PNE AG
XETRA:PNE3
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PNE AG
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Ladies and gentlemen, welcome to the PNE AG 9 Months 2024 Results Conference Call. I am Joten, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to Mr. Pedersen, CEO of the company. Please go ahead.
Good morning, everyone, also from my side. Thank you for joining us today in this conference call regarding the results of the third quarter 2024. My name is Per Hornung Pedersen, currently Interim CEO of PNE AG, and I'm accompanied by colleagues, Harald Wilbert, CFO; and Roland Stander, COO.
So let me first give you an overview of the presentation and the course of today's conference call on Slide 3 of the presentation. As usual, we will begin with a brief summary followed by an update regarding the operating business. Then I will pass over to Harald for an update on the financials. I will conclude the presentation with some comments and remarks on the outlook for the remainder of 2024.
As always, we will then open the line for the sell-side analysts only. All our participants will stay in listen-only mode as it is our company procedure for years. As usual, our slides can be found on our Investor Relations website. So please go to Slide #5.
In operational terms, I think we made good progress for the first 9 months of the year in all of our business segments. And despite that it is -- it has been a challenging market environment with several external factors that slowed us down, such as supply bottlenecks, mud rain, unfavorable weather conditions, lower power prices, high interest rates and turbine delivery issues.
In view of the market conditions, then we are pleased with the progress achieved in the first 9 months. We put wind farms with an output of 61.3 megawatts in operation in Germany. We further strengthened our positions as IPP. Our own power generation portfolio grew from 321 megawatts last year to 412 megawatts as of end of September 2024. Construction activity is very high. As per end of September, we had projects with a capacity of 274 megawatts under construction.
Where we are also very good is in the tenders. We were successful with 9 projects with a volume of 141.9 megawatts submitted in the German centers, and we have received 95.3 megawatts of new permits in Germany. We also had some successful sales. We closed the sale of our U.S. business in June with 2.1 gigawatt and could sell projects in South Africa with 240-megawatt peak PV and Canada with 210-megawatt wind and 100-megawatt PV.
Project pipeline developed to 17.8 gigawatts, reflecting the sale of the U.S. pipeline. It is then thus remarkable that the pipeline increased slightly year-over-year.
Power generation output also grew by 15% year-on-year with 485 gigawatt hours due to the installed -- increased installed base. But in Germany, we had lower wind yields in the second and third quarter as well as lower power prices compared to last year.
Our service business continued to perform well. It now manages a capacity of more than 2.9 gigawatts. And last but not least, we are delighted that our new CEO, Heiko Wuttke will take office as member and Chairman of the Management Board on the 13 of January 2024. Heiko has been in the renewable energy industry for nearly 30 years and knows the business from many different perspectives. In Heiko, we have found a new CEO who also fits very well with PNE and its culture as a person. This is important in order to successfully shape the growth and further development of PNE. As you might know, project development is people business.
So please turn to Slide 7, the IPP portfolio. If you look to the expansion of our own generation portfolio, we see that we made progress here as well. We added 61.3 megawatts to the IPP portfolio in 2024 and now have 412 megawatts of German onshore wind projects in operation at the end of the third quarter. Further approximately 274 megawatts in Germany and France, mostly intended for the portfolio were under construction at the end of the third quarter 2024. We are well on the way to increase the portfolio to around 1.5 megawatt peak according to our company strategy.
We produced 485 gigawatt hours of green energy in the first 9 months of 2024, which is compared to the first 9 months of last year, an increase of 15%. Hidden reserves accumulated in our portfolio increased to EUR 27.7 million compared to EUR 185.7 million in the previous year. Please turn to Slide #8.
Project pipeline is on a high level despite the sale of the U.S. pipeline, in which 2.1 gigawatts exited the pipeline. So our total pipeline developed to 17.8 gigawatts, which is actually a slight increase compared to third quarter '23. Wind onshore grew to 2.2 gigawatts and PV decreased slightly to 6.1 gigawatt peak and offshore was stable at 2.5 gigawatts. We go to Slide #9.
Wind onshore pipeline. The basis for our IPP production and portfolio is the wind project pipeline, especially in Germany and in France, where we have 848 megawatts in the permitting phase and 274 megawatts under construction. That means that we are on a good path to continue to grow our IPP portfolio with these projects.
If we go specifically in and look at the pipeline, we increased in Germany, the pipeline to 2.625 megawatts compared to 2.529 megawatts in previous year. Wind farm Heidelberg, which was -- which is 5.5 megawatt and Schenefeld, 19.8 megawatt and [indiscernible], 36 megawatts were completed and put in operation for our own generation portfolio. One wind farm, 6.6 megawatt was completed for an external investor.
10 farms with 252 megawatts are under construction in Germany. We were successful with 9 projects with a volume of 141.9 megawatts submitted in the February, May and August tenders. And we received permits for 5 wind farms with 95.3 megawatts in the first 9 months of 2024.
In France, we had 2 projects under construction with 22 megawatts. As you know, in the U.S., we sold our complete U.S. wind pipeline with 746 megawatts in the second quarter of 2024 to Lotus Infrastructure Partners. In Canada, we sold one wind project with 210 megawatts in the second quarter 2024 to a Canadian energy company and 3 First Nations. PNE Canada will continue to develop the projects up to ready to build.
And in the beginning of Q4, we were able to close 2 important project sales. We sold the Papenrode wind farm with 59 megawatts to Qualitas Energy informed yesterday. And in the U.K., we sold the Sallachy wind farm with 43 megawatts to Boralex. With these sales, we exited the U.K. market in line with a stronger focus on our core markets.
Regarding the PV pipeline, we were able to sell some projects as well. In South Africa, we sold 240-megawatt peak project. In U.S., as mentioned already above, we sold our complete PV pipeline of 1.372 megawatt peak to Lotus Infrastructure Partners. In Canada, we also sold 1 PV project with 100 megawatts in the second quarter to a Canadian energy company and 3 First Nations. PNE Canada will continue to develop the project up to ready to build.
So I would now like to hand over to Harald for the financials.
Yes. Thank you, Per. And first of all, I also would like to welcome everyone here in this call, and thank you for your interest. Starting with Page 12, the financial highlights.
Looking at the financial highlights, the results for the first 9 months 2024 reflect our high construction activities, especially for the buildup of our IPP portfolio as well as the ongoing investments in our developing pipeline.
Total output grew by 34% to EUR 210.9 million, the highest 9-month number in PNE history. The high total output reflects the good operating business, which is, however, not yet reflected in earnings due to high construction activities and delayed commissioning of own wind farms due to supply bottlenecks as well as unfavorable weather conditions.
EBITDA decreased by 62% to EUR 6.2 million compared to EUR 16.5 million in the previous year, but it is expected to catch up with the project sales and milestone payments in the fourth quarter. I will comment on the earnings drivers in more detail on the next slide.
In reserves increased by EUR 27.1 million in the first 9 months compared to EUR 16.2 million in the previous year. EBITDA adjusted by these hidden reserves was at EUR 33.3 million compared to EUR 32.7 million in the previous year. Our cash position remains at high level at EUR 102.3 million compared to EUR 90.4 million as of December last year.
Equity declined to EUR 155.5 million, coming from EUR 208 million as of the end of last year. But on the other hand, the hidden reserves accumulated in IPP portfolio grew to EUR 227.7 million compared to EUR 194.6 million at the end of 2023.
Net income and so the equity was negatively impacted by subsequent measurements of KFW loans in accordance with IFRS. I will elaborate on this special item on the next slide.
So on Page 13, looking at our profit and loss statements and the key earnings driver. The total output grew by 34% to EUR 210.9 million. The cost of materials increased, especially due to the high construction activities for German IPP projects as well as higher project development costs for the larger project pipeline.
Personnel expenses increased driven by an increase in the average number of employees of 46 and higher salaries. EBITDA decreased to EUR 6.2 million. However, EBITDA adjusted, so including hidden reserves was stable at EUR 33.3 million, so more or less like the last year.
As I just mentioned before, the net income was negatively impacted by subsequent measurements of KfW loans in accordance with IFRS. On to IFRS 9, we have to apply the so-called effective interest method on all loans. As the applicable market interest rate changed for PNE in Q3, IFRS demands for these loans revaluation at fair value, the so-called subsequent measurement. In consequence, decreasing market interest rates as seen in the last month, lead to higher present values of the respective KfW loans and so to interest expenses.
In our case, the financial result was impacted by minus EUR 13.3 million in the first 9 months of 2024 compared to only minus EUR 2 million in 2023. These interest expenses caused by the effective interest method influence our net result and thus, our equity ratio. But I want to stress here that these negative effects have neither an effect on liquidity nor they reflect our operating performance. And this is why we show an adjusted net income. And for the first 9 months 2024, this amounted to minus EUR 35.4 million compared to minus EUR 22.8 million in 2023.
Now have a look on our segments on Page 14. Looking at the segments, we see that all 3 segments grew. Total output of the segment project development increased the most to EUR 170.8 million, which corresponds a plus of 41%. The reasons here were the high construction and development activities.
Total output of the segment Power generation increased to EUR 55.3 million, which means a plus of 15% and total output of the segment Services increased to EUR 26.5 million, which equals to a plus of 17%.
Of course, this is a view before consolidation due to the transfer of projects in our IPP portfolio. Consolidation remained at a high level for total output at EUR 41.8 million.
EBITDA-wise, the segment Power generation has with EUR 37.5 million, the highest contribution and this with stable and return EBITDA, mostly backed by the EG tariff. The EBITDA from segment Services grew by a pleasant 8%. The Project Development segment shows a negative EBITDA, which will improve drastically with the sales of projects in Q4.
Now looking at the balance sheet on Page 15. We see there a solid cash position of EUR 102 million. The equity ratio came down to 12.2%, which, however, is a temporary effect as KPIs will significantly increase in Q4. Our goal here is a minimum equity ratio of 20% at the end of each year. The equity ratio adjusted by hidden reserves was at 25.4%.
Liabilities to banks increased further as the buildup of our IPP portfolio continued. It is worth mentioning that the majority of these bank liabilities are nonrecourse project financing. On the asset side, we see that most is allocated to property, plant and equipment as well as inventories, what we see, of course, as investment in stable values.
As I mentioned before, especially with the realized sale of the wind farm partner in October, which, by the way, is the biggest EBITDA contributor in our Project Development segment for this year, we are very optimistic to show solid and favorable KPIs in our upcoming financial statements 2024.
With that, I would like to hand back to Per for the outlook.
Thank you, Harald. You already indicated actually. Ladies and gentlemen, this leads me to the outlook. We are confirming our guidance for the full year 2024 of a group EBITDA in the range of EUR 40 million to EUR 50 million as we anticipate a strong fourth quarter. With the sale of [indiscernible] and the Salachy wind farms in the last weeks, we have pretty good visibility that our KPIs for 2024 will significantly improve compared to the third quarter. We also expect further project sales and milestone payments in the remainder of the fourth quarter.
In addition to the earnings contribution from project sales, the fourth quarter is usually a strong quarter in terms of wind power generation, which will also contribute to our full year results.
Having said this, let me assure you that the buildup of our IPP portfolio continues. Further wind farms are expected to be put in operation by the end of the year. But growth in future will be more balanced with profitability. We will have a stronger focus on selected core markets and will only allocate capital to projects and markets with corresponding return expectations.
We've been through a phase of strong growth. We are now transitioning from a largely pure growth phase to a more balanced phase of growth and profitability. With this, I would like to conclude our presentation and open the call for questions. Thank you.
[Operator Instructions]. The first question comes from the line of Holger Steffen with SMC Research.
Thank you for your information you gave us about the development in the first 9 months. I have several questions about your presentation and your [indiscernible]. First of all, regarding your international project business, you expect milestone payments in the final quarter, and you are preparing further project sales. Can you give us some details which amount of milestone payments is expected and which projects are ready to sales?
Yes, I can take over this question. Thank you very much. So we are selling more projects, no the aim to sell another big project in Germany. This is underway. Then the milestone payments can come. We are not 100% sure if we have the income in this year from the U.S.A. We sold the U.S.A. business, by the way, just in time when you see what happened yesterday. And then from Romania and Poland. So -- but we don't want to talk about amounts today because there's a lot of unsurety about the amount. But we are very positive that the fourth quarter will fulfill our guidance with the payments of the sale of the project and the milestone payments.
Okay. Fine. You have mentioned that you will sell another project in Germany. And I think the wind farm in Par Rodo would have been a good add-on to your own portfolio. Is the disposal of German projects, the result of the actual gap to your guidance?
Holger, Stander speaking. Hello, everybody. So our strategy was always we have a certain flexibility. So the projects we do turnkey. One element is one way it goes into IPP, build up the own operation. But we also have said we have a flexibility by this. We can decide to go one or the other way.
First half of this year, we decided to, let's say, test the market. Do we get good offers for this wind farm. And at the end, we got good offers, so we decided to sell it.
Selling projects is also a source of getting capital. And that has been the history of PNE for years.
But these disposals are no problem or it's no problem to reach your target of 1.5 gigawatts owned portfolio until 2027?
As I said before, we have been through a phase of growth, and we are still aiming towards, you can say, 1.5. However, I think that profitability and what I prefer to call a bankable balance sheet is more important than whether we receive 1.45 or exactly 1.5 gigawatt. But the target is there to build a substantial IPP portfolio.
Okay. In your report and in your presentation, no, there aren't any projects at the development stage 1 and 2 in Panama. Did you interrupt the development of these projects?
I think Roland, that's for you.
Yes. So we took the chance after summer to check, let's say, more or less the overall pipeline about what are the probabilities and chances of being realized and what is GAAP and we decided not yet. To super early stage projects in Panama, we don't see the profitable enough to move on with them.
Okay. In former times, the projects in the third stage should be sold in this year. Is this still realistic? Or will we see it next year?
You mean Panama?
Panama, yes.
We are about in sales talks with investors or sales processes. But we have to see whether the outcome is acceptable or not. We don't want to put ourselves in those and all projects under pressure to do a deal, so it must not be signing this year. So if the conditions are okay, we accept and if we need another month for that, we take the time.
I think what we can say here is that the goal is to exit Panama until the end of next year. It takes time to process. And in this process, we try to sell the projects as best as possible.
Okay. Perfect. In your report, you have underlined the plan to add PV projects to your own portfolio. When do you think we will see the first realization of an own PV project?
So, we are about developing several of them. But as I said, we also look, of course, at profitability. And I would say, within the next -- the planning horizon of the next 2 to 3 years, we will see them be added to the pipeline also to the IPP pipeline.
Okay. So the portfolio then in 2 to 3 years?
Yes, yes.
Okay. My last question, your equity ratio has further decreased. Will we see a capital increase soon?
No, not in the next year, maybe in 2026, but this is open. Especially as a CFO, you can imagine I have a close eye on the equity ratio. With the sale of [indiscernible], we simulated this, we had been at 17-ish percent, so much higher. And then let's see what's happening in the -- until the end of the year. So we hopefully are close to the 20% goal. So we are really optimistic there.
But of course, if we want to grow with IPP with this 1,500 megawatt goal, then in the future, we will need more equity. That it's clear because this is the arithmetics of the figures, especially when we want to keep this equity ratio at around 20%.
Okay. The next question comes from the line of Karsten Von Blumenthal with First Berlin Equity Research.
You mentioned a delay in commissioning of your wind farms. And could you tell us what exactly are your supply bottlenecks there?
I think what I said was that we had this year, different challenges due to weather conditions. So you had sites that were covered in more or less, making it difficult to complete the construction. You have bottlenecks in the supply chain. I mean the OEMs have bottlenecks in the supply chain leading cascading also to us with later deliveries. I think in terms of completion of projects, those are at least 2 major obstacles. Any comments there, further Roland Stander?
That's the main reason, yes.
All right. Could you tell me where you see your own plant portfolio capacity at the end of the year? You mentioned that you might add further wind farms and plants to the portfolio. So given that we now have beginning of November, what is the likely portfolio at the end of the year?
In the IPP portfolio, I think we will be around 440 megawatts by the end of the year.
Perfect. Any comments regarding the end of the German traffic light coalition? Do you see any direct impact on your business in coming months?
Roland?
In the short term, not. And we have to see the next year when we have a new government, but we don't see there any big changes for Germany in the near future. So with the U.S. business, we exited this. So this shouldn't affect us in any way, at least not directly. So we don't see any change in our strategy from now the change in government in Germany as well.
All right. In this year, we have seen quite some hours of negative power prices and power price exchange. Do you see this as a danger for the profitability of your onshore wind and future PV projects?
Let me comment first and then you can comment Roland.
Sure.
I mean the bulk of our IPP projects, the projects that go into our IPP portfolio are German-based, i.e., they are under the feed-in tariff system in Germany, secured for 20 years. So from that aspect, you can say the German projects that we are building now and the coming 2 years will not be to that degree, exposed to PPA and i.e., volatile power prices.
Yes. In general, I agree, but we have this our rule that as soon as more than 3 hours of negative power prices occur, then you lose the market premium.
Yes, that's, of course, correct. So for our rule or maybe that changed over the years -- will change over the years, getting shorter. We have taken that into account to a certain degree in our profitability cash flow calculations. That's on the one side. On the other side, the so-called [indiscernible] they cover part of this risk, as you might know. So let's say, this is an aspect, but we have taken that into account, I would say. So this is not a surprise will bring the profitability down in the future.
All right. I was a bit puzzled when I looked into your -- I calculated your Q3 segment results. And when I calculated it right, your IPP portfolio in terms of revenue performed quite well, but there was a massive decrease in EBITDA. But on the first side, that doesn't really fit together. So perhaps you could elaborate what happened in Q3 to your IPP portfolio performance.
Yes, it went down by 2 effects. We have more and higher installed bases. So naturally, it should increase, but we had a really poor Q2 and Q3 when it comes to the wind yields in Germany. It's roughly 12% or so. And then we had, of course, lower power prices. So in the past, we had PPAs in the last 2, 3 years, which were really favorable and the market prices, they shrink for all -- for the whole industry. And so the potential there for higher prices than the feed-in tariff was not so high in this year. These are the 2 main reasons.
October, by the way, is a poor month, too. There is no wind or not enough wind. And November doesn't look good as well, at least for the first 2 weeks. This is something, of course, we can't influence the weather and next year maybe looks totally different. But the main reason is the wind yields, which are in this year, not favorable.
All right. Good to know. Last question from my side. Is my perception right that you have performed a change in your general strategy, as Per mentioned it, a more balanced strategy balance between growth and profitability. My impression in the past was that there was a strong focus on growing the IPP portfolio. And now my feeling is that you rather go for a stronger profitability and perhaps a slower growth of your own plant portfolio. Is that the right perception?
Yes, you could say that that's what I said and what we say is that profitability is, you can say, more important than growth in itself. We will continue to grow. We will still build up the IPP portfolio, but we will have a sharper eye on profitability.
Yes.
The next question comes from the line of Guido Hoymann with Metzler.
Three ones from my side. The first one is, I recently read -- might be right or wrong.
Could you please speak up a little louder?
Yes. I recently read that you travel to Vietnam, I think, the week before last, and you were recently visited by the Latvian Energy Minister. So the question is, is there any news worth mentioning regarding your offshore development business? So maybe an update on the progress there.
The second one is on...
Yes, go ahead.
[Indiscernible] Okay. I understand that you want to sharpen your geographical focus. So I think you actually exited U.K., if I got you right. But which other countries would you categorize as noncore? Is there already a decision on that or the other way around, which are core? And then last but not least, you mentioned the need for raising equity in the future. But if I'm right, you don't have the necessary approvals or authorizations yet. And it looked like, yes, it was hard to get them from your shareholders. So can you maybe shed light on that, how you expect that to progress?
Let me start. There was 3 questions that I got it. So let me start in Vietnam.
Yes.
That's correct. I went to Vietnam a couple of weeks ago. And we have been active in Vietnam now for 4 years developing and you can say, helping the Vietnamese government with setting the framework for their offshore development. Vietnam has 2,000 kilometers of coastline and has an ambition to build 10 gigawatts of renewables and predominantly in wind. And there, we are pursuing a project in the southern part of Vietnam, which can have a capacity of up to 2 gigawatts.
I was out there and had some, you can say, good conversations with the Vietnamese government or members from the Vietnamese government and also from the party. And I mean, they confirmed and you can basically say that the strong pretty intensive press coverage that was initiated by the Vietnamese and not by PNE, showing that the Vietnamese has a strong interest in pursuing these projects.
I was again repeatedly saying to the official part of Vietnam that we want to pursue the project. We support the project, but we need, I can say, exclusivity that the project belongs to us. And I think message was received. So that was my reason for going to Vietnam.
The other question about the countries and focus. You already heard that we want to exit Panama. And Sweden is also a country where we want to exit. And I think that might already happen this year. Let's see.
And thirdly, Turkey will also be one of the countries where we will, during the term of next year, hopefully exit. I mean we don't have a fire sale -- we don't do fire sales here. So we exit in, of course, trying to get the best most out of it, but they will -- they are on the list of countries that we will not focus on going forward. I think on the capital increase, I'll hand over to our CFO.
Can you repeat the question again, please, the third one with the capital, please?
Yes, it's just that I think that you don't have the approvals. And so you could not raise equity at the moment, be it whatever, 10% or be it a rights issue or so. And yes, so you have to ask your shareholders.
This is regarding the so-called [indiscernible] capital I think third time in a row, we had no approval. We will try on the next AGM again, but we are not begging, of course. We are working on alternatives. There are alternatives to raise capital with a simple maturity of 50%. It's another process. This is something maybe what could be interesting for 2026 because, of course, if you want to build up the IPP business, we need more equity by nature.
So this is an alternative, all we have to sell projects like [indiscernible] in this year to build up more equity and then we have the basis to do other projects to -- and so we can then grow by our own cash flows. But of course, if we really want to make steps forward -- big steps forward, we need a capital increase, that's no question. But it's not so easy.
Now -- so -- but we are just doing this right now to elaborate on alternatives, and there is one, and it's maybe interesting AGM where we bring it on the agenda, but it's not for sure, no.
Can you repeat that first option? I didn't really get it at the end.
You can do the capital increase by another way than the so-called [indiscernible]. So the [indiscernible], you need 75% of the road on the AGM. And for the simple capital increase is another one, you need only 50% or 50% plus 1 vote. And this is a totally different process.
In the past, you need a prospect for this and the EU canceled this. And I think it's already approved that you don't need it. So the process to raise capital in this way is much easier in the future than it was in the past. But it's a longer process. You need 7, 8 months for a capital increase when you do this way. And you need, of course, the 50% approval from the AGM.
[Operator Instructions]. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to the speakers for any closing remarks.
Thank you. So if there are no further questions, we would like to thank you for joining today's webcast. We look forward to meeting you at the [indiscernible] Capital Forum in Frankfurt on the 25th and 26th of November or to welcome you again at our next webcast on the publication of our annual report 2024, which is scheduled for the 27th of March 2025. Wish you all a good day and stay safe. Thank you.
Thank you.
Thank you.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference.