Rubis (RUI) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Rubis announcement. [Operator Instructions] Please be advised today's conference is being recorded Friday, the 17th of December 2021. [Operator Instructions]. I would like to hand the conference over to Rubis' Chief Executive Officer, Mr. Bruno Krief and Rubis Head of Investor Relations, Ms. Anna Patrice. Please go ahead.

Thank you. Good morning, everybody. I am very happy to announce this transformative acquisition by Rubis of a leading photovoltaic solar player in France. I would like to tell you that I am here with Anna Patrice, Head of Investor Relations. And you have already got the press release earlier this morning. And you have also a link in the press release or in the website to obtain or get further information and the presentation on this deal. So to come back to this great news, I would say that this acquisition marks the evolution of Rubis over the last 3 decades in the energy sector, combining a successful multi-country marketing and retail business together with a strong foothold in logistics and infrastructure, that is all the business -- the basic business you know already from Rubis. And today, to then that makes the entry of Rubis into the energy transition era. So in Greece, it's a game changer for Rubis. It's a game changer for various reasons. First, in terms of size, almost $1 billion acquisition is combined with the recent entry of Rubis into the hydrogen sector earlier this year, and the total assets entering into this new branch that we would name Rubis Renewables will represent some 20%, 25% of total assets. So it's clearly a big acquisition, not only in assets, but of course, we are expecting the contribution in terms of EBITDA from this acquisition to increase from the current EUR 25 million in 2022 to triple-digit contribution by the next 5 years, post acquisition. It's a game changer in terms of business model also. You have here Rubis entering into a business which is made of a very long-term contract 25 to 30 years or more with under regulated environment and long-term contract price indexed also, which are featuring long-term revenues and, of course, supporting high leverage in this business, which is going, of course, to lower our cost of capital with this branch. At the same time, we are purchasing a business which has a formidable part of new projects, which won't require further equity injection. So it's a business which is supporting itself in terms of financing. And leaving Rubis to continue its stable dividend policy, thanks to the balance between Rubis Energie and the existing business, Rubis Terminal, which are generating present cash flow and good visibility and to fund the dividend policy to secure Rubis' dividend policy. It's a game changer also because this business, the renewable and photovoltaic business is benefiting from a unique growth reservoir, a growth reservoir, I would say, which is supported by various governance commitments as the needs for clean energy is huge on the worldwide scale to adapt for the call for the new energy mix. Here with Photosol, we are present exclusively in France. And as you know, the plan built by the government is extremely ambitious including, multiplied by 10, the existing capacity of photovoltaic panel and electricity between 2020 and 2028. So it's a huge challenge. I would say also that Rubis is going to leverage the -- its existing strong niche position of Photosol and its know-how to in view of developing synergies with the existing portfolio of Rubis Energie in Africa continent, which lacks of course, energy and electricity production. So it's opening a huge potential. So this reshaping of Rubis' business portfolio will result in, I would say, emanate greater visibility and of course, accelerating the earnings dynamic midterm. I would say, 4 to 5 years from now, the time that we have to leave to get the existing projects within Photosol to emerge in terms of profit and as, of course, the CapEx program delivers. So Photosol, it's a unique company with a material pipe of new assets to develop. It has a highly competent and experienced team. And I would say before all, it is between the 2 groups, the human dimension. This is the best fit we can find to propose Rubis and Photosol across the energy transition area. So we stroke the deal yesterday. And the plan is to execute the deal before the end of the first quarter and start the consolidation as soon as it is completed. So Rubis will start the year 2022 with this new material asset, which is changing and reshaping the group. So this is an introduction to the discussion. You have received this morning the press release which more extensively gives explanation and light about the deal. There is the presentation on the website. And of course, I am here with Anna to give more color and answer any question they have. So we are ready for any exchange here and there, if you have all received the documentation and need more clarification. As you know, for the past, I would say, 18 months, Rubis has been investigating and looking for various way of expanding its business out of the fossil energy sector, the traditional business. We have now a basket of maturing operations, retail marketing, a basket of infrastructure and logistics, all very powerful, very niche business. And we are adding this renewable energy sector and build the photovoltaic electricity production. It will be combined tomorrow within new branch, including the hydrogen operations, and this will form and gives new leverage for Rubis.

We have questions on the line, Emmanuel Matot from ODDO BHF.

Very interesting acquisition, a game changer, as you said. Maybe some details. Can we have the level of sales of Photosol? Just to understand it's profitability?

In terms of sales, I said the last fiscal year, we are talking about EUR 32 million for the year ending 2020. For the current year, we expected 10% increase, so EUR 33 million in terms of sales. And as we told you, EUR 15 million EBITDA, which has been reported for last year. and EUR 25 million expected for the year 2022, which is the first year where we will fully consolidate the business. What is important in this business because it's really critically, you have to -- as an analyst, you have to have a differentiated view on how to analyze, I would say, the mature business on one side. And this type of business, which, as you know, is organized differently. And given the type of new business and the material investments, which is sort of EUR 600 million to EUR 700 million to be invested over the period '22 to 2028, okay, and which is very important is that money, the existing model is self-sufficient, I mean Rubis won't have to inject new money into the system but the -- all the new investments would be made under SPV, Special Purpose Vehicles, which each will represent productive assets with its dedicated debt structure, making that as the top company level, there is no need critically for new injections because the existing pipes is already generating surplus cash flow. And you can financially speaking, I would say, recharge the debt level as soon as you start to reimburse the past operations. So -- and this amount of EUR 25 million in '20 -- EBITDA in 2022 is expected to get to a triple-digit level by the year 2027. So I mean 5-year post acquisition.

So triple-digit level means more than EUR 100 million?

Yes, to reach the EUR 100 million region by 2027.

Okay. That's why you are talking about midterm target of reaching 25% of group's EBITDA coming from that acquisition?

Exactly, exactly. While immediately, if I take this acquisition, combined with the hydrogen, we are talking about some $1 billion total assets. The current -- as you know, the current acquisition, which is valued in equity at EUR 470 million and to which we can add the debt, which is already in the company of, say, EUR 400 million. So we have EUR 870 million for 100%. If I have the hydrogen assets today, we are very close to EUR 1 billion almost a bit more than $1 billion. And this amount currently does represent some 20% of total assets of Rubis combined with the Rubis Energie and the support and services, plus the terminaling business. So it's already a very material move.

Yes, it's a EUR 1 billion -- okay, it's total assets, but for an EBITDA of EUR 25 million, so but you do expect high growth -- you do expect very high growth in the coming years?

This is the nature of this business because it's a business which is the business model, of course, is different, but the one you know. And we are building a new pipe. And this is the pipe of business is made of -- for a big part, which is made of identified operations I would say, discussions engaged with various parties, the identification of the land, which is a very critical elements to start a deal and prepare the package to answer to the [ appendix ] from the government or tomorrow to offer the -- and to enter the PPA, the PPA sector, which is more business-to-business contracts. So today, I would say, most 100% of the plans are within the CRE, the Commission Regulation Energy. So as you know, government, with a price, which is already set up. The retail, which is already set up, a price index and tariffs, which is already set up for the next 25 to 30 years, okay? So this is what is today generating the EUR 33 million revenues, of course. These are the existing projects. But at the same time, if we turn to the year of 2027, 2028, we are talking to expected sales turnover of EUR 150 million sales turnover. So this is how you should look at it.

EUR 150 million?

150. And what is important in terms of margin -- in terms of EBITDA margin to sales revenues, we are talking about 75% of sales revenue for the EBITDA. So this is clearly -- this is where the business model is different from the Rubis Energie. And of course, in terms of leverage, this is something that you are not prepared within Rubis because we have accustomed the markets to discipline of 2x, 2.5x ratio of net debt to EBITDA. But if we look at the Photosol today, don't be afraid, if you look specifically at Photosol, a ratio of 20x net debt to EBITDA, but it doesn't -- you cannot compare to a traditional business because we are buying a type of future projects.

Does that mean you can go higher than the 3x leverage in the future, meaning that you are still looking for acquisitions in -- for your core business, meaning Rubis Energie and support and services?

No, it doesn't put a pressure on the Rubis Energie or support and service or Rubis Terminal, as you know, because the debt which is in Photosol or in the renewable business is a specific category of debt. It's at the level of the SPV, with a very high leverage of almost 100% leverage, 95% debt and 5% equity, which is non-recourse. And so the security are specifically the assets, the photovoltaic panels. So it's autonomous in terms of financing to be located in this new branch Rubis Renewable. So this branch will leave with a very high leverage, of course, but you cannot compare with the 2 or 2.5x net debt to EBITDA that you can have -- you will have in Rubis Energie or 5.5x you have today within Rubis Terminal, as you know, consecutively to the partnership, which we put together with I Squared and the high-yield bond financing. We have also in Rubis Terminal quite high leverage situation. But I would say Rubis Energie will keep its autonomy to be independent generating its EUR 500 million cash flow EBITDA that you have today, say, past 2 years. So we are generating this kind of material amount in terms of EBITDA. And it will have its -- still its capacity to make further developments. So we don't want to sacrifice the existing business. We want to combine the development of both renewable energy plus the Rubis Energie and Rubis Terminal and also trying to find the right synergies and complements between the 2 branches.

Okay. Last question. Do you have a call option on the 20% remaining stake still owned by the key manager of Photosol?

The key managers are young. We have been lucky to meet them, to find that you have the formidable fit with them. They are just in their early 40s and they are the founders of the company. The idea clearly is that they are very keen to keep 20%, could be more than that or 30%, depending on the final discussion completion in 3 months from now at the moment of the completion. But then there will be different options. First, they are there and they are with us to pursue this challenge of developing this company, which is very young. They just started to operate in the year between 2008 and 2012. So a very early stage of the company and then they need the development of Photosol, which became, I would say, among the top French companies, as an independent company, apart from Engie, of course or EDF. So they are young. They are very keen to stay along with us. We are sharing the same view in term of future developments and synergy, we can make all Rubis territories. I mean the exit, if there is an exit, could take different forms, including, why not an IPO, an IPO of a part of the capital of Photosol. But this is something we could talk about not before 5 years from now when the portfolio will get more mature.

So your next question comes from the line of Jean-Luc Romain from CIC Market Solutions.

Congratulations for this operation. I have several questions. Maybe the 2/3 out of the 3.4 gigawatt pipeline, could you qualify more are there projects which are already authorized, but not yet in construction? Or does it -- or should we look at this pipeline? And the second question would be out of 100 megawatts in construction, how much of the CapEx has already been spent for this part, which is under construction?

Yes. Of course, the pipe is made of what can be qualified of identified pipeline, for which the land is already reserved for discussion with the different parties are more than mature. And I would say which will be invested over the next 3 years between 2022, 2024. So this is...

Sorry, [ is this reference for ]?

I mean, between 2022, so that next year and 2024, you have -- we will put in construction what we call the identified parts.

And what is identified parts?

Sorry?

How much out of the 3.4 gigawatts is the identified part?

So we were talking -- sorry, this is Anna Patrice. This 3-point something gigawatts is all identified pipeline. Now what we say in our press release that you will know that we want to authorize 2.5 gigawatt, that is what we think is quite achievable and what we calculated on the probability basis. And then there will be a significant project to adding the new capacities over the next year.

To me, you have a company which has been able to have a very -- to get a very massive market share over the recent CRE offer over the past 3 years, winning most of the new [indiscernible] offers. Then if we just take the photovoltaic finance, so the ground mounted, not the rooftop. In France, we are talking about a situation today where you have installed part corresponding to 6 giga, okay? And this 6 giga should get to 28 -- to 25 giga by the year 2028, okay? So what is interesting is that Photosol has the capacity not only to keep in the early stage, the existing market share but to increase also to some 15% of the market share for the new market, which is, again, 25 giga of installed panel by the year 2028. So this is how we can build these projections. Its capacity to maintain and develop further its market share, things that it has already achieved over the past 3 years.

Our next question comes from the line of Guillaume Muros from Societe Generale.

I was just wondering because you mentioned the synergies in terms of geographies, especially with the African continent. I don't know if there were other, let's say, obvious synergies with your other business lines and their activities.

We are present today as an energy supplier between the Europe, the Caribbean region and Africa in general from Morocco to South Africa and from Djibouti to the West Africa, as you know, including the Eastern African region. So we are barely involved in the problematic of energy. So far, it has been mostly linked to our positioning in fossil energy. But we know that things are changing. This change is accelerating in this continent where growth is increasing. Demand for power is also today the continent is facing the huge deficit in electricity and power production. So there is a huge potential. And you have today many parties, institutions ready to finance and support the development of power plants in -- renewable power plant in Africa. So we are very well positioned because we have already footprints. We have already established position from Kenya to South Africa and Morocco. So we know because we have been solicitated over the past 3 years and we talked already about it in various projects, including hybrid energy and facilities, hybrid, combining solar plants plus natural gas or LPG or fuel to deal with the problem of intermittence. So we know that there is a strong demand, but now we could look at the projects differently because we have a team of -- and expertise in-house with Photosol to go with us, discuss, make the diagnostic and launch new projects. So this will definitely change the game.

Okay. And just to be curious well on this target of installed capacity and projects to be developed going forward. They're mostly in France for Photosol or 100% in France?

Yes. For the time being, what we are talking about is only in France. So we are just announcing this acquisition. We have not signed yet, and we cannot get around any synergies, et cetera. So it's only for France and only in France already for total targets to increase its capacity by almost 10x. Now I think it's also quite important to highlight that they have very good success rate. Over the past years, it was over 80% success rate and are really seen as a top -- within the top 3 best solar companies in France. So effectively, Rubis is buying one of the best among the leading independent player in solar in France. So idea is to accompany them in the first place with the development in France, and at the same time, also to look for opportunities for cooperation, it was all our areas, but especially -- again, especially in Africa because you know the population there is growing. And because large part of the population there they don't have access to electricity.

[Operator Instructions] The next question comes from the line of Ryan Dean from Aylett & Company.

Just from us, I wanted to ask your thoughts about the impact on cash and the returns from this business, particularly over both in the near and the longer term?

Well, on the cash return in the next few years, obviously, the business will have to invest. So there will be only outflow for the CapEx. And Bruno has already said that accumulated CapEx is set to be in the range of EUR 700 million accumulated.

Yes, of course.

At the same time, from Rubis Group perspective, this accumulated CapEx, it all will be covered by the new debt coming on the SPV level. So that means that on the Rubis corporate debt level, it will not affect its covenants. It will not affect its corporate leverage. So basically, the way it will work is that people will have, as Bruno has explained, that we will have the renewable division with a significant amount of debt. But on the rest of the group, i.e., on the Rubis Energie, the leverage will be significantly lower, that's first thing. But then within the -- from roughly at least 2028 onwards, it should already be able to generate sufficient cash flow to be self-financed. So that's in the beginning. Now if we look at the returns, we can look at it in two ways. Obviously, if we look at the underlying operating returns in the solar segment, they're not that significantly elevated. So we're talking about probably around 5% to 7% return. However, it also depends how you look at it. And if you're also interested to look in internal rate for return, assuming that, for example, the exit price of how this company or this part of the business will be valued, let's say, in year 5 when we will be able already to prove and to develop and to have much higher installed capacities plus have also significant pipeline, both in France but also outside in France, in the countries where Rubis is already present. From that perspective, we think that we should have quite an interesting profile significantly above what I have mentioned before.

As you know, Rubis is made of 2 businesses today, which are strong cash flow generator, which are the mature business, Rubis Energie plus the terminalling operations, as you know. So with this third branch, we can combine this situation where there is a huge potential for growth and huge and fantastic visibility in terms of contracting and securing the business within the renewable energy. We don't have the immediate cash flow, but we have the future cash flow. While in the existing business, we have definitely each year, year after year, we have the strong cash flow generation, securing both money for acquisition, for organic growth and also the dividend we serve to the shareholders. It's for sure, the renewable energy sector taken independently cannot support the dividend policy, which is also part of Rubis. That combined renewable energy combined with the existing business of Rubis makes that possible, makes that possible, combining strong future growth, strong investments and also serving high dividend.

Okay. And just on the 5% to 7% return you quoted there, is that pre or post leverage in the renewable company?

It's post leverage. It's post leverage, it's following the -- we are talking about a leverage close to 100% in some circumstances.

[Operator Instructions] Jean-Luc has follow-up questions from CIC Market Solutions.

Yes. I noted that Photosol has operations in France, which is what you are purchasing and operations in the U.S. with a bigger pipeline in the U.S. How will the management of Photosol allocate their time between both? Or is the management -- or are the key people that are mentioned, fully dedicated to France only?

Actually, we are purchasing only the French operation. And the U.S. business will be carved out before the completion. So the U.S. business is completely distinct. And it will go is life. It won't be part of the deal, okay? So it's a focus today on France. All the team is dedicated to France.

The team in France is for France, but the company also has the team in the U.S. that is taking care of the U.S. business.

So there is no interaction, if you want. And we are using a company with 80 full-time employees dedicated to France.

Okay. And maybe just one last question, out of 1 gigawatt that you plan to have installed for Rubis Renewables by 2025 and the 2.5 gigawatt by 2030, from today, which is not easy to answer probably. How much comes from Photosol and how much comes from HDF projects?

HDF today is not operating anything today.

Yes, in 2025, I mean.

It will stand up because we are launching the work in the Guyana and the excavators will start to operate in January during the first quarter of this year of '22 and for a period of 18 months. So we will see the first plants in operation, mid-20 -- mid second half of 2023, okay? But the pipe, to come back to your question, the pipe for Hydrogen de France is that there are some 10 projects representing EUR 1.1 billion of total CapEx. And an example in CEOG Guyana, we are talking about the power plant of 50 megawatts. While today, at the end of 2021, there will be 427 megawatts of plant capacity in Photosol.

427 megawatts by the end of this year?

427 megawatts at the end of 2021. So at the end of this year.

And that's just 313 megawatts, today? 313 megawatts was last year?

313 megawatts was at the end '20 -- 2020. Sorry, '21. Sorry, '21.

313 megawatts is by end of '21, and 427 megawatts is by the end of 2022? Okay. Okay. Understood. And the capital expenditure for that is mostly cashed out already? Okay, understand.

[Operator Instructions] There are no further questions at this time. Please continue.

Okay. So thank you very much all for being present at this discussion. You will find all the documentation related to this deal on the website, and of course, don't hesitate to come back to us and Investor Relations at Rubis. So thank you very much all. Bye-bye.

Thank you. This concludes our conference today. Thank you all for participating. Speakers, please stand by your participants. You may all disconnect. Thank you all for joining us. Stay safe, everyone.