Earnings Call: Q3 2020

Oct 16, 2020

Good morning, and welcome to Q3 2020 Results. In addition to this, of course, today is an extremely important day for Skatek Solar. It's a special day because today we are announcing the acquisition of SM Power. That is an extremely important element in Skatex Solar's broadened strategy. And we will return later on today with a press conference at 9 o'clock this morning and an Investor Conference at 10 o'clock. Today, we have the following agenda. As usual, I will share with you the highlights and the project update. Financial review will be conducted by Mikkel. And we have also invited Thadip Hilskoguin to talk a bit about the pipeline and the great opportunities that we see in our pipeline. The acquisition of SM Power is extremely important for us. And it attracts a value of SEK1166 million as the acquisition price. As I mentioned before, we will address this in detail later on together with Nordfern and together with SM Power. If we go back to Q3 2020, we had a record power production. In fact, going back a year, it's up by 46%. If you look at the EBITDA, it's a bit lower compared to last year, but you have to look behind the numbers, you have to look at the composition of the numbers. And last year, we had a lot of construction activity. However, the contribution from the power production is very much up. We have been very active in spite of the current situation in the world dominated by COVID-nineteen. We have been extremely active developing projects. And that is manifested in an increase in the pipeline by almost 1,000 megawatt. Terje will talk more about some of these opportunities a bit later during the presentation. We also connected the 47 Megawatt project in Malaysia, Red Sol. You also know that we had some issues connected to COVID-nineteen in order to complete the final testing and sort of bring us across the finish line. But as you can see, now it's up and running, and it is on its long journey, 20 year journey in making revenues from Malaysia. This is, of course, in addition to the 3 plants that we have already in operation. The projects that are in operation, I've shown this slide to you before, you see to the left. And then we still have 3 52 megawatts that are basically finished in terms of the PV installation. But what is missing is the high voltage part, particularly in Ukraine, and connecting the Argentinian plant to the grid. The grid is actually finished in Argentina, but we are waiting for the utility to conduct and complete their final testing of the line before we can connect and evacuate the electrons that we are producing. In Ukraine, we are expecting a bit of a delay. We have previously shared with you all that we expected COD to happen this quarter. That will be pushed over into quarter 1 in 2021. Mikael? Thanks, Raymond. Good morning. So let's start by looking at the group's financials, proportion of financials. And as Raymond just mentioned, we report revenues of SEK556,000,000 and EBITDA of SEK 319,000,000 in this quarter. And power production increased both year on year, but also quarter on quarter. So we have never produced as much power as we did in the Q3 this year. The power production segment is continuing to add EBITDA quarter on quarter and year on year, while the development and construction business have been lower with less contributions in the Q3. This change in segment mix is also affecting the EBITDA margin, which, as you can see, have improved since last year. And also mentioning that the EBITDA was affected this quarter by a transaction cost of $35,000,000 related to the acquisition of Essen Power. This was then booked in the corporate segment. And just briefly, if you look back at the last 12 months, revenues reached $4,000,000,000 and EBITDA have been fairly stable at SEK1.5 billion also if you look back a year ago. Power production, already mentioned, a very nice development as you can see on the slide. Total capacity of 1.5 gigawatts in production at the end of the Q3 and the production at 430 gigawatt hours. Operating expenses are basically following the development of the plants, stable EBITDA margin of around 83% this quarter. And the last 12 months, as you can see, EBITDA sorry, revenues of 1 point 7,000,000,000 and EBITDA of SEK 1,400,000,000 more than doubling compared to the same period last year. Looking at services, this is a segment compromising of both the O and M and the asset management services that we provide to the solar power plants that we operate basically. We do only serve our own plants. We report revenues of $60,000,000 and EBITDA of $22,000,000 in the quarter. And EBITDA is also fairly stable year on year, but with some contract mix effects affecting EBITDA in this quarter. And the last 12 months again, revenues reached $234,000,000 and EBITDA $88,000,000 a 38% EBITDA margin. Now on the D and C side, we saw fairly low construction activity in the quarter, but a strong project pipeline development. Revenues were only €30,000,000 but with a 13% gross margin for the quarter, in line with what we guided on before. But the operating expenses continue to be stable in this segment. This is also where we have the expenses of the development work that we do. And we had an EBITDA loss in the quarter. So also just to mention that, the ongoing grid connection and conditioning activity in Ukraine has affected Argentina has affected the timeline. And as mentioned by Raymond as well, it's pushed into the Q1 next year. Now the growth in the pipeline and our efforts in on the project development side cannot really be observed in the financials for this segment. But that doesn't mean that there's value not being created. There's a lot of value being created as we speak, and Thierry will talk more about that in a minute. Touching upon the financial position as well, a fairly stable situation compared to the previous quarter. Total assets stood at close to SEK 24,000,000,000 up from SEK 21,600,000,000 at the end of last year. And the consolidated cash in the group was €4,000,000,000 of which €1,900,000,000 was free cash at the group level. And then if we just look at the movements of the cash through the quarter, as we continue to present, the distributions that we have received from the operating power plants have reached $70,000,000 in this quarter. And we have invested CapEx of about $67,000,000 into project development again, a lot of activity within development of new projects. And we also paid dividends of SEK 131,000,000 in the quarter to our shareholders. And then finally, we've seen a positive movement of working capital in this quarter, again as a consequence of us finishing up some of the construction activity that we have been active on in the last year or so. So SEK 1,900,000,000 of cash. In addition, an undrawn credit facility of SEK 1.6 €1,000,000,000 available. Short term guidance. Now the plans that we are currently constructing, the total contract value is €1,100,000,000 We booked most of that, SEK45 1,000,000 is the remaining contract value that we haven't not recognized so far. And we're quite clear on that the D and C revenues are expected to be low also in the Q4 2020 until we start construction of new plants into 2021. On the production side, we guide on a fairly stable development quarter on quarter, as you can see in the table here. The same for services, in line with what we have guided on before, EUR 240,000,000 of revenues this year and EBITDA margin of around 35% is what we expect to see in that segment. Terje? Thank you, Mikael. So the pipeline stands now at approximately 7 gigawatts. It's up around 900 megawatts since the Q2 presentation. We continue to focus on what we consider to be fundamentally attractive markets for renewable energy. This means that these are markets where there's a long term potential for developing renewable energy projects and adding renewable energy capacity, as well as these are markets where we believe that our strengths are important in order to succeed. Today, I will go a bit more into some of our core markets, explain a bit what we're doing on the development side. Development side as such in terms of what is coming into the pipeline is relatively predictable, these development activities. And then the final stage in bringing them into the pipe into the backlog, which implies also securing the offtake contract for these projects that is more related to how the markets are developing and their specific market opportunities. So I'll talk a bit about both of those elements in terms of some of our core markets. I'm starting off with South Africa. South Africa is, in a sense, the cradle of Skatex Solar. It's, in a sense, our whole market. We have a strong pipeline here of about 1.4, 1.3, 1.4 Megawatts. And they've been working on developing a pipeline here over a number of years. We have a large pipeline of established projects that are ready to bid into future tenders. We are continuing to permit these projects so that we can also increase the size of the projects and that we can also add storage and batteries on these project sites. So we are developing them into multi technology sites. On top of that, we are also in a number of negotiations in terms of stepping into some wind portfolios in the countries. So in terms then of the market opportunities in South Africa, and let's focus on the short term opportunities. First of all, we have the risk mitigation IPP procurement program, which is coming relatively soon, is expected to come already Q4 this year. And we are working to participate in those tenders. The tenders are for dispatchable power from early in the morning until late in the evening, but we believe that we're able to put together attractive propositions in that auction. Then we have the more traditional renewable energy IPP procurement program, which is expected to come in round 5, with round 5 already next year, and then round 6 and 7 following that. This is on the back of the integrated plan that has been established for South Africa and is expected to be tenders of significant sizes in the numbers of several gigawatts. Finally, in South Africa, there's also opportunities on the corporate PPA side. Short term, there are opportunities related to on-site generation and on-site PPAs. But over time, as regulation is coming into place, it is also expected to be opportunities related to off site generation with wheeling. And then again, our existing pipeline of projects are coming into play. So this is to show that in South Africa, there are a number of short term opportunities on the market. Then in terms of Vietnam, in Vietnam, the pipeline currently stands at 9 30 Megawatts. And in Vietnam, we are continuing to develop a broad range of projects across solar, floating solar wind and nearshore wind projects. And in terms of short term opportunities in the market, we see that or we expect that FIT for wind is going to be extended beyond 2021, and then we are in a good position to participate in that market. And we also expect that there's going to be significant tenders on the solar side also shortly. On a longer term basis, it is expected that Vietnamese market on the renewable energy side is going to grow by more than 20 gigawatts by 2025. Moving forward to Brazil. Also in Brazil, we have a significant pipeline of about 1.1 Gigawatts. Here, we are developing large PV projects together with partners, both local development partners as well as large energy players. In terms of the market opportunities in Brazil, this is a more deregulated markets than the other ones. And here, we have opportunities to enter into corporate PPAs and also sell into the merchant market in addition to participating in auctions. So here, we can ourselves put together contract structures and move forward with the projects as soon as we have a decent offtake structure in place. And also here, we anticipate that we're able to move forward with new projects relatively quickly. Then finally, India is a newcomer. In this context, we have 900 megawatts of projects in the pipeline in India. And in India, we are currently negotiating participation in a number of large projects. We have been watching India for quite some time, and now we see that the combination of the dynamics in the market as well as the potential economics that can be realized in the market is matching our target rates. And therefore, we see that this is a good time to also start moving into India. As you know, India is a large growth market. They're going to add a lot of gigawatts over the next years, and it's relatively predictable in terms of tender opportunities, both on a federal level as well as on a state level. So we are looking into acquisition and participation into ready to build projects that have already secured tariff through the auctions as well as preparing ourselves for future auctions in the country. So with that, I think I will hand back to Raimon to continue the presentation. Thank you, Thierry. Now where has Skatex Solar come from? Only 6 years ago, Skatex Solar was listed. We have been building a company stone on stone, brick on brick. And we started as a regional solar developer and IPP, picking out the market that we saw were having the best opportunities. And our business model had 4 elements: development, construction, operational maintenance as well as the investor. That model has fared as well. And from 2014 until now, we have built a company that has taken a place among the top solar developers in the world. It's now natural for us to see how we can develop the company further. And that's why this day is so important because today we are sharing with you all our broadened strategy for the future where, of course, solar is going to be extremely important for us. We're adding wind. Tali, I've just shared with you some of the opportunities that we see, and there are several 100 megawatts of opportunities, both onshore and nearshore that we are looking at. We are bidding a project or putting a bid together in South Africa for a large PV storage plant. And of course, extremely important, the acquisition of SM Power and what that adds to Skatek. Skatek will be our future name. Of course, we're not only a Skatek Solar, a solar company in the future. We are a broad renewable company that will entertain the opportunities that we see are in an accelerating mode. So I'm extremely enthusiastic about the future. But then going a bit back to Skalte Xol as we stand today, the acquisition starting tomorrow well, rather we need to go through a period of approvals before the financial closure is a reality. But once that happened, of course, it's going to continue to lift the company forward as I just mentioned on the previous slide. But going back to Skatek Solar and our pipeline, not including the pipeline that SM Power represents, We have gone up by 900 megawatt to 6.5 gigawatts that we're working on at the moment. And the 900 megawatt has been added over the past 3 months. And you know that traveling has been a challenge, but it also let you know that it is possible to develop projects the way that we are organized also in difficult situations like the world is facing right now. As Mikael said, we are in an extremely solid financial position. And finally, I would like to reiterate, as I've done over the past few quarters, the goal that we have set to be completed by end of next year. And that is 4,500 Megawatts in operation or under construction. And the reason why I'm saying this again is of course it is our target. And the reason why it's continued to be a target is that some of the projects that are in Thales on our pipeline are big projects. And of course, we are extremely hopeful that we will be able to turn it into backlog and then later construction. Acquisition of Essen Power. We will have a press release sorry, a press conference in 30 minutes' time here in these offices or premises. There will be and that will be in Norwegian. And then there will be an investor presentation at 10 that will be in English. So we hope to see you all during the day. Thank you very much for listening. So understand that there are no questions from the audience. There are nobody here, by the way, except from a few very important people, but there are no questions from the Internet either. Okay. Thank you very much. Thank you all.