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Edited Transcript of PNE3.DE earnings conference call or presentation 13-May-20 8:00am GMT

Cuxhaven May 13, 2020 (Thomson StreetEvents) — Edited Transcript of PNE AG earnings conference call or presentation Wednesday, May 13, 2020 at 8:00:00am GMT

Dear ladies and gentlemen, welcome to the analyst conference call of PNE AG. At our customer’s request, this conference will be recorded. (Operator Instructions) May I now hand you over to Markus Lesser, CEO, who will lead you through this conference. Please go ahead, sir.

Good morning, everyone, also from my side. Thank you for joining us today in this conference call on the results of the first quarter 2020. As usual, I will start with an overview of the operational and strategic highlights of the first quarter. After that, I will comment on our Q1 financial figures. I will conclude my presentation with our outlook for the remainder of the year. As always, we will then open the line for the sell-side analysts only. All other participants will stay in listen-only mode as it is our company procedure for years.

As usual, our slides that I will use can be found on our Investor Relations website.

Yes, having said this, let’s look to the operational overview. This quarter is one quarter where we have made a lot of success in operational ways. We started construction or put in operation 80.5 megawatts. That means we had, if you have in mind, with the corona issue over the past weeks and months, we had to adjust an extraordinary situation. The global corona pandemic and the associated restrictions have shared everyday life and changed economic conditions.

We responded to this threat with a large number of measures, and the majority of our staff have worked from home. That this has been working is shown by the fact that business in the first quarter developed as planned. And you can see we have tender successes. We put projects into operation. We started construction. We have still 283.5 megawatts under construction. Scale Up, its implementation is fully on track. And so you can see even the PV pipeline expanded further in Germany. So in total, we have the usual business in this respect.

In the moment, we prepare some final application for approval for 3 further wind farm projects. We completed them in the last recent weeks. So therefore, in this respect, we’re still working efficient even in corona times.

If we look to the financial highlights, we can see we are fully on target. While Q1 is usually a rather weak quarter for us, 2020 marks one of the best first quarters in the last 10 years of our company, only exceeded by last year record quarter. And I think this is remarkable because you see in the year-over-year overview that we have minus 43% in the total output and in the EBIT, minus 46%. But having in mind that, that was the best quarter last year we had ever in the last 10 years. So that means if you look to the EBITDA, where we have an amount on the last year quarters level, which is the second best result in the last 10 years. From that point of view, we are satisfied with this quarter.

And we have a strong growth in service and power generation segments. We have still a very high cash position. It increases to EUR 123.2 million. And this leads to an equity ratio at approximately 38%.

The guidance we gave already EBITDA, EUR 15 million to EUR 20 million, EBIT, EUR 5 million to EUR 10 million, we still confirm that. Having in mind that the corona crisis is not under control in total, as of today, we assume that there may be a shift in our operating business as regards to sale of project rights and project implementation from 2020 to 2021 and from 2021 to 2026 — 2022. That has been taken into consideration in our guidance. I think this is — we have to say that this is around 3-month shift in total we have in mind.

As of today, we, however, assume that there will be no significant impact on our businesses in the medium or — to long term. And you can see the good liquidity position gives the company sufficient leeway to be able to cope well with longer-term restrictions.

We — on the next slide, we can see our own power generation. Most of the German projects, we will bring — which we will construct this year. And then next year’s will be a part of this power generation portfolio. We stated already that we extend our strategy in this respect. And in the moment, we are at a level of 130.1 megawatts.

Our pipeline is still on a high level with 5.1 gigawatts. If you add PV, then we are above 5.2 gigawatts, which is still on a high level. We have to see that in this environment of corona in Germany and in other countries, the permitting process slows down a little bit due to the governmental authorities response times and some regulation forms we have to fulfill. We have, for example, we have to give a public view on the project, which is not possible in the moment in this respect, but we think in — that will be solved in the next couple of weeks.

So in Sweden, we are still working on a construction management of Malarberget, 130 megawatts. In Poland. the construction of Barwice is completed, and we’re still working on one of the biggest projects in Poland. I think it’s the biggest project with 132 megawatts. We decided to step out of the Bulgaria and Hungary business due to the fact that we — since we don’t see any further development in terms of renewable energies. This is an effect of around about EUR 40,000 to EUR 50,000 of cost reduction per year. So we decided to step out and not to spend more money on this.

The project pipeline is growing. It’s another 9-megawatt peak in Germany. We have had to add it in the first phases. We still working on a bigger, much bigger pipeline, and we think in the next coming quarters, we will see a higher megawatt amount here in the first stage.

We have positive operating results. The earnings driven by — mainly by the general contractor and project development services for own wind farms and services provided to external wind farms from power generation and service and investments related to the expansion of power generations.

So I always spoke about this, we are on a high level in EBITDA. We are — the financial results are impacted by the valuation of interest swaps, minus EUR 1.5 million. This is something related to our — to secure our results and our interest rates.

If you look to the next page, you can see that due to the consolidation, it cannot be shown how strong the segments are increasing. And this is what we can see now and can show now that we have strong results in each segment. If we run through project development, the EBITDA decreases only slightly in opposite to the last year to EUR 4.8 million with minus 7%. In services, we have — we are on the same level as last year, EUR 1.1 million.

In electricity generation, we had an increase of an EBITDA of 71% to EUR 7.1 million. That shows that we are, related to segments, still on plan.

Balance sheet remains rock solid. That is the main headline. And that’s right, we have a big cash position of EUR 123.2 million. We have a very solid equity ratio of 38%. The liability to banks are in an amount of EUR 133.8 million, which are mainly project financing, non-recourse for project financing driven. And due to the fact that we have now IFRS 16 leasing, we have now liabilities from leasing contracts, which leads to EUR 43 million out of this. And in the current liabilities, we are in the range of EUR 20.1 million in this respect.

All of — or most of this, again, are project financing, nonrecourse project financing liabilities.

In Scale Up, we are still on track. We have — we changed the wording in 2020 further because we wrote instead of starting — finalizing wind farm portfolio 2020, we now write start of expansion of own generation power portfolio due to the extension of our strategy in this respect. The ongoing expansion of our own generation power portfolio for the further years is also changed in this respect.

Target is to have 2023 500 megawatts in own power generation portfolio in operations.

Outlook for the financial year 2020. First of all, the Annual General meeting takes place on May 20, so next week at a virtual general meeting due to corona crisis. So next week at this time we will start with the AGM.

So we are still having a high number of megawatts under construction. We’re working on our pipeline and try to increase it. And if you look to the Phase III, so for the projects which are in the permitting stages, we are on a high level.

We still invest in our own portfolio and in our Scale Up strategy, as we still stick in the moment and — because we don’t have other information due to the fact that we are considering 3 months prolongation and shifts in time — in delivery times, we still stick with EBITDA of EUR 15 million to EUR 20 megawatts — million, sorry, and EBIT of EUR 5 million to EUR 10 million. Thank you very much.

Now we’ll start with Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question is from Jan Bauer, Warburg Research.

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Jan Bauer, Warburg Research GmbH – Analyst [2]

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So I got — first question is regarding the Polish project rights, so you still have like 19 megawatts in Phase 2. Have you any update on that, whether you can — may sell it this year as a project right or keep it in the company?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [3]

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Yes at the moment, we are negotiating the wind turbine contracts or finalized negotiation of wind turbine contract for the first project. And we — our target is to start with the construction with the first project, maybe with the second project this year. And we are in a sale process and — in the sale process of the first project, and we hope that we — it’s a target to get the second project sold this year as well.

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Jan Bauer, Warburg Research GmbH – Analyst [4]

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Okay. So we can still assume that you will be able to sell those projects that there won’t be any delay from coronavirus to 2021?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [5]

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Yes. We still see that this is always — negotiation has sometimes to do with personal contact, and this is really always constrained on what we can see just right now. And we would — but just right now, we are still in — we started negotiations and it runs well for the first project.

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Jan Bauer, Warburg Research GmbH – Analyst [6]

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Okay. And for Gode Wind 3, you’re still expecting a payment. So if you — any update on that?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [7]

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Yes. So what we saw just recently, yesterday, there was a decision of the ministers of the (inaudible) countries and — to extend the business and the build-out of offshore in Germany from 15 to 20 megawatts. We would see if this becomes a law, then it is a support for our project in Atlantis I. And we think, furthermore, that on the other side, where we still have EUR 5 million to expect, we will see what that means more or less something for next year. And related to Gode Wind, it’s something where we see and depending on the decision of Ørsted when they start the construction.

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Jan Bauer, Warburg Research GmbH – Analyst [8]

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Okay. So in the service business, you have like quite ambitious targets you want to reach in terms of EBIT generation in the next years. So can you give us a little bit more light on what’s your target for this year only from the service business?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [9]

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Yes, related — the service business, one business, which is in some areas affected by corona due to the fact that we have trainings for personal in terms of rope testing and other training courses. And this has affected a little bit. So it is in the range of maybe EUR 0.5 million EBIT something like this. So — but nevertheless, we see we are still on a good path. In terms of EBIT, we are always affected by the investments we do. And this is the reason why when we see good targets, we are going to invest. That’s why I don’t want to give any EBIT targets just right now for each segment because we think we are still in the phase of investing. And so therefore, I don’t want to give any number on this.

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Jan Bauer, Warburg Research GmbH – Analyst [10]

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Okay. So one last question. So you increased your staff on project development recently. So can you give us an idea, so you raised staff to gain in higher project output in general? Or what’s the aim behind it?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [11]

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Yes. We have different approaches. First of all, the markets — due to our strategy, we have a wider product range. That means we need highly qualified persons related to this. For example, we talk about additional power supply management. This is absolutely — we started with this 3 years ago. We need special forces for that. And so you see we have different new products, PV, for example. But then we are in new markets, Panama. So you see and we extend our business with hybrid. So PV wind in combination with storage. So that’s where we need personal and we need highly trained and qualified project developers. So because of that, we have to extend our staff.

And in — especially, in all markets, we see that there is a high competition to get highly trained staff. So therefore, we are happy that we are — that people come to us and want to support us. That’s the bottleneck, usually, the staff and therefore, we are in good mood that we can extend our pipeline in this respect as well.

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Operator [12]

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The next question is from Holger Steffen, SMC Research.

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Holger Steffen, SMC Research – Analyst [13]

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I have some further questions about your business development. In the first quarter, you have achieved high margin in your project development business despite low external revenues, maybe you can give us some details about the profitability in this segment?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [14]

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Yes. It’s always — it depends on always — if you do — if you sell turnkey, if you do sell project rights, if you do construction management afterwards. If you sell a project, then in project rights and afterwards to construction management, you have different margins, yes? And if we have payments, for example, if Barwice is finalized, we get a fee for construction at the end. So — and you see it depends on which case is coming up. That’s why we extended the — our pipeline overview to a column which is known as sold or under construction to give you an overview where we have construction management margins to expect, which are lower and opposite to project development fees and margins.

And in this respect, we are depending all the time on, one, which payment is coming up and at which time, we relate costs to that, yes? So this is — sometimes we have a project development, project rights to sell, and we get the first payment, then we have all costs under control. And in the last payment, you get the margin, yes? So that differs, yes.

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Holger Steffen, SMC Research – Analyst [15]

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Are there any contributions of internal-generated profit? Or is this profit mainly external?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [16]

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So the project development range is always external — in most of the cases, external. So I have to say, internal is that what we relate to the project portfolio. So as you can — as you know, if we would have sold it, we think about that we would have taken into consideration EUR 37.1 million as additional EBIT, yes, so this is not the case. And if you see our own portfolio, then we have an internal turnover…

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Holger Steffen, SMC Research – Analyst [17]

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And maybe you can give me an idea which part of this EUR 4.8 million EBITDA is internal?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [18]

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It’s mainly driven in — if you look to the consolidation overview, yes, then you see the consolidation amount. And this is where we deviate the internal margin. Yes. So if you look at segment…

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Holger Steffen, SMC Research – Analyst [19]

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It’s mainly belonging to this segment with consolidation?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [20]

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We have the turnover and the margins in the segments, and then it comes to the consolidation, which shows what is internal and what is external, yes. So from that, what I — and that’s why I’m saying, so we had a good result in the segment, but in total, the whole company results are lower due to the consolidation of internal margin.

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Holger Steffen, SMC Research – Analyst [21]

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Okay. Again, your financial result is burdened by codes of interest swaps, which market development in the first quarter was responsible for this and what effect can we expect for the next quarter?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [22]

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So just right now, we are — related to the swaps, we talked about EUR 3.7 million, which are related due to the fact that we have decreasing interest rates. And to secure increasing interest rate, we do the swaps. When we sell the project, it comes up. If we take it and held it on board, it — we have to consider it. And just right now, in this quarter, there have been EUR 1.5 million due to the fact that we have decreasing interest rates in the market.

And now you can expect what we will have in the next quarter. And if you know that you can say, okay, then we have an amount of EUR 1 million or EUR 2 million. But in the moment, I’m not sure that we have further decreasing interest rates. But that is something we will see when — due to the fact what is happening in the financial markets, it may happen. Yes.

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Holger Steffen, SMC Research – Analyst [23]

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Okay. You didn’t sell projects in the first quarter, but nevertheless, you reported an EBITDA of EUR 6.4 million and then EBIT of EUR 2.3 million. You mentioned that these are very strong results, and therefore, your guidance seems to be very conservative. Do you think we can see your range as a minimum for this year now?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [24]

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I have heard such questions several times, you can imagine. So we don’t know what is really happening in this little bit insecure environment. I think it would be wrong to make a statement like this to EBIT and EBITDA. So we’re expecting sales in different countries, yes? So that means we are depending on the development there. So therefore, we stick with this guidance, and we wouldn’t say something in — to the weight of — on the lower end or higher end.

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Operator [25]

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And the next question is from Karsten Von Blumenthal, First Berlin Equity Research.

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Karsten Von Blumenthal, First Berlin Equity Research GmbH – Senior Analyst of Cleantech [26]

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Congratulations to the good Q1 results. In the report and in your presentation, you mentioned the preparation for approval application for 3 wind farms are concluded. Are these 3 German projects? And could you tell us how many megawatts these 3 projects have altogether?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [27]

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Yes, these are German projects, that I can confirm. And the amount, as you can see it on Page 4, I think, of the project — wait a moment, please. It’s round about — no, it’s not written here. You are right. So it’s — when I see to the project pipeline, I think it’s around 20, 25 megawatts, as I have remarked, yes.

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Karsten Von Blumenthal, First Berlin Equity Research GmbH – Senior Analyst of Cleantech [28]

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25 megawatts, roughly?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [29]

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Yes.

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Karsten Von Blumenthal, First Berlin Equity Research GmbH – Senior Analyst of Cleantech [30]

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All right. That’s great. Does that mean that you have the opportunity to participate in the June’s tender with these 3 projects?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [31]

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No. We can’t confirm that due to the fact that we have to consider — so we prepared these approvals, yes, final applications. And we — and you have to see that we don’t have the final permission in our hands. Just right now, we have — we are in discussions, and we think that the next — the next projects we want to go in the tenders is something in the range of July or August. And then we think this — the first projects we can put into the tender due to the fact that we have to finalize the permission in itself. We have a permission, but we are not safe with some of them. And due to the fact that we have to consider the long-term response time of the commission authorities. So I would say that we are ready in June. I think we prepare ourselves for July, August in this respect, and then we will see.

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Karsten Von Blumenthal, First Berlin Equity Research GmbH – Senior Analyst of Cleantech [32]

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But with 25-megawatt in July, August, this would still be a very good result of your project development work and you have already received 14 megawatts in awards this year and participating with another 25 mid of the year shows that despite this very, very difficult German market with these very slow approval processes you get to have it quite well?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [33]

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Yes. We see that the permission status is rather low in the moment, yes. So in February and March, we saw that around, according to our estimation, 50 — around 50 megawatts each month have been permitted in Germany. So this is rather low. So — and what we — as you can see, we have a good pipeline in Germany. We’re still working hard on this to get them step-by-step into the permission status.

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Karsten Von Blumenthal, First Berlin Equity Research GmbH – Senior Analyst of Cleantech [34]

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Yes, agreed. In your report, you mentioned that you are winding up the business in Bulgaria and Hungary and you mentioned the cost savings. Could you repeat that figure because I didn’t get it?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [35]

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Yes, that’s EUR 40,000 to EUR 50,000 per year.

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Karsten Von Blumenthal, First Berlin Equity Research GmbH – Senior Analyst of Cleantech [36]

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EUR 40,000 to EUR 50,000. And do you expect winding up costs? So one-off costs you have to book and do you…

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [37]

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No. No. No. That’s — we — no, that’s — we are not expecting that further costs will accrue.

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Karsten Von Blumenthal, First Berlin Equity Research GmbH – Senior Analyst of Cleantech [38]

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Okay. Perfect. Then you just save money, fine. In the services segment, you rightly mentioned that if you look at total output, you have increased your business. But when I look at purely external sales that was a bit weaker than in the quarter of last year and you already elaborated on a bit more difficult business in some areas, so is that the reason why the external and internal sales are a bit lower?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [39]

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Yes, exactly. So we have one effect because of the training costs and because of — you see we get orders for — to — for ropes — rope trainings for — training for the elevators of a wind farm and wind turbines and so on. And so everybody now, as — I said before, now shifted this kind of orders for 2 months. And now we start again. Since last week, we have the increasing order income in this respect, and that’s why we have a slightly shift of the orders. And these are trainings and the orders we have related to the testing of blades and elevators are tested, which has to be done. So therefore, we don’t see that we can — we think that we will still get all orders during the year.

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Operator [40]

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There are currently no further questions. (Operator Instructions) And the next question is from Laura Lopez, Baader-Helvea.

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Laura Lopez Pineda, Baader-Helvea Equity Research – Analyst [41]

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I have a couple of questions. Your material costs are rather low in the first quarter, I can imagine this is also part of some delays in the construction market. Can you maybe also elaborate a little bit how the supply chain is developing? I think in the full year conference call that what was also mentioned as a risk, it’s not only the permit, but also the general supply chain being pushed back a little bit. So maybe how is that developing?

And then maybe coming back to Bulgaria and Hungary, you did mention the unfavorable market conditions in those markets. Did this actually accelerated with the current COVID situation? And do you see a risk for other regions where you might be active at the moment for something like that as well to happen?

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [42]

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Okay. First of all, the delivery situation. Mainly our projects we planned, we will start construction in the third and fourth quarter this year. So that’s why we are not that much affected on delivery issues, which are happening just right now. In Poland and Sweden, we have already wind turbines in place. So therefore, we do the construction management there only. We are not affected by any delivery shifts. So therefore, there is no risk for us. But we don’t see a big delivery shift in the moment. The delivery of — in upcoming months and the next year, as I said before, we start construction of a lot of projects at the third, fourth quarter. And this looks as usual. But we see that there are a lot of warnings from manufacturers that they say, “Okay, we don’t have an overview about the situation of deliveries out of China and it might cause delays.” But just right now, as I said before, we are not affected at the moment. And for the next year, we see this — we see it in different markets that differs a little bit. But in the moment, we hear — heed the warnings, and we consider them in our plans, in delivery plans and construction plans, but we don’t have just right now something on our desk in this respect.

Related to corona crisis in Bulgaria and Hungary, no, it has nothing to do with corona crisis. It has something to do what the government wants in respect to renewable and climatic change and renewable energy increase. And since years, they do nothing to support this. And now we have — we don’t want to spend more costs on this. We don’t have trust that these kind of — this government will change anything. So — and on the other side, corona, we are in 12 markets just right now, and we see that the action differs. And — but just right now since Monday, our office in France runs again, not anymore home office there. So — and our office in United States is still affected in this respect that they do home office. In Poland, they do home office and want to start very soon. So it differs from country to country. In Turkey, it’s home office, and they will stay in home office for minimum 2 weeks. And so it differs from country to country, but we are mainly driven by — we can work home and can do a good home office. We have to instrument the tools and everything in our hands, and we see that we are in good shape to do this business as well in home office for a recent time.

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Operator [43]

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There are currently no further questions, I’ll hand back to the speaker for closing remarks.

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Markus Lesser, PNE AG – Chairman of Management Board & CEO [44]

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Yes, then, thank you very much for your interest, and we go ahead with our business.

Thank you.

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Operator [45]

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Ladies and gentlemen, thank you for your attendance. This call has been concluded.

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