NHOA S.A. (NHOA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to our investor call regarding the Kwinana project. The investor call will be opened by our Chief Executive Officer, Mr. Carlalberto Guglielminotti; and with him to explain all details about the project will be Mr. Giuseppe Artizzu, our General Manager and CEO of the Global Business Line Storage; and Ms. Lucie Kanius-Dujardin, VP, Global Markets and Development. Mrs. Lucie Kanius-Dujardin and Mr. Giuseppe Artizzu will take us through a short presentation, introducing the new project, and we will then be available to answer to all your questions. Please note that this investor call will be recorded. If you could not attend the whole call, the webcast and presentation will soon be available on our corporate website. [Operator Instructions] So with that, I will now hand the floor to Mr. Carlalberto Guglielminotti.

Thank you very much, Chiara. And good morning, ladies and gentlemen. Thank you for being with us today. I mean as Chiara mentioned, I'm here today just to introduce to you Mr. Giuseppe Artizzu, our General Manager and CEO of the Global Business Line Storage, as you all know very well; and Mrs. Lucie Kanius-Dujardin, Vice President, Global Markets and Development that would explain essentially all details of the Kwinana Battery Energy Storage project, and we'll answer to any question you may have. Before leaving the floor to Giuseppe and Lucie, I would like to thank them for the great effort they and their team put in this project, which is the biggest EPC project ever won by NHOA and the largest contract ever signed in our history. And if I may, it doesn't come as a surprise. I mean it's simply the result of years of commitment, unparalleled efforts and, if I may, the result of technology investments and technology excellence of our teams. So nothing more than that. A contract with Synergy was signed on October 4. As you know and as you have imagined by our trading update, this is the contract, the EPC contract we were referring to, 100 megawatt/200 megawatt-hour battery storage in Kwinana and the Kwinana power station site. So -- I don't want to tell you anything more. That's the stage of Giuseppe and Lucie. I will now give the floor to them. And please, Lucie, go ahead. Floor is yours.

Okay. Thank you, Carlalberto. Okay. So Australia has been generating in 2022, 250 Terawatt-hour of electricity with 60% of coal plants. So while Australia is transiting to replace all this coal with renewable, we clearly observe now an important acceleration in the Battery Energy Storage System development. And to illustrate this importance of this acceleration, I would like to share with you just a rough number, which is the development -- the capacity development in Australia of 50 gigawatt hours of BESS project. So it's clearly a tangible ground for NHOA development in this geographical area. In the past months, we have been actively originating project in Australia and reached out to Synergy. So Synergy is the Western Australia state-owned electricity generator and retailer. And through Synergy, the Western Australian government is aiming at providing more security and more stability to the Western Australian power station. And this is how, with all this development, has been a great success. As of today, we are able, as Carlalberto introduced, to share with you that Synergy has been awarded NHOA to deliver the Kwinana BESS. So it's 100 megawatts -- maybe on the next slide, it's 100 megawatt/200 megawatt-hour project that is located in the old fossil plant of Kwinana power station that is being commissioned. It's 30 kilometer south of Perth, and NHOA will deliver this turnkey EPC with its local partner, GenusPlus Group, that will be basically in charge of all on-site installation of the system and the interconnection to the grid. So we will together mobilize up to 100 men and women to deliver this flagship project and to bring it to operation by the end of 2022. So this success, of course, wouldn't have been possible without decentralized generation experience in the region with already commissioned projects like Lifou in New Caledonia, and it's clearly paving the way for the future opportunities that we will have in the APAC region. But I will lend the floor to Giuseppe Artizzu to give you more insight about what made NHOA offer a winning solution.

Thank you, Lucie. I mean I'm really proud to be here today to tell you how we got here and what this means for us. So why, in our perception, Synergy awarded this project to NHOA? There is one important thing that it's not written in the slide, but you should consider. This has been a 1-year process that started in October last year. In October last year, ENGIE had just announced the potential disposal of its controlling stake in -- at the time in Engie EPS. And so whoever was dealing with us on a project of this scale wouldn't know who would be backing up our commitment a few months later. So we had to convince clients up not only that we will be able to deliver the project but that by the time the award would come, we would have been able to attract sufficient support from the new shareholders to deliver this, both financially and operationally. How we did this, which is, in our perception, an extraordinary achievement? First one is global track record of execution and service. So we were able to mobilize all our past clients to provide comfort to Synergy that we deliver, that we deliver on time, that we deliver on budget and most importantly that these systems work even in the most challenging circumstances in terms of preserving grid stability. Second point, clearly, we would not be here if we had not been extremely price-competitive. We knew that we are price competitive, but having been for almost 3 years working mostly with our shareholder, our related partner, it was ENGIE, questions might have been there whether we are market [indiscernible], are we able to compete with the best of the best because the best of the best, the who is who of the industry, would we withstand them? And yes, it's clearly yes, and clearly, we had to beat the most competitive player in the tender and we [ made it ]. Third point, as you know, one of the pillars of our success is the ability to mobilize our engineer to tailor the way we package our solution to the client needs. So we built dialogue with clients, we build trust in client using power engineering. We are the best -- the excellence of the European and Italian electrical engineering, and we are able to communicate that to clients. In particular, our clients know that something is really critical that can make or break the stability of a portion -- significant portion of their grid. Fourth point, which is less obvious, is local positioning. Clearly, the fact -- having been part of ENGIE allowed us to have a position in the market. And when the process started, we could somehow benefit from that. But in reality, immediately upon the announcement of ENGIE, and this is not -- does not only apply to Australia, we immediately accelerated dramatically the positioning on key markets with a stand-alone go-to-market strategy. So we set up an office in Western Australia, by the way, earlier this year, and we have a media manager actually based in Perth, Ashley Mangano. And we have mobilized local partners that could put Synergy in absolute comfort situation on -- about our ability to deliver on a turnkey basis. This is not just about the system will work and will do its business, it's also about managing for 1 year at utility scale, building site under the strictest health and safety regulation in the world, Australia has the strictest health and safety regulation in the world; being able to engage with the local community in the best possible way; and to share as much as possible our know-how and the value that we create with the local community, ensuring that this is not just a project that helps the grid, this is not just a project that helps Western Australia electrical system, this is also a project that brings know-how and cutting-edge technology to Western Australia. Last point, but certainly not least, is the support that we had from TCC during the second part of the process. So TCC has been actively supporting us before the closing of the transaction with ENGIE. Essentially from the moment it was selected as a preferred bidder from ENGIE, we have been working cooperatively with them to be able to give visibility to Synergy where the direction was in terms of balance sheet support for our participation in the tender. And of course, the fact that TCC early on gave fair visibility during the summer to the very significant recapitalization plan of NHOA is also something that [ domestically ] as well as the operational and commercial presence in the Asia Pacific regions that we inherit from TCC. So this is how -- this is why we managed to outcompete the best of the best in the industry and to confirm our legitimate trend to be a top 5 energy storage system turnkey supplier globally, of course, in Australia and in the Asia Pacific, but globally. This builds on top of our successes in Europe and in North America. And Australia is a key market for energy storage, given the characteristic of the electrical system and the potential for growth that you Lucie spoke about briefly. So we make a legitimate claim to be one of the competitors for leadership in global energy storage supply on a turnkey basis in all the key markets. Of course, it's a major landmark for the Australian market itself. So it's a major credential. And also, it is something that confirms what we've been telling over the last year that while leading ENGIE, we have not lost a client like ENGIE. The fact that we are no longer part of a vertically integrated energy utility put us back on the market as an independent operator that is perceived working in arm's length with everybody. [indiscernible] Synergy is one of Australia's largest energy retailer. ENGIE is another of Australia's most important energy retailer. So that fact, however, did not prevent us to achieve this because during the process, the potential perception of conflict of interest, so the ability of one company to purchase a piece of critical equipment from a group that competes with them in an energy market, is something that was removed, and this is just a confirmation. So we are proud of what we achieved. This gives a very significant -- significantly increases our visibility in short-term financial performance and put us also in -- with the ability to look forward with extreme confidence to the execution of this project and to focus on delivering again, on time, on budget, a system that perfectly matches our client [ expectations ]. I think this is -- these are the key messages, and I will leave it to the floor for potential questions.

Thank you very much, Giuseppe. Okay, I will now leave the floor to the questions coming from our investors. I saw that [ Mr. Bossi ] was raising his hand. [ Mr. Bossi ], you can now activate your microphone.

Can you hear me?

Yes.

I was wondering if you can talk about how the tender was, if you can put it perhaps in the context for us. And I was wondering how many players you were up against and why you think you came on top. I guess probably there are 2 main factors: technology and price. And I was wondering which one do you think was more relevant. And if it is technology, why do you think you came on top? And what do you think are your key differentiating factors from the competition? And also, I think you haven't provided a value, but your backlog has gone up by 80 million, I believe. And can you maybe put this in context for us in terms of metrics? Is it fair to assume a metric of 0.4 [ million tonne ] megawatt-hour in terms of potential opportunities that we can see going forward for -- in battery storage?

Okay. So thank you for both the questions. On the first one, I think there are 3 elements. You rightly pointed out technology. Trust in our ability in the system -- in the ability of our system to deliver what is the client expectation and, of course, we have to be competitive. However, in particular, given, as I said, about the circumstances in which the tender took place, I mean, there were, for sure, a double-digit amount of participants. Of course, we don't have full visibility on the initial list of participants. We have more visibility through the informal market sounding on who was there at the end in the short list over the last few months, and we can tell you it's a [indiscernible] of the global elite of energy storage. I won't [ take ] name, but whoever now is listening to us know who I'm talking about in [ battery storage industry ]. And -- however, we supported, again, as flawless track record and a competitive pricing with the building of a Western Australian delivery platform. The [indiscernible] alignment that we made, I mean, Genus Group, we mentioned Genus Group in our -- GenusPlus Group in our press release and presentation. So Genus Group is a specialist in transmission and distribution infrastructure in Western Australia with outstanding delivery capabilities, has a history that's somehow similar to ours. So it's a listed company in Australia with ASX in Australia. Similar size as ours. Similar kind of entrepreneurial spirit and drive. So this is -- I think it is still the point. So we had to borrow from somebody that ability to deliver EPC in Western Australia, which is a bit of an isolated market, and with that, together, presenting in front of Synergy and say, we have the credentials and the clients, our past clients confirm that, to deliver these systems, and on the ground, we have the presence of the people that know how to deliver it in compliance with regulation, taking into consideration all the constraints that apply to working in Western Australia, including some -- including logistic challenges, and you know that, if something goes wrong, who are the faces that you can talk to in order to address problem when they arise. And so this is -- these are the 3 elements we put on the table. We would not be here if we were not being extremely competitive on pricing, of course. This is ultimately -- you need to be competitive. It's just that competitiveness is not enough. It's competitiveness plus trust in clients in the [indiscernible] system we work and trust in the clients with the team that is talking to. So this is how it's -- this is how we wanted. Now with respect to the second question about the economics of the project. Yes, we -- so the implied impact on our backlog is -- you saw it in the trading update. We are not releasing more specific information for -- because exactly the kind of metrics you are looking at also our competitors look at. And by the way, I give you a caveat on -- there are some figures going around that has been disclosed by other sources around the project. We would really not comment on that. We will not give more -- it's a bit of a complex pricing structure, so we would not elaborate on that. So we are not going to give more precise figure on the contract nominal value than what has been implied in our trading update. From the perspective of the metrics, you should consider that a significant portion of the contract or a material portion of the contract is actually we are also building the substation. So be mindful on translating necessarily nominal value or implied nominal value of the contract from our trading update divided megawatt-hours because there may be a difference in scope. So I mean it's not usual that in contracts, there is also the delivery of high voltage infrastructure in this case. There is -- and that bias is a little bit the calculation of the ratios that we're looking at.

Maybe just a follow-up on the guidance for 2022. I believe there is a reference saying that the contract would boost the guidance. I was wondering, do you have more visibility on next year guidance or potentially we could see an upgrade on the guidance?

Okay. So as of today, of course, it provides increased confidence in the guidance range that we have given. So if we -- so it's a range. It's a very ample range. Of course, the contract of this kind gives us more confidence in looking at -- more optimistically at that range, but we are not currently foreseeing an increase in the guidance range mostly because you know that we are facing an unprecedented supply chain and commodity price environment across the spectrum. So it's not the time to be bullish. I mean, increasing visibility on the existing guidelines and increasing support to the existing guidelines, it's good enough for the time being. Over the next few months, we'll see whether we can look at something different. But for the time being, we [ trigger the risk ] our existing guidance range, taking into consideration that there are enough sources of risk on the market that we have to go through.

That's very clear. I have a couple of more, but I leave it there and maybe I'll comeback if there are no more -- at the end.

Thank you very much, [ Mr. Bossi ]. We now have a question from Guillaume Muros.

I maybe have one on the project pipeline that you have -- if I remember correctly, we were guiding for at least or approximately 2 new projects being signed this year in the APAC region. I suppose that this is one of them. I don't know if you can give us some color on the other one.

Not yet, but we confirm that we were targeting a couple of large projects in the APAC region. Yes, indeed, this is one of them. Are we expecting, hopefully, another very significant success over the next few months? Yes, I mean, with several caveats, of course. And I think it's -- I mean these things happen or don't happen, but we are cautiously confident that this should not be the last success this year in the region.

Okay. And maybe another one rebounding on the last question regarding supply chain constraints. I don't know if you can quantify or give a bit of color on the -- not the revenue value is at risk, but let's say, the portion of the 2021 guidance or 2022 that could be postponed because of these supply chain bottlenecks.