Business Context and Reporting Period
This Form 20-F is the annual report for Ellomay Capital Ltd., an Israeli company incorporated in 1987, for the fiscal year ended December 31, 2013. The company operates in the energy and infrastructure sector, primarily focusing on the production of renewable energy through the ownership of thirteen photovoltaic (PV) plants: twelve in Italy (approx. 22.6 MWp) and an 85% interest in one plant in Spain (approx. 2.3 MWp). Additionally, the company holds an indirect 7.5% equity interest in Dorad Energy Ltd., which is constructing a natural gas power plant in Israel. The company's ordinary shares are listed on the NYSE MKT (symbol: ELLO) and the Tel Aviv Stock Exchange (symbol: ELOM).
Key Financial Metrics
| Metric (in thousands USD) | 2013 | 2012 |
|---|---|---|
| Revenues | $12,982 | $8,890 |
| Net Income (Loss) | $10,087 | $(2,133) |
| Operating Profit (Loss) | $13,368 | $715 |
| Adjusted EBITDA | $6,612 | $3,594 |
| Total Assets | $146,930 | $128,740 |
| Total Liabilities | $47,169 | $45,626 |
| Shareholders' Equity | $99,761 | $83,114 |
| Working Capital (Deficiency) | $(4,384) | $27,977 |
| Cash and Cash Equivalents | $7,238 | $33,292 |
| Net Cash Provided by Operating Activities | $6,389 | $5,906 |
Note: The 2013 Net Income includes a non-cash "Gain on bargain purchase" of $10.2 million related to the acquisition of the Veneto PV Plants.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 46% to $12.98 million, driven by the full-year contribution of the Spanish PV plant (acquired July 2012) and the partial-year contribution of two new Italian plants (Veneto PV Plants, acquired June 2013).
- Profitability Shift: The company moved from a net loss of $2.1 million in 2012 to a net income of $10.1 million in 2013. This turnaround was primarily due to a $10.2 million gain on bargain purchase (negative goodwill) recognized upon the acquisition of the Veneto PV Plants under insolvency proceedings.
- Operating Expenses: Operating expenses rose to $2.4 million (from $2.0 million) and depreciation increased to $4.0 million (from $2.7 million) due to the expanded asset base from new acquisitions.
- Liquidity Position: Cash and cash equivalents decreased significantly from $33.3 million to $7.2 million, primarily due to the $30.7 million cash outflow for the Veneto PV Plants acquisition. This resulted in a working capital deficiency of $4.4 million at year-end, largely due to the classification of a short-term loan as a current liability.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary and Outlook
Management expects operating cash flows to increase in 2014 as the Veneto PV Plants contribute a full year of revenue. The company raised approximately $32.9 million (net) in January 2014 through a public offering of Series A Debentures in Israel to repay short-term debt and fund operations. The Dorad Power Plant (in which Ellomay holds an indirect interest) was energized in July 2013 and was expected to commence commercial operations in April 2014.
Unusual Items
- Gain on Bargain Purchase: A one-time gain of $10.2 million was recorded in 2013 due to the acquisition of the Veneto PV Plants for less than the fair value of identifiable net assets.
- Foreign Currency Translation: Other comprehensive income included a $6.0 million gain from foreign currency translation adjustments, driven by the appreciation of the Euro and NIS against the U.S. dollar.
Material Risks and Contingencies
- Regulatory Risk (Italy & Spain): The company's revenues are heavily dependent on government feed-in tariffs (FiT). Italy suspended new FiT subsidies in mid-2013, and Spain implemented a new remuneration regime (RDL 9/2013) that may reduce revenues by approximately 20% for the Spanish plant. Retroactive changes to regulations in both countries pose a significant risk to future profitability.
- Debt Covenants: The Series A Debentures issued in January 2014 include restrictive covenants, including a minimum equity requirement of $55 million and a debt-to-equity ratio cap. Failure to meet these could trigger immediate repayment.
- Contractor Insolvency: In 2012, the contractor for four Italian plants entered insolvency proceedings. While a replacement was found and bonds were enforced, reliance on third-party contractors remains a risk.
- Legal Proceedings: A long-standing claim regarding printer sales was settled in March 2014 for $85,000. Other legal matters regarding past operations are ongoing but are not expected to have a material adverse effect.
Investor Verification Checklist
- Regulatory Impact Analysis: Verify the final calculation of the new Spanish remuneration scheme (SRR) and its specific impact on the Rinconada II plant's revenue, as the filing estimates a ~20% decrease but notes the formula is not yet finalized.
- Debt Covenant Compliance: Confirm that the company's consolidated equity and debt ratios remain compliant with the Series A Debenture covenants following the January 2014 issuance and subsequent cash flows.
- Working Capital Resolution: Verify that the working capital deficiency reported at year-end has been resolved through the proceeds of the Series A Debentures and the repayment of the Discount Bank loan.
- Dorad Power Plant Status: Monitor the commencement of commercial operations for the Dorad Power Plant, as delays could impact the company's equity-accounted investment and future revenue projections.
- Non-IFRS Measures: Review the reconciliation of Net Income to Adjusted EBITDA to understand the company's core operating performance excluding the one-time bargain purchase gain.