Encavis AG

XETRA:ECV

Earnings Call Transcript 2023-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to the Encavis AG Conference Call regarding the interim statement for Q1 2023. [Operator Instructions]

Let me now turn the floor over to Christoph Husmann.

[Christoph Husmann, executive]

Good morning, ladies and gentlemen, and a warm welcome to the first summer days to our Q1 2023 financial results, which were released this morning. Before we go into the details of Q1, my colleague, Mario Schirru will guide you through the achievements of 2023 so far. Mario?

[Mario Schirru, executive]

Thank you, Christoph. Beginning with the -- let's say -- let's go through the highlights of the first quarter, and then start with the build out which has been quite successful.

In Q1, we have announced the acquisition of projects totaling 209.2 megawatts. Out of these 11.2 megawatts have been contributed by a German wind farm, 105 megawatts by a German solar park. And recently, we have also announced additional 93 megawatts of capacity to be built in Italy. The projects are -- all of the projects will be built throughout the year and will start contributing to our financial figures over the year or actually in the Italian case, even in the next one, but it has been a very good start in the year.

To be totally honest, the first 2 projects still account for the goals that we have set in 2022, the 500 megawatt that we reached given the fact that the acquisitions and the negotiations were advanced and it was just the finalization of the acquisition that was left for the year. We have also placed a Green Promissory Bond, it has been success since we managed to raise 4x the volume that we initially envisaged. And the total lift is EUR 210 million. This will give us enough fuel for our growth this Year. And we are very, very happy that this has worked out so well in a situation that was quite difficult on the market.

We have -- we are proceeding with integration of Stern Energy. In particular, we have extended the management board. Now we have 2 members of Encavis AG, sitting on the Board, plus Encavis has nominated additional 3 members. So we have a strong majority. Things are going very well. We have established very -- several working groups to work on the projects that we are tackling this year.

One thing we are very proud of is -- and this is just an example of what this collaboration and this integration can bring. We have managed to increase the capacity of one existing solar plant by 41%, simply by exchanging modules that were older and less performance. And this was just, as I said before, one of the many advantages that this stronger collaboration with Stern can give us.

We have also had a good start of the year. Looking at the Encavis Asset Management. There, we have closed. We have advised our transaction totaling 23.6 megawatts. So things have -- had a good start also in that segment. And we are more than confident that this year will be a successful year again.

One thing that is important, if you look at Page 6, then it is to -- this graph shows you the actual capacity that will be contributing to the figures in 2023. These are the plants that we have acquired and are already connected to the grid or were already connected to the grid by the end of 2022. It's a total of 268 megawatts as said before, many of the projects that we have announced and we are -- last year and this year are in construction or are soon going to be built. So this is just to provide clearance of -- clarity on what the figures will be based on in this year.

[Christoph Husmann, executive]

Thank you very much, Mario. Well, ladies and gentlemen, we released our Q1 figures this morning, and we believe the revenue increased by 9% from net, that means after price caps, EUR 90.4 million up to EUR 98.8 million, which is plus of EUR 8.4 million. Well, how did these figures evolved and to understand these figures better. It is very important to go into the details of the energy production.

In our existing portfolio, we have seen a decrease of the energy production by 5%. And this is due to the poor weather conditions, specifically in wind, but as well in PV in Germany, Italy, France, U.K. and Netherlands, but only positive development in Spain compared to the Q1 of last year. This is no trend. This is just a quarterly figure, and there is no basis on that to forecast that any deviation from into the future. So April and specifically May are very sunny already again.

So having said that, we suffered here a 5% decrease in energy production, but that was more than overcompensated by our new acquisitions, Mario just pointed out. The 268 megawatts we connected to the grid during the course of last year. This Q1 now produce electricity that overcompensates not only the shortfall due to metrological condition, but in total, we have an up by 6% compared to previous year, which is 43 gigawatt hours more than last Q1. These plus 6% of energy production then result in, again, revenues increased by 9%. And this is boosted by our new acquisitions, as I pointed out, and fully reflects Stern acquisition, which we fully consolidated in Q4 last year.

And now for the first time, is fully incorporated in our figures of Q1 as well as -- as usual, we had a delayed remuneration from our Dutch PV portfolio, which is included in these figures as well. So this up of 9% in revenues is not fully reflected in the EBITDA. The EBITDA is on the level of Q1 last year, but I would like to remind you that this is exactly more or less what we expected. You remember during our explanations of the guidance of 2023. We have shown you that the EBITDA margin in the group will slightly shrink compared to previous years.

Within the PV and wind business, we will stick and keep more than 75% of EBITDA margin. But with the more and big -- way bigger additions of service business to our group, which come along with a usually lower EBITDA margin, there is some group level dilution of the EBITDA margin. And this is somewhat more extreme in this Q1, but this has just a technical reason.

As Mario pointed out, we are currently, ongoingly integrating Stern into our business. And here, there are some learning curves for both sides. And one is that Stern is a privately-held company in the past, was not used to release their Q figures so early. And in the increasing number of project-related business like revamping, like repowering, they need now to do a percentage of completion method to reflect the margin with the ongoing revenues.

As a matter of fact, they were not able to do so and now in Q1 and therefore, the revenues of that project-related business is x cost, that means without any margin. That's the reason why we see later on that in Q1, but only for that technical reason, and this should be a onetime of only. There is only a 6% margin in Stern business. We expect that we will correct that percentage of completion within the Q2 or Q3, and they will come up to more or less 18% as they were announced in the guidance 2023. So there will be at least EUR 1 million or more of EBITDA than reflected for Q1. The operating EBIT grew then by 1%. Here, we have the same effect as in the EBITDA with Stern. The operating cash flow shows EUR 51.8 million, which is EUR 13 million below Q1 of last year. I would like to recall what I told you in Q1 2022, when we have shown you that for the first time in operating cash flow, which was exceeding the EBITDA in that quarter, which was quite unusual for a growth business, having in mind that there are some delays in the payments usually compared to the EBITDA you earn.

And the point was that we had pretty high prices already seen in the Spanish market in Q4 2021 and Q1 2022. And we cashed in all the revenues from selling the electricity under a financial PPA in the market and the compensational payments we owed to the off-takers that was paid out later. So the payables -- trade payables increased tremendously in Q1 2022. And that is the effect where the operating cash flow was somewhat boosted temporarily last year compared to that. And since the electricity prices are somewhat down now compared to last year's Q1, there are no such delayed-out payments on our side. And therefore, the operating cash flow looks to be low -- is lower than last year. But if you compare Q1 2023 operating cash flow with Q1 2021 operating cash flow, there you see the growth of the company where we have -- so it is just 2022 was slight somewhat higher than usual.

The operating earnings per share is increasing again. We had an outstandingly good result in Q1 2022, and we exceeded that now with 13%. The reason for that is that the interest cost of the parks is further reducing by further amortization of high interest carrying debt.

Ladies and gentlemen, if we compare then our reported figures with the average of the consensus, then we do see that the figures are somewhat even better than your high expectations. So we are in net revenues, 10% above the expectation. The same applies to the EBITDA and even 23% in EBIT better than expected.

In both figures, EBITDA and EBIT, we are on or even above the most extreme top consensus estimate of one of your colleagues. So these figures are very well the same applied to the operating EPS.

If we then have a look into our segments. Well, with the growth of the PV services with the first reflection of the Stern figures in our group. And the boost of the revenues there from EUR 1.1 million to EUR 10.3 million, representing 10% of our revenues. I'm sure the other segments have [indiscernible] milestone. The solar parks with the hefty investments of 199 megawatts of new, connected to the grid park, as Mario pointed out, keeps the portion of revenues on the level of 57%, 56%.

The wind farms where we have only approximately 20% of our new capacities included here is increasing -- decreasing from 39% to 31% in revenues top line. Asset management keeps on the same level of 4%. The margins are coming or returning to usual levels, which we have seen before the year 2022. Solar farms have an increase of the operating EBITDA margin of 74%. Yet, it is currently below 75%, but it is Q1, which is not so sunny. So in Q2 and Q3, the operating EBITDA margin will be high -- higher than 75%, so that in years average, it will reach that target. And the wind farms come down somewhat from 86% to 80% coming back to normal. PV services having a 6% EBITDA margin. I think I explained that -- why, what is going on there.

Let's go into the segments. Well, first of all, we have an increase of revenues. Here, we have a shortfall of power production by 4%. So here, we lose more or less 14 gigawatt hours compared to previous Q1 2022. But we have new additions to the grid. And here, we have in the low radiation quarter already almost 9 gigawatt hours of new energy production in Italy, Netherlands, Denmark and Sweden as with these new acquisitions.

The operating EBITDA margin as I point out, came back. The power prices were slightly below last year's Q1 level but on planned level. As a matter of fact, we have seen when we talk about the power prices were below last year's figures. And then we are talking -- referring to the prices we have seen in the market which could realize with a few open positions we are having. But I would like to point out that due to our policy of closing some of the merchant positions via short-term PPAs, we were able, for instance, to earn in our U.K. portfolio, EUR 2 million more of revenues this year compared to Q1 last year without any meaningful addition in PV and that due to securing higher power prices via short-term PPAs.

And we have the delayed remuneration in the Netherlands included here. In the wind portfolio here we see a decline of the revenues by 11%, and that is mostly driven in this usually very windy quarter by a 6% lower power production compared to Q1 last year. So here, we lose 22 gigawatt hours of energy production due to metrological reasons, but that is by power level -- power production level overcompensated by the newly acquired Lithuanian wind farms with 69 gigawatt hour production.

Due to lower power prices we have seen in Q1 in these different jurisdictions, we have then a lower EBITDA margin of 80%. Well, in Stern, we show you split revenues as well, but honestly said, when we talk of net revenue, this, on the left side, the EUR 10.3 million are the total revenues of Stern and on the right-hand side, the EUR 8.2 million are the external revenues, meaning that EUR 2.1 million of revenues are done internally and are not shown in the group P&L. So this -- they will be consolidated.

Here, we see a sharp increase in that segment due to the first reflection of the Stern acquisition in our figures. And again, just to remind you, the project-related revenues are included, but the margin is understated because it is consolidated at cost only, so -- only stated cost is revenues.

The Asset Management business is developing like usual. So although there are some turbulences in the market and the interest rates are turbulent in these days. It is that the appetite of our customers for investment into renewables is still there. So we have seen in these days, a growth in the revenues of the asset management compared to Q1 2022, that the operating EBITDA margin is shrinking slightly is just that we hired some new people to better serve our customers and to foster the growth of the company they are already there, the revenues will come over the year. So here, we stick to our guidance as well, but there are some slightly shrinking EBITDA in Q1.

In our last -- well, it's hard to call the segment. Here, we have a mixture of headquarters as well as the consolidation of the internal revenues of Stern with our PV segment. So with the negative revenues here is purely the consolidation effect. In total, the cost within the headquarters in Q1 2023 are lower than in 2022.

Ladies and gentlemen, these were the figures of Q1. And now I would like to flip over to Page 19 because we already aligned out the guidance to you in a call not too far away from now. So therefore, our job is today to reconfirm to you our guidance, which we placed in the market in March. So we are confident that we will reach our revenues of more than EUR 440 million net with an EBITDA of more than EUR 310 million and an EBIT of more than EUR 185 million and earnings per share of EUR 0.60. The operating cash flow of EUR 280 million, we certainly confirm as well.

Ladies and gentlemen, thank you very much for listening, and now we are open to your questions.

[Operator]

[Operator Instructions] First question comes from Anis Zgaya, ODDO.

[Anis Zgaya, analyst]

Yes. I have 2 questions. First one is on the delayed remuneration from the Dutch parks. Could you please tell us how much you included in Q1 from the Dutch delayed remuneration? And the second one is on capacity addition. Could you give us more color on under construction assets and the capacity additions you are expecting in the coming quarters?

[Christoph Husmann, executive]

Yes. Thank you very much for the question. So I'll take the first one and Mario, the second one. So regarding the delayed remuneration of parks from the Netherlands. This is approximately EUR 8 million, which are included here.

[Mario Schirru, executive]

And in terms of capacity additions, the 268 megawatts that you see on Page 6 have already been connected to the grid. All the other projects we have acquired so far are in construction or will be -- and will be connected throughout the year, sort of at different times, of course, starting with Q4 2023 and then in 2024.

[Operator]

At the moment, there seems to be no further questions. [Operator Instructions]

And we have one more question coming from Charles Swabey, HSBC.

[Charles Swabey, analyst]

My question is on power prices. Could you comment on how capture prices have been year-to-date and how they compare to estimates of '23? And then what are you seeing in forward prices here?

[Christoph Husmann, executive]

Well, as you see here on -- Swabey, thank you very much for the question. As you see here on the chart, which we already produced to you during our guidance, we have shown you that there is a huge decline in power prices in all technologies and in all countries. So first of all, nothing which really should irritate all of us. The reason for that is that although there is a huge percentage-wise decline, it is compared to previous year with extremely high-power prices, and now they are coming down on a level which we usually haven't seen before 2022.

So in 2021 and 2020, the power prices were far lower. So still, these power prices, which we see in the market, although they are declining are very positive and supporting the [indiscernible] of our projects.

Currently, we see in Q1, more or less that the prices are on level of our expectation. And we currently see that the expectations during the course of the remaining year, there are in our expectation as well. There are some countries where there are at the lower end and others are more centered in our range of expectation. But we will see how that will evolve. We see in the market that there is some optimism regarding the power prices, and this is what we already always include in our guidance. But honestly said, we expect that this optimism will not necessarily evolve. We already do some warning signals in the market that there might be in the second half higher than expected power prices.

[Operator]

And the next question comes from Anders Knudsen, SEB.

[Anders Knudsen, analyst]

And thank you for the update. Perhaps if you could give us an update on the construction cost and access to components, [indiscernible] et cetera, given the very volatile world that we've been through for the last couple of quarters. And also giving now more normal electricity prices, and perhaps an update on the PPA market, products will be the same.

[Mario Schirru, executive]

Sure. Thank you very much for the question. So in terms of sort of construction costs, we are quite relaxed. We've seen a little bit of increase during some periods of last year. Overall, module prices are down by 7% on average in 2022. So meaning that despite some smaller spikes, the trend is still going sort of in the right direction for us. We do see some, I would say, let's call it troubles or delays in the delivery of high-voltage components. This is still sort of the case. We have already started with the procurement of the components for our new projects since we can use these components also in several of our parks that will be built, so we can sort of play some flexible in one or the other project. But yes, here, the attention on our side is very high.

And in general, you also asked the question on PPAs. We see that the market is taking off again. Last year, the prices have been very high, yes, but the appetite has been ultimately quite low since everyone was a little bit sort of waiting for the market to stabilize and for price to become -- yes, I mean, for the liquidity to increase and the price to become sort of more based on traded or on actual executed contracts. So strong demand, again, prices are still at the higher end compared to the forecast or the expectations that we had, I would say, 2 or 3 years ago. So also from this point of view, we are relaxed.

[Operator]

The next question comes from Martin Tessier, Stifel.

[Martin Tessier, analyst]

Thank you for the presentation. One question on the Stern Energy segment. Could you just confirm that you said that with the accounting adjustment EBITDA should be around EUR 1 million for Q1. And if this is true, could you just also confirm on the margin, that would be around 12% margin versus 28% last year. So still a decline in margin. So maybe some precision from you would be very helpful.

[Christoph Husmann, executive]

Yes, Martin, thank you very much for the question. Honestly said, then obviously, I have to say it more precisely. So what I said is that they should have 18% margin as we have shown in the guidance. And so it is EUR 1 million more or even more, which we have to add to the EBITDA. So it is...

[Martin Tessier, analyst]

So EUR 1.6 million.

[Christoph Husmann, executive]

Excuse me.

[Martin Tessier, analyst]

So EUR 1.6 million...

[Christoph Husmann, executive]

Martin, I cannot say so precisely. The issue is, if I knew it precisely, we would have accounted for it. The issue is that the margins have to -- for every specific project, these are several, many, many margins, the projects which have to be analyzed. So -- but it should be, and this is a rough guess, EUR 1 million and more, which have to be added to the currently shown EBITDA.

[Operator]

So at the moment, there are no more questions. [Operator Instructions]

We have one more question from Teresa Schinwald, Raiffeisen Bank International.

[Teresa Schinwald, analyst]

A follow up on the EUR 8 million effect of the delay of the Dutch Parks remuneration. Just to get it right, this wasn't booked -- this was booked in this quarter? Or when are the EUR 8 million to be expected? Sorry, I'm a bit confused.

[Christoph Husmann, executive]

They were booked -- thank you very much for the question. They were booked in Q1.

[Operator]

And now there are no more questions from the audience.

[Christoph Husmann, executive]

Okay. Then, ladies and gentlemen, thank you very much for joining us early in the morning for our Q1 call. As usual, Q1 is pretty short and not so meaningful. Q2 and 3 will be more meaningful. Then we will listen to and see each other at latest in August with the release of the Q2 figures.

Thank you very much for dialing in. Have a good day, and please stay safe and healthy. Thank you very much. Bye.