Photon Energy NV
WSE:PEN
Earnings Call Analysis
Q4-2023 Analysis
Photon Energy NV
The company made a significant move by returning to the feed-in-tariff system in Hungary, expecting to stabilize income and enhance financial results. They anticipate benefiting from consumer price index adjustments, albeit future increases may not be as dramatic as the previous year's 16.6% rise due to falling inflation rates. This transition marks a strategic de-risking from an 80% exposure to the merchant market to below 50%.
In Romania, the project development remains dynamic, even as the company intends to sell some of its project rights, like the high-quality 54 megawatt project, expected to close by mid-year. Similarly, in Poland, the sale of small and medium-sized projects is in advanced discussions, likely concluding soon. These moves indicate a broader realignment of capital expenditures and strategic focus on areas like energy storage; however, the company is committed to developing more power plants in Romania beyond 2024.
The company confronted several setbacks in 2023, including lower generation volumes, a significant decline in energy prices across all markets, project delays in Romania, and heavier impacts in the components trading business. The challenges were further complicated by the complicated integration of Lerta, which, despite increasing the company's offerings and de-risking IPP reliance, incurred significant management effort. The EPC business, however, stands to improve as a new milestone was achieved with a 21 megawatts peak third-party EPC contract.
The financial results reflected a decline in revenues and EBITDA, partly mitigated by the EPC segment's performance. The company's balance sheet benefited from the inclusion of Romanian assets, but personnel costs spiked due to Lerta's integration. The company refrained from providing concrete guidance for 2024, citing a need for reviewing budgets and forecasts amid many moving parts. They expressed a commitment to improve financial performance from the previous year.
New Energy saw EUR 25 million in demand-side response revenues, suggesting a significant future contribution to the company's profitability. Meanwhile, the results of a pilot project for PFAS contamination with the Australian Department of Defense showed promise, with discussions on applying the technology at contaminated sites in Australia set to commence following extended contract review periods.
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Good morning, ladies and gentlemen. I would like to welcome you to the Q4 2023 results conference of the Photon Energy Group. And it is today my great pleasure to introduce to you our new CFO, David Forth, who is taking over this position after -- well, from me in my interim role as a CFO. And I will allow him to introduce himself a little bit. I'm sure some of you or most of you have seen his bio.So he's a very experienced and seasoned CFO who has worked in many, many companies. And we will run you today through providing with a business review. David will then present our financial results and comments about guidance. And then, of course, there will be space for a question-and-answer session as usual. David?
Yes. Good morning, everybody. I'm very pleased to be here at what is a pivotal time for Photon Energy. You must forgive me, I've only been here for a short time, so I don't have all the answers yet. It's clear that there are lessons learned from last year's results. So I'm impressed with the talent, the energy and enthusiasm that Photon brings to its business. There's a lot to do in this business, but this -- they do have -- we do have the skill and opportunities to do well. This business deserves to do well and that's why I've joined it.
Thank you, David. So before we delve into the financial results and here of course, it is clear that last year was a very, very difficult year for us, with a lot of challenges. And some of the pillars that we have built our plans on have turned out not to be as strong as we hoped. And as for combination factors, it's lower -- significantly lower and declining energy prices, delays in our commissioning and a very dynamically worsening situation in our components trading business, which in 2022 was another strong pillar.We have had a difficult year. So we'll walk you through the key highlights and also provide a glimpse into 2024 and all the measures we've taken and why we believe that we will be able to provide a very interesting turnaround dynamic in this year.So let's start with the investments energy generation segment. So -- and this is actually one of the highlights that not everything was bad in 2023 because we did manage to increase our generation capacity by the highest clip in our history by adding 35.4 megawatts of installed capacity in Romania, which is now our core market in terms of expanding our IPP portfolio.In this market, we are truly at the forefront. So it is a market that is now getting a lot of attention. But -- and there's a lot of investors, both domestic and also internationally, who are acquiring projects and are commencing the construction of power plants. But in terms of speed, we were the first. So Siria, the power plant in Siria that we connected in March was the first utility scale solar power plant connected in the Romanian market since 2014. So we kind of opened the market. And by now we have commissioned and connected 10 power plants. So in terms of number, we are definitely well ahead of everyone else.And given that this to -- by all means, is a virgin market. Although there has been quite a lot of activity in 2013 and '14, 10 years is a long time. So we were about to commission our power plants. We ran into a lot of red tape, unresolved issues with the -- a lot of stakeholders and most notably the DSOs who are simply not prepared to go through the paperwork. We're not really sure what to ask for. And as we had multiple power plants with different DSOs, we went through this joint learning curve on multiple occasions.But we have mastered this. And I think what we see today on the power plants, the last 2 power plants we connected and we have another 3 to be connected in the next couple of weeks, we definitely see that the entire process is handled and understood very well by our team. And we are getting to where we need to get in terms of connecting the grid, signing the initial power purchase agreement with the Romanian TSO much faster than what we achieved on the first power plant.So -- and this is also a market knowledge that we believe to be a major competitive advantage in Romania, which again at the moment is for sure one of the hottest markets in Continental Europe in terms of attention it's getting. So 35.4 megawatts, another 3.8 megawatts we connected in January in the location of Bocsa, so that's under 10. And in the second quarter, we are about to -- so there's 3 more to be connected. And in the second quarter, we are planning to commence construction on other 4 power plants.And this is also the financing that we are currently finalizing with the [ EP&T ] is executive finance construction of these power plants. So this is something with the 17.7 megawatts. This is something that is planned to be commissioned later this year. And furthermore, there's 3 more power plants that have -- that we intend to commence construction later this year towards the end of the second quarter, maybe earlier third quarter, for which we've also already secured the project finance.On the electricity generation front. As we now have a lot more installed capacity, we have been able to grow the volume of electricity generated. Looking at the fourth quarter in isolation, we generated almost 25 gigawatt hours, which is a 1/3 increase compared to the previous year. And for the full year, we generated almost 140 gigawatt hours, which is a plus of 15%. So what we've seen last year across the portfolio is lower specific production. Essentially, the weather across our portfolio was worse than in 2022, but of course, the higher installed capacity or weighted average installed capacity was higher.And one other factor that has reduced the capacity -- the volume of electricity injected into the grid is that the number of hours with negative prices. And again, we are selling -- last year, we were selling on over 80% of unsold capacity into the day-ahead market. The number of hours with negative prices has increased. And in these hours, we are not selling into the market at a loss, so we are switching power plants off.And I think in the monthly, there has been -- I mean, actually quarterly, I think there's an analysis of market to market, how many hours had negative prices in 2023 compared to 2024. So this is something that has increased. And most likely also in this year and beyond, we'll see more and more hours of -- with negative prices. However, as we have switched back to the feed-in-tariff on our Czech portfolio and now in the process of moving back with our -- most of our Hungarian portfolio back into the feed-in-tariff, this will not have an impact on us.And in Romania, we are currently selling all the electricity generated by our power plants to the Romanian TSO. So this is a mechanism that bridges the time between the commissioning and the time when the generation licenses are obtained from the regulator. And by the Romanian TSO, we are being paid the 90-day rolling average price of base load electricity in Romania. So it's the daily average. So that means we don't have -- we don't feel the impact of the [ DAC ] curve, so the impact of the low or in some cases negative prices that are occurring during the day.So as long as this mechanism is in place on these power plants, we are protected from negative prices or even low prices as we're getting the daily average, for the last 90 days and this is updated every day, so it's a rolling 90-day average. So from that point of view, this year, the impact of these negative price time slots is significantly minimized and also the revenue model is much more robust than what we saw last year.Which gets us to the next slide. Electricity prices have been under significant pressure for 2023. So from a very high level in 2022, with what probably could be best described by a very extraordinary peaks, both in the spot and also the futures markets in August 2022. When German base load for '23 -- futures for 2023, we are trading at EUR 1,000 per megawatt hour. Since then, we've come a very long way down. And this has, of course, impacted our financial results last year.So the plan -- the financial plan for 2023, which we completed at the end of 2022, was assuming a higher level than what has been observed in the market. And as a reaction, now as we indicated by the futures curve that we see today, the most sensible thing to do is to go back to the feed-in-tariffs, which is something we've done as of January 1 for our Czech portfolio.Just as a reminder, this is a decision we can change once a year. So we have the possibility to switch back to the green bonus system, or keep the subsidy element, but remain owners of the electricity and market it once a year that we need to make the final decision and file it at the end of November. So it means at the end of November '23, we switch back to the feed-in-tariff for '24 valid as of January 1. So here we have technical flexibility.In the case of our Hungarian portfolio, we have initiated steps to return back to the Hungarian feed-in-tariff system, which is covering about 89% of our Hungarian installed capacity. The rest will remain in the market. And as things stand today, this should be valid as of April 1. So which will mean that we will have been in the market for exactly 2 years because we exited the feed-in-tariffs system back in '22 as of April 1. So April 1 we should be back based on today's information.And the feed-in-tariff in Hungary is paid in foreign and it is valid from now on. It should be valid for another 20 years because there's a time limit and also a volume limit. So what we have left on our contracts is around 20 years. And this Hungarian foreign feed-in-tariff is indexed based on as consumer price index minus 1%. So it's updated every year. And based on the very high inflation in Hungary, Hungary was the country with the highest or one of the highest inflation rates in Europe. So the average CPI for 2023 was 17.6%. So the increase as of January 1 was 16.6%, so 17.6% minus 1%.As a result, the -- not only in foreign, but also in euros, the feed-in-tariff has increased significantly. So we currently stand at the current exchange rate above EUR 120, so I think it's EUR 122. And that is against a market price. So if you look at the futures, for example, for next year, we are in Hungary between EUR 65 and EUR 70.So by moving back, we actually jump back into the feed-in-tariff at the level which is almost double the current level and we will, going forward, continue benefiting from the CPI adjustment where, however, it is important to say that the inflation rate in Hungary over the last 2 months has decreased dramatically and for January we're below 3%.So these future adjustments will probably not be as significant as last year. But this increase by 16.6%, of course, has put the feed-in-tariff on a much higher trajectory as well in comparison to the financial plan that we had when we originally built and financed those assets 2018, 2019 and '20. So this is the rational thing to do. It will stabilize our income stream and of course, also strengthen our financial results.So it is derisking of our portfolio. And as you can see from over 80% of capacity in the merchant market after this -- once we return back with Hungarian portfolio, we will be below 50% of power plants selling at the merchant level. So the remaining Hungarian power plants, of course, our Australian power plants and in Romania, while also technically merchant, as I mentioned before, for a period of up to 2 years, we can stay in this offtake mechanism with Transelectrica, where we get paid according to formula linked to market prices, but it's a stabilized price and actually protects us from the DAC curve.So we believe that this is the right and most value-enhancing adjustment to our revenue model, which the switch to merchant definitely was very beneficial in 2022 and that has been the exact opposite in 2023. So it's a derisking and stabilization of our future revenue streams from our generation portfolio.Which gets us to our project development activities. And here, the most active market in Europe remains Romania, where we continue developing a significant pipeline across all stages of development. So we have our pipelines on the construction. We have 17.7 megawatts that we mentioned before, where we want to commence construction in the second quarter. But also, as you can see in earlier stages, we have projects.In general and we already discussed that in our call for the third quarter, we have significantly reduced our strategic goal for PV-only utility scale generation assets to 200 megawatts. So this is a target that we will still -- we're still focusing on, however and more on that later, we see other areas where we want to focus our capital expenditure in the future. However, we definitely want to complete that also beyond 2024 more power plants in the Romanian market.However, we have -- and this has also been indicated before, taking the decision to sell some of the project rights in our portfolio. So sticking to Romania, that is -- that relates to our largest project in the market with a plant capacity of 54 megawatts peak. And here we are in advanced, but an ongoing process with one international investor targeting the Romanian market.When we marketed this project with multiple parties, so we are -- it is in the Romanian market situation today, we believe it's definitely one of the best projects. We have already obtained a construction permit. So it is a high-quality project. And this is a transaction that we expect to close around the middle of the year.The second market where we have taken the decision to monetize our development plan is Poland where, as has been announced already, we sold one project with 2.3 megawatts of plant installed capacity just before the end of the year. And with the same buyer, we are now in the -- in advanced discussions about our remaining small and medium-sized projects. And that, again, is ongoing. And there we believe that now that we've gone -- jointly gone through one transaction, we will be able to conclude that in the near future.And in addition, we have a 20 megawatts project where with another buyer, international investor in the renewable space, we are now at already solidly advanced discussions and negotiations. And we are quite confident that we can bring this to a conclusion before the end of the first quarter. Of course, these transactions are complex and take time. But I think we've reached a stage where we attach a high probability that this phase may happen before the end of March.So if all this gets consummated, we would have sold all our PV-only projects in the Polish markets. We still keep a relatively significant land bank. So we have around 100 land lease agreements, which we are keeping alive and extending. And that keeps us the option open to team up with developers, for example, wining capacity in that given area. And we have already had instances like that. It keeps -- it will allow us if that grid connection capacity situation in Poland changes to restart the development process and some of these projects may also be used for the development of storage-only projects.And in -- and this is an area that we are also focusing on. It's not something we are publishing in detail, but we have identified certain blocks and are going through the process of developing storage on the projects. Of course, the land that we require is much smaller. So these are different plots we are signing up and asking for good capacity.In the Hungarian market, we are facing a situation where grid capacity awards are not frozen. It was the exception of auctions, which are happening at infrequent intervals. So what we have available is 3 projects, which was installed capacity of 4.1 megawatts, which are in the region of Hungary, where we already have other operating assets. For these 3 power plants, we have already obtained and secured the project financing. And here, we have a clear intention and path to commence construction as I mentioned before, between the end of the second and beginning of the third quarter.And we have another 2 projects with 2.7 megawatts, which are trailing slightly behind in terms of permitting. After we also believe that -- it also depends on the development of market -- electricity market prices because these, by definition, are merchant projects, there's no support scheme attached to these projects that -- so this is something that if we make a decision to proceed, that will probably also happen later this year.But on the 3 projects with 4.1 megawatts, we have essentially all the permits in place and we have the project financing secured, which leaves us with Australia. And here since our last call, there's been major -- no major update. So we have the 9.8 megawatts project that would also include storage. So it's a hybrid project in Boggabri, where we are completing the permitting and also working on project financing.And the rest of the pipeline are projects based on the RayGen technology. So the 200 megawatts relates to our project in Yadnarie in South Australia and 455 megawatts are 3 projects that are at an early stage of development in New South Wales, basically intended to be built on the basis of the RayGen technology.So the next is the New Energy division, which is essentially just created after the integration of Lerta. And here, of course, the most significant activity in terms of head count, but also all the financial parameters is demand-side response. And as you can see from the first chart, in terms of contracted capacity, there's been very significant growth from only 5 megawatts in 2021 to 52 megawatts in '22.Last year, we had 134 megawatts of capacity under contract, which generated around EUR 7.7 million. And after the successful option in March -- the successful additional option held in March last year, for 2024, we've contracted 389 megawatts, which translates into around EUR 25 million of revenue. So essentially, in revenue terms, we're more than tripling the revenues from this DSR activity.And as you can see, the -- because these auctions are technically held for each quarter, so there's also the Polish Transmission System Operator, PSE runs auctions for each quarter and in each quarter the volumes differ, but also prices are different. So that flexibility provided by DSR has a higher value. And at the end of the day, there's a price in the first and the fourth quarter, which is also reflected in the second chart for 2023, where you can see that our revenues were highest in the fourth quarter, followed by the first quarter and significantly lower in the second and third.And this is also a picture that has been -- that is replicated for 2024. So both in terms of revenues, but also in terms of profit contribution, we will see the strongest impact from demand-side response in our Q1 and Q4 numbers. So as a result, it is actually inversely correlated with the revenue profile from our PV portfolio and our energy generation. So just like our 2 power plants in Australia, thanks to the difference in seasons between the Northern Hemisphere, we have now a second element that balances out the seasonality of our generation portfolio.And yes, what is important to note here is that the next auction, the next additional auction for the year 2025 will take place in March 2024, where we still -- well, we're still very buoyant about the potential to increase our activity levels. So that aim is definitely to continue growing from the contracted level for 2024. But of course, it will depend on also the pricing level and the general situation in the Polish market. But we are going very confidently into this auction to make sure that these are revenues which this year and now it's really obvious, is becoming a pillar of our financial results, that this will get further developed for '25 and beyond.Looking at the other business segments, we have seen very positive development in our EPC revenues. So the yellow parts in the chart, so the EUR 10 million in '22 and EUR 18 million relate to internal revenues. So these are revenues that were generated by our EPC entities in the process of building power plants for our own portfolio. But if you look at the blue segment, which relates to EPC activities for external customers, we've seen an increase by over 140%. And going forward, this is a revenue line that we are planning to expand very dynamically, both for utility scale, but also behind the meter.So the revenues that we generated -- external revenues that were generated in '22 and '23, almost exclusively relate to behind the meter installations, PV systems that were installed behind or near the point of consumption of commercial industrial energy users. And this is a segment where we continue seeing growing demand.And there we are expanding our efforts to win more and more of that business. But in particular, in the Romanian market, where as I mentioned before, I think we rightly -- you can rightly consider ourselves as a bit of a pioneer in building and most importantly, commissioning power plants, but also in the Czech and Slovak markets, where we expect a very significant increase in EPC activity for utilities at power plants in the next couple of years.So this is definitely a revenue line or revenue stream that we are very keen on growing further. And I believe that in the next couple of quarters, we will be able to demonstrate the results of our efforts to increase this activity. And this is also very important in the context of the development in our component trading business, where 2023 and in particular, the second half has been very, very disappointing and hard.So at the midyear and if you look at our half year results, you will see that that our components trading business in the first half of 2023 almost exactly copied the results for the first half of 2022, with around EUR 20 million of revenues and EBITDA over EUR 1 million. But then the second half, the developments couldn't have been more different.So while we had an extremely strong and profitable second half of 2022, on the back of particularly of our distribution of batteries, for which there was significant demand and the shortage in the European market, for a while we had a almost a hockey stick development in Q3 and 4 in '22, we've had a very, very significant decline year-on-year and also against our plans in the second half of last year, where we saw oversupply.I mean, this is something that is continuing to this day. There's oversupply of pretty much all components. That means modules, inverters, but also batteries, which we believe will still take a bit of time to be absorbed by the market and before the market structure and situation returns to something that, based on our 15-year history in this business, we would consider normal.And the question is whether that, maybe the market structure will be different. I mean, what we've seen is that manufacturers in the despair to sell their products have been chasing final uses of technology and bypassing the distribution chains. So we hope that the situation clarifies and calms down in the next couple of quarters.And -- but in our thinking, definitely the growth will have to come from the EPC business, where we take those components and actually build installations for final customers. But the components trading remains an integral part of our business model, but it's definitely in a different situation than where we were in 2022 and early '23.To come back to a business segment with good news is definitely our operations and maintenance business, where we managed to turn what as you can see used to be rather modest step-by-step growth into a much more dynamic development, where we added almost 80% additional capacity just last year, getting to 680 megawatts by the end of January, we were already over 700 megawatts peak.Here, the growth has mainly come from Poland. And here -- and this is something I cannot reiterate more strongly. We have managed to develop the O&M business truly from scratch. So without having our own assets, as we had in all the other markets, or having built for external customers on the back of EPC business, we truly started from scratch and have shown some tremendous dynamics.And towards the end of the year, we managed to sign some very large power plants and our first power plant of around 100 megawatts, which is definitely a milestone for us, not only the Polish market, but it really puts us into a new league. And actually, since then, we can see that we are being approached by customers.This has really put us on the radar of a lot of large investors who are in the process of building solar assets at 100 megawatts and in some cases, even significantly beyond that. And so we are getting approached by some of these investors. And this quantum leap in the size of power plants we're taking care of is definitely putting us into a much stronger situation and competitive situation -- competitive position towards our competitors.And the other strength that we have is that we are essentially the only PV operations maintenance company that has a regional footprint and a significant number of assets in each of these markets across the 5 markets where we operate. So while we compete with O&M providers in each of these markets, none of them has this regional footprint.And now that we have demonstrated that we can win and execute business for large power plants, we are in a very interesting situation. And of course, the goal and the imperative is here to continue growing this business line.And operational maintenance is, of course, while it is relatively small in the terms of its contribution to our overall financials, it is a very stable business. I often compare it to facility management and real estate. And it also provides interesting operating leverage. So as we grow, we'll be able to see some very positive developments in relation to its profitability.So just to pick out some specific highlights in the fourth quarter, we've already talked about the expansion of our portfolio. And another area, which is the third point, which for us is an important milestone, is that we have signed our first behind-the-meter power purchase agreement for a behind-the-meter installation.We're working on multiple such opportunities across the region, but the one that made it first across the line is a PPA we signed with FORVIA Clarion in Hungary for the installation of a 630 kilowatt peak power plant, where all the electricity will be consumed in that -- by that factory. The projected volume of electricity produced and supplied over those 20 years is 13.5 gigawatt hours.These behind-the-meter PPAs are actually a very complex product, easily underestimated and it has taken us quite a long time to fine-tune it. And -- but today we're in a situation where we have that product ready, not only for the Hungarian market, but also for the Czech and Polish markets. And so much I can say that there are ongoing discussions with quite a long list of other corporates who, just like in the case of Clarion, have a structured approach to reducing their carbon footprint and who, for various reasons, do not want to deploy the capital outlay themselves and are looking for a solution that replaces operating costs related to the purchasing electricity from the market with operating costs related to the purchase of electricity from such arrangements.We've already spoken about the O&M portfolio. So here clearly, we have seen a very positive dynamic where in Q4 alone we added 130 megawatts and this is continuing. So I believe we'll be able to provide some positive news throughout the year. Here, maybe just a short hint that we have a strategic goal that we formulated some time ago of having 1 gigawatt under management by the end of '24.We're quite confident that this goal will be achieved and of course, the ambition is to exceed. Here, we really have the right dynamics going on. I've talked about the exit from our Polish project and how we're working on exiting the remaining Polish and the largest Romanian project.Another important development is that we have entered into negotiations and on 24 of January this year, the Management Board of the EBRD also approved a financing facility for some of our already built power plants in Romania and the -- for next power plants, the 17.7 megawatts peak that we will start commencing construction on and out of this EUR 15 million, also EUR 2 million relates to our New Energy activities in the Polish market.And last but not least, we have seen a very positive dynamics in our installation, our C&I PV system installation business in Australia, where we're winning new and new high-profile clients across the Australian market. And we have also signed an EPC contract down under for 21 megawatts peak, which to date is our largest third-party EPC contract for utility scale power plant.However, we're at this point not yet able to provide more information, so we expect an announcement with details on that soon. But it is definitely another milestone for us, as we now are planning to increase our activities as an EPC provider for external customers.So just to wrap up this part before I hand over to David, just a quick overview of what went wrong in 2023 and it's a relatively long list. There will also be a slide on what worked. So last year, looking at what went wrong is that we have had lower generation volumes in terms of specific performance, both for the full year, but also that extended to the fourth quarter.That on its own wouldn't have been such a drama if it had not been for the significant decline in energy prices. You can see we've had a massive reduction in the average prices that we achieved across all the markets. That also extends to Australia and that had, of course, the most significant impact.And here the picture got worse during the year. So we had a certain assumption at the end of 2022 for budget '23. And if you look at the price charts for both electricity, but also energy futures, you can see that this is something that has been on the sliding scale throughout '23 and it has also extended into the beginning of this year.Unfortunately, we don't have a crystal ball. I believe that there will be a turnaround in energy prices, but it's very hard to predict, given the multitude of factors influencing energy prices, ranging from the structure of the energy mix, economic development here.I think we cannot underestimate the impact of the economic weakness of Germany, but, of course, there are also geopolitical factors and it is very hard to predict. The reality today is we see significantly lower energy prices. It's also the market expectation reflected in futures and this is why we made a decision to rebalance the revenue model across our portfolio, as discussed before.I've already spoken about whether we had the delays in Romania. So capacity, we expect to be online in the first quarter and the beginning of the second quarter last year was connected throughout the year. As a result, the overall volume was less than we expected. I've already talked about the developments in the components trading business. And here, the strongest impact was in the second half. Then we -- also in updating our guidance for last year, we referred to the sale of our project rights, where at the time we were expecting to conclude the sale of our Polish project.So as we discussed before, we have succeeded in the case of one project. So -- and we are at this point very confident that we will be able to conclude the sales transactions relating to the rest of our Polish portfolio. So it's not that it's off, it's just unfortunately late. These transactions do take time. And -- but we believe to have material progress in the next couple of weeks.And then -- and this is also not something that we -- can be underestimated is that the integration of Lerta, both in terms of business, but also organizationally, has been quite challenging and also taking up quite significant management time. With Lerta, we won around 100 new colleagues and that number has also increased last year in certain areas. So this is the first time we are integrating, we've consummated an acquisition. And of course, there are lessons learned, which we are applying and I think that we have come a long way now that we are soon going to be 15 months into this process.And we can see now the fruits of that focus on getting that integration done. And from our point of view, the strategic logic of this step is now actually becoming even more apparent, now that we have seen the risks related to a strong focus on IPP.So extending the business model to having more services we can offer in relation to the operation of assets and also the operation of external customers' assets was definitely the right decision. And we're working very hard to also turn that into business and financial results.
Thank you, Georg. And I think that's the last slide we're on. So I think that what went right, we already talked.
Yes. Okay. Thank you.
Yes. Actually, on that last point, I spent quite a lot of last year working at a Czech business, also listed, but listed on the London Stock Exchange, which had made a large acquisition in Poland and it also had faced some integration issues, which we managed to resolve. And once again, this is a story of a business which has grown its footprint and its business offer, but integration is quite a difficult thing to do well and I think that there are lessons from it.But to the financial results. Now Georg's really set out how the business managed during the last year. And how that translates is into a fall in revenues, both in the quarter and for the full year as you know from the slides. Can we see the slides, by the way? No, thank you. It's always easier with the slides.Yes. So revenues in the quarter down by 45%, particularly troubling there and particularly that is coming from what we call our technology business, which, as Georg has already said, was impacted by the fall in prices and also appetite amongst customers of the components, the PV components business that we've got. That has a major part to do alongside electricity generation in the full year results, where revenues dropped from EUR 95 million to EUR 74 million.Now all of this has come through into EBITDA, but there is some good news balancing the fall in revenues from the components business from our other segments, particularly EPC. So at the EBITDA level, Q4 seems to be a low area for EBITDA anyway, because of the electricity generation, but we fell 75% from relatively low EUR 1.5 million in the last -- in same quarter previous year to EUR 400,000 in the last quarter. That also obviously carried on through the full year and that has really set us with some issues.Our personnel costs were larger in Q4, largely due to reversals of some accruals, which were made in the third quarter. In terms of the full year, it's worth noting that the '22 results did not have any of the Lerta staff involved. And so we onboarded more than 100 colleagues. That was a major contribution to the significant increase in personnel costs year-on-year.We've got some better news really in total comprehensive income for the last quarter. We were able to revalue our Hungarian power plants to take account of the switch to feed-in-tariffs. And we also took benefit from an increase in value of our RayGen shares.This is an investment which we believe is an important part of our future. We're not the only people that think this because RayGen were able to do a new funding round and they've got a significant new shareholder. The impact of that has increased the value of the RayGen shares. We hold shares and also options in RayGen, so we took benefit from that. On the other side, within TCI, we had some ForEx challenges and our hedging -- our hedges also on revaluation fell in value.Could I have the next slide?
Next. Sorry, I got better at this.
Yes. On the balance sheet side, actually some really good news because of these Romanian assets which managed to land. So our fixed assets increased significantly. Proportionately, our current assets go down and that's because we had some good news on the working capital side. And our cash position fell during the period and that's really a balance of the funding for these Romanian projects where of course, we've now got financing coming in. So I think that's pretty good news from our point of view.The equity position increased only very slightly because of the balance of the lower profits, but the higher comprehensive income. Long-term liabilities increased because of the funding related to the Romanian plants and also because we drew more money on our green bond. The current liabilities increased, that's partly because we made a repayment of our check bond right at the end of the year. So that's really the balance sheet story. But I think given the challenges that the business had last year, it's actually a pretty good story.If you have the next slide, please, maestro. In terms of cash flow development, our operating cash flow is stronger and that's really because we managed to get a good handle on working capital. In terms of investments, of course, we made significant increases in Romania, but in fact, that comes in a slightly lower total number for the year than previous year. Financial cash flow, because of the net borrowing, we do have a larger -- excuse me, a larger position.Our net change in cash is lower than previous year and that is really because of the net effect of our investments against our borrowings. But we ended the year with nearly EUR 6 million of cash, which I think in the relative situation was a strong position.If I can have the next slide, please? That gets us to the guidance story. Now here, in terms of revenues, we were just below guidance, the most recent guidance which was given. Revenues, as you remember, EUR 74 million. We've guided EUR 75 million to EUR 80 million.But in terms of EBITDA, we've come in significantly lower than the guidance that we gave. As you will remember from the time, this higher guidance was given because at the time, we felt that we would be able to get the Polish sales way sooner than we've been able to. These sales do contribute to EBITDA, those particular ones. Project right sales don't always drive EBITDA. It depends on how the transaction is structured, but that is the reason why the EBITDA did not meet the guidance which was conditional obviously on those sales getting away.Now in terms of '24 guidance, the situation is that we are reviewing our budgets, we're reviewing our forecasts and assumptions. And so I would not wish to give guidance at this stage. You really do rather have to excuse me in this because I've only been here for a short time. I think there's quite a lot of moving parts. We will certainly get back to you on or before the time of our Q1 report.I think that would be everything from me now.
Thank you, David. So we will now address the questions. And I -- there's a slide in our annex that I would like to use to answer probably 2 questions. One was actually asking for a geographical breakdown and I can also see there's a question in relation to the profitability of the O&M segment.So as of the end of January 2024, so that includes all the contracts signed at the beginning of this year, this is the exact breakdown. So just as a slight reminder of history, so the Czech and Slovak markets are where we started our O&M activities 15 years ago, originally in the back of our own portfolio. Then we're providing the O&M to customers where we built their power plants as an EPC contractor.And then over the years, we have grown our customer base by signing up power plants where we had not been involved in their construction. And this is essentially the blueprint and this is how we grew not only the Czech and the Slovak markets, but at a later point in Hungary and in Australia, we are providing O&M primarily to our own assets. But in Hungary, we essentially replicated what we -- how we grew in the Czech Republic and Slovakia.So as you can see today, Hungary, although it only started in 2019 in earnest, we already began in terms of megawatts under management and in the Czech market, which is a reflection of the fact that the Czech market has been essentially in a coma for the last decade. That is changing now as new capacities will be added. And in contrast and I mentioned that before already, in Poland and I consider that a really significant achievement, we have been able to get off the ground by only providing the services to third parties.So as you're all aware, we have not built any power plants from our portfolio. We have not been active as an EPC. So we literally started from scratch with the first contract signed for 1 megawatt power plant. And in a very short period of time, we have now come all the way to signing a 100 megawatt power plant. And of course, the portfolio today is quite diverse.On the other hand, what the reality is that between these markets and not staying in the CEE region, we see different price levels. So clearly prices -- O&M in Poland is a very, very competitive environment where there's a lot of small companies that have very low cost base. And of course, this is an area where you can also -- I don't want to say cut corners, but that you can take different approaches to providing solar O&M. But when we go into tenders, of course, we are competing to companies that take a different approach.At the moment, when I look at what we charge per megawatt in a year, we are significantly higher in Hungary and also in Romania at the moment, price levels are higher than what is available in Poland. I mean, clearly over time, there will be some additional pressure. But what I'm trying to say is that in each of the markets in the region, we are in slightly different situations. So in Poland, we've started from scratch in a market that was already relatively large and really now taking a bite into the market share from our competitors.In Romania, we are actually replicating what I was describing before, what we did historically, mainly building on the back of our portfolio, although it is important to say that we entered the Romanian market originally in 2015 and the first activity was O&M. So we've been on the ground providing O&M services to third parties already in 2015. Now we've added our own assets and we see that history and our market position is now putting us in a very good situation with potential new customers.Just to get back to the profitability. As I mentioned before, this is a business where you need scale. We have struggled in the last couple of years to win scale quickly. But I think we've seen or shown now in 2023, in particular the last 2 quarters, that we are able to win business that moves the needle. So really moves the number of megawatts we're taking care of at a much faster clip than before. And I think that this is something we'll be able to demonstrate this year.So if you look at the profitability in the various markets last year, Hungary was our most profitable market with what I would consider a very, very healthy EBITDA margin. Czech Republic, more or less breakeven. Romania, despite the fact that we are still at the beginning, came already very close to breakeven, despite the fact that we are only at 68 megawatts.And clearly, that will expect a positive result for this year. And in Poland, we have essentially been investing into this business since we started it. And this year, we expect to get to a run rate EBITDA breakeven by the end of this year.So what you see in the segment reporting is of course, the total. But when you look at the various markets, some of them are already very nicely profitable, some are on the breakeven point and in the case of Poland, in a nutshell, what we earned in Hungary, we put into the business development in Poland. But the most -- the really important part is that in all these markets, we see significant potential to grow the number of megawatts significantly and that will show in the next couple of quarters.And I think a year from now when we sit here, we'll be able to show a very nice picture in terms of how much we've added this year, but also in terms of financial results. And as we grow, this will shine through more and more. And just a very last comment, while now we're focusing on the O&M of solar assets, storage is coming next. So of course, the same organization, our technicians will -- so we're actually in process, will be trained on doing the maintenance of batteries.And of course, the network of technicians we have can also handle that additional business and which will then provide additional revenue streams. And in the next couple of years, will further drive the profitability of operations and maintenance. And this is also why it's of such a strategic importance for us. Because maybe we want to go one by one.So the first question, what is the contracted selling price in Romania with the local TSO?So the selling price is -- and that's adjusted daily, so the rolling 90-day average of the base load electricity, so the price for 24 hours in the Romanian market. So every day, the 90-day -- the average for the previous 90 days is calculated and that average is then paid for that day in question. So of course, that number is now as prices continue going down, is slowly falling, but the latest number is around EUR 85 that we are getting.And then of course, it's always a question, which price 90 days ago gets replaced with the new price? I would say at the moment EUR 85.Next question is whether we can disclose the terms of the EUR 15 million financing? Not yet. I think what I can say it's a medium-term financing. And it's related to the -- mostly related to our power plants that we are building in Romania. And the maturity profile and monetization profile is structured in such a way that those Romanian assets will be able to service this debt.The next question is how long the contract with the TSO in Romania runs?It's -- just 2 sentences in the background. In Romania, you can only sell electricity once you have a generation license. And this can, as we've learned, take quite a long time just getting the papers from the TSOs, but of other parties to be able to submit the application to the regulator [ ANARE ], which then has 90 days to issue. So this can take many, many months, maybe up to a year, probably this will get better now over time. And in 2021, to the best of our knowledge, the Solar Association has pushed through an amendment to the law and lobbied and then it was implemented in order to avoid a situation where an investor builds a power plant, is ready to connect or connect or can sell it, just has no revenues.So this amendment of the law introduced or placed the -- introduced the right of a solar investor to sign an agreement with the TSO, who acts as an intermediary between the asset and the market until the power plants obtain their license and that arrangement can be in place for up to 2 years. So in essence, the moment we obtain a license, we need to start selling electricity into the market. We have a certain latitude on the length of the process.So for us at the moment, being in this arrangement is beneficial because of the price stabilization, both in terms of, of course, the 90-day average moves much more smoothly than the daily prices. And of course, secondly, we don't have the impact of the DAC curve. So the low prices during the day are not one-to-one reflected.Buyback program will be continued, share price is very low. Well, I think all I can say is that there's been no management decision taken on this and we don't see that as a priority. So I think it's a straight no.How much we expect to get from selling the Polish and Romanian projects? I...
Still negotiate.
Well, we have relative clarity on the project, on the terms, I would say as a reference price for Polish -- so Polish project rights. Well, I think what we can say is that for the project we sold, we obtained and this was a particularly attractive project for the buyer. We obtained a price of around EUR 200,000 per megawatt. However, on these additional projects, the price is somewhat lower, not dramatically so, but it is less than EUR 200,000, so in the bracket of EUR 170,000 to EUR 180,000.For the Polish projects, in the case of the Romanian projects, we are at a lower level. It is above EUR 500,000 per megawatt, but there's still more moving parts in that transaction. So then I think you can easily do the math. So it's definitely in the millions of euros of what we expect to achieve from the disposal of our Polish and Romanian projects.Okay. There was a question, why did we sell the project in Poland for?So I think I gave you a good hint. And so as David mentioned, we are not in a position at this point to provide guidance. I think it's quite clear and of course, it's our ambition to achieve a dramatically higher EBITDA than last year. And I think the steps that we have taken and described in relation to our IPP portfolio, but also in where we are focusing our attention in terms of winning new -- developing our business and winning new business are a clear indication that we are very confident in that 2023 and this is definitely our goal. But when we look back in the future, 2023, it's a negative blip. 2022 was a very positive blip, '23 a negative one. But we believe that 2024 will show that.The next question is what the CapEx for newly built power plants are?So here it's costs of components towards the end of last year and this is continuing now into the new year, have come down very dramatically at the end of last year. So module prices which are quoted in euros and actually euro cents per watt peak of installed capacity, were well above EUR 0.20 at the beginning of '23 and now the level has dropped. And again, it depends on the manufacturers and what type of modules they are. But essentially, the new level is around EUR 0.12 to EUR 0.13.But of course, there's also -- we have also bought modules below that. We've heard of transactions happening even below EUR 0.10, so basically EUR 100,000 per megawatt peak. The level we see now is EUR 120,000, EUR 130,000. A similar reduction in prices we've seen with inverters, also mounting structures, which have come down significantly compared to 2022 and prices for various metals that are used in, whether it's aluminum or steel, have of course, also eased off last year compared to 2022.So essentially, all the inputs have become cheaper. The CapEx per megawatt and I think this is what we mainly need to look at, is also a function of the size of the power plant. So clearly, on a 20, 30, 50, 100 megawatt power plant here, CapEx per megawatt will be quite materially lower than if you build a 1 or 2 megawatt power plant or even smaller. But today, definitely a megawatt can be built. And again, it depends on whether you're building fixed structures or trackers, but we see the costs being below EUR 500,000 for the installation, what we call inside the fence. So this excludes the costs of the high voltage grid protection.In some cases, that connection point is far away from the power plant itself. So there's some additional capital expenditure related to a cable line and the cables, which can be expensive. And of course, very often you have to pay significant grid connection costs to the distribution or transmission system operator. So it adds up.But when we talk about, again to compare apples-with-apple, the power plant itself, the generation capacity, we are below EUR 500,000. And when we talk about really large installations, we're actually approaching the EUR 400,000 level for some types of solutions, using for example east-west fixed structures. That's the level to which we can get on a large power plant.Well, the related party loans, that is something that is being worked on. And this is something that is the controlling shareholders are working on resolving this year. And we will make a communication on that at a later point this year.What is outlook for 2024?Again, at this point we're not in a position to provide any guidance, except that we are working very hard to make this a much better year than last year.Are we looking to decrease overheads?Well, we have had an adjustment in our head count in the fourth quarter, which affected, I think it was 6% of our global workforce. We're constantly reviewing where we have efficiencies, or rather we have inefficiencies that need to be addressed. And as you can imagine, as any good new CFO, a lot of our discussions with David are exactly around that topic. But of course, it's -- we try to look at it from all sides. So clearly, one side is costs, the other one is revenues.And as we adjust our cost base and this is something that of course is very strongly on our mind, we also don't want to jeopardize our ongoing business or business initiatives that have been started, that are incurring costs and should start contributing later this year or next year. Clearly, I think as a general rule, we have in the last couple of years gotten into activities with longer payoffs. And I think in some of them, we can see that it has been going in the right direction. So [ Tilly ] region is such a thing where we invested some time ago. And now we see that the investment has gone up in value, the company has reached its milestones.We are stepping up the development. But also there are other areas now also related to New Energy. But it is also quite clear that given what has happened in the last 12, 15 months, we need to get stronger on business activities and revenues and cash flows, business activities that bring immediate cash flows. And this is clearly also behind our stronger focus on EPC business, which is where the results are quite fast, the cash comes in. So both in terms of P&L impact, but also cash generation, there is a shorter cash impact profile.So there is a lot of things we are looking at very, very closely and adjusting as we go. So which, of course, on one hand will result in a reduction of costs, but at the same time, we are very strongly focused on making sure that we grow our business and bringing the revenues to cover the costs. So I think we have progressed in a short period of time very well with David and we will definitely focus on both the cost and the revenue line of our business.Next question is related to the increase in head count and personnel costs? So clearly the addition of the costs related to the integration of Lerta, essentially was a one-off jump. And I think here I would like to again put it into context of the DSR revenues. So last year there were EUR 7.7 million, now there are EUR 25 million. So also the contribution margin for that activity, which is only fully showing now in '24, it was not available last year. I mean the head count and the fixed cost of New Energy from last year to '24 has not changed dramatically. Rather, small has remained stable, while now we have 3x the revenues.So there's also a timing profile of a difference. And then, however, then what also needs to be taken into account while the number of head counts does not necessarily correspond with the dynamics in the cost of personnel costs also relates to geographies. So while here in the CEE region, the differences between the various markets and the compensation levels are not so dramatic in general. When we add, I mean, the average salaries, for example, in Australia, are significantly higher than in the region.And then, we also have some difference or a relatively significant spread between some of our managerial positions. And then, for example, a technician taking care of power plants, of course, is a different compensation level than our colleagues in the finance department. So this is not only one-to-one or a technical specialist in, for example, in energy storage.So it doesn't move into lockstep one-on-one, which sometimes means that the revenues grow faster than the -- sorry, the personnel costs grow faster than the head count or vice versa. So it's definitely not -- our workforce is not uniform that they all have a compensation level that is very tightly distributed.The New Energy sector negative EBITDA for last year, I think -- and I've just hinted to that, is that New Energy was built for higher business volumes, which only arrived this year. And fully -- so basically with EUR 25 million of DSR revenues, it's going to be contributing positively last year. It was kind of built ahead of that revenue growth curve and this is why we had, in a nutshell, so this is the main reason for the negative contribution last year.So the next question relates to region and the capital increase.So, well, we're currently not at odds of disclosing more than -- sorry, at the liberty of disclosing more than what David already said, because it is a financing round where some closing had happened, but it may not be the final version. So I think here, we'll get back to this it wants to be an official announcement by region. I think what we can say is that this round happened at a much higher level than the last round in 2021. Of course, this is driven and I think the key event has been the commissioning of Carwarp at the end of August last year.So since then, we have a commissioned power plant that has both the generation and the storage element up and running. And from our point of view, that is the trigger event for the higher valuation. So as David mentioned, we have reflected that higher value in our Q4 results, both in terms of the shares, but also the options we have with region, which are contingent on certain development performance for new power plants, which we are confident to meet. So it will be meeting them.So definitely, last year was a good year. One of the things that definitely went well is the [indiscernible] the region. And what is also very interesting to see is -- and I think this is public knowledge, that while we invested for the first time in 2020, in 2021, in the second round we participated, we were joined by SLB, formerly known as Schlumberger, the world's largest energy services provider; AGL, the largest Australian utility, Equinor, and Chevron Ventures.I think, seeing how particularly SLB and AGL interact and actually invest time and resources to develop the technology and commercialize it beyond Carwarp and also beyond the Australian market, it's very, very nice to be in that ecosystem and I can't go into more details. But it is definitely not only from a financial point of view, but also from a strategic point of view and what kind of opportunities this opens for us. It was definitely one of our more successful strategic initiatives in the last couple of years. There will definitely be announcements once we'll be allowed to do so.The next question relates to the -- for how long the feed-in-tariff or green bonus will be eligible for in the Czech Republic?So the answer is that this mechanism has a validity of 20 years. One of our power plants was connected in 20 -- sorry, in 2009, so it will be until 2029 and the remainder of our portfolio, the majority, is until 2030.The next question is about the performance of our bonds.So obviously, we are observing that and I think actually on a daily basis. We have seen the price developments. I think when we go back 6 months or 8 months, the fact that we started -- our bonds started trading below par value was due to the high interest rate levels, but that of course only explains a very small part. So we understand that the development in our financial performance last year has led to concerns, which I think we are addressing and we are trying to communicating as openly as we can.And of course, just like we have been meeting our financial obligations on all our financings in the past, this is also what we intend to do in the future. And I think we have now in the last couple of days, seen a recovery of the bond price. And of course, we do hope that as we now get into a year where we're working hard on improved financial performance, that when that happens and clearly, the Q1 results will be the next such milestone, that it will also be reflected in the development of the prices of all our securities and in particular the bond.On the bond buybacks, this is something we cannot comment on at the moment. And the performance of our water division -- small words, steady -- well, on our activities not related to PFAS remediation, we see some positive dynamics, mainly in Europe, it's the most active in the Czech market. However, all those projects throughout Europe, so there the dynamic is very positive.There was a question about PFAS and yes, [ Robert ], thank you for that introduction.Salzburg Airport just turned out to be very conservative so far. But I think what we need to mention and it was also mentioned in the report, is we have had a pilot project with the Australian Department of Defense, where we applied our technology in a pilot project. We submitted our final report to the Australian Department of Defense in March last year. And the team at defense and the external advisors have been reviewing that report ever since. It's a very long period of time, has been testing my patience, but this is simply how it works.From our point of view and I think we've hinted in previous communications, our point of view, the results were very good. Our contract with defense has been extended last year until the end of January this year and now it's been extended again for a period of 2 months. So I think what we can say is that we now believe that we are in the final stretches of having the report and the conclusions of our pilot acknowledged and accepted by defense and that we will be having a discussion how we can apply that technology on the PFAS sites in Australia. In parallel, we're also in discussions with other entities in Australia that have a PFAS contamination problem.So we're running out of time. So please allow me to thank you for your attention and participation in our today's call. And we're very much looking forward to our next call and it was in the firm belief that the message we will be able to convey will be a materially more positive one than today. Thank you very much. Thank you, David.
Yes. Indeed.