Grenergy Renovables SA

MAD:GRE

Earnings Call Analysis

Stellar Performance and Growth Prospects

Grenergy delivered its best-ever quarterly results with a historic triple in revenues to EUR 351 million and threefold growth in EBITDA at EUR 102 million. Net income multiplied by nearly six due to higher sales and the Belinchon project sale. Total CapEx of EUR 264 million reflects robust solar project execution. Leverage remains low at 1.5x corporate and below 4x total. A green loan of $157 million from Banco Santander and a share buy-back program showcase financial strength. Forthcoming Capital Markets Day will unveil strategic goals and the 2024-2026 ESG strategy. PPA signings reached nearly 1 gigawatt, and significant asset sales validate their self-funding model. ESG performance stands out, with Grenergy achieving 'Negligible Risk' status and sustaining an AAA rating from MSCI.

A Strong Quarter Marked by Best Results and Strategic Expansion

Grenergy kicks off with greetings from the Executive team, and a promise for a detailed Q&A at the end. The company reports the best quarterly results ever, marking a significant milestone for the company. The success comes from the sale of assets which created immense value, such as the Valkyria project and a major project called Belinchon. On the financial front, they boasted tripling their EBITDA and nearly sextupling net income, attributed to higher energy sales and strategic asset sales.

Strategic Developments in PPAs and Asset Sales

Grenergy emphasizes the importance of signed PPAs, critical to financing and project delivery, which have increased to almost 1 gigawatt across key regions. With large projects under negotiation, they are optimistic about future growth. Crucial milestones include the sale of 300 megawatts to Allianz, expected to bring significant EBITDA in 2025, indicating a potent future revenue stream.

Performance Highlights Indicate Strong Growth Trajectory

The company witnessed a 26% increase in total output, thanks especially to new capacity additions. They experienced a 32% increase in contracted volume and a rise in realized prices reflecting strong performance. Total revenue soared over 100% compared to the prior year, with EBITDA tripling. Their Energy division, influenced by increased capacity and better load factors, significantly contributed to these positive numbers.

Capital Intensive Projects and Cash Flow Dynamics

The first nine months of 2023 saw a doubling in total CapEx, reflecting a swift pace in project execution. Grenergy reports an all-time low in CapEx per megawatt, attributing this to deflation in the industry, despite rising interest rates. Cash flow was affected by working capital impacts, yet proceeds from asset sales and loans have provided liquidity. Leverage ratios are under control with a net debt decrease quarter-over-quarter.

ESG Achievements and Climate Risks Considerations

Grenergy reports satisfactory completion of ESG goals, including supplier assessments and benefit plans for employees. They are progressing on fourth-quarter objectives, including a report on climate risks aligning with international standards. A new sustainability strategy for 2024-2026 awaits disclosure, setting an ambitious path for the firm.

Forward-Looking Indications and Shareholders' Value

Discussions around merchant prices indicate a positive increase, a trend they expect to continue. The retail sector is showing signs of turning profitable, leveraging low electricity production costs for future margin improvements. The company is actively buying back shares, endorsing the growth prospects, and sees this as an opportune moment to reinvest in itself.

Anticipation for the Capital Markets Day

Grenergy assures investors that more detailed guidance on various fronts, including CapEx breakdowns, storage technology investments, and the next milestones for their project pipeline, will be addressed during the upcoming Capital Markets Day. This event sets the stage for disclosing strategic targets and funding plans that will shape the company's future.

Earnings Call Transcript 2023-Q3

[Alberto Sanchez Salazar, executive]

Hello. Good morning, everybody, and welcome to Grenergy's 9 Months 2023 Results Presentation. I am Alberto Sanchez, Head of Investor Relations. And I'm joined today by Daniel Lozano, our Chief of Strategy and Capital Markets Officer; and Rocio Fernandez, Head of Sustainability. They are going to take us through our business, financial and ESG review. At the end of the presentation, there will be a Q&A session for sell-side analysts. We ask you to focus just on questions related on the Q3 2023 and 9-months results as the strategic issues will be properly addressed at the Capital Markets Day [ slated ] for Tuesday, next week.I hand over to our Chief of Strategy and Capital Markets Officer, Daniel Lozano. Daniel, please go ahead.

[Daniel Herrera, executive]

Thank you, Alberto. So let's go ahead. Moving to Slide #3, highlights. In this quarterly result presentation, I will be leading it. [ I'm ] quite lucky as they are the best quarterly results we've ever had. Of course, our CEO will be leading our first Capital Markets Day, that, as many of you are aware, is scheduled for next Tuesday.This event will feature comprehensive insights into our operation, pipeline and the latest development. We will be presenting our newest strategic targets, along with a detailed plan on how we will fund those initiatives.Last Monday, we presented our -- one of the financial facilities that will help to finance our business plan. Grenergy has signed $157 million green loan, 8-year maturity with a 2-year grace period with Banco Santander. The loan is secured with the coverage of [ SOFR ] with really competitive all-in cost of 4.8%. That could even improve depending on ESG KPIs. It shows our financing capabilities to continue [indiscernible] in this really profitable and growing sector.But [ showing ] financing capabilities is good, but value creation is [ even ] better. By selling some of our assets, it is the best way we can prove that our self-funding growth story is real. And we have done that this year with Valkyria. We have been able to sell close to 500 megawatts with an average price of EUR 1 million per megawatt, an impressive value creation of [ 1.4x ] EV invested capital. We will talk about this later.Regarding our financial performance, this quarter we have been able to multiply by [ dual ] revenues to EUR 351 million, multiplied by 3 year-EBITDA to EUR 102 million, first time above EUR 400 million and multiplied by almost [ 6 ] our net income. This has been driven by higher energy sales and due to the sale of Belinchon project, which was completed by the end of the quarter.Total CapEx reached EUR 264 million as we continue to execute the construction of many solar projects and it reflects our construction capabilities.At the same time, corporate leverage is 1.5x, well below our covenant target of 3.5x. Total leverage is below 4x, thanks to the net debt reduction and EBITDA increase which occurred this year.Even though we are a growth company, we decided to allocate some of the cash we are generating to buy-back of our own shares. With the share price at the current level, we fully believe this is a great opportunity.In terms of highlights in ESG, firstly, the objective committed for the third quarter of the year was successfully accomplished. The ESG road map 2023 will be completed at the end of the year. And the new ESG strategy 2024 to 2026 has been already finalized and it will be publicly launched during the Capital Markets Day next week.Secondly, Grenergy was considered as the first Spanish company in obtaining a green sustainability link fund swap with Banco Santander.Thirdly, Grenergy keeps on being considered top rank in ESG performance, having improved the score in some indices such as Sustainalytics, being recognized as first player of our sector, lowering the score from Low Risk in 2022 to Negligible Risk in 2023.Let's move to the business review in Slide #4. This slide is quite impressive. It shows that during the first 9 months of the year, we have reached close to 1 gigawatt of PPA signed in several countries like Spain, Peru or Chile. PPAs are critical to obtain financing, and therefore, the delivery of project. And we have been able to close it with top quality [ off-take ] investment grades that are reducing the project risk, and therefore, allowing us to have better financing terms.In September, we closed another 100 megawatts PPA in Peru with Enel for the Matarani PV project. In this moment, we have another 1.5 gigawatt under negotiation in our 3 key geographies. We will give you more color about this on this Capital Market Day we are having next week.Moving to Slide #5. In this quarter, we were able to accomplish several milestones of our Valkyria process. Belinchon deal that was announced in June, was fully accomplished at the end of September. That deal has been reflected in Q3 results, producing a positive EBITDA of close to EUR 70 million, implying a value creation of EUR 0.5 million per megawatt and EUR 89 million of cash proceeds.The second milestone was announced in October, selling 300 megawatts to Allianz at EUR 0.91 million per megawatt. The value can increase up to EUR 0.95 million per megawatt with early revenues, implying close to EUR 0.3 million in value creation per megawatt. This deal is expected to be close in June 2025 at COD and will contribute with EUR 85 million to EUR 90 million EBITDA to that financial year.We continue working on next deal that is well on track. We will provide more color on that in the next Capital Markets Day.Let's move on to the financial review that is starting Slide #6. Total output increased by 26% due to the new capacity and better load factors. Contracted volume increased by 32% to 608 gigawatt hour in the first 9 months of the year and represented 62% of our total electricity production.Realized price increased by 12% in the period, which compares with minus 9% we had in the first half of the year, and highlights a strong performance in Q3 stand-alone.Then, on the right side, we have a summary of the main financial KPIs that we are going to explain later.If you look at Slide 7, we can see that in Q3 2023, total revenue reached EUR 351.2 million. That is plus 105% increase year-on-year, more than twice the previous year figure.And EBITDA increased to EUR 102.2 million, 3 times on the previous year figure. The development and construction division was driven by the disposal of Belinchon, as previously explained. The difference is coming from development and construction, direct expenses and small reclassification, EUR 3 million carried out in Q3.The Energy division was driven by higher output, 44% on new capacity and better load factor with better prices, as we explained previously.Retail supply business in Chile is still negative at minus EUR 1.4 million. But as expected, it has delivered positive EBITDA this quarter. This division will be EBITDA positive from 2024 onwards.Moving on to Slide 8. We can see that in the first 9 months of 2023, total CapEx reached close to EUR 260 million. That is more than 2 times the previous year figure, reflecting the acceleration in our [ execution ]. Project CapEx was EUR 232 million, split 31% in Spain and 69% in LatAm, mainly PMGDs and Gran Teno. Development CapEx is EUR 27.6 million. CapEx per megawatt is at all-time lows with [ panel ] at [ $0.13 ]. Now CapEx is around EUR 40 million -- is around EUR 0.43 million per megawatt. Thanks to the inspection of global industry capacity and poly-silicon production.Due to CapEx deflation and PPA levels that we are closing, IRRs remained stable and attractive at double-digit level that is offsetting the impact from a higher interest rate.Let's go to the next slide, which is #9, which explains the cash flow for the period. There is a negative working capital impact of EUR 75.6 million due to a reduction in accounts payable that has to do with the CapEx acceleration we had in Q3.Proceeds from the sale of Belinchon amounted to EUR 95 million in the third quarter. We carry out an initial drawdown from the announced financial facility signed with Banco Santander, and we are closing the period with a cash position of EUR 165 million, up from EUR 105 million at the beginning of the year.Finally, if you can look at Slide 10, our net debt has decreased quarter-on-quarter to EUR 483 million and producing a 3.9x leverage ratio. This was mainly driven by cash flow inflows due to rotation of assets. Corporate leverage, the one affecting our covenant, is just 1.5x. 2023 and 2024 will be capital intensive as we have large projects under construction in Spain and Chile.Also, bear in mind that our leverage ratio is also affected by the timing of our investments and when those investments become productive. In our Capital Market Day, we will present our growth plan that will be self-funded.Now, I will pass you over to Rocio, who is going to explain about the ESG part.

[Rocio Fernandez Flores, executive]

Thank you, Daniel. Good morning, everyone. I invite you all to follow the details of the progress in ESG matters during the third quarter of the year. I am pleased to announce that the 3 goals committed for this quarter were successfully accomplished. Firstly, an ESG assessment was done for a selection of suppliers. We conduct audits in one factory of Canadian Solar and another one of Trina Solar, both in China, obtaining minor nonconformities that were currently resolved.Secondly, our benefit plans for Grenergy employees were formally presented. Last but not least, an update on the policy for dialogue with our communities was approved and published, being now aligned with the International Finance Corporation standards.Apart from that, currently, all expected goals for the fourth quarter are well advanced. For instance, the elaboration of a climate change risks and opportunities report according with the recommendation for the Task Force on Climate-Related Financial Disclosure.And additionally, one of the most important objectives, not only for the fourth quarter, but also for the year, the design of the new sustainability strategy 2024-2026, which is already finished and approved by our Board of Directors. This ambitious, holistic and cross-company road map will be deeply revealed during our Capital Markets Day next week.And now moving on to our performance in ESG ratings. I would like to emphasize the fact that Grenergy maintains its leadership position in the most prestigious ESG rating agencies.As you can see in the figures, in all indexes the scores are higher than the previous years and even higher than our peers. Today, we already received the updated scores for Sustainalytics and MSCI. And we are proud to mention that in Sustainalytics we improved the results as we reduced our risk level from Low Risk to Negligible Risk.And we also have excellent news in the MSCI scores too as we revalidate our AAA score for 2 years in a row now. For the other indexes such as [ S&P ] and CDP, we will have the updated scores in the coming months, expecting also remarkable improvements as well.So that's all from my side. Thank you very much for your attention.

[Daniel Herrera, executive]

Thank you, Rocio.

[Alberto Sanchez Salazar, executive]

Thank you very much, Rocio. We are now moving to the Q&A session. If you have any questions, please send a message to the administrator using the chat available in the tool. Just letting know that you want to ask a question, but you don't have to write it down. Please limit 2 questions on the financial results presented this morning. As we previously mentioned, all of the strategic topics will be addressed at the next Capital Markets Day. We'll [ leave ] some time to receive questions. Our first question comes from Jorge Guimaraes at JB Capital.

[Jorge Guimarães, analyst]

I have 2 questions, if I may. I'll limit to 2, to leave to other people. So the first question is why has the merchant price gone up in 9 months versus 6 months? Is it a matter of the different mix of geographies which are producing, or if you saw an increase in the underlying merchant price, namely in Chile? So this would be the first one or -- in Spain. The second one is to elaborate a bit on the evolution of working capital? I see receivables going up and payables going down. The first one makes sense if you are increasing sales. But I would like to understand the second one. Moreover, because, you are not the first company in the sector to show strength, so I would like to understand better.

[Daniel Herrera, executive]

Thank you, Jorge. Regarding your question about merchant prices, well, prices has been up 12% in 9 months versus minus 9% first semester. Thanks to the strong performance in Q3, prices up 44%. Prices have improved across the board, except for the north of Chile. I will probably highlight the excellent performance of our wind assets, especially in Peru. Then, regarding working capital, well, you are right. There has been a CapEx acceleration that we have in Q2 and we have to pay those in [indiscernible] during this quarter.Regarding accounts receivable -- [ and ] this figure should improve in the next quarter. Hopefully, we expect this to be [ reported ] at the full year result. I don't see any trend in the figure. And this is just a special -- the situation we are reflecting in this quarter.

[Alberto Sanchez Salazar, executive]

Our next question comes from Naisheng Cui from Barclays.

[Naisheng Cui, analyst]

I have a few, if that's okay. Daniel, it's so encouraging to see the retail sector finally turning to be profitable from an EBITDA perspective. I know that segment was making loss in the past. I pick up on one line in your presentation saying we should expect a positive trend to continue. And I wonder if you can give us a bit of color on that? And how should we think about EBITDA, say, for 2024? Because it's finally making a profit, which is good. And my second question, I want to ask about share buy-back, if that's okay. I hope that's not [ strategy ], but the [ finance ] [ side ] of things. And just given the good rally of the share price for Grenergy in the last few weeks, I wonder how should you think about the timing of the share buy-back? Would you want to stop, that would be later or we can see -- Or how should we think about that? That will be good. And I'll limit my question to 2 for now.

[Daniel Herrera, executive]

Thank you, Naish. Well, you're right. We have first time quarterly positive result in the retail business. As previously explained, this is a business that is selling electricity to a big client in Chile. And normally, it is a 7-year contract period for 24 hours of base load. We expect it to improve this result because we are now producing electricity in Chile. And with that very low LCOE that we are obtaining in our solar facilities, we are going to improve margins in 2024, especially with the Gran Teno project that is in Central Chile, where our main clients are. These figures should improve. I cannot give you color or guidance about this. But maybe we can talk about this division in Capital Markets Day, okay?And then, as I said, regarding our share buy-back program, it was launched not even 1 month ago. For the moment, we have just bought [ 260,000 ] shares. That is just EUR 6 million impact in our cash flow. We are happy about the share performance.But for the moment, we still consider this is a fantastic opportunity to buy shares as the growth prospect of our business is still giving a much better upside. And hopefully, we will present that -- in the Capital Market Day we will give you more color about that.

[Alberto Sanchez Salazar, executive]

Our next question comes from Paul Chabran of Kempen.

[Paul Chabran, analyst]

I just have one question. Would it be possible for you to give us a breakdown of the different components in CapEx? I think you used to give us an approximation for inverters and trackers. And so is it possible maybe to have an update on these different components?

[Daniel Herrera, executive]

Well, it is not that specific [ region ] like in the past. You can see in the Slide #8 there is a CapEx breakdown. And by color, you can see tracker, inverters logistic models. Well, we can talk about that in the Capital Markets Day. As I said, model costs are reflecting a deflation, moving from $0.29, 1.5 years ago to $0.13 right now. Logistics also that -- remember, in some moment, the cost was around $15,000 per container, you need around 3, 4 container per megawatt, now it's around $2,000, $3,000 per container.So [ all-in ] could be around $9,000, $10,000. And well, you will have the opportunity to ask this question in the Capital Markets Day, where our CEO will give you more information about the rest of components.

[Alberto Sanchez Salazar, executive]

There are no further questions at this moment. [Operator Instructions] I think that there is a follow-up from Naish.

[Naisheng Cui, analyst]

It's me again, just taking the advantage here. So I saw the unit CapEx on solar is down versus our disclosure from last quarter, which is really positive. And I wonder if you see the CapEx for other technologies staying roughly the same or in line with your planning mainly on turbines and storage? So that's my question number one. And my question number 2, I understand your third milestone for Valkyria is on track. And I wonder that, that may -- there is a possibility -- I just want to get a confirmation, but that means there is a possibility we could hear an announcement of the 172 megawatts Ayora projects perhaps before end of this year?

[Daniel Herrera, executive]

Well, regarding CapEx in other technologies, as you know, we are really focusing solar and in storage. Storage is going to be a key part in our Capital Markets Day and we will provide a lot of information about that as well, like solar, PV. CapEx for storage is improving. For wind, as you may know, wind is a technology that we were considering it as a good complement for solar in order to build different ways of PPA. Now with storage, I think it's a much better solution for -- in order to build those PPA for more hours. And we are not going to build in the short term any wind projects. So, to be honest, I cannot give you a good answer about that.And regarding Valkyria, again, what we have stated in the Capital Markets -- in the presentation, sorry, is that the next milestone for Ayora asset is well on track. In all cases, that rotation will not affect 2023, so it's going to be for 2024.And even though we can rush and try to close that deal in 2023, it will be a 2024 deal. So let's see when we can produce that information, but it's going to be in all cases for 2024.

[Alberto Sanchez Salazar, executive]

Okay. There are no further questions. So this is the end of our presentation. If you need additional details, please do not hesitate to contact us at the Investor Relations team and we'll be more than happy to assist. Thank you very much. Bye-bye.

[Daniel Herrera, executive]

Thank you very much. Bye.