Good morning, ladies and gentlemen, and welcome to the Soltec Power Holdings H1 2023 conference call. As always, all documents were released on our website at 8:00 A.M. Our Chairman and CEO, Raúl Morales, and José Núñez are here with me. Raúl will take you through the major developments of the first half of the year and give you an outlook for the coming quarters, and José will review the financial information. After that, we will have a Q&A session. Please, Raúl, go ahead.
Thank you very much, Meritxell, and good morning, everyone. Our earnings announcement today includes a mix of short-term slow evaluation, with H1 showing low volumes of activity impacting revenues, as well as some very positive developments, providing high visibility for the coming quarters, including a number of significant projects won in recent weeks, which will boost our performance in H2 and definitely in 2024. The second quarter of the year saw the same pattern as the first: slow volumes, as we expected, and as we have been telling the market since the beginning of the year. Volumes increased during the year, and right now, our visibility is strong, and we expect a significant increase in volumes, as I will explain a little bit later. There are good news and good volumes ahead. But first, let me give a little, a little more color about the sector.
The market environment for the solar sector is developing favorably. There is no doubt that solar's market potential and cost leadership means it will continue to grow faster than any other power generation technology and lead the global energy transition. From a broader perspective, the global economy is still affected by inflation and high interest rates. In this context, the solar industry is expected to grow despite these economic challenges. As far as solar trackers are concerned, global demand continues to grow. Tracker installation are forecasted to reach 1,000 GW in the period 2023 to 2030. A real challenge for the industry, but a clear reflection of the technology's value proposition compared to fixed installation, increasing revenues when energy prices are higher, early morning and evening, and adding more energy with the same capacity grid.
Geographically, there is a strong demand from developed markets such as Spain or Brazil, but the United States remains the largest solar market in the world, accounting for almost half of the total shipments, excluding China. In terms of our offering and technology, solar trackers are not a commodity, so at Soltec, we broaden our product range to satisfy our clients' needs. Recent product design innovations will drive to higher efficiency and lower costs, increasing our margins. Our software and electronics are designed in-house, increasing the performance of the trackers while allowing product differentiation. In the first half of 2023, we achieved consolidated revenues of EUR 184.5 million and a negative EBITDA of -EUR 10.2 million. Our backlog continued to grow, and as of August, it stood in EUR 412 million.
Normally, projects in the backlog are fully delivered within the next few months. I can also tell you that in September, we have already signed relevant contracts with clients for more than 250 MW in Spain, and more are currently being signed. We have under very advanced negotiation, more than 2 GW of projects in countries where we have local production capabilities, providing us flexibility enough to fulfill our commitments for the year 2023. In terms of relevance, our key markets are Spain. This is our home market, and we expect a strong demand of solar trackers over the next three or four years, at least. In 2023, we have seen a certain postponement in the first half of the year due to the uncertainty related to electoral process that took place during the year and the six-month extension for some administrative milestones.
The United States, we continue to strengthen our competitive position in the United States, one of our core markets, against the backdrop of the Inflation Reduction Act. We have reinforced our teams in the region and adapted our strategy to increase our capacity and shipments in the coming years. We have new master supply agreements with key suppliers to secure the supply chain in the region. We have the people, we have the supply chain, we have the logistics, we have the track record, we have the technology, and we have the will to be a relevant player in the important solar market. I will give you more information in a few slides. Our third key market is Brazil. Despite temporary low energy prices, we are closing relevant projects in the region.
If you look at our development division, at Soltec, we have an integrated platform that develops, builds, and operates solar PV plants in Europe and Latin America. We have a quality, mature, diversified, and balanced portfolio of assets under development. Our portfolio has a low market risk and maintains a healthy exposure to soft versus hard currencies. We have rotated assets that amount to 384 MW during the first half of the year, 254 MW to Soltec Assets, our asset management division, and 130 MW in Colombia, in early stage. Assets in key regions continue to develop at a good pace, and further M&A processes are in the pipeline. We are looking for strategic partners to share the development process, as we have successfully done with TotalEnergies, Aquila Capital, or Acea.
There will be more news on these processes in the coming quarters. I'm also pleased to announce that we have signed another PPA for five plants in Spain, amounting to 294.4 MW with a Tier 1 off-taker, which guarantees long-term prices with excellent conditions. In total, we have 260 MW guaranteed under PPA, with four deals, four deals successfully completed in Spain and Brazil. Our PPA strategy hedges the company against volatile merchant prices. As you know, we are already an IPP. We continue to make progress in our asset management division. We currently have 230 MW in operation and 25 MW under construction, which I will talk about later, and we expect to reach 1 GW of projects in operation or under construction by 2025.
The company has changed a lot since the IPO, and although the share price does not yet reflect the value of our three divisions, I firmly believe that vertical integration is at the right pace and the share price will reflect that. We supplied 1 GW of solar trackers in H1 2023, and as you can see on the slide, we have an excellent geographical diversification with our three divisions. On the slide, you can just see our main regions and the trackers supplied in H1, but we have a track record of more than 70 GW. We deliver trackers from Australia to Africa. We feel very comfortable competing outside our home market.
We currently have two production facilities in Murcia, Spain, and in Salvador de Bahia, Brazil, another one that will be built in Teruel, Spain, thanks to a cooperation agreement we signed with Enel Green Power. As a reminder, this agreement also includes the supply of trackers for more than 1 GW of projects. We also have four logistics centers in Murcia, Spain, in the United States, Texas, in Brazil, Salvador de Bahia, and in the north of Chile. The shortfall in the second quarter is largely due to the late release of the IRA guidelines and the postponement of administrative milestones in the permitting process in Spain.
The good news is that we have seen a significant uptick in projects, activity, and wins in recent weeks, including some notable projects, which should position us for a significant improvement in 2023 and in 2024. We expect the fourth quarter to be our highest revenue quarter in 2023. As you can see, and as we reported a few weeks ago, July and August were extremely active, and also September. In these three months, we have signed more than 1.3 GW in projects. The contracts we sign go into the backlog and usually start supply shortly thereafter. We estimate the revenue recognition will be registered in the next few months. As I mentioned earlier, one of our largest markets is the United States. We have strengthened our presence in the region to grow faster.
We have more than 10 years of experience in the U.S. and a track record of more than 2 GW. We have a highly experienced team with an office in Florida and a logistics center in Texas. Our supply chain is fully secured to supply under IRA guidelines, with our logistics center in Houston and new MSA agreements with domestic American suppliers, enabling us robust and flexible supply chain in the U.S. The agreements we have signed with U.S. suppliers and those in process not only maintain our ability to source our tracker product content domestically, but also improves delivery reliability. We expect to increase our U.S. revenues from 25% in 2021, 21% in H1 2023, to 50% in the coming years.
As of June 2023, we have registered a backlog of EUR 88 million and a pipeline of more than EUR 4.9 billion. The backlog of the industrial division has been increasing throughout the year. In August, it reached EUR 412 million. In addition, in the first few days of September, we signed new contracts worth EUR 23 million. And on the top of that, more than 2 GW under contract negotiations that will be closed in the coming weeks. We continue to grow our international business and are gaining traction in new regions. A couple of examples can be seen with new regions in our pipeline. The pipeline, which reflects contracts that are not yet signed, with a certain probability of success, reached EUR 16.9 billion as of June, reflecting high demand globally.
Our platform of assets and the development is mature, diversified, and balanced. We are proud to have built a quality platform of 14 GW in key solar markets in a record time. It is particularly important to highlight the relevance of our co-development partnership with market leaders. Soltec remains as developer, ensuring that the portfolio continues to progress towards RTB status. The industrial know-how is included in the agreement to take advantage of the vertical integration. We have obtained environmental and administrative permits in Spain for over 500 MW. Our plants are under commercial operation, reached 230 MW in Spain and Brazil, and we have four more projects under construction. Hedging by means of PPAs against merchant volatile prices is part of our strategy. We have closed four deals in Spain and Brazil, and this is what we should expect in the future.
We conclude our agreements with investment-grade companies, with a fixed price long term, and in some cases, like in Brazil, with index to price inflation. With this, we complete the operational development, and this is your turn, José.
Thank you very much, Raúl. Good morning, everyone. Let's have a look now at the H1 2023 financial results. Slide 18, you can see a brief summary of the H1 2023 consolidated financial results for Soltec Power Holdings. As usual, we have focused on three key metrics: revenues, Adjusted EBITDA, and net profit. As expected, key metrics for Q2 2023, very similar to those seen at the end of Q1 2023, underpinned by low activity levels in the industrial division. Consolidated revenues reached EUR 184.5 million, EUR 60 million lower than in 2022, due to low tracker supply volumes, and Adjusted EBITDA at the end of the first six months was negative EUR 10.2 million. Finally, consolidated net profit at the end of H1-2023 was negative EUR 14.4 million.
Before we go any further, let me remind you that the consolidated Adjusted EBITDA includes not only the EBITDA generated by our various businesses, but also the corporate expenses incurred by Soltec Power Holdings and the consolidation adjustments. On slide 19, we can see that revenues in our industrial division reached EUR 103.5 million in the second quarter, EUR 174.8 million in the first half of the year. Adjusted EBITDA for the industrial division was EUR -4.4 million at the end of the second quarter, and EUR -7.6 million at the end of the first half. The EBITDA margin was -4.3%, in line with the first quarter. As expected, the seasonality of this division is clearly reflected in the H1 results.
There are several reasons that explain this seasonality in 2023. First, the late release of the IRA guidelines in the United States, and then second, the postponement of the administrative milestones in the permitting process in Spain. These issues, nevertheless, will lead to higher volumes in H2 2023 and 2024. It's also worth mentioning that gross margins stay strong and our current business remains very healthy. Looking ahead, as Raúl mentioned, there are very good things to come, and volumes and revenue growth is expected in Q3 and especially in Q4 2023. Full year revenues are expected to be at the lower end of the guidance range, while EBITDA margins are expected to be within the range. Let's move now to slide 20.
On the left side of the slide, we can see that solar tracker supply was 66% of total revenues at the end of H1 2023, while construction services were 34%. Construction services, in this case, range from tracker installation to BOP, and are only offered to key clients to enhance the company's value proposition in certain strategic areas where construction services may be in short supply. By geography, Europe accounted for 34% of the revenues, South America for 45% of the revenues, and the United States for 21%. At this point, I would like to reinforce the message Raúl provided before. We have a very strong focus on the United States right now. The company has stepped up its efforts to strengthen its positioning in that geography through key agreements with best-in-class companies and partners.
As you know, in 2022, the United States accounted for around 50% of global tracker shipments, and is a key market for renewable energy development. On the next slide, slide 21, we have the key financial metrics for project development business. EBITDA is negative as the impact for asset rotation was not very significant in the first half of the year. We are currently developing a pipeline of 14 GW, and we were able to rotate 383.4 MW in the quarter, both internally and to third parties. As we have already explained, we have M&A processes underway in geographies such as Italy, Spain, and Colombia, where, as you know, we have already announced a deal by which we have transferred 130 MW.
On slide 22, we can see that revenues for Soltec Assets at the end of Q1 2023 reached EUR 4.6 million, while adjusted EBITDA was EUR 3.8 million. In the first quarter of the year, we were able to raise a hundred million euros to fund the growth of the division. We currently have 230 MW of capacity under operation in Brazil and Spain, and 25 MW under construction, also in Spain, with further capacity expected to be added to our asset management business in key markets before the end of the year. Let's have a look now at our net financial debt and cash flow statement. On the next slide, slide 23, we can see our net debt profile at the end of H1 2023.
As you know, following company policy, each business must take care of its own financing facilities and is responsible for repaying them. As you can see, Soltec Industrial's debt, EUR 109.2 million, is mostly related, EUR 89.5 million, with a revolving credit facility signed at the beginning of 2021, which matures on February 2024. Currently, I can confirm that we are working on the extension of the facility. For the project development division, debt is mostly related to the working capital lines we employ to finance our operations, EUR 15.7 million. While in the asset management business, you can see that both debt financing related to the projects already under operation in Brazil, EUR 59.1 million, and the balance related to the EUR 100 million facility signed with the credit fund advised by Incus Capital.
As you know, through this agreement, Soltec seeks to add value to and speed up the growth of this division. Hence, gross financial debt stands at EUR 250.5 million at the end of H1 2023, while cash and cash equivalents total EUR 22.1 million. As a result, our net financial debt reached EUR 228.3 million as of June 2023. On slide 24, we have a summary of our H1 2023 cash flow statement. As you can see, we started the year with almost EUR 19 million. Operating activities consumed EUR 54.2 million. Investment activities employed EUR 15 million. Financing activities generated EUR 17 million. There was also a small EUR 1.9 million variation related to exchange rates.
As a result, our cash at the end of June 2023 totaled EUR 17.9 million. Now, looking ahead, our guidance is achievable. We have good visibility for 2023 and 2024, and as we have already mentioned, there are good news to come, which will strengthen our value proposition. Just reinforcing the message Raúl provided before, the current market consensus around our target price from the seven analysts covering the stock right now, very reputed analysts, by the way, is EUR 6.4, which is well above the current market price in the market today. The stock, therefore, is clearly undervalued, and the opportunity, just considering the value of the company's assets, without taking into consideration any additional developments, which, by the way, are coming, it's huge. And with this, I leave the floor back to Raúl to wrap up. Raúl?
Thank you, José. To summarize, while our revenue recovery cadence is slow during the year, we have seen an exceptional increase in contract signing in recent weeks, which give us confidence for a return to growth in the fourth quarter. Our international expansion continues with a strong focus in the U.S. market. We have the track record, we have the team, we have the technology, we have the supply chain. We are decided to increase our presence and our revenues in the U.S. Our tracker supply business continues to have strong gross margins, mainly because our optimized designs and supply chain. We are a very unique company. Based on our current view, which includes the project delay mentioned, we expect the third quarter sales to be better than the second quarter, but we will have an exceptional fourth quarter.
Our gross margin performance remains strong, and we will deliver on our EBITDA margins commitments based on the volumes we see. Looking ahead, the recent uptick in project wins gives us confidence that the revenue ramp expected in the fourth quarter should continue into 2024. We have good news. We have visibility. We are in a sector at the right time. We are strengthening our presence in markets with very high potential. It is a moment in which the current market valuation does not reflect our potential, our operational reality, not only present, but future. A clear opportunity to join a truly sustainable company with a unique business model. Thank you.
Thank you very much, Raúl. Let's go to the Q&A session. We've got a set of questions coming from Ignacio Domenech from JB Capital. First one is for José Núñez regarding the covenants. Net financial debt to equity is very close to 1.5 x covenant for the EUR 110 million credit facility. Any risk to breaching the covenant by year-end? Can you provide more details on the covenant?
Okay. Good morning, Ignacio. Thanks for your question. Well, the first thing I must say about this particular question is that the 1.5x covenant does not apply for the 110 credit facility. Credit facility is for up to EUR 90 million, okay? It's a total of EUR 90 million. But having said that, you're right. I mean, we have a covenant, which is basically net financial debt over equity. We do not see significant risk at the end of the year, since obviously volumes are increasing as we speak, and therefore, the results at the end of Q4 will be much better than those presented today.
The second question is regarding free cash flow. Do you expect a reversion in working capital in the second half of the year?
Definitely. I mean, as we're gonna have higher volumes and activity levels will obviously rise compared to those we've seen in H1 2023. Obviously, the working capital of the company will definitely increase compared to the situation we've had at the beginning of the year. So yes, the answer to the question is yes, it will improve in the second half.
The next one is regarding net debt, also for José. What is your guidance for net debt by year-end?
Okay, as we explained at the beginning of the year, and I believe it was at the end of February, when we released the 2022 full year results, our expectations for net financial debt at the end of the year are to have a level between EUR 250 million and EUR 260 million. As you can see, we're currently on track, and we don't expect to see significant deviations in relation to those particular expectations.
There are more questions about the industrial division. This one is for Raúl Morales. Any risk that 3.54 GW deliveries are not achieved in 2023? What were the sales in megawatts of trackers during the first half of the year?
Well, I mean, risks for 3.5 GW-4 GW, I mean, I do not see a high risk. So as we have already EUR 412 million in backlog, so we have a high visibility for the rest of the year. So I believe that that's highly probable to achieve at least that figure. So, in the first half of the year, we had sales of about 1 GW, so the rest of them will occur in the second half of the year.
There is another question coming from JB Capital, also for the development division. Regarding the development division, any plans to rotate this year, the 488 MW of projects in Brazil? How many megawatts of projects do you expect to rotate in 2023?
So in Brazil, as we explained the presentation, we are seeing low energy prices, so we do not expect in the short term to rotate projects in Brazil. And for the rest of the projects in Spain and Italy, so we are in different processes. We will give you some more information, but just to say that we are in a different negotiation with different customers.
The last one is coming from JB Capital as well, is for the asset management division. José, low generation in the second quarter from Araxá and Pedranópolis. Is there any risk to 2023 guidance for the asset management division?
No, not at all. I mean, what we've seen in the first half of the year has been variations in, in terms of production levels, basically related just to seasonality. At some times throughout the year, production is a little bit higher, sometimes a little bit lower. But, we don't see, at this point, any potential risk at the end of the year regarding the production of Araxá and Pedranópolis, that will lead us not to comply or not to fulfill the guidance we provided at the beginning of the year.
Okay, there is another set of questions coming from Richard Dawson from Berenberg. First one for José: Do you continue to expect net debt in the range EUR 250 million-EUR 260 million by year-end?
Hi, Richard. Good morning. Yes, as we just explained, a few minutes ago, yes. Our expectations for net financial debt at the end of 2023 are to have, net financial debt between EUR 250 million and EUR 260 million. That's right.
Next one is for Raúl. How have average selling prices of trackers developed across Q2?
Well, that's what we see is that in Q2, it was a slight descent in ASP, so in the range of EUR 0.08-EUR 0.09 per watt. But again, that's because the higher efficiency of the module. So, in margins, we do not see a drop on that, and we will expect the rest of the year to be in that range around EUR 0.08-EUR 0.09 per watt.
Are you seeing any changes to demand for purchase of solar projects from third parties in the development division?
We saw less appetite in Brazil, as I said before, kind of flat in Spain and Italy, with the same demand that we saw in previous quarters.
Next question coming from Luis de Toledo from Oddo. Could you confirm that part of the 2 GW of imminent industrial contracts come already from the U.S.? Could you elaborate a little bit more about the U.S. market?
Well, the 2 GW are including all our home markets, let's say, where we have production capabilities, especially Spain and Brazil, and in less percentage, U.S. We have what we have with the framework agreements are for supplies and deliveries with local manufacturers, especially of rails and torque tubes in U.S.
Another question coming from Virginia Sanz de Madrid Gross, from Santander: Can you explain a bit further, with what type of suppliers are you signing agreements in the U.S.?
Well, as I said before, so agreements with tubular manufacturers and some components for trackers in U.S., according to the IRA. So thus we can qualify for local content, that will be quite important in the next quarters and years in U.S. So, different of them, at least with three, four, and increasing the number of the suppliers.
Another one coming from Virginia: On Soltec development, do you expect to sign any material transaction with profit contribution in 2023? How big is the buyer interest at the moment for the pipeline of assets? And also regarding Soltec development, do buyers not prefer to buy COD projects?
Well, as I said, we are in different processes for the development division. Obviously, COD, I mean, projects already being built have more value. That's why we are looking for the best added value for the projects and to sell them in the right moment. So, well, that's something that we always try to play with, that's the value and the moment of the sale.
On the tracker business, could there be delays in the projects and revenues shifting to 2024? If this happens, could we see a negative EBITDA in 2023?
Again, we do not see that probable, so as we have already a strong backlog and local manufacturing for the main part of the 2 GW that we have on imminent projects and, and also the backlog.
There is another set of questions coming from Eduardo Imedio, from Renta 4. Can you explain a bit further, with what type of suppliers are you signing agreements in the U.S.? Similar question than the one that we had before.
Yes, mainly, as I said, torque tubes manufacturers, rail manufacturers, so for steel parts, mainly.
Another one regarding Soltec development: How big is the buyer interest at the moment for the pipeline of assets?
Well, as I said, more or less like it was before, especially in Italy and Spain, and in Brazil, weak, as I said, because the energy prices.
Okay, and right now we do not have more questions on the platform. As usual, if you have any further question, do not hesitate to contact Investor Relations department. Thank you very much.