangible than, let's say, the country, the political or the regulatory risks that we see in the country. But in Mexico, and we factored this into our purchase price, and we communicated this previously, we had a situation where the new energy reform threatened to deprioritize renewable energy plants, including Los Santos I. And to change the regulatory framework in an unfavorable way. The good news here is that the Mexican Congress shut down the energy reform and the local courts have ruled against the reform and the deprioritization as well. So we see that these risks that we priced into the acquisition have not even materialized. And the second stage of the development, the additional 73-megawatt weren't affected anybody. So overall, this is a very good outcome. The quarterly government per the court rulings, but we totally expect this to be rejected this appeal over the next 2 to 3 months, so that this final slide pending risk is then fully eliminated. And this adds to our view that this acquisition of the well-performing operational assets with good offtakers is also less risky than from an outside view might be anticipated. And we looked at this very, very carefully during the due diligence stage and it's good to see that our assumptions and our view on this has been confirmed and this risk has been removed. With that, we move over to the brief financial review of the first quarter, and I would also like to refer you to the actual Q1 report that we published this morning, which, of course, provides more details. As I mentioned, the first quarter marked the quarter that we first -- generated first revenues from our asset in Mexico. Operating expenses, and I think this was also mentioned by one of the analysts in communications this morning was a little bit higher than anticipated, but this is quite normal in our business because the expenses in the first quarter are usually front loaded, if you will, meaning that we see a lot of expenses either coming from the previous year or that have to be paid at the start of the year, for example, these contracts need to be settled or insurance premiums have to be paid, so that the expenses for the first quarter are usually much higher than what we will see in subsequent quarters. Meaning that overall, we are very much in line with the budget that we have for this year. And we would expect this to be reflected in the operating result also over the next quarters so that the overall targets and the overall margins that we have projected will then actually be reflected here. Investment cash flow, in line with what I previously showed on the other slide, and we also received disbursements, first disbursements for our project in El Salvador from Banco Agricola, which is, of course, a positive cash inflow that we see on the group level. Overall, we were left with roughly $43 million in consolidated cash reserves at the end of the first quarter, of which -- and this was shown in one of the previous slides, 24 roughly were still available on Holdco level for future investments and operational spending, which brings us to our financial position, our balance sheet. Important to note here, the acquisition of Neol CHP and Los Santos I will require us under the IFRS to perform a purchase price allocation. This was not completed at the end of the first quarter. But it will be during the second quarter, meaning that for now, we have simply conducted a preliminary purchase price allocation. And this is the reason why you see an intangible assets here being recognized in the amount of $14.1 million. I'm not saying that this will change, but it might following the actual results of the purchase price allocation. And this is simply the difference between the asset value that we see when we made the acquisitions and what we see on the balance sheet of the respective assets. As, of course, fair value is determined by future cash flows and not so much by the book value of the assets that you see following depreciation pattern, et cetera. Otherwise, what you see reflected on the liability side is that we now can show project finance loans related to, as I mentioned, our project in Salvador and also to Los Santos 1. So while we still have no long-term corporate debt on the project level, we now see financing coming in, which brings us to the outlook for this year, and this confirms what we've previously communicated from the assets in Mexico and from our plant in Neol CHP, we expect $4.5 million to $5 million in revenues this year, depending how quickly now Neol CHP can officially start operations. And this would result into a roughly 70% EBITDA margin out of these 2 projects. And depending on how aggressively we can capitalize development expenses, there is a very good chance that we will show a 0 or slightly positive corporate EBITDA as well for this year. It should be noted that we have 3 other projects, namely Santa Rosa, and Villa Sol in El Salvador, Los Girasoles in Colombia and Planeta Rica in Colombia, which are also scheduled to come online in the fourth quarter of this year. They will generate electricity if they do, they will generate revenues we're not factoring this into our outlook. We are simply using Mexico and Puerto Rico as the 2 only projects to be on the conservative side, which is in line with what we've previously communicated. So there is a slight upside here, but it will depend on how where we can execute and finalize construction of the existing projects. And with that, just a little bit of outlook. We will have our Annual General Meeting on the 23rd of June, invitations will go out 1 month in advance, including the agenda and the possibility of course for all shareholders to cast their votes. And then we will continue with the Q2 and Q3 reports as usual, but also factoring in holiday times and vacation times during the summer, which is why the Q2 report will be released a little bit later. Than maybe anticipated because we want to make sure that we have -- actually have an audience that is not a holiday to read and see the Q2 results. And with that, I would already like to wrap up the presentation and hand back to Heike. So that we can -- might take some questions from the audience. Thank you for listening, and I'm very happy to enter the Q&A session now. Thank you.

Okay. Thank you very much, Stefan. As I mentioned, we'll now continue with the Q&A session. [Operator Instructions] Let me start with the phone questions. Operator, do we have any questions?

There are no questions at this moment.

Okay. Thanks a lot. Then we'll move over to the web chat. I see no questions coming in at this point of time. Maybe I'll give you a few more seconds in case anybody has a question for this webcast. Okay. Well, it seems, Stefan, you answered all the questions already.

I'm glad to hear that. Thank you.

So then we can conclude the Q&A session and the webcast. Of course, if there are any questions you think of after this presentation, please feel free to contact us directly. You can find all the contact details on our website. You can just e-mail us directly. You can also send us an e-mail at [email protected]. And of course, we'll be happy to answer your questions going forward and to stay in touch with you. Thank you, everybody, for joining us, and have a great rest of the day.

That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.