PNE AG (PNE3) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the PNE AG Full Year 2024 Results Conference Call. I'm Carmen, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Heiko Wuttke, CEO. Please go ahead, gentleman.

Good morning, everyone, also from my side. Thank you for joining us today in this conference call regarding the results of the fiscal year 2024. My name is Heiko Wuttke, I'm the CEO of PNE AG, and I'm accompanied by Harald Wilbert, our CFO. As you know, I'm new at PNE since January, and I'm glad to be on board. And you may have seen that I'm familiar with the renewables business since 30 years, and I'm looking forward to develop PNE further with my colleagues in the management Board. Let me now start the presentation. I'll give you first an overview of the presentation and the course of today's webcast on Slide #3. As usual, I will begin with a brief summary of the key highlights followed by an update regarding the operating business 2024. And then I will pass over to Harald for an update on the financials. After that, I will talk about our strategy adjustments and we'll conclude the presentation with some remarks on the outlook for 2025. We will then open the line for questions. And as usual, our slides can be found on our Investor Relations website. Having said this, I would now like you to draw your attention to Slide #5. And before I get to the highlights, let me just briefly give you an overview of the changes in the Management Board and the Supervisory Board of last month. I'm delighted that I will -- that we are now complete again at both Board management and Supervisory Board level. Following the changes of the recent months from April 2025, the Board management will consist of only 3 members as Per Pedersen will be leaving as planned on January -- on March 31. And I would like to take this opportunity to thank Per once again on behalf of PNE for the smooth handover and his great commitment over the last years. Ladies and gentlemen, PNE had a strong year operationally, which was reflected by a strong financial performance to close out the year. In project development, we made good operational progress and we completed some very successful project sales. I want to point out that we did this while dealing with a still challenging market environment with several external factors that slowed us down, such as supply bottlenecks and unfavorable weather conditions, lower power prices, high interest rates, or turbine delivery issues. To give you some numbers, we sold projects in Germany and international markets with a total output of 751 megawatts and our U.S. business was 2.1 gigawatt. We put wind farms with an output of 72 megawatts in operation, and we had 278 megawatts under construction at the end of the year. In power generation, we strengthened our position as IPP by expanding our own power generation portfolio from 375 megawatts last year to 429 megawatts. And our power generation output grew by 8% year-on-year to 748 gigawatt hours due to the increased installed base but despite being burdened by low wind yields and as well as low power prices. Our services business continued to perform well. It now manages capacity of more than 2.9 gigawatts in O&M, and the EBITDA of this segment grew by 20%. In financial terms, the year 2024 was successful as well. Total output grew by EUR 342 million. This was the highest level of PNE history. EBITDA increased by 73% to EUR 69 million. With that, we clearly exceeded the guidance for the financial year 2024. Based on the successful year, a dividend of EUR 0.08 per share was proposed. The project pipeline is on a high level of 18.9 gigawatts, close to the record level of 19.1 gigawatt in 2023. Compared to Q3 2024, the pipeline even grew by 1.1 gigawatts and with regard to our project pipeline, it is remarkable that we could keep it stable despite almost 3 gigawatts leaving the pipeline due to project and pipeline sales. The pipeline in our core markets Germany, France and Poland even grew by 28%. Wind onshore increased to 9.9 gigawatts, PV slightly decreased to 6.5 gigawatts peak and wind offshore was stable at 2.5 gigawatts. The basis for our IPP portfolio is the wind project pipeline, especially in Germany and in France where we have 846 megawatts in the permitting phase and 175 megawatts under construction. You can see this in the Phase 3 and 4 in the table on the right side. Looking at Germany. We increased the German pipeline to 3.2 gigawatts compared to 2.6 gigawatts in the previous year. We successfully sold the wind farms, Papenrode, Lütau, and Nordleda. Wind farms, Heitzelberg, Schenklengsfeld and Heidmoor were completed and put into operation for our own generation portfolio. 8 wind farms with 164 megawatts are under construction in Germany. And we were successful with 10 projects with a volume of 105 megawatts submitted in the German tenders. In France, we had a premier, we completed the first wind farm for our IPP portfolio outside of Germany. And we have another project under construction with 11 megawatts. In the U.K., we sold our Sallachy wind farm to Boralex and with this sale, we exited the U.K. market. This is in line with a stronger focus on our core markets. In the U.S., we sold our complete U.S. wind pipeline with 746 megawatts in the second quarter 2024 to Lotus Infrastructure Partners. We received a single-digit million euro payment in 2024 and further milestone payments in double-digit million euro range are possible over the next 5 years. That's dependent on the achievement of future project progress by the buyer. And in Canada, we sold one wind project with 210 megawatts in the second quarter 2024 to a Canadian energy company and 3 indigenous First Nations people. PNE Canada will continue to develop the products up to ready to build. On Slide 10, I will elaborate on the PV pipeline. We have seen good progress from projects to the later project phases. Consequently, Phase 3 projects grew by 58% to 558-megawatt peak. And we were able to sell some projects as well. In South Africa, we sold the 240-megawatt PV project. And in the U.S., as I mentioned already above, we sold our complete PV pipeline of 1,372-megawatt peak to Lotus Infrastructure Partners. And in Canada, we also sold one PV project with 100 megawatts in the second quarter. If you look at the expansion of our own generation portfolio, then you see that we made good progress here as well. We added 72 megawatts to the IPP portfolio in 2024, including the dismantling of 19 megawatts of Papenrode and have 429 megawatts in operation at the end of the fiscal year. Further, approximately 176 megawatts in Germany and in France were under construction at the end of the year and partially intended for the IPP portfolio. We produced 748 gigawatts of green energy in 2024, which is an increase of 8% compared to 2023. And the hidden reserves accumulated in our portfolio decreased to EUR 195.3 million compared to EUR 208.6 million in the previous year due to the realization through the project sales, of course. This confirms the value of hidden reserves of our IPP portfolio. I would now like to hand over to Harald for the financials.

Yes. Thank you, Heiko. And first of all, I also would like to welcome everyone on this call. Coming to Slide 13, the income statements. Looking at the financials, the results for 2024 reflect the high development activities, investment in our IPP portfolio as well as the successful project sales, especially in Q4. Total output grew by 28% to EUR 342.6 million, as mentioned before, the highest number in PNE history. Cost of materials increased due to the high construction activities for German IPP projects as well as higher project development costs for the larger project pipeline. Personnel expenses increased, driven by an increase in the average number of employees of 43 and higher salaries. Nevertheless, both the cost of materials ratio and the personnel expense ratio decreased to our favor. EBITDA increased by 73% to EUR 69.0 million compared to EUR 39.9 million in the previous year catching up strongly with the project sales in the fourth quarter. Net income and so the equity was negatively impacted by subsequent measurements of KFW loans in accordance with IFRS -- according to IFRS 9 and IAS 20, we have to apply the so-called effective interest method on all loans. As the applicable market interest rate change for PNE in 2024, IFRS demand for these loans revaluation at fair value, the so-called subsequent measurement. In consequence, decreasing market interest rates as seen in the last month led to higher present values of the respective KFW loans and so to interest expenses. In our case, the financial result was impacted by minus EUR 22.7 million in 2024 compared to only minus EUR 3.8 million in 2023. These interest expenses caused by the effective interest method influenced our net result and thus our equity ratio. But that's important, I wanted to stress here that these negative effects have neither an effect on liquidity nor they reflect our operating performance. And this is why we show an adjusted net income for 2024, this amounted to plus EUR 10.7 million compared to minus EUR 5.8 million in 2023. Let's come to Page 14, please. Looking at the segments, we see that all 3 segments grew. Total output of the segment Project Development increased to EUR 230.5 million, which corresponds to a plus of 6%. Reasons for this were the high construction and development activities as well as the project sales. Total output of the segment Power Generation increased to EUR 83.0 million, which means a plus of 5%. Total output of the segment Services increased to EUR 36.5 million, which equals to a plus of 19%. EBITDA-wise, the segment Power Generation has the highest contribution with EUR 57.7 million, and this with stable and recurring EBITDA, mostly backed by the EEG tariff. The EBITDA from segment Services grew by a pleasant 20%, up to EUR 7.8 million. The Project Development segment shows in the annual statements a negative EBITDA of minus EUR 5.1 million which, however, must be seen in combination with positive consolidation effects from the sale of German projects in Q4 2024. For a better visibility of the performance of the Project Development segment for 2024, we adjusted the EBITDA figures as well as the consolidation figure in the chart on the right. This results in a higher EBITDA number for Project Development of EUR 46.7 million on the one hand and a corresponding lower number in consolidation of minus EUR 43.2 million on the other hand. As in 2023, the consolidation in 2024 was driven by investments in our IPP portfolio. Slide 15, the balance sheet. On the asset side, we see that most is allocated to property, plant and equipment as well as inventories, but we see as investment in stable values. Our balance sheet remains solid with a cash position of EUR 91.6 million compared to EUR 90.4 million by the end of 2023. Equity declined to EUR 194.6 million, coming from EUR 208.1 million from the previous year, mainly impacted by the above-mentioned nonoperative IFRS effect of roughly EUR 23 million -- minus EUR 23 million. The equity ratio was 15.4%. Adjusted for the IFRS effect, it had reached 17.3% and adjusted for hidden reserves, it was at a comfortable level of 26.7%. Liabilities to banks increased further as the buildup of our IPP portfolio continued. It is worth mentioning that the majority of these bank liabilities are nonrecourse project finances. With that, I would like to hand back to Heiko for some remarks on our strategy.

Yes. Thank you, Harald. Ladies and gentlemen, I want to give you an update on our strategy. We have conducted a thorough review of our strategy, taking into account external factors such as market environment as well as internal factors such as financial considerations. And let me explain to you how and why we have adapted our strategy and where we are coming from in this respect. On Slide 17, you can see that we are coming out of a period of dynamic growth. The PNE group has grown rapidly in recent years and has developed strongly in the process. From a pure project developer, it has become a clean energy solutions provider. We strongly expanded our IPP portfolio and our project pipeline. And we have invested heavily in the IPP buildup to create a stable, visible earnings base and thereby achieving new dimension. But while overall market environment remains promising, fundamental market conditions have changed since 2022. Interest rates have risen sharply and electricity prices have fallen significantly. In addition, the cost for machinery, materials and personnel have increased significantly, too. And as a result, the corresponding strategy adjustment was necessary. The basic strategic orientation will stay the same. We will remain a clean energy solutions provider. The strategic focus on these 3 segments of Project Development, Power Generation and Services is the right approach. It creates diversification in the business areas and, at the same time, leverage synergies as the 3 segments are mutually beneficial. So we will continue to grow our IPP portfolio. But we now strive for greater focus on profitability and value creation through a more balanced approach. So what do we adapt? We are creating a balanced mix between the development of our own operations portfolio and the sale of projects by recalibrating the pace of development. In this way, we are optimizing value creation and cash flow combining medium-term growth potential and short-term profitability. Our integrated business model offers growth and resilience. This means that we will also sell more projects than before in the markets that we are primarily intended for the IPP portfolio, meaning Germany, France and Poland at different stages of project development we see later on. The growth of IPP will continue, albeit at a somewhat more moderate pace and the speed of IPP buildup will be linked to profits from project sales. Additional financing opportunities could, of course, lead to an acceleration. But the optimization and streamlining of the pipeline is also key. First, we are optimizing our pipeline by focusing on a more high-value core markets that are aligned with our business model. It means we will exit markets that do not fulfill our return expectations. This process has begun in mid-2024 with the sale of our U.S. business and continued with the sale of projects and companies in the U.K. and Sweden. Further markets may follow in 2025. This will lead to a significant reduction in risk and costs while keeping a still sufficient diversification across remaining markets, technologies and segments. The strategy adjustments will lead to an increasing profitability already in the short term, a healthy capital structure and a robust financing capabilities. And the result is a more resilient strategy that enables financially healthy and balanced growth. The strategy adjustments will lead to adjusted targets for 2027. We still have ambitious growth targets by the end of 2027, but now combined with a healthy balance sheet and profitability metrics. As a result of the strategy adjustment, we are planning an own generation portfolio with a total output of around 1.1 gigawatt in operation or under construction by the end of '27. Looking ahead, we are sticking to the previously planned own operation portfolio of 1.5 gigawatts in operation or under construction long term. The high-quality project pipeline should remain at a constant level of at least 10 to 15 gigawatts. And we want to increase the gigawatts under management in O&M to 3.5 gigawatts. We also want to double our EBITDA to double it to around EUR 140 million. To achieve these targets, portfolio management, cost management and capital and liquidity management will be systematically expanded and optimized. And on the next slide, I will elaborate on that in more detail. Regarding our portfolio management, we will focus on core markets. This will increase the pipeline value while due to market exits, the nominal figure of the pipeline will decrease. We will target a smaller but higher-quality pipeline which will decrease risks and costs significantly. In addition, we will integrate BESS, battery energy storage systems and hybrid projects. With respect to cost management, we will optimize selective cost drivers, for example, using a detailed overhead analysis, and we will review whether outsourcing or in-sourcing makes more sense for us. We will also improve operational excellence like projects and process management measures, other sales models, economic and technical optimization, standardized processes and so on. And last but not least, we will merge as much as reasonable as quickly as possible. But of course, we don't forget the capital and liquidity management. From now on, we will only allocate capital to projects and markets with corresponding return expectations. There will also be no cross subsidization of business segments anymore since they now need to be self-funding on an operating cash flow, investing cash flow basis. With one exception, the funding of the IPP segment can rely on raising project-level debt. And the pace of our IPP buildup, keeping versus selling needs to be recalibrated to optimize value creation and cash flow. On Slide 23, we would like to introduce our central implementation tool to you, the so-called PMO or the adjustments, the structures and processes and thus the successful transformation of PNE. Launched at the beginning of last year, it manages the key initiatives for implementing efficiency optimization and structural improvements. It currently contains 85 initiatives allocated to 7 key clusters. Ladies and gentlemen, this leads me to the outlook on Slide 25. Our guidance for the full year 2025 is the group EBITDA in the range of EUR 70 million to EUR 110 million. In line with our adjusted strategy, we are targeting various project sales, for example, in Germany, Poland and Romania. Having said this, let me assure that you -- let me assure you that the buildup of our IPP portfolio continues. Further wind farms are expected to be put into operation for our IPP portfolio this year. And according to our stronger focus on high-value core markets, we are targeting market exits for Panama and Turkey. All these measures are in line with our strategy. We are committed to future-proof sustainable growth and value creation. With this, I would like to conclude our presentation and open the call for questions. Thank you very much.

[Operator Instructions] The first question comes from the line of Guido Hoymann from Metzler.

Two questions from my side. First is, do you expect the exit from Turkey and Panama to result in extraordinary profits or losses? Do you have any indication that will cost you money or bring your money in? The first one. The second one is the sale of the Swedish activities. I think you announced in January. So did that affect your '24 results? Was there anything booked into '24, gain or so? Or will there be a book gain or loss in '25 on Sweden? And is there also some sort of earn-out structure similar to what we have seen in the U.S.? Yes, that's actually it from my slide.

Yes. Thank you very much for your questions. Regarding the exit or the planned exit for Turkey and Panama. So it's just underway. We are in the exiting process. Everything is open. So we can't predict today what will be the outcome. It's a tendering process. And at the end, we have to see positive, negative. So unfortunately, we can't tell you today a concrete figure. So we will know this then maybe in the second half, I guess, this year. what will be then the final outcome. And regarding Sweden, when you look in the annual report, there you will find, I think it's Page [ 1 of 89 ], the gains with this sale, this was EUR 4.6 million. Yes. And I think we have no earn-out clause there. So that's it.

The next question comes from Mr. Holger Steffen, SMC Research.

I have only a few additional questions. One further question about Panama. According to your annual report, you are in the sale process for 68-megawatt wind farm at the moment. Is it separate from the complete exit? Or what is the process there?

Yes. Thanks for your question. This is not a separate portion. We are exiting and plan to exit are in the process. So this includes, of course, what we have there in the pipeline.

Okay, fine. One question about your figures. Receivables of around about EUR 5 million are still outstanding from project sale in Romania, which the buyer is currently unable to pay. Have an impairment already been made on these receivables? And will PNE get the project back if the buyer fails to sell it?

So there is no impairment plan for this year. So it's still ongoing, and we expect that during the year, we get the money. And so in the moment, there is no impairment.

Okay. Perfect. My last question about politics in Germany. Maybe it's a little bit complicated to get an outlook there at the moment. But what significant adjustments to the framework conditions of the market do you expect from the next government?

That's a very easy question, of course, since it's not completely clear what will be the outcome of the coalition agreements. But we don't expect significant changes, especially looking at onshore wind. I think in the different working groups, it's still under negotiation. The papers we have seen doesn't show a clear picture at this moment. So we have to wait for that. But in general, I -- well, we, as a company, we don't expect a complete shift. We have to wait until maybe Easter. That's what they announced.

[Operator Instructions] We have a question from Mr. Karsten Von Blumenthal, First Berlin Equity Research.

A couple of questions from my side. First of all, I believe that the alignment in your strategy is exactly the right thing to do. What is not completely clear to me is, do you have any rule how much goes into the IPP portfolio and how much will be sold because it's difficult as an analyst to have the right way of dividing what is done where. So perhaps you could give us a bit of insight how much IPP you would like to add in megawatt this year and elaborate on your strategy.

Well, of course, we try to be flexible in terms of sales [indiscernible] figure, we can tell that we plan to have roughly 50 to 70 megawatts that we get into and add to the IPP portfolio.

That helps a lot. In your presentation, you mentioned that you would like to integrate BESS and hybrid project. Could you elaborate what you exactly mean by integrate, meaning you also go into battery storage as an addition to wind farms, and you plan more projects regarding combination of wind and solar? Or what exactly is your view there?

Yes. In general, we see the question of grid access as a vital one in all over Europe. I think looking forward, we shouldn't just be focusing producing, but looking at the whole system. And by doing this, especially BESS is one measure that can help there. What we are doing is investigating and developing without having a clear picture of how this will materialize. This is very much dependent on the different locations. However, we think we are well positioned with the portfolio to have certain add-ons, either on BESS or PV and add this in our project pipeline that we have. So thinking more from the system delivery point of view rather than just producing is something we want to focus and look into now.

All right. Understood. In the presentation, you also mentioned that you would like to merge as much as reasonable. Could you elaborate on what you would like to merge in your company and which areas are -- could be affected?

Yes. Well, I think PNE has a great history of delivering and working in the different fields. However, it makes sense to look at the whole organization once in a while. And this is what we are now doing without having results on that yet. But it's obvious, of course, that in some ways, one has to think about more standardization or centralization. And this is what we mean with that. It's a process that is currently ongoing.

Can you still hear me?

Yes, we can.

Perfect because there was an interruption of the technology. So okay, that is helpful. You mentioned that you leave some markets and perhaps some more markets. So do you have, at the moment, an ideal market number you would like to stay in and how many markets that could be? And what are the costs for the realignment, both regarding your markets you're in and your internal restructuring?

So the first question. Well, there has not [Technical Difficulty] want to be in because this is as explained in the presentation, dependent on the profitability, return expectation and not on the quantity itself. And this we are currently investigating and will go on this in the next years. Regarding any restructuring costs, I'm not able to give you any figure on that. But of course, we optimize as much as possible what's needed, needs to be done, but we cannot disclose any figure on that at this time.

Okay. Fully understood. One last question from my side. Where do you see your current highest risk in your business? Is that your relatively low equity, which means that financing is a problem, especially after interest rates have risen? Perhaps you could elaborate on the risk side of your business.

Yes. Coming to the equity ratio, it's not so bad when you put into account the hidden reserves that is 26%, where we are quite happy with. Of course, if you deduct this 15-ish percent is something we have to work on. But we do this via the strategy. This is one reason why we do the strategy. So with the portfolio management, the cost management and the capital management, so we want to drive then a lot of things to improve and one of this is the equity ratio, to increase the equity ratio. This is why we are focusing a little bit more on core markets, and this will help with equity ratio or other financials, of course. And the highest risk from the business...

I can maybe add on that regarding the risks. We are in the energy business, meaning we are dependent on regulatory frameworks. That means looking and always having a close eye on the development policy-wise and the market is key, and that's what we are concentrating on. And I think by, for instance, stepping out of the U.S. even prior now some uncertainties over there is pointing into that direction that this is, of course, the risk and the solution is always to be very close to the developments in that regard.

Yes, that is helpful. One follow-up question regarding your equity ratio. You mentioned with hidden reserves, you're at 26%. So the banks look at the full picture, taking with 26% as a basis? Or how do they view your equity ratio?

Actually, we don't know this because they are calculating this internally. But of course, in chats with them, we are mentioning this and they put it into account because when you have valuable assets on your balance sheet, this has a value. So of course, and this is part of the rating. And so hidden reserves is important for them. They want to understand this. We explain this every year, why it increased or in this year, it little bit decreased because of the sale from Papenrode and Lütau. But overall, they're very happy with this level.

[Operator Instructions] We have a follow-up question from Guido Hoymann from Metzler.

Yes. On the actually financing structure, another question. Do you actually also look at this net debt-to-EBITDA ratio? I think we are now at net debt of around EUR 810 million or so. EBITDA at around whatever EUR 80 million, EUR 85 million, so 10x ratio. So is that something you have an eye on? And do you try to bring that down? Yes. And you mentioned during the presentation also additional financing opportunities, maybe also in this context, is that something critical? And what are you going to do about it?

I think you're addressing the leverage. Of course, we are totally aware that this is important [Technical Difficulty] our strategy, we are addressing this. This is one reason why we maybe leave some countries, not only business-wise, financial-wise too, this is all together. And we are aware about this and we are working on this. And I think the leverage already this year improved because EBITDA was higher. So this was a good development. Then additional financing, of course, we always -- this is, I would say, daily business of a CFO and the team to think about where we can optimize maybe with another bond or of course, we have every week talks with banks and look at how we can optimize credit lines for the projects or the project finance or corporate finance. And we think about the equity. This is why we bring the authorized capital again as the topic in the AGM. Maybe -- or we hope that this year, this can happen so that we get the maturity, the needed -- required 75%. So it's a big package. But in the moment, with the self financing via the sale of the projects, what we did last year and what we want to do this year, we are quite happy.

The next question come from Eric [indiscernible] from [ Murphy&Spitz ] Green Capital.

My question is regarding the exits that you are planning. Do you -- have you set any floor for the possible losses that could become from those market exits? Or are you -- or are the risk too high for you so that you could say that in 1 or 2 years, you have to leave the market?

Yes. Thanks for your question. It's not that we set a floor for exiting. But of course, we look as said, on profitability, returns and the likelihood of it. We don't have to. But of course, you always have to put on the other side, what kind of cost do I still want to invest in projects that might not meet the return expectations. So this is a kind of trade-off we're going to have to do. And therefore, there is no fixed line, but of course, a strong view on if long term, the profitability or the cost would be too high, it's better to step out than rather keeping.

For the other markets like South Africa and Canada, for example, have you set any target for those markets?

Targets is the right word. But of course, according to our planning, we have certain targets for those markets. That's for sure because they contribute. If this answers your question?

Are you planning also to exit those markets in the next 2 years?

That is currently not decided and not what we plan.

[Operator Instructions] Ladies and gentlemen, that was the last question for today's conference. I would like now to turn the conference back over to Heiko Wuttke for any closing remarks.

Yes. Thank you. So ladies and gentlemen, if there are no further questions, we really would like to thank you for joining today's webcast. We look forward to welcoming you again to our next webcast on the publication of our Q1 report 2025. That is scheduled for the 9th of May 2025. Wish you all a good day, and thank you. Bye-bye.

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