Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Neoen SA (NOSPF, Financial) added almost 1 gigawatt to its secure portfolio in H1 2024, with significant projects in Australia, Canada, and France.
- The company's secured portfolio reached 10 gigawatts by the end of June 2024, making them confident about their 2025 target of 10 gigawatts in operation or under construction.
- Neoen SA (NOSPF) generated 4 terawatt hours of electricity in H1 2024, a 7% increase year-on-year.
- The company signed a landmark 25-year corporate PPA with SNCF Energie for the Le Couret solar farm in France.
- Neoen SA (NOSPF) confirmed its adjusted EBITDA target between EUR530 million and EUR560 million for 2024, with an adjusted EBITDA margin above 85%.
Negative Points
- Revenue and adjusted EBITDA both decreased by 8% year-on-year, standing at EUR256 million and EUR232 million respectively.
- The average load factor of wind assets decreased from 27.6% in H1 2023 to 26.3% in H1 2024 due to less favorable wind conditions in France.
- The average solar availability rate slightly decreased in H1 2024, reflecting lower availability of some Australian assets.
- The company's net debt to adjusted EBITDA ratio increased to 8.1x as of June 30, 2024, from 6.1x at year-end 2023.
- Neoen SA (NOSPF) experienced an increase in maintenance costs for some wind assets in France and Australia, impacting adjusted EBITDA.
Q & A Highlights
Q: The first one is related to slide 19 and 20 regarding the evolution of revenues EBITDA in solar storage. Actually, both divisions highlighted a decline in revenues, while an increase in EBITDA. So, if you can provide some details on the driver of EBITDA growth in the first half, if there were some one-offs or additional components that contributed to this evolution?
A: I want to remind that our EBITDA is based, of course, on the revenues from electricity, but also includes the impact of liquidity damages that we can collect our EPC trucks are indeed something O&M contracts. However, these liquidity damages do not form part of the revenues from an accounting perspective, but they are a part of the business model of securing overall the cash flows of the projects. So this is what you see happening here over the period both in solar and storage with a delayed project that is not yielding revenue, but is contributing to the EBITDA through liquidated damages.
Q: Second question is related to the battery -- new battery project in Canada. You highlighted that you signed this 20-year contract for capacity with the operator in Ontario. If you can provide a bit more color on the revenues that you expect to achieve from this project in terms of split of these capacity payments, you highlighted that the battery will be allowed also to sell and acquire electricity in the market. So, if you can provide some color on the expected breakdown of revenues?
A: It's mainly based on the capacity payments. So this battery will be built first and foremost to support the local grid. It will be a majority of its revenue, the capacity payments that we get from the local grid is typically going to be 60% of the revenue of this battery. And the remaining part of the revenue of this battery will be directly, let's say, generated and handled by Neoen, and typically arbitrage will be a channel stream of revenue for Neoen for this investment in Ontario, which is comparable to what we do in other countries.
Q: And the last one, if you can comment, you highlighted that the approval process related to the takeover bid is expected to be completed in the fourth quarter. If you can give some comments on expect any issues, any possible delays in receiving the approvals for the deal?
A: No, we do not expect delays. I think that we have a very realistic and potentially conservative timeline. As discussed, we expect Brookfield to become the majority owner of Neoen at the end of Q4 '24 and to become the sole owner of Neoen at the end of Q1 '25. What we see at the moment, we see the process going forward well. We have already received some clearances in some of our countries. As you know, it relates to both foreign investment and antitrust. We have filed all applications in due time after the announcement of the deal at the end of May. So we did that over the course of June and early July, and now we are getting progressively a green light coming from countries.
Q: How does Neoen stand out as a great acquisition target? Does Brookfield like your expertise in storage? Or do they like your track record in working with data centers?
A: What we understand from them and what they communicated publicly is a strong interest in the geographies of Neoen. It's a good match for what they already have. Brookfield is strong in North America, for example, but they were not present or at least not present in renewable energy in Australia. They were not so active in Continental Europe. And what Neoen is bringing to the table in terms of capacity in Australia, in France, in the Nordics, in Europe is quite relevant for Brookfield. I also understand from them and from what they have said publicly that the expertise that we have in storage makes a lot of sense. And of course, the size and the quality of the pipeline of projects, even more classic projects such as wind and solar, it's still something that is very interesting.
Q: Do you guys have a MAC clause in the agreement with Brookfield? Any color on that that, that would be helpful.
A: There is no MAC clause. We are -- as I said earlier, we are on track for reaching this block acquisition at the end of the year. And hopefully, 100% ownership of Brookfield from -- of Neoen from Brookfield at the end of Q1 and -- let's say, the milestone that we need to reach are external milestones based on clearances from antitrust and foreign investment, and there is no other factor, no other parameter at stake in this transaction.
Q: Just interested in your view, I know you have a lot of portfolios in storage assets in Australia. Do you think the sentiment for storage investment is changing in Europe more positively? Do you think that can become more profitable?
A: We do see a lot of opportunities in storage in all of our regions. As you could hear from this call and from the previous one, we keep on adding storage capacity not only in Australia, but also in Europe and in the Americas. At the same time, it's a market in which there is no guaranteed profitability. You still have to be creative to reinvent yourself. We see a lot of opportunities. At the same time, we also see some disappointing situations in markets where we are not necessarily active. If you look at the UK, the revenues for storage have collapsed. So if there is, let's say, if there is -- there are too many players coming to the party. It can significantly decrease the revenues that you can make from the battery.
Q: I remember you mentioned you have got a few green lights from a few countries, and I wonder, if you could let us know whether Australia and France are among the countries that have got green lights. And for the countries that you haven't got green lights, do you think you have to sell some for assets to get the green lights?
A: We have received some authorizations from France, from Finland, from Ireland, from Germany for antitrust, for example. We do not have yet the foreign investment approvals from France. This one should come this summer. As you know, in many European countries, including France, the month of July and August are not the busiest ones, so it might take a bit more time than if we had filed those applications in whatever February or October, but that's normal. The most complex one, which does not mean that it's unpredictable or that it's a bad surprise, is the antitrust from Australia for one very well-known and public reason, which is that Brookfield is a shareholder of the grid in the state of Victoria. So, of course, there is a question of vertical integration between power generation and transmission.
Q: The first one is a follow-up to one of the questions asked earlier. It's on the liquidated damages. I was wondering, if
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
