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

Good morning, everybody, and welcome to the MPC Energy Solutions' 2023 review, strategy update and 2024 outlook. We would like to take the opportunity to walk you through some of the highlights of last year and give an outlook on project development in the coming months. If you have any questions during the presentation, feel free to type them in the text box, and we will answer them at the end. Just to remind you, this webcast is being recorded and will be published later together with a transcript on our website. Okay. Before we start, let me just remind you that we include certain forward-looking statements in the presentation. Certain information and statements shared in this document, including financial estimates and comments about our plans, expectations, beliefs or business prospects and other information and 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. We do not undertake any obligation to update these information and 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. Let me now introduce you to Stefan, our CFO and acting CEO of MPC Energy Solutions, who will present our business update to you.

Good morning, everyone. To those of you joining a webcast of our company for the very first time, welcome. So for those of you who are regulars and follow the development of our company over the past few years, welcome back. In today's session, as Heike mentioned, we will review our preliminary unaudited 2023 financial results. We will also provide an outlook for 2024 and the years beyond, and we will dive into the adjusted strategy that we have defined for the coming years. Before we dive into these topics, I would like to briefly review our company's business and what we're all about, especially for those of you joining for the very first time. MPC Energy Solutions was founded only 3 years ago. We went public in early 2021 in the Oslo Stock Exchange, and our business ultimately is to own and operate power plants that use renewable sources like wind and solar to deliver energy, clean and affordably to offtakers in developing markets. But we don't only own and operate these plants, we also develop them from scratch. That means we secure the land that the power plants and the transmission lines are ultimately built on. We sign long-term delivery agreements with offtakers who use the energy once it's operational. And we also make sure that we have all the permits in place and we can connect the power plant either to the public grid or off-grid solutions to the power network of our client. Furthermore, we oversee the construction of these projects, which is predominantly done by turnkey contractors who take the project from ready-to-build to the ready-to-operate stage under our supervision. So in that sense, we cover the entire project life cycle, from development through construction, to operation and, ultimately, decommissioning many, many decades later. Our predominant technology that we're currently deploying is solar PV, but we also look into wind onshore solutions. And we believe that storage solutions will become very important in the coming decade, both to stabilize power grids and also to extend the power curves of the renewable sources that we use. At the moment, our business is fully focused on Central America and the Caribbean from Colombia, all the way up to Mexico and then into the Eastern Caribbean. We selected these regions for a number of factors. One, because solar, especially, but also wind along the coast lines is available abundantly in this region. So we have a very, very good renewable base and resource. Secondly, in these countries, renewable energy is either underrepresented in today's energy mix or it's undiversified like in Colombia, which is mainly dependent on hydro energy. Power prices in this region are among the highest in the world, in some cases, leading global energy prices for the end consumer, which offers us an opportunity to provide cleaner and more affordable energy to these markets while, at the same time, being compensated for the perceived additional risk that we take when we invest in these markets. Governments in the region are also very actively pushing for the energy transition to make sure that their reliance on fossil fuels is reduced over time, that power prices are coming down, which will ultimately benefit the country and the end consumer, meaning the voters in these countries. As an ultimate goal, we intend to become the leading independent power producer in the region in the coming years. Over the past 3 years, despite the many, many challenges we had to face like the COVID pandemic, supply chain disruptions, very persistent inflation and higher interest rate environment, we managed to connect 5 projects to the grid, taking them from the development through the construction phase, all the way into operation, which means that as of today -- actually, as of late 2023, our company owns around and operates around 80 megawatts throughout Central America and the Caribbean. And as we announced this morning, we just started construction on a new 65-megawatt plant in Guatemala, more on that later. And we also have additional developments in Jamaica, Guatemala, the Dominican Republic, Panama and El Salvador ongoing so that we are actually, with new greenfield developments, securing the future growth of this company while we're adding the Guatemala project to our portfolio. Let us review 2023, which has been exciting and successful for us as a company but also very much transitioning. We commissioned 4 new projects to the power grids in their respective countries and, thereby, significantly increase the installed capacity that we now have under operation. This happened throughout the year with 2 plants coming operational in January and February last year, 1 of them in the middle of the year and 1 of them in the end of the year. So overall, what we saw was a transition from MPCES having 1 project under operation to MPCES having 5 projects operation in 2023. It is very important to note, however, that our entire portfolio has never seen a full year of performance yet. This will only happen in 2024. And this is why I say that it's been very much transitioning. In February last year, we also signed a long-term power purchase agreement with the IMSA Group in Guatemala for the 65-megawatt solar PV plant I just mentioned. We just commenced construction basically today by signing the EPC contract and also by issuing a limited notice to proceed to the EPC contract. In addition to secure our future growth, we started new developments in Panama, El Salvador and Guatemala and continue our developments in Jamaica and the Dominican Republic. Especially Central America, the countries that I just mentioned, we believe offer the greatest potential in the short term, while other much bigger markets like Mexico and Colombia are at least for the short term, not really open to receive any promising renewable investments or at least not renewable energy investments that meet our own criteria. Despite 2023 being transitional, the pure fact that more plants became online and contributed to the revenue and profit of our company meant that we will see -- or we saw significant increases in the key parameters that we track on our financial side. And last but not least, also a highlight for us in 2023 is that we successfully divested from our projects in Saint Kitts and one project in Puerto Rico. The reason behind these divestments was twofold. One, we did not believe -- we do not believe that these projects were meeting our investment requirements any longer. So we decided to step out of these projects and repatriate the cash that we have invested in them, which significantly boosted our free cash position, which allows us to be even more flexible than we were before when deploying capital in the future. And it also makes sure that we protect our portfolio from projects that we believe no longer meet our investment criteria. So overall, it was a very exciting and very thrilling 2023 in our young company's history where we truly took it from a 1-project-under-operation to a 5-project-operation company, and where despite the transitional factor, I think we and our team can be very proud of the accomplishments that we've done, which brings us to the preliminary financials for 2023. I want to highlight that these are still unaudited. The audit process is ongoing. We will publish our audited annual financial results 2023 at the end of March. But the preliminary numbers, we don't expect them to change all that much. Our total revenues for 2023 were $9.1 million. These consisted of $8.3 million we saw from power-producing assets and roughly $700,000 contributed by energy trading [ activities ]. This is a significant increase to the 2022 numbers and already demonstrates the scalability that this business has once more and more projects come online while our substructure, overhead and administrative expenses remain relatively firm. We were also able to more than double our operating profits from these projects. Especially the power-producing part, with $5.4 million in EBITDA generated met our expectations and also the forecast that we shared with the market in the third quarter of 2023 last year. But because of the trading activities that we had to conduct in Colombia, more on that in a minute, the overall EBITDA from projects was only $4.4 million, which is, of course, not what our expectations are for the long run. But being the transitional year that 2023 was, this is very much explained. And the trading losses in Colombia were also very much the main downside for these results in 2023. The reason here was that we saw a construction delay of our plants in Colombia, but the power purchase agreements became already active, so we had to deliver energy to the offtakers. However, because the power plants were not yet operational, we had to buy the energy in the open market. And because of the El Niño phenomenon, which led to consistent droughts in Colombia, a country that's very much dependent on hydro power, spot markets increased significantly above the price that we receive for the energy under the power purchase agreements, and this created a trading loss in 2023. However, these trading losses are now contained because the plants are fully operational. So in 2024, we will no longer incur the trading loss, and we will finally see that also the Colombian projects contribute very positively to the overall results of our company. Altogether, our portfolio generated more than 100,000 megawatt hours last year, a very, very significant and thrilling milestone for us, more than tripling the outcome that we saw in 2022. And the average price per megawatt hour that we secure with $83 is also significantly above any average that we see in developed nations, Europe or other markets, which, as I mentioned earlier, is one of the predominant reasons why we're investing in developing nations like Central America and the Caribbean. If we look at our balance sheet, again, preliminary numbers unaudited, we once again closed the year with a very, very solid foundation, a 57% equity ratio on group level, no corporate debt. We only have nonrecourse project debt on our group balance sheet, but on a corporate level, we remain unlevered as of today. And we ended the year with almost $14 million in free cash. This is money that we can deploy on short notice for project development, for overhead expenses or for additional projects. It is significantly higher than the number that we reported at the end of Q3 last year. And the predominant reason is, of course, our divestment from the Saint Kitts project as well as seeing in Q4 2023 already the first impacts and positive results from our cost-cutting measures that we will see take full leverage during 2024. If we look at the quarterly distribution of last year's results, this very much follows the seasonal pattern of our installed base, which is mostly solar PV-based as of today. So of course, the third and the second quarter of every year deliver much higher revenues and profits than the remaining quarters of the year. Our base [ at the moment ], as I said, is solar technology, and the highest output is expected in these quarters. 2023 was no exception, and we should see a very similar pattern in 2024 also. Looking at our projects. What we saw was a tremendous performance of our asset in El Salvador, the Santa Rosa and Villa Sol plant, generated revenues in line with our expectations, achieving an EBITDA margin of above 82%. So this is the one project that really delivered what we wanted it to deliver. The other projects have underperformed a little, but we also need to see this in perspective. I already mentioned that the Colombian assets suffered from trading losses. If we exclude these trading losses, the plant in the first few months of its operation actually performed quite solidly. The same goes for the Neol CHP project in Puerto Rico, which has underperformed a little bit as we saw a restructuring on the offtaker side, which led to a lower power demand. So overall, while the cost base for this asset is fairly fixed, the revenue did not quite meet expectations. And then we have Los Santos, a power plant in Mexico that we acquired in 2022. We have done a restructuring of this project ever since. We have made technical improvements. We started lowering the cost base of this project. So here in 2022 and 2023, we very much had to optimize the asset to be in line with the performance that we expect. But of course, this is not fully reflected yet in the 2023 numbers. So the EBITDA margin from this project with just over 60% was way below our expectations but, of course, also driven by the steps that we have taken. So 2024, especially for this particular project, will look entirely different and, therefore, only lead to much higher contributions on the profit side from Mexico. One final comment on our current portfolio. So in December last year, we commissioned another power plant in Colombia, the Planeta Rica power plant. This did not contribute anything to revenues and EBITDA yet in December because it only came online last, last year, and it just started generating revenue in 2024. Therefore, we did not share any results for -- generate and account for any results from this project in 2023. But needless to say, after a transitional 2023, 2024, will look very, very different, and I will get to that in a moment. But before that, I'd like to really share the exciting news that we also published to the market this morning that we started construction on our project, San Patricio, in Guatemala. It's a 65-megawatt power plant, solar PV, that once completed in mid-2025 will generate more than 140 gigawatt hours a year. The PPA that we signed with the IMSA Group, the region's and country's largest producer of refined sugar and also processor of sugarcane and one of the most important energy generators in the country, has a tenure of 16 years, which will commence once construction is completed, and it is a build-own-operate-and-transfer structure, meaning after the 16-year tenure, the asset will be sold to the IMSA Group and then continue operations under their ownership. Guatemala remains a very interesting country for us and market for us, so we will certainly see other projects that we are developing and building in this market over the next few years. The IMSA PPA and the San Patricio project is just really the very first step. We also signed the EPC contract just on Friday and published the news this morning. We issued the limited notice to proceed. It is noteworthy that the EPC contractor is the same one that already built our Santa Rosa and Villa Sol power plant in El Salvador, a plant that was completed in time and budget. So our experience with the Enerland Group is very good, and we hope that they can repeat their stellar performance again for this particular project in Guatemala, which is significantly bigger, but at the same time, it's the same technology, and it's fairly close to the core of Enerland's business and expertise. We will also secure financing from a local bank. We cannot disclose the name or the exact terms at this stage because the loan agreement is not officially signed even though it's been negotiated. The project will see an 80% contribution from the bank for its financing, and the tenure is also 16 years, matching the tenure of the PPA. Overall, this project is very much what we would like to see as the proof of concept for our new business model, which is to take projects from greenfield ourselves rather than acquiring it from a third-party developer, and so really in record time with a very lean and focused development phase, taking it to the ready-to-build stage, benefiting from excellent bases at the moment and platforms for module prices and workers and the like. So this project really demonstrates what we as a company can do. When we go out, we secure a power purchase agreement from creditworthy off-takers, and then we take it through the development stage and make sure that it's ready to build in a very short period of time. And both from an economic perspective as well as from a size perspective, San Patricio for us is really one of a kind. It would nearly double our current base of installed capacity. And economically speaking, it's by far the one that we expect to deliver the highest contribution in terms of revenue, profits and returns for our country and to -- company and to our portfolio. So San Patricio, a big milestone for our company. And at this stage, I'd already like to thank all of the team that worked on this, the construction team, the development team, everyone supporting this from a legal and financial perspective. Very, very well done, guys. And I think it's just one of many projects to come, but this is really truly something that will change the face of our company entirely once it's commissioned, and I'm very, very proud of everything we've accomplished here. Thank you. San Patricio is also one of the projects that clearly meets the criteria that we set for investments. And I'd just like to reiterate what these are. Of course, we have clear equity return requirements that we need to meet. Of course, our mission is to help with the energy transition and to make sure that clean and affordable energy is being delivered in the markets that we're active in. But we cannot do so if the economic parameters are not working for us. We have very high equity return requirements also to meet the expectations of our shareholders and meet the necessities under the current high interest rate environment. San Patricio is checking all the boxes, and the future projects that we invest in simply have to meet these standards as well. Even if they offer a certain strategic value, the economic return perspective in my view, cannot be compromised. The size of the projects that we're looking at, San Patricio certainly being at the higher end of the range, is clearly utility scale. 25 to 75 megawatt is what we're looking for in solar PV projects. And this is clearly a change in direction. Rather than owning projects 100% in the future, we want to start selling down assets early on, preferably when they're ready to build. So every project also needs to offer an attractive opportunity for a potential coinvestor and offer us the potential to either farm it down entirely once it's ready to build or in part. And of course, this also largely depends on who is the offtaker. We have signed PPAs with public utility companies, with private utility companies, with industrial offtakers. And it's clear there's a wide range available, but our job is to really look into who is the right offtaker, who can be bankable at the end of the day, who is the one that can be stable for 16 years, 25 years, however long a PPA tenure of those. And of course, IMSA is a clear group where we believe it ticks all the boxes. The other offshore -- or offtakers that we have for other projects are also very much in line with that, but we will even pay greater attention in the future to make sure that we get the right offtakers for our projects. The only missing piece in the Guatemala project is that we have not yet closed -- officially closed the deal with a coinvestor. In line with our revised strategy, once the project is ready to build, we want to start farming this project down. The reason here is that we believe this is where we can, instead of paying a development fee, actually secure it. We believe that the value increase we see from starting a greenfield development to bringing it to ready-to-build is quite significant, and this is our opportunity to take money off the table early on to really see the value that we've created realized by selling down part of the asset and also in the process, of course, reducing the equity requirements we have when investing in the project because part of the equity that we need to invest to build a project is being covered by the development fee that we're recording. This means that our capital exposure is lower. So it's a form of derisking the project for us, and it significantly -- really, really significantly boosts our IRRs. And this is why this part of the strategy, the successful greenfield development and the partial farm-down and ready to build will be much more dominant in the foreseeable future because this is really where I believe the greatest value can be created for us and where we can balance the need for high equity returns and a steady growth of our capacity in the best manner. So we don't have to retain 100% through our construction operation. We need to make sure that we bring the right partners in very early on for strategic reasons and, of course, also for economic reasons. During our last webcast, we shared the cornerstones of the revised short-term goals and strategy that we're employing, and I'd like to report a little bit on the progress that we've made. So we said that we needed to quickly shore up cash reserves to create maximum flexibility for us to make sure that we have the maximum number of alternatives on what to do with that money without relying on external sources of funding in times where interest rates are very high and in times where bringing on corporate debt or raising new equities may be not so beneficial, especially not if you want to do it for the best of the shareholders. We have done so by divesting our Saint Kitts project. We have done so by divesting one of our Puerto Rico projects, for which the money has not yet been returned but will be returned shortly. So overall, the shore up of the cash reserves has worked ensuring that for the foreseeable future, we are in a very comfortable and solid cash position we can make and meet the commitments that we've made for the San Patricio project. In other project, we can pay for our overhead, and we can pay for additional development without depending on external funding in the near future to make this work, so we can grow our company, we can boost our returns without having to raise additional capital, which I personally find not only liberating, but very, very important in the current market environment. The optimization of our existing portfolio is ongoing. I already elaborated on what we did in Mexico with technical improvements and cost-cutting measures. This is something that we apply to our entire portfolio on a constant basis. We always look for optimization potential, whether that's recontracting a PPA, lowering costs or making improvement to boost the output and performance of the plant. This is something that's continuously ongoing. In Mexico, the team already did a great job so that 2024 will be very different for this particular asset, but we will make sure to look at every part of our portfolio, and so we continue to fine-tune in performance. The greater focus on developing greenfield project has also been successfully employed. Other than the success we now saw in Guatemala, we are very actively working towards a PPA tender in Jamaica, a project that we've owned for a tough -- for some time and where we're now ready to tender where we believe we have very good ambitions and opportunities to bring in the PPA for this project and then conclude development later this year. And we've also commenced new project developments in Guatemala, in El Salvador and in Panama, focusing very much on Central America. And as of today, more than 300 megawatts are under active development, and we should see them move towards ready-to-build over the next 12 to 36 months, depending on the country and the size of the project. I mentioned the greater emphasis we want to put on farming down assets early on, bringing in coinvestors at ready-to-build to boost our IRR. San Patricio is a project in Guatemala where we will see this happen fairly shortly. I'm not able to disclose anything yet, but we are very actively working on it. And of course, a very important cornerstone of our future ambitions is also that we bring down structural costs. We had a fairly high cost base in 2022 and 2023. Of course, a lot of one-off items, but I think we also had a structure that did not truly meet the growth plans that were realistic at the time. So we're now slowly bringing down the organizational structure, making sure that the setup meets the current portfolio and actually offers the scalability that our business model has, and we should see savings compared to 2023 in the range of $1.5 million to $2 million in 2024, and we will share a status update on this more precisely during the Q1 result webcast, which will be at the end of April. But we can already see the results as of today, and I think that this is very important to make sure that the good performance we're expecting from our project is also met by more a solid and reasonable overhead cost base on corporate level, which brings me to 2024 and the outlook, what are we expecting. I mentioned that 2023 was very much a transitional year. But before we get to 2024, let us look at what we're trying to achieve as a company. Ultimately, we want to be the leading IPP in the region, but we also want to be profitable. We want to be self-sustainable. We do not want to rely on outsourced, outside funding if we need it. We want to make sure that our portfolio is strong enough to deliver solid cash returns, which we can then redeploy into new developments and new constructions. So we want to be more resilient in any kind of market environment. Of course, as a young company that's just starting operations, that's difficult to achieve, but I think we are now on the threshold of getting exactly there with the 5 projects we have under operation. With the San Patricio project in Guatemala being built over the next year, we are seeing exactly the right bases that we need to make this work. And as part of it, we will focus on exploiting the greenfield return I mentioned, where we're really seeing steady capacity buildup, but we're not compromising the return requirements that we have. We will also try to maintain the balance between the scalability of our business, which is absolutely there. We can add the Guatemala project without having to hire any additional staff or creating any additional cost, so doubling the capacity does not mean you're doubling your structural cost. Actually, they remain more or less unchanged. So you're really seeing the scalability. But at the same time, we also want to make sure that we take money off the table after the development phase, see the value that's been generated actually turn into cash for our company and our shareholders. And that's why we will here try to seek the balance between scaling up quickly but, at the same time, also bringing in coinvestors and optimizing returns. And last but not least, and this has always been our competitive advantage, we have a presence in the region. We have offices in Colombia. We have offices in Panama. Our local team, our lean team, the organization that we have, they really make all the difference, but they make even more of a difference if we work effectively and if we keep the structure lean. And we will always have an eye on making sure that the scalability of our business has is not threatened by us overdoing only on the structural and overhead side. The outlook for 2024. 2023, again, was very transitional. Why will 2024 be so different? Because, one, for the very first time, all 5 projects, the entire portfolio will see a full year output rather than a partial outlook in 2023 and 2022. So this alone will drive up revenue and will drive up profits quite significantly. Then the trading losses we incurred because of the construction delay in Colombia are now contained. The projects are now under normal operation, and they will start delivering normal, expected EBITDA contributions rather than being diluted by trading results, which are not really controllable at the time. In addition, I mentioned this, the post-acquisition output and cost optimization of the Mexican project has been completed. So we will see a significant margin improvement in 2024. The revenue of the project with $3.6 million alone was already very good. Now we need to make sure that the EBITDA margin comes closer to the 75% to 80% range where it belongs. The overhead cost-cutting measures we implemented already show first results. As I said, you will see this displayed in the Q1 results, which we will publish at the end of April. And of course, also important for 2024, we are building a fairly big power plant in Guatemala. So the construction phase, monitoring this very closely, managing this efficiently and appropriately will very much be a focus in 2024 as well. So all of this contributes to the clear fact that we will see a significant increase in output. We will see a significant increase in revenue, and we will see a significant increase in operating profits from our projects. We expect energy output to go as high as 145 megawatt -- or gigawatt hours, I'm sorry, from the 5 projects that we have, and this is only our economic share, so it's a proportionate value. The same for revenue where we see a 30% increase to $12 million, and consequently, the EBITDA will also increase more -- almost double to $8.5 million. These are the expectations that we're having from the existing portfolio based on the existing performance and measures that we've taken. And this is very much what I mean when I say 2023 was transitional because 2024, now that 5 projects are really operational, will be entirely different. And it would very much surprise me also if we were not able to be -- if we wouldn't be able to report an operating profit in corporate level, so after deducting overhead costs, in 2024 as well. This has very much been the target. And I think 4 years after establishing the company, this is a fairly development where we see us going from 0 to being a profitable business in the developing market region with very, very high EBITDA contributions from these projects. So this is something that I am very optimistic about materializing, and I find these predictions are highly probable based on our internal analysis. And if the projects perform as planned, including all the risk contingencies that we have included in the calculation, these are the results that we will see at the end of 2024. I'm sure that in Q1 and Q2 of this year, we will already see the upward trend, and we will see us meeting this outlook and these expectations. What's happening beyond then? I already mentioned that the Guatemala project is under construction. It will come online next year. The project alone will contribute more than $8 million in revenues to our group at above 80% EBITDA margin. So if you look back at our outlook for 2024, where we are seeing a $12 million revenue, once Guatemala is fully operational, this will move us above the $20 million revenue per year threshold. And it will also be reflected in an improvement of the overall portfolio EBITDA margin because the Guatemala project is expected to be just way more profitable than most of our other projects. On top of that, we still have our active development in Jamaica, where we will try to secure a PPA in the upcoming tender this year. Once we win this tender, there will be another development phase of around 6 months, in which we will decide whether we want to keep the project, we want to sell the project or we want to build it together with a coinvestor, in line with our existing strategy. But the first step is to win the tender. We expect quite a competitive environment, so we are working very hard to make sure that our bid can be a successful bid. The bidding deadline is in early April, and we are very well positioned to participate in that tender. And then, of course, as I mentioned, new projects have commenced development. Our team is very actively working on moving these projects forward, securing additional PPAs, securing the land, securing the interconnection permits. So our company overall is making sure that we are working along the entire life cycle to make sure that we are taking the next step for our company. Again, the impact of San Patricio will be significant. Let's just really frame this -- what this one project can do. It will double our capacity as a company. It will double our energy output. It will deliver more than $8 million in revenue for our company and $6.5 million in EBITDA and this over a secured 16-year PPA tenure, and we need no additional group overhead to make this work. The construction is completely financed by the free cash that we have available and the bank loan that we secured. So there is a very, very limited risk here that this will not materialize. And I think we need to understand the upside that this can have for our company. Again, I'm very proud of this. I think this project is truly transformational, and we should see it at what it is. It's really quite unique for a young company like ours to take a step like this in its only 3 years after being established and starting operations. All right. I stumbled a little bit through the last few sentences here, but thank you very much for your attention. I will now hand the call back to Heike to make sure that I can answer any questions you might have, which you can, of course, ask by posting them in the chat function. I think a few questions are already in. So again, thank you for your attention. Thanks to our entire team for their tremendous effort and work and performance. And Heike, back to you. Happy to take any questions that the audience might have.

All right. Thanks a lot, Stefan. Yes, as you already mentioned, we have quite a couple of questions already in our activity feed. Let me just look through them. All right. Maybe let's start with one of the more general questions. What is the growth strategy in Central America and the Caribbean?

Yes. Thank you. So as I outlined, greenfield -- new greenfield developments in the region are very much what we're focusing on. For the near future, this will be Central America, meaning Guatemala, El Salvador, Panama. We also have an active development ongoing in Dominican Republic with a local partner. We have the Jamaica project. So overall, we will continue to see greenfield developments, and then we continue to see us investing in building these projects, but not alone, but with a coinvestor to make sure that we money -- take money off the table early, boost our returns, making sure that the projects are meeting our equity return requirements. So our growth strategy is very much what we saw before. We want to continue deploying clean and affordable energy throughout the region but with the right balance, with the right approach and without compromising any equity returns that we might have. The region itself offers significant potential. I mean there's at least 40 gigawatts that need to be installed over the next 10 years. We are already a very good recognizable brand in the region. There's rarely a project that we don't know of. So I would say that we are very well positioned to help with the energy transition and to make sure that a lot of that additional potential is landing on our table. And then it's just a matter of securing the financing and making sure that the capital is available so that we can actually scale up even more quickly once the market sentiment changes and interest rates come down again.

All right. Now the next question, what is the expectations for Neol CHP in 2024 in terms of EBITDA margin?

Well, overall, we want the project to be in the 65% to 70% EBITDA margin range. The reason that it's performing lower than the solar PV plants is that you have higher fixed costs for operational maintenance, for example. These are much more maintenance-intensive. So the cost base won't change all that much, but we need to make sure that revenue goes up. Our client, the Neolpharma Group, is a pharmaceutical company that has gone -- undergone some restructuring in their Puerto Rico operations in 2023, and we now expect them to ramp up manufacturing, again, which in turn, will ramp up the requirement for energy that we can then deliver. So once the project goes to its projected normal revenue levels of around $1.8 million, we will see normal margins also. And if we really see that the project is not performing all that well, we just have to increase our ambitions of maybe selling down part or the entire asset, depending on how it goes. CHP is not really a focus of our company, not now and not going forward. But as long as the company -- sorry, the asset in Puerto Rico, Neol CHP is helping us delivering stable returns and is helping us cover overhead expenses, it's fine to be part of our portfolio. If it doesn't perform, we have to pay attention to it.

All right. Now there are quite a couple of questions coming in on the Guatemala project, obviously. And let me just try to group them. Since you were just talking about overhead, maybe I'll start with this question. Can you comment on how you will make San Patricio work without requiring additional overhead?

Yes, of course. So we already have the development team and the construction team on board. The construction itself is done by an outside general contractor on a turnkey basis. So our small team can oversee this. So we don't need additional employees that we don't already have to make this work. And during the construction phase, the turnkey contractor is taking care of it, and afterwards, our existing team and our existing asset management providers will operate the plant. So whether it's a 10-megawatt project or a 20 or a 65-megawatt project, it doesn't really change the work that is involved. And the existing setup that we have and the existing partners that we have in the regions can cover this. So that's the simple reason why we don't need to hire anyone to make this work. We already have them as part of our staff and in our partnership network.

And Stefan, can you comment on the equity portion on the Guatemala project and how we should think about the CapEx schedule for this project?

Yes. So the overall investment cost is estimated to be around $42 million, of which 80% will be delivered by the financing bank. There will be a small down payment now, relatively small of around 5% of the CapEx to secure the module prices, the inverter prices and start the early work, site clearing, basic engineering. And the rest will then be deployed pro rata over the next 12 to 15 months. So the down payment is happening now, and the rest will be deployed as the construction progresses. And usually, it's that the equity goes first, and then the bank comes in at a later stage once the equity is fully deployed. We are still working on the exact schedule because it also depends on the partner that we're bringing in, see who exactly contributes what when. But if we don't do this without partners, if we go alone, then we expect to deploy around $8 million in equity over the next 6 months, and then the rest is being taken over by the bank.

Okay. And if you can say it already, what's the cost of financing for San Patricio?

I'm not in the position at the moment to reveal this because we have confidentiality agreements. But I think based on the current SOFR rate, which is the base rate for this project, and then there will be a margin applied to it. The margin is relatively low. So I think if I say that the total financing cost will be somewhere between 6.5% and 8%, I think that's a fairly good estimate for now. But it also will depend on how SOFR goes over the next few years because this is the base rate for the project. But I think if we're talking about mid to a little bit over mid-single digits, that should be a very good estimate.

Okay. And yes, these 2 are related. Can you comment on any interest you've seen to coinvest in Guatemala?

Oh, yes, absolutely. So the interest has actually been quite incredible. We have fielded a lot of requests early on when we first signed the PPA with the IMSA Group a year ago. That's when conversation started. Of course, we have already selected a preferred partner, someone that we believe is not only relevant to this project but also for many projects to come, someone that we believe does not only bring financial competence and strength but also strategic relevance. And the negotiations are going well. But we also know what this project is worth. We know it from our experience. We know it from the many requests that we've seen to join forces with us here. So despite all the benefits that a long-term partnership might have, the economics also need to work. So we are still finalizing the deal as we speak. And at the end of the day, it's important to note that we don't necessarily need a partner for this project to make this work, but it's part of our strategy. So we want to partner. We have selected a preferred partner. We hope that we can review who it is and that we can sign the deal closely. And if it doesn't work out, then we will simply speak to the other parties that expressed interest early on but then we excluded from the transaction for now while we are in discussions and negotiations. But it should also -- again, we noted that -- I mean we just started construction, meaning day by day, we are derisking the project. And as we derisk the project as it inches closer towards operations, theoretically, the value increases. So we are in no hurry to sign any deal. We want to make sure that we sign the right deal with the right partner to see the value that the project really has, to do the best for us and our shareholders. And whether this takes an additional 4 weeks or an additional 2 months really depends on how conversations are going, but I'm truly optimistic that we will have something to report much earlier than that.

All right. Great. And Stefan, could you give a price range per megawatt that you would like to achieve for a project at this stage?

Well, for this particular Guatemala project, we believe that the price is certainly above $120,000 per megawatt peak. There are other factors to consider. We can always agree on upsides depending on how construction is going. If we see a particular strategic value from joining with a partner or a long-term value, because we don't only look at one project, we look at several projects, might be a little bit below. But I think it's fair to say that $120,000 per megawatt is the benchmark that we've seen also from other interested parties, and that's very much what we see as the absolute minimum for this particular project.

All right. And a follow-on question here. Should we expect any changes to the power prices per megawatt? Any risk that it will drop? Or should we expect some inflation adjustments for 2024?

So as you've seen on the slide, the power price per megawatt hour will go up a little bit. This is an inflationary tendency. Overall, especially with Guatemala, the portfolio average will go down because the Guatemala project has a power price below $80 per megawatt hour. But we will always see prices also in our portfolio on average that are much higher than what you see in the U.S. and Europe. But as we add new projects to the mix, especially big projects like Guatemala, this will, of course, dilute the average price. But if you look at, for example, Mexico, you look at El Salvador, we are very, very close to $100 per megawatt hour or even above. Other projects are below that. So at the moment, with the $83, $85 range that we are seeing for 2024, we can be very comfortable. Once Guatemala becomes online, we will have a little bit of a dilutive effect, but they will still remain comparatively high compared to what you may see in Europe, for example.

Okay. And Stefan, what is your current equity return requirements? And are you able to achieve this in Guatemala even without farming down the asset?

Yes. So our current equity return requirements, given the market environment, it depends a little bit country per country, but I've communicated internally that 15% is what we should see across the board for new investments. The Guatemala project with a partner or without a partner absolutely meets the requirements, and there is a margin of safety that we have also applied.

All right. And there is a question, what is your target for ownership after farm-down?

If we stay invested through the construction and operational phase, we want to retain a majority. Whether that's 51% or 60% is to be negotiated. I don't think that we would farm down an asset and retain a minority stake. That's not the kind of business that we're in. So if we farm down more than 49%, we're selling the entire project.

Okay. Now then we have a more general -- slightly more general question. What is the expected cash flow from the projects in operation?

The 5 projects in the portfolio should -- depends a little bit on the debt repayment schedule. You can certainly understand that, but generates somewhere between $3.5 million to $5 million in free cash flows that can be returned to our group once they are fully operational, which is now the case, and once they've started down paying their debt.

Okay. Then moving on to the next question. 2023 was a year in transition as we've heard. How will this translate into the corporate level? Are you expecting to be profitable in 2024 on the corporate level?

Yes. So with the projected revenue and EBITDA contributions from our projects for this year and the cost-cutting measures that we've taken on corporate level, it would be a big surprise, a big surprise if we wouldn't show an operating profit on corporate level as well on group level for 2024.

Okay. Thank you. And then maybe looking at the last question for now, which markets would you consider to be the key focus in 2024? Is Guatemala still a tick-all-the-boxes market as you said before? And do you have any other locations you're actively looking at?

Yes, absolutely. So the first part of the question, Guatemala indeed ticks all the boxes, especially if you are able to secure a power purchase agreement like we have with a company like the IMSA Group. I'm sure that the IMSA Group also has ambitions to grow beyond this one project with us. So there might be a chance that we actually have a phase 2 of San Patricio or an entirely new development. But regardless of IMSA, Guatemala is a core market for us. I'm sure that there's potential for at least another 200 megawatts for us alone that we can exploit. On top of that, Panama, where we also have an office, which I consider more or less our home market in the region, we don't have an asset there yet. We've been looking for a while now. We've started our own greenfield development, so I think Panama is very, very high on our list. Jamaica, I already mentioned several times. On top of that, we have El Salvador. We have the Dominican Republic. We see that the Mexican market now with the change in government is slowly opening up again. The only market that at the moment, I really don't consider to see any additional investments from us in the near future or developments is Colombia. All the other markets are of interest, and Central America is absolutely the core focus.

All right. Thanks a lot. I think this concludes the questions that I can see now in our chat box. Now of course, let me just remind you that if there are any further questions that we haven't covered today or if you can think of another question you would like to ask, please feel free to send them to us via e-mail at [email protected], and then we'll obviously try to answer the question also after this event directly to you.

Thank you, everyone.

This concludes the session today. I'd like to thank everyone for joining us, and have a great rest of the day.