PNE AG (PNE3) Earnings Call Transcript & Summary

Good morning, everyone, also from my side. Thank you for joining us today in this conference call on the results of the fiscal year 2021. 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 2021. After that, I will comment on our financial figures. I will conclude my presentation with our outlook for 2022. As always, we will then open the line for the sell-side analysts only. [Operator Instructions] 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. In operational terms and financial terms, 2021 was a record. Despite a still somewhat difficult general conditions caused by COVID pandemic, we were able to increase the output, which means the projects sold, put into operation or under construction, to a record level of more than 1 gigawatt in 2021. This includes a record number of more than 770 megawatt/megawatts peak sold. The result is more projects than ever before. We saw them in Poland Sweden, France, Romania and South Africa. I want especially to highlight the sale of the PV projects in Romania and U.S. at the end of the year. What is remarkable is that we could increase our wind and PV pipelines by 963-megawatt/megawatt peak on a year-on-year comparison despite the extraordinary high project realization. In Q4, we were able to put 2 more projects with 60 megawatts in operation, which increases our portfolio to roughly 233 megawatts in operation. Further 103 megawatts are under construction and 1 project with 25.8 megawatts is through the tender and will start construction soon. Altogether, we have 365 megawatts are either in operation or under construction or will start the construction soon. In this time, last year, we also made a lot of measures in Scale Up. So this is one point where we are successful, our scale-up procedure. We made a lot of measures in terms of -- to increase the effectiveness of our processes and to stay attractive as a company. By example, we introduced a knowledge management within the PNE academy, and we defined the road to success to improve our processes. Looking to the financials. Our strong operating performance was also reflected in our financial figures. I want to highlight the level of the total output of EUR 252 million, which is an increase of 66% in the year-on-year comparison. EBITDA improved as well by 24% to EUR 32.7 million, which is even slightly more than we had in our guidance in -- where we said EUR 24 million to EUR 32 million. As expected, quarter 4 was a strong quarter in terms of earnings, driven by the sale of Polish projects, the PV projects as well as the strong performance of the power generation segment. I want -- I also want to highlight that these results were achieved despite significant investments in our own generation portfolio. Those investments in our portfolio are also reflected by nonrealized earnings or so-called -- we call it hidden reserves of EUR 53 million compared to EUR 50 million last year. Taking into account those values that we have created, EBITDA adjusted increased to EUR 85.7 million on an all-time high level. On segment level, the project development showed nice growth before consolidation compared to last year. Services grew in -- also in total output. Power generation was burned by weak wind yields and some downtime of our service power plant due to the maintenance in the first 9 months. In Q4, however, the segment clearly benefited from the high power prices. The positive performance also is continuing in Q1 2022. Our cash position on EUR 149.6 million, which is a strong increase by EUR 38 million in the year-on-year comparison, equity is increased by EUR 21 million. This was driven by the high amount of project sales despite the significant investment in project development and operation -- own generation portfolio. High cash inflow in Q4 related to the project sales in Poland and a EUR 15 million milestone payment from Ørsted related to the offshore business contributed to the increase. Putting the numbers in a time frame -- in a somewhat longer time frame, you can see that on a clear -- that we are on a clear growth path since 2017 when we started this, our strategy, Scale Up. And when you see the output -- the strong increase in the output from slightly above 200 million megawatt to now above 1 gigawatt, 1,000 megawatt/megawatt peak. The megawatts in operation management, we could increase from 1.5-gigawatt, 1,500 megawatts to 2,000 megawatts. And the EBITDA, if we take the adjusted EBITDA where we also take the hidden reserves into account, then we see the strong increase of EBITDA over the past years. So we can see that we are really -- that our strategy is really working. If we look to the megawatt and own power generation, we could increase it to 232 megawatts. If you look to the next slide, we can see that the hidden reserves now are accumulated in the portfolio to more than EUR 130 million in total, so EUR 134.6 million in detail. So this is an extraordinary increase. We see, if you look on the left table, that we just right now have 233.2 megawatts wind projects in operation, further 103 megawatts are intended for the portfolio and 28.5 megawatts we could take through the tender. So therefore, we are now having to consider 365 megawatts, which are now safe. And further projects, if you look to the project pipeline in the next slide afterwards, you can see that we have further 505 megawatts in the year-end in the Phase 3, so in the phase of the permitting process. So we are safe in that respect that we think that we can meet our target end of 2023 to have 500 megawatts under construction or in operation. And we are very close. We look to the next slide. We have a well-filled project pipeline. And again, I think the beauty of our business model is that we see projects, which we want to put in our own portfolio upcoming because we are working on it. We are doing it for our own and we are not [ related ] to buy and purchase projects somewhere in the market. In a moment, we -- despite the projects we have sold and which went in our portfolio, we could increase our pipeline intake around 1 gigawatt. And this is extraordinary for wind and PV. Important is that we have in the main markets like Germany and France, we have around about 750 megawatts in permitting phase. We could increase the pipeline mainly in Germany. So at the moment, only German projects -- or all German projects are related to our portfolio. And in France, we sold a project, Nanteuil, to CEE Group, which is under construction. In Poland, we saw the project Krzecin and Kuslin Krzecin is now ready last month, we could finalize it. Romania, 202 megawatts (sic) [ 220 ] megawatts were sold, which is wind portfolio we had at that moment. In South Africa, we could sell 140 megawatts of wind project, which is the second milestone depending on the tender in the first half of 2022. And we are under construction of the Sweden farm, Hultema. In total, we have a pipeline of around 5.7 gigawatts in wind. And if you look to the PV, we put double the PV pipeline nearly from 448 megawatts to 1,210 megawatt peak. We have -- now, we are now in 8 countries. And if you look to the whole pipeline, we come to a pipeline of close to 7 gigawatts. In reality, we are working on 12 gigawatts, but these are the projects where we have access to. Only to give you a flavor, we're talking about 450 projects we are working on at the moment. Look to the financial figures, we could see -- we can see a total output, which increased significant, 66% in a year-on-year comparison as well as the EBITDA was -- is increased by 24% around about. So this is, again, it's mainly driven by the various project sales, by the internal sales related to the -- to our own portfolio and the results from power generation and services. We have additional effects due to the fact that we have the financial results, which are positively impacted by the valuation of interest rate swaps, plus EUR 3.5 million, and a tax income of EUR 21.8 million, which is mainly related to the formation of deferred taxes on tax loss carryforwards and that leads to a strong increase of the net result. We look to the segments, we see a success story as well. In the project development, we could increase the project development output to EUR 267.5 million, plus 46.6%. All these numbers are before consolidation. The EBITDA increases to EUR 62.7 million, plus 10.9%, which shows how strong these project development works have been done. The services output grows to EUR 21.9 million, plus 3.6%. The EBITDA decreased slightly, but this was a negative one-off effects of around EUR 6.5 million (sic) [ EUR 0.65 million ], which mainly related to special depreciations of special wind LiDAR systems. The electricity generation increases to EUR 33 million, plus 35.6%, due to strong Q4. We had a -- not a very good wind year, but the high power prices at the year-end compensating the weak wind yields and as well as the downtime for maintenance of Silbitz. So this led to an EBITDA, which increased to EUR 23.1 million, plus 25.8%. What I said before have an effect on the balance sheet. The balance sheet increased from EUR 663.8 million to EUR 827 million. So the historic increase is mainly related to the assets we took on board and this is very strong growth. The main numbers I would say here are remarkable. There's still high liquidity of EUR 149.6 million. And we have still equity ratio of 26.8% related to bonds at 32.7%. And this is remarkable in that amount of increasing balance sheet, the ratio is going down that is natural even if the equity has increased. If you look to the noncurrent debt, we have a liability to banks of EUR 333 million (sic) [ EUR 330 million ], which is mainly focused on project financing, so nonrecourse project financing; the liability from leasing contracts, right of use, at EUR 103.7 million. And again, the current liabilities is mainly nonrecourse project financing of EUR 21.3 million. Having said this, what is the outlook? The outlook, we see a positive outlook in a very dynamic market. Just right now, we have to sit and have to face the situation that we have increasing prices for all goods: machines, cable works and additional EPC measures. So therefore, we see there development. On the other side, we have high pricing for the energy and it means that we get a higher -- we expect a higher income for our projects in our own portfolio. Nevertheless, at the end, it comes out who has a project has a good outlook in the future. We have a very high-filled project pipeline and increasing our activities in the project development. And we're increasing our portfolio, internal portfolio or production portfolio. So therefore, I think we are on a good road. We have a high volume of projects in the permitting phase, which shows that the growth, even after the 500-megawatt, can be done properly. So all ongoing investments in our own generation portfolio and in Scale Up we're working on. And from that point of view, we see a guidance of the year 2022 an EBITDA of EUR 20 million to EUR 30 million. So in general, positive and a good outlook. So I'm -- thank you very much for your attention, and I'm waiting for your questions.

[Operator Instructions] We have a first question. It's from Peter Rothenaicher, Baader Bank.

Firstly, on your outlook for 2022, you mentioned an EBITDA guidance of EUR 20 million to EUR 30 million. What would you quantify for the additional hidden reserves coming into effect in the current year?

We're talking about -- so I can't tell you the hidden reserves. That's right now taking into account that we have EUR 130 million around about for 233 megawatts. So we want to add another 103 megawatts very, very shortly between 12-month period close to 28 megawatts, so that these are the projects, which are still -- where we are still ongoing. And we expect a further, I would say, somewhere around 150 megawatts for projects where we get permission this year. So not all the projects are the same, not all projects have the same amount of EBITDA effect, but nevertheless -- so I can't tell you just right now the detailed number.

And then you clearly stated that the target of 500 megawatts own capacity will be realized by the end of next year. What is coming thereafter? So are you intending to increase this own portfolio, then?

Yes. First of all, you have 500 megawatts under construction or in operation due to the fact that we had some delays in COVID and permitting procedures. We are maybe, slightly half a year into the time frame of 2024 where we have the complete realization. But nevertheless, we see new opportunities also in PV projects. Maybe we do some of them as well and put them in our own portfolio. Nevertheless, it is not decided yet what we are doing, but I think we have a very successful business model in that respect that we have a full package of projects which are in admitting phase. And we see just right now the high prices in the energy market and we see the need for projects in the market. So the value is increasing. But nevertheless, that is the value we would like to have on board. So therefore, the general issue is not decided yet. But nevertheless, we're working on a strategy in a form of a Scale Up 2.0 in this year.

So given the extremely high level of energy prices, wouldn't this result in a revaluation of these hidden reserves?

This is always a question. If you look to the financing and you have a stable financing behind that, you have an outlook, which is an outlook for years -- for 20 years. And just right now, we stick with our -- with the prognosis we had in the past. Now we have a special effect. Nobody from us -- nobody expected this. Nobody knows how long it will -- how long the duration will be. So therefore, we have to stick on the [ cumulative ] line.

And lastly, regarding a specification of your outlook. I think it's clear following the strong result now in the project development business in 2021 that this will be clearly lower in the current year, while on the other hand, the power generation segment will show extremely strong results. Could you give us here some more specification about the size of profit you can expect, for example, for energy generation? I think there is no question that the energy prices will remain extremely high.

Yes. I think the most -- let's talk about the tactic how to deal with that. And what we are doing just right now, we are working on PPAs to get PPAs for all projects for a longer time, to get stable income secured for the time of 1 year. Usually, that's what you get. Right now PPA is for 1 year and there is the amount of what you get. Just right now, it's somewhere between EUR 0.10 and EUR 0.14 per kilowatt hour [ in March ]. And the projects are somewhere between EUR 0.06 and EUR 0.08 per kilowatt hour. So it shows a little bit just right now what we are talking about. So this is a improvement, for sure. We have, as I stated last year, we had 220 gigawatt hours around, so you can calculate what does it mean. If, if and if, that is the point where we have such a wide range, if the wind yield is like prognosed. So this is always a security factor.

The next question is by Jan Bauer of Warburg Research.

First question would be, can you give us any update on your offshore ambitions? As far as I know, maybe in the U.S. or also in Asia, you are trying to evaluate whether it makes sense to step in those projects? Is there anything new to the table so far?

Yes. Starting with U.S.A., we looked to this carefully, but the prices for us are too high and the risk/earning profile is, for us, not sufficient enough. I think that's something for the big utilities and oil companies. So we are looking for opportunities in Vietnam. We have started to open an office there. We have the first people working on there. But we wait for the -- and we started measurement in wind here in the Binh Dinh region. On the other side, we are waiting for the PDP8, which is Power Development Plan VIII (sic) [ Power Development Planning VIII ] and then wait for the results if we are, with our projects, in or not and what are the conditions of this PDP8. So we expected that this PDP8 is upcoming this year in the next 3 to 4 months, but they are still in delay. They wanted to publish this end of last year and now we wait for that. And then we will see what we have under this.

Second question would be regarding the project development segment. So when I interpret the guidance the right way, I would assume that you do not expect major sales of international projects, but rather, income from the power generation and the buildup of the own portfolio, is that right?

Yes. We had an extraordinary successful year for the sales in the last year. I don't think that we get this year covered again and some on this level. Nevertheless, it's an issue that we have the situation -- we have to face the situation that we have further projects in Romania, for example, PV, where we would like to sell. We have projects in the United States where we would like to sell. So there are some upcoming projects, but the target is more and more to get more on the portfolio. And there, we have a special strength in the moment in Germany and France on board. And that means that we have a lower EBITDA as we had stated last year.

All right. It's understandable. And the last question regarding your guidance. So in Q1, as far as I know, wind yields have been very favorable in Germany. And also, the EEG allows you to participate on higher energy prices. Is this, let's call it, additional income from higher power prices already reflected in your guidance? Or is your guidance based on the FITs you receive for the portfolio?

It's already reflected in our guidance.

Okay. And I'm right that Q1 was pretty good for your own wind portfolio?

You know in 4 weeks, I have the numbers together for the quarter 1. But in general, I can say, yes, the wind yield was good. Extraordinary and the power prices as well. So therefore, yes, we can expect what was asked.

The next question is by Karsten Von Blumenthal of First Berlin.

Congratulations for a very successful year. I think you are lucky man and PNE is lucky because now your strategy to establish this own plant portfolio is very, very successful as you can get very, very high power prices at the moment. And you already mentioned that you try to lock this in by getting PPAs for a longer time. So could you tell us for how long could these PPAs last? And what is roughly the pricing level of these PPAs?

Yes. The PPAs are different in the price level. So as I said before, we are somewhere between EUR 0.10 and EUR 0.14 per kilowatt hours, somewhere around that. It depends on the time when we're asking for this. It depends on the trader. We are not traders, we have tried. We have fixed contracts for the direct trading for the energy in place, and we try to fix with the new contracts and try to get alternatives otherwise. So usually, we have 12 months period for this, so there's higher prices to expect, longer times. Just right now, the market is very, very special so the prices are going up and down hourly, yes. So therefore, it's always a question how you can get the right timing.

Perfect. That helps. You mentioned that you are currently building 103 megawatts in Germany. And if I understood you right, you have that plus 28 megawatts coming this year. So could you give us an idea what, according to now, could be the portfolio capacity of your own plant portfolio at the end of 2022?

At the end of 2022, we will get some projects finalized this year. I don't -- I think we will have to adjust right now projects to consider, let me summarize it. I think somewhere about 320, 310 megawatts will be the amount, which would be ready at the end of the year, somewhere like this. It depends on the delivery times. Just right now, we have to face a real shift in delivery times from the manufacturers and so therefore, I'm careful to -- careful with my words because it is our [ range ] of plus minus 1, 2 projects at the end of the year.

Yes. I fully understand this. All project developers complain about the turbine producers and the delivery times. So how difficult is it at the moment and how long are the delivery times of the turbine producers currently?

Yes. The delivery times started maybe 2 or 3 years ago. We had to look in terms of 12 months. I think that increased to 15 months, and now we are talking about 18 months so to give you a feeling where we are in which market situation.

Okay. Understood.

So in some cases, we can negotiate lower delivery times, but this is what in general the market has in the first step as an offer.

All right. In your presentation, you mentioned that you are currently basically working on 12 gigawatts, but you do not put everything into your official pipeline figures. Could you explain again the difference between your official figures and what you are currently working on?

Yes. We are working on 12 gigawatts. There are around about 450 projects. I want to give you a feeling about the amount we are working on. Direct access to projects we have in the amount of [ 7 ] gigawatts where we have direct access where we have, for example, we have secured the first plot of land, for example, so where we have rights. But we have to work on much more projects. We have to fill our pipeline all the time. And we see just right now these projects, 1 gigawatt, we could increase our whole pipeline and this -- all of these projects we are working additionally.

All right. Understood. Now, one last question. You had this amazingly high tax refund of roughly EUR 22 million. Was that an extraordinary one-off this year? Could you explain what happened there exactly?

Yes. This is -- I would like to give you this point. If you look to the business report on Page 127, the report of the last fiscal year then you will get a detailed overview. At the end, it is only that we have taxes, which we -- tax advantages we took into consideration this year. And this is, in rough figures, we're on a very high level. That's what I can say to that. The details are written on Page 127 in our business report of the fiscal year.

The next question is by Holger Steffen of SMC Research.

As far as I see, the PV pipeline becomes more and more important for your company. You've mentioned the sale of the first PV projects in Romania and the U.S.A. last year. It would be quite interesting which revenues you generated in 2021 with this project sales. Can you give us a rough idea?

Yes. And we have always to face that in a lot of cases, we need -- we have to deal with milestone payments depending on the progress of the project. In the United States, we talk about lower 1-digit million number. In Romania, we talk about mid-1-digit million number to give you a feeling.

Okay. One question about your wind pipeline. In the U.S., you've started the sale process of the Chilocco project last year. Can you give us an update about this process?

Yes. We are still in the sales process and we have to face the significant change in the situation that we have increased energy pricing. We have the PPA where we would like to get this increased energy prices involved. And that's where we are negotiating and we are in negotiations still with the interested investors.

But you're still confident to sell these projects in the near future?

Yes. We have a good project here, but we want to get a higher price. So that's why we're fighting for it. And so it's the reason.

Okay. Okay. Last year, you have informed us about some delays at the project development in Panama. Could you give us an update about the actual status there?

Yes. We have a situation that we are now within the plan. So the project -- the main project is ongoing with the permissions. And we now have to finalize the securities in grid connection, which -- but there is a way to do this. And we are preparing the sales process.

Okay. So maybe, we will see some sales in the U.S.A., in Panama and in Romania this year. My last question is, can you give us an idea which further projects you could be -- could be sold this year?

This year, we have a project in France where we're talking about the project, Nanteuil, I think it's 2 turbines is what we're talking about how to -- that we have -- we sell this project. And we have then, as I said, Romania, United States, Panama and France. Yes. That's it in the moment.

[Operator Instructions] Our next question is by Peter Rothenaicher, Baader Bank.

In terms of refinancing, so I think we now have the situation that interest rates will rise. Your bond is expiring in '23. What are your considerations in terms of refinancing?

I think, in general, we have a high cash position and the instruments we are having now in place are the instruments we are safe with and where we are fine with. Related to refinancing, we have to -- yes, we prove all the time that we can take the release of a bond of EUR 50 million, if we take it or not in the future, we made a new bond. In this respect, we are still in a thinking process, having in mind that the equity rate of the bond is going down. And then we have to pay additional interest rates. So therefore, we are looking always carefully to the development of that.

The next question is by Jan Bauer of Warburg Research.

Just one last question from my side regarding the PPA negotiation business. So last year, I think for several other operators who negotiated PPAs so that they can lock in the higher prices for longer. Now as the power price environment seems to sustain on very high levels and all the PPA prices have been going up pretty high, is this something you see in your service business that you receive more requests regarding U.S. broker for PPAs?

Yes. We see that, definitely. And we see that a lot of companies now from the midsized companies like companies who have a high energy amount like companies of producing glass, for example, or having special procedures, make special forms of alcohol or something like that, these kind of companies are looking now for alternatives. And we see that this market is increasing. The pure PPA market of midsized companies there, they are now -- some of them are really looking more or less to get a stable energy price in the market.

Okay. And can you give us an idea of how you got remunerated when you close such a PPA? Is this like -- is this depending on the difference between the PPA price, and for example, the EEG price? Or how does this work for you? So how do you calculate in the end sales and margin you receive from such negotiations in such brokering services?

Yes. It depends on where we do a kind of brokering services, depending on an amount we see as a turnover in the future, yes, and then we get a feel, yes. But additionally, we can negotiate otherwise, depending on who delivers what to whom. And it is always good to have a backlog like 2,000 megawatts, which we have in our own services. So that means that we have access to a higher amount of megawatts where we can improve for our customers where we do the operational management, the conditions and we can then -- okay, we can ensure that we have megawatts and megawatt hours we can bring to the best prices to the market. And then we have special models, but such right now, this is from project to -- this differs from project to project.

Okay. I understand that. And so you do actively approach people that are in your own management that you might negotiate PPAs for them? Or is there something that is initially a...

Yes, yes, yes because it's a big advantage for our customers that we do the, first of all, the tender of our -- of the trader. So the traders would like to have an amount of megawatts and megawatt hours, and that's what we can deliver. And this gives always the best margin for our customers. And so it's a good situation to improve for our customers, the energy I see in conditions for trading or now, within these days, how we can improve the prices of PPAs and this gives them a much better and optimized earning for our customers.

There are no further questions for the moment, and so I hand it back to you.

So thank you very much for your interest. I wish you a very good day, and we see us the next time on the numbers of the first quarter. Thank you very much for your interest. Bye.