Ladies and gentlemen, welcome to the Q3 report of PNE Wind AG conference call. At our customers' 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 participant has difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Markus Lesser, CEO, who will lead you through this conference. Please go ahead, sir.
Good morning. Short presentation about the nine-month highlights. After the first nine months, we can face a very strong result. We sold project rights in the United States and in Sweden. On the other side, we could see that our project construction is fully on track. 94 megawatts are under construction in Germany and France. We could see that we have a situation that we could optimize the financing of our wind farm portfolio, which we have sold last year to AGE with an 80% share. This all leads to an EBIT to EUR 23.7 million. As a consequence, the board decided on Monday to increase the guideline from formerly zero to EUR 50 million to EUR 17 million-EUR 23 million. The range is mainly driven by the sale of our French project, Longueville.
Going a little bit more into the detail, we look to the onshore pipeline. We sold our used wind farm, Vivaldi, with 80 megawatts. There is a potential extension possible of further 80 megawatts. We sold the project rights to Pattern Energy, and we think that we can commission it in 2018. Additionally, we could sell the Swedish wind farm, Laxaskogen, with 35.2 megawatts. We sold them to a German investment group, and we think in the first quarter of 2019, we can commissioning it. We doing the construction management. If we look to the 94 megawatts in Germany and France, we are fully on track. We think that mainly the projects will be ready end of this year. In France especially, we see the 41 megawatts under construction and 32 megawatts are in a framework deal with John Laing and have been already sold.
43 megawatts from the 53 megawatts, we are doing the construction in Germany. We are doing it for our new wind farm portfolio, of our 200-megawatt wind farm portfolio. This is the first big project, or are the first big projects we are putting into this portfolio. Offshore projects, as already mentioned in our half-year report, we had been successful in the TenneT Gode Wind 3. Atlantis I were sold to Vattenfall, and we have furthermore milestone to expect with Borkum Riffgrund 2 and Gode Wind 3 and 4. We think this will be around EUR 24 million in the next years. In July, we filed the complaint, the constitutional complaint, together with two other developers. Additionally, we saw afterwards that wpd has also filed a constitutional complaint, and this runs in the same direction, we look what we can do together. We look to the income statement.
We have a real big profit contribution related to our 142-megawatt portfolio sale in the last year because we could refinance it. We optimized this project financing, we received out of that an additional payment of EUR 21.4 million. This was led by portfolio increase of the enterprise value from EUR 330 million to EUR 360 million and by cost reduction. Additionally, EBIT effects came up because of the revaluation of the 20% stake of where we are already owner of. Looking on the next page, I think we have a remarkable situation with a strong liquidity position of EUR 162.6 million is a further increase from December last year, which gives us a real solid basis for all things we think we can announce next week for our new strategy and for repayment of bonds.
If you look to the net cash position, we are positive at EUR 12.9 million. Having always in mind that we have with our project, Fuchstal, with 43 megawatts, already a project under construction and all other projects as well, where we do a pre-financing partly. Looking in general to our business, I can summarize, we build up our new portfolio, 200 megawatts. We are still working closely on increasing our offshore wind power business in terms of supporting Vattenfall and Dong looking also into other markets. We think we're in a moment, we are in a situation that we also look to improve our purchasing conditions in respect to the wind turbines and balance of plant. We are still working on our high-quality projects. We think this is a special situation of, and a special background of PNE Wind.
We increased the guidance, as I mentioned already, due to the good financial numbers we could see now. Again, we have one French project in sale, and we have to be careful that we don't come up with a sign to a potential buyer, where we then suddenly have to say, because of the guidance, we have to sell these projects for margins which wouldn't be okay for us. Therefore, this is the range. This explains the range between EUR 17 million and EUR 23 million. Thank you very much. Hello?
Thank you. Now we will begin our question and answer session. If you have a question for our speaker, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial zero 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. We receive the first question of Arash Roshanzamir, Warburg Research. Your line is now open.
Yes. Good morning. Thanks for taking my question. I have a couple. I will ask them one by one, if you don't mind. The first one on the U.S. market and also on your U.S. projects. You were obviously able to sell Vivaldi in Q3, and I was wondering if you could quantify the amount of milestone payments which are still outstanding from the sale of the project, and also if we should expect the first milestone payment from the sale to come through in Q4 with the expected construction of the wind farm, for instance. That would be my first question, please.
With the sale of Vivaldi, we already got our first payment, and we expect further payments with the progress of the project. The specialty or furthermore, that we have NDAs in place and in the contracts we have the situation that we have agreed that we don't tell much about the pricing, but I can tell that, I would say roundabout, the half will come later next year.
Understood. Would the construction start already trigger a milestone payment? As far as I know, construction is scheduled to start this year, and so I was wondering if that would already be a reason to trigger a milestone payment.
No, it's not under construction. It's when the project is ready.
Okay. The commissioning. Okay.
The commissioning, yes.
Okay. Then, you also said during the call, that the buyer, Pattern Energy, has secured an option regarding an expansion of the project. I was wondering, do you expect a decision regarding the expansion to be made already this year, or is this just a process which could take a couple more months?
This will take a couple more months. This is a decision which will be dependent on the PTC situation, they have to speed up in any case. That's why I think this is something for the next year, middle of next year, where the decision will be filed.
Okay, great. That already leads me to my next question. I was wondering if you could share with us your general view on the prospects of the U.S. wind market, especially in light of recent reports that the Production Tax Credit could be cut by 30%. Do you believe this will have an impact on your project pipeline in the U.S.? Is this going to diminish the potential of your pipeline? Or if you could just share a little bit, what your view is regarding this.
Yeah. I think it's something what was triggered by the Trump government. The United States Congress is just right now looking at it, and as far what we can hear, is coming up with a separate opinion about this. A general point, we see that a lot of countries which have republican governments, are investing in wind energy. Therefore, there will be a strong defense to come up with this PTC change. Additionally, it is something where already contracts have been made. A lot of people and companies ordered wind turbines to get the 100% PTC advantage. These contracts are in place.
I think this is nothing what they can do backwards. Therefore, we will see what is going on. I'm positive.
Understood. Thanks. My next question will be on your 2017 guidance or your new 2017 guidance. Obviously, you state that the actual EBIT result depends on the successful sale of a French wind farm. I was wondering, is this the nine megawatts wind farm you have currently under contract?
Exactly.
Okay.
This is a nine-megawatt wind farm. This wind farm will be ready and commissioned this year and is for sale.
Are you already in negotiations with potential buyers?
Yes.
Okay.
We are very far advanced, but, like usual, we don't want to come in a situation that you suddenly have to make the deal whether the margins are high or low.
Yeah.
That's why we say, let's talk about range, and then nobody is under pressure, and let's do the deal in the timeframe the deal needs.
Makes perfect sense. The next question will be on the German onshore market. I was wondering if you have decided if you are going to participate in the third onshore wind tender, or if you are going to skip that, and if you will presumably then participate next year in the first rounds.
We will participate in the next year's rounds. This year's rounds, this is nothing where we expect high numbers and high tariffs. Therefore, we think next year this will make much more sense because then the competitors are lower, and we have not that big amount of megawatts in the tenders, whereby the first tenders will be highly competitive.
Nevertheless, in the moment, we have Bürgerwindparks, which have advantages, and we can cover this.
Have I understood you correctly that you are actually expecting bidding rates to go slightly up next year with the change in the auctions model?
Yes.
Okay. Perfect.
In the middle run, yes.
Yeah. Okay. Then maybe one question on the offshore space. You have obviously filed a constitutional complaint at the end of July.
Yes
regarding the sudden regulatory change. I was wondering, when do you expect an initial decision by the German Federal Constitutional Court? Is this something you would expect in the next couple of months, or is this something which will take longer in your view?
We asked that. We got a range from six months to two years.
To two years. Okay.
Therefore, I'm not sure at which timeframe they will discuss this.
Okay. From a accounting point of view, as long as there is no decision by the court, are you going to be forced to impair anything, or is this going to remain on your books? What is the accounting point of view there?
This remains on our books because it's clear we have two studies and expert opinions who really show that there is no reason for doing this in this way, that the law require it. This is not according to law, and therefore, there is no reason to change anything.
Understood. Maybe the final one is on the U.K., and in particular on your former Sallachy project in Scotland. Is there anything in terms of an update you can share with us? Are you still working on that project to get it through, or is this something you are no longer following anymore?
Yeah, we're working on that, we have to face all the time that the U.K. environment for the wind and the renewable industry is not that positive.
Yeah.
Therefore, we also have to understand that at a special moment, we have always to decide if we spend money or not. Just right now, we're working on this, and we are on ongoing path, it might come to that point that we say, "No, we don't see the market. We stop it anymore.
Okay. Wouldn't that project be already profitable from an economic point of view without subsidies? I would assume that the wind conditions are quite good in Scotland.
Yeah, exactly. That is like usual, you need an PPA.
This has to be covered in a good form. The project has to be on a level of development that we can trade this energy. That is the situation.
Okay.
That we have to come to this situation, and to this level of development.
Okay. Understood. Many thanks, Mr. Lesser. Yeah.
Thank you.
Have a good day. Bye-bye.
Thank you.
The next question is from Carsten Blumenthal. Your line is now open.
Good morning, Markus.
Hello.
First of all, my compliments. That was a pretty strong result, higher than I expected. You obviously got more from your last year's portfolio sale as an extra milestone payment than I expected. It is very helpful. You have a very strong balance sheet. I would like to ask a question regarding your 200 plus European portfolio you are developing. You said that currently 43 megawatts are under construction. Is already any project already commissioned or are they all under construction?
They are all under construction.
Regarding your permits for next year, how many permits do you have on hand to take part in tenders next year in Germany, or how is your situation in France? I see that you have in Germany in phase 3, 88 megawatts, and in France, 82 megawatts. Can we expect quite some megawatt of these two countries to come into either the tender or even into construction next year?
Yeah, we have the situation that we have in France, an excellent pipeline. We have already, you see it in phase 3. We have a lot of projects now in a situation that they got the permission. From our point of view, we can start with some of them to construct them. It is step by step. We see now that the international business is increasing. It's a big step for us that we see more and more that the investments of the last recent years now are paying back their investment, and that we get good results and a real helpful pipeline out of U.S., France, and other countries. Just right now, therefore, we have projects in the loop for construction next year in France, and we are working on changes and improvements of projects in Germany.
Just right now, we are not in a hurry because the tender this year, or tenders this years hadn't have an high level of tariffs, which is then where we avoided to go into the tender. Next year, we will be ready with the next projects.
All right. Thanks for that. One following up question. You already mentioned that your international onshore business is gathering pace, and I think that is one of the main differences compared to the years before. This year, you sold project rights in the U.S., you sold project right in Sweden. What I would like to know is how do you see next year? Where in the onshore business, do you see further possible deals? My guess would be the U.S., but I was a bit surprised that you already sold something in Sweden. I think that was a very good success. Perhaps you could elaborate on your international onshore pipeline, where you see business opportunities in next year.
Yeah. We work very hard in the U.S. on the project Chilocco, 200 MW. We got the building permission. We have now everything in place that we can go ahead with the sale of the project rights. Therefore, this is something we have to see as one next international project. We, additionally, France, I already talked about that. We have a strong pipeline, an increasing pipeline. Next year we will come up with I think minimum four projects where we start the construction. We have South Africa, it is expected that the tender will come up now after two years waiting. Therefore, we are positive to get a positive result out of this tender. In Sweden, we have further projects already developed. We think there is a possibility to start further sale.
That gives you maybe a short overview about the next upcoming projects and project sales.
Perfect. That helps a lot. One following up regarding your offshore wind farm pipeline. Do you expect any milestones paid next year?
Next year, we have the situation that Vattenfall, we think, will participate on a tender next year. If they are successful, we would get an an additional earn-out.
Perfect. Thanks a lot for taking my questions, Markus.
Thank you.
The next question is from Holger Steffen, SMC Research. Your line is now open.
Good morning, Mr. Lesser. I have some additional questions. Maybe the first to the development in the U.S. If I understand it correctly, you said that Chilocco is now ready for sale. That means that you have got the PPA now?
Yeah, we have a situation that we have a PPA, a kind of PPA in alliance, yeah. There are several solutions possible. You can get a PPA, you can get a insurance solution. On the other hand, you can have a customer who really has already a need for this energy. These are the different solutions. We will see what we will get during the sales process as well. We have the options in hand.
Okay. Thank you. I understand. Maybe additional question to Great Britain. You have mentioned the difficult conditions there. How do you see the possibility to get first milestones from Brookfield? What's your actual estimation, which amount of milestones you can get until the end of the contract?
Yeah, Brookfield is working on the projects. We saw this year that two projects got a permission, this didn't lead to any milestone payment. They're working in good progress on the projects. Nevertheless, the circumstances of the British market is very special, and in the moment there is the situation that you need PPAs, otherwise you get not a tariff. Therefore, it's a special situation. In the moment, we don't expect any payments next year. That's what I can say. Nevertheless, further milestone payments are expected in the further future. I cannot tell you now in which amount, because there are a variety of projects which are in the permission phase or shortly before the permission phase.
Okay, thank you. May I switch to another market? You've mentioned your strong pipeline in France. Maybe you could help us and give us an idea which share of your French pipeline can you probably realize without participation at the coming auctions?
In France, we have several projects which have already a permission in place and which are related to the old system, where we don't go to a tender.
Maybe a percentage of your pipeline?
You can say as far as I see just right now, it is everything what is related to phase 3.
Okay.
Yeah. On the other hand, you have to see that in France, the tender is not so competitive as in Germany. We have a volume of 500 MW, I think six times a year. That is an idea, four to six times a year. This comes to a conclusion that just right now we have 1,400 MW per year under construction or commissioned. Therefore, I think the competitiveness of this tender is not that high.
Okay. Good. In your half year report, I've seen that you founded several companies for the Middle East. Can you say us something about coming projects in this region?
There's something what we would like to announce next week as well. On the 15th, we would like to give you an overview about our strategy in the next years. In any case, I can say that it is remarkable that the biggest growths are in countries which are in Middle East, in Africa or Latin America. That we have to face.
Okay, no problem. I can wait until next week. My last question is connecting with offshore business. The next offshore auction in Germany may again be dominated by zero bids. Regarding this possibility, what are the key parameters to improve the chances for Atlantis I and Gode Wind 4? Have you any further possibilities besides the price?
Yeah, first of all, the competitiveness of projects in itself. Gode Wind 4 is very close to the landscape, and that means we have Gode Wind 1, 2, and 3, DONG has it. It makes sense to make Gode Wind 4 as well, because then it's a mixed calculation, I think that makes really sense for them.
That they can offer a good pricing. Secondly, related to Atlantis I, this is a case, this is really in the decision of Vattenfall. If they think that they are so competitive. In any case, even if they will fail at the tender, we will get the milestones payments very later, but we get something. Nevertheless, it's a situation where we are on the back seat, not in the driver's seat here. Vattenfall has to file their competitive offer.
Okay. Thank you very much for answering my questions.
At the moment, there are no further questions. If you would like to ask a question, please press 01 on your telephone keypad now. There are no further questions, Mr. Lesser, I would like to hand back to you.
Yeah, there are no further questions. Thank you very much for joining us. I wish you a good day. Bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.