Encavis : Transcripts Conf. Calls

Encavis AG

Transcript Conference Call Sustainability Report 2021 and Consolidated Financial Statements FY 2021

March 30st, 2022 | 08:30 CEST

Speakers:

• Dr Dierk Paskert (CEO)

• Dr Christoph Husmann (CFO)

• M Moderator

• CH Dr Christoph Husmann

• DP Dr Dierk Paskert

• EC Emmanuel Chevalier

• PC Peter Crampton

• IK Igor Kim

• TS Teresa Schinwald

• JB Jan Bauer

• MT Martin Tessier

• RK Roland Könen

• M Good morning, Ladies and Gentlemen, and welcome to the consolidated financial statements 2021 of Encavis AG. 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 now turn the floor over to your host, Mr. Christoph Husmann.

• CH Yeah. Good morning. Thank you very much for dialing-in and taking the time in these turbulent times. We released yesterday our financial figures and this morning our sustainability report. And for that I hand over first to my colleague, Dierk Paskert. Dierk, your turn please.

• DP Yeah. Thanks. Everybody. And welcome also from my side, Dierk Paskert, CEO of Encavis. As most of you are interested in our financials of FY 2021 and also prospects for current 2022. I would like to welcome you today [1:00] to our call by highlighting only a few achievements of our sustainability programme in 2021. Sustainability is part of our DNA. As one of the major independent power producers in Europe, with currently more than three gigawatts installed capacity, we play an important role in making an historic transformation happen. A transformation towards a world that is environmentally sound, socially inclusive and better governed. Our holistic sustainability approach has basically four pillars, strategy and governance, economy, social and environment. I will talk you only briefly through some of the topics and for those of you who are interested in more details, I would like to make reference to our digital sustainability report [2:00] just launched on our website in detail, which were the highlights and point of actions in 2021.

  In strategy and governance, we've improved our MSCI ESG rating with our final goal of AAA by 2025 and came one step closer in 2021. We formed a sustainability council. We improved visibility of the whistle blowing system. We introduced a compliance management system with KYC audit and code of conduct. And we also introduced a business partner code of conduct for all our partners who would like to do business with us in the future.

  With regards to economic responsibility, we implemented [3:00] in 2021 first time our overall digital monitoring system of all our parks. This will be the basis for further measures in 2022 which will be related to performance analysis of all our individual parts and identifying the main

reasons for performance losses and define suitable measures to solve them in the future. This is an important step for our operations that we are then able really to detect all defaults in all our individual parks and react spontaneously.

With regards to social responsibility, we implemented in 2021 the starting from July, 2021 as part of a long-term corporation, a support programme for the charitable [4:00] and organization Sopowerful. By connecting people to PD electricity production, we bring a push to health and wellbeing to some of the poorest regions of this world in Sub-Sahara Africa, namely in Malawi. Regarding environmental responsibility, we first time published our carbon footprint for scope one, two and three across our value chain and we set also by that the basis for further improvements in 2022 and beyond. We have been able to really realize our carbon footprint goals and measure us also with regard to these goals in the future. As mentioned, these are only a few highlights of our sustainability programme in 2021. [5:00] Before I hand over to my dear colleague, Christoph Husmann, our CFO, please allow me to stretch that reaching our financial goals, which for a long time has been the ultimate objective of this Group is not enough anymore. Only if we achieve these goals in a sustainable and safe environment, we will be fully satisfied as this sets the basis for our license to operate from an environmental, social, and also economic perspective. Thanks. Thank you all. And again, for those who are interested in more details, please refer to our website where we launch our digital sustainability report.

Christoph, with that having said, I would like to hand over to you. And Christoph will guide you now through our financials 2021. And I will be also back in Q and A and answer all your questions. [6:00] Thank you.

CH

Okay. Thank you very much, Dierk for the introduction and thank you very much for your introduction into the sustainability we brought. Ladies and gentlemen, good morning again, Christoph Husmann, CFO of the Group. Warm welcome from my side as well.

Now, let's talk about the financials we've had 2021 and the guidance for 2022. Well, we published last night our full year report, 2021, and our KPIs, which you already know from our ad-hoc-news from March 15th. We announced today more precise figures than we did in the ad-hoc-news where we had more rough figures because we were still in the auditing process. In the end, our exact figures, which we published last night were slightly above [7:00] the figures which we announced in our ad-hoc-news. We came out of the fiscal year, 2021 with 333 million euro of revenue to our 256 million euro of EBITDA, which means a 77% EBITDA margin and a 45% EBIT margin with 149 million euro of EBIT and EPS of 48 eurocents. All these P&L figures are aligned with the growth rates of 12 to 14%, which is a result of 435 megawatt of capacities connected to the grid in 2021 and the full-year effect of parks with a capacity of 241 megawatts connected to the grid in 2020. The only figure which is increasing slightly higher is the operating cashflow with 18% [8:00] growth rate, closing the gap to the EBITDA. As you might recall, in the past, it is that EBITDA and operating cash developed in parallel, but always the operating cashflow with some kind of discount to the EBITDA. The reason for that is structurally that we were dominated by feet-in tariffs where the kilowatt of production was seen on the inverter at month's end, and then remuneration came in the following month or even two months later from the grid operator. Now, when that was at year-end, obviously there was some lack and due to the ongoing growth of the Company, there was always a negative lack. That the cashflow was always lacking behind one or two steps, but now we have a structural change. Now we have more and more PPA parks in our portfolio. These PPAs are usually financial PPAs. [9:00] Where we sell the electricity in the market on spot market price, and then at month end, we see how much electricity was produced and sold to the market, and then the difference price to the agreed PPA price has to be remunerated to the offtaker in case that the market price is above the PPA price, or we receive a remuneration if the market price is below the PPA price. In this current situation with high electricity prices, our revenues are increasing, but for the PPA parks, it is that we have then the cash-in, but then later the cash-out for the compensation under the PPA. You see that effect byan increase of our trade payables by 12 million euro in our P&L increasing to now 50 million compared to 3 million last year. If we then do compare our figures with the guidance, then we see that we have a single digit improvement of our figures for all P&L figures, not for the operating cashflow. In the operating cashflow, we have a 20% increase to 252 million euro compared to a guidance of 210 million euro. And this is exactly the effect I just explained to you. What was happening in the past year and why we exceeded our guidance in that way can be seen as best when we have a look into the single quarters. Until the end, just as we recall as until the end of the third quarter, we announced on our conference call and in our interim report for the third quarter that we suffered from underperforming meteorology, specifically in the existing parks in the past years. So, in our park portfolio, without new acquisitions, the meteorology was 13% down in our existing parks until the end of Q3. And these parks carry a higher remuneration usually than the younger parks per kilowatt hour. And now here, we had a lack of 200 gigawatt hours of energy production in our existing portfolio. In the revenue due to the enormous production of our new parks in kilowatt hours, combined with the lower remuneration, this could offset that negative impact on the existing portfolio by the new acquisitions in the revenue, but that these new parks came in with pretty much similar fixed costs. There was a burden to the EBITDA and the EBIT. That did not grow 11% like the revenue, but 8% or 2% only as the EPS suffered by minus 12% compared to previous year. But this picture turned automatically in Q4, because here we have in a nice combination of firstly, more gigawatt hour production than the fourth quarter 2020 in the existing portfolio, again, carrying the higher remuneration per kilowatt hour. And in addition to that strong production in our new parks and within the new parks with the PPAs, as you might recall, there's some certain percentage of merchant parks and they enjoyed the higher merchant prices at the same time. And this brought us into the position to realise revenue in the fourth quarter, 27% up compared to previous year, 39% higher EBITDA, 79% higher EBIT and 40% higher operating cashflow. And just to say, once in my life, I like it 1,000% more of EPS contribution compared to Q4/2020.

Let's have a short look into our balance sheet. In our balance sheet, we see growth of our total assets of 14% to now 3.2 billion euro. Here we do see growth in the long-term assets, which is the full consolidation of the park Talayuela and the other new acquisitions which we had in the previous year to partially offset by the ongoing regular depreciation of our existing asset portfolio. The strongest growth rate we see here is in liquid funds, which is growth by plus 93% cash from hybrid convertible, which we issued last year. This high liquid position, in addition to our debt, which we raised in the past year, gives us a very comfortable position this year to go for our growth rate for our investments we want to do this year. On the equity and liability side, we see a strong increase of the equity position by 42% reflecting the issuance of the new hybrid convertible, and then a pretty flat development of the other positions.

Let's have a look into the segments. With the now full-year effect of La Cabrera and with the connection to the grid of Talayuela Park in Spain, there is a strong world specifically in solar. Solar now makes up 70% of our portfolio, 23% wind farms, and 6% the asset management. When we now go into the details, I have specific other, but before we go into the details of the respective segments as a comparison to the guidance, it is that all segments fulfil their specific guidance. Only the wind farms due to the lack of wind last year did not perform properly. Let's go to the respective segments.

In the PV segment we've seen 18% growth of the revenues and a 19% growth of EBITDA and EBIT. The margins could be improved slightly. These key figures are mainly driven by the Spanish parks. Please have in mind that we have 500 megawatts of additional capacities connected to the grid. And the difference in the revenue is 99% due to these parks. In the existing portfolios, we have some compensational effect leading to a revenue change of almost nill. And this is on the one hand side we have in total electricity production, which was 6% below 2020 in the existing portfolio, but we enjoy here on some parks, increased market prices, and specifically in the UK, which compensate for that electricity loss.

In the wind segment, we do have less energy production of 8%, despite our growth in acquisitions, which is therefore compensating this reduced energy production. In fact, we lost in the existing portfolio almost 5 million euro of revenue due to this very low electricity production, but with the comparison of the production and the revenue decline, you see that obviously specifically in the wind, there is some pricing effect included, and that is mainly in the German wind portfolio where the feed-in tariff is a floor price. So, where we enjoy some of the upsides from current higher electricity prices, as well as in our Finnish portfolio partners making here, we have a fully merchant park. And this development is offset by the new acquisitions, adding 5 million euro of additional revenue. As you might recall, at the end of the fourth quarter, we sold a majority position in our Austrian portfolio. Here, we could realise 5.9 million euro of profit.

Our service department, our service segment does not look very convincing from the figures because they are small, but small is beautiful. Here we realised a lot of synergies for our solar portfolio specifically, but we had higher numbers in 2020, but there we had a result of a positive EBITDA contribution of 2.9 million euro from the merger of our internal technical service with Stern Energy. And Stern Energy is a strategic investment for us. And this integration will go on over the time and will contribute future more to this segment.

Having a look into the asset management, in the asset management we have a substantial growth of almost 20% of 3.4 million euro in 2021, based on record high investments for the funds in the capacity of 513 megawatt in 2021 compared to 320 megawatts in the previous year. Please note that in the revenue, you not only see the one-off payments for new investments and newly structured funds, but you see the revenue of the operational business, which is an ongoing business for the existing portfolio for the asset management and operational management of the existing portfolio as well. The most critical part of such a funds business is not to cash in the one-offs for investments and structuring of funds, but to organise the operations and asset management in a way that this makes profit just purely out of the payments from the funds for operations and management. And this is critical but the breakeven of operational asset management is by far reached. So, the operations itself, even if we would not have anyone asked for investments would be profitable.

The headquarters here we have not a lot to explain the operating EBITDA is slightly better, and we are in the end on the cost level of 2020. Although we have a strong growth of the Company headquarters manage the cost on the same level.

In March 2017, we announced the dividend strategy for five years ahead, which is quite unusual in the market. We said that based on the dividend of 2016 of 20 eurocents, we will propose a 30 eurocents dividend for the fiscal year 2021 on our annual shareholder meeting and step by step we realised that dividend policy in a two cent step every year reaching 30 eurocents this year, which we will suggest to the annual shareholder meeting compared to the 48 eurocents operating EPS, it is a 63% pay-out ratio. In the past year, you know that we were rated by a lot of different rating agencies. First of all, the ESG ratings. Here, we do have an A -level MSCI rating and prime labelled by ISS ESG. And since 2019, we are rated by Scope Ratings with an investment grade rating due to our risk adjusted business model, our regional diversification, and our high proportion of nonrecourse financing, which makes our business model to be so proof and low risk that although we have a structural subordination of our financing, it is seen to be investment grade rate. And this rating was emphasised in 2020 and 2021 again.

Now, let's have a look on the future on our guidance for 2022. Well, first of all, let's talk about what is included in this guidance. First of all, the guidance as usual is based on standard assumptions. We do not forecast better or worse weather that is not what we can do, but we can assume standard weather assumption and as a result out of that, the kilowatt hour production. The guidance includes all latest acquisitions. And as you might recall, specifically in the fourth quarter, yet, even in December, we acquired a lot of parks and some of them were connected to the grid at year-end and some in the first weeks of this year, which are these ones here lined outin total 240 megawatts of newly acquired parks. Out of these parks when they were connected to the grid last year, we will have a full year effect this year, despite some smaller impact on last year's figures. And we will have newly acquired parks, which will add to these in total amount as I have shown here, 240 megawatts. The 500 megawatts, which we announced to be acquired this year are not included in these figures. We have to assume that most of these parks won't be connected to the grid this year. And if they are connected to the grid this year, it will be so late in the year that they will not contribute and will not have major impact on our figures. Around 96% of our guided power revenue are fixed or hedged already. So, please be aware that within the 380 million euros of revenue, 20 million euros are from asset management. Out of the 360 million euros power revenue 96% are hedged. We did not include any impact from the war in Ukraine and the currently extremely high volatility in the power prices in our forecast. These power prices are sometimes jumping up on the average of the whole year by 30% within, for instance, eight days between March 3rd and March 11th, but then down by 15% on average of the year until then within four days until March 15th. The volatility is extremely high. And since we do not want to impose any risk to our guidance, we exclude this high volatility. If in the core of this year, we are able to realise and participate from some of these high-power prices, we will adjust our guidance accordingly. But what we did include in our guidance is that in Spain, Italy, currently there are new laws with some limitations of power prices. What we did not include in our guidance is the last Friday agreed specific Spanish new law, which will be released in the next weeks on an even lower power price. There is some smaller, but this is very limited since the most part of our Spanish merchant park is already hedged. With all that said, and all these assumptions, we are guiding more than 380 million euros of revenue for the fiscal year 2022, which is 14% more than we realised in 2021, we will have double-digit growth rate for the operating EBITDA with 285 million and EBIT of 166 million. With the operating cashflow with the spot market realisation and the compensation payments to the PPA. This is pretty hard to forecast, but since we do not include the high spot prices due to the Ukrainian war then we did not include so much trade payables. So, the operating cashflow is only 10 million or 3% above the very high-level of 2021 operating cashflow. The EPS is expected to grow to 51 eurocents compared to 48 eurocents in 2021, which is 6% up. And we assume here an energy production of more than three terawatt hours. If we compare our forecast with the analysts' consensus, then we do see that with the revenue, EBITDA and with the operating cashflow, we are exceeding even the most maximum extreme consensus assumptions of the analyst colleagues. And with the EBIT, we are very close to this maximum assumption. With the operating EPS, we are exactly on average of that consensus.

If we then have a look into the business segments, it is that with the new acquisitions specifically in Denmark and in the Netherlands, the solar parks will grow in its percentage-wise importance for the whole Group from 70% to 73% now having 276 million euro of revenue guided for 2022. We will keep up our operating EBITDA margin on above 80% and will reach EBITDA of more than 223 million euro. And keep up our operating EBIT margin on almost 50% to 132 million EBIT. The technical services assumed to develop flat again, it is only for way with synergies, not for profitability reasons. In the wind parks, we assumed due to the increasing importance of solar parks, a slight decrease of that position. And with keeping up our high margins. In the asset management, we had a stretch last year, since there was an expected one of the income not realised which was compensated out of new investments. This was a stretch. Now, the organisation has to be developed in a way to reach that level, to get this fantastic performance of the past year done in a regular way. So, therefore we do not expect any growth here this year.

Now, after finalising our five-year dividend policy, you might expect, or you will expect something new for the future. Well, we will decide on our future dividend payment year-on-year. The dividend, which we will pay in future will be competitive, and it will be appropriate in the market.