Ellomay Capital Reports Results for the Q4 and Full Year of 2023

Source: www.gulfoilandgas.com 3/31/2024, Location: Middle East

Ellomay Capital Ltd. (NYSE American: ELLO) (TASE: ELLO) ("Ellomay"), a renewable energy and power generator and developer of renewable energy and power projects in Europe, Israel and the USA, reported its unaudited financial results for the fourth quarter and year ended December 31, 2023.

Financial Highlights
- Total assets as of December 31, 2023 amounted to approximately €611.7 million, compared to total assets as of December 31, 2022 of approximately €576.2 million.
- Revenues1 for the three months ended December 31, 2023 and 2022 were approximately €8.4 million. Revenues for the year ended December 31, 2023, were approximately €48.8 million, compared to approximately €52.2 million for the year ended December 31, 2022.
- Loss for the three months ended December 31, 2023 was approximately €9.8 million, compared to a profit of approximately €2.5 million for the three months ended December 31, 2022. Profit for the year ended December 31, 2023, was approximately €0.6 million, compared with approximately €0.1 million for the year ended December 31, 2022.
- EBITDA loss for the three months ended December 31, 2023 was approximately €2.5 million, compared to EBITDA of approximately €1.7 million for the three months ended December 31, 2022. EBITDA for the year ended December 31, 2023 was approximately €18.8 million, compared to approximately €20.8 million for the year ended December 31, 2022. See below under "Use of Non-IFRS Financial Measures" for additional disclosure concerning EBITDA.
- On December 31, 2023, the Company executed an agreement to sell its holdings in the 9 MW PV plant located in Talmei Yosef, Israel in consideration for NIS 44.75 million (approximately €11.2 million), with an additional potential payment of up to NIS 4 million in the event the Talmei Yosef PV Plant produces more than 18 million Kwh during 2024. In connection with the expected sale, the Company presents the results of this PV plant as discontinued operations and the results for the year and for the three months ended December 31, 2022 are adjusted accordingly. See below for additional information.

Financial Overview for the Year Ended December 31, 2023
- Revenues were approximately €48.8 million for the year ended December 31, 2023, compared to approximately €52.2 million for the year ended December 31, 2022. The decrease in revenues mainly results from the decrease in electricity prices in Spain and from a curtailment of the electricity supply from the Company's facilities in Spain to the grid during June 2023 due to maintenance and upgrade work on the main transmission line between Spain and Portugal, which caused a decrease in revenues of approximately €1 million. The Company subsequently implemented a solution aimed at minimizing the impact of future similar curtailments due to maintenance and upgrades to the national grid. The decrease in revenues was partially offset by an increase in revenues from the Company's biogas plants in the Netherlands, resulting mainly from increased production and an increase in the 2023 gas price, and from the connection to the grid of Ellomay Solar (a 28 MW photovoltaic plant in Spain) during June 2022, upon which the Company commenced recognition of revenues.

- Operating expenses were approximately €22.9 million for the year ended December 31, 2023, compared to approximately €23.7 million for the year ended December 31, 2022. The decrease in operating expenses mainly results from a decrease in payments under the Spanish RDL 17/2022, caused by a reduction in the electricity market price. RDL 17/2022 established the reduction of returns on the electricity generating activity of Spanish production facilities that do not emit greenhouse gases, accomplished through payments of a portion of the revenues by the production facilities to the Spanish government. As a result of the decrease in the electricity market price in Spain during the year ended December 31, 2023, the payments under RDL 17/2022 were lower compared to last year. This decrease in operating expenses was partially offset by increased operating expenses in connection with the Company's biogas operations in the Netherlands caused by higher production and the use of higher quality raw materials, and from the connection to the grid of Ellomay Solar during June 2022, upon which the Company commenced recognition of expenses. Depreciation and amortization expenses were approximately €16 million for the year ended December 31, 2023, compared to approximately €15.6 million for the year ended December 31, 2022. The increase in depreciation and amortization expenses is mainly attributable to the commencement of recognition of results of Ellomay Solar upon connection to the Spanish grid in June 2022.

- Project development costs were approximately €4.5 million for the year ended December 31, 2023, compared to approximately €3.8 million for the year ended December 31, 2022. The increase in project development costs is mainly due to development expenses in connection with photovoltaic projects in the USA, Italy, and Israel.

- General and administrative expenses were approximately €5.3 million for the year ended December 31, 2023, compared to approximately €5.9 million for the year ended December 31, 2022. The decrease in general and administrative expenses is mostly due to a decrease in D&O liability insurance costs and to bonuses paid to employees in 2022.

- The Company's share of profits of equity accounted investee, after elimination of intercompany transactions, was approximately €4.3 million for the year ended December 31, 2023, compared to approximately €1.2 million for the year ended December 31, 2022. The increase in share of profits of equity accounted investee was mainly due to the increase in revenues of Dorad Energy Ltd. ("Dorad") due to higher quantities produced and a higher electricity tariff, partially offset by an increase in operating expenses in connection with the increased production and higher tariff.

- Financing expenses, net, were approximately €3.6 million for the year ended December 31, 2023, compared to approximately €3.5 million for the year ended December 31, 2022. The increase in financing expenses, net, was mainly attributable to higher interest expenses in connection with the Company's loans (net of any related SWAP payments) and debentures amounting to an aggregate amount of approximately €11.6 million in the year ended December 31, 2023, compared to approximately €9.2 million for the year ended December 31, 2022. The increase in interest expenses mainly resulted from the issuance of the Company's Series E debentures in February 2023 and from higher interest rates applied to variable interest rate bearing loans. This increase was partially offset by higher interest income due to increased interest rates amounting to approximately €2 million in the year ended December 31, 2023, compared to an amount of approximately €0.3 million for the year ended December 31, 2022, and to higher income resulting from exchange rate differences, of approximately €6.7 million in the year ended December 31, 2023, mainly in connection with the New Israeli Shekel ("NIS") cash and cash equivalents and the Company's NIS denominated debentures, compared to approximately €6 million for the year ended December 31, 2022, caused by the 6.9% devaluation of the NIS against the euro during the year ended December 31, 2023, compared to a 6.6% appreciation of the NIS against the euro during the year ended December 31, 2022.

- Tax benefit was approximately €1.4 million in the year ended December 31, 2023, compared to taxes on income of approximately €1.7 million in the year ended December 31, 2022. The change in tax is mainly due to the substantial decrease in electricity prices in Spain, resulting in lower taxable income of the Company's Spanish subsidiaries.

- Loss from discontinued operations (net of tax) was approximately €1.8 million in the year ended December 31, 2023, compared to a profit from discontinued operations of approximately €0.7 million in the year ended December 31, 2022.

On December 31, 2023, the Company executed an agreement to sell its holdings in the 9 MW PV plant located in Talmei Yosef, Israel (the "Agreement" and the "Talmei Yosef PV Plant," respectively). The Agreement provides for the sale of the Company's holdings in the Talmei Yosef PV Plant to Greenlight Fund Limited Partnership and Doral Group Renewable Energy Resources Ltd., in equal parts, in consideration for NIS 44.75 million (approximately €11.2 million), with an additional potential payment of up to NIS 4 million in the event the Talmei Yosef PV Plant produces more than 18 million Kwh during 2024. The Agreement further provides for a cutoff date of June 30, 2023, and at closing the parties will determine whether an adjustment to the purchase price is required reflect the Company's entitlement to revenues (net of expenses) up to such date, taking into account the results and the cash held by the project company. The Company does not expect a material adjustment to the purchase price.

In connection with the expected sale of the Talmei Yosef PV Plant, the Company presents the results of the Talmei Yosef PV Plant as discontinued operations and the results for the year and for the three months ended December 31, 2022 are adjusted accordingly. The Talmei Yosef PV Plant is presented in the Company's financial results as a financial asset, in accordance with IFRIC 12 under IFRS, and since its acquisition of the plant, the Company recognized relatively high profits through its ownership. Accordingly, although the consideration expected to be received for the Talmei Yosef PV Plant reflects a market value that is higher than the price invested by the Company in its acquisition, due to the accounting treatment under IFRIC 12, the Company recognized a net loss of approximately €1.8 million in connection with the expected sale.

The Agreement includes customary representations and indemnification undertakings in connection with breaches of representations, which, other than with respect to customary exceptions, are subject to a cap of NIS 9 million and limited to a period of 18 months from the closing date. The consummation of the sale is subject to various customary conditions to closing, including receipt of regulatory approvals and the consent of the financing entity of the Talmei Yosef PV Plant. All conditions to closing are required to be fulfilled within an initial period of 90 days from execution of the Talmei Yosef Sale Agreement, which can be extended to up to 150 days under certain circumstances. The Talmei Yosef PV Plant is located in southern Israel. One of the conditions to closing is the end of the "war" status in southern Israel for a pre-determined period (based on the official definitions published by the Israeli Authorities) and that the Talmei Yosef PV Plant is physically accessible. Based on the circumstances as of the date hereof, this condition is currently fulfilled but there can be no assurance that it will continue to be fulfilled on the expected closing date. The closing of the sale is currently expected during the second quarter of 2024. The Talmei Yosef Sale Agreement further provides that in the event that due to the current war and hostilities in Israel the facility will be damaged or its output will decrease, the buyers will have the right not to consummate the acquisition of the plant. The consummation of the transactions contemplated by the Agreement is subject to the fulfilment of the conditions to closing as of the date of the closing. These conditions to closing are mostly not within the Company's control or the buyers' control. There can be no assurance as to whether or when the conditions to closing will be satisfied and as to the impact of the war and hostilities in Israel on the ability to consummate the sale and on the final purchase price.

- Net profit was approximately €0.6 million in the year ended December 31, 2023, compared to approximately €0.1 million in the year ended December 31, 2022.

- Total other comprehensive income was approximately €41.3 million for the year ended December 31, 2023, compared to total other comprehensive loss of approximately €35.3 million in the year ended December 31, 2022. The change in total other comprehensive loss mainly results from changes in fair value of cash flow hedges, including a material increase in the fair value of the liability resulting from the financial power swap that covers approximately 80% of the output of the Talasol PV Plant (the "Talasol PPA").

The Talasol PPA experienced a high volatility due to the substantial change in electricity prices in Europe. In accordance with hedge accounting standards, the changes in the Talasol PPA's fair value are recorded in the Company's shareholders' equity through a hedging reserve and not through the accumulated deficit/retained earnings. The changes do not impact the Company's consolidated net profit/loss or the Company's consolidated cash flows.

- Total comprehensive income was approximately €41.9 million in the year ended December 31, 2023, compared to total comprehensive loss of approximately €35.2 million in the year ended December 31, 2022.

- EBITDA was approximately €18.8 million for the year ended December 31, 2023, compared to approximately €20.8 million for the year ended December 31, 2022.

- Net cash from operating activities was approximately €9.7 million for the year ended December 31, 2023, compared to approximately €11.3 million for the year ended December 31, 2022.

CEO Review Fourth Quarter and Full Year 2023
2023 was characterized by a decline in the electricity prices in Europe compared to the prices in 2022. The decrease is mainly evident in Spain, whereas in Italy the prices remained relatively stable. Despite the significant decrease in electricity prices in Spain, the revenues for 2023 did not decrease in the same rate and were approximately €48.8 million, compared to revenues of approximately €52.2 million in 2022. The main reason that the significant decrease in electricity prices in Spain has a relatively small impact on the Company's revenues is that the majority of the electricity the Company sells in Spain is under a long-term PPA. Net profit for 2023 was approximately €0.6 million, compared to approximately €0.1 million for 2022. The EBITDA for 2023 was approximately €18.8 million, compared to EBITDA of approximately €20.8 million in 2022. The decrease in the EBIDTA for 2023 was mainly due to a loss from discontinued operations in the amount of approximately €1.8 million that was recorded in connection with the expected sale of the Talmei Yosef facility. Although the consideration expected to be received for the Talmei Yosef project reflects a market value that is higher than the price invested by the Company in its acquisition, because the Talmei Yosef facility is treated as financial asset under IFRIC 12, the Company recorded a loss in connection with the expected sale.

The Dorad power station presented an increase in revenues and net income during 2023, and the net income of Dorad for 2023 was approximately €53 million.

The development and construction activities of solar projects in the USA are advancing rapidly and the construction of the first two projects, with an aggregate capacity of approximately 27.5 MW, commenced in early 2024. Two additional projects with an aggregate capacity of approximately 22 MW are expected to commence construction in May 2024 and additional projects scheduled for construction in 2025 are under development.

In Italy, the construction of a solar project with a capacity of 18 MW (ELLO 10) commenced, in addition to solar projects with a capacity of approximately 20 MW who have finished construction. Of the 20 MW that have finished construction, 5 MW were connected to the grid during the first quarter of 2024 and an additional 15 MW are expected to connect to the grid shortly. Therefore, the additional income from sales of electricity in Italy will only be reflected in 2024.

At the end of 2023 an agreement for the sale of the Talmei Yosef PV project was executed, the cutoff date for the transaction was set at June 30, 2023. The Company maintained the rights to a portion of the land in Talmei Yosef, which will be used to construct projects under development (the Talmei Yosef Project and the Talmei Yosef Storage Project in Batteries noted below) that are currently not recorded as fixed assets in the Company's financial statements. Due to the expected sale, the financial results of the Talmei Yosef PV plant are presented as discontinued operations in the Company's financial results for 2023.


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