Good morning, ladies and gentlemen, and welcome to the Soltec Power Holdings' nine-month 2023 conference call. As always, all documents were released on our website today before market opening. My name is Meritxell Pérez, Head of Investor Relations, and I'm here with José Núñez. José will take you through the key developments of the year and review the financial information. After that, we will have a Q&A session. Please, José, go ahead.
Thank you very much, Meritxell, and good morning, everyone. Trading update we are sharing today takes place just a few weeks after the release of our H1 2023 financial results, and therefore, the main trends related to the evolution of our businesses have already been anticipated. On slide four, you can see how we have experienced an improvement in the business during Q3 2023, with a clear recovery in our industrial division. Consolidated revenues reached EUR 304.1 million, with a positive EBITDA of EUR 0.6 million, driven by an EBITDA margin of positive 8.6% in the industrial division. If you look at the operational figures in our industrial division, there are good news and better visibility.
Our backlog as of September 30th, which represents contracts signed but not yet executed, was EUR 329 million, and our pipeline stood at EUR 16.9 billion. Based on the visibility we currently have, we are on track to deliver on our commitments. It is true that this year has been particularly seasonal, very backloaded, but as we have said several times, we believe we will be able to deliver our guidance. The business environment has improved during 2023. Supply chain is no longer an issue. The prices of logistics and raw materials continue their downward trend, and there is good availability of solar panels in the regions where we operate. The late release of the IRA guidelines, together with the administrative milestone in Spain, have delayed the ready-to-build status of some projects in Spain and the U.S.A.
Despite the current environment, we are not seeing significant delays in the execution of our backlog, at least compared to our estimates. Although the increase in financing cost is a reality, it's not a concern when looking at the internal rate of returns of projects, due to the decreasing CapEx of the projects with prices of materials going down, panels, trackers, et cetera. Looking at the development division, I would like to point out that we have rotated, we have sold 433 MW until the end of September 2023, and we have recently received a new construction authorization for 200 MW in Spain for a project co-developed with TotalEnergies. Regarding Soltec Assets, we are proud to announce that we have reached out an agreement with Triodos Bank for the financing of 5.6 MW in Spain.
It amounts to EUR 3.6 million, together with EUR 550,000 from local communities. It's a very unique agreement, combining long-term senior debt with financing coming from local communities, and we expect to replicate it in other projects in the near future. This financing agreement, which by the way, has been closed at a very competitive cost, shows that our IPP business and our capabilities are already a reality when looking at differential financing agreements. On slide six, we can see that we supplied 1.6 GW of solar trackers in the first nine months of 2023. We have a very good and strategic geographical diversification with our three divisions, which, as you know, generates key business intelligence for the company and a good number of synergies between them.
We currently have two production facilities in Murcia, Spain, and also in Salvador, in Brazil, and another one will be built in Teruel, Spain, thanks to a cooperation agreement signed with Enel Green Power. As a reminder, this agreement also includes the supply of trackers for more than 1 GW of projects. We have also four logistic centers, one in Murcia, Spain, another one in Texas, United States, one in Salvador, in Brazil, and another one in Antofagasta, in Chile. As announced in Q2 2023, we continue to strengthen our competitive position in the United States. We're seeing good volumes coming from that particular region that improve our positioning in that market. In addition, as we already explained, we have new master supply agreements with key suppliers to secure the supply chain in the region and improve our competitiveness even further.
On slide seven , you can see the good evolution of our tracker supply contracts signed during the year. We are seeing strong volumes coming from all the regions. Also, in the first 14 days of November, we have also signed 720 MW. This is a clear reflection of the good evolution of the business. As a reminder, the contracts we sign go straight to the backlog and usually start executed shortly thereafter. Therefore, we expect that a significant level of revenue recognition related to these contracts will be registered over the coming weeks, right before the end of the year. As you can see on slide eight, the backlog of the industrial division has been growing throughout the year and reached EUR 329 million at the end of September.
In addition, we have signed new contracts worth EUR 117 million in October and November, and we have more than 1.5 GW under negotiation. We continue to grow our international business and gain traction in new regions. A couple of examples can be seen with the new regions, we're including in our pipeline. The pipeline, by the way, which reflects contracts that have not been yet signed, but have a certain probability of success, reached EUR 16.9 billion in September, reflecting strong demand for our products globally. As you can see in slide 10, our platform of assets under development is mature, diversified, and balanced. We are proud to have built a quality platform, 14 GW, in key solar markets in record time. It is also particularly important to highlight the relevance of our co-development partnerships with market leaders.
Soltec, under those agreements, will remain as the developer of the projects, ensuring that the portfolio continues to progress towards Ready-to-Build status. The industrial know-how is included in the agreement to take advantage of our vertical integration. Over the last months, we have obtained environmental and administrative permits for over 500 MW in Spain, and we have recently received construction authorization for 200 MW in Spain, which will start construction in early 2024. On slide 12, we can see how we continue to progress towards achieving our 2025 goal for our asset management division, and therefore increasing our IPP business.
As of September, we already have 303 MW under Soltec Assets, 230 MW in operation, 25 MW under construction, and a further 48 MW that have been transferred to the division from Soltec Development, and will start construction in the coming months. We aim to conclude PPAs for all of our projects. Hedging against volatile merchant prices through PPAs is part of our strategy. We have closed four deals in Spain and Brazil, and this is what we should expect to see for the rest of the portfolio. We close our agreements with investment-grade companies with a fixed price long- term, and in some cases, as in Brazil, indexed to inflation. On slide 17, you can have a brief summary of the first nine months of 2023 consolidated financial results for Soltec Power Holdings.
We are focused on two key metrics: revenues and adjusted EBITDA. Consolidated revenues reached EUR 304.1 million, and adjusted EBITDA at the end of the first nine months of the year was positive EUR 0.6 million. Before we go any further, I would like to remind you that consolidated adjusted EBITDA includes not only the EBITDA generated by our various businesses, but also corporate expenses incurred by Soltec Power Holdings and the consolidation adjustments. On slide 18, we can see that revenues in our industrial divisions reached EUR 116.1 million in the third quarter, and EUR 291 million in the first nine months of the year. Adjusted EBITDA for the industrial division was positive EUR 10 million at the end of the third quarter, and positive EUR 2.4 million at the end of September.
The EBITDA margin was positive 8.6%. This is a clear change of the trend we've seen we've been seeing since the beginning of the year, as we predicted in our recent call in September. It is also worth noting that gross margins remain very strong and our core business remains very healthy. Looking ahead, the fourth quarter is expected to be even stronger in terms of both revenues, based on the backlog and pipeline we already have, and in terms of margins, and we will be able to reach our commitments. On the next slide, slide 19, we have the key financial metrics for our project development business. We have a negative EBITDA of EUR 0.5 million in the third quarter.
We also have a pipeline of 14 GW under development, and we were able to rotate 432.5 MW during the quarter, both internally and to third- parties. Also, we have M&A processes underway in geographies such as Italy, Spain, and Colombia, where, as you know, we have already announced a deal where we have transferred 130 MW in very early stage of development. On slide 20, we can see that revenues for Soltec Assets at the end of the third quarter reached EUR 7.6 million, while adjusted EBITDA was EUR 5.5 million.
As you know, in the first quarter of the year, we were able to raise up to EUR 100 million to fund the growth of the division, and yesterday, we announced a new financing agreement with Triodos Bank for 5.6 MW in Spain, under a very unique framework, combining senior debt with financing for local communities. As we have explained, our guidance is achievable. To wrap things up, I would like to make several comments about the evolution of our businesses over the last quarter. We have seen a clear turning point during the third quarter in our industrial division, which will be reinforced in the fourth quarter across all the divisions. Our visibility is good. Volumes are good in all the regions. We have secured unique financing agreements.
Our IPP business has already reached 303 MW, of which 72 MW are co-developed with TotalEnergies. It is already a reality that is moving inexorably towards our 2025 targets. We have rotated 433 MW in our development division, and there will be more to come before the end of the year. 2023 is a very backloaded year, but good news are coming, and the Q3 results are a clear reflection of how the business is improving towards achieving our goals. Thank you.
Thank you very much, José. We can move now to the Q&A session. We've got the first set of questions coming from Ignacio Domenech from JB Capital. First one about the industrial division: Which was the gross margin as of nine months 2023 in the industrial division? Assuming this is largely in line with margins seen in the first half of the year, should we expect higher EBITDA margins in the fourth quarter? Could you give us a reference of margins for the fourth quarter, 2023?
Okay, good morning, thank you, Ignacio, for the question. Well, basically, gross margin for the first nine months of the year, if we're talking about tracker supply, was over 20%. The gross margin, as you know, is not something we typically provide to the market, but what we can tell you is that at the end of the year, EBITDA margin should be between 6% and 7%, in line with our expectations for the year.
Second one: You expect 1.5 GW of additional contracts by year-end, and you've got—and you have increased significantly your backlog. Given this strong visibility, what is your best estimate for tracker sales in the fourth quarter? Do you expect 1.8 GW of tracker sales for the fourth quarter of the year?
Okay, what we expect for the full year is in line with what we already provided in previous presentations, is to have between 3 and 4 GW coming from tracker supply, okay? That basically will provide us with sales, with revenues between EUR 600 million and EUR 700 million by the end of the year.
There is another one about the development division. Are you confident you will sell assets in the development division during this year, 2023?
Well, I would say we've already sold some assets. We've transferred 433 MW. It's true that 303 MW, actually, to be more precise, out of those 433 MW are coming from internal projects. But despite that, we still sold 130 MW to a third- party in Colombia. Yeah, I mean, what we expect to still have additional rotations before the year-end, and by obviously materializing or monetizing those assets, at the end of the day, we'll be able to achieve our guidance for the year for Soltec Development.
You mentioned co-development with Aquila and ACEA in Italy, but 1.3 GW are expected to reach RTB status in 2024. So should we expect a delay in project sales to 2024?
Not at all. I mean, we will provide additional visibility in, for our, 2024 guidance, obviously, at the beginning of next year. But I can tell you that so far, our expectations for 2024 in terms of asset rotation, in terms of asset sales, are in line with what we have already provided to the market.
Regarding the asset management division, contribution from projects in Brazil still remains weak. Can you elaborate on situation in Brazil, and how should we think on the contribution of these assets in upcoming months?
Okay, our expectation is to meet our guidance. If you remember, our guidance was, in terms of revenues, to be between EUR 12 million and EUR 17 million, and in terms of EBITDA margin, to be between 70% and 75%. So, we are on track to achieve that guidance. What's going on regarding those assets in Brazil is that we are still fine-tuning the plans, the two plans, the two projects, we started operating, at the end of last year and at the beginning of this year. But in any case, what we believe, as I said before, is that the guidance will be achieved at the end of the year.
We've got questions coming from Virginia Sanz de Madrid , Santander. First one: On your guidance, you need to book over EUR 300 million in revenues in Q4 in the industrial segment. Do you believe this is achievable from an execution point of view?
Good morning. Thank you. Thanks, Virginia. Yeah, obviously. I mean, in addition to the backlog we already have at the end of September, which, as you know, is EUR 329 million, we're also considering the additional backlog that's been generated in October and November. And obviously, we haven't completed November yet, there are still a few days left. And we're also negotiating 1.5 GW of contracts as we speak. It is very clear that as we get closer to the end of the year, it will be more difficult to be able to book revenue from these new contracts. But, obviously, we don't have to fully execute them to book revenue.
So, as soon as we start delivering trackers or supplying some of the construction services we typically provide, we'll be generating revenues that will be booked in our P&L. So yes, I mean, we are fully aligned with our objectives. In fact, if you look at what we've done in previous years, it's true that we haven't reached EUR 300 million in just one quarter, but if you look at 2021, for instance, the figure was EUR 223 million, which is a little bit lower than the figure that we're gonna have to achieve at the end of the year. But still, percentage-wise, was much larger in terms of total revenues for the year than the figure that we need to achieve this year in 2023. 2023...
2022, sorry, was a little bit more linear, less seasonal, but still, the figure was quite, quite high, over EUR 150 million, in fact, EUR 163 million. So yes, I mean, we're confident. We have the backlog, we have the contracts, we're executing them, and, and, and right now we are more than in line with our objectives.
On the development side, you guide to EBITDA of EUR 25 million-EUR 35 million. How do you plan to achieve that? How much of that EBITDA disappears then in intragroup consolidation?
Well, actually, so far, if we look at the numbers at the end of September, the majority of it will disappear in consolidation because it's related to the 303 MW we have rotated internally from Soltec Development to Soltec Assets. But you have to keep in mind that operating costs, OpEx, at the end of the day, for this particular division, is relatively low. So as soon as we start rotating assets in the last quarter of the year, EBITDA will increase very quickly. So yeah, we are confident that we're gonna be able to achieve our target for 2023.
Which is your net debt as of nine months, 2023, where do you expect to finish with the net debt at year-end?
Okay. Net financial debt was not disclosed in the presentation, but I can give it to you. I mean, at the end of the first nine months of the year, it was EUR 217.6 million for the whole group, which is a little bit lower than the figure we had at the end of H1 2023. This is because, essentially, gross financial debt increased a little bit because we basically made a new withdrawal from the Incus financing facility, a small one, EUR 5 million in September. But basically, cash and cash equivalents have increased, and are obviously higher than the figure that we had at the end of the first half of the year.
So more or less in line, a little bit lower, but more or less in line with what we had at the end of the first half. But in any case, our expectations for the end of the year remain the same. So we are expecting net financial debt to be between EUR 250 million and EUR 260 million by year-end.
Do the new contracts signed in October and November have additional services, or is it just tracker supply?
No, some of them do have additional services, but percentage-wise, it's a very small portion of the total. Okay? So we can say, as we explained during our H1 webcast, that we're gonna be reducing percentage-wise, the part of our revenues coming from services, in comparison with, obviously, the revenues that will be generated by our tracker supply activities.
We've got more questions on the platform coming from Richard Dawson from Berenberg. What is the outlook for tracker sales in 2024?
Good morning, Richard. Well, basically, the outlook that we currently have for 2024 in terms of tracker supply is essentially the one we provided during the Capital Markets Day presentation we had back at the middle of 2022, and it's a figure that is between 3.5 and 4.5 GW for the full year. Obviously, we will provide more detail or more specific information about this particular topic when we provide the guidance for 2024 at the beginning of next year.
When do you expect the EUR 5.3 billion of pipeline orders in the U.S. to start converting into firm orders?
Okay, some of them are already being transformed into a backlog as we speak. I mean, some of the new contracts we've been signing lately are coming from the United States, and as we explained during the presentation, essentially, we're strengthening our position in that particular market. And obviously, we're still probably behind Nextracker and Array, our two main competitors in that particular geography. But slowly but steadily, we are, we're improving our positioning, and obviously, that's good news for us.
What gives you confidence in delivering over EUR 300 million of revenues in the industrial division for Q4 to reach the guidance range?
Okay, this is a question, I guess, similar to the one sent by Virginia before, and the answer, obviously, is more or less the same. I mean, we have enough backlog to be able to achieve that revenue figure. Not only that, but also if you look at previous years, obviously, revenues for the whole year are a little bit different. They were smaller, but we're still seeing significant fourth quarter sales volume coming from our industrial division. As I said before, if you look at 2021, you have EUR 223 million, which was, percentage-wise, over 50% of the total sales for the year.
If you look at 2022, the figure was a little bit smaller, EUR 163 million , but it's still a very significant figure and quite relevant for the fourth quarter. As we explained at the beginning of the year when we provided the guidance, this year is very backloaded. We said, based on what we were seeing in the market back then, regarding the release of the IRA guidelines and what was happening back then in Spain and our expectations for also that particular market, that first half of the year was gonna be relatively low, and second half of the year was gonna be, obviously, more relevant towards achieving our targets. And it's behaving exactly as we expected at the beginning of the year.
There are questions from Roberto Casoni from Otus Capital: Can you be granular on the reasons behind such a recovery on the industrial EBITDA?
Well, I guess this question, and good morning, Roberto, is similar to the one I just answered. Essentially, we didn't have enough sales at the beginning of the year to be able to cover our overhead expenses, and this is something we explained in previous presentations. As volumes have been increasing over time, and also we've had, percentage-wise, more contribution coming from supply... the tracker supply, rather than the construction services, obviously average gross margins and EBITDA margins have increased. So it's a combination of more tracker supply, more volumes, being able to overcome or hedge against the overhead expenses that we have in our company.
Module prices are going down, logistics as well. Which are the price dynamics that you're seeing in the tracker industry right now?
Okay. What we're seeing is that average selling prices, and this is something that was already mentioned in our previous webcast, in that particular case, by Raúl. We're seeing average selling prices in the tracker business going down, okay? This is slowly, but going down in any case. This is the kind of trend that we saw, the global trend that we saw pre-COVID, that was stopped, suspended for a couple of years, and then it has resumed back, this year, in 2023. Regardless of how prices are behaving, and this is something that Raúl explains very well, 'cause a portion or a part of that price reduction is related to the fact that modules are becoming more efficient over time.
At the end of the day, we're selling trackers based on a per euro or per dollar amount by megawatt or by per megawatt or per gigawatt or per watt at the end of the day. So if you have more efficient coming from your modules, the price will seem to be lower, while at the same time remains more or less the same. But in any case, regardless of that particular impact that is being well analyzed by Raúl in previous calls, I would say that the key issue here is not whether average selling prices are going down or up, but how the margins are behaving. And in this particular case, gross margins coming from the tracker supply activity are behaving very well. This is something we've been mentioning in the past.
Logistics are under control, the price of steel is also under control, and therefore, the margins we are able to obtain, the gross margins we are able to obtain on, our tracker business are high, or higher than what they were in previous years. Okay, so I think that's one of the key elements. If you look at the business as a whole, I'm talking about the solar PV industry as a whole, what we're seeing, and we also mentioned this during the webcast, is that, CapEx is going down, definitely. It's true that you also have increasing interest rates, but, CapEx is kind of offsetting the impact coming from higher interest rates. And at the end of the day, IRRs, internal rate of returns, are more or less, the same as we saw before.
We've got the last question from Virginia Sanz de Madrid from Santander: Should we expect, then, a very weak Q1 2024 in the industrial segment, given the fact that you will recognize so much revenues in the fourth quarter of the year 2023?
Not really. I mean, we've always said that this business does have some seasonality. This year has been extremely seasonal. Previous years did show some seasonality, although not as significant as this year. Not necessarily. I mean, the backlog that we currently have, plus the new contracts that we expect to sign before the year end, makes us very positive regarding the first quarter of next year. And obviously, 2024 should be less seasonal than 2023, okay? Based on our current expectations.
Thank you very much, José. There are no more questions on the platform right now, so we can finish Q3 2023 conference call. Thank you all very much, and have a nice day.