Fastned B.V. (FAST.AS) Earnings Call Transcript

Hello, and welcome to the Fastned Q3 Trading Update Conference Call. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Mr. Michiel Langezaal, CEO, to begin today's conference. Thank you.

Thank you, operator, and welcome to everyone on this call as well as to our webcast viewers. The presentation used during this call is also available at our Investor Relations website, which is ir.fastnedcharging.com. This brings me to the title page of the presentation. This is a photograph taken by a photographer that specializes in architecture. We've recently been working on such images to show Fastned in prime architectural editorials. You might think why would we have put so much effort in architectural magazines. Well, that's because we have an ambitious hiring target for architects. They're incredibly important to ensure we design charging stations that deliver an outstanding customer experience and brand recognition at each new location every single time. We want to show architects that working at Fastned means working for a company with a mission where you can play an important role in making our brands visible and recognized by electric drivers. Architects at Fastned operate that interplay of branding and user experience, and that's quite unique, especially in our industry. Great design is just another example of why Fastned stations have much higher visitor numbers than all of its competitors. Slide 2, please. With reference to the information provided in these slides and discussed during this call, please take note of the disclaimer. Slide 3, please. My name is Michiel Langezaal. I'm the CEO and one of the founders of Fastned. Victor Van Dijk, our CFO, is also present in this call. Together, we will present this webcast today. Today, I will elaborate on the highlights of the third quarter of 2023. Also, we will give you an update on the developments in the car and charging markets. Furthermore, we will give you an overview of the station rollout for the rest of the year as well as insights into major strategic wins from this quarter. After that, Victor will take over and take you through the top line financial results for the third quarter of 2023. And as always, we will update you on station metrics. After our presentations, we will answer your questions. Please, I would like to ask you to limit them to 2 questions per analyst to give everybody the opportunity. We intend to end this call at 12 noon. Slide 4, please. Let's start with the highlights of the quarter. About revenue growth. As always, revenue and kilowatt hour delivered grew rapidly in line with our expectations. Revenue related to charging reached EUR 15.2 million in Q3, up 51% versus Q3 of last year. The main driver behind this development is the growing number of electric vehicles on our roads. It's important to mention here that Fastned continues to outgrow the electric vehicle markets. It's quite unique. Not many charging companies do that. For example, let's look at the Dutch market. The BEV fleet grew by 33% in the Netherlands, while at the same time, Fastned sold 62% more electricity in this country. And we've seen in every country that our volume growth outpaces the growth of the fleet of electric vehicles. And that is a very good thing because this strong revenue growth supports our gross profit growth. Let's have a closer look at this growth of gross profit. Gross profit for the quarter was EUR 11.4 million, which is 140% more in comparison to Q3 2022. Gross profit equals kilowatt hour volume times gross margin per kilowatt hour. Both parameters and equation contributed to the strong growth in gross profit past quarter. First, as I mentioned, we grow our volumes significantly faster than the market. This is because of Fastned's focus on building large fast charging stations where people come to charge quickly and be on their way again. At Fastned's stations, charging spots are freed up as soon as the battery is full again. What you see with chargers installed at places like IKEA, shopping malls and restaurants is that customers leave their cars longer than it takes to charge. And therefore, charger is not being used optimally. The capacity of this infrastructure is linked to parking and the dwell time at a location, one could say. This difference puts Fastned at an advantage in terms of capturing market growth versus other market players and in turn, accelerating the growth of gross profit. Second, the gross profit margin was exceptionally low during the third quarter of last year when we reached the peak of the electricity prices on the wholesale market, while at the same time, price adjustments to our customers were made with a time lag. A year later, with electricity prices back to more normal levels, our gross profit margin is again at a sustainable level even though we've lowered prices earlier this year. So the strong increase of 140% in our gross profit is the result of larger volumes as well as profit margin that is back at a healthy level. Additionally, last quarter, we benefited a lot from the fact that we currently buy the majority of our electricity directly on the wholesale market and sell most of our kilowatt hours during the day. Especially in summer, it is around the middle of daytime that the electricity is cheapest. This is a consequence of the rapidly growing amount of solar generation capacity over the last couple of years. Other important highlights. In addition to building 8 new stations are, of course, the winning of 2 prime lots in the Deutschlandnetz tender and the adding of new locations to our portfolio. I will talk about each of these in more detail later, which brings me to utilization. During the third quarter of 2023, our network was utilized 11.4% of the time versus 10.8% in the same quarter of the previous year. This number logically goes up as a consequence of more people charging with us, while at the same time going down as a consequence of Fastned adding new stations and more chargers to existing stations, even more so as many new stations are in countries with lower EV penetration than the Fastned average. Therefore, it's also interesting to note the like-for-like utilization. In Q3 of this year, this was 14.3% compared to 11.4% in Q3 of last year. This metric better shows the massive growth in number of customers visiting our stations. Slide 5, please. Last year, around this time, we were working on the construction of more than 30 new Fastned stations across France. This summer, for the first time, we could offer electric drivers a Fastned-only experience on their routes from Belgium or the Netherlands to the South of France. Given the significant difference in electric car adoption between France and the Netherlands, we are much looking forward to see how our French locations will perform with summer traffic, where many electric cars from the Netherlands would choose to drive southwards towards their holiday destination, boosting the number of electric cars on French routes. This gave us a glimpse into a future with higher French electric vehicle adoption levels. On the right side of the slide here, you see the Top 10 stations in our network on the 22nd of July, on a typical black Saturday with a lot of holiday traffic. The stations in the Top 10 that day are almost all along the major holiday corridors: Limburg-Sud on the route from the Netherlands to the Alps, [ Gros ] Mackenstedt on the route to Scandinavia and the French stations serving the North-South corridor to the Mediterranean. The average amount of megawatt hours sold per station per day during that month is 1. In May, when the French stations were largely dependent on the electric cars registered in France, these stations delivered 0.6 megawatt hour, in line with the lower electric vehicle adoption compared to some of the other countries we operate in. In July, the average daily megawatt hours sold on our French stations was 1.2 megawatt hour. This has significantly evolved Fastned average and more than double that of May. And to take Aire de Vemars Est, North of Paris, the 22nd of July, this station was operating at a run rate revenue of more than EUR 1 million. This boost of summer traffic shows us what will happen every day at these stations in a year or 2 when French EV adoptions grow. All in all, you can see we were very happy seeing these results in France at such an early stage in the French market. This shows once more the importance of building stations at the right locations and delivers the first proof of having done so in France. Slide 6, please. But not only in France is the number of electric vehicles rising, it occurs across the board in all of the countries we operate in. Let's take a quick look at some of the key trends we see. Lower tax incentives for electric cars on the one hand are currently slowing down the switch to electric cars for company fleets. While at the same time, sustainability targets that companies need to make as part of their sustainability reporting are accelerating switch to electric. Competition from Chinese EVs, such as the MG4 and BYD Dolphin are driving down prices. This is starting to debunk the myth that electric cars are only an option for rich people. Here one really sees floor pricing and the advantages of investing in large-scale production capacity at play. New car models arriving to the market give buyers more choice and as a consequence, are enlarging the market. Currently, it is the cheaper EVs in the middle segment, driving market scale. In the coming quarters, it will be the rival of the large family vans and SUVs but also the small car segment will be playing a more serious role in driving market growth in the coming year. What kind of cars am I talking about for the opening up of the large family SUV and MPV segments? Think about the Volvo EX90, the EM90, the Kia EV9 and so on. These cars have 7 seats, 400 kilometers real-world range and 250 kilowatt charging. For the opening up of the lower segments, I'm thinking of the Renault 4 and Renault 5 or the Volkswagen ID2, cars with 350 kilometers real-world range and [Technical Difficulty] charging as well. This is just a handful of examples, but it shows the electric vehicle market is continuing to grow fast. Slide 7, please, which brings me to the development of Fastned. Let me start with an update on construction. When looking at our target for year-end, one could pragmatically look at is as follows. One, we have already built 36 new stations this year. 2, at this moment, we have 17 sites under construction, meaning fenced-off sites where contractors are currently building. Normally, construction of a charging station takes around 4 to 6 weeks depending on its size and location. 3, in the rest of October, construction will start for another 9 new stations. Combined, this is expected to deliver at least 25 new stations on top of our existing network before year-end. That's in line with our guidance of building more than 60 new charging stations in 2023. Obviously, we'll also start construction of new stations in October and December, and many of those are expected to open in the new year. In order to continue to scale up our build base, we will also need to grow our pipeline of locations, which brings me to our tender wins. I'm very proud that last quarter, the team got the news that the massive amount of work had paid off. We won 2 of the best lots in the Deutschlandnetz tender. I checked when we first started reporting in our regular analyst calls about the market developments regarding the Deutschlandnetz tender. This was in the summer of 2021, so more than 2 years ago, 2 years of hard work, we went through the qualification process. While in parallel, we started to work on evaluating the search areas and focusing our efforts on what we consider the most interesting ones. At the same time, we also have to think for some of the political discussions that were ongoing regarding some tender aspects. For example, whether or not the price cap will be the right thing. Finally, we also needed to make the call and hand in a winning bid. Some market players gave up along the way. We didn't. And the outcome is one I think we can be very proud of. Let me mention the important characteristics of this tender and why its outcome is so important to Fastned in the charging markets. The tender allows municipalities to swiftly contract charging companies to build charging infrastructure on lands they might have available. This by simply going into bilateral agreements. Tender selection has already happened, so they no longer need to set up a selection process to choose between interested parties. The tender embraces an open charging market without any price caps. The tender puts a lot of emphasis on quality, putting Fastned at an advantage and the charging experience for EV drivers first. Fastned received significant funding from the German government to build the charging stations in these search areas. This funding can be seen as a friendly loan as it is repaid by a portion of the revenue stream that is tapped to apply for the first 8 years of operations. Looking back, Fastned was able to walk away with the 2 best lots in the Deutschlandnetz tender because of: one, we offer the best charging experience in the market; 2, we put in a competitive bid, thanks to our efficient and reliable concepts. This brings me to Slide 9. This win of the Deutschlandnetz tender is again another big win in our already very well-filled industry-leading trophy cabinets. Last quarter, we also won our first motorway locations in Denmark. And in Q1, we won Europe's first tender for zero emission service areas with the Gentbrugge tender in Belgium. Many of the tenders organized by governments today are focusing a lot on quality. This is incredibly important as consumer research again and again shows that this is one of the key bottlenecks for people to choose to go electric, being quality, the presence and the ease of use of proper fast charging infrastructure. The experience we have in delivering a top-quality service to go electric, the experience we have in delivering a top-quality service to electric drivers is giving Fastned [indiscernible] in tenders and is allowing us to win the prime lots. This is what made us win. This has made us the winner in the French motorway tenders 2 years ago. It is also what made us win tenders such as the Gentbrugge tender more recently. This head start is the result of investing early and holding our concept in a front-runner market. All of this, we talked about before, but the German tender is also teaching us something else. The final competition amongst the small group of qualified bidders was largely on financial terms. More than half of the scoring was based on the bids. So you might ask why is a start-up with potentially less deep pockets than, for example, some of the big utility companies is further able to put in also a very competitive financial bid. From all we learned, it is for 3 reasons. One, the best concept leads to higher revenue, improving our business case and allowing for a more competitive bid by Fastned. This is the most important one. 2, as mentioned earlier, we build very efficiently and do a lot in-house, which saves overhead and expensive construction companies many competitors pay for. 3, without the quality concept, you will not take part or you might not have or you might have to pay penalties for not living up to requirements. All in all, we see more and more signs that with the market maturing, Fastned continues to have great cards to win tenders also on financial metrics. This brings me to Slide 10. On Charging Day, our 2022 Capital Markets Day, we showed this slide for the first time: the pillars of our growth strategy. I thought it would be worthwhile to talk you through how our results from this year and especially this quarter relate to our ambition of developing Fastned on each of these pillars as well as reiterating our strategy were relevant. The recent win of the Deutschlandnetz tender is about our interaction with governments to grow our portfolio in high-traffic urban areas and cities, the pillar on the right. Currently still ongoing, Deutschlandnetz tender for motorway service areas with [ Autobahn GmbH ] is logically focusing on the first pillar: the MSAs. Over the last year, we have also been ramping up our private developments, the pillar in the middle, with quarterly private wins being 4x that of the years before and with loads of developments ongoing to scale this further. In our view, private developments will follow fast. There are today, roughly 100,000 petrol stations in Europe. About 10,000 to 20,000 of these have a great business case and are situated on A-plus locations. The far majority of petrol stations are franchised and franchisee and/or landowner makes money on fuel, coffee, sandwiches and snickers sold on site. With the transition to EVs accelerating, these location owners will ask themselves which charging concept is the best offer I can get, just like how they choose their fuel franchise concepts, comparing concepts with Fastned with its industry-leading offer at an advantage over others. And they still have lands available in these strategic plots. They might move early and give us a call today. In that case, we build a charging station next to the existing petrol station, coffee place and restaurants and so on. These are our current private developments. Some years from now, when fuel sales is some steps further in this decline, the landowners that don't have space available on their strategic sites have to decide when to kill their so-called cash cow and potentially choose to adopt that rising star of electric car charging. This is an analogy of the well-known BCG 2 by 2 matrix. Who will they call for their charging concepts? Again, in our view, they will look at the best offers, putting Fastned with its industry-leading concept at an advantage. This makes many more sites available for private developments and will accelerate the build-out of charging infrastructure on private grounds. That's our strategy for private developments, which is clearly growing in importance. Our developments in new markets often follow the MSA route first. Let's have a quick look at that, which brings me to Slide 11. In the last quarter, we announced entering 2 new markets: Denmark and Italy. In both countries, the first focus is on the MSA pillar as governments often introduce tenders to implement long-distance e-mobility. The win in Denmark is largely a by-the-book Fastned exercise; a tender, which amongst other things, test for quality. These locations will allow us to show our concept and abilities to the Danish market. They will help us in winning tenders plans for the coming years. Our developments in Italy follow a similar path. Although the first location is a private lease, this location will become a flagship station that will show our brand and winning concept in Italy, helping us to prepare for the coming tenders in that country. Winning tenders in our existing markets, scaling private developments and showing great results in new markets are the key ingredients to deliver on our pathway towards 1,000 stations at high-traffic locations by 2030. And on that note, I would like to hand you over to Victor Van Dijk, our CFO, to take a look at the financials.

Thank you, Michiel. Let me take a wider perspective first. People ask us how is -- how large is the fast charging market going to be? Actually, it will be very big and high growth. Right now, we have a couple of million electric vehicles on European roads. That number is expected to grow to around 40 million by 2030. These cars will have a charging amount of more than 100 billion kilowatt hours per year. This is recurring demand. Forecasters expect more than 30% of this charging to be fast charging. Many people will have to rely on public charging and fast charging is the most scalable and investable modes of public charging. If you calculate, this will create a European fast charging market of more than EUR 10 billion in annual revenues. This is a similar size as the as-you-go markets where Starbucks operates in or the fitness club market where Basic-Fit operates in, with the big difference that the fast charging market will be still very high growth by 2030 as it grow about fivefold in the 10 to 15 years after 2030. So it will be a very large and high-growth market. Slide 13, please. Bringing it back to today. So who's leading that market right now? Last time, last quarter, I explained Fastned is the leader in the Western European fast-charging market, being a Top 3 CPO in terms of overall sales in our 6 markets, ahead of some of the large utilities and [indiscernible]. And how are we tracking currently? Well, actually, we are a leader and are growing faster than the market. In this graph, we compare gigawatt hour sales by Fastned every quarter with the electric vehicle fleet growth in our markets. The BEV fleet share in our markets grew by 21% over the last year and 67% over the last 2 years on average. Fastned sales grew by 86% and 367% over the same period, so significantly above markets. So in conclusion, the European fast charging market will be a very large and fast-growing market. Fastned is a Top 3 player and is outgrowing that market. Slide 14, please. Then tuning further to station economics. We see a strong sales growth, which drives station returns. We expect the stations on high-traffic locations with a great and efficient concepts to do more than EUR [ 1 ] million in annual revenue and more than 2 gigawatt hours in annual sales per station by 2030. Our current growth is definitely on that track and probably above. Let me explain that. We have on average 30,000 cars driving by our stations every day, and more and more of those cars become fully electric, leading to demand and sales growth. Sales per station grew by 40% year-on-year in this quarter. With that, we outgrew the BEV fleet penetration growth of 21% year-on-year. BEV fleet penetration is expected 6-fold by 2030. So if our station sales just match that, station sales will already increase to more than 2 gigawatt hours per station by 2030. Then looking more closely at this quarter's average station performance. Quarter-on-quarter, sales per location growth was 17%, mainly due to high traffic in the holiday season. This is ahead of the winter season in the coming quarters, where we can expect further sales growth. We've had strong gross margin per kilowatt hour increase over last year, driven by electricity prices having normalized, where in the third quarter last year, we saw a very steep increase in electricity prices. We increased station capacity year-on-year by increasing the number of chargers per station. This is important to cater for demand increase with BEV fleet penetration expected to double by 2026 and 6-fold by 2030 in our markets. We are preparing for that growth. Like-for-like utilization, meaning utilization, if we would not have [indiscernible] stations, was 14.3%. Faster increase obviously also leads to operating costs and investments per station to increase, as you can see. All of this leads to operational EBITDA per station more than doubling over the last year to EUR 91,000 annualized per station and an operational EBITDA margin of more than 40%, already at our 2025 targets. Slide 15, please.

To close our presentation for today, we just wanted to show again the same slide with our guidance as presented earlier. We already discussed our progress regarding delivering on our target of more than 60 new stations this year. So no changes to report on this topic. All in all, we're looking back at a very good quarter in terms of development, important tender wins, the establishment of a beach hat in 2 new markets and growth that continues in line with expectations. On that note, I would like to finalize our presentation and thank you all for listening. I now hand the word back to the operator for questions.

[Operator Instructions] The first question comes from the line of Paul de Froment from Bryan Garnier & Co.

2 questions for me. The first one is that we see many fast charging operators running out [ quick lease ] on the European private market. Do you expect incoming pricing pressure coming from a total competitive landscape at least in Western Europe? And my second question is that during Q1, there was this exceptional item related to employee stock option award following the reach of some milestones. Do we have to expect further exceptional items in the P&L for the H2 for 2024?

Yes. Maybe to start with the second one, the options. Do you want to...

Let me take the second one. So that milestone, there was indeed an option milestone in the first half. Right now -- of course, there's more milestones ahead of us. You can see them in our annual report and online, and we're working on those. I think it's -- we can't give a prediction on that. But it's probably less likely that one will be at this order for this half year. And other than that, we don't expect significant other exceptional items.

And then maybe back to your first question, we found it a bit difficult to hear you or to really -- to get it across. Can you repeat that question?

Yes. Do you hear me well right now?

Yes. Yes.

Yes. Do you expect incoming pricing pressure coming from a tougher competitive landscape in Europe in the fast charging CPO space.

Yes. So I think the way we look at it is basically, we see that when we look at station metrics, that if you want to create a certain ROI, we assume that all parties want to create a certain ROI, then locations that are having more traffic generally provide a higher ROI in basis. And because of Fastned focusing so much on the A plus locations, the market, while at the same time, pricing is set by, let's say, the lowest common denominator being the B or C or D locations in the market with lower traffic, we don't see so much pricing pressure that's an issue to parties like us operating the A plus locations. So that is a bit like sort of the location angle. Then secondly, we see that the market currently doesn't have the amount of charging capacity at the right locations available. So we see actually, demand for charging out basis supply, which neither would provide the basis for a significant amount of pricing pressure. Does that give you a bit of more context on how we look at it?

Yes. It's very clear.

The next question comes from the line of Marc Hesselink calling from ING.

So the first question is actually on the German tender. And so clearly, a great number to add. However, we're struggling a little bit to get to the economics because, if I'm correct, it's different. There you get compensation for -- partly for the OpEx and the CapEx and there's a bit of a price that you have to pay to compensate for that. So maybe to make it easy, if you compare it to your average station, will the return that you can make on the German one, will it be similar, higher or lower?

Let me take that question. It is -- so this is a tender where there was an economic bid component. Basically, you bid for a certain CapEx and OpEx. And I think we and other parties probably didn't bid the full CapEx and OpEx, and we look at it from an IRR perspective. And in that sense, we have our WACC in our annual report of 15%. And obviously, we're looking to outperform that WACC, and we bid in a way that we do that. I think that's what I can say about that. I don't want to -- we haven't given guidance on what the IRRs are on our other projects. But I think that first part hopefully gives you already the clarity you're looking for.

Sorry, not really, because I think that ROIs on your current portfolio are very high. So if you -- maybe it's risky, right, that your ROIs on that new tender are a bit lower or just is that too simple?

Yes. It's good that you see the IRRs on our current stations as high. I think that's obviously a positive statement. And here, they will -- yes, like I said, we bid in a way that it is -- we outperform our WACC. And that is -- I don't want to go further into that. I think that is quite [indiscernible].