Ellomay Capital Ltd. — 2018 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing. Ellomay prepares its consolidated financial statements under IFRS and presents them in euros; prior-year comparisons were restated into euros following the 2017 change in presentation currency. Amounts below are in euros unless stated otherwise.
Business context
Ellomay operates renewable-energy assets and develops new energy projects. Its operating portfolio comprised 17 solar plants in Italy, Spain and Israel; a 9.375% indirect interest in Dorad, an Israeli power producer; and 51% interests in two Dutch anaerobic-digestion projects. It also held interests in the proposed 300 MW Talasol solar project in Spain and the proposed 156 MW Manara pumped-storage project in Israel. Dorad is accounted for using the equity method, so its revenue is not consolidated as Ellomay revenue.
Financial performance and position
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | €18.117 million | €13.636 million |
| Gross profit | €5.959 million | €6.569 million |
| Operating profit | €2.910 million | €2.959 million |
| Net profit (loss), consolidated | €0.604 million | (€6.641 million) |
| Profit (loss) attributable to Ellomay shareholders | €1.057 million | (€6.115 million) |
| Basic and diluted earnings (loss) per share | €0.10 | (€0.57) |
| EBITDA, non-IFRS | €8.726 million | €7.477 million |
| Net cash from operating activities | €6.590 million | €2.305 million |
| Net cash used in investing activities | (€5.795 million) | (€27.343 million) |
| Net cash from financing activities | €12.258 million | €29.670 million |
Gross margin was approximately 32.9% in 2018 versus 48.2% in 2017; operating margin was approximately 16.1% versus 21.7%. These margins reflect consolidated results, including depreciation and the changing mix of operating assets.
Revenue increased about 33%, mainly because both Dutch waste-to-energy (WtE) projects began operations and Ellomay reported a full year of the Talmei Yosef solar plant, acquired in October 2017. Growth was partly offset by lower Italian solar revenue due to weaker radiation. WtE contributed €4.483 million of consolidated revenue, but the segment reported an operating loss; its operating expenses were about €3.7 million. Ellomay recorded €0.811 million of contractor compensation related to WtE operating deficiencies.
Financing expenses, net, fell to €2.091 million from €9.228 million. The prior-year result included substantial derivative revaluation and foreign-exchange losses. 2018 included derivative-related financing income and exchange gains, making reported profit sensitive to market valuations and currency movements.
At December 31, 2018, total assets were €211.160 million, total liabilities €134.203 million and total equity €76.957 million. Cash and cash equivalents were €36.882 million; marketable securities were €2.132 million; and restricted cash and deposits totaled €6.715 million. Working capital was €39.013 million, compared with €31.286 million a year earlier. Current assets were €58.864 million and current liabilities €19.851 million.
Balance-sheet debt included €66.092 million of loans and borrowings and €51.343 million of debentures, for €117.435 million combined carrying value. Management separately reported approximately €133 million of total indebtedness, including expected principal and interest repayments and financing-related swaps, excluding certain capitalized costs. The filing reports no covenant defaults at year-end. Cash rose from €23.962 million to €36.882 million, principally following financing of five Italian solar subsidiaries.
Material changes and notable developments
- Revenue growth was outweighed by a weaker gross-profit result: gross profit declined about 9% as operating expenses and depreciation increased with the addition of WtE operations.
- Share of profits from the equity-accounted investee increased to €2.545 million from €1.531 million, mainly reflecting higher Dorad electricity sales and lower financing expenses at Dorad.
- Ellomay refinanced five Italian solar subsidiaries with a €35.9 million facility in May 2018. At year-end, €31.4 million was outstanding; a portion was hedged to a fixed rate.
- In December 2018, Talasol signed project-finance agreements expected to provide up to approximately €177 million. Financial closing had not occurred and no funds had been drawn by year-end.
- In 2018 the Oude Tonge WtE facility began operations, joining the Goor facility, which started in 2017. In March 2019, Ellomay agreed to acquire Ludan’s 49% interests in both projects and terminate Ludan-affiliate O&M services, subject to conditions including lender approval.
- Ellomay did not pay a dividend or repurchase shares in 2018. Its stated policy contemplates distributions of up to 33% of annual distributable profits, subject to board approval, financial position and debt restrictions.
Outlook, risks and contingencies
The filing provides no formal company-wide earnings guidance. For Talasol, management estimated annual production of about 561 GWh, capital expenditure of approximately €200–230 million, annual revenue of €20–25 million and annual operating income of €14–19 million. These are project estimates, not guaranteed results; the project remained subject to financing, equity funding, construction and other conditions. Its EPC contract was for €192.5 million, and a 10-year financial power hedge covered approximately 80% of expected output.
Manara remained a development-stage project exposed to licensing, quota, permitting, financing and construction risks. Its conditional license was reduced from 340 MW to 156 MW because of the remaining Israeli pumped-storage quota. A proposed contractor appointment indicated a price of approximately US$300 million, subject to indexation and a definitive EPC contract. A March 2019 license-deadline extension required ministerial approval and forfeiture of bank guarantees.
WtE operations had incurred operating losses since starting. The filing identifies feedstock availability and cost, digestate disposal, technical performance, subsidy and regulatory changes, and Ellomay’s limited operating experience as important risks. Other key exposures include changes to renewable-energy incentives and tariffs, weather and solar output, energy and component prices, project-finance covenant compliance, access to additional capital, interest rates and foreign exchange.
Material legal matters include Dorad-related arbitration claims and counterclaims, including a derivative claim seeking approximately US$183.4 million on Dorad’s behalf and substantial third-party claims. The Supreme Court removed the arbitrator in February 2019; the parties were to appoint a replacement. Ellomay stated that the outcome could not then be assessed. Separately, Kochav PS claimed approximately NIS 4.2 million in damages from Ellomay’s Manara subsidiary; shareholders undertook to cover any court-ordered amount up to NIS 1.9 million. The filing does not provide a clear estimate of Ellomay’s ultimate exposure for the Dorad proceedings.
Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2018. The audit opinion on Ellomay’s consolidated financial statements was unqualified. The company also disclosed that IFRS 16 adoption in 2019 was expected to add approximately €4.148 million each to right-of-use assets and lease liabilities, with possible effects on financial ratios.
Key facts for investors to verify
- Whether the Dutch WtE projects can improve performance under Ellomay’s direct operation, and whether the proposed Ludan stake acquisition and lender approval were completed.
- Whether Talasol achieved financial closing, secured required equity and met construction and EPC milestones; compare actual project costs and output with management’s estimates.
- Whether Manara retained its conditional license, secured the remaining quota and financing, and entered into a definitive construction contract.
- The status and potential financial effect of Dorad-related arbitration, counterclaims and the replacement-arbitrator process, as well as the Kochav PS claim.
- Debt service, covenant headroom and liquidity needs as major projects advance; distinguish unrestricted cash from restricted balances and project-level funds.
- The sustainability of 2018 earnings, given the contribution of financing revaluations, exchange-rate effects and contractor compensation, and the gap between consolidated profit and profit attributable to Ellomay shareholders.
- Whether renewable-energy incentives, tariffs and project-finance terms remain supportive in the countries where Ellomay operates.