Transcript Conference Call Encavis AG - FY results 2020 - March 24th, 2021
File Length: 01:00:45
Dr Christoph Husmann
Dr Dierk Paskert
Good morning ladies and gentlemen and welcome to the Encavis AG conference call
regarding consolidated financial statements 2020. At this time, all participants have been
placed on a listen-only mode. The floor will be open for questions following the presentation.
Let me know turn the floor over to your host, CFO of Encavis AG, Dr Christoph Husmann.
Please, go ahead.
Ladies and gentlemen, good morning and a warm welcome from Hamburg. A warm welcome
to our annual investors' call looking at our fiscal year 2020 and guidance 2021 and a very
warm welcome to our first call being a member of MDAX index, the mid cap index of Deutsche Börse. Ladies and gentlemen, we do live in turbulent times. 2020 was a successful year for Encavis. Due to our protected business model, [01:00] Encavis developed in a positive way unimpressed from COVID-19 and its impact on the overall economy. Yesterday evening, we published our revenues of €292.3 million compared to €273.8 million the previous year, which is up by 7%. This although 2019 was a meteorological extraordinary year, 2020 was pretty much a meteorological standard year. This increase of the 7% was due to an increase of our capacity in the wind segment of an 81-megawatts wind farm in Denmark which was acquired at the end of 2019 and a 14-megawatts wind park in Germany, acquired middle of last year. Both [02:00] contributed €15.8 million additional revenues. In addition to that, Encavis Asset Management developed very well in the past year and has contributed additional feeds of €4.9 million to our top line. And we were able to connect the first Spanish fully privately financed PPA park, la Cabrera, with 200 megawatts in August 2020 to the grid and in the ramp-up phase, it was possible to generate already €2.9 million of additional revenues from this park. That unfortunately was partially offset by negative meteorological deviation of €8.6 million. In 2019 we had a positive meteorological impact of €10.5 million on the top line and, [03:00] in 2020, this boiled down to nearly €1.9 million.
The point is that the capacity grew as well as the additional fees from the Asset Management were accompanied by additional cost as well. While the negative meteorological effect was not accompanied by any cost reductions and, therefore, we were able to increase our EBITDA to €224.8 million, compared to the €217.6 million by 3%. But this is pretty flattish on the EBIT and the EPS level. Please have in mind that there was a huge impact of meteorological effect in 2019 which was not there in 2020.
The operating cashflows still could be increased by 12% to €213 million. This is [04:00] due to the Asset Management development, as well as the reimbursement of some taxes. As a matter of fact, with that fiscal year 2020, we exceeded all KPIs which were laid out in our guidance 2020 in March last year based on this time relevant before you and we reached or exceeded all figures from the analysts' consensus.
Until the third quarter of 2020, the Group KPIs were pretty much behind previous years' Q3 figures, and this is due to several arguments. Firstly, we had negative meteorological effects throughout all consecutive three quarters of last year and we had some burden from the
additional cost for the Stock Option Programme due to the very sharp increase of our stock price. [05:00] In addition to that, we had a pretty much backload of business of the Encavis Asset Management and we had a delay of disposal of minorities which happened in 2019 in Q2 and was planned in 2020 for Q4. Until the end of the year, there was still the negative meteorological effect and the additional cost for the Stock Option Programme, but the Encavis Asset Management fulfilled all its goals and surpassed them even in Q4 and contributed alone €10 million of revenues in Q4 (2020). In addition to that, we got the disposal of the minorities done in Q4 as well, as we already reported. It helped us that, although there was some shortfall compared to 2019 and to Q3, to fulfil all our targets in the full year. [06:00]
If we then have a look into our segments, then firstly we shall have a look on the solar segment which is by far the biggest part of our Group, contributing 68% of our revenues in 2020. In the development of 2019-2020, we see a decline of the revenues, although la Cabrera, a 200-megawatts park, was connected to the grid at year's end, it contributed positively with €2.9 million to the baseline. But the meteorological effect on the solar park segment was negative €7 million. In 2019, we enjoyed additional radiation and due to that effect additional revenues of €14.1 million in 2020. This was just positive €7.1 million. To make that clear, [07:00] this is now the sixth consecutive year in which radiation is above standard expectation. But it is lower than it was in 2019. In addition to that we have to state that the margins in that segment are still solid. The only deviation we see here, the negative deviation, is due to that negative meteorological effect.
The wind farms contributed 27% to the top line in 2020. That was an increase of €14 million, €15.8 million due to the capacity increases which I already pointed out that the addition of 81 megawatts into the Danish portfolio and the 14 megawatts to the German portfolio. Here, we suffered a €1.4 million lower meteorological effect. It was negative €3.6 million [08:00] in 2019, and minus €5 million in 2020. In addition to that, the wind farm segments enjoy some EBITDA improvement due to minority disposals which was €4.2 million profit in 2020 compared to €4.7 in 2019. The margin is stable here as well.
The Technical Services: Here we had I think the biggest change in the last year due to the disposal of our technical services entity Stern Energy GmbH to Stern Energy S.p.a. in Milano. As you might recall, we acquired a 30% stake in Stern Energy in Milano with the intention, by put and call options, to grow that business 100% into our Group within the next five years. [09:00] As one of the first steps, we sold our German entity, the Encavis Technical Services to Stern Energy, and that profit of €2.8 million is reflected in the 2020 figures, and that is the reason why we have a one-off here which contributes positively to the EPS as well.
In the Asset Management business, we saw a strong growth. Back on an equity commitment by investments of more than €350 million, and an investment of such capital in the amount of €270 million, the company grew substantially. The managed megawatts, which were at 680 megawatts at the end of 2019 increased to 1 gigawatt in 2020. That led to a substantial increase in fees for structuring and for management and for consultation within [10:00] Encavis Asset Management and improved the efficiency of the Group.
Ladies and gentlemen, if we then do compare our segment report with the guidance 2020 which we published in March last year, we see that the solar segment, fulfilled the goals on all levels, the margins were slightly below the guidance. The reason for that was that some of the management-level employees of the solar park segment do have stock options as well, and as we pointed out, we had some additional provisions for the stock option programme due to the sharp increase of the stock price last year. Despite that, all targets of the guidance were fulfilled here. This applies to the Technical Services and to the Asset Management the same way. [11:00]
The wind farms were the only segment that did not fulfil their goals, and that is due to the very low wind volume, because the guidance is always based on standard weather, and the lack of €5 million of revenues in the wind farms which cannot be compensated cost-wise is shown here.
In a nutshell, although the meteorological conditions in 2020 were far below of those in 2019, but due to our capacity increases, we could reach or surpass and exceed the 2019 figures or at least reach them. Although we had to compensate for €5.3 million of provisions for the Virtual Stock Option Programme, compared to €2.9 million in 2019, which are additional costs of €2.4 million which were covered here [12:00].
The operating cashflow reached €213 million, a record high, that corresponds to an increase of 12%, far above what we expected. Firstly, there was a planned contribution from Encavis Asset Management due to their very good business performance in Q4 2019, which became cash relevant in the first quarter of 2020. Secondly, and that was not planned, a positive reimbursement of capital gains tax. As you might recall, this is an issue because German tax authorities pay whenever they want to, and last year we had the luck that they paid it already in 2020.
Ladies and gentlemen, if we have a look at the long development from 2014 until 2020, then [13:00] we see that we have a substantial increase of our revenues for the CAGR of 26.3% and that, what is most important, with pretty stable EBITDA and EBIT margins. You see that the EBITDA grew almost at the same level as revenues did. So, with the 2020 results, we could keep up our margins in this very competitive environment. These stable margins were driven not only by our approach to acquire parks and manage them properly, but to systematically skim economies of scale and scope throughout the Group. Financially, legally, administration- wise, by digitalisation, by streamlining the processes and standardise them and by technical improvements. We do a lot of making [14:00] our parks run at its best to harvest whatever nature offers to us.
Our operating business is continually growing backed by very solid equity ratios. Our balance sheet tells that we grew by 3% and that does not really reflect fully the growth of the business. As you might recall, last year, was a substantial milestone for us, by constructing the two big Spanish parks la Cabrera and Talayuela. While the cost of the construction of la Cabrera is already fully reflected in our balance sheet because it is fully consolidated as of August last year, Talayuela is equity-consolidated with 80% only because here we are just an 80% shareholder and, until COD, the developer has a major influence [15:00] on the park, and so the decision-making is not solely on our side and therefore we are, under IFRS, not under control. So, therefore, with the full consolidation of Talayuela, there will be a further increase of the balance sheet total beginning of this year. But this will have a positive impact on the equity as well. As you might see, we had an increase of the equity in 2020 from €722 million to €751 million. You will maybe recall last year we reported to you that the PPAs were negatively reflected twice in our balance sheet, PPAs normally securing a price on a lower level than market price, accounted for with a negative value. Since the park was accounted for at equity, it was necessary to discount the PPA [16:00] again a second time directly in the equity and, therefore, had to suffer slightly. This PPA valuation for Cabrera was taken out in 2020 due to the full consolidation and improved our equity by €48 million. This will happen again or similarly with Talayuela.
Ladies and gentlemen, as you might now that in these days it is very important to be certified. The most important certification we have, one of the most important ones, is our Investment Grade Issuer Rating from Scope, which was confirmed in October 2020. We've used our strong creditworthiness and it helped us to realise that there is a positive impact on our financing conditions as I will line out on later pages. In addition to that, it is [17:00] very
important to show and explain the market that we are compliant with all ESG regulations. This is something my colleague Dierk Paskert will be happy to explain to you on one of the further pages.
2020 was a very busy year for us by operational growth of the Company and construction. On the financing side, we were not as active externally. As you might recall, our >> Fast Forward 2025 Programme, relies on the strength of our balance sheet. We are not intending to raise equity to finance our ordinary growth. But we try to align the investments and all our financing year on year. In 2019 we raised sufficient cash, and we were able to release more [18:00] cash from our parks which were tracked there on the accounts in 2020. That allowed us to finance our growth of 2020 and, therefore, there was not such a need in 2020 to go to the market and ask for some debt. With all of this said, this was, timing-wise, very positively for us. Due to COVID-19 and the risk expectations the banks have seen in the market, the interest rate margins increased somewhat and therefore we did not suffer under that. We got all our financing done cheaply before the COVID-19 crisis hit the market.
Ladies and gentlemen, in the past and in these days, we talk a lot about weather adjustment. Honestly said, from my point of view, it is [19:00] extremely helpful to understand why there are some fluctuations in the figures in some years. Our business is extremely stable and only the radiation or the wind performance has a volatile impact on our figures which management cannot forecast. We only can forecast for standard weather. But as a matter of fact, we have to admit that it becomes more and more difficult, and the figures are not as clear for the time being. As of 2020, we could clearly define the weather, in fact, but that won't be possible in the future. Why? Firstly, in the markets, there are a growing number of PPA projects, and PPA projects cannot usually be 100% hedged with PPA. Some of them can, others cannot. It is a different world compared to a feed-in-tariff in Germany. In a feed-in- tariff in Germany, [20:00] any kilowatt hour is reimbursed by a fixed rate, and therefore if the sun shines one day longer, one hour longer, and more kilowatt hours come out of the market, then this will be remunerated with that fixed rate. Then, clearly, it can be stated that there is a positive meteorological impact on the revenue. But, if you have a PPA project and you cannot hedge it 100%, then you have a certain unhedged position. Encavis limited its own exposure to such non-hedged revenues to a maximum of 3% in 2019 and 5% in 2020. Now, as the Cabrera capacity is fully hedged for the year 2021, despite the Amazon contract, we have a short-term[21:00] hedging of the remaining energy production for the whole year pay as produced again, so no risk to our Company. But in Talayuela, with a different PPA contract, just 75% of the production volume is hedged. It means if there is more radiation in Spain, then it is very likely that the kilowatt production of Talayuela is increasing, but at the same time, there is more electricity in the market, not only from our project, but most likely from other projects as well. That, since this energy is a commodity, has a negative impact on energy pricing, and that means that the additional energy has a lower price. This does not only apply then to the additional energy, but it applies to the 25% standard energy of Talayuela as well. So, it is hard for us to define what is the price in fact and what is the meteorological effect, [22:00] and I think part of the meteorological effect is related to price effect as well. That applies to the feed-in-tariff schemes. So, there are more feed-in-tariffs schemes where a certain volume of energy per annum is subsidised and not the total output, like the SE plant in the Netherlands. Here we do have a certain output which in the end is the standard energy output, but if there is an excess output due to higher radiation, then this has to be sold to the stock market. So, additional electricity does not here mean necessarily additional revenue, because in that moment in time, also there are parts of the Netherlands who use additional electricity and that competes with lower prices for the sale. Having said that, it will become more and more difficult specifically if you have in mind that [23:00] we
are in ten different jurisdictions with several different price zones, and that will make it more
and more critical really to say what the revenue impact of additional radiation might have
been. Again, our guidance of the fiscal year 2021 is standard weather, and we can tell you
whether we produced more or less within our Group, but again, we won't be able to tell you
that revenues or profit line in future.
Ladies and gentlemen, based on today's portfolio, we published a guidance for fiscal year
2021 of more than €320 million, and with that exceeding the €300 million threshold for the
first time, which is almost 10% up compared to previous year. The operating EBITDA of €240
million [24:00], is an additional 7% compared to previous year. Please be aware that for 2020
this was more or less standard weather, so therefore these figures were comparable. The
operating EBIT shall increase to more than €138 million, and this is up 4%. Operating cash
flow is expected to be above €210 million which will be more or less on the level of the year
2020. Please have in mind that, with the reimbursement of the capital gains tax in 2020, we
had a one up of €8 million, so in total it is an increase in the operating cash flow without any
extraordinary effects here. The operating EPS will increase from 43 cents to 46 cents, fully in
line with our >> Fast Forward 2025 growth strategy, [25:00] leading to the 70 cents in 2025.
Ladies and gentlemen, if we do compare the guidance of the 2020 with our actual figures
2020 and the guidance 2021 with your consensus, then we have to see that the 2020 figures
fully fulfil your expectations. Slightly in EBIT, there is a slight deviation of approximately €1
million, but all other figures in 2020 surpassed the average consensus we have published on
Monday. With the fiscal year 2021, from my point of view, we are more or less in the same
range, so I want to underline [26:00] that the guidance which we have published is above
€320 million in revenue, it is above €240 million for the EBITDA, above €138 million for the
EBIT, so therefore, covering the range which the consensus average shows us as well.
Ladies and gentlemen, let us come to the guidance of the respective business segments. The
solar part, here we expect to reach revenues of more than €220 million and operating EBITDA
of more than €176 million, keeping up the margin at approximately 80% which we already
enjoyed in the past. Here, we do see the impact of the Spanish projects, which both will
contribute fully to the whole year. The Technical Services here will contribute the same
[27:00] revenue as we enjoyed in the past, but the operating EBITDA will be without the
extraordinary effect which we enjoyed in 2020. The wind farms will have a slightly higher
guidance figures compared to the 2020 figures with some minority sales included here as
well. And the Asset Management is planning to reach again the extraordinary level that was
possible in 2020 and to go ahead with their very successful investment strategy.
Ladies and gentlemen, that were short and crispy in a nutshell, our 2020 figures and our
guidance 2021. I will be happy to answer your questions after listening to my colleague,
Dierk Paskert, who will have a look into the future of energy, which is now. [28:00]
Yeah, thank you, Christoph very much for that presentation, for these robust and very well in
line numbers. Also, welcome from my side to the audience, I am now happy to share just a
couple of minutes with you at first on our ESG report which we've just published now and I
can only urge you to really have a look at it because it gives a further insight into Encavis, not
just on our numbers which you already know, but also with regard to how we manage our
business and that there are, besides the numbers, also other ambitious goals which we are