Cloudberry Clean Energy ASA

OSE:CLOUD

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Anders Lenborg, executive]

Hi, everyone, and welcome to Cloudberry's Second Quarter Presentation. My name is Anders Lenborg, and I am joined by Ole-Kristofer Bragnes today. I'm very happy to have Ole-Kristofer in his new role as CFO of Cloudberry and in a short time, you will hear him take you through the financial numbers.

Before we dive into the presentation, I would like to draw your attention to the picture here on the first page. This is from the construction of Kvemma hydropower plant in the West Coast of Norway. The construction is done and the power plant is today producing in our portfolio and delivering new renewable energy on the grid. So another very important project for Cloudberry.

I will take you through some of the highlights on the Cloudberry platform before Ole-Kristofer takes you through the key financials. We will also open up for questions. So please use your Q&A functions on the web page, and we will try to answer as many questions as possible. And hopefully, we will be through the presentation and questions over the next 30 minutes.

So we are happy to report yet another strong quarter from Cloudberry. We have a strong quarter based on good underlying results. We have increased our production. We have also a strong realized power price over the quarter. And as you can see here on the right side, we are steadily increasing our power production and install capacity.

In addition to the underlying production and we have also received a compensation from Siemens Gamesa on the Odal Wind Farm. And on top of that, we have also sold some hydropower plants and increased our ownership in the portfolio. We now have a 49.9% owner stake together with Swiss Life Asset Management. So all in all, a strong quarter, active quarter, and I will get back to some of our projects and the project development later in the presentation.

Taking one step back, just giving you a quick introduction to Cloudberry. We have, over the last years, built a renewable platform, a Nordic independent power producer. This is a unique platform in the Nordics. We have a setup that covers all the -- everything from greenfield project development until brownfield producing assets. We develop many of the projects in-house. We have also active M&A and commercial team in the company. And we cover today wind and hydropower plants in Norway, Sweden and Denmark. We are also working on solar projects, especially in Denmark and in Sweden. And we have also now focused more on storage and batteries that we will come back to.

The portfolio covers 8 different price areas in 3 different countries and with the maturity of everything from pipeline to production. And all of this gives us a unique flexibility where we can always focus on where we can see the best returns. And we have all experienced that how fast the power market can change and how fast fundamentals can change in this sector. So this flexibility is important and unique for us, and we see also more and more of our competitors getting into this market.

So all in all, flexibility is important for us. And as you can see here, we have steadily diversified our portfolio over the years starting off with a pure Norwegian hydropower portfolio back in 2020. And today, we have a Scandinavian portfolio of 2 different technologies and as mentioned, both solar and storage is in our portfolio, developing projects today.

We are happy that Odal is back in production. As you all know, we have had some issues over the last half year. And we have had a good cooperation with Siemens Gamesa and our co-owners to get the wind farm back in production. Today, we have 6 turbines spinning, and the plan is to have 20 turbines in operation end of August. So a lot of development is happening in Odal Wind as we speak. And the rest of the turbines, we will see coming on grid over the year, and we should be fully operating by end of 2024.

Both on Sundby, Øvre Kvemma and Munkhyttan, we have seen that we have managed to get the projects developing according to time and budget and some of them also ahead of time line and below budget. So Munkhyttan will now come into test production over the next couple of weeks, and we will have production from the Munkhyttan in Q3. In Denmark, we are working on the Nees Hede project. This is the solar -- 175-megawatt solar and wind hybrid projects. And things are developing according to plan, and we are looking to take FID on that project later in this year, beginning of next year. Also on the Duvhällen project in Sweden, that has a concession, we will see development over this quarter, and we can [Audio Gap].

Yes. So our strategic focus has not changed. We put profitability over growth. It's always important for us to focus on profitable projects. And as mentioned, the flexibility and our diversified portfolio of projects and technologies gives us this flexibility. And we have exciting projects, both in Sweden and in Denmark on solar and also storage. And we have increased the focus on those technologies, and we have, at the same time, decreased the focus on the nearshore/offshore projects due to the basics of these projects and the market, how it has developed over the last couple of years. Still a strong balance, fully financed platform for our projects and also a very experienced team where we can cover all these opportunities that I have mentioned. So what you see here is a stable strategy, and you will see more of the same that we have done historically, also going forward.

And then we are also super happy to announce the cooperation with Holmen. Holmen being a Swedish -- one of the largest landowners in Sweden. It's also a big industrial player. So it has both the land areas, but has also one of the largest energy consumers in Sweden, with the paper and pulp business. And this cooperation gives us access to large areas in SE3 where we see low conflict areas, and we see scalable project development in that corporation. And we will come out with more information as these projects develop and get back to the corporation in more detail over the next months. But very happy to see that coming through, it's a partnership that we both have worked hard and long for realizing, and we are now looking to the future with Holmen in SE3.

On the ESG side, we had no safety incidents over the last quarter, continuing developing the project. We have also increased our avoided emissions over the last quarter. So in -- all in all, there's no big news on the ESG side.

So then I will give the word to Ole-Kristofer. He will take us through the financials, and then I will finish off later with a market update and the conclusions. Thank you.

[Ole-Kristofer Bragnes, executive]

Thank you so much, Anders, and hi, everyone. My name is Ole-Kristofer Bragnes, and I'm the new CFO of Cloudberry. And very much looking forward to take you through the financial history of Q2 '24 and how our quarter has gone so far. So -- how our year has gone so far.

So starting off, fundamental value creation is, of course, one of the most important aspects of Cloudberry and here you see our growth trajectory from a year of listing on our balance sheet from 2020 all up till Q2 '24. So it's been a history supported by strong owners, raising equity in order to grow our balance sheet while focusing on creating asset value per share. So we are now at a place where we kept financial risk at a low level, having a very stable, strong balance sheet now in Q2 '24. And at the place, we're able to capitalize on the platform that has been built over the years.

So coming into the quarter, in Q2 '24, we are reporting a very strong balance sheet with low debt in relation to our total size. You see, first of all, on left hand side there, that we had a small drop in total assets and total equity since the same quarter last year. That's mainly explained by an impairment than we did in Q4 '23 on our offshore wind and the Captiva acquisition, reducing the levels to the same price that we acquired it for and also due to foreign exchange differences. Over the period, we have had very stable results and healthy results.

We still report a strong cash position at NOK 900 million -- above NOK 900 million and relative low debt as mentioned. Taking into account with our proportionate -- taking into account our associate companies Odal and Forte, our ownership in them and also the associate companies in [indiscernible], we are at NOK 2.4 million of debt in relation to total asset side of NOK 8 billion. So -- because all the equity ratio is at 69%, which we are happy with. And also it is important to note that all 75% of our proportionate interest-bearing debt is fixed at long-term agreements at all-in rate below 4%. So we're happy to have had that policy for a long time and something that we'll continue with. So not as affected or not affected by the increasing interest rates on the balance sheet. So that's good.

So coming into -- going forward, our liquidity provides ample room for growth. So as you saw from the previous slide, we have around NOK 940 million in proportionate cash. And then we also, as we have explained in the report, we have some remaining CapEx on our project that has been under construction, which have been equity finance up until date with the exception of Sundby where we drew that this quarter. So we plan on drawing debt where we have a policy of around 50% of the total CapEx in Q3 or Q4 '24, which is net debt neutral, but will increase our cash position.

So all in all, we have available liquidity of around slightly below NOK 1 billion. But we also -- that's on the equity side. So we also have strong support from our bank connections and have around NOK 500 million of remaining debt capacity on our facility after withdrawn the debt on the project. So that's good, and we're also able to increase that during according possibilities if we need to.

Moving on, on the P&L side. That has, of course, been influenced by coming at the time of listing, where we had, call it, the projects ahead of us and the production ahead of us to a time where we have slight around 900 gigawatt hours of run rate production, which has also increased the profitability substantially. So robust performance through this year. So have somewhat challenging renewable market, but able to deliver good results. So this growth has been supported by increase in production values -- production volumes, as mentioned, but also the very efficient capital recycling and high-level terms able to sell 1 gigawatt hours in order to do construct or acquire to. So that's how we're able to sufficiently or effectively utilize our balance sheet in order to grow as well, and it's important growth engine for Cloudberry, in addition to, of course, the value creation we do on the development side.

You saw on the last slide that we have a drop from '23 to LTM Q2 '24, and that's mainly due to the differences that we -- or the drop in financials from Q2 '23 to Q2 '24, so year-on-year drop. That is mainly explained even though from the larger asset sale that we did in Q2 '23, relative to the one that we did in Q2 '24. So we also did a sale last year and -- but this was also 3 hydro assets, but a nominal [indiscernible], a larger sale.

So we had the gain of NOK 258 million in Q2 '23 relative to NOK 109 million gain that we did in this quarter, even though this quarter's gain is relatively better compared to the book equity of these assets. So that's a 2.3x book equity in relation to the 2.0x that we did last quarter. So a better sale in relation to our book values this quarter, but smaller sale, which explains the drop in financials. Excluding these, both revenue and profitability have increased quarter-on-quarter. And that's mainly due to increased production volumes, as we talked about, offset by somewhat lower in less prices.

Further, as Anders mentioned, this quarter is affected by the availability payment that has been received in Odal and booked in Q2. So you remember in Q1 presentation, our Q1 report, we talked about that the first availability period ended in May '24. So that has ended, and we are very happy to report that we have received the financials, received the payment now in -- and booked this under Q2. The number is unfortunately undisclosed, but you can see in Note 6, where we report income from -- in Odal, both on 100% [indiscernible] and proportionate to Cloudberry, which will give you a very good estimate of where this figure is considering that wind farm shut down tenth of April. So affected by some production steps in Odal these financials, but very happy to report that the wind farm is now operational again.

With regards to the segment reporting, you see this on the left hand side here. And we'll revert back to the commercial segment on the next slide. But for the project segment, it's important to note that the financials here will be lumpy in nature, considering the main value drivers are maturing the projects and moving them towards a concession, where you have most of the value creation. The value creation will be shown in the financials when and if we do an internal or external sale. So that's first when you see them in the numbers, even though we have Sundby delivering profitable -- favorable results as it is still reported under the project segment, which will be moved over to the commercial segment in the second half of '24 now that we have finished the wind mill -- the wind farm.

But as mentioned, it's the project, that's the main value drivers for the segment, and we have increased our backlog quite dramatically year-over-year and also as handed in several permit applications year-to-date for this year. And again, the very good partnership with Holmen which we're very happy about, the one Anders has talked about, that will produce many projects over the years. So that's the project segment.

For Asset Management segment, we have signed several new clients over the quarter, which is good. And then we also -- the integration is going well, and we see clear synergies that we're able to talk to realize and which will reduce the cost going forward, as we mentioned in the second half of '24. One of them is digital investment, where we're currently undergoing a strategic initiative, and then we're looking forward to talk more about in Q3 '24 when we have something to announce.

The corporate segment, we just want to point out that there's NOK 5 million booked under the corporate segment that's related to the warrant, and that is noncash, so it's a noncash expense. Further, we have also booked NOK 3.5 million in the board remuneration, which is booked this quarter. It's comparable to the same quarter last year, but when you look at quarter-on-quarter growth, that explains the difference.

For our Commercial segment, the main driver here is, of course, the production volume times the average realized price. So production has increased from 143 gigawatt hours -- to 143 gigawatt from 117 gigawatt in same quarter last year. And that's mainly driven by our acquisition in Denmark, having a full quarter effect which we're very happy about, and that's also driving up the average realized price. So we're reporting NOK 0.59 per kilowatt hours compared to NOK 0.76 per kilowatt hours in Q2 '23. And even though that's a drop quarter-on-quarter relative to the underlying market price, this is a very good [ achieved ] price.

Further, as mentioned, the financials here are highly influenced by the sale that we did both in Q2 '23 and Q2 '24. And the same story, as I mentioned earlier, that the size of the sale has been larger in Q2 '23 than Q2 '24, and that's the reason for the drop in financials. But again, a relatively better sale in this year compared to the one last year. In addition, we have the acquisition of 15.99% of the Forte portfolio, as Anders talked about. And there's [ salt here ] is a better an optimization of the portfolio composition of hydro production, moving production from NO3 and NO4 down to NO2 and NO5, which are better price areas while also relicense and liquidity for Cloudberry. So a good transaction, which we're happy about.

Last but not least, it's the Odal production, that's, of course, influenced in these numbers, which we have already talked about and cover more of the report.

So that's that on the financials, Anders. I will hand it over to you for some market and summary before we do the Q&A.

[Anders Lenborg, executive]

Thank you, Ole-Kristofer. And let's move on. Here, you see a picture of the Sundby wind farm, just outside Eskilstuna in Sweden, 9 turbines spending and delivering production on grid. We see favorable market developments. As you can see, we have a realized power price just above the price curve here. And we see also the price curve moving in the right direction over the next couple of years.

[Anders Lenborg, executive]

I have already read some of your questions. And one of the questions is what drove the strong realized power price in the last quarter? And just to have a comment to that when we see the price curve. It's our mix, I think, of merchant exposure. We have mainly merchant exposure in our production portfolio. We also have entered into some PPAs, both in Denmark and in Sweden, on very attractive levels. And of course, having 8 different price areas, we see that these develop and give very different results over the quarters.

So this last quarter, we have, for example, seen fairly high power prices from the Danish price areas and softer prices in the Swedish and Norwegian price -- some of the Norwegian price areas. And this, of course, can do change over the year and over time. And that's also why we think it's important to have this portfolio covering all these price areas. And we have focused on the price area south in Sweden and South in Norway. In Norway also seeing where the interconnectors to Germany to Denmark, the Netherlands and to the U.K. is affecting the price level. So we also see now that you have interconnectors out of DK1 where we have a lot of our turbine spinning in Denmark, both the interconnection to the Netherlands, but also now to the U.K.

So all in all, we think we have a good mix of merchant exposure, PPAs on a high level and the price areas that we focused on gives us this strong realized power price. Back to the presentation, we see that the market drivers and regulatory frameworks and so forth is attractive. And I think this will just be even more so going forward, closing in on the 2030 goals. And we all know that we are -- we have a lot of work to do to be able to reach these goals in the Nordics.

So based on the quarter, this is closing remarks from Ole-Kristofer and myself. Strategy, as mentioned, it's firm. It's the same focus as we have had over the of the last year's profitability over growth, focusing on the Nordics, use our network, use our footprint to always look for new opportunities, be flexible and agile and focus [indiscernible] where do we see the best returns on our projects. And we will just continue to do more of that, also adding solar and battery. At the same time, we need to show that we deliver on our projects. We are delivering on time and cost. We still have the focus. And together with a strong balance sheet, we are -- can be able to act on the opportunities that we are giving.

And all in all, we see exciting market going forward, falling CapEx prices on solar and batteries especially, but also we see the interest rates and also on the wind turbine side, CapEx coming down. So all in all, we are positive to the future.

Thank you so much. That was our presentation for the second quarter. We have, as I mentioned, received some questions. I have touched upon one of them. Another question I have -- we have received this, do you consider to moving into power to X projects with Home or other players? And we are very focused on developing projects and focused on production, renewable energy production and not looking at the demand side, not entering into power PTX projects or other projects that is on the demand side. But what we see is that we, through our projects, especially in Denmark and Sweden, we can contribute with the new renewable production in the power [indiscernible] space.

So we will continue to stay on the production side and focus on what we do best, but we can -- you will see that we will deliver power into these [indiscernible] projects in the Nordics going forward.

Yes. That was the questions I had on my list, and Ole-Kristofer, you probably have some other questions coming in.

[Ole-Kristofer Bragnes, executive]

Yes, I can do 1 or 2. So we're getting several questions about the Odal compensation. And again, unfortunately, we're not able to disclose the full figure. But what we can say is that you see in Note 6 that we have around NOK 77 million of revenue in Odal proportional to Cloudberry. And then again, the wind farm shut down at tenth of April, so 10 days into the quarter. So you can try to do the math from there to figure out. But a substantial amount of the NOK 77 million can be related to the warranty payment. So that's unfortunately what we can disclose there.

From -- we also have a bit more technical question, but from the proportionate revenue of NOK 288 million, what is from the sale and what is due to the Odal warranty. Again, we reported a gain of NOK 109 million in the gain. So that's that one. And then also, as mentioned, although proportionate revenue of NOK 77 million, majority of that is from warranty payment.

And the last one I have is do you still see attractive market for capital recycling. And our last price point is, of course, the one we have done, which is a very favorable sale compared to the one we did last year. This is what, at least in our view, is least favorable price areas, the northern ones at a relatively high level. So that's a very strong price point. So that's all we can comment on that one. We still see strong fundamentals for the renewable market, and that should result in attractive market for capital recycling we were to -- if we require it for growth. But it's not something that we have to do. We're still fully financed for our projects, mainly in Sundby, including the win option.

So that's the one I have Anders. And on that, I think we'll -- we're on time, and we thank you so much for listening in and for your attention. And if something is uncovered, feel free to reach out. Thank you so much.