Cloudberry Clean Energy ASA

OSE:CLOUD

Earnings Call Transcript 2023-Q2

[Anders Lenborg, executive]

Hi, and welcome to this Second Quarter First Half Year 2023 presentation from Cloudberry. We are happy to present yet another strong quarter after the summer break. I am today joined by Christian Helland, our CFO, and we will go through a presentation, and we also open up for questions. So please use your Q&A function on your website.

We have an agenda. I will take you through the highlights and give you an overview of the portfolio, and Christian will take you through the key financials, and I will come back with the outlook before we open up for answering any questions that you sent us.

Let's dive into the presentation. As mentioned, we are happy to present yet another strong quarter. Through the sale of our hydropower plants, we have shown the value creation that we made last quarter and we are happy to present this strong results.

And we do -- I think it's important to see the fundamental values that we have created in our portfolio and also our ability to execute on the projects and bringing them from early greenfield project into valuable producing assets.

And on our project -- on the projects, we continue to focus on delivering -- on executing on the projects. We have worked closely with Skovgaard on the Odin portfolio and implemented the portfolio in Denmark into Cloudberry. And we have also started to look at new projects with Skovgaard. In the Odin transaction, we have also a development agreement where we have first right of refusal on new projects. So that goes according to plan, and we are very pleased with the development in Denmark.

And we have also taken FID on Munkhyttan. We have Vestas turbines on that project, and we have just started on the construction of the wind farm in SE3.

On the more mature construction projects, Sundby and over to Kvemma, they are also moving forward according to plan, and we have no hiccups on those projects. So we will continue to focus on delivering on these projects and continue our valuable -- profitable growth going forward. We also increased our debt facility with the Norwegian savings banks as earlier communicated.

Just to take one step back, a little introduction to Cloudberry and our platform. Our platform here, you can see it on the left side is covering all the projects from various greenfield until they are in production and under operations. And that platform gives us flexibility to allocate our time and capital to where we see the best returns. So that makes Cloudberry a bit unique that we have this flexibility, and we think that's also important to understand Cloudberry and to understand how we are working on this platform to always focus where we can get the best returns.

Our platform is also diversified. As you see here, our portfolio is diversified on different regulatory regimes, different countries. We are now present in -- through Scandinavia. And we have also a diversified portfolio on the different price areas. Altogether, we have production in six different price areas now with DK1 and DK2 in the portfolio. And we have also diversified that portfolio on technologies and production profiles with both the hydro and the wind that is in production.

As you can see, we have also a balanced portfolio on the different countries. And that also gives us a wider -- with the hubs, both in Denmark, Norway and Sweden, gives us also a wider opportunities for more projects. And that is also creating a bigger diversification in the project portfolio.

We see that the backlog has increased. We have continued to focus on getting new hydro projects and wind project into the portfolio. And we are also currently working on more projects into the portfolio to increase the pipeline, but also getting them into the backlog where we have the exclusive projects. So all in all, we see an active market and we think we are perfectly positioned for -- going into the most valuable projects going forward.

And here also shows you the growth platform as now showed through farming down last year in one of our wind projects. Now we had a sale of three hydro projects that we have this flexibility that we talk about. We can develop projects in-house, we can use our M&A capabilities on interesting projects, and we can build these projects and take them into production.

What we have done historically is to sit and own these producing assets. But now, lately, we have also farmed down and sold this project, and you can see the value creation we do here on our platform. So we will focus on how we use our -- efficiently use of our capital and maximizing the values on this growth platform.

And here, you see the portfolio. We have adjusted for new projects and also those projects that have been taken out of the company through the sale. So this is updated with Munkhyttan. And you see here a nice and steady growth on the portfolio.

The latest here is that Duvhällen have now got the final grid connection, and we are now looking at that project. You might recall that we have applied for a postponement of the -- of that concession, but we will see how we are going to deal with that going forward.

Yes. On the ESG side, we have had no accidents, no environmental damages. Everything has moved forward according to plan. And we have, through our increased production also increased our avoided emissions. And we did also present our Transparency Act report in July, and that is on our homepage for those who wants to dive into the transparency report.

Thank you so much. That was all from me for now, and I give the word to Christian, who will take you through the financial numbers. Thank you.

[Christian A. Helland, executive]

All right. Thank you, Anders. Hi, everyone. I hope you had a very good summer. Even Norway has been rainy and of course, a lot of water over the last couple of weeks but all our operations have been going well.

So for us, a very important quarter, a very strong quarter. And as we told the market before summer, now we can finally show the underlying fundamental values in our portfolio. We have sold down 3 out of 28 hydropower plants. So here, you see a combination of a sale of three hydro plants, which is 2x the book value and also increased production in our portfolio, increasing our production with 60% from last year. So a very strong quarter.

As you see, EBITDA, both on consolidated and proportional levels at NOK 281 million. We have a net profit after tax of NOK 325 million. So we also have shown that our risk-reducing hedges has been doing well through a turbulent time.

So we've been very satisfied again to show that we can take projects from development phase, focus on the right projects in the right areas, build them, operate them and see that private money is willing to pay historically high prices for these assets. So this has been obviously known to us internally, but now also it's more visible also for the market, what type of value the market is putting on our producing assets.

The balance sheet. Very clean balance sheet. We've also seen still a very strong cash position, give us a lot of flexibility in a turbulent market to take on both organic and inorganic opportunities going forward.

You see a significant step-up in our total equity. Again, we believe that the balance is very conservative. As mentioned, the sale of our hydro projects was 2x the book value. So this shows basically a conservative valuation of our existing assets.

So as you can see, we increased equity with about NOK 2.1 billion. This is from NOK 600 million from net profit over the period. Also, we raised some capital last year of NOK 800 million, and we have now included the minority shares in audit.

So a very strong development, keeping a very flexible balance sheet to move on internal projects, both in -- that we have now, as Anders mentioned, in Sweden, new opportunities in Denmark and we also see a lot of activity generally in the Nordic market.

As you are aware, also, we report on our proportionate debt, and this includes Odal and Forte as well. So you can see our interest bearing debt is NOK 2.1 billion with total assets of NOK 7.5 billion.

We have also a very strong relationship with our local saving banks, giving us a lot of support. They have increased our debt facility with NOK 800 million. So we now both have a strong cash position and also a good flexibility in our available debt position with our three Norwegian saving banks.

Yes. Here, we drill down a little more in the segments. The Development segment, we focus a lot on this. This is where we see the best return on our capital employed. This is in the development phase where we take on and focus our time on the projects where we see the most value creation. And this is typically a greenfield or an early phase development where we can add value as a local developer. So this is where also we have some increased cost side. We have more -- spend more -- have more people working on this and also then a little more cost on employees and third parties.

We also have some one-off effects with the two major transactions we did with Odin and also with the sale of our hydro plant. So there's some one-off cost effects in these numbers.

The operations segment has been -- is -- the numbers are obviously -- you can see the numbers here, but for us, a very important part to giving us the opportunity to move projects forward and as mentioned, on time, on budget. So the Captiva transaction has helped us a lot with skilled personnel, helping us to move the projects forward. Also, they are added on new development projects in our hydro portfolio.

So one thing is the running business, but what's not shown in the figure is what they add also on the project side and on the development side, that will be bumpy. So all in all, a good quarter for us.

The Production segment. Again, here, we increased by -- with 60%. We've only included 1 month from the Odin portfolio in Denmark. We see our power prices are still high at [ 76 øre ]. It was extreme last year at above NOK 1, with very strong levels compared to historical figures.

We are now ramping up also our Sundby where Vestas is coming in with the nine turbines now shortly, so Sundby projects moving forward. Munkhyttan, as Anders mentioned, has also started construction. So we expect a further ramp-up in the production in the quarters to come.

Here also, as mentioned, you see the sale of our three assets. And again, what the value private money is willing to put on these assets, which we think is quite interesting for the market to see. And we also want to emphasize that this is more and more important part of Cloudberry to use our platform, develop this project either on them or farm down parts of it. So this is something also that you should expect to see in the future. But again, so it's not only the production you should look at, but also our ability as a company to develop projects and bring it forward to production.

Yes. We'll come back to -- we see a lot of good questions. But before we move on there, Anders just a couple of comments from you on outlook and summary. Then we see we get a lot of very good questions. So just please keep on sending them in, and we'll answer them shortly. Right.

[Anders Lenborg, executive]

Thank you, Christian. And as Christian mentioned, thank you for sending us questions. We will try to answer as many of them as possible shortly. But before we go into the Q&A session, we will give you a short update on the outlook.

As you see here, it's the price curve that we have from [ Volue ]. And we use this price curve in our work, and we have no internal price curve but uses [ Volue ] and also [ Tema ] on the power price going forward.

There's no significant changes from last quarter. And what is important to remember is that most of our projects has been developed and that is on a lower power price than you see here. Historically, we have had a lower power price in Norway over the last 10, 15, 20 years. And most of these projects has not been developed on the historic power price.

So we think it's a positive outlook. We think that it will be a demand for more renewables in the Nordics, and that will also affect the power price going forward.

When it comes to our focus, we will continue to focus on getting the right projects on board where we can use our own in-house development teams on both hydro and wind. And we have also used M&A opportunities and then partnerships with other players. So I think you can expect that we will continue to do more of the same but have even a stronger focus on greenfield development projects going forward. So we have a strong focus both on the hydro power side, but also on the wind side, both onshore and offshore to build a larger portfolio.

Yes, I think on the summary, we have shown a significant growth in profitability through the sale. As mentioned -- as Christian mentioned, we will -- you have to expect more of the same, not for the time being. We are happy with what we have just done. We've got a lot of interest from other players that want to discuss other opportunities with us and buying more of our project. But for the time being, we're happy. And we have a strong balance sheet, so we can continue developing our projects across the Nordics.

And when we see this over some time, we think we have now shown the flexibility and the importance of our platform and how we can use that to the best for Cloudberry and our shareholders.

So thank you so much for listening to our presentation.

[Anders Lenborg, executive]

And I have had the chance to look at some of the questions. So I will just answer a few of them now before Christian can come on and do some of the other questions. But we have gotten several questions about the windfall tax in Norway, when we can expect news on the windfall tax and what -- how this affects the market here in Norway.

So for the time being, it's summer holiday at -- in the Parliament. The renewable sector -- the renewable companies have been very clear with the government and that we need to have a framework that works for us and our new project, and that cannot imply a ground rent tax on existing wind. So I think that point is taken. And the Parliament will resume in October, and I hope we can have a decision from the government on this after sometimes Q4 this year.

And of course, that also affects the attractiveness of projects in Norway. I had a question here if that affects the market. I see -- I will say yes, that's a lot of infra funds and other investors who are now having a focus on other countries in the Nordics and especially on the wind side.

When it comes to hydro power, yes, we see some opportunities, and hydro is kind of going along as it has done earlier. So on the small hydro, we continue to see that there is attractive assets and opportunities and also from the international.

And just to have another -- give you another answer to the Capital Markets Day, yes, that's the 5th of September. We will focus on our strategy going forward until 2030. And we will also then dive into the Development portfolio and give you a much more detailed information on the portfolio and also on some of those projects that is in the portfolio.

Okay. Christian, thank you.

[Christian A. Helland, executive]

Yes, a lot of good questions. So we're scanning through here. I see several questions related to the equity position and why we have such a steep step up in our balance sheet on equity values.

First, just to comment on how this is booked, and this is quite important. It's booked at cost. So our book values are at cost, and we have just shown that the sale of the hydro plant is at 2x our cost or the existing balance.

So first of all, just it's important that the property, plant and equipment is booked at cost and not at market value. So it's conservative -- we believe it's highly conservative fundamentals here. So the NOK 5.0 billion figure compared to the NOK 2.9 billion figure, where is the step-up? 12 months of profitability, NOK 600 million. We had the equity raise last year of NOK 800 million, and we have included all the under minority shares of NOK 700 million. So if you sum those up, that's the step up from NOK 2.9 billion to NOK 5.0 billion.

So again, we believe it's a lot of value in the company and the market has shown its willingness to pay significantly higher than the book values in the private market.

Where do you see value creation going forward? This will try really to explain in the Capital Markets Day, but we feel in a short time, we've taken a position in the Nordics. We get a lot of both greenfield projects, projects owners coming to us, ask, can you help us develop this project into possible producing assets? So for us, we are a relatively small team. We have to prioritize on the projects and work on the ones where we believe we can add the most value. So this is, again, in the southern parts of the Nordics and now also, we see a lot of interesting opportunities coming in Denmark. So that's some comments around that.

Yes, we also noted we are merchant. Again, now with a bigger portfolio -- Nordic portfolio, we see -- we've always -- I said we need wind. If we're going to hedge and have hedging on our revenue, it needs to be efficient and have low risk, especially if we take on base load hedges. So now we have a portfolio and we also now have worked on doing this on a portfolio level, reducing the total risk and also making it more attractive with more volumes available.

So no news there yet, but it's something we're continuously working on also with larger industry that's looking for fixed price long-term power purchase agreements.

Power deficit. We didn't mention it in this quarter, but there is obviously new to Norway that Norway is running in a power deficit in not too many years and especially in the southern parts of Norway. So parts of Cloudberry's mission is obviously to fill this with projects in Norway, and we focus on hydro at the moment. In Sweden, it's a lot of wind. And in Denmark, wind and possibly also solar over time.

So we'll get to this. You see a deficit in Sweden after nuclear is taken out. And for us, these are really interesting market to help fill the energy transition. So this is a big part of our purpose.

A question about interest rates. You have a very low interest payment, yes. And the short answer is we have fixed interest rates a lot in 2021, '22 on long-term, 10- to 20-year fixed agreement. So yes, we have low interest payments on our current situation. Odin obviously, is a new transaction. So there, we are -- we'll get higher interest rates. But all our historical investments have long-term fixed interest rates, giving us very efficient financing.

Asking a little bit about the projects, Sundby and when can you expect revenue from your projects? We're starting to lift now the Vestas turbine on Sundby in this fall. Again, we always want to test them and so forth. So we said revenue generating from H1 next year. And this is also the same we said with Kvemma. We want to test it, make sure it runs well and so forth. So also from next -- in 2024 -- first half of 2024.

Also questions around Odin. Is there seasonal variations? Just to say, the wind, we only had one -- reported 1 month, but the wind in Europe has been very low in June. It's been -- so it's -- again, there is normally lower winds in the summer versus the winter months. So a rule of thumb is that about 1/3 to 40% of the volumes are produced in the summer, 2/3 or 60% is produced in the winter season. So there is variations, and this fits quite well with our hydro portfolio that produces normally better in the summer. So this is what we said over -- now over the quarters, we expect more a levelized production profile, but wind is as always lower in the summer months and less dense as well.

A question about cash -- our cash position. We are cautious with our cash. We see this can give us a lot of opportunities in the market. We know it's a challenging listed market. So having a strong cash position together with a lot of flexibility with our local saving banks give us the possibility to take advantage of local opportunities, both organic opportunities with Duvhällen now that we're starting working on. We'll move into procurement phase over time on Duvhällen.

And then, obviously, it's -- we have no news yet on expected start-up of the project. But obviously, now when we recently got the grid, we're moving forward with that project, which we believe has created attractive area close to Stockholm.

So Anders, you maybe have picked up other questions with that answers some of them. Thank you.

[Anders Lenborg, executive]

Questions keep on coming in. So I think I must look at some of the latest questions there, and you can finish off the Q&A session when you're ready.

We had some questions here concerning Duvhällen. And yes, we just got the final grid concession, and we need to -- we need some more time to plan for the development of the project and also to coordinate that with the grid owner, Vattenfall Eldistribution. So that is just an important work that we need to look into during the autumn. And I think you cannot expect any FID on Duvhällen over this year.

And then we got a question about Finland. And yes, I mean we are cautious when we are moving into new markets. We started off in our own home market with hydro power in Norway and then moved into Sweden. We needed some time to get Sweden up and running, now moving into Denmark. We have the same process in Denmark. We like to have -- be in control over the projects and also the setup and the structure. So -- but of course, Finland is part of the Nordics, and we are -- and we have looked at opportunities there. But for the time being, we will now focus on getting to know Denmark and getting that into the portfolio in a good way.

So -- and then we had a question here, why did you sell the hydropower projects or the hydropower plants? And good question. It's, of course, a new record price for hydropower. It's important to show the underlying value of the work we do, 3 out of these -- 2 out of these 3 hydropower plant we were partly developing together with our partners. And I think also we can see a better use or better returns on the capital developing new hydropower projects.

So we have a portfolio of hydropower projects that we are currently working on, and that is far bigger than the GH we sold on these three projects. So it was just to -- we found that the time is right to show both how we can use the platform for farming down, but also sale of assets. And that can also happen going forward.

So that was really what I had on my list now of questions, and then Christian will take the last questions here before we say thank you.

[Christian A. Helland, executive]

Yes. So sorry, we are not able to answer all the questions here. A little technical questions on Odin. We can confirm, yes, the purchase price was NOK 2 billion for our 80% share. This also includes -- it's important to mention, this includes also the land, which is not normal in these type of transactions. We think this is very interesting also with giving repowering possibilities and so forth in the future. It's also an agreement which is why they're giving us options to step into new projects and so forth. So yes, we confirm that number.

Also quite interesting with power prices. We don't have a lot of speculations about the power prices in the future. What we do, we use third parties when we do investment decisions on new projects and so forth. [ Tema and Volue ], our two providers, we use.

But what's quite important for us is what industry is willing to pay for power. And we see, obviously, this is a significant change versus 3 years ago versus today, what the industry believes they have to pay for new renewable power in Europe. And this, you see more and more transactions from both, I would say, steel producers, but also pharmacy, a lot of European industry, looking for green power.

So we believe the underlying drivers for this is very strong. Yes, renewables has been priced down significantly now over the last year. But the underlying drivers, we strongly believe in, and we also see the willingness for the industry to keep on paying higher prices for the power and securing this power for longer periods of time.

Anders answered it, with sell of hydro. As the CEO, obviously, we did not plan to sell any of our hydro, but when we get these type of prices and also we see that the private market is willing to pay this, we see that selling down one unit can make us to produce two new ones. We obviously recycle this capital, so we can have -- grow the volumes faster. So both showing profitability and also giving us the opportunity to add on more volume quickly.

Yes. So lots of great questions, and we're here. So I hope it was interesting to hear us, and thanks so much for your time and looking forward to see you on the Capital Market Day on the 5th of September for -- here in Oslo, Frøyas Gate. Thank you, everyone.