interim results - hulisani
TRANSCRIPT
Investor UpdateNovember 2019
Interim Results 6 months ended August 2019
IndexInterim Results - key highlightsCompany overviewSector overviewProjectsAppendices
FORWARD-LOOKING STATEMENT
This document contains forward looking statements that, unless otherwise indicated,reflect the company’s expectations as at 31 August 2019. Actual results may differmaterially from the company’s expectations if known and unknown risk oruncertainties affect the business, or if estimates or assumptions prove to beinaccurate. The company cannot guarantee that any forward looking statement willmaterialise and, accordingly, readers are cautioned not to place undue reliance onthese forward looking statements. The company disclaims any intention and assumesno obligation to update or revise any forward looking statement even if newinformation becomes available as a result of future events or for any reason, save asrequired to do so by legislation and/or regulation.
Disclaimer
HULISANI LIMITEDINTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2019
4Hulisani InvestorUpdate
Financial Highlights• Significant reduction in losses at R6.9m (R10.2m previously) an improvement of 32% and a pleasing rate of growth• Revenue from RustMo1 Solar PV subsidiary improved by 8% to R25.4m (R23.6m previously)• Share in profit from Kouga Wind Farm (equity accounted investment) increased by 58% to R3.6m (R2.3m) • Increase in fair value gain of R6.4m at Avon and Dedisa Peaking Power Plants – driven by higher revenue projections in
line with increased activity of the plants • Fair value gain of R2.2m in the current period from valuation of a written Put Option in GRI Wind Steel investment• Increase in investment income to R6.6m (R2.4m previously) relates to income from the investment in Legend Power
Solutions (LPS) and accrued income of R1.9m from credit instruments in Pele and Ignite
Specialist investment holding company focused in the secondary energy market
6 months ended 6 months ended Variance Variance
August 2019 August 2018
R’000 R’000 R’000 %
Revenue
RustMo1 Solar (Eskom PPA contract) 25,388 23,593 1,795 8
Share of the profit/loss from equity accounted investments
Kouga Wind Farm 3,552 2,248 1,304 58
Fair Value Gain
LPS Investment (Avon & Dedisa), GRI Put Option 8,325 2,456 5,869 >100
Investment Income
Finance Income (LPS Investment, Pele & Ignite credit instruments)
6,680 2,430 4,250 >100
Key Drivers of Income Growth
DK
HULISANI LIMITEDINTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2019
5Hulisani InvestorUpdate
Specialist investment holding company focused in the secondary energy market
Outlook• Our pipeline remains robust and we expect growth opportunities to come through in the next financial year
• Existing Hulisani team is able to manage significantly more transactions than currently held – expected to further reduce costs per asset under management and deliver the benefits of focus and simplicity to shareholders
• Despite the challenging economic environment – we remain committed to revenue growth, cost containment and improving long-term shareholder returns
Operational Highlights• Committed to building up scale and growth in the long term, objective is to simplify the business and contain costs • Decisive action is being taken to focus the business on operational opportunities• Strategies to consolidate assets through share for share transactions over the short to medium term are in progress –
we believe these will deliver optimal value to existing shareholders
Market Highlights• Integrated Resource Plan 2019 and Eskom Roadmap For Electricity 2019 provides certainty in the market and a more
positive outlook – expected to translate to growth opportunities for Hulisani• Hulisani maintains a positive outlook on the South African energy sector – despite uncertainty in the economy and the
electricity supply – this presents uncapped growth in the sector
CapitalisationShares Outstanding 50mMarket Cap (as at 15 Nov) R355mFree float 25%
Cash on hand R 21,2m
HULISANI – SUMMARY OF INTERIM FINANCIAL RESULTS
6
34%
11%
6%5%
44%
MAJOR SHAREHOLDERS
Government Employees Pension Fund
Eskom Pension&Provident Fund
Alexander Forbes Investment Limited
Directors
Hulisani InvestorUpdate
6 months ended 6 months ended Variance
August 2019 August 2018
R’000 R’000 %
Revenue (Rustmo1 Eskom PPA contract) 25,388 23,593 8
Operating expenses (Hulisani Grp & RustMo1)
Includes expected credit loss of R17m on credit instruments not previously required to be reported
(45,453) (34,369) (32)
Operating gains(losses) 8,615 2,535 >100
Loss for the year (6,911) (10,226) 32
Loss per share (cps) (17) (23) 26
Headline loss per share (cps) (17) (22) 23
Pleasing Growth & reduction in losses
BOARD AND MANAGEMENT
Hulisani InvestorUpdate 7
PATILIZWE MDODA (63)
Independent Non-Executive Chairperson
Appointed 11 February 2016
HARALD SCHAAF (67)
Independent Non-Executive Director
Investment Committee Chairperson Appointed 14 April 2016
MARUBINI RAPHULU (44)
Chief Executive Officer
Appointed 13 October2015
PROFESSOR BEN MARX (55)
Independent Non-Executive Director Audit and Risk Committee Chairperson Appointed 1 July 2017
MASIBULELE DEM (40)
Chief Financial Officer
Appointed 1 July 2017
ASANDA NOTSHE (38)
Non-Executive Director Social and
Ethics Committee Chairperson Appointed 13 October 2015
DUDU HLATSHWAYO (54)
Independent Non-Executive Director
Remuneration, Nominations and Human Resources Chairperson Appointed11 February 2016
MALUNGELO ZILIMBOLA(49)
(Alternate to Asanda Notshe)
Non-Executive Director Appointed 13 October 2015
Company overview
• Steady and continued growth in value of investments
• Invested in conventional and renewable energy assets that yield a superior return
• All acquisitions have Government guaranteed CPI-Linked returns that enable long term cash flow returns to be generated and modelled
• Current portfolio consists of high-quality, early-stage projects with significant growth potential – HUL focused on increasing stakes in current investments as operating models well understood
• Strong due diligence capability and identified transaction pipeline – IRP 2019 provides certainty and positive outlook for growth opportunities for HUL
• Successful track record of experience and execution
• Proudly black-managed company with hands-on experience, JSE-Listed
• First point of contact for new investment opportunities in the energy space through reputation
• Positive operating leverage, major projects are equity funded and not through debt – we are in it for the long term investor. Our long term shareholders and backers include:
• Public Investment Corporation (GEPF) – 34%
• Eskom Pension & Provident Fund – 11%
• Alexander Forbes Investment Limited – 6%
COMPETITIVE ADVANTAGESEnergy specialists with a strong network in a high-growth sector
9Hulisani InvestorUpdate
OUR INVESTMENTS
Hulisani actively participates in the management of all the assets in which it invests, working alongside the excellent operational teams of each project.
10Hulisani InvestorUpdate
Project TechnologyEskom PPA (Remaining)
Revenue Type
Capacity
Kouga Wind Farm 20 years (18 years -2018)
REIPPP (Round 1)
80 MW(32*2.5MW wind turbines)
Dedisa OCGT Plant
Peaking Power (gas)
15 years from 2017 renewable
PPA 670 MW
Avon OCGTPlant
Peaking Power
As above PPA 335 MW
RustMo1 Solar PV 20 years (17 years-2017)
REIPPP (Round 1)
7 MW
uMhlaba Investment Lease income
GRI Wind Towers
Production of wind towers and related equipment
Sales (local and export)
150 wind turbines/yr
Sector overview
• SA Government has committed that renewable energy sector to provide 42% of energy needs by 2030• Some 10,000MW in existing Eskom coal-fired generating capacity is to be disabled in the next 10 years, to be
replaced by renewables• Recently legislated the Integrated Resource Plan (IRP 2019)
• IRP 2019 implications:• Will accelerate the role of renewable power – to introduce 20,400MW of new power from solar and wind in the
next 10 years• Uncapped contributions to the grid allowed to small IPPS up to 2023
A SECTOR WITH SIGNIFICANT POTENTIAL South Africa
12Hulisani InvestorUpdate
• Successful rollout of REIPPP 1-4 with REIPPP5 and related IPP projects to add energy infrastructure investments of over R1 trillion over the next 10years• R200bn would require equity investment. HUL targeting minimum of
10% of this market
• IRP 2019 deregulation in licensing of projects presents significant project pipeline for Hulisani• Opens up private market for IPP of 500MW per year not linked to Eskom
supply• IPP can provide power solutions to commercial customers to ensure
reliability of supply and cost forecasts• Investment in local wind tower projects can now go ahead with
increased certainty, providing massive opportunity in GRI Wind Towers manufacture for HUL
SECTOR OVERVIEW THE IMPACTS OF RENEWABLE ENERGY PROJECTS
13Hulisani InvestorUpdate
• Renewable energy is produced from a source that is not depleted when used, such as wind or solar power
• Full impacts of using renewable energy and the renewable energy industry are yet to be realised:
• Use for new minerals such as Rare Earth Elements and increased demand for steel, copper, aluminium, silver, zinc, molybdenum, etc
• Increase demand for renewable energy increases demand for natural resources
• Impact on job creation and sustainability
MINING
• Technology is constantly evolving to strive for better efficiencies - new battery materials for longer storage and night use
• New careers to keep up with advances in developing technology
• Significant cost reductions seen with improved efficiencies through technology advancement
RESEARCH & TECHNOLOGY
• Effects of climate change reduced • Cleaner air, healthier populations
ENVIRONMENT
• Provides power for remote locations without requiring expensive grids
• Buildings are able to be self-sufficient (solar panels) as well as secure long term cost predictability
INCREASED ACCESSIBILITY & COST SAVINGS
SECTOR OVERVIEW: SIGNIFICANT GROWTHSOME QUICK FACTS
14Hulisani InvestorUpdate
• By 2023 global wind power capacity is expected to increase by 63% from 515 GW to 839 GW
• A 3MW Wind Turbine is estimated to require:
RustMo1 Solar Plant• 30,000 solar panels• 5ha area (5 Rugby Fields)• Produces 12million kWh/yr• Powers 2,000 av. houses/yr• Saves 8,300 tons/yr in CO2 emissions
Kouga Wind Farm• 32 Wind Turbines
of 2.5MW (80MW) • Covers 28 ha – mixed land use• Produces 300million kWh/yr• Powers 50,000 av. Houses/yr• Saves 300,000 tons/yr in CO2
emissions
Increased use of renewables provides significant pipeline of growth opportunities and profit potential for Hulisani, including the manufacture of wind towers
To install the projected 400GW that will be required in the USA by 2050, this would require
Recently released IRP 2019 will introduce 20,400MW of new power from solar and wind in the next ten years, which compares to the 6,422MW in renewable power that was provided in the previous 10 years
concrete
4.7 tons of copper and 3 tons of aluminium
2 tons of REE (neodymium) as well as significant zinc and molybdenum
steel
Cu
Al
Zn
Nd Mo
335 tons
1,200 tons
40 million tons of steel
70,000 tons of copper
27,000 tons of REE
400GW
HULISANI’S CURRENT INVESTMENTS IN WIND & SOLAR ENERGY
SECTOR OVERVIEW ADDRESSABLE MARKET
• Renewable energy industry in SA is well established• Renewables sector is one of 12 sectors earmarked for investment by the Public Private Growth Initiative –
President Ramaphosa’s drive for $100-billion in investment between 2018-2022.
• Significant progress by credible local companies in collaboration with international specialists• Internationally acknowledged transparent rollout of REIPP in South Africa
• Treasury guarantees for 20 year CPI-linked Power Producing Agreements secured• Allows predictability and cash flow modelling over the long term• Enables access to funding from leading banks who are committed to provide funding of 80% of the R1Trn
earmarked for REIPP
• Cleantech: #1 energy investment opportunity of our time • Clean energy estimated to provide 70-80% of cumulative global power capacity addition to 2040• Fast growth and opportunities anticipated in emerging markets in Africa
• 600-million Africans still lack access to electricity – only 43% of people in sub=Saharan Africa have access• Renewable-energy energy generation still low on the continent, with hydro at 16%, solar & wind at 1.3%
• Strong policy move towards renewables in emerging markets – SA Government is committed to the Paris Agreement
• Nearly half the world’s electricity to come from solar and wind by 2050 (Bloomberg NEF)• Clean energy resources supplied more of America’s electricity than coal for the first time ever in April
2019 – almost 68.5million megawatt-hours of power (USA Energy Information Administration)
15Hulisani InvestorUpdate
• One of the first renewable energy equity investment companies listed on the JSE
• IRP2019 brings certainty - SA Government Policy backing for renewables that translates to exciting growth opportunities for Hulisani, including manufacturing of Wind Towers
• Investment assets, projects pipeline and potential transactions are diversified and designed to consistently deliver guaranteed returns above CPI – enables long term cash flow predictability
• Proudly black-managed company with hands-on experience and meaningful involvement in assets
• Successful track record of execution – we are the go-to partners for sustainable, profitable, clean energy revenue-generating ventures
• One of the largest investors in clean energy projects on the African continent
• Poised to take advantage of the anticipated growth across all renewable energy categories, supported by positive Government policy and African Continental Free Trade Area (AfCFTA)
• Project pipeline remains robust - growth opportunities expected to come through in the next Financial Year
• Current Hulisani team able to manage significantly more transactions than currently held – will further reduce costs per asset under management and deliver the benefits of focus and simplicity to investors
• Committed to revenue growth, cost containment and improving long-term shareholder returns
WHY INVEST IN HULISANI? Energy specialists with a strong network in a high-growth sector
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APPENDIX
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OUR INVESTMENTS
• First IPP to be connected to the SA power grid
• Annual capacity of over 12.5 million kWh of clean solar power – enough for over 2000 average SA homes per year
• 14 years remaining of a 20 year PPA to Eskom
• Local jobs created and over R2.7m spent in socio-economic development in the Marikana Region
• Potential to expand the plant or to build similar plants for additional offtake in the area
Hulisani InvestorUpdate 18
OUR INVESTMENTS
• Only SA manufacturer of wind towers to the global market –local production and related component manufacture
• Capacity of 150 towers/year - equivalent of 400MW in new wind farms/year – enough for 134,000 homes
• Over 300 quality skilled jobs created so far – skills are marketable beyond SA
• Provides vertical integration into the wind farm value chain, and access to growing global market for components
• AFCTA (pending) is likely to create further incentives for export of towers to the African continent
Hulisani InvestorUpdate 19
COUNTRY:RSA Western Cape
CAPACITY:80MW
OPERATIONAL:Yes
PURCHASE PRICE:R82.5 Million
OUR INVESTMENTS
• One of the first Wind Farm projects under the REIPPP BID Window 1
• Comprises 32 wind turbines that each produce 2.5MW
• Adds 300 million KWh of clean electricity to the grid -enough for 50 000 average SA households/yr
• Has 16 years remaining of a 20 year PPA to Eskom
• Kouga Wind Farm Community Trust is expected to invest R32m into the Kouga communities in FY20
Hulisani InvestorUpdate 20
OUR INVESTMENTS
• Open-cycle gas turbine plants (OCGT) located in KZN and Eastern Cape
• SA’s only privately-owned gas plants - Combined capacity of 1005 MW
• Provide contracted peak power to Eskom to balance the national grid
• 15-year PPAs with Eskom, with the option to renew
• Plant life double that of the current Eskom PPA period –potential to provide power generation option to the private sector
• Plants are able to use natural gas – will unlock the gas market in SA and cement their role as low carbon energy production assets.
Hulisani InvestorUpdate 21
OUR INVESTMENTS
• Long-term cash-flow opportunities from leases underlying renewable energy projects banked through REIPP
• Land leases identified in the market valued at ~ R450 million and provide an potential rate of return of 16% (FCF basis)
• Offers accepted by seven landowners in FY2019 – transactions consider an optimal mix of equity and debt, no shareholder dilution
• Next milestones are to raise up to R450 million and reach financial close on the first seven projects valued at ~R160 million
uMhlaba
Hulisani InvestorUpdate 22
OUR INVESTMENTS
• Focused on the development of short to medium term flexible power solutions and able to reach the most remote areas on the continent
• Largest mine-based, off-grid hybrid project in the world -uses a mix of solar, diesel and battery power – with secured off-take agreements
• Currently hold preference shares as a funding partner to secure future pipeline of projects
• Obtained preferred bidder status on two significant captive hybrid power IPP transactions in West Africa (Ghana & Mali) – positions Hulisani as a leading African IPP
Hulisani InvestorUpdate 23
THANK YOU