Cloudberry Clean Energy ASA

OSE:CLOUD

Earnings Call Transcript 2024-Q3

[Anders Lenborg, executive]

Hi, everyone, and welcome to Cloudberry Clean Energy's Third Quarter Presentation. My name is Anders Lenborg, and I'm joined by Ole-Kristofer Bragnes, our CFO today. We have prepared a presentation for you, and we will run through the presentation and also open up for questions. So please use the Q&A button and send us your questions.

Before we dive into the presentation, I would like to draw your attention to the picture here on the front page. This is our latest wind farm, Munkhyttan in Sweden. That is now operational. We have just got that into operation on budget and before our time schedule. So Munkhyttan is now producing cash flow to the company.

I will take you through the highlights and the strategy and Ole-Kristofer will take you through the key financial numbers. And then I will finish off with a short market view and summary before we answer your questions.

Yes, let's start with the highlights for the last quarter. We have had a busy quarter as we always do. We have realized the power price that is 2x the system price in the Nordics, which is a very important, of course, for the company and for our revenue. I also think it's important that we realize a higher power price. Shows that we have -- the strategy is working and our focus on where we develop the projects and how we develop them is important to realize the power price that is twice the system price. So that's very, very good to see.

Also, I would like to draw your attention to the backlog where we have entered into an agreement with one of the largest landowners in Sweden, Holmen. And we have now added 300 megawatts to our exclusive portfolio to have a large portfolio of lanes agreements and land areas is of course important for our projects and our development of new renewable energy. And this is just a start. I think we will see more coming out of the Holmen cooperation, but we will also see same type of cooperation with other large landowners in the Nordics.

As you see here on the right side, the power production has gone a little bit down from last year, around 10 GWh, and that is due to some power plant sales earlier this year and also that Odal is still ramping up production as we speak. You also see that the production capacity here is increasing from last year.

Before going into more of the details, I would like to just quickly run through Cloudberry and who we are and how we think. It's an end-to-end provider of renewable energy in the Nordics, we say, we can say that we are a Nordic IPP. We focused on the Nordics, and we focus on proven technology.

We want to be covering the whole life cycle of the project. So we do have everything from very early phase greenfield development through environmental studies, concessions, procurements, construction and we also own the power plants when they are in operation. And we also operate our power plants and our asset management department also operate a large number of other third-party assets for our customers.

So we cover the whole life cycle. And we also have a portfolio diversified on maturity, and we have projects, as you can see here, in all the different phases. So from the very early pipeline and backlog and through to production. And here, you can see on the backlog that we have added the 300 megawatts from the Holmen transaction, and we have now more than 1 gigawatt of exclusive projects that we are working on.

On the far right here, you see the map and our presence. We are focusing on the southern price areas in Norway and Sweden and on Denmark. DK1 being the best price area in the Nordics, the strongest prices over the last quarter. We are having a focus on Denmark, and we are also focusing on new projects within the price area where you see the consumption and where you also have the interconnectors out of Sweden and out of Norway and Denmark to the rest of Europe and the continent and the U.K.

And here, you see how we have developed the portfolio over the last years, starting with a smaller portfolio. In Norway, we have gradually built a portfolio that is Scandinavian and with all the Scandinavian countries. And going forward, you will see that we will also add solar technology, solar parks to the mix.

And we will also see our first storage project that we hope to take effect on in first half year of 2025 and that is battery inventory storage. And here you see the overview. As I said, we don't have any construction projects going on for the time being. Just finished Munkhyttan, and we are now looking to get Nees Hede, our first large solar project in Denmark to FID and also Duvhällen in Sweden. We are working to get ready for an FID.

Another important project here is the Odal wind portfolio. As you know, we have had some issues with the Siemens Gamesa turbines. Odal's total 34 turbines, 20 is back in operation, and we have 4 more that is released from Siemens Gamesa ready to service, but it has to go through our quality check before we start them up, but you will probably see 24 to 25 turbines being in operation over the next couple of weeks.

And then we are confident that Siemens Gamesa's plan to have 33 turbines in operation within the year is still achievable. So Cloudberry strategy. It's a strategy that we have had for many years. We put profitability over growth. We focus on profitable growth. We have always been well funded, and we have always had funding for all the projects that we have taken an FID on, and we will continue to be conservative, continue to be careful with our cash and do more of the same.

And at the same time, as we build the portfolio and finding our project, we also built the platform very happy with the platform and how it works. We see now that we can do early phase projects. We can do large corporations with utilities like Hafslund; or large land owners, Holmen, and we can also do M&A activity and get well paid, 2x booked equity on some of our hydropower project that we have sold over the years.

So the strategy is to triple the size of Cloudberry over the next 5 years, so 3 in 30. Both the production portfolio, development portfolio and our asset management portfolio will try to treble and doing that with a team that delivers all phases of our project.

We also had a spinout last quarter. We took to Captiva digital platform. And together with our Kraftanmelding platform and went with Elmera and smakraft and created a new contender in the Nordic power market. And Cloudberry being a 32% owner there, we are going to follow up the company -- the new company closely over the next year. And we have a very positive view on what they can achieve on this new platform going forward.

We had no health and safety incidents over the last quarter, important for us. And we have had also good progress in how we have lowered the risk on our projects and always focused on the health and safety issues in Cloudberry. So with this, I think I will let Ole-Kristofer take you through the financial numbers, and I will get back to the market view later. Thank you.

[Ole-Kristofer Bragnes, executive]

Thank you, Anders. So hi, everyone. My name is Ole-Kristofer and I'm the CFO of Cloudberry, and I will take you through the financial history of this quarter. And looking at this first slide here, this reverse back to what Anders said of our strategic focus being funded capable and profitable. And this showcases our story from the beginning in '20 being listed and up until now, creating the platform and creating Cloudberry having around 900 gigawatt hours of run rate production and funded for continuous growth.

We have always been conservative on our financing side, raising the equity first, having raised above NOK 3 billion in equity and then having debt facilities in place in order to ramp those up, but still having a conservative profile here in order to build a good platform and the backbone for growth with, of course, capital discipline as a foundation.

So moving on and then seeing how the last pillar here, the Q3 is looking out. Q3 '24, we see that we still have a relative low level of interest-bearing debt and an equity ratio of 69%, which is similar to what we've seen in previous quarters, but now starting to ramp up the debt profile a little bit, utilizing the facilities that we have in place.

And like previously, we've had the strategy of continuously hedging our debt risk. And this has been done throughout the years starting at very low levels, and we see now a reporting date now, we have approximately 75% of our proportion of debt hedged at long-term agreements at rate all-in rate below 4%, which we are happy with. And still, we have a solid cash position, which we'll be back to you on the next slide.

And you also noticed a small drop in total equity here and that goes back to the same explanation that we had last quarter, where we took some small impairments in Q4 '23, and that explains the drop. One of the impairments being offshore wind, and we've had a strategy here for some while to push down on the offshore wind side. We stopped the San Carlos project, and we see that being the right strategic decision also on the back of the stop on the Swedish side on the offshore wind, and we don't have any offshore wind amounts in our balance sheet. So we have stopped that for quite some time.

Moving on, on the liquidity side. This is much similar to what we saw last quarter, but we still have a strong liquidity profile and that provides us with future growth. We're funded for our remaining CapEx and like we talked about last quarter, we will draw the debt when we think it makes sense for Cloudberry. We have the facility available, and our construction projects has been equity financed in order to not pay unnecessary interest costs. And we now have drawn Sundby last quarter. We have drawn Munkhyttan but right subsequent to this quarter. So that EUR 16 is in our accounts now in Q4 and that will be drawn going forward, so -- on the next quarter. So still having the conservative profile and looking to raise around 50% loan-to-value, loan to CapEx.

Still room in our facility to match our liquidity side. And we have an accordion in place in order to increase it further and strong support from our savings bank if we're looking to grow beyond that. So important to note.

Moving away from the balance sheet over to the P&L side. We still kind of see the same story here, creating the platform, creating the financials as we've grown and our production profile has been ramping up until now, the 900-plus gigawatt hours of run rate production. So you'll see this in the financials there. You have the production and the average realized price as one of the main drivers here. But also, of course, the capital recycling, which we have done on several occasions and that explains the majority of the drop from '23 to Q3 '24 LTM.

So you may remember, we did 2 accretive hydro transactions, 1 in to Q2 '23 and 1 in Q2 '24. Although that 1 in Q2 '24 is a better or more profitable than the sale in relation to our book values, is a nominal smaller game. The 1 we had in Q2 '23, I think it was 2x book value in Q2 '23 and 2.3x book value in Q2 '24. And that -- the nominal size in the gain there explains why there's a drop from '23 until Q3 '24 LTM.

If we look at this quarter, we see it's more or less in line with the same quarter last year. There is a growth number and there's a growth in revenue, which is explained by the divestment in Kraftanmelding, which Anders talked about, where we have an NOK 8 million gain within the asset management segment.

And we see that the financials over this quarter is affected by the production stuffs in Odal. And I'm very happy to see that the run rate production has increased since we assume production early August and the remaining operating expenses are more or less in line when you look at the proportion of consolidated figures.

Going over to the segment reporting, we're right back to the commercial segment on the next slide here. But starting out with the project segment, we -- remember, we've talked about earlier that -- but the value of this segment is driven by driving the projects forward, moving into FID, getting backlog projects permitted and so forth. These represents clear value drivers, and we're therefore very happy to see that we've added 300 megawatts over the quarter through our very promising collaboration with Holmen, increasing our backlog to slightly above 1 gigawatts, and that's very good.

And how this will turn into our financials will be through project sales, internal, external and that's the first one we've seen them through our P&L. So very lumpy in nature. What we have here in the financial, what you see here now is the Sundby financials. Sundby is undergoing test production within the project segment.

And together with Munkhyttan, which is now completed, we're looking to do an internal transfer of both projects now in Q4 '24 to over to the project segments now that they are in full production, both of them. The asset management side, that's where we see the gain of the SEK 8 million.

Apart from that, there's growth in the revenue and also on the -- looking at -- and also the internal reorganization that we did here with Kraftanmelding and the digital side moving on into the new Kraftanmelding setup together with Elmera and smakraft. It's looking very promising, and you see that run through the financial and the cost savings that we'll have in our side over the next quarters.

Commercial segment, that's the last slide we'll cover here on the financial side. Again, very much driven by power production and the realized price. Power production, we see wind production has seen a slight drop, and that's again the Odal. The Odal production, which is now ramping up. But again, it started early August and now we have, as Anders said, 20 turbines in operation and 24 turbines were ready to release back to Odal.

That explains that drop. Hydro side, slight growth in the production and although with also better portfolio composition in the hydro side following the asset rotation or the asset transfer we did in Q2 '24, where we sold some of our hardware exposure in the northern price areas and then increased our exposure in the portfolio and predominantly southern price areas.

Further, again, realized a power price of NOK 0.47 per kilowatt hour, slightly down from the same quarter last year. But as Anders said, more than -- or around 2x what the Nordic system price is showing. So again, highlighting the importance of being diversified in the right price areas, the southern price areas. You see a very large difference in prices over this quarter in Norway and then Denmark being by far, best price area over the quarter with around NOK 0.8 per kilowatt hours in market price.

I'm very happy to have this exposure and also the favorable regime you have in Denmark, and it's one of our key areas going forward. So yes, we -- on the LTM side, on the right-hand side there, we have the same story that we talked about earlier when we saw the total financials. The reason why we have this drop is predominantly from the 2 different hydro accretive, hydro transactions that we did in Q2 '24 and '23, where the Q2 '23 sale is larger, but Q2 '24 is lower amount, but more accretive in relation to book value. So Anders, I'll let you summarize with some market intel and yes, outlook. Thank you.

[Anders Lenborg, executive]

Thank you, Ole-Kristofer. And here, you see a beautiful picture of our Sundby wind farm in operation just outside the Eskilstuna in Sweden, and we will now have a look at the power price curve as we always have done is to use the volume Nordic system price estimates. And so this is nothing that we produce ourselves, but we use third party in this case of value.

And as you can see, the power price curve is in a loop and we are slightly above the power price. And as Ole-Kristofer mentioned, it's a combination of our projects and where they are -- in which price areas we have our projects.

So we also have a small amount of PPAs, covering around 10% to 12% of our production on a high-level PPAs. And we are looking and always in a dialogue with potential offtakers to increase the amount of fixed price power purchase agreements in our mix.

But today, we are predominantly spot price in the portfolio. But this is at least something we see. It's important to mention the flexibility that we have in Cloudberry because we see that the offshore wind had some headwinds. We stopped our offshore wind projects last year. And we saw that solar and batteries technologies are now very favorable priced and the CapEx coming down.

So we have focused on more on that -- those technologies. And also on the different price areas, we have seen some of the price areas being soft. DK1 being very strong. So we have now used more time in Denmark. The solar project is probably the next project that we will FID, also in the strong DK1 area, and we have also more projects coming out of the Danish platform.

So just to repeat the importance of having flexibility in our project portfolio and our platform. I think this is going to be a key for us also going forward. Stay local, stay focused. We have a lot to work with in the Nordics. We have a lot of wind, hydro and solar. So we will stay with proven technologies, and battery storage because of the volatility, we think that is important.

And stay also with a strong balance sheet to give us the flexibility to act on opportunities. And then, of course, we will recycle and always have profitable growth in our focus. So I think going forward, you will see just more of the Cloudberry being opportunistic and focusing on where can we create the most value for our owners and for Cloudberry.

So thank you so much for listening in on our presentation. We have probably gotten some questions. So we can start to answer some of your questions and I will get back to you also. Thank you.

[Ole-Kristofer Bragnes, executive]

Thank you, Anders. Yes, we have a few questions that's been coming in here. I'll try to answer some of them, and then Anders may continue on some of the others.

So we've gotten some questions around if we're looking towards storage or best solutions. And we talked about this some time through our presentation, and that is something that we are focusing on. We have an attractive grade connection in San Carlos, where we have a project together with Hafslund. That is something that we are -- will perhaps move towards first and then we have opportunities to add storage to our existing wind production. We are looking to our storage at Nees Hede this stage or some time in the future. But storage, these kind of things are definitely something we're looking towards in order to increase our capture price as much as possible.

We're also getting some questions about our offshore at the top in offshore wind in Sweden and how that will impact Cloudberry. Anders just touch upon it earlier. We don't have any offshore wind projects at the moment. We are focusing on onshore wind in this side, and I see that this will perhaps only benefit our projects, making them more valuable. And the importance of having good connection with landowners is perhaps more important now than before.

Further, we had some questions about the FID on Nees Hede, when that will happen, how we're financed. That said, we've said now, we have continuing on the procurement starting to set the parameters of the project in more detail and looking to the FID over the coming quarters for this project. And we're fully financed, that our cash position and our existing debt facilities.

And we also have some questions about asset rotation. Is that something you're looking to continue doing? And the answer to that is yes. Asset recycling is still a backbone for growth and we look into doing more -- or to doing asset rotation, if that makes sense for Cloudberry, if we can do it accretively in order to continue to grow our portfolio. So what we said earlier, selling 1 gigawatt hour and building 2 is kind of the simple construct of it. So that's something we look into.

And where we'll look into doing this rotation and what we're looking to sell, that's dependent on market conditions at that time. So I think that was all the questions we had -- time that we had. So thank you so much, everyone, for tuning in, and I wish you all a pleasant day and a great weekend when the time arrives.