PNE AG (PNE3) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the analyst conference full year report 2020 of PNE AG. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Markus Lesser, CEO, who will lead you through this conference. Please go ahead, sir.

Good morning, everyone, also from my side. Thank you for joining us today in this conference call regarding the fiscal year numbers of 2020. Before I start the presentation, I would like to share with you an outline of the presentation and the procedure of today's call. As usual, I will start with an overview of the operational and strategic highlights of the fiscal year 2020. After that, I will comment on our 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 sales side analysts only. All other participants will stay in listen-only mode, as it is our company's procedure for years. As usual, our slides that I will use can be found under our Investor Relations website. Having said this, I would like to draw your attention to Slide 3. This year was both, extraordinary and successful. Despite the difficult general conditions caused by the COVID-19 pandemic, we made significant operational progress in various markets. We're able to close the past fiscal year with a pleasing result and having consistently involved our business in accordance with the scale-up concept. Furthermore, the demand for sustainable investments has increased strongly. The share price has reflected this positive development with a price increase of around about 98% within 1 year, and thus, almost doubling. The operating performance in 2020 was clearly marked by the expansion of our power generating portfolio and the progress in the markets and business expansion. In total, PNE completed, sold and started construction of projects with a capacity of approximately 461.2 megawatts during reporting period, prior year 450.8 megawatts. This means that projects -- the project realization is once again above the level of the previous year. We also see that we have an expansion in our own generation portfolio. This makes progress approximately 100 megawatts had been under construction at the year-end period, and -- of which 17 megawatts could be already put into operation in this quarter. So this means 83 megawatts are now under construction for our portfolio independently from the projects we do for third-parties. And this year end, we'll be finished this year or maybe beginning of last (sic) [ next ] year. The scale-up implementation is fully on track. Investments are ongoing. We do PPAs. We do services additional, like safe technology, on-demand nighttime marking, and this all start to pay off. PV is one new technology we put into place. The pipeline is strongly expanding to 548 megawatts within 1 year. For last year, we had 123-megawatt peaks. The number of employees increased to 455. And last year, we had 427. The pleasing development in operation business is reflected in the results. The group has operated profitably, although we have also invested in the expansion of our own generation portfolio and in the implementation of our expanded strategy via scale up. According at the financial, I want to highlight that despite some negative impact from COVID-19, we were able to achieve regarding EBITDA, even exceed our guidance in the full year 2020 in the case of EBITDA by around about 30%. I also want to highlight the strong performance on the segment level. We will -- I will show you afterwards the details, and we will see that the growth compared to last year was significantly in all segments. As indicated in the previous slide, the results 2020 were impacted by the investments we made in our portfolio. The investment in our portfolio are also reflected in unrealized earnings of EUR 50 million within 1 year. And last year, it was -- had been EUR 11.6 million. So we also see that the milestone receivables, we could recognize for Gode Wind 4 and Atlantis I offshore projects, and this contributed to strong Q4 results. We are still on a high level with the for -- with EUR 111.6 million as cash position, which is similar on the same level as last year. The dividend, we would like to propose of EUR 0.04 per share is our target and will be part of the next AGM. The expansion of own generation portfolio continues. We can see that the target increase, we would like to have in 2023, is 500 megawatts around about. As mentioned, 100 megawatts we have had under construction at the year-end, whereby 17 megawatts already put into operation in this quarter. In total, we see 134.8 megawatts we have in operation already. And we would like to have very soon in this year, latest beginning of next year, 236 megawatts. And I can say that this -- at the year -- last year, and we have hidden reserves accumulated in the portfolio of EUR 80 million in total. That means if we would have sold it, according to our calculation, we would have gotten EUR 80 million more EBIT. Next page, we see that our pipeline is growing. Even if we finalize the project, we also have a growing pipeline, which is remarkable. We have now 5,405 megawatts at the year-end. We have see in our pipeline, the project pipeline for the project development. In the last year, we had 5,235. In Germany pipeline, the German pipeline increased as well at around 140 megawatts to 1,754 megawatts. I think remarkable, again, we have seen the numbers. We have 642 megawatts in Germany and France in the permitting process at that time last year, in a permitting procedure, and we have 106 megawatts under construction. And we have in services of another 4 megawatts for third-parties as well as 113 megawatts Malarberget project, which is under construction as well as well as the 59-megawatt in Poland. So you see we have a lot of projects in front of us all we are working on, and especially in the German and France markets, where it is a high-volume. Put the numbers together, 134 megawatts we have already in our operating portfolio, 380 megawatts in Germany, plus in a permitting status, plus 106 megawatts we have already under construction or 100 megawatts for the portfolio. So that means we have a high probability to get the 500-megawatt targets under control in 2023. We finalized the projects Barwice and especially Jasna. Jasna is one of the biggest projects in Poland with 132 megawatts, which was a very huge task to get this under control through pandemic times. And there have been delays. In total, we hadn't had any -- created any delays. We got it under control. And this was a technical -- high level technical project, and we got it under control and could finalize it to the year-end. We also have a rapid growth in the PV pipeline. If you see last year, 123-megawatt peak, now we have 548 megawatts. And we think that we can increase our portfolio in this way as well even in this year. So the pipeline expanded to 184 megawatts, in year 2019 we had 10 megawatts peak in Germany. In Italy, 0 to 42 megawatts last year -- end of last year. Romania stayed on the same level, but I can tell you that it will increase as well. In the United States, 1 megawatt peak to 210 megawatt peak. And we look to numerous markets if we can expand it, for example, Poland, where we have a network already in place through our wind business and other countries where it makes sense. So we will stick mainly with Germany, France, Italy, Romania, United States and Poland. But nevertheless, we see a lot of other markets where we can maybe create additional growth of our PV pipeline. So if we look to the financial results, where we see a strong operating performance, which was driven by the project sales, Germany, France, Sweden, Hultema project. And in Germany, Erfurt Ost, which is 5.5 megawatts. The milestone payments we got through our project we could finalize, a milestone we can could finalize in Germany, Poland and Sweden. Additionally, milestone payments and receivables for offshore projects, Gode Wind 4 and Atlantis I. So in Gode Wind 4, we look for EUR 14.7 million. We expect the payment end of 2022. And in Atlantis I, we think of the EUR 4.6 million. This is depending on the offshore tenant, which we -- tender which we expect in 2024. Due to the fact that the German government made progress in their special plans, we could recognize these numbers and had to recognize these numbers in our IFRS consideration. We had results from broad power generation and services and the expansion of our own power generation portfolio, again, reflected by the increased non-realized earnings. So we made our targets and exceed them in the case of the EBITDA, as already mentioned. I also want to highlight the strong performance of the segment's level. Before consolidation, all these 3 segments showed growth compared to the last year. See project development output increases to EUR 186 million, which is plus 23%. And EBITDA, it was an increase to -- by 79% to EUR 56.5 million. In services, service output grows by 15%. So the EBITDA decreases or stayed on the same -- similar on the same level at EUR 5.2 million. This is mainly due to the international expansion. So we opened markets in Poland and Sweden, while we built and constructed our projects. And the corona-related restrictions, you can imagine if we have to do trainings, that we had to go in locations, we couldn't do that in this amount we wanted to do, and so we have been impacted due to this pandemic. Electricity generation. Power generation output increased to EUR 24.3 million, plus 26%, EBITDA plus 31%. Okay, we put more projects into operation. So we see that the investment service and power generation are paying off. The balance sheet remains rock solid. It's the headline and is exactly what we see. We see that the balance sheet is totally increasing from EUR 550 million to EUR 663 million, mainly driven because of the new projects in operation, and due to the fact that the leasing contracts are now in IFRS, increasing -- the numbers are increasing and these are the main effects that we have a higher number. This is effect on the equity. The equity ratio is solid now at 30%. And last year, we had 37%. And -- nevertheless, the liquidity is still very high on the level of EUR 111.6 million. The non-current debt is related to the corporate bond. Again, if we build up our portfolio, it's clear that the liabilities to banks are growing, mainly related to project finance -- non-recourse project financing. And you see that we have EUR 216.6 million in the non-current debt. And if you see the current liabilities, 4.6 -- EUR 22.7 million, sorry, related to this -- mainly to these non-recourse financings. The liabilities from leasing contracts increasing rights of use to a level of EUR 70.4 million, if you see the non-current debt. And if you see the current liabilities, are at a level of EUR 4.6 million. We see the positive impact of our measurements in the scale-up procedure. We have now one organization in the whole PNE Group. The processes are tools and tools are in place which really helps us through this pandemic. So we are mainly in the home office, with some exceptions to do trainings or do services. You see that we are still ongoing with the expansion of the generation power portfolio. We see there we are not in the range of doing the first PPA. We -- I think we are now on a level that we are -- we have done multiple of PPAs. Just right now, we are one of the big PPA sign ups in Germany for first AG wind farms. And the completion of the sale of the first developed project in new markets, we wanted to sell 1 project in Panama. This was not possible due to the fact that Panama was hit very heavily from the pandemic. And the sale of the first hybrid project, there is a postponement due to natural heritage, but I'm sure we are working on this to get this under control. So we are working on one of these projects. So in 2022, we are -- in 2021, we are on the way. Furthermore, the expansion of our own portfolio is one main target, and we want to come up with new innovative products and services. We talk about different hybrid projects, hydrogen projects. Maybe we get the first one on board. And the market entrance maybe in the third market, we will see. We really want to do this. We look very carefully to the markets how they are affected and were affected by the pandemic. We look constantly on the market situation. And we look to new projects and white spot regions. So this is an ongoing task. Ladies and gentlemen, this leads me to the outlook. In 2021, we will have further upfront expenditure in the low single-digit million range for the strategic expansion of the business model. Nevertheless, we expect group EBITDA of EUR 24 million to EUR 32 million in respect to our guidance for the 2021 fiscal year. Due to the pandemic, you know as well, in your business, it's not become easier to sell projects or that we get the wind turbines at the right time. The turbine manufacturer extended now the delivery times for another 3 months. So you might expect there might be a postponement of projects. But as usual, we consider a little delay, but we hope that will not be extended. And nevertheless, it's always only a shift, it's not that we can't do the project. So if we summarize it, we have a promising start of the year with the sale of the 59-megawatt project in Sweden. We have a high project activity number still under construction. A lot of them in Germany for our own generation portfolio, 100 megawatts -- or 83 now. Well filled, growing project pipeline, 5,400 megawatt in total in on wind onshore and 548 megawatts of PV. High-volume of permitting phase core markets in Germany and France, with 642 megawatts in permitting status. And we expect the sale of projects in the United States, Poland, Romania, South Africa, Panama this year, depending sometimes on sales situation, pandemic and situation, but mainly also due to tenders environment. We do ongoing investments and want to become more efficient and want to grow steadily in the product range so that we meet the market needs. Ladies and gentlemen, I would like to conclude my presentation. Thanks for your attention, and I'm ready to answer questions.

[Operator Instructions] And the first question received is from Karsten Von Blumenthal of First Berlin Equity Research.

Good to hear that PNE, despite the pandemic, is doing well. My first question is regarding your own wind farm portfolio capacity. Could you tell us what you plan to have under own management at the end of 2021?

Yes. If you look to the numbers, we have around about 83 megawatts, which we would like to finalize, which we have under construction just right now beneath the 17 megawatts we finalized just right now. So if you add 134 plus 17 megawatts, it's a starting point. And then 83 megawatts from that we have one project, which might go into next year with 17.5 megawatts, which you have to subtract -- deviate from the 83 megawatts. So in total, let me summarize, 83 minus 17.5 plus 17. So round about 83 megawatts, which you can add to the number we have just right now, 134 megawatts.

Perfect. That's helpful. When I see your wind project pipeline, this did not grow much in 2020. And in your annual report, you say that you do not expect pipeline expansion in 2021. Could you elaborate on that?

The project pipeline -- you mentioned the project pipeline for the development project in wind, yes?

Yes.

Oh, I see, it's a slight increase, what we see. So you have to recognize that we have that around about 460 megawatts, which is a very high level, stepped mainly out of these numbers, and we could increase. Despite this fact, we could increase our numbers. So it's always, I think, a good result.

All right. And in your annual report, you say that you do not expect a wind pipeline expansion in 2021?

Yes, I think this depends on all the time, if you have markets where you have projects with high numbers. I'll tell you an example. In South Africa, you have 160 megawatts, 200 megawatts project. One project you sell and you have immediately [ in picked ] of 200 megawatts. Having in mind that the margins start there are not that high, yes. So it depends all the time, what goes in, what goes out. So that's why we see just right now this year that a lot of projects in the United States, 160 megawatts, maybe more. In South Africa about 200 megawatts. So you see, in total, the pipeline will be affected in the megawatt line.

All right. Understood. A question regarding -- quite a kind of special question. I don't know whether this can be answered so quickly. But I look into your balance sheet, and what I found is that liabilities from leasing contracts rose significantly from EUR 37 million to EUR 70 million.

Yes.

I don't know whether I have to ask.

No. No.

Or whether you can answer that directly?

Yes. It is -- if you take projects over and put them into operation or you take them on board in your portfolio, then you immediately have to announce these leasing contracts according to IFRS as -- in a full -- as a full financial obligation. And this is the situation we have to face. And that means you see that we have EUR 50 million additional potential EBIT. So we calculated a lot of projects, which we put into our own portfolio or where we're working on our own portfolio, 100 megawatts in construction, as I mentioned before. And immediately, when you take them over and start construction, you have to take a part of this and later on when they are in operation, you have to take this IFRS measurement and have to put them as a liability in the balance sheet, and that's not increasing.

Yes. But then it's just IFRS effect of your...

Exactly.

Successful transfer of projects into your own plant portfolio. Well understood. You mentioned your offshore business, and that you are looking at also doing business in the U.S. You have been active there. We have now the new Biden government, which seems to be very fond of offshore wind. So how do you see your chances there? What we see in the market is that a lot of very large players are, of course, positioning. So I think it is not easy for a German midsized company like PNE to get ahead there. But perhaps you could elaborate on your opportunities there?

Yes, we're looking carefully to the market. But nevertheless, we have to see that this is really a market which we think is a little bit overheated in the moment. The payments for, in advance for the big projects, with a lot of risks. You have to pay to get a tender on board, with a lot of obligations, we see them more and more risky for us. And you're absolutely right. That's -- there we have to pay attention. And for us, it is, I would say, a market like Vietnam, is more a market something for a midsized player like us.

The next question received is from Jan Bauer of Warburg Research.

Congrats to the results. I've got a few questions. So you're currently building or have several projects under construction for your own in-house portfolio. Can you give us an idea of how much of the costs for those wind farms are already recognized in the 2020 figures?

How much of the costs? Yes, that's what I -- that's what we have to pay attention according to milestone payments, We calculate the milestone payments. And so according to payments, we calculated and take it into consideration. So I can't tell you the cost in detail just right now. For that you have to do per project. Because you have the development costs, and you have other costs, which have to be related up to the financing, and then you have further more the costs for the construction. So I can't bring you to a total number because this is depending on the project and the status of the project.

Taking [indiscernible]

[indiscernible] Sorry about that.

Okay. I totally understand. But you're right, you reported you expect a single-digit million value that you will need for the development of your own portfolio. But compared to currently, as I said, 83 megawatts under construction. That sounds a bit too low to me.

Yes. I think that this is a question of what do you mean with that. So we talk about poor scale-up issues, which means additional services, additional changes in tools where we want to be more efficient. Maybe some parts of research on new markets and technologies. So nevertheless, we have our pure business, looking for repowering projects or others are not involved in these numbers. Yes.

Okay. Can you give us an idea of what's your expectations for the service segment EBITDA for 2021?

Related to 2021, I would be careful now to tell something about that because the pandemic issues are there. Nevertheless, we have the first costs on -- now we start the business in Poland. So we have effects of this. We start the process in Sweden. So we have started -- So related to the EBITDA, I wouldn't see the big growth. Nevertheless, we see a good development in the PPA business, which -- where we see effects, maybe we get them on -- we get some contracts on board in the next couple of weeks. So from that point, I see a slight change, in a positive way, in terms of EBITDA of services.

Okay. And you said that you expect that this year several projects might be postponed to 2023 -- I mean 2022, due to delivery issues and the all over COVID issues or delays. Can you just give us an idea of what's that in megawatts?

Yes you see just right now, we have to face the situation that we have 3 effects here, which leads to postponement -- could lead to postponement. So some of them, we always thought maybe it's better to consider a 3-month period. So that's what we did in our planning. So nevertheless, we have now the pandemic, which caused to delays related to deliveries. We don't get the permit sometimes to get the cranes and big parts to the site. We also have services trainings, which we can't do or others. So this is one point. Secondly, we have the issue that we have postponement of delivery times from a wind turbine manufacturer around 3 months. And third of all, we have the situation that we have more and more lawsuits to consider in projects, mainly due to national heritage and where we have to wait until something is coming back from the juristical point of view. But mainly, we have -- it's no issue related to the project itself, it's mainly related to time. So that's affected us. That's affecting the whole market. We are not alone. So -- and in this respect, we only want to be sure that it is understood that even if we have a permit, there might come up some postponements, which we have to consider and which we carefully consider but it may happen that this may give a shift to the projects. Just right now, we have now a bigger situation that we have to face one project is affected on this 100-megawatt project from [ 70.5 ] megawatts, where we think this will be a postponement into the next year, as I mentioned to a speaker before.

Okay. One last question. Where do you see possible project sales to external parties in 2021?

Yes. As I mentioned before, we have projects in Germany, in Romania, wind and hopefully, PV, which we can sell. And we have the project in -- one project in France, in South Africa. In Poland, we have 2 projects, which we have now under construction which we would like to sell this year as well.

The next question is from Holger Steffen of SMC Research.

I have only a few additional questions. The first one regarding the U.S. market. You didn't mention the sale of Chilocco project, which couldn't be realized in 2020 once again. Do you see your chance to realize it in 2021?

Yes. We are still in heavy negotiations, and we hope we get it done. But it is in -- at the edge, I would say, in the moment.

Okay.

So we will see. But I hope it's a target to sell this project in any case, this year.

Okay. Then one question about your PV pipeline. You affirmed -- in your annual report, I've read that you've sold 50-megawatt PV projects located on Hawaii. Can you give us some details about this transaction?

Yes. It was an initiative of one of our guys in the United States, and it was more a personal family-owned area. He sold to third-parties, and we got the right to extend this to 50 megawatts. It was a 1 part. So it's a really minor business and was only a prior initiative. And so we only want to get some minor -- we want to get it done in the recent years, depending on the progress of the landscape permitting process.

Okay. Because I've never heard from this before. But okay, I understand. But you've only written that you acquired 4 projects with 280 megawatts. And additionally, you developed a project with 150 megawatts in New Mexico. Why I can't see this in your PV pipeline?

Yes. I can tell you this depends all the time on the phase where they are. You know that we are usually -- if the projects are not in a situation that we are having Phase I or II, then, in a lot of cases, we don't take them on board. At that moment, I can only say that we are working on this project, and we see them upcoming, but they are in an early phase.

Okay. Too early to put it on the PV pipeline?

They must be valuable, and then we put it in our portfolio pipeline overview.

Okay. Okay. Last question from my side. You've decided to book receivable for outstanding milestone payments for the projects Gode Wind 4 and Atlantis I. But you've mentioned that you expect payment for Atlantis I not before 2024? Isn't it too early for booking receivables?

Yes, we are obliged according to IFRS rules to do this in this way because there have been coming up some developments. First of all, we saw -- we got information from our partner that they would like to progress. But nevertheless, it is also the main point is this is a special plan. The special plan had been finalized end of last year from the German government. And this also lead us into this IFR -- according to IFRS rules, to put -- to consider this.

There are no further questions at this time. I hand back to you, Mr. Lesser.

So thank you very much for your attention, and you'll see us very soon for first quarter numbers. Thank you very much. See you. Bye.