Cloudberry Clean Energy ASA

OSE:CLOUD

Earnings Call Transcript 2023-Q1

[Anders Lenborg, executive]

Hi, and welcome to this First Quarter 2023 Presentation from Cloudberry Clean Energy. We are happy to present the best quarter ever in Cloudberry's history. And we have prepared a presentation for you that we will go through. But before we start on the presentation, we are also happy to have received government's postponement of the proposed ground rent tax earlier this morning. That will, of course, have some positive impact on Cloudberry's financials in 2023 that we will dive into later in the presentation, but it's also an important signal that the government is listening to the renewable industry in Norway, and it's very important for the renewable sector to have a stable framework for the investments that we have to make to reach the climate goals and also to build out more the renewable power for the increased demand that we see in Norway.

So a very good start of the day for Cloudberry, and I'm joined by Christian Helland, our CVO, here today. And we will go through the presentation that we have prepared for you. I will kick off and give you an introduction to Cloudberry and some of the highlights. Then Christian will give you a run-through of the financial numbers. And after the outlook, we will open up for Q&A. So please write your questions during the presentation, and we will try to answer as many of the questions as possible after the outlook. So with that, I will dive into the presentation.

We have, over the last years, delivered on our strategy. We have been able to build a Nordic independent power producer. We have established a platform. We have also managed to establish a wide portfolio of projects and finance the projects. We are today fully financed for 1 terawatt hour of production. And at the same time, we have built also a great company with a strong culture.

So delivering on the strategy, delivering on what we have said that we were going to do is important for us. And as you can see here on the right side, you have an overview of our portfolio. We have today around 30 different renewable assets in production, about 100 turbines spinning and generating cash flow to the company.

As you can see, we have also some projects under construction with a hydropower plant on the West Coast of Norway. And we have also a wind farm just outside Eskilstuna and Stockholm, and they are both under construction and develop according to plan. And we will see first power from those projects later in 2023, and they will be in full operation by end of first half year 2024.

So the production portfolio and the constructions are moving ahead as planned. In addition, we have seen that we have been able to also get more projects into the backlog. We have some new hydropower projects, and we have also seen that we have managed to grow the pipeline. With now hubs, both in Norway, Sweden and Denmark. We have better access to new projects. And I think also going forward, you will see that we have managed to grow the portfolio on both hydro, wind, but also solar, especially in Denmark and that will give some effect also to the overall portfolio of Cloudberry.

So the status today is very positive on the project side of the company. And this is also an important slide to understand how we are thinking of financing and the growth. We want to recycle more. We want to maximize the shareholder value. We have a flexible platform where we can farm down or sell development projects like we did last year on the shallow water project in Sweden, or we can continue to build the -- develop the projects, make them ready to build. And also we can sell down or farm down on producing assets. And that generating cash flow for due development projects in the portfolio. And we see a lot of interest from the market both on the greenfield and project with permit and also, of course, for producing assets, we have some attractive assets that maybe we will see over the year that we do kind of farm-down our sales to fund further growth.

So moving on to the highlights. I mean we are especially proud. As I said, you can see here on the right-hand side that we have managed to deliver on what we have said that we were going to do. We have delivered on the production, increase the production double that every year from 2020 to today, and we will also see that this capacity will grow in the years to come. So that is important for us. And that has also been the reason for why we today can deliver tripling of the production portfolio and EBITDA that is 10x higher than the first quarter 2022. So that is a proof of that we managed to deliver on our promises.

If you want to dive into one particular project, it has to be the Odin portfolio. The Odin Portfolio, the reason for this was to diversificate of the projects. We see that political risk is quite large in the renewable sector. And with the 3 different countries, we added 2 new price areas. We have been able to derisk our producing portfolio. And it's also important for us to have a very strong local presence, and we have that through our partner, Skovgaard Energy, that we feel -- share many of the same values as we do. And we are planning to close this transaction in Q2 this year. And we have already started to work on some of the projects in the project development portfolio that we have a first right of refusal to in Denmark. So you will see that we will close the transaction in Q2, but we will also see new projects coming out of the development portfolio in Denmark.

On this slide, many of you know, this is how we have done it. We have built a portfolio over time, starting with smaller hydro projects and now, we are looking into larger wind and hydro projects. Munkhyttan, which is the one here with the permit will be a project that we will take FID on over the next quarter. So everything is now developing according to plan on that project.

We are also proud that we have no health and safety incidents in first quarter in 2023. We have no material or environmental damages recorded. We have a very thorough sustainability report out. You can find it on our homepage. It has, of course, a lot of number on our reporting -- on our footprint and so forth, but you also find some really interesting stories from our project managers on how we live sustainability on our projects on site and some things we have done to secure our sustainable footprint.

So that was it from me. And I'll leave now the word to Christian, who will take you through the financials, and then I will come back later. Thank you.

[Christian A. Helland, executive]

All right.Thank you, Anders. Hi, everyone. Yes, jump straight into the financials. It's been another great quarter for Cloudberry. Now you really see what we said back in 2020, how the ramp-up is coming along. And you can see both on the consolidated and proportionate figures. Again, the proportionate figure is the management reporting. So as you see, 3x increase in revenue and 10x on the EBITDA compared to last year.

So year-over-year, we really try to improve these figures. And now also with Odin coming in, you will see a further ramp up in these numbers going forward. We see production increasing from 29 to 30 GWh. I'll get back to that on the next slide.

It's also nice for us to see that we capture good prices in these areas, and this we mentioned earlier, but you see, for example, our larger projects in NO-1, have very low correlation with wind speeds in Europe. And this -- does that -- we get low cannibalization effects of our current assets. And this is also comfortable to us to see that we get good prices at the right times of production.

As Anders mentioned, ground tax has been delayed, and there is a good process there. So the results will be -- net effects, net profit will be NOK 11 million better this quarter. This is great news, obviously, and helps us with -- especially Odal who is generating a lot of cash here in the Oslo region.

We also report on net financials. You don't see that here, but we have, as mentioned earlier, hedged all the risk on currency has been large volatility on the Euro NOK and also the Danish NOK. So the full position in the Odin transaction is hedged and was hedged at favorable terms. So the main number behind this hedge is financial gains for the quarter. It's been a strategy for Cloudberry all along to take away currency risk and interest rate risks on our debt.

To the balance sheet. There's no big changes here, we'll have the strategy and to have a very strong, robust balance sheet. As you can see, a very clean balance sheet as of today, very little interest-bearing debt that will pick up now when we close the Odin transaction, but we have a good -- very good cash position, as mentioned, to take both Odin and the Munkhyttan transaction.

Equity keeps increasing with strong results on the P&L and other comprehensive income. Again, just we report on consolidated and proportionate. Important to say the proportionate figures include our net ownership in Forte and Odal. So again, proportionate reporting is a good way to understand our business.

Here is more details driving down into the segments, and we'll get back to the production segment on the next slides. But as you see the development segment, we have no project sales this quarter, but we have strong development in the backlog and the pipeline. So really driving forward the projects, as Anders mentioned, shouldn't be, is going according to plan. And this is a good cooperation between development and Captiva to drive the existing [indiscernible] project forward with [ Nine Vestas ] turbines to be installed later this year. And we also see a lot of spin-off effects with our new office in Eskilstuna and access to new local projects, taking advantage of good development in the region. So this is very important for us. This is now our time to show that development is bringing value to the company with new projects, local projects, that's not necessarily accessible to large infrastructure investors.

We also have 2 new hydro projects where Captiva has been helping us to get these signed and we hope to put in the concession application later this year. At Sundby Vindpark, we just signed an agreement with [indiscernible]. For us, this really speeds up the projects, take down the costs and also increases highly the probability of getting this project done. So really excited about this partnership. It's a large nearshore project outside the nuclear reactor in Oskarshamn. And there's also been some significant meetings with the local population there over the quarter. So very good developments on the development segment, even though it's not measurable in the short term in the financial figures.

Operations segments. Again, we see how well Captiva and Cloudberry works together, bringing Captiva, bringing a lot of project and know-how from construction of wind. And we also see the getting new customers, external customers on their asset management part. The digital portion is developing, adding new and favorable add-ons to the company and also aligning a lot of the reporting with the EU taxonomy, which is becoming more and more important for the renewable companies in Europe.

Production segment. Again, a very good pickup in our production, strong prices and continuous growth in this segment. Our production volumes have been slightly lower than we expected and prices a little bit better. And it's two main factors by this. One is basically, it's been a quite cold winter on the West Coast. So Rivers has been frozen, especially for the Forte Portfolio. So you get less volumes in Q1, obviously picking up significantly now in Q2. And there's also been some weather instruments at Odal, especially in January. Where you had freezing conditions, which is now replaced and is hopefully working very well for the next winter.

This is just to illustrate now the continuous ramp-up we see. This is showing the EBITDA for our 3 first years, on our proportionate level. And we also see now we will get with Odin also soon be coming into production. We'll get more than on an annual basis, 800 GWh in production. And here, we just illustrate a little to sensitivity we see on different power prices, given about 800 GWh in production.

So again, very pleased with the development for the quarter, and I give the word to Anders to spend a couple of minutes on the outlook and summary before we head into the Q&A session. Thanks a lot.

[Anders Lenborg, executive]

Thank you, Christian. Hi, everyone. Yes. We feel at Cloudberry is perfectly positioned for the energy transition in the Nordics and we have strong drivers in the EU, who is pushing the energy transition and we also see that we have a massive demand in the Nordics for new renewable power.

We need to settle the uncertainty around ground rent tax in Norway. But I think also that has moved in the right direction today with the postponement of the proposal. So we see that the framework, the politicians, the institutions are all eager to push the energy transition further and also the demand side is growing. And in some price areas in Norway and Sweden, you will see a deficit of power already in '26, '27. So all this is key to the energy transition. And with our local hubs in the different countries, we see also that we managed to get more projects into the portfolio and to deliver on the demand of new production.

And the power price here is shown on the left-hand side, it's the long-term volume-based price. And you have several of these price prognosis. But what we see looking into them is that you see a shift in power prices from the historical quite low power prices in the Nordics to an average that is as high -- is higher going forward. So we believe also in this shift. And in that way, we see the positive outlook.

So to sum up, what we have talked about today is very much the key. We see the growth in production. We see that we can grow also the profitability. We can -- we managed to grow the development portfolio, and we are looking to dive more into the development portfolio on our Capital Markets Day after the summer, to give a better insight in the different projects and also the maturity and how we work on the development side of Cloudberry. In addition to that, we will close Odin transaction in Q2, and this is then -- giving us immediate cash flow from the production in Denmark. And we also managed to take the projects that we have under construction to production, and we will also see new FIDs over the year and already in the second quarter this year. So all in all, very well-positioned and things are going according to plan and we deliver on what we have promised over the years.

Thank you so much for following us on this presentation. We will now move on to the questions. We have had several questions here so far. Many of them relating to the tax issues, of course. So Christian will now give you some answers. And please send us more questions and we will try to answer that. Thank you.

[Christian A. Helland, executive]

Going straight into the Q&A. So we just took some notes here on some of the financial questions. Anders will get more back to the strategic questions.

Is it likely that you will reverse your tax proposal on Odal?

Yes, the press conference started 10:45 today. So we will obviously listen a bit more careful with it. But as it looks -- yes, it looks like we will reverse it and get significantly better numbers than expected for Odal in '23 and also for the Cloudberry Group as a whole. As mentioned, it improved immediately. Our net profit with NOK 11 million in this -- or first quarter. We'll get back to it. And also, again, we plan to do a press release, hopefully today, where we'll come up with a little more information about this revised or the delaying and also what we see coming out from the press conference. So hopefully, later today or latest tomorrow.

And also some questions about dividend. As written in the prospectus in December. There's no changes to our policy. We said that over time, we plan to pay out 30% to 50% of the free cash flow from our production segment. Our Board and also our new Board now elected in AGM now in April, it's clear that it's important for us to have a base production. And this also links into the next question about PPA versus merchant pricing.

As we mentioned, to have a good diversification now or production, makes it much more easy for us to make good PPAs and hedges so we don't run into shortfall risks. This has been extremely important for us to have low risk. If we do a hedging, it should be a clean and clear hedge that we don't run into actual other risks by doing this hedge. So having bigger volumes diversified in more regions between different technologies, which obviously make it more attractive for us to go into longer PPAs, both long and midterm power agreements.

We see obviously the industry also after low power prices, especially in Norway for 10 years is starting to understand that there is a shift in the power curve. And we see that the dialogues are getting better and better between us, as producers and the industry as buyers of power. So as of today, we're still 97% merchant. But again, we're working continuously with the industry to see if we can find good solutions for both the industry and Cloudberry.

Anders, you may be -- well, I go back and read a little bit, you maybe want to comment on some of the other questions.

[Anders Lenborg, executive]

Yes. Thank you, Christian. I see that you covered many other questions related to tax and PPA, and we have one question here regarding solar power and where we do have our competence from developing solar.

And what we have done so far is used our in-house resources. So both Captiva through their team in Baden and the experience they have with developing solar projects and also the competence that Skovgaard Energy has in Denmark developing solar. That's what we have used so far.

What we have said that we want to do some pilot projects, and we have already come to applying for a solar project in Norway, 8-megawatt ground-mounted solar project in the south of Norway. And we are planning then to look into more solar projects with the resources we have today and also adding more resources when we decide ongoing large on solar.

So that was the answer to that question, Christian?

[Christian A. Helland, executive]

Yes. I also got the question here. Do you plan to raise more equity?

I think on this question, it's quite important to go back to Anders' second slide. For us, it's been now very important to show our organic growth. We have a clear funding plan and is fully funded for the project ahead of us. And as you see, we get a lot of interest in our assets, and now we can start using our platform to recycle the capital. So for us, great flexibility with the local saving banks. So we have a good flexibility on the debt side. We have a lot of interest on asset level, on farm-downs, if needed, to fund new initiatives and projects. So for us, now it's important to show that we create a lot of value and to build on our organic platform going forward.

Okay. So then I think we've used more or less the time available. So Anders and I thank you a lot for listening to us today and hope to see you next quarter. Thanks a lot.