Ladies and gentlemen, welcome to the analyst conference call of PNE AG. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participants have difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. I now hand you over to Markus Lesser, CEO, who will lead you through this conference. Please go ahead, sir.
Good morning, everybody. Also from my side, thank you for joining us today in this conference call on the results of the first nine months of 2020. Before I start with the presentation, I would like to share with you an outline of the presentation and the procedure of today's call. As usual, I will start with an overview of the operational and strategic highlights of the first nine months of 2020. After that, I will comment on our financial figures. I will conclude my presentation with our outlook for the remainder of the year. As always, we will then open the line for the sell-side analysts only. All other participants will stay in listen-only mode as it is our company's procedure for years. As usual, our slides that I will use can be found on our investor relations website.
Having said this, I would like to draw your attention to the operational highlights. The course of the first nine months of the 2020 fiscal year was characterized by different developments. On the one hand, we made good progress operationally. On the other hand, the effects of the COVID-19 pandemic are increasingly noticeable. The operating performance in the first nine months of 2020 was clearly marked by the expansion of our power generation portfolio, as well as the progress with our business model expansion. In Germany, we have 74 megawatts under construction, where our 46.7 megawatts are already intended for our own generation portfolio. We put 360.8 megawatts into operation or have it under construction. Remarkable is 60.6 megawatts had been successful in the German tender, whereby 39 megawatts in October, we had another 21.6 megawatts, another project, we brought it through the tender.
We have our scale-up concept where we are with the implementation fully on track. PV, international market, additional services, PPA services. We just got additional orders for our additional PPAs we made for our customers and for us. We increased our PV pipeline. We expanded it to 476 MW within one year. In total, as a result of our scale-up strategy, we doubled the projects we are working on since the beginning of 2019. Now we are working on over 300 projects in 12 countries. Looking to the financials, I would like to highlight that despite some negative impact from COVID-19, our nine-month results are still on target, and consequently, we can again confirm our guidance for the full year 2020. I also want to highlight the strong performance on segment level. It shows also the productivity of our company.
Before consolidation, all three segments showed growth compared to lastPNE AG Advances Scale-up 2.0 Strategy with Strong Project Pipeline and Robust Finances Despite COVID-19 Challenges . As indicated on the previous slide, the results in the first nine months were impacted by the investments we made in our own power generation portfolio. The investments in our portfolio are also reflected by eliminated or non-realized earnings of EUR 19.8 million compared to EUR 3.9 million last year. If you look to the EUR 19.8 million and see that we have an EBIT of minus EUR 3.5 million, you see that the productivity is still high, but we work in our own portfolio. We had, even it has minor effects on our business, I would like to give you an overview about changes in balance sheet of 2017.
Following an examination by the German Financial Reporting Enforcement Panel, FREP or DPR, it was necessary to make adjustments retrospectively to the balance sheet valuation of offshore projects developed in the North Sea. Every year we wrote it in our overviews. This will not have any significant impact on the current fiscal year. Although there will be changes in some values carried forward in the balance sheet, such as inventories and equity. The error was corrected retrospectively starting from January 1st, 2017, in such a way that all five offshore projects and related other projects inventories capitalized were written off at that date. As three offshore projects in Zone four had already been written off in fiscal year 2018, the retrospective correction mainly reflects the two remaining projects in Zone three, which are named Atlantis II and III.
The changes in the inventory position amount to EUR 15.1 million as of December 31st, 2018, and with the addition of around EUR 1.5 million additional effects out of interest rates to EUR 16.6 million as of December 31st, 2019. On the equity side, the changes amount to EUR 13.4 million as of December 31st, 2018, and EUR 14.9 million as of December 31st, 2019. Regarding the current fiscal year 2020, the impact on the results will be around one billion euros.
Irrespective of the correction of errors, we feel validated, in particular by the Senate order of the Federal Constitutional Court of August 2020. In its assessment, that part of the wind figures that are unconstitutional. With the implementation of the ruling of the Federal Constitutional Court by the legislator, we expect reimbursement for project planning services already provided, which will have a correspondingly positive effect on the group's figures in the future.
We look now to the main points, the equity. If you look to the equity impacted by the balance sheet adjustment, the equity ratio is still at approximately 35%, and the gross cash position remains at a high level of EUR 90 million only as an overview. If you look on the next slide, we can see the expansion of our own generation portfolio is stepping forward, is in progress. Another 46.7 MW we see for the portfolio, Boitzenhagen, Sandsholt. Boitzenhagen is under construction. Sandsholt will be in construction very soon in the next couple of weeks. Therefore, we increase our own portfolio. We have still a well-filled project pipeline with onshore on a very high level. 5,241 MW we have as a total pipeline at the moment. If you see, I already mentioned it, six projects under construction, 74 MW.
It's, for us, a good news this time in October, we got another four projects with around 40 MW permitted. That means that we have in German projects, I have to say, in Germany, we have above 100 MW permitted this year until October, I have to say. We have in Sweden still a construction management for 130 MW ongoing. In Poland, we finalized the construction of Nowe Wietrzy, 142 MW project, and the construction management of Jasina, 132 MW, one of the biggest projects in Poland, is ongoing. Remarkable is that we have in Germany, in phase III, which is the permitting, the application status, 420 MW, and we have 74 MW under construction. Together with the 130 MW we have already in our pipeline, you see that we have more than enough to meet our target of 500 MW in 2023.
We are still on the road to make it happen. The PPA projects in one year, we could increase our pipeline from zero to 476 megawatts. Therefore, mainly Germany, Romania, United States. We're still looking for further countries like Italy, Poland, and South Africa, and we think that we can increase our pipeline furthermore in the next couple of months. The nine-month results, as I mentioned before, we have a total output which shows around EUR 90.7 million, which shows the productivity, the high productivity of our company, despite the effects of COVID-19. The EBITDA and EBIT is lower, and EBIT is on a lower side due to the fact that we invested in our own portfolio. We got milestone payments of projects that had already been sold in 2018 in France, Poland, and Sweden.
The first result out of the expansion of our own power generation portfolio is reflected by the non-realized earnings of EUR 90.8 million. We internationalized the service business and the power generation increases, so as well that we work on as a general contractor and additional services, all this led to this result. One other point which shows the steadily increase of all segments, they show their high productivity. We have a growth in all business segments. If you see the project development, the output increases from EUR 85 million plus five percent. The EBITDA increases to EUR 13.4 million plus 26%. The services grows to EUR 14.6 million with a plus of 26%. The EBITDA increases to EUR 12.4 million.
These services have been impacted by the investments due to the fact that we invested in international expansion and due to the fact that we couldn't do some trainings in one part of our business, so due to the COVID-19 restrictions. Electricity generation increased to EUR 17.7 million, plus 48% EBITDA increased to EUR 13.4 million. This is all before consolidation, but it gives a real feeling about the strong productivity despite the effects of Corona. The balance sheet is very solid. We have a cash position which is still on a high level of EUR 90 million. We have, as I said before, the equity ratio is still solid at 35%. The current debt liabilities to banks, EUR 132.8 million in non-current debt and current liabilities, EUR 49 million in liabilities to banks. These are related mainly to non-recourse financing of our projects. That's remarkable.
If you look to our scale-up concept, the implementation is ongoing. We invest in our own generation power portfolio. The first power purchase agreement we agreed in Sweden for a customer, so we could deliver on this point as well. Therefore, we are still on track. Ladies and gentlemen, this leads me to the outlook. As mentioned before, we confirm our guidance for the fiscal year 2020. In spite of the increasing effects of the COVID-19 pandemic. Please know that achieving the guidance is based on successful project sales in the remainder of the year. Various sales processes are ongoing. However, due to the effects of COVID-19, the development of international electricity prices is difficult to assess for wind farm investors at present, which can have a negative end effect on sales transaction. I said it always, margin is the most important thing when we negotiate it.
We don't want to make a bad business. Nonetheless, we are still positive that we can achieve our target on this year. Ladies and gentlemen, we have a well-filled pipeline. We have 74 megawatts under construction. We got another 40 megawatts we can add to our 46 megawatts we can add to our portfolio, and we can increase it. Just right now, we're working on a lot of projects in Germany and France, especially where we got very close for permitting or where we have permitted projects. We have the largest volume ever in permitting phase in core markets in Germany and France with 681 megawatts, which is a great potential for the future. Yeah, we invest furthermore in our own generation and our scale-up concept and follow our strategy we released 2017 and which shows good results. Ladies and gentlemen, this concludes my presentation. Thanks for your attention.
We are now open for questions.
We will now begin the question and answer session. If you have a question for our speaker, please dial zero and one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask the question. If you find your question is answered before it is your turn to speak, you can dial zero and two to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment please for the first question. The first question is from Holger Steffen of SMC Research. Your line is now open.
Good morning, everybody. Hello, Mr. Lesser. Thank you very much for your detailed report. I have some questions concerning the last development. First question about your change in inventory in Q3. Although you built several wind farms in Germany, you added only EUR 1.7 million to your inventory work in progress. Maybe you could give me an explanation for this figure, because I would have expected a higher figure there.
Please have a look. Maybe you have other questions as well, I have a look on this parallelly, yeah.
Oh, okay. I will start with the next question. You've mentioned the positive decision about WindSeeG. When do you expect reimbursement and how much money do you expect? Can you give us maybe a hint about those figures?
No, that is absolutely open. We got a decision from the court that until end of June of next year, we have to come together with the minister of economics, who will release the law, has to come to a conclusion with us. We are waiting for a suggestion how they want to give the damages we had back.
Okay. Thank you. Okay. Some questions about your pipeline. The growth of your PV pipeline is very strong. Will we see a similar dynamic in the next quarter? When do you expect to sell the first projects or start building of a project?
Yeah, we have just right now, a lot of projects in front of us where we are working, but where we have no access to. We're working on this, and we see a strong increase in the next couple of months in front of us. I can't tell you how much and which amount we will have then. This depends on how we step forward. In the moment, we are on a year-end. The negotiation with COVID-19 is not that easy, nevertheless, on the other side, we are happy that we made this progress, and we will step forward in this speed as before.
Do you expect to sell maybe the first project in next year?
Yeah, I hope so. We think that that should happen, in any case. We see PV as additional market, and now, in these countries where we are working on, we see in future, in Poland, in South Africa, as I mentioned, in Italy, as well, future markets. We'll be investing in this area, and we see good development around this.
Okay, fine.
So.
Yeah.
Yeah. To your question, because of the inventory, it's changing inventory. Inventory, we're one or EUR 1.5 million? We have the EUR 19.8 million not realized earnings. Eliminated earnings. They will not be part of the inventory. That's why it is not in the inventory. Yeah.
The building process.
Yeah. You will see them in the Q4 .
Oh, okay.
Nothing for yet, no. We haven't had it in that amount considered because it's always a question when you're factoring it.
Okay. I will wait for Q4. Coming back to your pipeline. Only one question to your wind energy pipeline. In the last time, we saw a little progress in your French pipeline. Maybe you can give us an update about this market.
Yeah, just right now we have some permissions, in the moment where we are working around, it's always in France that you need to have another one -two years to get sued all the time, due to natural heritage issues or from the municipality. Just right now, we have to wait for these permissions. On the other side, we replan some projects to have a better performance in future tenders. We are still in plan. I think next year we can say that we have a finalized permission on all these projects we have in front of us. Not all in phase three, but some of them in any case.
Okay, fine. Maybe some words to your guidance. You've said the conditions are not perfect for the sale of projects at the moment. In your report, you've mentioned possible negative effects, especially for sales in Sweden, Panama, Romania, and the USA. Which projects have the highest probability for a sale in the next week? Will you say, mainly German projects, to meet your guidance?
We have several projects in front of us. There's a project in Sweden, a project in the U.S., Chilocco, Oklahoma, and a project in Romania, and a project in Germany of 5.5 MW. These are the projects we have in front of us, and we hope that we get, or we are still in negotiation. As I mentioned before, it's always an issue in countries where you have to rely on the market development and the energy price development of these markets. We see that the prognosis of the energy prices is going a little bit down and everybody is awaiting, have an idea about the energy prices in future, due to the fact that COVID-19 can influence the market. Because of that, it is clear that some investors are careful and waiting until they have a finalized prognosis.
This is what we see just right now. This makes the things a little bit more difficult, but we see there is no showstopper. It's only a question of margins, and we would like to have the best margins and so therefore, we are fighting for that.
Okay, fine. I wish you the best for this and that's from my side. Thank you very much.
Thank you.
The next question is from Karsten von Blumenthal of First Berlin Equity Research. Your line is now open.
Good morning, Markus. Thanks for taking my question. My first question is regarding your own plant portfolio. I thought you might add operating wind farms this year, but now I think that it's rather unlikely, and I would like to know what will happen to Kleinbüllesheim and Gebstedt. I thought that these wind farms might get into operation this year, but now I can't read anything about them. Perhaps you could give us an update regarding this topic.
Just right now we have Good morning, first of all Karsten. Nevertheless, we have ongoing projects under construction. One of this is Kleinbüllesheim. Yeah, sure. You have to see that we have been opposite to the years before. We have now always to wait until we are sure that nobody sued us. Therefore, we have a suitable project out of natural heritage issues or something else. Additionally, we have delivery times, which have been extended. Therefore, these are two points and the permission times which have changed. This all leads to a change in the timing of these kind of projects, and that's what I mentioned all the time, that there is a shift. We calculated a shift of three months due to the effect of COVID-19. We have to add the other points as well.
This is the shift we have to consider in our projects just right now. Nevertheless, when a project is under construction, the chances are very high that we can finalize it between one year, usually.
Okay. That means, both projects will probably get into operation next year and that this year you will not add operating wind farm to your own plant portfolio.
We have two projects, which is Langstedt and then Vörden. These two projects, this is in total 21 megawatts, which we would like to finalize this year.
Okay.
In Kleinbullesheim, according plan, will start its operation in January, February next year.
Okay, good. Thank you for that. I read that you won two solar parks in the German tender, and you didn't highlight this. I think that is a very good success. Perhaps you could elaborate on these awards in the German solar tender.
We thought about if we should bring it. We have to see that we suddenly heard after we got the permission and after we had a successful tender of 19 megawatts in PV in Germany, which was a really good success. Afterwards, we heard that there is a constraint due to the fact that somebody in the government want to change it into a natural heritage zone. Therefore, we didn't want to highlight it to come not up with any expectations we cannot fulfill.
All right. Understood. I didn't know that. Okay.
Yeah. Sometimes it runs not like you think it. Everybody relied on the spatial plan, something may happen which are not in our hands.
Okay, understood. I saw when I just look into the Q3 figures, not the nine months, but Q3. In the service segment, you had a very strong quarter. You had very high sales, and you had a very strong margin. That looks really good. Perhaps you could elaborate on that. What went so well in Q3 in the service business?
Yeah, we could finalize and factorize some of the constructions. By example, Poland or in Germany, we could make some builds around it. This is why this increased.
Okay, thanks for that. Understood. I saw that year on year, you had a significant increase in employees, and you explained that this is due to the expansion of your businesses. Could you roughly say in which areas these employees are active? Is it a lot of service, or where do they work?
Yeah. It is mainly, I would say three different areas. One of them is services, which is where you need a lot of manpower usually. This is operational management. When you go to Poland, to Sweden, this whole expansion, we need in France, in Italy, we want to increase it. We have the additional PV business where we want to do services. We have to prepare ourselves for this as well. This is where we have to invest in people. On the other side, we have PV business. If you see that we invest in, you can't take only wind people, you need PV people pure. Know-how out of the pure PV business, that's what we want to increase in these countries with their networks. That's why we increased the people around PV in the countries like France, Poland, Italy.
This is the other reason. The third one is that we look for new technologies and that what we can do there. To see the PPA business, for example, we now have the first results out of negotiating PPAs for our customers. You see the first returns are coming out of this investment, and there we had to invest in know-how as well, and in people and manpower as well.
Perfect. Thanks for taking my questions, Markus.
Thank you.
The next question is from Jan Bauer of Warburg Research. Your line is now open.
Hello and good morning from my side. Thanks for taking my question. I don't think there's that much left. I just read that you announced that you had some very successful PPA consultings for, I think, external customers. Could you give us a feeling for how much of sales, I think in the service segment, that will make for this year or even in the next years when you expand that kind of business?
Yeah, these contracts are starting usually when you deliver. You get a part, a share of the delivering turnover, or you get the first payment of this. It's nothing for this year. In the next year, we maybe get the first payments, and it will be with the start, it's around maybe one million euros in the future. We hope that we get it done in this direction in the first year, next year. We will see.
Okay, great. Do you think about expanding this business more over in the next year or so? I think there are already other consultants in the market, for example, Pexapark, that are doing consulting services on that kind of negotiations.
Yeah, you see, we have a big advantage. First of all, we have 1,700 megawatts, where we do the management for our customers. Secondly, we have our own wind portfolio. Third of all, where we can negotiate the contracts. Third of all, you have to see that the PPA management together with the tender management. It's always one of the big know-how you need in the future to be successful, to get the best price out, because it's always wind tariff and financial conditions, which is really something where you have to negotiate very strong besides the usual stuff like wind turbine, sure. This is absolutely important that we have it in-house, and if we can get additional business out of it's absolutely positive for us.
Okay. Perfect, thank you. Regarding your pipeline and the development of your in-house portfolio, your PV pipeline is just picking up a little bit. Do you think about adding PV to your in-house portfolio in the future?
For the in-house portfolio, we cannot deny it. Maybe in future we put PV projects in as well. In the moment, we haven't made any decisions on that.
Okay. I heard that some of the turbine manufacturers are just going into the market with a little bit longer delivery times, especially Nordex. Do you think you will see any issues of the timeline or the completion of projects due to delivery issues?
Yeah, surely. You can say all wind manufacturers have extended delivery times from about one to three months for their total delivery time. This affects us as well, but nevertheless, that means that we have to speak like we do it usually, very carefully in advance of the projects with the wind turbine manufacturers to be very clear and open and then have a earlier starting date. That's what we do. We are affected, yes, sure. It is in our planning. Yeah.
Okay. One question regarding your guidance. You said you have some Swedish projects, the Chilocco project in the U.S., some Romanian project, and this German project that are possibly up for sale. I was just wondering, you still have an project, I think, in Poland. It should also be eligible for sale. As far as I know, so the Polish market is just picking up a little bit. Why don't you mention that when you think about possible project sales?
Yeah, it's a matter of price. We are achieving to construct these both projects in Poland. There are two.
Kazim and Chęciny, and to sell them turnkey, which gives us a much better price.
Okay, you will construct those projects on your own and then sell them completely constructed?
Yeah. Maybe we get a sales event during construction or before. We will see. We will start negotiation in front of the construction time. Nevertheless, we think that we can get better prices when we finalize that and make it turnkey and sell it then. It's something for next year or beginning of the year after.
This isn't some kind of a change in your strategy. As far as I reckon, usually you sell all projects outside of Germany in an earlier development stage or in development phase and do only turnkey projects in Germany.
Yes, that's right. This is a difference in this special situation, due to the fact that we have circumstances in the moment which leverage the results in a special way. Usually, we would do only construction management. Yes, that's right. Turnkey light like we do it in France. In this special situation, we decided to start construction due to the fact that the tariff started a special timing and we have to get this timing done. If we have it in our own hands, then we know that we get the right timing done and we have not to rely on any customer. Because of this, we can finalize it and get the best price out of it. That's the reason. Only for these projects in the moment. We don't want to extend this for further projects.
It's like always, if you can get a much better price, then you have to decide maybe for another way.
Yeah. Okay. This is some kind of, let's say, a one-off event.
Exactly.
special circumstances. Okay, perfect. Just also regarding your guidance. Just in case you won't be able to sell projects outside of Germany, would you also think about selling one of the larger German projects currently under construction?
In the moment we are free to decide which projects we want to put in our pipeline or not. I can tell you with 100 megawatts we have already permitted this year. We have good stock for further construction. We will certainly sell some of these projects. If you look to our pipeline, we have 420 megawatts in our pipeline in Germany, plus another 74 megawatts under construction. There is enough space to sell projects to the market of Germany as well, and to build up the portfolio.
Okay. One last question regarding your U.S. pipeline. From my understanding, the election of Joe Biden for next president, or hope for that he will be the next president, should be very positive for the development of renewables in the U.S. Do you think about so that the local sales process might be picking up a little bit more in speed due to the new president elect? Or that you will increase your pipeline of U.S. projects due to the fact that, let's say, the outlook for renewables in the U.S. have just improved?
Yeah. We saw in the past that in the recent three years, in four years, we got a lot of things, bureaucracy, and stop us in the project. It started with a tax change and you had a lower tax advantage potential. Secondly, we had a situation that grid connections, extensions couldn't be done in a proper way because the government stopped it all the time or they delayed it. It was not a good situation, and we think that this will change with Biden. From that, we will see what will happen and when it will happen. I'd say, first of all, it's positive. Yeah, sure.
Okay. Thank you very much.
Thank you.
The next question is from Peter Rothenaicher of Baader Bank. Your line is now open.
Yes. Hello, Mr. Lesser. One question regarding your strategic outlook with regard to photovoltaic, where you had expanded your project pipeline quite nicely. If I have a horizon of around three - five years, how big could photovoltaic become in your business? If I compare it with your project volume you have in your onshore wind business.
I can only say that we want to increase this business, but we want to do increases in the countries where we have already a network and where it makes sense for us. The margins in PV are a little bit lower, but the time when you finish a project is faster, whereby you have a higher or lower rate of success in projects. Therefore, this is a mixture profile. We see also that you need these PV pipelines in a lot of reasons due to the fact that you need hybrid solutions for decentralized energy. Therefore it's a strategic issue as well. If you look to the amounts, so I can tell you that I would like to be at the end of the next year around one gigawatt with this pipeline. That's our target.
It's very challenging. We would like to get it done. We will see the next upcoming years, and we see how this will impact our business and how we can make good progress. PV business is always a business of you need a higher volume to get the best prices from the module market.
Yeah. With regards to your offshore wind business, I've heard about initiatives of the EU to bring forward this medium of energy generation. What are your expectation? Do you see here some support from this and how strong could this bring forward your offshore business?
Yeah. First of all, it is a real huge amount. They're talking about 300 gigawatts in the European market. That is really huge. We are already in a lot of markets. Some of them that it makes sense to invest in further activities in offshore. Some of them not, but we are still looking for potential. The question is always when. When? In 2050, 300 gigawatts may mean that they start in 2040 with these activities. From our point of view, that's where we are also insisting very heavily in the government that they have to start with a bigger amount as only five additional gigawatts in Germany. They have to do much more. That there where we are insisting and we have our team here, which is prepared to work in several countries.
Last question is on your service business. You mentioned you are still affected by COVID-19 headwinds, in particular regarding training. Do you expect here some relief for the Q4 , or can we expect here only then bigger support again in 2021?
You speak about the training for itself or in general?
In general, where you generate in part of your service revenues and then earnings training.
Yeah. We have a company taken over what was one and a half year ago, two years ago, MEB, it was called. This company is doing these trainings. We are investing in companies where we have special know-how. They're doing certification in machines and as well as trainings for third parties. In the moment they do the trainings as well, even we have this lockdown light, I would say. In the moment we are not affected.
Okay. Thank you.
As a reminder, if you would like to ask a question, please press zero and one. If there are no further questions, I hand back to the speaker.
Yeah. Thank you very much for the interest and the good questions, and I wish you a very good day. Bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.