PNE AG (PNE3) Earnings Call Transcript & Summary

Good morning, everyone, from my side. Thank you for joining us today in this conference call on the results of the first half 2020. Before I start with the presentation, I would like to share with you an outline of the presentation and the procedures of today's call. As usual, I will start with an overview of the operational and strategic highlights of the first half 2020. After that, I will comment on our H1 financial figures, I will conclude my presentation with our outlook for the remainder of the year. As always, we will then open the line for the sell-side analysts only. All other participants will stay in listen-only mode, as it is our company procedures for years. As usual, our slides that I will use can be found on our Investor Relations website. Having said this, I would like to draw your attention to Slide #3. The operating performance in the first half 2020 was clearly marked by the expansion of our power generation portfolio as well as the progress with our business model expansion. Additionally, of course, we had to adjust to an extraordinary situation. The global corona pandemic and the associated restriction have shaped everyday's life and changed economic conditions. While we have also not been able to escape this development, we have reacted quickly and consistently to it -- we responded to this threat with a large number of measures, and the majority of our staff have worked from home. That this has been working as shown by the fact that business in the first half of 2020 developed as planned. If you look to the numbers, 335.7 megawatts had put into operation or is under construction. This is a very high level of activities in Germany. We had a 49-megawatt under construction alone. So -- and if you see that we have been with 39 megawatts successful in German tender in 2020 it shows that we are still in line with our plans. Remarkable is 25 megawatts, 125-megawatt project in July, where we get a permission in July and in the same month, we had been successful in the tender. And according to our strategy, we have to scale up the implementation is fully on track. We invest in international markets in PV and services. For example, on-demand night marking is something where we're investing in as well as in our PV pipeline. So the PV pipeline expanded further in Germany and the United States. For this additional services, and markets and for the whole scale up situation, we need know-how. And so our number of employees increased to 450 people in the last year, it had been 386. Looking at the financials on Slide 4. I want to highlight that our H1 results are fully on target. And consequently, we can confirm our guidance for the full year 2020 with EBITDA of EUR 15 million to EUR 20 million and EBIT EUR 5 million to EUR 10 million. As indicated in the previous slide, the results in the first half were impacted by the investments we made in our own power generation portfolio. As well as in our scale up strategy. Considering this as well as the impact from the corona crisis, the financial performance in the first half was solid and as planned. Earnings declined compared with a strong reference period as we did not sell any project yet due to the portfolio buildup. In the first half of 2019, we sold major projects in Sweden and Poland. The investment in our portfolio are also reflected on higher non realized profits compared to 2019. If you look to the numbers, it has an effect of EUR 6 million so instead of EUR 2.9 million in the last half year in 2019 that we have now EUR 8.9 million. So this should be added and have to be added if we would have sold it to our EBIT. We have a gross cash position, which decreases slightly to 19.8 -- EUR 98.1 million and is still on the high level. While the earnings decrease was fully driven by the Project Development segment, our stable recurring business, service and power generation continue to grow in total output. We are still on a high level and an equity ratio of 37%. On Slide 5, we see the overview of our own power generation, we are targeting according scale up to stabilize earnings. This is what is affecting our business now. As I said before, the target is to increase our own generation up to 500-megawatt by 2023. So we will sell mainly projects in foreign countries and mainly not projects in Germany because we want to bring them and put them in our own portfolio. We have a own generation portfolio currently of 130.1 megawatts of onshore wind projects, which if we would have sold it, would lead to an additional EBIT of EUR 38 million, according to our estimation pretax. If you look on the next page, which gives an overview about our pipeline. So we increased our pipeline from 4,950 ate 5,176 megawatts in 1 year. Remarkable is that we have 632 megawatts in Germany and France, which are our core markets in the permitting stage. It is the highest level in our company's history related to projects and permitting status in our core markets. I said before, 5 projects are under construction, 49 megawatts, including 2 projects, which have been very successful in tender 2020. The 25-megawatt project I already spoke about. Having said this, we have to understand that we have slight delays in the permitting status. We are not the only one, but it is in the market environment and due to corona, but we are still in our estimations. However, we have the situation that we have strong activities in permitting status, we see that there is a delay, but that the federal government want to do something. Just today or tomorrow, they want to decide on an invest called in German [Foreign Language]. So that means they want to shortened the process of permitting in court and in the process for itself due to digitalization, they wanted to have a right level or balance between climate protection and environmental protection. So you see, we see that this area can help us and will help us to shorten times in permission. On the other side, we see that the wind turbine manufacturers are extending their delivery times. So we talk about nowadays about 3 months more than before corona. The next slide. You see that our project pipeline in photovoltaic is growing. 1 year ago, think we have been on the level of close to 0 megawatts. Now we have 232 megawatts in Germany, Romania and the United States. So we are still working on this business as well. As I said before, on the next slide, slide on Page 8. The results are on target. The milestone payments of projects in France and United States are affecting this balance sheet and on the other side, we saw that the operating performance and earnings are driven by the general contractor and project development services for own wind farms and for external wind farms. If you see, we'll build the biggest project in Poland. Jasna was 132 megawatts, which is with an independent high line -- grid line. And so this is something where we have long-lasting projects, and we will get earnings at the end when it's ready. Results from power generation and services and expansion of our power generation portfolio, this is something which is remarkable due to the -- which is an effect that will bring us in -- leading up into the operating performance and the earnings. You see on the next slide, to the segments. We are in project development, the output decreases. I said before, why because we saw the huge projects in Poland and Sweden, the last year -- 1 year ago. The EBITDA went down as well because of the investment in our portfolio and the services, the output grows. Nevertheless, the EBITDA decreases, minus 20%, that's related to the investment in international expansion of our service business. And this is the only part who was affected by -- really affected by corona related restrictions due to the fact that they sell trainings and on personnel to foreign companies, which they couldn't do because of corona. Electricity generation output increases to EUR 12.9 million, plus 56%, EBITDA increases to EUR 9.9 million due to this investment in this own power generation capacities. So looking on the next page, the balance sheet remains rock-solid is the title, and this is exactly the situation, cash position is still high, EUR 98.1 million. And the decrease is mainly attributed to the investment in our own power generation portfolio and dividend payment. The equity ratio is solid at 37%. Liabilities to banks and noncurrent debt and current liabilities are mainly nonrecourse. So liabilities to banks is EUR 132 -- to EUR 134.8 million and EUR 27.3 million on current liabilities are still, as said before, nonrecourse, which is remarkable to now. The next page, we see the execution of scale up. Now in concern, we are concentrated in 2020 more on start of expansion of our generation power portfolio, as said before. And so we are still in line with our targets. Having said this, I think it's important that we bring our outlook for the financial year, we still confirm our guidance, as said before, we have a well filled project pipeline with a lot of projects in a permitting phase. So it's always a question of time. Another question if so -- and this gives us a good environment to fulfill our targets also in the mid and long run. Ongoing investment, as I said before, and high project activity due to a high numbers of megawatt under construction shows that we are still busy and working in line of our plan. Yes. Thank you very much. Ladies and gentlemen, this concludes my short presentation. Thanks for your attention. We are now open for questions.

And the first question is from Holger Steffen, SMC Research.

Okay. Sorry, I didn't hear it. Yes, hello, everybody. Holger Steffen, SMC speaking. I have some questions about your figures for the first half. First one, you've generated very large external revenues in the project developments in quarter 2 due to progresses informally sold and now built projects. Can you give us some details about these figures?

Sorry, hello again. Yes. Can you repeat the question, please? I didn't get it to the disturbances here on the line. Can you repeat, please, the question?

Yes, no problem. I refer to your external revenues in the project developments in quarter 2 these were quite high because of milestone payments and other of formerly sold and now built projects, I ask for some details about these figures because revenues were really high.

Yes, sure. We got milestone payments from the Burleigh sales that is last year. We had milestone payments out of the progress in the projects in Poland, Barwice, yes. In France, we had projects where we got final payments and milestone payments. So that has been the major point. And not to forget our steady sales due to power -- to the power production business, yes. And the services, as you see, we have an amount of EUR 9 million is now in services. So if you add this all, it will come close to these numbers. Well it should come to the number.

Okay. I wondered especially about the higher revenue in the segment project development. And there are -- despite of these high revenue segment EBIT amounted only to roughly EUR 1 million in the second quarter. Is this a consequence of the high investments in own wind farms? Or are there other -- is there any other explanation?

So we are working here as a service provider for the management and for -- to manage the construction. And if we do it for our own, for example, we had a project Wölsickendorf where we did it. We then get at that COD, we get the final payment. And even if we're working on furthermore on the projects to finalize this -- finalized documentation, et cetera. It's not that any bigger revenue anymore. The major part, we take them in that time, yes, when we have COD. So this is an effect we have here. So we finalize projects, make it simple, yes.

Okay. We see a high total output in project development in quarter 2. I would have expected a larger change in inventory in your profit and loss statement due to the intensive buildup of new wind farms in Germany. Maybe you could explain me the development and give me an outlook, what we will see in the next 2 quarters?

Yes. It's always a mixture. So if we start construction, that doesn't mean always that we finalize financing. Usually, it is like this, but the first payment, it depends on if we take intermedium credit or not. Yes. And so we have different stages of a project and the projects differs in the way when we get money and when we ask for money from the bank. So this differs. So -- and this is -- has to do sometimes with when we have the permit, when do we have the tender and when do -- can we get the machine because the biggest part of our payments are the wind turbine order. And so if we -- maybe we order the EPC, the roads and the grid, but we start ordering machines later for some reasons here, or we pay later. So this is -- these are some effects, which you cannot bringing a sharp 1 month basis and say, okay, now this is coming up. If you look in the future, we started several projects. We have 49 megawatts in our -- in under construction. And we start with -- and we will start this year, in any case, with 25 megawatts due to the fact that we have this 10 already in the permission. So that we have a -- at the end, 74 megawatts under construction in any case this year and when we get financing and when we start construction that depends on. This depends on if there -- if we have the right timing, if we have the environmental protection to consider birds, et cetera, so then we start construction when it is necessary or when we can do it.

So then we will see a much higher change in inventory in the second half, I think. Is that correct?

Yes.

Okay. You have now these 5 German projects in realization and the new 25-megawatt project is coming. Which one do you want to add to your portfolio and which maybe -- so maybe will be sold in this year?

Yes for one project, with one machine with 4.2 megawatts is for a foreign customer. The rest is for ourselves. Depending -- we think that the majority part will be part of the portfolio.

Okay. My last question. You have made a big progress in the development of your PV pipeline in quarter 2. Can we expect a similar speed in the next quarters? And when will we see first PV project in Phase 3?

Our target is to have a first project in Phase 3 this year. And I hope that we can, we are working very hard to double the pipeline this year. So -- but we are working on it. So we would see.

The next question is from Jan Bauer, Warburg Research.

I've got a few questions regarding H2. So you're still -- you're lacking off a few millions in EBIT to reach the lower end of your EBIT guidance? So can you shed a little bit more light on how you want to achieve this target in whatever selling project rights or selling finished German project?

Yes, this -- it's mainly driven the idea that we get the EBIT is driven by the sales of foreign project rights in foreign countries. So we have the markets of United States, Romania, where we expect a sale of wind and our PV projects in Poland, we think that there will be milestone payments, maybe. And we see that power generation -- that the power generation will lead to another turnover and EBIT -- EBITDA. So I have to say. Yes. You see, the bigger the portfolio will be, the more the EBITDA is a factor we have to look at to see -- we have a good performance or not.

Yes, clear on that one. So you're expecting a few of your parks for the internal portfolio to commission before Q4. So that they will still get an, let's say, favorable quarter of wind yields?

We think that the first project will be ready this year. Yes, a part of this 5 projects, but not all. So a part will bring an output and will add the performance of the power generation business.

Okay. Another question is like the 4.2 megawatt park in Germany, the Burke Wind park. So this park will be for sale. Is this right?

There we do a kind of service for that here we made a permission. We looked at the financing is there. We will do the construction. And this is a part of enabler for the -- for some other megawatts we got in this area.

Okay. Regarding your U.S. or your foreign pipeline. So there's still the target to sell probably PV project or something in Panama? And also the Chilocco park is still for sale in the U.S., is that right?

So Panama, we did see a big impact of corona. So we don't see any sale this year any more of wind power projects. In United States, it depends very much on the election, on the next election. So we have a lot of constraints to the fact that the federal government is doing everything to slowing down grid connection processes of application of -- in this respect. And so we hope that the election will support us. Anyway, we are in the sales status of Chilocco, and we plan that this will be sold this year.

Okay. Regarding -- so you still have the large wind parks Jasna and Malarberget in the construction. So can you give us a little bit more light on what kind of milestone or service payments you aim for in this year or also in next year?

So it's a lower 1-digit -- in a lower 1-digit million area per project.

Per project?

Yes.

Okay. So -- and one last question. So you received -- you successful broader 25-megawatt project through the tender in July. So will this project also be for the internal portfolio?

We think so. Yes.

Okay. All right. But only next year, so others shouldn't be finished this year, right?

Yes. It depends -- so this year, we start. And this year, we will get a financial effect due to that we have a financial, we think that we get a financial close this year. And then we get our development payments and on the other side, the delivery times of wind turbines, we depend on that. And therefore, we think that this is a project or will be assured that is the project for next year.

Okay. Perfect. And yes, the very last question. So you still have like some 59 megawatts in Phase 2 in Sweden. So is this also a possible project right say for this year or more in next year?

No. This is something that's the next wave we are working on. And it is not planned for this year or next year, we extend the pipeline, and then we will see what we can do. But let me say, one project is in a later stage with -- and we think maybe that we have, when the environment is good in Sweden, that we say it, but just right now, it is not in our planning in this year.

The next question is from Karsten Von Blumenthal, First Berlin Equity Research.

Markus, this is Karsten. You mentioned in your report, and you said that in Q2, you started 2 new projects in Germany. Could you name these projects and give us the megawatt capacity?

Yes. I'm always careful with the names because we have...

Okay. I can also look with the megawatt.

We have more and more things in place where we have -- the people are against it and then do everything against it. So I'm always careful a little bit. In the past, we did it, but nowadays, it's -- they are professional groups on the road. So we are talking about just right now, the last project where we had a tender with Erfurt-Ost, which is 5.5 megawatt, 5.5 megawatts. This is only for your information. It's one of the biggest machines of the newest generation with 158 meters height. So it's 4.5 megawatt of one machine and the project is on time and will be finalized this year. We are working on a project in -- with 2 machines in North Rhine-Westphalia, which is a project for more end of the year -- beginning of next year. So in 1 project, 2 projects in Germany, in Schleswig-Holstein which will be ready this year of around about 20 -- 21 megawatts, yes. We're depending a little bit from the -- of the wind turbine manufacturers, but we plan to finalize this year as well. But again, this is a question where we see just right now delays, we still with the delivery of the wind turbine manufacturers, but nevertheless, we will not affect us in our EBIT guidance.

You were right. In your report, there is also the Lentföhrden project mentioned by WKN. Could you give us the planned capacity of that project?

That's why I talked about the 21 megawatts, one of them had been the project and third with 8.4 megawatts, 2 machines.

Okay, 8.4. Okay. Perfect. And when we look into the market in H1, yes, it was better than a year ago, but still the overall installation level was very low. Given the current situation regarding approvals, do you see any significant improvement in this situation next year? Or do you think it will continue?

Yes, that's where I spoke about it in German called [Foreign Language], which will be discussed today in the federal government. And in this [Foreign Language], the invest is speeding up law. They say, for example, that you have only one stage process, if you have any lawsuit instead of 3, they say that you can -- that there should be a digitalization process installed for the permitting process. It is important because if you have to speak with the user people and have to offer them, what you want to do. So you have a hearing. And this hearing can't be done due to the fact that you are -- that we have a corona environment. This is something what causes us delays.

All right. But then if it goes through, there is some hope for next year, the market gets better. I mean, given the bad market, you performed very well with the approvals you have received so far. So obviously, you've done a good job there. Just a final question from my side. If I add up the projects for your own plant portfolio this year, which could be added to your portfolio in megawatt? How much could that be?

As I said before, we are -- the main part of the project, which can be finalized today should be a part of our portfolio. In the moment, we are depending on the delivery time. So therefore, for the manufacturers -- so therefore, it is not finally to say which projects and which gigawatts we can add to the portfolio this year.

All right.

Sorry, but this doesn't matter in terms of the payments we planned because of all these projects, we would like to due to financial growth this year. And therefore, we get our project development fees.

And we do have a follow-up question from Jan Bauer, Warburg Research.

So I just got one question out of the question from Karsten. So you're trying to -- did you receive a project developer margin for projects you keep in your internal portfolio?

Exactly. And yes, this is the case.

Okay. But how do you do that? So usually, like when you activate an own build wind park in your balance sheet, you're only allowed to activate the material, the building costs. So how do you do that?

Yes. So you have to see the difference between this segment and the concern. So in the segment, you can see that, yes, in a concern, in a fully complete concern, you can't see that. You are right. Because if you don't sell it, you can't get the EBIT there exactly.

Yes. Okay. But that's in the end, like what we see in the consolidation of the group. So we see the EBIT margin of a finished project in the EBIT of the segment. But in the consolidation, we didn't see the removal of the developer margin, right?

Exactly.

And we haven't received any further questions. So I'll hand back to Mr. Lesser.

So thank you very much for your interest, and I wish you a fantastic and not a warm day. See you. Bye.