Cloudberry Clean Energy ASA

OSE:CLOUD

Earnings Call Transcript 2022-Q1

[Anders Lenborg, executive]

Hi, everyone, and welcome to this first quarter 2022 presentation from Cloudberry Clean Energy. I am currently joined by my colleague, Christian Helland, our CVO, and we have a presentation for you. After the presentation, we open up for Q&A, so please use the Q&A function on your Teams invite.

Today's agenda, I will start off with giving you an introduction to Cloudberry and some of the highlights from the first quarter. And then Christian will take you through the financials, and then we will finish now off with the outlook before the Q&A session.

So Cloudberry is a local independent power producer. We are a Nordic developer, owner and operator of hydro and wind assets. We believe in having a large development portfolio where we develop our own in-house projects and also be able to keep those projects and have a producing portfolio, giving the company a long-term cash flow. Since first quarter 2022, we have also moved operation of the assets in-house through the acquisition of Captiva that I will get back to later in the presentation. Cloudberry is a listed company. We are listed on the main list of Oslo Stock Exchange under the ticker CLOUD.

So the first quarter 2022 was a busy quarter for Cloudberry. We have had a strong market. We have had strong power prices. We have mainly a hydro portfolio, so please be aware that the production profile is affected by the cold and the icy first quarter of 2022. We will also see more wind power coming into the portfolio over this year, so over next year, we will have a more even production profile throughout the year.

But the main takeaways here is that we have also grown the development portfolio through acquisition of new wind and hydro projects both early-stage but also late-stage development production projects in Sweden and Norway.

As you can see here on the right side, our power production has increased from last year. And also, the production capacity is more than doubled over the last year's.

So this is our portfolio. This is Cloudberry. We do have a large pipeline of projects that we look into. What we find in our backlog is the project that we had exclusivity to. So here, we have secured the projects, and there is no competition.

So we have been growing the backlog with now a total of 14 projects and a capacity of over 400 megawatts. These are both hydro projects in Norway and wind projects in Norway and Sweden. We have also the late-stage development projects. That's the project with the permit, where we today have 4 wind assets in SE3 in Sweden, more than 200 megawatts. These projects, we are now working on to get them ready to build or in the procurement process. So these projects are late-stage projects. And several of them, we will see FID on through 2022 and 2023.

In the Production portfolio, where we have the producing and -- assets and also under construction, we have today two wind farms under construction. It's the late-stage Odal wind, where all the turbines are erected, all the turbines are in place. The construction risk is, in that sense, not there anymore and that where we're now working on electrifying the turbines, and we have today electrified 15 out of 34 turbines. I will also get back to this project later in the presentation.

On the hydro side, we have already constructed the hydro project. There, we are waiting for a connection to the grid. We have now the testing of the substation. And the last project is the whole wind farm where the infrastructure is in place. The substations are also in place. And we are waiting for the turbines over the summer, and we will see the first power later this autumn.

All in all, we have a diversified portfolio, diversified on the technology and jurisdiction but also on maturity. So we have a certain flexibility when it comes to the way we want to have the focus over the next years.

And we do focus also on being an ESG company. And we have a sustainability report that was out earlier this year. You will find the link here on the right side. And I strongly would like to emphasize the work we do on the sustainability side. And today, we are taxonomy eligible for all our projects and assets in production. And we are working on also getting net zero on Scope 3 as soon as possible. And we have said that the ambition is by 2040 on Scope 1 and 2, we are already a net zero company.

Here, you see an overview of the portfolio. As mentioned, we started out as a hydropower producer. So you will see that a lot of the producing assets are hydropower. The Q1 is a quarter where you have little or less production from the hydro power. And as you see here, we will have more wind power into production this year, with Odal wind being the largest project, and then balancing out the profile with more wind coming in as we speak and over the rest of 2022.

So with this, I say thank you for your attention so far. And please, Christian, take us through the rest of the presentation.

[Christian A. Helland, executive]

All right. Thank you, Anders. Yes. I think it's good. Louis, just leave the slide here. It's portfolio transition principally and how we're thinking financially.

So as you've seen, we are in a significant ramp-up phase. Today, we have mostly hydropower production from [indiscernible]. That's wind production.

And this is -- might be surprising for some European investors that hydropower normally produced is best in the summer months. So normally, in Norway, rivers, lakes are frozen during the winter, so production volumes are normally significantly lower from hydro production in especially Q1, January, February. So that's just important to mention. But as you see, we're ramping up with Odal farm, wind. So we will get now during 2023 a much more even production profile, as we also mentioned to the market earlier.

So we are on stream. What's also important to mention here is that we have financed the portfolio. So we are financed for about 290 megawatts. We have fixed all the interest rates for the projects we have in production, and we also fixed the interest rate for the Odal project. So we fixed all these rates back in 2020 and 2021. So we have not been affected by inflation and higher interest rates on these projects. Going forward, this is obviously something we're working very closely with and will affect our future projects.

Yes, can go to there. Next one.

As you see, it's a very clean balance sheet. We focused early on to have a financed portfolio. So to deliver or finance for about 290 megawatts. Thus, we have a good debt financing in the local saving banks here in Norway -- SR, that's our bank, it's our main bank -- and very good flexibility on the debt side. So as we see, today we have a strong cash balance, low debt. And we have also fixed all our debt between 10 to 20 years on fixed rate and swap agreements.

The cash, we will use in our projects going forward. And as we see, there is a significant ramp-up in the production where we hope that both Odal and Hån will be in full power by end of 2022.

We also report -- it's important to mention that we report on consolidated. That does not include associated companies. We have two large associated companies. It's Forte and Odal. But the proportionate figures include these two associated companies. So you see some differences between the consolidated and proportionate figures, and we just want to mention that, that's due to these two associated companies. So again, a solid balance sheet and financed for the growth we see ahead of us.

Yes. So this shows that we're definitely ramping up. Volume is, obviously, lower than the average for the year during Q1 with cold winter. We see revenue increasing from NOK 4 million to NOK 30 million, so a good ramp-up there, and also our EBITDA in the numbers becoming positive. So we're in good shape in that sense.

As of today, we are fully merchant, so we do not have any PPAs or secured power prices. As mentioned earlier, this is something we will and plan to have a balanced portfolio of merchant and PPAs over time, but this is more likely when we get the production levels up and see more stable production over the quarters.

Again, you see the difference between consolidated and proportionate. The proportionate includes also the portfolio on the revenue side. Again, a significant ramp-up in revenue and increased EBITDA. You also see our power production increasing from 8 to 29 gigawatt-hours during the quarter.

This is just to show a breakdown of our largest segment. This is the Production segment where we have all our production assets. We're going, again, from last year a revenue of NOK 6 million to NOK 32 million this year and an EBITDA from NOK 1 million to NOK 20 million. So here again, we see the ramp-up phase, but we are still at quite low numbers with only about 60 megawatts in production where we expect by the end of the year to have about 140 megawatts in production. So a lot of this ramp-up is lying in front of us. We also see the last 12 months' figures where we go from revenue from NOK 11 million to NOK 103 million and also EBITDA becoming significantly positive on the Production segment.

We also take one minute to comment on the power prices. We had, again, most of our production in the southern area. There's been a large difference between the prices in the north, where there's been much more participation also, but also it's lack of capacity to the south. So lower prices in the north, higher prices in the south. On the other hand, the volumes have been lower in the south and higher in the north. So this all is normally also a natural hedge in this -- in the power markets here in the Nordics. So our average realized price has been a little bit over NOK 1 per kilowatt-hour during this quarter.

Yes. Anders, maybe some final comments about the market and also a little bit about how we see the future.

[Anders Lenborg, executive]

Thank you, Christian. And yes, we have a positive outlook for the Nordics for the coming years. We have seen that the stakeholders and the regulatory governmental bodies are all eager to see more new renewable coming into production. Norway has opened up for wind power, new wind projects again after a still stand of a couple of years. Sweden has very ambitious goals on the new renewable side, mainly on offshore wind.

And we see here on the left side some positive outlook on the power prices from the Norwegian directorate for energy. And as we know, this has already affected the market so far in 2022 and it also looks good on a midterm basis.

So as Christian mentioned, we have been actively looking for projects in the south in Norway and the south of Sweden, where you have the price areas where we see the highest prices. And we will continue building our portfolio around -- in Norway and Sweden with a focus on hydro in Norway and wind in Sweden. And we also see that our offshore wind team in Sweden have developed further the projects -- offshore projects, so we expect some more news in connection with the offshore projects later this year.

Yes, we have been able then, as Christian mentioned, to get a positive EBITDA, and we have a strong growth in our revenue. We see that we are able to get new projects into our Development portfolio and move the projects from early stage to late stage to construction and production. And with Hån wind farm later this year coming into production, that will be a typical project that we have started on greenfield, early stage and develop throughout the whole process to production.

Well, what we do see as a topic is the higher commodity prices and also supply chain issues. We use more time on due diligence on our suppliers. We use more time to plan. We need to be better at seeing the risks when it comes to those, especially the capacity -- supply capacity. And with the right suppliers, we think we can handle those issues. And as Christian also said, we need to be very diligent when it comes to commodity prices, inflation and so on, that we secure the projects as good as we can.

Now on the other side, we do see stronger power prices. They have come up over the last 1.5 year, and it also looks positive for the midterm going forward. So on the positive note, we have the power price that hopefully will also help us through -- on some of these projects that we are currently working on procurement and construction.

So thank you so much for listening to us. This was the presentation we have prepared for you, and then we open up for a Q&A session. Thank you so much.

[Anders Lenborg, executive]

Hi again. We are now on the Q&A session, and we have received some questions from you. I will start off with answering some of the questions. And we have also Christian Helland here who will answer a few questions.

So let's start. We have a question here from one of the attendees. It's concerning the low water levels and how will that affect Cloudberry going forward.

And that's a relevant question. It has been a rather dry winter, less snow in the mountains in the south of Norway. And we have also had a dry spring. What we see is that the reservoir levels in the south of Norway are low. And of course, that will affect the production when it comes to volumes. On the other hand, we will also then see -- historically, we have seen that this will also affect the price levels. So all in all, I think we expect that production will be a little lower than historically. But also, looking at the price levels going forward, that will be evened out.

And another question here concerning the power prices. We know that many of you are concerned and interested in the power prices. As we have reported today, we have achieved a little above NOK 1 per kilowatt-hour in the price -- first quarter prices.

We do not use any internal resources on power prognosis, but we use a third party. And the forecasts from our annualized -- analysts and also other analysts are positive. We see that the geopolitical situation and also the local situation, as just explained, are going to affect the power prices going forward. So we have a positive view on the power prices for 2022 and onwards.

Another question here. "You have secured rights on a large hydro project on the West Coast that was earlier turned down. And how will that affect your working on that project?" And that's right, we have secured rights for a large hydro project in the northwestern part of Norway. And what we now are doing is to work with the environmental issues that was brought up on the original process, the original application, and we have redesigned the whole project, taking into account those environmental issues that was up some years back when the directorate had this application under work. So all in all, I think we are looking at a different project than what they applied for back in 2014.

Another question concerning Captiva. And that is, of course, a relevant question. We bought 60% of Captiva earlier this year, and we have already seen that this has brought in -- brought us more capacity on the Development side. Captiva has a development team, both on the wind side and the hydro development team, and we are, as of today, using those resources on our projects, both on wind projects in Sweden but also on the hydro projects in Norway. So we have seen an effect on the Development side already. Captiva is today part of the team on the Development side.

When it comes to Operations, we see that they will continue to develop the operational platform going forward and the digital solutions, which I think is very interesting and promising. There was an article about the digital solution of Captiva in [indiscernible] some days back, which I recommend. And that we think that going forward, making these assets smarter, making the operational platform smarter will bring down the OpEx, and we -- make us able to have one of the most modern operating platforms in Europe. So we are very positive to what Captiva can bring into Cloudberry going forward.

Yes. I don't know if we have any more questions. It looks like we have answered the questions we have gotten so far. Yes. Then I say thank you for your time, and thank you for this Q&A session. We will be back 18th of August with our Q2 results. Thank you so much.