MPC ENERGY SOLUTIO (MPCES) Q1 2026 Earnings Call Transcript

Hi and good afternoon everybody. Welcome to today's webcast for MPC Energy Solutions. In our webcast today we will review the results for the first quarter of the year 2026. The quarterly report was published this morning and you can find it on our website. Please note as usual that this webcast is being recorded and it will be published later together with the transcript and the presentation slides on our website. We're happy to answer your questions after the presentation, so please feel free to type them into the text box any time during the webcast, and we will cover them in the Q&A session at the end. So just as a reminder, as usual, we will be making certain forward-looking statements in this call. Please refer to the disclaimer included in the presentation for details on those forward-looking statements. All right, I now have the pleasure to hand over to Stefan Meiksner, CFO of MPC Energy Solutions, who will continue and lead you through the webcast.

Thank you, Heike, and a very good afternoon to everyone joining today and dialed into the call. It was overall a relatively uneventful first quarter, I would say, especially compared to the last one in which we announced the agreement to sell our two largest projects. And before I walk you through the results, the highlights, the lowlights, the outlook for the future, and some comments on our upcoming annual general meeting, please allow me to refresh your memory about what our current portfolio looks like. So we currently have four projects in our portfolio, of which three are operational, combining 49 megawatts. these projects are located in Mexico Colombia and El Salvador and of course we have our project in Guatemala which is slowly and steadily inching through the final phase of the permitting stage as you can see from the slide our very original plan was to start commercial operations of the plant last year and we are now nearly a year delayed even though the project started or completed construction as planned in mid 2025. Once Guatemala is operational this will also mark the milestone if you will to complete the sale that we announced in November of 2025 namely the sale of the two projects framed here in red which we refer to as Project Merlin and which we at this stage this time still expect to be concluded at the end of the second quarter of this year and And once that has happened, we will, of course, have a much smaller portfolio, just Mexico and Colombia, combining for 28 megawatts. Until that happens, though, the project in El Salvador, of course, is contributing to our results, and that is also reflected in the numbers for the first quarter. Which brings us to the Q1 results, just walking through the highlights at low light. So on the plus side, we continue to be very much disciplined on how we spend our money and how much we're spending. Overhead costs, once again, down year over year, significantly 31% in the first quarter. We will get to that later, what the development over time shows. But overall, we're eyeing 25% to 30% cost reduction this year compared to 2025, and we are very well on track to achieving that. Also on the plus side is that we sold our project La Pela in El Salvador. It's a very early stage development project that we spent some money on. We now sold it. We recovered some of the historical costs already. And the agreement that we have in place will allow us, if the project is successful, meaning it goes through the development stage, we will not only recover our historic development costs, but we also secured some upside in case the project is then actually sold or billed for a premium. And one of the other highlights for the quarter, not to the quarter per se, because the payment was collected on the 1st of April, so it's not reflected in the end of the quarter numbers, but we collected an unexpected earn-out payment related to Planeta Rica, a project that was sold in Colombia last year and the 300,000 or actually 338,000 we collected on the 1st of April marked an earn-out payment that of course increased our free cash position after the reporting date. What are the low lights? I will speak about Guatemala first. The good news is we're making progress it's one permit that's missing all the documents we have to prepare even with third-party support have been filed we're now waiting for the authorities to review it what permit is missing it's a permit that is issued by the grid authority that basically establishes the rules procedures the technical requirements for connecting a plant to the national electricity system the transmission system. The final permit we need here, which we originally believed we did not have to obtain, and if we needed it, it was not our responsibility. More on that later. We're now working towards securing that. Two reports were required from third-party experts to be submitted to the authority to support our approval request, and the authorities now have these two reports, and we expect them to issue the permit in the coming weeks, after which we can then start the testing and commissioning phase. Of course, the significant delay, I mentioned one year compared to the original deadline timeline, also means that costs are piling up for site staff, for meeting debt service payments, especially interest payments, until COD can be achieved. and that required us to invest an additional 1 million during the first quarter which of course will help fund part of the second quarter but the more this drags out the more we will have to cover for the costs and expenses that are being incurred meaning that if for whatever reason which we're currently not expecting but if for whatever reason this is delayed further and then of course into let's say into july august then additional funding might still be required but for now we covered what the project needs until what we now consider the timeline to COD which is the end of the second quarter including the closing of the related project in Berlin. Another low light for the quarter was a metering error a technical error that we incurred during January in our plant in Mexico which basically prevented us from invoicing an entire month of energy that was produced which impacted the numbers negatively not by much but you will see that it made all the difference in year-over-year comparison which I will address now. Looking at these key metrics we will focus on the like-for-like comparison so we will compare the projects in Colombia, Mexico and El Salvador year-over-year excluding the project that we sold last year in Colombia otherwise it was distort the figures a little bit too much. So as you can see energy production basically on the same level as last year. That was not the issue. But because we could not invoice the entire output from the plant in Mexico, the revenue is down year over year by roughly 3%. And operational profit is also down by roughly 8%. The deltas are not big, and we intend to recover them throughout the remainder of the year. But of course, in the short run, meaning for the first quarter, it had an impact not only in absolute terms, but also with regards to the margin across the portfolio, which was 71% compared to 75%. If we go a little bit into details, project by project level, you will see that in El Salvador, we managed to slightly increase the output. Revenue is higher, in part benefiting from the higher tariffs. Profit margin is stable, while the absolute profit is up a little bit. In Colombia, very poor weather conditions throughout the entire first quarter led to a lower energy output than expected and also generated in the previous year with an impact on revenue, with an impact on operating profit in absolute terms, but at least we were able to keep the margin on the previous level, the previous year's level relatively steady. So the big impact really comes here from the project in Mexico where revenue and MTA because of the metering issue are down and that impacted the margin negatively. We expect the Mexico project to climb back to its 75% margin that we achieved last year over the remainder of the year. But in the first quarter, this had a negative impact, which is clearly displayed in the overall portfolio figures. So we're trailing Q1 year over year, not by much, and we expect to reclaim that over the coming months. Looking at other key metrics, I think what really stands out is our continued cost discipline. So compare that to a couple of years ago, several years ago in 2023, when we spent over $1.4 million per quarter. This number is now down to slightly over $600,000. We budgeted $2.3 million for the entire year. We are very well on track to achieving that. And this is clearly one of the things, as we scale down our portfolio, that we have been very attentive to and where we continue to execute well. Free cash is down a little bit more than expected at the end of the quarter. Of course, not including this number, the 7.5 is not excluding the 338,000 that we collected the day after. So let's say 7.8 million, the difference being explained, of course, by the overhead spending of a little over 600,000 in the first quarter and the additional million we had to invest into the Guatemala project to cover that. Going forward, we expect free cash to only go down related to overhead unless, for whatever reason, Guatemala continues to be delayed and additional funding is required. The project itself, site staff, interest, auxiliary costs is around $150,000 per month. So if this drags beyond Q2, this is what we can then add to the outflow that is required per month with regards to the project. But overall, strong cash buffer, comfortable situation, absolutely on track on the overhead side, so not much to complain about here. Which also goes for the remainder of the metrics. If you look at our balance sheet, total assets, very little changes, quarter to quarter, year over year. The equity ratio has been relatively stable, as has the relation between consolidated cash and project debt. Part of the numbers that you see here, if you look at the balance sheet, are classified as health for sale. assets and liabilities simply because the two projects which we agreed to sell which we refer to as project merlin are are classified as held for sale but this is basically the view that you would get if that wasn't the case so so much for the key metrics slow start to the quarter not trailing much behind super good execution on the overhead cost side still comfortable on free cash and a fairly unchanged balance sheet structure. What does that mean for the remainder of the year? So, of course, our top priority remains to get the project in Guatemala online, thereby allowing us to close the sale of the two projects and collecting the sales proceeds. Once that has been accomplished, distributions to shareholders can start as planned. And in the meantime, we're looking, of course, to divest the other projects as well, which will take more time but at the same time as long as this hasn't happened the project in el salvador and the two projects that will remain in our portfolio for now will contribute to our financials and the outlook for 2026 based on that is 7.5 million in revenue and a group ebit of 1.6 million given the lower overhead the margins should be fairly in line with what we have recorded for the year 2025. And in this outlook, we expect that Mexico and Colombia will contribute for the full year. Might not be the case if we sell one of those projects or both projects beforehand, but you understand the planning premise here, and El Salvador to contribute until the end of Q2 when we expect the deal to close. Which brings me to one subject, meaning that we said we intend to begin distributions of our cash to shareholders this year. We will lay the groundwork in the upcoming annual general meeting. We sent out the notice, the invitation last week, outlining the agenda and the proposed resolutions in detail. Just a few highlights here. So the AGM will take place on the 27th of May this year at our office in Amsterdam. You're more than welcome to join us here in Amsterdam, but you're, of course, also invited to join virtually. And should you not come here and cast your vote in person, you can do so by using the voting form that we include in the notice. This is a standard procedure for us. We've been doing it for five years. If you were a shareholder on the 29th of April, you can cast your vote on the proposed resolutions. The proposed resolutions are fairly standard, but resolutions number five and six, they are really the ones that will lay the groundwork for the distributions that we're planning. you will find all the details in the documents when you have not seen them go to our website you will find the full set of materials where there and this these resolutions are really important to make sure that we can distribute cash as we plan later in the year and also in 2027 should you have any questions anything is unclear you need more guidance before you can cast your vote feel free to reach out and submit your questions to the email address that you all well know. Wonderful. So, so much for the prepared remarks. I will now hand the call back to Heike for the Q&A. We can spend plenty of time on it as the prepared remarks only took a couple of minutes. So let's really dive deep into the Q&A. As many questions as you like, Heike. Go ahead.

Sure. All right. So the first question that came in Stefan, what is your plan for the two remaining projects? Can you operate the company profitably, profitably with only two projects remaining?

Okay, let me address the second part of that question first. So whether we can operate the two projects and be profitable. The short answer is yes. the longer answer is yes but not with the current structure so in a normal year these two projects would generate five million in revenues three and a half million in operating profits and bottom line would be small net profit small free cash flow but that of course does not factor in the overhead and and I think this is key if we want to operate such a small portfolio of just two projects you would have to scale the organization down to an absolute minimum and by that I mean you cannot be publicly listed and you basically just have one person surrounded by third-party service providers on project level who operates this then it can work but that's certainly not manageable as I said with the current structure it's also not an equity story so this would be like privately held uh portfolio but we're not there which is why i think and i strongly believe that ultimately um and this brings me to if i understood correctly the first part of a question we will sell these projects and if we can good get a good risk adjusted price for them then i think that is also to the benefit of the shareholders okay understood then the next question i think that ties in a bit into this so how much are you spending in guatemala on a monthly basis until you can stop operations and how is this being funded yeah i i mentioned it during the prepared remarks so the running costs per month are currently around 150 000 that's spent on sidestamp on auxiliary services and also on the interest that we have to pay on the bank debt. On top of that, of course, we have payments to settle with the EPC contractor who's been waiting for nearly a year for final payments. So at the end of the day, let's say $150,000 per quarter. The first and the second quarter have already been funded by the investment that we have made. And this is funded from our free cash because the project is not generating any income itself. That's where money has to come from. I just want to repeat again, we expect the project to become operational at the end of the second quarter and for the deal to close, and I don't expect any funding to be required if that happens. Should this, for whatever reason, again we're not expecting it, but should this drag out? I think we've made projections in the past that have been wrong, otherwise we wouldn't so severely delayed, then of course additional funding might be required. But we're not foreseeing that at this time.

Okay. Then one question that came in, could you please put some more color into why San Patricio needed another one million as it was expected that it was contributing turnover? Is the project producing and selling?

No, the project is still awaiting the final permit start the testing and commissioning only after which it can start operations and once that happens we will sell it so we're not seeing revenues or income or anything from the san patricio project in guatemala what we're seeing is the costly reality of a substantial delay where the project is going through the final stages and we just have to keep it funded until we can sell it thanks And another question that came in.

Would you say that the value of these two last projects has increased with this latest surge in energy prices?

Well, that's theoretically I would have to say yes, but I think this is a bit more or requires a bit more detail. Let's look at this. Energy prices are going up. This region is affected like any other region. they have a very high penetration of renewable energy but that doesn't mean that gas prices are not setting the market prices and that they're dependent on importing oil and gas for different purposes or derivative products. So in Colombia the high prices mostly hurt us because especially with poor weather conditions when the plant is not generating enough energy to meet the payers contracted PPA obligations we have to purchase the energy in the market if that energy is more expensive it's more costly for us in um in Mexico the project has a determined price increase structure which is dependent on inflation of course if inflation goes up because energy prices are higher that usually increases the the terrace for that project as well and that should have a positive impact whether this can immediately be translated into a much higher valuation that really depends on the assumptions that that potential buyers will take on future electricity prices if this is something they believe is sustainable the current levels will may be maintained for the next five years sure and then we would push for that if there's any view that this could be relaxed again over the next 12 months then I don't think it will have a significant value impact right thanks a lot um do you expect further reduction of your free cash position in the magnitude shown during q1 uh no i do not expect that um it would also be foolish of me to promise it because i cannot do that i cannot look into the future but in a normal quarter the free cash will only decrease by the overhead which we're spending which is roughly 600 000 a water beyond that it really depends on guatemala as i said again before if for whatever reason this is delayed further 150 000 per month is what we would have to cover out of our funds other than that you see the free cash you see the overhead and that's the relation that matters okay now the next questions that came in and i'm grouping them a little bit together um

How much will you distribute to shareholders during 2026? And related to this, probably please explain how you intend to carry out the capital repayment.

So, as we outlined in the proposed resolutions for the upcoming annual general meeting, what will happen is that we will take an equity capital reserve that we have from the IPO, so-called share premium we will convert that to nominal share capital this does not require any new shares to be issued or it will not change the equity overall it will just make sure that we have sufficient share nominal share capital and then through a capital reduction several capital reductions we can return money to shareholders and we're not required to withhold any any taxes as we would have if we were to pay dividends but we don't have any profits to do that or if we were to distribute directly from the share premium it would also be less tax efficient so this is the steps that we're undertaking this is the how the how much is um of course to intend that we intend to distribute the the proceeds from the sale of project merlin i've said that many times i will also suggest that we distribute more money beyond that from from the free cash reserve the first part of this rests with the shareholders if you all agree to do this and you support the resolutions that we put forth for the annual general meeting, you vote in favor of the plan that we are proposing, then that hurdle is done. And once we have that in place, the management board, including myself and the supervisory board, will discuss the individual distribution steps and when to take them.

Okay. So what will remain of the company after the capital repayment?

Do you plan to invest any money into new projects? well look uh after the capital repayment what we will have left is two projects in our portfolio cash in the bank and several obligations like staff on on the payroll um of course we need to really keep uh minimum cash uh in the bank account as we have outlined when we announced the deal of project merlin and overall i mean i would just give a generic answer here our job is to work for the benefit of the shareholders, right? And I currently believe that is best served by divesting the portfolio and distributing whatever we can to shareholders. I think that has at the moment the greatest benefit. At the same time, we have an obligation to monitor opportunities, alternatives, but it will ultimately depend on the shareholders, which direction we should take. I certainly have my thoughts. Other people might have other thoughts. What I can say is we currently have nothing else in the pipeline.

Understood. Another question that came in is, what is the status of the sales negotiations?

I guess this refers to everything else, not Project Merlin, because the Project Merlin sales agreement has been signed and we are working towards closing the transaction, meeting all the closing obligations. For the other projects, we are in touch with potential buyers, but we have not received any binding offers or signed any contracts or made any significant progress with regards to signing a binding agreement. We will certainly notify everyone if that would be the case.

Next question. Why does the market seem to disbelieve your announcements?

And how else could the current share price of 1.020 be explained? well i think uh the share price was much lower um seven months ago then we signed an agreement for a price to sell to projects way above what we invested in the book value so at the proper fair value and i think the share went up significantly in part reflecting that certainly leaving some room for uncertainty or or outflow for overhead so i'm not sure that i'm not being believed the share price has been very stable since the announcement um we're working on getting this done shareholders who don't believe us i think sell the share and then no longer care but it doesn't seem to be the case that much looking at the trading volume so i'm super confident that this will be resolved in the coming weeks and months and then the distribution can be made and then we will see that we find a solution for the rest yeah okay right well i think you've you've answered this one but um there was a question that came in what plans does your parent company have for the mpc energy solutions shell i suppose after the project has been sold oh we're not a shell yet but i i guess with maybe parent company you mean mpc capital they they own 20 otherwise we're publicly traded we have many investors also larger ones. At the same time, you have to ask MPC Capital. I run this company. I have proposed a divestment plan and a distribution plan, and we're working on that. And ultimately, then there will come a time when MPC Capital, the other big shareholders, ourselves, we all sit together and we discuss what to do with this company going forward. And the decision will be taken at that time.

At the moment, that is not top of mind and not a priority to discuss that. we have other stuff to do all right thanks stefan well i think this covered the questions that came in so far um if anyone feels that your question has not been answered or if any question comes up after the call please feel free to send your question as usual to us via email at ir at mbc minus energy solutions.com so then i'd like to say thanks to everyone for listening today Thanks, Stefan, for presenting and have a great rest of the day.