Encavis AG: Transkript Conference Call Q3/9M 2021

Encavis AG

Transcript Q3/9M 2021 Interim Statement Conference Call

15th November 2021 | 08:30 CEST

Speakers:

Dr Christoph Husmann (CFO) and Dr Dierk Paskert (CEO)

Dr Christoph Husmann	Good morning to all of you, a warm welcome to our Q3 interim
	statement conference call. I hope that you're all well and are not
	impacted or even infected by Corona, or the newly implemented
	lockdown measures so far. Well, as you know, we have always a
	full presentation on the cumulative figures and presenting to you
	all the respective highlights. But, as you know, we, in this
	conference call, will only hop to the most recent developments
	which are relevant for this third quarter.
	As you might be aware, we converted our outstanding hybrid
	convertible, which we issued in 2017 and 2019 on October 4th
	mandatorily, and the reason for that is quite an efficiency reason
	due to the very strong increase of our share price in 2019 and
	2020 with hybrid convertibles price moved, or developed, parallel
	to the share price. And so therefore it was meaningless for the
	hybrid convertible owners to keep that paper instead of the
	shares.
	So, it was to be expected that they would convert their hybrid
	convertible into shares, which already was done on August 5th,
	and September 24th by several investors. To streamline that
	process, we decided to mandatorily convert all remaining
	outstanding hybrid convertibles on October 4th into shares. Why
	do I reiterate that? I would like to confirm to you that this does
	have no impact on earnings per share in 2021.
	It does not have any impact on total assets, equity or equity ratios.
	Well, ladies and gentlemen, as you might know we are pretty
	backloaded in our own portfolio with the investments. Usually
	during the course of the year, we invest mostly in the second half
	of the year, and a very big portion at the end of Q4. And that
	applies to this year as well.
	In May, we acquired Paltusmäki, a 22 MW wind farm in Finland,
	and in the course of the last three weeks we announced three
	acquisitions. Firstly, it was Groß Behnitz, an acquisition which we
	announced on 21st October. This is a new solar farm, which is to
	be built in Brandenburg, nearby Berlin.
	These ones who participated in the capital markets day, or our last
	physical capital markets day, when we visited our Brandenburg
	solar farm, might have recognised it is not too far away from that
	area. It is a 25 MW new acquisition here from our strategic
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development partner Sunovis GmbH. Six days later, on 27th October, we announced that we started the construction of the new park, Ringkøbing, which is at the Danish west coast of the North Sea, 12 MW.

It's a small park, but what is worthwhile to note here, firstly, it is our first solar farm in Denmark. And it comes from the strategic development partnership with GreenGo Energy, with whom we have a strategic development partnership of 500+ MW. And the most recent acquisition was then two weeks later on 12th November, last Friday.

We announced that we acquired five solar farms in the Netherlands, with a total generation capacity of 74 MW. Here, from Statkraft. By the way, precisely we have to say from the former SolarCentury, which was acquired from Statkraft. Three of the five solar farms are already connected to the grid. They do have a total capacity of 50 MW. The remaining two ones are almost fully built, so they are done, all the equipment is on the place, there is no logistics issue, so it is only a question of acceptance by the authorities that these parks will be connected to the grid within the next weeks or months.

All these parks are receiving fixed tariffs for 15 years under the Dutch subsidies scheme, SDE+. In total, as of today, Encavis added with that 133 MW of new capacity to our own portfolio, mostly solar. And what is worthwhile to note, the last three ones out of strategic development partnerships, that are functioning, we outlined during our last capital markets day some weeks ago. So, having said that, 133 MW so far, this year is by far not over yet, so more parks are expected. But as we pointed out, this is sometimes timing-wise a little bit beyond our control due to authorisations which are outstanding.

The Asset Management was quite busy as well this year, so in this quarter they were successful in investing money in parks for Encavis Infrastructure Fund II. Which is the fund which is designed for saving and loan banks and smaller corporate banks which are participating in that fund.

And they acquired a solar farm portfolio as well. As well as a wind farm portfolio; the solar farm portfolio in Germany, the wind farm portfolio in France. And with both together, almost 120 MW. And the Encavis Infrastructure Fund III, which is a special fund for Versicherungskammer Bayern. Here they invested 66 MW into a solar portfolio in Western and Southern France.

In addition to that, on the 29th September we announced that Encavis Asset Management together with BayernLB designed the new Encavis Infrastructure Fund IV, which is about to be placed on the market next year, with a total fund volume of EUR 500 million for further investments. This is important to foster the growth of Encavis Asset Management in the years to come. Regarding financing within that quarter, we announced on 16th

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August that we have signed a sustainable ESG revolving credit facility (RCF). This is a very long name for quite a unique thing. Maybe you are aware that most of our parks are financed non- recourse on SPV level. So, all cash flows firstly go to the financing bank on SPV level, and then to Encavis AG.

Having said that, all debt on corporate level is structurally subordinated to the debt on SPV level. So, therefore, we consider this to be a success, which is, by the way, unique in the renewables market where we have an unsecured committment to draw the facility from five well-known banks, like Commerzbank, Rabobank, BayernLB, DZ-Bank, and Landesbank Baden- Württemberg, which together guarantee us whenever we need EUR 25 million of working capital facility, and EUR 100 million hunting line.

And that is for us very important, because as we pointed out, the decision making of the authorities in Europe is sometimes timing- wise surprising. Sometimes they speed up dramatically, sometimes they are totally slow. So, for how long have we to keep the money in place to pay the developers for the development? It's up to us to draw the facility, it makes it very efficient to draw down the amount of money needed for the acquisition of a park whenever the authorisation is given. This sustainable ESG revolving credit facility became possible on the back of our investment grade rating by SCOPE Rating. We have a BBB- here. This is unique in the renewables market in Europe as well as for a pure-play,non-utility player of our size, and that helped us to convince the banks.

Well, let's come to the figures. First, let's have a look on the Q3 figures isolated, so without the first half. In the end, and first, as a management summary, the picture is the same or similar to that one what we have seen the first two quarters of 2021, but somewhat better. We had an energy production in the third quarter of 778 GW power, which is 55%, or 277 GW more than in the previous years' third quarter.

But if we look more into the details, there we see that the existing portfolio, which was already in place in 2019 and 2020, produced this year 31 GW hours, or 7% less than in the previous year's quarter. And that is due to weaker meteorological situation. On the back of the 778 GW hours, we realised revenue of EUR 97 million, which is 22% more than in the previous year's quarter.

And the same applies to EBITDA, EBIT, and operating EPS. So, we have now a more sound development of our figures, not so much extremely deteriorated by meteorological issues. Because the meteorological impact, now, is smaller when compared to the additional energy production of our parks which are newly connected to the grid.

What we consider to be a progress is the development of the earnings per share, and under which we realised EUR 0.19 in Q3

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2021, compared to EUR 0.15 in the last year's quarter. The operating cash flow improved by 51%, up to EUR 77.7 million in that reporting quarter.

Well, if we have a look now on the cumulative figures, then we see what this quarter means to our figures so far. We produced, in the first nine months, 2.2 terawatts hours (TWh) of electricity, which is 35% more than previous year, or 569 gigawatts hours (GWh) more. But then if we look just in the existing portfolio, which was there in place in the first nine months in the previous year's already, then we see the reduction of the energy production by 11%. So, after the second quarter, we added now the third quarter to the overall figures and that was calming down the very harsh reduction of energy production in our existing portfolio, which we suffered in the first quarter due to very poor weather in that first quarter. The revenue, now, increased to almost EUR 260 million, EUR 25 million up compared to previous year: plus 11%. As a matter of fact, we see here the effect from the first quarter. Usually we have revenue, EBITDA and EBIT, that increase with almost the same percentage as the revenue. This is still not the case due to the disturbing figures of the first quarter, where we had a huge lack due to meteorological effects. Please have in mind that in these quarters the lack of meteorological revenue leads to the same lack of figures in EBITDA and EBIT, so the figures are reduced 100%, all through the way to the P&L. While the addition of new revenue from new parks are reflected in the EBITDA and EBIT only with a respective margin because these revenue come along with additional costs.

So, that's the reason why the operating EPS is, in total up to now, EUR 0.05 below the cumulative figures of previous years. If we take out that pure meteorological effect, then only for calculation purposes, it's to see that the growth of the Company is healthy. We increased the revenue and the EBITDA and EBIT by solid double-digit figures. The operating cash flow increased over the nine months by 12%, or EUR 20.5 million, up to EUR 187.1 million.

If we compare these figures with the consensus in the market, then we see that, in the single Q3, as well as after nine months, we surpassed all figures. This applies to revenue, EBITDA and EBIT, but in operating cash flow and operating earnings per share, we are above expectations. Specifically in operating cash flow, where we surpassed the expectations by EUR 10 million.

The operating EPS is now cumulative, and in the single quarter slightly above the consensus. If we then have a look into the segment, then we see the growth on the one hand-side, and the meteorological weakness compared to the extremely strong previous year on the other hand-side. What does that mean to our figures? In the solar park segment, revenue increased from EUR 172 million in previous years' nine months, to EUR 198 million this year. Here, we do have a lack of revenue due to meteorological weakness compared to the very strong previous year of EUR 5

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million. And on the other side, additional EUR 32 million of revenue from our new to the grid-connected Spanish parks. And that can be seen on the EBITDA level and EBIT level as well. So, if we correct the EUR 5 million meteorological effect in the previous year, then the margins would stick at the same level.

In the wind farms, where we had not so important acquisitions in the last years, only Viertkamp and Paltusmäki adding some additional revenue, the reduction in revenue as well as the EBITDA and the EBIT, is due to a negative meteorological effect of more than EUR 7 million.

In the Technical Services we see almost the same business activities as in previous years, but we see a heavily reduced EBITDA and EBIT. But this is due only to one effect: Last year we disposed our Encavis Technical Service GmbH to our minority holding Stern S.p.A, and realised EUR 1.9 million profit in the first half. And that cannot be repeated here, so that's the reason why we have reduced profit here. In a nutshell is the same level without that effect than in previous year's nine months.

The Asset Management had a very strong start into the year, so after the nine months realised EUR 11.3 million of revenue, which is 85% more revenue than in the previous year. And it more than quadrupled the profits.

The headquarters streamlined their cost, and could reduce the cost, so the costs of the headquarters decreased from EUR 7.4 million to EUR 6.5 million.

Having a very short look on the balance sheet: The growth in the Company, which led to the 11% increase in revenue so far compared to previous year is reflected in our balance sheet growth by 8%. What we do see here is the full connection to the grid, and with that full consolidation of the Talayuela park. La Cabrera was already connected to the grid, and therefore fully consolidated in the last year's report 2020. So, the 8% growth is based on that full consolidation of Talayuela, and with the profitability we could increase our equity.

Let´s have a look into the guidance: the Executive Board had a look on the guidance. We balanced everything and confirmed the guidance. After nine months we can state that we realised already at this point of time 80% and more of our guidance already, for some of the key figures even already 89%. So, therefore, we absolutely confirm our guidance and see currently no reason to deviate from it.

The same applies to our respective segmentational report, although there might be some weakness, maybe, in wind, but this is something we have to check in the next one and a half months, which we cannot forecast by now.

Ladies and gentlemen, that was my presentation on the figures and if you have now any questions for that I would like to hand

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