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Earnings Call Analysis
Summary
Q3-2023
In a year marked by significant operational achievements, Cloudberry more than doubled its power production and progressed well in construction projects. The company's production portfolio has grown to 235 megawatts, with a diversified mix of hydro, wind, and solar energy assets across Norway, Sweden, and Denmark. Power prices dipped mainly due to heavy rainfall, resulting in a softer financial quarter, but a price recovery is expected. Cloudberry is adjusting to market conditions by reducing merchant exposure from 95% to 88% through a fixed price PPA, and aims to further decrease it to 20-30% in the next year. The balance sheet remains robust with increased debt facilities and no asset disposals this quarter. They're focused on disciplined capital management, leveraging equity efficiently, and adding value to projects. Despite tax uncertainties in Norway, Cloudberry is actively engaging with political stakeholders to navigate these challenges.
Hi, everyone, and welcome to Cloudberry's Third Quarter Presentation. I'm joined here today by my colleague, Christian Helland, and we will take you through the presentation.
But before we start on the presentation, we would like to show you why we are 1 day late. Yesterday, we were at Sundby Wind Farm in Sweden, SE3 and had the first production from this wind farm that we have managed to construct in about 8 months' time. And it is a fantastic project using old foundations with new technology, and you will hear more about Sundby going forward when we have taken over the turbines from Vestas. But it has been a fantastic project so far, and we are -- we believe that this will also be the case when we have taken it over.
As mentioned, I'm joined by Christian and we have a presentation that we will dive into, and I will take you through the first 2 sections and then Christian will take you through the financials. We have a Q&A button here that you should use, and we will try to ask -- answer as many of the questions after the presentation.
Yes. Let me -- we start with the highlights. You will see here on the right side that we have had a strong operational quarter. We have more than doubled the power production from last year until Q3 this year from 70 GWh to 155 GWh. And in addition to that, we see that the construction projects are going forward according to time and budget, and also several of them developing better than the time and budget.
So on Sundby, as we just showed you, we have seen the first production. We have energized the first 3 turbines. The next turbine will start test production this week and we will hopefully taking over all the turbines by the end of the year.
Ovre Kvemma is another construction project that we have developed over the last years. We will actually energize the hydro power plant next week, and we will start gently the test production in Ovre Kvemma, and that will take the next couple of months.
Munkhyttan, it's our next wind project in Sweden, in SE-3, where we have done the infrastructure, and we are now waiting for the spring and the turbines to arrive, and we will hopefully have first production from Munkhyttan by summer 2024.
As we mentioned on the Capital Markets Day, we would like to see more our production with fixed price PPAs and we are very happy to see that we have managed to sign the 3-year PPA on an attractive level in DK1, taking our merchant exposure from -- down from 95% to 88%. And as we also mentioned on the Capital Markets Day, we will further look for offtake opportunities and hopefully get a fixed price part of the portfolio on 20% to 30% over the next year. So we do have also more dialogues ongoing on the PPA side.
And last but not least, we have had a term sheet signed with our partner in Denmark, Skovgaard, on Climate Park hybrid project of a total of around 210 megawatts, and we are happy to share this, and it shows some of the value creation that we do when entering Denmark and together with our partner, Skovgaard.
Yes, just the 2 words on Cloudberry. If you see here on the left side, you see our business model. Cloudberry is developing and owner and operator of renewable assets in the Nordics. We do everything from early phase greenfield projects. We take the project through the permitting process, the procurement process and we also manage the construction of the assets and also operate the assets when they are producing.
And you see here our portfolio is diversified on early-stage projects, in the backlog where we have the exclusive projects. We have some construction permits that we are working on to get ready to build. We have a project under construction, and we have a large production portfolio of more than 235 megawatts.
Here on the right side, you see the map where we have mapped the different projects. Today, we are active in Scandinavia, and we have focused on price areas, South in Norway, South in Sweden and Denmark to find the most attractive pricing of our production.
And this is how it's been developing. We have been growing the production portfolio over the last years, starting out with very little production, only hydro in Norway. We have diversified the portfolio, diversified it on technology. So we have in production today, hydro power and wind power. We have also solar projects, both in the hybrid project in Denmark, but also stand-alone permit projects that are in the permit phase in Norway, and that we will also see in Sweden.
And we have entered into 3 different countries, diversifying the portfolio, risk mitigation when it comes to the political risk of the renewable sector. And as I mentioned, we have also been focusing on the different price areas where we see that having the project in the right price area can mean a lot for the financials of those projects. And we see that the interconnectors out of Norway and also out of Sweden has affected the price level in the Scandinavia. And from 1st of January, we will also have a new interconnector between Denmark and the U.K. that will also link our production even closer to the European continent and the U.K.
This one, you have seen many times before, but it gives you a good overview of what we have under construction and those projects we have mentioned. And you see we have the next projects would be Duvhallen and Stenkalles where we have permits in place, and we are working in parallel to get these projects ready to build.
When it comes to the Duvhallen project, we are also working on the numbers. We have 60 megawatts here in our model, but it could also be more than 60. We have a dialogue with the grid owner on the capacity of the grid.
Yes, just 2 words on our climate park in Denmark. As you remember, we entered into a partnership with Skovgaard in Denmark on the Odin portfolio, 51 producing turbines. But as important as the production portfolio was also the development agreement that we entered into with Skovgaard. So we have a first right of offer on new development projects. And here, we have one example of the -- what can come out of the cooperation with Skovgaard.
Today, we have 175 megawatts of permitted solar, but we are also working on the wind farm in the climate park. So we will have a hybrid of wind and solar. And it's in DK1 and we think this is an excellent project to work with Skovgaard on. And it's a large project, both for Skovgaard and Cloudberry. So when it's ready to build, we will probably also look for a partner on this project. But we are very happy to see that the cooporation in Denmark is going very well, and you will see more of those kind of projects also coming out of the development agreement with Skovgaard.
Yes. On the ESG side, we do have no health and safety issues and incidents last quarter, it's important, and no environmental damages recorded on the projects. And we have also managed to double the avoided emissions from around 17,000 tonnes of C2 equivalents to 35,000 tonnes of CO2 equivalents. So as the portfolio grows and we get more and more projects into production, we also see that we managed to avoid emissions.
So that was it from me now. I will hand over to Christian, and then we will sum it up after the presentation. Thank you.
Thank you, Anders. So then I get the privilege to talk about the numbers. So before going into the details, just a little recap of how we're thinking of creating value over time.
So the focus for Cloudberry always been on creating long-term fundamental values in a conservative way. So again, low debt ratio, but showing that we are able to deliver the projects on time, on cost and also focus on the right projects in the right areas. So we also have shown now the market, the value of some of our assets for third-party buyers. So as always, try to use our equity as efficiently as possible to grow this over time by cash flow from the assets, but also actively farm down on assets where we can be controlling owners but farm down and show value creation, use our equity efficiently into new projects.
So we'll be disciplined with our capital. We see it's a rough market even though the inflation now is falling in the eurozone and so forth. We see that it's still important to have disciplined capital. So that remains the main focus for us, and we come into some specific details on the next slides.
So just to sum it up. We didn't do any project sales this quarter. Last year in the same quarter, we had one project sale. So that obviously was a successful sale on the home project. So in this quarter, it was a little softer financials. We're very pleased with our production, growing it twofolds, more than twofolds. But it has been a lot of water participation in Norway, building up a lot of the hydro balancer here in Norway. So the average price was only NOK 0.5, where last year was NOK 2.4.
So this, we are all aware, we are merchant exposed and will vary a lot from quarter to quarter. So going forward, you will see us much more reporting on year-to-date on more 1-year trends. So we can -- this short-term volatility is a little more evened out. Anders also mentioned our PPA at 1.2, giving our investors a feeling of at least where we are a more midterm and long-term pricing from institutional investors.
So here you see, again, no project sales. We also report our proportionate figures, which is obviously what we as a management is focusing on our -- that's also including Forte and the Odal numbers. Odal again, very little low prices specifically in Norway during the quarter. So it's been in very low income and revenue on hydro and also the wind in NO-1.
The balance sheet, very clean balance sheet, a robust balance sheet, as always focused on remaining -- have a healthy balance sheet, flexible balance sheet, flexible debt facility with SR-Bank and our local saving banks. So we have also increased the debt facility. So we have the possibility to grow and draw debt when needed.
We have financed now our projects, both Sundby and Munkhyttan with equity. So it's no debt in those, but we obviously have full flexibility to draw up this debt. So very comfortable position, strong cash balance, strong flexibility on our debt and showing here the consolidated equity, which is based on the book values. And we've also shown over the last quarters that some of our assets is significantly priced above these levels.
Here, we drive a little more into the segments. We will focus on the next slide on the production segment, which is our main segment, also focus a little on the development. Good progress. As Anders mentioned, it's important for us now to show that we're successful both in Norway on hydro development, which is Captiva is helping us with, the Swedish team, both onshore and also shallow water. And now the partner agreement we have in Skovgaard, which is working very well. So very pleased with now showing the market what -- that we can focus on projects that we see as value accretive, where we combine solar and wind, and we get much better profitability from these type of projects.
So development segment going forward, the operational segment. Remember, it's 2 parts of that. One is assisting a lot of Cloudberry on the construction projects on the development, which is very key to our business. The other part is a digital part which is -- has been investing quite significantly over the last 2 years where we now have slowed down and will slow down next year, the investments in digital. The portal is now up and running in full scale, and we'll also have now included solar to it. So there we will see some less cost going forward, but stronger than ever. The development part of Captiva on the asset management part is assisting Cloudberry significantly.
So to the Production segment, more than doubling the volumes, but a soft quarter with power prices. We're capturing better power prices in Denmark than in Norway and Sweden at the moment. Again, significant difference from last year where it was NOK 2.4 per kilowatt hour, now NOK 0.5 million. Again, a lot of hydro in the magazine here in Norway at the moment. But we've already seen snow coming, cold weather, so it's a lot of pickup in power prices already.
Also mentioned that also on the PPA we did, we get these guarantees of our region as a renewable producer. This has increased from very low levels now to much more interesting levels. So this is NOK 10 million to NOK 15 million, so we write 240,000 GOs, which is not sold, which is in our balance sheet where we will receive 100% EBITDA margin on those. And with today's price is estimated about NOK 10 million to NOK 15 million.
So again, back to the strategy for us. Focus on cash flow, EBITDA, focus on balance sheet remains key focuses, growing these fundamental values. We see we're very strongly positioned with a lot of network now in the Nordic countries. So we feel our strategy is working very well. And now we just continue to capitalize on the most accretive projects where we see Nees Hede Duvhallen is very good projects in the southern parts of the Nordics.
We remain disciplined with our capital, focus again on the project where we add most value to our shareholders and allocate capital to primarily hydro in Norway, wind in Sweden, and we see wind and solar as very interesting combinations in Denmark also where we see the most radiation is in Denmark, so we get better profitability there.
Again, M&A, yes, but in the earlier phases where we can add value as a developer. So again, in the initial phases 2, 3 years back, yes, we did some M&A to get more critical mass on our development or on our production side. Now we see that the interesting part for us is projects where we can add value as a developer and get much more of the value uptick in the projects. So we'll still do some M&A but less capital intensive.
Yes. Anders, a little about the market and summary before we open up for Q&A. Thanks.
Thank you, Christian. Yes, we like to say that Cloudberry is perfectly positioned for the energy transition, and we see that there is a massive demand for more renewable energy in the Nordics. And we see daily that the industry in Scandinavia is demanding a more renewable energy. We see that the EU is driving the transition and putting more pressure on the process that it should go faster. And we see also that it's also a bigger local acceptance for renewable projects in the Nordics. So all in all, I think we have a positive underlying drive for more renewable in the mix.
When it comes to the power prices, yes, Q3 is usually a soft quarter. We have, as Christian said, all over the scene that the price level has picked up due to colder weather and going into Q4. And here you see the system price from value estimates from value. And we believe in this shift from pre-COVID, pre-Ukraine war, that it will be a shift on a higher power prices also going forward. But coming from extreme levels last year, we see that it has more normalized now on the levels that you see here or a little above.
And we see that also entering into a PPA for 3 years in DK1. We see that the price level actually the case that they also think that it will be a higher price level going forward. So all in all, we are exposed to the merchant risk, but we have -- we believe that this is the right combination of merchant risk and a more fixed price strategy on PPAs going forward.
Then moving on to the summary before we will try to ask -- answer the questions. As I mentioned, we are very happy to see that the production portfolio has more than doubled. We have a track record now that we are almost doubling the production every year. Yes, we have had a dip in the power prices. That's due to heavy rain, but also the third quarter in general is a soft quarter. And we see already that this is picking up. I think if we don't get more renewables into the mix and more new projects, you will also see that, that will affect the price of electricity going forward.
On the tax side, we have a process ongoing process now in Norway. So this is an issue for the Norwegian assets. It's only wind assets. We have one large wind asset in Norway, which is Odal Vind. So this is isolated to the Odal project and will not affect the other wind, hydro and solar projects that we have in the Nordics.
But the process is ongoing. We have been working with all the political parties. We have been in the parliament in front of the standing Energy Committee and working closely with the whole renewable sector in Norway. The sector is very active now, and we will see a decision from the government and the parliament on this issue before end of 2023. It has created a lot of uncertainty, which is, of course, not good for any of the players in the renewable sector, but we still believe that the worse is on the table and that we will see some adjustments or changes that will make this more attractive for the sector.
So that was the tax issue, which is a Norwegian issue. When it comes to Denmark, we see that we have shown now the positive development we have on the cooperation with our Danish partner. We see a very strong drive in Denmark, drive for more renewables to manage the projects that are linked to the PtX, Power-to-X, and also the infrastructure that type connection they have to the continent and Germany. So it's a very attractive area for us.
And last but not least, we see the construction permits and how we are managing those projects in a very good way, managing that -- the project that they can deliver on time and cost or even before time and on lower than budget. So we are very happy with the construction team and all the people working on those projects. So yes, thank you so much. And then let's move over to Q&As.
1
I've taken notes while Anders was talking here. So I'll start with some of the financial questions. One, the first, are you doing more disposals of assets? And I think this is also linked to the question capital needed for Nees Hede.
So this is how we're working. We see, again, we saw now in SE3. There is a high willingness to pay for producing wind. We saw a transaction here recently at NOK 7.5 per kilowatt hour. So at the moment, very good cash balance, good debt facilities, so nothing needed. But we see, for example, Nees Hede, 12 to maybe 24 months of development, a big project for us. We can, if needed, phase down Duvhalllen or others to, again, recycle the capital efficiently. And we see the value of our assets is high in the market.
So again, a lot of flexibility in this model to finance Nees Hede. We will obviously discuss with our partner Skovgaard if we are doing the full project or also if it's natural to bring in a partner in such a big project in Denmark. But still a lot of development work to be done there over what we believe is typically 12 to 24 months. EU again, has come back and they say, we're speeding up the time to get into permitting. So a lot of positive drivers there. And again, we think our balance sheet has a lot of flexibility to take on these projects and also use farm downs when needed.
Hydro tax, yes, it's correct that the super profit tax has been proposed to be canceled from 1st of October. So we are not expecting any more super profit tax. That was canceled earlier than expected. It was expected to be lasting until year-end '24. So that's obviously positive news. We expect the Norwegian wind tax, obviously, is what we are spending a lot of time on with the politicians now over the next weeks.
Volumes of wind, this is also a rule of thumb but yes, for -- or the winter season normally produces 2/3 of the volume for wind, 1/3 in the summer months. So it's -- we see good wind conditions now picking up in -- especially in Denmark, where we have a lot of wind. So this is true. We expect higher volumes from our wind turbine following the winter season. So that's a good question.
Also on Ovre Kvemma, a question there. When revenue is expected, this is expected now we see the plant is completed. We're starting test production and the grid connection is expecting first half next year. So this -- we are not more precise on the dates, but we expected, as mentioned also long time back, it's first half next year.
Anders, you maybe a little more on the projects as well there was some projects questions around Odal and so forth.
Yes, on the Odal question, as you know, we have the X.4 (sic) [ 4.X ] turbine Siemens-Gamesa turbine in Odal and we had some issues there as they have in general. Those are covered by the guarantee. So the guarantee work is at Siemens, who is doing as we speak. And that will, of course, also affect the production because some of the blades and so forth has to go down and to be repaired and then that will affect the production. But we have also an uptime guarantee on the wind farm. So it's also covered by the guarantee. The guarantee has a cap, but we don't -- it's too early to say how this will play out, but at least the actual work on the wind farm is covered by the Siemens guarantee.
We had also questions here on the hydropower plant. And as I mentioned, it will be connected to the grid next week. We have energizing the power plant. Then it will take some months to do the test production. It's a longer process. On the wind side, we have a 240 hours test on the Sundby turbines. But on the hydropower side, we have several months with testing to adjust, and it also are going to pick up over time. So you cannot expect production of any size this year but next year.
And then we had also some tax questions and yes, the tax proposal does not cover any of our hydropower plants, and we do not see any signs of introducing any super profit or ground rent tax on the hydropower assets that we have in our portfolio.
I think that was the questions I would like to answer. So Christian?
Yes. Keep coming in later.
The buyback program, as mentioned in the stock, the release, we are maximum buying back 7 million, but initially, we start with buying back 3 million shares now before new year. So that program is now started. So that's -- again, we have maximum 14.6 million as the buyback price and maximum 7 million before the next general assembly, where we do 3 million before new year's.
Is GOs part of the revenue? As said, yes, GOs is part of the revenue, but we have a big balance of unsold GOs, which will hopefully come on the revenue next quarter. It's also important to mention it's some question about received price and so forth. So the revenue we report is obviously the actual revenue we receive after cannibalization effects and so forth. We're very aware of cannibalization effects, especially wind in Denmark where there and so forth, but these are the actual revenue.
We also got some question about scale and overhead costs. We report NOK 14 million of the quarter in overhead costs. We are aware that 50% of this is warrants, which is not in the money, and it does not have also a cash effect. So we have 6 people on the corporate segment. So we believe we're quite efficient and a lean overhead, and we also believe the corporate adds significant value to the development segment and so forth. But again, scale, yes, it's important. So we have the plan to increase our 3 in 30 as mentioned, our strategies is clear. We see the scale is important. But again, we try to keep a lean organization, so we can be dynamic and have a cost focus. So cost focus is key for us, but -- and keep a lean organization.
Yes, buyback. I think that was at least what I -- do you see other questions coming up? No? Okay. So then I think we will say thank you for taking your time and look forward to seeing you again soon. Thank you.