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

Good afternoon, everybody. I have the pleasure to welcome you to today's webcast for MPC Energy Solutions. In our webcast today, we will discuss our results for the first quarter of 2025. The interim report for the quarter was published this morning and it is available on our website. Please note that this website is being recorded, and it will be published later together with a transcript and the presentation slides. [Operator Instructions] And just as a last reminder, we will be making certain forward-looking statements in this call. Please refer to the disclaimer on screen, it's included in the presentation, for the background and the limitations for these forward-looking statements. Now, let me introduce you to our speaker for today, Stefan Meichsner, the CFO and Managing Director of the company. Stefan, over to you.

Heike, thank you very much, and good afternoon to everyone joining us here today. I'm very proud to report that in many ways, the first quarter of 2025 was the best quarter that we ever had as a company. Among the key messages that we really want to share with you today is; for the very, very first time in our company's history, we have generated a positive operating profit on consolidated basis, which is a big milestone for us. For us, it's also not a surprise. It's simply the result of a lot of effort and the work over the past 18 months to improve the performance of our projects to bring down costs, both on project and corporate level. Speaking about overhead cost reductions, we also removed legacy obligations from our balance sheet and we are really starting 2025 on a robust basis. So, although everything that you see here today, the good results for Q1 are simply a result of what has been done in the past. And I'm very proud of what we've achieved. And of course, we do not want to stop here. We want to continue and deliver such results in subsequent quarters as well. Before I dive into some of the details, I'd just like to highlight some of the objectives we've set for 2025. So basically, the headlines that I would like you to read about our company as we go through the year. Priority #1 and also, let's say, headline #1 is, of course, that we want to successfully connect our Guatemala project, San Patricio, to the grid this year and deliver first power, which we currently project to happen in July 2025. The impact that this project will have on our group cannot really be overestimated. It's the largest project that we have in our portfolio at 66-megawatt peak, clearly outranking everything else that we have ever built before. And as such, once it's operational, both the revenue and the profit contribution will positively impact our group in a way that we have not seen before. Secondly, paired with the connection start of San Patricio and also the other good results that we're seeing from our projects, we want to generate positive free cash flows. The improved project operating margins, which I will talk about today, will certainly help with that. We also continue to monitor our spending very, very closely. As many of you may remember, we reduced overhead spending last year by 30% compared to 2023. And we have actually initiated further cost reduction measures to make sure that we lower that base further and remain very, very selective on our spending, both on overhead as well as on new developments. And the third headline is that we want to continue increasing our free cash position. The main drivers, aside from simply being careful on what we spend our money, is that we will continue to divest projects, first and foremost, in Colombia, and we will also start seeing greater cash backs from the operating portfolio. We already started seeing some cash returns last year, and we expect this to increase and improve in 2025. And these 3 objectives are really just part of an overreaching goal, which is that we want to start returning cash to shareholders. It's now -- we're now in our fifth year since the IPO in 2021, and it started that -- the work that we've done that the shareholders benefit from it, both in terms of stock price appreciation, which is backed by good operating results and ultimately also by us returning hard cash to them. With that, we can look at the details of the Q1 for 2025. First highlight is, we really have seen improvements across all key metrics that we track. Energy output, revenue, operating profit and operating margin are up year-over-year, despite the fact that we actually operate fewer projects compared to the first quarter of 2024. Some of you may recall that we sold our combined heat and power plant in Puerto Rico late last year. So if you just look at the like-for-like comparison, the increases that I will share with you in a moment are actually much larger than just looking at the pure comparing numbers. On top of that, we do not rest when it comes to cutting costs. We had the reductions last year. We continue to implement further reduction measures in the first quarter, including head count reductions. Most of the impact will become visible from the second quarter onwards as we have some special expenses related to the reduction measures in Q1. But overall, we are already trading below last year's overhead by roughly 5% in the first quarter, which is an achievement in itself. I mentioned the construction in Guatemala. At the moment, the project construction is on time and in budget. I will share some pictures from the site and some further details during the call today. And then ultimately, you know that we are conducting divestment initiatives, especially in Colombia, where we have signed an agreement to sell one of our development projects. And we are also working on divesting our operating assets. And we have made progress, which I cannot elaborate on in too much detail, but we intend to share additional news on our activities there as we progress and as we sign more sales agreements. If we look at the key metrics that we track, the one that really stands out for me is the improvement of the EBITDA margin. So, we improved our operating margin from our portfolio by almost 10 percentage points compared to last year, seeing a significant 20% increase in the absolute numbers as well. And that is in part driven by the better top line that we have, but it's also really a proof that our cost reduction measures that we took and the optimization that we're targeting is paying off already. Our asset management teams are doing a terrific job in really looking at each project individually and trying to optimize what we can despite some very difficult circumstances in some countries. But we are really doing a great job. And as I mentioned before, if you then exclude the CHP plant that was part of our Q1 numbers in 2024, the like-for-like increases both in revenue and in operating profit are substantially larger than what we display here, even though what we have achieved is already a very, very good result. The driving forces behind this improvement continue to be our 2 projects in Mexico and El Salvador, who are not only performing better than last year, even better than already a good year in 2024. But they are also compensating for the continued challenges that we're facing in Colombia, where we improved our trading result, but we are still facing higher costs related to security issues and protection measures that we have to take in this country. So, while even in Colombia, we've seen improvement on some fronts, overall, the project in Mexico, the project in El Salvador, they are the ones pulling all the weight and they are the ones making sure that the Q1 results that we're seeing are what they are. And it also underlines, once again, that while as a group now with over 70% operating margin on project level, we are getting to a level where we should be for projects like this in our industry. The Colombian assets simply do not keep up at the moment. And we believe that these projects could perform better in the hands of local investors, which is why we have started the sales initiatives, why we're looking for the Colombian investor to take over the assets. And ultimately, they might be able to solve the problems that we simply cannot fix from here. If we look at overhead costs, I already mentioned it, Q1 is typically the quarter in which we spend more money than in other quarters for the simple fact that we have certain annual charges like insurance premiums or Board compensation that only are relevant in Q1. So, the level is higher than what we will see in subsequent quarters. And in this year, of course, because of the head count reductions we did, certain one-time charges like severance payments are also included. Nonetheless, we managed to reduce costs by 5% already. This is below the target that we want to achieve for the entire year, which is looking more at the double-digit reductions. But we will get there, and we will see this impact in Q2 already, and as I mentioned, also in subsequent quarters. Our free cash position, meaning the cash that we can deploy for overhead, for project investments or also for returning money to shareholders, stood at $3.3 million at the end of March. This number does not yet include the cash we are getting for selling our development project in Colombia or the remaining cash we are still expecting from selling the project in Puerto Rico. Certain sales price tranches will only be collected later in the year. The total of these are around $1.6 million. So the free cash position that you see here is actually underrepresenting what is already secured, but not yet in the bank. And if you look at that base compared with the lower cost structure that we now have, we have no future -- currently no future capital commitments. So we are liquid enough to easily pay for whatever is coming our way in the foreseeable future. And with further proceeds from project divestments, we will be in a position to distribute cash to shareholders without running into any liquidity concerns. So this is quite a comfortable position that we're currently in. We've worked hard to get here. It wasn't easy always, but I think we've done a good job, and we're now just looking into a future where excess cash will be available to make distributions in the short term. Looking at our consolidated basis, the story is the same. Revenues are up, costs are down, operating profits and margins have improved. And as you can see here, the group EBIT, as I said, positive for the very first time on a consolidated basis also in our company's history. To wrap up the review of Q1, at least from a financial perspective, the balance sheet remains what it is. We are still relatively low levered compared to other peers in our industry. We have a good solid consolidated cash position. Most of that is, of course, related to our ongoing construction activities in Guatemala. And the earnings per share on a consolidated level are also not negative for the first quarter. We basically broke even on group level as well. So, overall, the results for Q1 are very good. If we can continue like this, and we don't see why we shouldn't, 2025 will certainly be a record year for MPC Energy Solutions, and well, that's what we came for, that's what we work for. And that also allows us to look ahead, what can we actually expect in 2025 aside from the goals that we've set for ourselves? What is the guidance that we can share? Before we look at the numbers that we are projecting for this year, just a few impressions from the construction progress that is being made in Guatemala. So what you see here are aerial shots of the plant itself on the left, but also of the substation, which has already achieved mechanical completion and is waiting to be connected. So, as I said, first power is expected to be delivered in July. The module installation, the module tracker installation is mainly complete. The teams are working on drainage systems. They're working on cabling and wrapping up the remaining works that need to be done to achieve mechanical completion of the plant itself. Afterwards, we will enter the testing and commissioning phase. And, as I said, we intend to inject first power and sell first power in July of this year, which is in line with our previous projections. And I think so far, even though the work is not done, the hundreds of people that help make that work, they receive our thanks and our dedication because so far, it's been a stellar construction progress with a super health and safety record and very, very good progress. So we can be proud of this achievement. Which brings me to the projection, which is, I want to say that right away, quite conservative for 2 reasons. One, we are not including any contribution in this projection from Colombia, even though the projects are still part of our portfolio, they are actually contributing to our top and bottom line. We haven't considered this in the projection here, meaning that there is an upside, and when we will update our guidance later in this year, commonly after the second quarter results, we will be able to see that upside. The second reason is that we have factored in the Guatemala project only for a portion of the year, and when we connect in July, we might actually see a little bit of an upside to the overall contribution that we are predicting from [ project ] for 2025. But [ message ] is that the Guatemala project is so big that even now that we no longer have the project in Puerto Rico, we no longer factor in the project in Colombia. That project will compensate for it in the second half of the year, and it will add to more positive margins because the Guatemala project is expected to deliver much higher operating margins than what we were used from Colombia or also Puerto Rico. So overall, when Colombia is out and when we have El Salvador, Mexico and Guatemala left, we will trade at a higher operating profit overall. And this is only Guatemala contributing for 6 months in 2025. Next year, 2026, and the project will have a full operational year for the first time, the numbers will, of course, look much larger for the core portfolio that we should have by then. All right, Heike, I believe this already concludes my prepared remarks. So I'm more than happy to jump right into the Q&A, and I'm happy to answer any questions that you and the audience might have. And so far, thank you all for your attention.

Okay, sure. Thanks, Stefan. [Operator Instructions] All right, then, let's get started. So, the first question, Stefan, that came in, when you've completed your plans to sell the project in Colombia, what are your intentions for the remaining portfolio?

Okay. Well, that's a very fair question. I mean, the easy answer is this. It depends. And what does it depend on? It depends on what we believe creates the greatest shareholder value, because ultimately, that's the mandate that I was given to create and increase shareholder value and do the things that create the greatest shareholder value. So once we sell the projects in Colombia, the core portfolio, if you will, that's remaining is, Guatemala, Mexico, El Salvador. So, a little bit over 100 megawatts of installed capacity portfolio that can generate substantial profits. For a full year, I think the projections on EBITDA level would be EUR 13 million, so 1-3. So substantially above what we've seen in the past, what we're predicting for this year. Nonetheless, operating this portfolio also means we take certain operational risks, which we are fine with. But it is true that there is a technology risk. There is a risk associated to the offtake or there is a risk associated to variable interest rates. So, if someone gives me a call and says, I'm interested in buying your project, no matter which project it is, we have to make that comparison. We have to make the comparison of whether the price that we are being offered is higher than what we believe the fair value for continuing the operational side is and taking all these risks. And this is how we will go about it. And ultimately, the question is, does operating the portfolio or selling the portfolio deliver the greatest value in our view, what is in the best interest of our shareholders, and then we will make that decision. And that means this goes for every project. It's not just Colombia. This is just part of the asset rotation, part of the assessment that we continuously have to do. And this is what we will do. So, at the end of the day, we feel very comfortable with what we will have once Colombia is being divested. We can operate it profitably, and it will generate cash that we can distribute. But if there is an offer on the table for one of these projects, for all of these projects that is attractive enough to compensate for what we believe we could get from the operations, then we will certainly discuss it and make a decision in favor of the shareholders, always.

Understood. Another question that ties in nicely, as it's also regarding the broader strategy is, can you share your plans on new developments? Do you have a pipeline and do you expect to build more power plants and grow your portfolio in the coming years?

We scaled down our development activities quite substantially. We do currently have 2 projects in what I would call active development. One of them is in Guatemala; another one in Guatemala not the one we're building, so a development project. One of them is in El Salvador. I would say the total capacity of both of them combined is around 90 megawatts. In El Salvador, we've already secured the land, we have secured the interconnection. In Guatemala, we're working on the power purchase agreement. We haven't done -- really done nothing else. So, there is a point in time where we can develop these projects further. It won't cost us a lot of money. And if we see that developing them could yield returns in the future, we will certainly do so. Let's say that we mature them as quickly as we could. We singed PPAs. We do all the remaining development work. Ready-to-build could be achieved in 2026, sometime during the year. At this time, I don't think that we would build these projects ourselves. I think we would rather take the development fee and sell them at ready-to-build, but no decision has been made, and we have not entered into any talks with someone willing to buy these projects. But these are the only 2 projects that we are really actively developing with very selective spending. So we do what we can do without overexposing ourselves. And this will create value, and ultimately, we will try to secure that value. But I believe at the moment, it would be not by building, but rather by selling the project.

Okay. Now there are 2 questions, and I will group them into 1 because they're concerning the same overall topic and the topic is basically returning cash to shareholders. The question is, share buybacks were mentioned in the previous quarterly presentation as an option for returning capital contingent on approval from shareholders. Has this changed? Or why has the Board opted not to call for a vote on share buybacks at the AGM? And maybe linked to this, another question, if you're considering share buybacks, dividends or both, if you're planning to return cash?

Okay. So we will cover, let's say, the standard resolutions that we need to close out the year 2024 and any other approval that we might need for a transaction or, for example, share buybacks or dividends. We would simply call another general meeting to make that vote -- to get that vote. To your question, the options are also there. I think the easiest way probably to return, based on the consultations I've had with our legal counsels in the Netherlands and in Norway, is to distribute available cash out of the legal reserve. So it wouldn't be a dividend per se, it wouldn't be a share buyback. It would just be a distribution out of available funds within the equity and that should be relatively tax beneficial to shareholders. And it would eliminate the need to call a general meeting because the share buybacks and the dividends and dividends you can only distribute out of earnings, which we haven't compiled over the past years, would require a general meeting approval, distributing cash out of the legal reserve only requires a Board approval -- so management Board approval. And I think that's not only the easiest way, it also seems to be the most efficient way. But when it is clear that we will become -- get into a position where we can do it, and let's face it that it will not be in the second quarter, it would be in the third quarter, at earliest. And then we will make a decision of what's best and we will, if we have to put it to a vote. So, I wouldn't say that any of these options are off the table. I just think the easiest way would be the distribution out of the legal reserve.

All right. Now moving on to the asset side. Could you provide any more color on the expected sale price for the asset of the -- for the operational assets in Colombia?

I cannot share the details of any negotiations. What I can say is this, at the end of 2024, and that value is more or less unchanged, the book value of both projects on our balance sheet is around $17 million combined, So 1-7. And that is what we're targeting from the sales.

Okay. And Stefan, do you have an estimate on net profit per quarter once San Patricio is operational?

We don't do quarterly forecasts. But for this year -- I don't want to speculate, I would have to look at the numbers. Normally, I'm very firm with this. But let me put it this way, once Guatemala, Mexico and El Salvador are operational for a full year, and we no longer have the Colombian projects, then the net profit that we are projecting in this case, it would be for 2026 is between [ $1,500 to $200,000 ]. So let's say $0.5 million per quarter. And that is something that I believe realistically, and then you would simply have to break it down for 2025. But if that question is ultra-important, please send me an e-mail afterwards, and then we can address it and can also publish the answer as part of the transcript for this call.

All right. Okay. Well, looking at the questions, I think we've covered most of them. Actually, I think we covered all of them. But there's also one very nice comment, which I'm not going to hide from you. There's a very nice comment saying thrilled for these results and greetings from Brazil, too. So thanks a lot for this sender for your nice comment. We always appreciate constructive criticism, feedback, but also appraise, of course. Okay. I think this covers the Q&A section. Of course, if there are any further questions that we haven't covered today or you think of further questions after the call, feel free to send them to us via e-mail. The address, as usual, is [email protected]. Now I'd like to thank everyone for joining us today and wish you a great rest of the day.

Bye-bye. Thank you.