Encavis AG

XETRA:ECV

Earnings Call Transcript 2020-Q1

[Operator]

Welcome to the conference call of Encavis AG. Per our customer's request, this conference will be recorded. May I now hand you over to Mr. Husmann?

[Christoph Husmann, CFO & Member of Management Board]

Hello, and good morning to everyone. Welcome to the Encavis conference call on our Q1 2020 interim statement. Ladies and gentlemen, thank you for dialing this morning. Thank you very much for the interest in our company. I hope this call finds all of you safe and healthy.Well, ladies and gentlemen, we published on Monday morning an ad-hoc news and this morning our interim statement in which we published significant earnings and cash flow increases in Q1 2020 versus Q1 2019. As a matter of fact, in Q1 2020, our revenues reached an all-time high for a first quarter of EUR 65.2 million, which is EUR 5.7 million more or 10% more than in the same first quarter of last year. The increase by EUR 5.7 million is due to: firstly, an increase of revenues in the asset management due to an improvement in the structuring of funds and investment into these funds and so, therefore, earning fees from our investors; and secondly, that is the rest from additional capacities, which we acquired in Denmark. This was 81-megawatt portfolio of wind farms in December last year.As a matter of fact, the meteorological effect is there, but this time, in the deviation to 2019, it is negative. The overall meteorological effect in the first quarter 2020 is EUR 5.1 million compared to a meteorological effect of the 2019 Q1 of EUR 6 million. So therefore, in the deviation, the meteorological effect is negative.The EBITDA improved to EUR 50.6 million, which is EUR 5.9 million up compared to the EUR 44.7 million EBITDA of last year, which is an increase by 13%. This -- the increase in operating costs, which was due to the new acquired park in December last year, were totally set off by one-off effect, which is a book gain from the sale of Encavis Technical Services to Stern Energy. You might recall that last year, we acquired the participation of Stern Energy, which was a long-time subsidiary in -- not subsidiary, sorry, subcontractor to our company. And this company will -- is an international European-wide operation and maintenance company. And this company will grow Stern Energy into our company within the last 5 years by put and call options.And to raise synergies within the group, we transferred Encavis Technical Service, our German entity, into Stern. Out of that, since this is now a minority participation, we have to show the book gain from that sale, so that is offset in the EBITDA.The EBIT increased from EUR 23.4 million to EUR 28.1 million, which is EUR 4.7 million more or 20%. Here, we see the reflection of the additional depreciation out of the wind farms we acquired last -- mid of last year.The operating cash flow improved tremendously from EUR 15.9 million last year to EUR 50.8 million this year, so from 1-5.9 last year to 5-0.8 for this year. But this is partially driven by one -- a number of one-off effects. As you might recall, last year in Q1, we explained to you that the operating cash flow was considerably lower than expected due to 2 one-off effects. One was that the capital gains tax payment, which was due in December 2018, was paid in Q1 2019, so that was an additional burden of EUR 9 million, which was extraordinary. And the Italian authorities paid the feed-in tariffs in April 2019 instead of the first quarter. That was an additional burden of EUR 7.3 million. So these 2 one-off effects, I want to remind you of that, of in total EUR 16.3 million that was a burden to the EUR 15.9 million. In reality, it should have been EUR 32.2 million.And this year, now we have exactly the other way around. So the EUR 9 million, which was -- had to be repaid by the tax authorities in December last year came in, in March this year. So therefore, there's a positive contribution to the operating cash flow of EUR 9 million this year. So in the effect the real cash flow of last year was EUR 32.2 million, the real cash flow of this year is EUR 42.8 million, so it's an increase by EUR 10 million or 31% plus.That increase was driven firstly by asset management. As you might recall, in the fourth quarter of last year, asset management really did a very good job in implementing new funds and investments, a huge amount. But these fees, which were earned last year, were paid in beginning of the first quarter this year. So that contributed EUR 7.7 million ordinary operating cash flow to our cash flow line. And the new parks in Denmark contributed EUR 4.4 million additional cash.If we then have a look into the weather effect, then we see here that the weather effect in Q1 2019 of EUR 6 million, which is then shown here on the last 2 columns, and EUR 5.1 million on the right-hand side of the column. So without any weather effect, we had an increase of our 3 main key figures: revenues, operating EBITDA and operating EBIT by 12% to 32%.The weather effects might look to you surprising because you might have the gut feeling that in Germany, the weather was quite good in the first quarter. And in fact, the solar radiation in Germany was slightly higher than it even was in the extraordinarily good first quarter of last year. But France and Italy suffered a lot under very bad weather. So the very positive meteorological effect in these 2 countries in the first quarter of last year was reduced. So when we had a positive meteorological effect in solar in last year's first quarter of EUR 5.2 million, this boiled down to just a positive meteorological effect of EUR 2 million this year. So it is a minus of EUR 3.2 million just in PV.In wind, we had the other way around. In wind, we had a positive meteorological effect of EUR 0.8 million last year. And this year, it is EUR 3.1 million. And so, therefore, it is the meteorological effect as shown.If we then have a look into our segments, then we do see that solar parks contribute in the group the biggest chunk to the revenues, but proportion-wise, it is much lower than we usually over the year to be expected, 75%. But that is typical in the cyclical business in the first quarter on the Northern Hemisphere, we have lower sun radiation.The revenues compared to the 2019 first quarter were slightly lower this year, and this is mainly due to the meteorological effect. So if you take in consideration with the meteorological effect this year in the first quarter is EUR 3.2 million lower than last year, and we see that without this effect, we would have had a positive impact on the revenues. And that was mainly driven by the acquisition of the PV park in the Netherlands at the end of January last year and by the improvement of maintenance and, therefore, the better performance of our parks. So overall, our EBITDA margin due to meteorological effect is shrinking slightly only in the first quarter.In the wind farms, we see the other way around. Here, we have a positive impact, firstly, from the acquisition of the wind farm in Denmark end of last year; and secondly, from the meteorological effect.The technical service had a slight improvement of the revenues. Here, we do see harsh increase of the EBITDA from EUR 0.4 million to EUR 2.4 million, which reflects the profit from the disposal of the Encavis Technical Services to the Stern Energy. So the technical services from now on includes the remaining operations tax we do in the group and the minority interest in Stern, which, again, will grow over the time to 100% within the last pre-pandemic 5 years.The asset management did a fantastic turnaround. What we have seen in the second half of 2019 is the story goes on this year. So we have a very positive contribution in the revenues and a very positive improvement from EUR 0.9 million to EUR 3.1 million and having shown a loss in the first quarter of 2019 of minus EUR 0.6 million, contributes now positively 1.6 -- EUR 1.3 million.Here, we have again then the analysis of the weather, which we have seen -- sorry, the revenues and the EBITDA and EBIT without any weather effects. And there, we see if we take out expected weather effects in the first quarter 2019 and the first quarter 2020, then we see an increase of our key figures substantially stronger in wind, again, due to the acquisition of the Danish parks.In March 2019, we are very delighted to receive investment-grade rating. It was confirmed by Scope that analyzed our annual report and came again to that a bit stable outlook and has agreed that the Encavis Group performed and is more moving upwards to an upgrading, and is, therefore, very stable at BBB-. That is very important in these turbulent times because, as we see in the capital markets, there are a lot of banks currently covered with emergency credits 100% state guaranteed. And therefore, it is for a company, which is not in emergency situation, sometimes difficult to convince banks to go come back to normal business. So -- but that is not an issue for us currently because we are -- we have sufficient amount of cash available to invest. Because last year, as you might recall, we not only issued a bilateral debt of EUR 45 million and registered bonds of EUR 60 million. We had that small capital increase with Versicherungskammer Bayern worth EUR 48 million and tax hybrid convertible. And that brings us in the situation to have sufficient cash for the months to come. So we will have currently, if you have a look into our balance sheet, more than EUR 200 million in our balance sheet. Out of that, EUR 50 million are available immediately, EUR 110 million at midterm and EUR 55 million more in the long run.The balance sheet grew only slightly within that quarter compared to last year's end figures. The reason for that is that we do have ongoing depreciation of our existing assets. And on the other hand, we have ongoing investments in our projects, Cabrera and Talayuela. As you might know, we are constructing these parks. We had some delays due to the shutdown in Spain, but we are positive that now the construction work resumes.The equity ratio was lower, obviously, from 25.3% to 25.1%, so we are ahead of our threshold. Well, as we pointed out in our annual report, there is a double accounting effect due to PPA accounting, which is not really -- it is not really easy to understand for normal people and not even to auditors. That's the reason why we pointed that out. This effect will turn around within that year as soon as the parks will be connected to the grid. Then the equity ratio will come back again at least to 26% or even more.Although we are currently influenced by corona in some way, not our business model and fortunately, none of our employees is sick so far. But we are all at home in home office, and we are doing all our business remotely. But as you might have seen with the news flow in the last days, business is going on as usual due to extremely good employees, a very good IT infrastructure and as well as a very reliable business model. We pointed already out that in the January 2020 that Dierk Paskert and myself, that our targets with Fast Forward 2025 to double the capacities of our company. Although in the meantime, COVID, which was not aware to us that this might hit Europe in that way as it did, we emphasized that Fast Forward 2025 is our goal, and we are confident that we will at least reach it.And as we pointed out, Talayuela is under construction with some smaller delays, but which are not significant to the group. And the Scope rating was confirmed.But as I pointed out, and COVID had some impact on us, now currently, everything is online. While we are used to have online conferences on the quarterly figures, but which was new to us that then we had to have our online Capital Markets Day via computer screen. And we gave there a detailed insight into the progress of our Spanish parks and that our business model has a very limited COVID-19, it's only very limited impact.And then a new premiere to us, we had our first virtual online AGM where we had a quite good representation of our shareholders. And here, the shareholders agreed to the suggested dividend of EUR 0.26, which currently can be chosen either as cash dividend or as scrip dividend.And as we already have seen in the figures of Q1, Encavis Asset Management is very active and busy in the market. Not only we're receiving committed equity lines from new investors on and on, but they are investing heavily as well. And this is how they do earn their money.It is not only that we are very thankful for the stability of our business model. Our employees are that as well. And so that was really a very positive sign out of our employees in the initiative to give back something because they really enjoy to work for such a stable company. And so, therefore, they chose to do donation to the homeless charity Alimaus and collected money and the Encavis AG matched that donation.Then on Monday, we published that we acquired the remaining outstanding 20% of La Cabrera project, a 200-megawatt project in Spain, from our strategic development partner, Solarcentury. The park is pretty much done, so 60% or so of the farm is already constructed in average of overall these issues. So therefore, we thought that it is now possible to take over the remaining 20% to have the full coverage of that fantastic project.In addition to that, as we pointed out in that press release, we acquired recently 49% participation in the project Brandenburg, which is a 18.7 megawatt project; and a 64% minority, I call it, in the project Bitterfeld, 6 million. Why at 64% minority? The ownership of that project was 36%. But due to the fact that we have the general partner managing that park for a fund who owns the 64%, we have the obligation to fully consolidate that park, although we only had 36% participation. So therefore, it didn't change anything in the consolidation to take over the 64%, but for us, it cleaned up our balance sheet in a positive way with very nice returns.If we compare today's published Q1 figures with the expectations on -- with the consensus of our analysts, then we have to admit that we surpassed all of these figures, specifically these operating cash flow, substantially.Ladies and gentlemen, you know that we always stick to our business plans. And if we have an excess of sale revenues only due to meteorological effects in the first quarter, we do not adjust our guidance for the whole year. The reason for that is quite simple. Although we had very good weather conditions up to -- until today, it does not mean that this might not change over the whole year. So we have experienced it last year that the meteorological effect was EUR 12.9 million at the end of Q3 2019, and that boils down again to EUR 10.5 million at the end of 2019 because Q4 was quite difficult meteorological-wise. So therefore, we usually have a look on our meteorological effects in total with publishing the half year report end of August, and then we see whether we will adjust or not.So therefore, Dierk Paskert and myself, we confirm our guidance, which we have published with the annual report. And we still foresee an increase of all key figures this year in the 1-digit percentage level. The reason for that is pretty flat development of our figures this year, which was very often announced, is that we are currently in a different market environment. While we in the past acquired feed-in tariff parks, which were about to be connected to the grid who had a very short construction phase ahead of them, so that they contributed immediately or almost immediately to revenues and the corporate key figures within the respective year, which it was acquired, we are now in a PPA world where you first acquire ready-to-build parks then negotiate the PPA, then organize the financing and then do the construction. But with pretty big parks and pretty complex contracts, they need some time.Please have in mind that the Talayuela project, which will be connected to the grid at the end of 2020, were acquired 2018, which was the Talayuela project, and beginning -- at the middle of 2019, the Cabrera project. So obviously, these parks contribute to the respective profit and loss statement in their year of acquisition, and so, therefore, they do not contribute this year heavily. But beginning of next year, both of them will be connected to the grid, and you see that on the right-hand side column in the showcase. Then the contribution out of these 2 parks will be held substantially, and the revenues will increase by more than 14% to more than EUR 320 million.Ladies and gentlemen, the same applies then to the segment in our guidance. We have a slight increase in solar. We have our technical services, although there is now the operations and the minority [indiscernible] structure-wise, the technical service does not change from the past. The wind farms have a slightly higher contribution to the P&L due to the 81-megawatt portfolio required last year. And the asset management keeps that extremely high level they reached at the end of last year.Ladies and gentlemen, that's about it I wanted to present to you. I do not go again into the 2025 plan. I did always remark to that, that we stick to that plan. And therefore, now I'm happy to answer your questions. Thank you very much for your attention.

[Operator]

[Operator Instructions] Mr. Igor Kim from Bankhaus Lampe, may we have your question, please?

[Igor Kim, Analyst]

You have very strong results. Congratulations. I've got 3 questions. First one on the weather conditions, should we expect that this trend was more wind and less sun to continue in the second quarter? I mean in April and May, what you have seen quarter-to-date? The second question is on your asset management. I think you said that there was an effect from the new funds that you have established last year and the fees start to come in, in the first quarter. So should we expect here that EUR 3 million we've seen on the top line to be a run rate for the rest of the year, for the rest of -- over the 3 quarters in this year? And the third question is on cash flow outlook for 2020. These one-off effects, combined effects of EUR 18 million, was it also part of your outlook for the operating cash flow for this year?

[Christoph Husmann, CFO & Member of Management Board]

Yes. Thank you very much, Mr. Kim, for the questions. Regarding the weather conditions, well, at least in Germany, as we have seen over the last -- since the beginning of April, the solar radiation is very good. It is usually the case that in the second quarter, radiation improves and the wind is not as strong as in the first quarter. So therefore, we do not have currently the figures of May. So it is just the April, and that looks quite favorable but as usual as we had it in the past.In the asset management, yes, we totally stick to the guidance, which we published in beginning of this year. I think it is not fair to expect that the run rate is the same every quarter. The latest press releases we had here covered the first quarter. Now the second quarter is half done. So I think that in the second quarter, the revenues figure will be slightly below EUR 3 million. And then in the second half, we will do the rest.Thirdly, regarding the cash flow, yes, the one-off effect of EUR 9 million cash in was part of our guidance. Please have in mind that we have showed to you that we slightly technically missed our operating cash flow last year. EUR 198 million was our guidance for last year. EUR 189 million was it. And the difference was at least EUR 9 million from German tax authorities, which came in late. With the -- publishing our annual report, we knew that effect, so therefore, it was already fully incorporated in our guidance for 2020.

[Operator]

Mr. Martin Comtesse from Jefferies, may we have your question, please?

[Martin Stefan Comtesse, Equity Analyst]

I'm Martin Comtesse. A few questions from my side. First one would be, can you specify the minority buyout profit impact for this year and for an annualized base as of next year? So how much revenue basically did you add here? And then secondly, we've heard on the COVID-19 impact. I know it's barely there, to be frank. But can you maybe elaborate on the asset management side of things? Because we've seen quite a reshuffling of portfolios of different institutional investors. Do you maybe even see a positive impact here that -- yes, that you basically see a boost in demand for your asset management services? And thirdly, if there is a postponement in the Spanish project into 2021, would you also expect a lower CapEx number for 2020?

[Christoph Husmann, CFO & Member of Management Board]

Yes. Mr. Comtesse, thank you very much for your questions. So the minority buyout from these parks, which we acquired, please have in mind that one is the 6-megawatt park and the other one, 18-megawatt park. These figures are quite small, so the profit contribution under our operating figures is pretty low. And that is, as you might know, after earnings after taxes. These are several hundred thousand euros. I think we have to provide you with these figures. Sorry, I don't know them by heart, but this, certainly, we can look at it.Regarding question 2, the COVID impact, yes, you're absolutely right. It is that we do some impact. Firstly, we see that a lot of investors are currently searching or pursuing projects where they can invest their money independently from any commercial or pandemic influence. So we see that the committed equity offered from investors to the asset management is increasing, is improving. So therefore, we see more potential equity for investment.And secondly, we do see that we are quite conservative investors on the owned assets as well as in the asset management. And very often, we gave in some offers, nonbinding offers, if there was an investment park for sale. And very often, we fell out in the first round because our park was sufficient. And so therefore, we see currently in this market that we are accepted even for the second round, although our offers are still very conservative. And the reason for that is that, obviously, there are investors in the market who normally would have bought or tried to acquire these parks, but currently in that environment, either are short of cash or are shutting their portfolio. If we see more slightly positive impacts here, but nothing which would change our opinion regarding our guidance.Regarding the postponement of our parks, well, we still believe that the parks will be connected to the grid in this year. We are very positive on that. We had some delay, and our first calculations were that we have a delay by 2 months. And that was the reason why we said that there might be a loss of EUR 0.01 EPS if the worst case might happen. But currently, we have one or the other positive sign, and it looks currently that -- knocking on wood, that there won't be a second shutdown in Spain. So if all of that works out well, then we believe that the parks will be connected to the grid this year. So there might be a delay of the investments but only from the third to the fourth quarter maybe, but not into the next year.

[Martin Stefan Comtesse, Equity Analyst]

If I may, can I just ask a follow-up on this? You mentioned the asset management side that there is some movement going on right now. We can hear from other companies that the M&A market has actually pretty much dried up right now because there's no physical meetings possible, no real due diligence. Is that something that you incur in your day-to-day business? And then secondly, maybe briefly, we currently see -- I think we've all heard that increasing electricity prices in Germany. Is that something that you already see dribbling through in the PPA negotiation process? Or is that something that's not really an issue here?

[Christoph Husmann, CFO & Member of Management Board]

So let's start first with the M&A market dried up due to no physical meetings and no due diligence. Well, as a matter of fact, as I pointed out, we are thankful that -- we are very thankful that's quite digitalized. And honestly said, the due diligence -- due diligences today are all computer. Due diligences are all done digitally. So the data room, the physical data room is virtually not existing anymore, so there's no reason to go there. The only part in the due diligence where physical visit is necessary, if you do the technical due diligence on site, so if you have a look on the parks, on the wind or solar farms. But that is, even in corona times, not an issue because the aerosols are not an issue if you are outside and you can keep distances in these parks. So we don't see any issue here, and we honestly see an awful lot of parks currently being offered.Sorry, I missed that point. As you might have seen yesterday, we published a memo, a press note that we agreed on a new strategic partnership with a new developer GreenGo in Denmark covering a pipeline of 500 megawatts. So as you see, there is a substantial pipeline in the market. And we tied now 9 strategic development partners to our group, offering us a pipeline of 2.5 megawatts for the next years. So we see really substantial pipeline ahead of us. And so therefore, we don't see any shortage here.In fact, in the end, at the latest point of time when you sign the contracts, you have to look the people into the eyes, but that is possible even by keeping distances. Fortunately, our biggest conference will be so big that you can sit far away from each other.Increasing electricity prices in Germany, honestly said, that is probably not an issue for us because we are currently not in a negotiation phase for a new PPA. But I totally agree with you, there were a lot of forecasts regarding potential power prices in the market for the future. And the -- I believe you can see -- could have seen a huge spectrum of different prices, which could happen. But honestly said, we currently do not see a sharp deviation from what we expected conservatively beginning of that year for the respective market in which we are in.

[Operator]

[Operator Instructions] There are no further questions.

[Christoph Husmann, CFO & Member of Management Board]

Okay. Then thank you very much from my side, first of all, for the good questions. And thank you very much for your interest in our company.As you have seen, as we pointed out at our Capital Markets Day, not so much impacted from COVID-19. Yes, there are some challenges, and there's specifically work -- changing our daily work, but I think we can cope with that.Thank you very much for accompanying us on that interesting and challenging way to develop this market and this company. And yes, I hope to see you soon physically. Thank you very much, and in the meantime, please stay safe and healthy. Thank you very much.

[Operator]

We want to thank all participants of this conference. Goodbye.