Soltec Power Holdings, S.A. (SOL) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining. I'm Meritxell Perez, Investor Relations Director, and I'm joined by Raul Morales and Jose Nunez. [Operator Instructions] With this, I'll leave you the floor, Raul. Go ahead.

Good morning. Thank you very much for the quick response. Today, we have formulated our 2023 annual financial statements. The company, due to a change in the auditor's standpoint, is not booking, EUR 192 million of revenue from the supply of solar trackers in 2023 and EUR 144 million of expenses that were included in the 2023 results, released to the market on February 28. We forecast the revenues will be recognized in this year. The discrepancy with the auditors is based on 36 contracts for the supply of solar trackers which amount to EUR 192 million of revenue and approximately 2 gigawatts of installed capacity. This represents a different view based on the application of the IFRS 15 standard revenue from contracts with customers with a significant impact on the company's results. I would like to remark that this is a matter related only to the year in which we account for the revenue. The company released its 2023 results on February 28 with the approval of the Board of Directors. At that moment in time, the auditor did not raise objections. The substantial change in the auditor's standpoint was expressed just a few days ago. During 2023, Bill and Hold arrangements were signed with customers transferring the control of solar trackers or their components already manufactured and ready to be delivered to them. As the arrangements were closed, the company booked this revenue and the related expenses in accordance with IFRS 15. Bill and Hold is a common procedure in the industry and has been applied by the company in the past. It involves manufacturing and custody of the components of the solar trackers before they are delivered to the project. This is a complex procedure subject to the implementation of the IFRS 15 standard revenue from contracts with customers. The standard contracts regulates the transfer of control of the tracker when it is delivered. It is defined according to the incoterm agreed in each case with the customer. Revenue is recognized therefore, in each delivery as the customer acquires control of the tracker. In addition to the standard contract that exists for the execution of a project, the parties may agree to modify the date for takeover. In our opinion, we understand we met the conditions stated in the IFRS 15 for Bill and Hold arrangements. During the year 2022, Soltec also booked revenues related to Bill and Hold arrangements, amounting to EUR 36 million. The year 2022 was also audited by EY with an unqualified opinion. Transactions considered in 2022 were similar to the ones in 2023. Something happened in 2020 -- same thing happened in 2021 and 2020, where we booked EUR 13 million and EUR 14 million, respectively, related to Bill and Hold arrangements. In this case, annual accounts were audited by Deloitte with also unqualified opinions. Considered the above-mentioned experiences, this procedure was also implemented in the year 2023. Customers may benefit from Bill and Hold arrangements under the following situation; administrative delays, for example, for building permits, it is the case of DDP, delivered duty paid contracts, delays in customs clearance out of Soltec scope in DAP contracts, volatility in industry prices. On February 27, before releasing 2023 results to the market, the auditor expressed that, although it had not completed its audit process at that time, they have not identified any material matters. After this statement on February 28, with the previous approval of the Board of Directors, the company released results to the market. This substantial change in the auditors' standpoint was expressed just a few days ago. Although we do not share the auditors' criteria, the company has decided to accept this adjustment to avoid the qualification in the audit report as it is understood to be the most beneficial alternative to safeguard the interest of the company and its stakeholders. With this, I leave the floor to Jose to explain the impact in the 2023 financial statements.

Thanks, Raul. Good afternoon, everyone. After the adjustments mentioned by Raul, the company's backlog defined as contract signed pending to be executed totals EUR 663 million. These figures include the EUR 192 million that have not been finally booked as revenues in 2023 and are expected to be recognized throughout 2024 starting in Q1. As you can see from our operational metrics, our visibility remains very strong, and our global operations continue to evolve very positively. As for the full year 2023 results, consolidated revenues reached EUR 398.4 million. Consolidated adjusted EBITDA was EUR 10.4 million, and net profit was negative EUR 23.4 million. In Q4 2023, revenues reached EUR 90.6 million with an adjusted EBITDA of EUR 9.8 million. If we have a look now at our tracker business, revenues for the year totaled EUR 376.8 million with an adjusted EBITDA of EUR 2.3 million, representing an EBITDA margin over sales of 0.6% for the year. The full year 2023 figures for our Energy division remain the same as they do not have any changes with respect to the figures released at the end of February 2024. As for the debt profile, there have been no changes with respect to the information already provided. Our tracker business continues to operate with syndicated facility, which includes our revolving credit facility for up to EUR 90 million almost fully disposed at the end of the 2023 financial year and EUR 110 million bond warranties line. Although the syndicated facility initially expired on February 11, 2024, on February 1, 2024, Soltec and the syndicate of financial institutions agreed to extend it until May 31 without modifying the rest of its terms and conditions with the intention of providing a reasonable time for the parties to reach a complete agreement. Currently, Soltec Energías Renovables is in negotiations with the financial institutions in order to sign a new contract before May 31, 2024, by which, in addition to extending their maturity, the amounts of both financing instruments should be increased. The company expects to reach a satisfactory agreement with the syndicate of financial institutions. Consequently, in the 2023 annual results, the Board of Directors of the company has applied the principle of going concern since, in the opinion of the administrators, there are no significant doubts about the continuity of Soltec activity for at least the next 12 months. This judgment is based on the assumption that such an agreement will be reached with the syndicate of financial institutions before May 31, 2024. On this matter, the negotiations are in line with the natural and appropriate course of action for this type of transaction and will imply a mention in the audit report by the company's auditor. And now I hand it over to Raul for the closing remarks.

The accounts we have just formulated deferred from the results released on February 28 due to the already mentioned auditor's standpoint. It is important to note several very relevant aspects. The revenues that have not been recognized in 2023 belong to actual contracts that are being executed and they will be booked as soon as we deliver them forecasted in 2024. On the other hand, our operational revolution continues to advance strongly in our two businesses, trackers and energy in key regions for the development of solar energy. Additionally, we are conducting an internal exercise to optimize our value generation in our divisions. We are optimizing the structure. We are focused on our most strategic activities. We will continue to conduct a strategic asset rotation in the development business, and we are focused generating value for our shareholders. I am at your disposal for any questions you might have. Thank you.

Okay. Thank you very much, Raul. Let's go to the Q&A. We've got the first question coming from Flora Trindade, CaixaBank. Can you please detailed the financial ratios involved in the credit facility are the negotiations already ongoing? Can you please explain the specifics of the difference between the audit review and the announced results, in which exact situation were the megawatts that are not accounted. Please Jose, go ahead.

Regarding the first question, the financial ratio is basically 1, as we have explained in previous calls, is essentially net financial debt over equity has to be lower than 1.5. This ratio has been met at the end of 2023. Are the negotiations already ongoing? Yes, obviously, they have been going for quite some time already. In fact, basically at the beginning of February 2024 since we were progressing well with the financial institutions, but we weren't basically able to close the agreement before the initial maturity date of the facility, February 11, we decided jointly with financial institutions to extend the validity of the revolving care facility temporarily until the end of May, May 31, in order to provide enough time to be able to close the new deal. So everything is progressing as expected. Then the third question, if I recall correctly, was about the specifics of the difference between the auditor and the announced results. Well, basically, following the IFRS 15 standard, in order to be able to recognize revenues, one of the main criteria has to be made is essentially the transfer of control. When we're dealing with Bill and Hold agreements, there are additional requirements that are need to be met in order to ensure that transfer control has been completed. And some of them are more straightforward. Some of them are more difficult to assess. And that's where basically the difference has been rising. Okay. And then in which a situation where the megawatts that were or are not accounted, well, essentially, those megawatts are expected to be recognized as revenue in 2024, as we just explained. And therefore, the revenues coming from the sale of trackers for this particular exercise -- this particular year 2024, are expected to be increased compared to the initial figure that we basically presented to the market at the end of February.

We've got more questions coming from Virginia Sanz de Madrid from Santander. In your guidance for 2024, had you already assumed a similar accounting method than in 2023?

Well, essentially, let me just recap a little bit in terms of how we typically account for book revenues in our tracker business. Typically, revenue is recognized based on the exact money in which control is transferred, as I said before, and that is basically linked with the incoterm that has been agreed with the customer. So essentially, revenue is recognized over simplifying a little bit of things. But just for the sake of explanation, when we deliver the routes to our customers. They've got different components of the tracker. Now the Bill and Hold arrangement change a little bit this particular statement or this particular criteria because in this particular case, the transfer of control takes place before the actual delivery of the goods, the actual delivery of the components. Have we considered Bill and Hold arrangements in our guidance for 2024? No. Did we consider these arrangements for guidance of 2023, yes, because we were receiving already requests from customers since the beginning of the year, due mostly, Raul can elaborate a little bit more on this of the particular situations we are currently seeing, mostly in Spain, but also in other markets. So we were already counting on this particular revenues to be recognized in this particular way. Okay.

With EUR 192 million revenues moving from '23 to '24 million, do you stick to your guidance?

These amounts obviously will increase, as we explained before, the sales, the revenues coming from the sale of trackers and therefore, we expect a higher sales figure. But we will provide more details when we -- in a few weeks' time when we release the new business plan for not just the tracker business but also the energy business.

How does this affect your backlog?

It does increase it quite significantly. Remember that when we released the 2023 results back at the end of February, we were talking about a backlog of EUR 470 million at the end of 2023. With this adjustment, this backlog has increased to EUR 663 million. So therefore, backlog has definitely increased compared to the previous figure that we had.

And the last one from Virginia. Can you provide your new closing net debt number for 2023?

It hasn't changed. This is just an accounting issue. There's no impact to the cash flow of the company. Net financial debt remains the same for the whole group.

We've got more questions on the platform coming from Ignacio Doménech from JB Capital. The first one, what has changed in the eyes of the auditors regarding the application of IFRS 15? How confident are you on the recognition of these revenues and costs in 2024? Any implication on the auditor's change on 2024.

Well, what has changed is what I explained before regarding the question sent by Virginia. Essentially, it's a matter of basically considering whether the transfer of control has taken place or not. How confident are we regarding the recognition of these revenues in '24, revenues and costs, obviously. Well, we are very confident because all these contracts, all these components or the trackers have already been manufactured and will be delivered. Some of them have already been delivered already. So they're going to be recognized in 2024. Then any implications on the auditors change in 2024, not necessarily. The auditors' opinion or standpoint is related to these particular 36 contracts. We don't expect to see any potential implications for 2024.

Following this restatement, do you see any difficulty in extending the maturity or negotiating new credit facilities?

No, not really. I mean, negotiations, as I have explained before, have already been going on for quite some time already. This doesn't change the busy situation of the company. It's just a matter of booking the revenues in 2023 or booking the revenues in 2024. It doesn't make any significant difference apart from that. Cash flow remains the same. There's no impact on the liquidity situation of the company.

Do you rule out a capital increase in the next 24 months?

Yes. And we've been very clear in the past regarding this particular question, we rule out any potential capital increase.

Next one, can you provide targets for 2024 by division? What are the main changes in this strategy going forward?