Release Date: September 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Operational capacity increased by 34% year-over-year, targeting 1,072 megawatts.
- Landmark tolling agreement with Octopus Energy for 568 megawatts, providing revenue visibility.
- Net debt expected to peak at no more than GBP165 million, with a cash position of at least GBP10 million.
- Four projects augmented and two new projects completed, contributing to operational growth.
- Plans to reinstate a dividend policy in 2025, indicating financial stabilization.
Negative Points
- EBITDA declined to GBP10.4 million in the first half, down from GBP25 million last year.
- Net asset value (NAV) dropped in the first half, reflecting lower revenue forecasts.
- Dividend cut to preserve capital, impacting investor returns.
- Challenges in selling complex portfolios, leading to a simplified disposal strategy.
- Continued reliance on NESO for better utilization of battery assets, which has been slow to materialize.
Q & A Highlights
Q: With the shares below 50% of NAV, either no one believes the NAV or there should be corporate activities, which is it?
A: Ben Guest, Managing Director - New Energy: The 50% discount to NAV suggests that the market does not believe in the recovery of revenues. However, we see visibility and potential for revenue recovery and value extraction from the portfolio. The cut in the dividend and unexpected revenue generation in the first quarter contributed to the share price movement. We are working on demonstrating further value and growth, and we do not comment on potential corporate activities.
Q: With a sustained large NAV discount, GRID is really constrained in developing new assets. How do you plan to grow the business in future, assuming you can't raise new equity?
A: Ben Guest, Managing Director - New Energy: We have several avenues, including asset disposals, cash flow from stabilized business, and alternative capital sources. We are simplifying our disposal program and focusing on selling fewer, more straightforward assets. We are also exploring project-level construction finance, vendor finance, and equity in different forms to unlock attractive returns.
Q: What are the amortization requirements on the debt facility?
A: Ben Guest, Managing Director - New Energy: There are no amortization requirements today. They will start in about a year's time and will be a proportionate sweep of cash flow through the end of 2027-2028.
Q: Does a reference to alternative sources of capital being co-investments from strategic partners to fund the augmentation of portfolios?
A: Ben Guest, Managing Director - New Energy: We prefer to reserve judgment and disclose details when arrangements are in place. We are exploring various options but cannot comment on specifics at this time.
Q: What level of dividend cover do you expect to target when dividends are restored?
A: Ben Guest, Managing Director - New Energy: We aim for a sustainable dividend that we can cover. If there are attractive reinvestment opportunities, the dividend will be set at a level that balances shareholder value creation and coverage.
Q: Is the strategy to develop assets and then sell them once stabilized or to retain the income once developed?
A: Ben Guest, Managing Director - New Energy: We are operators of operational assets and do not buy assets to flip them. The opportunity to sell assets in the current environment is to demonstrate value and recycle capital for further growth.
Q: Is there any realistic possibility of the portfolio achieving GBP120,000 per megawatt or the top end of the range GBP210,000 per megawatt?
A: Ben Guest, Managing Director - New Energy: Yes, it is possible. The German battery fleet is currently running in excess of GBP200,000 per megawatt per year. The main difference is the lack of gas on their system. As we move away from legacy technology and systems, we expect revenues to recover to higher levels.
Q: Can you explain more about the tolling agreement with Octopus Energy?
A: Ben Guest, Managing Director - New Energy: A tolling agreement allows another party to rent or take control of our assets and pay a fixed price for their capacity. Octopus Energy has an interest in balancing renewable generation with their customer base. The agreement covers 568 megawatts for two years, with the overall tolling revenues extending slightly beyond two years.
Q: What are the plans on the debt facility given the current arrangements and in 2025?
A: Ben Guest, Managing Director - New Energy: The debt facility ends in 2027. We plan to restructure and refinance our debt facilities to encompass the next stage of growth and streamline certain aspects.
Q: Are you comfortable with sufficient liquidity to handle any further revenue issues or other shocks that may arise?
A: Ben Guest, Managing Director - New Energy: Yes, we have a total cash position in excess of GBP10 million and are cash generative. The tolling agreement provides stable revenue, and we have more capacity coming online, which will generate more cash flow.
Q: Do you have confidence that NESO will be better utilizing best compared with NG?
A: Ben Guest, Managing Director - New Energy: Yes, there is a continuing momentum in the rollout of the open balancing platform (OBP). We are in regular contact with ESO and believe that the transition to NESO will lead to better utilization of batteries.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
