Cloudberry Clean Energy ASA

OSE:CLOUD

Earnings Call Transcript 2022-Q4

[Anders Lenborg, executive]

Welcome to this fourth quarter 2022 presentation from Cloudberry Clean Energy. My name is Anders Lenborg. I'm the CEO of Cloudberry. And today, I'm joined by our CVO, Christian Helland. We have prepared a presentation for you, and the agenda today is a bit different than it has been traditionally. We will start with an overview and the highlights from the last quarter. And then we will focus on the Odin transaction, giving you some more information about the transaction and the process leading up to it that we signed last week.

Then we will touch upon the ESG, and Christian will take you through the key financials, and then we will finish off with the outlook. After the presentation, we will open up for Q&A. So please use the Q&A opportunity and send us questions.

Moving on and into the presentation. First of all, Cloudberry is a Nordic IPP, a Nordic independent power producer. We develop, own and operate renewable assets in the Nordics. We have traditionally focused on Norway and Sweden, but have now also moved into Denmark, covering the whole spectrum from early-stage development projects and producing assets and also operation of the assets. And we are a listed company. Today, listed on the main list of Oslo Stock Exchange.

So moving on to the highlights. We have had another strong quarter. We have managed to move the company from negative EBITDA to a very positive strong EBITDA growth. On a consolidated basis, last quarter, NOK 34 million and NOK 57 million on a proportionate basis. And that is a yet another strong quarter in 2022, and mainly driven by doubling of the production last year, and also realized high power prices, an average of NOK 1.29 per kilowatt hours, which is historically very high power price.

That increase in production has also made us reach over 21,000 tons of avoided emissions. And as many of you know, we have always been focused on having a strong balance sheet, and we see now the effect of that with Odin, and we are fully financed for a terawatt hour of production.

On the development side, we managed to move Hån, our wind farm in Sweden from construction to production last quarter. And Hån is now producing well. We have had no issues taking over the wind farm in December, and it's now operating as expected. And Hån is situated in Sweden, but the power is then sold in NO-1 price area in Norway. Furthermore, we have Kafjärden, who has now changed name to Sundby wind farm. We took a final investment decision on Sundby just before Christmas. This is a wind farm in SE-3 just outside Eskilstuna. And hopefully, we will see first power later this year. So it's quite a short time until we will actually be seeing the first power coming out of Sundby. Of subsequent events, it's, of course, the Odin transaction that is the main event. And we will dive into that a little bit later in the presentation.

So this is how we look. We have today 30 power plants in operation, and 28 of them is hydropower plants in Norway. We have two wind farms in operation, and we have two under construction, one hydro power plant in the West Coast of Norway and Sundby wind farm outside Eskilstuna in Sweden. So both of them will also be seeing first power later this year. So the production portfolio is of a fair size now, and totaling a capacity close to 200-megawatt with around 600 GWH in production. In addition to that, we have our construction permits that we are working on, the wind farms in Sweden.

And last, but not least, we have been able to fill up with new projects on the backlog. The backlog being the project where we have exclusivity and we have managed to sign on some new projects, Söderköping and Ulricehamn, two wind farm projects in SE-3, totaling about 100 megawatts, and we are looking forward to work with the projects to get them into a construction permit phase.

On the offshore side, we work with Simpevarp and other projects in the portfolio, and that is progressing as planned.

Many of you know this overview. The takeaways from this is that we have moved Hån from under construction to producing. And we have done the same with Kafjärden, now Sundby, we moved from permit to under construction. And with this portfolio, we will see around 1 terawatt hour of production when it's all in operation.

Yes, moving on to the Odin transaction. It was a big step for us to sign this deal. We are very happy. We see it as a game changer for Cloudberry. We have been knowing Skovgaard and Skovgaard Energy over some years, and we had a very interesting and positive dialogue. And suddenly, we were in the position to agree on a partnership. And finally, we also managed to sign last week. And we see this as a win-win situation both for Skovgaard Energy and for Cloudberry, and we are looking very much forward to the cooperation with Skovgaard and also to develop the portfolio together going forward.

Just some basic facts around the portfolio. This is producing assets. So we get immediate access to producing assets in a very attractive price area being DK1. That's the highest price area in the Nordics. And we have an increase of our production capacity with 70% from 1st of January. And it's also important for us to move into the new market with a partner. Both Skovgaard and Cloudberry believe in being local, believe in understanding the local stakeholders and to, in that way, develop the best projects. So that's important for us to go into this new market for us with Skovgaard on our side. We're acquiring 80% of the portfolio, and Skovgaard retaining 20%. And we have also a development agreement where we have this first right of offer on new projects. So we will probably see more wind and more solar projects coming out of the Skovgaard development team.

In this acquisition, we also have options for repowering of the assets, and we have also acquired the land that these projects are situated in. So this is a highly prioritized process for us, and we are looking forward to close it over the next quarter.

And I said that we are also fully financed for this transaction. And we used the market last year. And we wanted to be in a position so we could react on a short notice on good opportunities. And we couldn't be more happy that this was the result of being positioned for further growth and adding another 300 GWH to the producing portfolio.

Here, you see an overview of the portfolios. The Skovgaard portfolio is 51 turbines, and the turbines are situated in [indiscernible] in DK1, 47 of them. And then we have one on [indiscernible] and some turbines in Sweden. So all in all, it's a majority of the turbines in DK1, which is an interesting price area for us. And it will create geographically a diversification that over time would probably be like 1/3 of Norway, 1/3 Sweden and 1/3 Denmark, because we will add some more late-stage development projects in Sweden, and Sundby wind farm coming into production, and also the next projects from the construction permits in Sweden that will increase the power production in Sweden over the next year.

So here, you see the development on the production since our IPO. On the left side, you can see how we have grown the portfolio from 2020 to 2023. We have had a strong growth. Today, we are, if you see on the right-hand side, around 500 GWH in production, adding Odin with 300 GWH, reaching around 800 GWH. And then adding the construction projects and permitted projects, we have a total portfolio today at around 1.3 TWH, which is a good solid production portfolio that we are very pleased to see coming so soon.

And here, you also see the effect that will have on our profitability. We have also a significant growth in our profitability going forward. On the left-hand side here, you see the EBITDA from the production segment. So this is only the numbers from the production segment historically from 2020 to 2022. So the production segment had an EBITDA of NOK 264 million last year. And then we, on the right-hand side, see the effect that the Odin transaction will have on the EBITDA on different power price levels. So here, we have tried to show that with a power price of EUR 60, EUR 90, EUR 120, and what kind of effect the Odin transaction will have on our profitability going forward.

Yes. Moving on to the ESG. This is one of the turbines that we have acquired in Denmark. And we have had no hazard safety incidents in Q4. We have had no material environmental damages last quarter. No whistle blowing incidents or breach of code of conduct. And as mentioned, we also have managed to avoid -- to increase the avoided emission to over 21,000 tons of CO2 during the last quarter. And we will be out with our sustainability report later in April, where we have plenty of examples of how we work on ESG and how we work with sustainability.

Yes. Thank you so much for listening to me, and I hand over to Christian, and he will take you through the financials. Thank you.

[Christian A. Helland, executive]

Yes. First, just to give you a shorter view of our balance sheet, which has been very important for us to have a strong balance sheet to actually do a transaction like Odin. So here are the updated Q4 figures, where you see, again, very strong cash position, low debt. And this is why we're saying we're fully financed for the Odin transaction and our construction projects and also parts of the development portfolio. So this has been the strategy of the company from day 1, being well-funded to take advantage of what we mean is high strategic value deals for the company.

We'd also like to emphasize that all our debt are swapped long term. It was done in 2020, 2021. So very favorable terms on our long secured debt. And also, as you show here the uptick in equity from last year, based on new equity to the company, but also now that we're becoming highly profitable.

So just to sum up 2022 and last quarter, a very good year 2022 for Cloudberry. As you see, we're growing the proportionate profitability from minus NOK 25 million to over NOK 380 million for the year. So significant growth based on able to deliver the projects, getting the production up and also having favorable power prices as we are 98% on merchant pricing.

You also see again that we're coming back to -- we'll come back a little bit to the Q4 figures from the production segment. But again, a strong quarter for us, profitable in our operation and growing significantly from last year, where we had minus NOK 11 million in the quarter and this year -- or this quarter, NOK 57 million.

Yes. Production segment. Again, we're showing how we benefit from being exposed in the southern area, Southern Nordics, where the power price has been high. We also see how we're now, with the increased production, coming into strong profitability. As you see, our power prices NOK 1.29 per kilowatt hour for the quarter is a high figure. On the other hand, it's slightly lower than someone maybe expected. And there's two very good reasons for this. I also see some questions coming in around this. And that's one, we delivered Hån earlier than expected, and this is obviously good news for the company, but that also meant that we did some revenue sharing with Vestas in the fourth quarter. So we booked the production, but we had to share parts of the revenue at Vestas in the fourth quarter, which is obviously as a successful project, but a one-off effect on that side.

As also people know in the Nordics, water freezes and it was a cold December, where the power prices were higher in December than in October, November. So we had less production in November versus the other months when the power prices were higher. So these two effects are some of the reasons why we only received NOK 1.3 per kilowatt hour, but still a very good figure for us.

Going to development segments. Again, development, we showed in Q3 how the development segment is now adding a lot of value to our company. We didn't have any project sales in the Q4, but as Anders mentioned, the development part in Sweden now is really starting to flourish, and we signed two new very attractive projects in the SE-3 region. So a lot of good work going on in SE-3, both onshore and offshore. We're also moving forward with Simpevarp and our Vänern project.

Yes. Operations segment. Again, Captiva been extremely important to assist a very lean Cloudberry to get quality project. The Hån project on time, strong operations from day 1. They've also been extremely helpful for us to get Kafjärden moving along quickly, getting the licensing in place, and also now getting the projects already built this summer and fall. So a very strong integration with the Cloudberry team. And they're also scaling on their IT side with their portal and a lot of new customers of hydropower plants into that portal. So no project sales on the development side there for the quarter, but again, starting to become a very important part to assist Cloudberry with the new projects going forward.

Okay, Anders. Before we take some Q&A, I see lots of Q&A, but just some final words on market and outlook before we dive into the question-and-answer session. Thanks.

[Anders Lenborg, executive]

Thank you, Christian. And yes, as many of you know, there has been a debate in the Nordics over the supply of new renewable power, the increasing demand from the electrification of the society as such, but also existing industry, new industry, new green battery projects, and so forth. So what we see in the Nordics, it's a strong increase in demand. And here, on the left-hand side, we see some numbers from Sweden, where you see the Swedish demand for new renewable power and how it looks from today until 2030 and 2050. And basically, Sweden needs to double their power production in 2040.

And the same you see in Norway. Here, on the right-hand side, you see the overview of the power balance, but it's also important for the Norwegian energy system that we get new renewable power into the system as quick as possible. And we have read now from different sources where the conclusion is that we need 30 to 40 TWH before 2030, and how are we going to get that? And it's a limited hydro upside. It's a large upside on the wind and solar side, but it's important that the politicians see this and react and make the framework work for us as developers, and then we will be more than happy to take the opportunities and develop projects in Norway also.

But it's now slowly getting noticed how important it is to speed up the development. And to do that, we need to have the framework to do so. We also see that the offshore wind will not be in production before after 2030. So strong demand side, and hopefully, we will meet that demand with new projects, both in Sweden and Norway.

And based on that and other factors, of course, we also see a shift in the power price. We use Volue here and Volue's price curve, Nordic price curve. And what we see is that, historically, if you go back 10, 15, 20 years, you will have a power price that is plus/minus EUR 30. And looking forward, that will probably be on a much higher level around the double, and this is what we use in our prognosis for our development and investment decisions on new projects. So the extreme high power price that we see now, we believe will come down.

Yes. So all in all, a big game changer for Cloudberry to move into Denmark to diversify the production portfolio, to grow the portfolio, to reach a certain size that gives us long-term cash flow, to develop and construct new projects. So this is actually important to understand also Cloudberry going forward. But we have now reached a level where we are comfortable that this production portfolio is solid enough to start to build on and develop new projects based on the cash flow from those projects.

And also, moving into Denmark, moving into a new very interesting area where you have a lot of energy infrastructure projects. You have the Power-to-X projects. You have the offshore wind, hydro -- sorry, hydrogen projects, and it's all connected to the continent, and we want to be also a part of that development going forward.

In Norway, we have the uncertainty around the tax proposal that we are working with. We have a deadline of 15th of March to respond to that proposal. And hopefully, it will be in front of the parliament before the summer, and we will have a final decision. But the way we look at it, it can only be an upside for what is on the table, and we are working to get that change. So it's going to be more pro renewables going forward.

Yes. Thank you so much. And then we are over on Q&A questions, and I can start off with answering some of the questions.

[Anders Lenborg, executive]

We had one question here. Is it a strategic shift to grow more through brownfield and M&A activities, is one of the questions. which is a good question.

We have done both through the years with Cloudberry. We have developed our own in-house projects, and we have also used M&A opportunities. We have also done structural opportunities. So we are both using all the opportunities. And being flexible and being quick and nimble is one of the advantages of Cloudberry. And seeing the CapEx on the development projects increasing strongly, and increased on all the projects, not only the wind turbines, but also on the hydro side, we see the CapEx increase. The financial costs coming up, the rent, the interest levels and so forth, we saw the opportunity to actually buy producing assets on a level that is just above the CapEx on developing projects. So that is one of our advantages that we can move also on those opportunities.

And are you fully financed for 1.3 TWH, is another question.

And yes, we are fully financed, as we said, on 1 TWH. But adding that, we also have the cash flow now and the balance sheet we have now, with a larger producing portfolio, we can also finance new projects that we will develop.

And then I'll leave it to you, Christian, to answer many questions.

[Christian A. Helland, executive]

You can update yourself here, Anders. Yes. Thanks so much. A lot of very good questions. So we'll try to go through as many as we can.

We got some questions on the Odin pricing. This obviously gets a little technical, but for us, it's quite important to say we buy the project. The closing is expected in Q2. We get reduced power prices from the cash flow received already from the 1st of January. So what we expect to pay is about EUR 0.6 per megawatt hour. This, in our opinion, is attractive. It's in the middle of the equity IRR range of our investment without taking into account any of the option values we see in this transaction. We see that EUR 0.6 is very close to what we also consider what it will cost to build new wind production today. We say new wind production, EUR 0.5 to EUR 0.6 per megawatt hour, higher turbine costs and so forth.

So we see it in two ways, very attractive expected cash flow short term. We also said in the report, we expect that about 50% of our equity investment is returned the 3 first years. This is in a strong price region in Denmark. So that sums up a little bit of our financial thinking around the Odin price and transaction.

We're still funded for our construction permits, and also, we are fully funded with equity for our Munkhyttan project. As Anders mentioned, we have flexibility in our model to farm down and also use debt more actively going forward. But as we say, fully funded for about 1 TWH.

We still find 50-50 debt equity as the balance. So we also -- again, we're drawing up the facility we have in the local SpareBank 1, who is extremely supportive of Cloudberry and also the Danish transaction. There will be some debt in Denmark at very attractive levels that's left there, and the remaining debt will be in our facility here in Norway.

We also got a question about how we build reporting Odin. Again, the closing is expected in Q2. There's two tranches as described in the appendix. So we will receive the cash flow already from the 1st of January, which is reducing the purchase price. And then we will most likely start reporting on our 80% share in Odin from Q2. So that's just to give some of the updates in that.

Anders, will you continue? See still a lot of questions.

[Anders Lenborg, executive]

Yes. That's very nice to see that there's a lot of people on and asking questions. I got one here. What is the IRR on the Odin portfolio?

And what we have said is that the IRR is in the middle of our equity IRR range for producing assets, between 6% and 9% on producing assets. So in the middle of that range.

And then the next question, can you confirm that you will fund a potential fit on Munkhyttan with the existing cash flow?

And the answer is yes, we will fund Munkhyttan and the other projects with existing cash flow and our bank facility.

And next question, how important is hydrogen projects into the increased demand in the Nordics?

And I don't have a specific number on that. But of course, we have been looking into the demand for more power, especially in connection with these energy systems, like hydrogen and ammonia and other Power-to-X projects. And that is partly also why we think DK1 and the partnership with Skovgaard is so interesting is that we are placed geographically very in the middle of the whole infrastructure. From Denmark today building infrastructure to Germany for hydrogen. The same plans you will see in Sweden through the Baltic Sea, where we also have projects. And you see also now that Norway through one or some of the big utilities in Norway and Germany are planning for infrastructure to the continent. And all those Power-to-X projects have a very high demand for renewable power. So it's an important factor.

Yes, very good. Then thank you so much for listening in, and have a nice day.