Lundin Energy AB

OTC:LNDNF

Earnings Call Transcript 2024-Q1

[Robert Eriksson, executive]

Good afternoon, good morning, and welcome to this Orrön Energy First Quarter 2024 Financial Results Webcast coming from Stockholm, Sweden today, and happy to have so many of you joining us. [Operator Instructions]. And presenters today will be Daniel Fitzgerald, Orrön Energy CEO; and Espen Hennie, Orrön Energy's CFO. And with that, I would like to hand over to Daniel Fitzgerald.

[Daniel Fitzgerald, executive]

Thank you, Robert, and it's a pleasure to be here today for the Q1 results. And we'll start with Orrön Energy. Orrön Energy is a pure-play renewables company. We're diversified across technologies and primarily in wind, solar and batteries. And we have organic growth platforms running across the full life cycle of the business from early-stage greenfield projects all the way through to repowering life extension operating assets. In 2024, we're going to produce around 1,000 gigawatt hours of power generation from our primarily Nordic assets. And we have established a 40-gigawatt onshore pipeline of opportunities, which is going to provide the growth vehicle for this company into the future. And you can see on the right-hand side that we're active across 5 of the countries, and I'll touch on a little bit later in the presentation, the sale of our Leikanger asset, which was a noncore hydropower asset in Norway, and that sees us exiting from Norway at this point in time. I think important to focus a little bit on our corporate strategy, especially in markets like we're seeing today and like we've seen over the last 2 years, and our corporate strategy remains completely unchanged. There's 2 key parts to our strategy. The first is building a portfolio of cash-generating assets. The second is focusing on the large scale and long-term growth through greenfield project development. And I'm pleased to see that both of these sides of the business are performing really well in the first quarter of this year. On the operating side, we do have a portfolio that we've acquired from as early as 2022 all the way through to today. And we have a range of opportunities to grow that portfolio organically. And what we're seeing more and more is regulatory regimes are opening up a little bit more favorably for us to step into the life extension, the permit extensions that allows us to extend the lifespan of assets. We're seeing technology coming in, which allows us to increase the power generation from existing assets. And we're also putting new technology like batteries against existing grid connections. So that part of the business is performing really well. And on the greenfield side of the business, I'm pleased to share that we're continuing to make really good progress on that. We'll touch on it as we go through the presentation, but we're starting to secure land positions on our U.K. and German portfolio. We're starting to see projects come to fruition in the Nordics as well. And so the corporate strategy really does remain unchanged and focused on these 2 core areas where we see value. On the Leikanger asset sale, we are a growth company. We are aiming to grow, but we will take advantage of market opportunities as they arise. And I think the Leikanger sale is a perfect example of that. We managed to sell the Leikanger asset in Q2. That transaction has now closed already, and we've sold the asset to Sognekraft, and achieved EUR 53 million in terms of enterprise value for the asset. This is a noncore asset for us. It represents less than 10% of our production on an annual basis, yet the sales proceeds represents around 30% of our market capitalization at around 20% of our enterprise value as a company. So it really is disproportionately valued compared to where the share is valued today. And we're seeing that disproportionate value across the sector in many ways. We've said it for a number of times recently at the Capital Markets Day, and I think you see it in the OX2 transaction earlier this week where private buyers or strategic buyers of assets are putting a much higher value on companies and assets than the public markets are putting into the share price of companies. The Leikanger sale is really key for us as well. It significantly strengthens the balance sheet of the company. It provides a lot more liquidity headroom and ample opportunities for us to go and grow the business. And we aim to recycle those proceeds into opportunities with a much higher rate of return. On the right-hand side of this page, you see the impact that Leikanger has on our liquidity. And where we exited 2023 with around EUR 100 million of liquidity headroom, we take in the proceeds of Leikanger, we will reduce our finance facility from EUR 190 million to EUR 170 million but at the same time, we significantly reduced our debt position from EUR 90 million to around EUR 40 million if we take into account the proceeds. And that results in EUR 130 million worth of financial firepower to go and grow the business. And in markets like we're seeing today, where we are seeing the undervaluation of companies, there's ample opportunities to go and grow and invest not only in our own opportunities in greenfield business but also into the market. If we focus now on the first quarter results, we delivered our highest production ever in the first quarter of 274 gigawatt hours. And that's with Karskruv now fully online for the full quarter. Karskruv is one of our key assets in the SCI price region in Southern Sweden, which is one of the highest priced regions in Sweden. That's been online for the full first quarter, and we've seen high uptime and good performance from that asset. And so that contributed to the increase in production volumes. We achieved a price of EUR 49 per megawatt hour for the quarter, resulting in around EUR 6 million of EBITDA on a proportionate basis for the quarter. We ended Q1 with EUR 91 million of net debt. And as I touched on with the Leikanger transaction, which closed in early May in the second quarter, that net debt will come down significantly with the proceeds from Leikanger. This strengthens the balance sheet. It gives us increased financial firepower. And finally, in Q1 as well, we made good improvements on our greenfield development pipeline, and we continue to see that moving forward in many fronts, both in the Nordics through some of the smaller scale opportunities and opportunities close to existing assets but also in the U.K. and Germany, where we've signed some exclusive and binding land agreements, which will continue to mature that portfolio going forward. Important to focus a little bit on where the markets were in Q1. And I think on this chart, you see the whole of 2023 and then the early part of 2024 as well. As we've touched on in prior results presentations, you see the impact of storm Hans on the green line, really depressing the pricing in Q3 of last year. And as we discussed in our Q4 results, the price has come up into the end of Q4 and into early Q1. And we're seeing pricing normalizing a little bit more around that EUR 50 a megawatt hour as we achieved in Q1. But a couple of things still remain in the market pricing. We're seeing much higher volatility than we have seen statistically over a longer historical period of time, and that's still playing in the markets today. So although we're achieving a price of EUR 50 a megawatt hour, we are seeing intraday and daily volatility increasing as we come into the early part of the year. And I think if we forecast or if we look at the futures and the forecast for power, we're looking at a lifespan of our assets of between 20 and 30 years before we move into repowering and life extension. And I think the markets are pricing in today a much lower price of energy than what we actually need to deliver the energy transition. And if we really want to build out all of the offshore wind and all of the technologies that are required to drive the energy transition, we're going to see a much higher structural price of energy in the long term. And you see that on the right-hand side of the chart, where against the German, U.K. and Nordic futures prices, you see the breakeven cost of all of the technologies. We remain strategically in the lowest-cost technologies. We've taken that view and we'll continue to take that view. And I think challenges remain around the build-out of the energy transition if we continue to see significantly lower prices than where we've been over the last 1 or 2 years. Our power generation outlook for 2024 is updated on the back of the Leikanger transaction, and you can see that on the right-hand side at around 1,000 gigawatt hours of power generation for the year. You can see where we are against the first half production with our Q1 number there at 274. And importantly, the phasing of our production between the winter months and the summer months changes slightly now that Leikanger is no longer in our asset base. And so we see 60% of our production will happen in Q4 and Q1 of the year and 40% will happen in the summer months where typically wind speeds are a little bit lower than the winter months. We made good progress in Q1 on our greenfield pipeline, and this is a large-scale early-stage pipeline of opportunities. In Germany, we've signed binding land agreements now for 500 megawatts worth of solar and battery projects and they're moving into the permitting processes as we speak. And so we expect that these projects will move towards a ready to permit and soon ready to build milestones over the coming 12 months. Also in the U.K., we've secured exclusivity agreements on a range of land for some of our first projects. And similar to Germany, we expect within the next 12 months, we'll be seeing the fruits of some of the work we've been doing on this large-scale platform coming to the market. In the Nordics, we've now received building permits for 37 megawatts of batteries, our first battery project, which is a small-scale project in the north of Sweden. That's in the construction phase, and we're expecting to bring that online at the end of Q3 of this year. And we touched on in our Q4 results a little bit the acquisition in Finland, and we've stepped into a portfolio of around 180 megawatts worth of wind and some small battery projects across 4 projects in Finland, and we expect those to move into the permitting phase now through the course of the next 6 months and then moving towards ready to build in 2026, 2027. So exciting to see that this portfolio continues to grow, not only in the Nordics with a range of opportunities, but also across the larger scale platform in the U.K. and Germany, and we expect some of those projects to come to market in the next 12 months, which will really demonstrate the value in this part of our business. And with that, I think I'll pass over to Espen for the financial highlights for 2024 Q1.

[Espen Hennie, executive]

Thank you very much, Daniel, and good afternoon, everyone. We'll go through the financial performance for Q1, also touch upon the financial outlook for the full year, especially with focus then on the impact from the Leikanger divestment, which Daniel already mentioned. To sum up the quarter, and Q1 was a quarter with underlying good performance across the asset base. Obviously, the big news, which with most impact for the companies, they like our divestments, which we announced after Q1 end, which has now closed. It closed early May, which we think that transaction was done at a very accretive price for the benefit of the company and our shareholders and provides us with a lot of optionality and financial flexibility as we move forward. And you'll see more of that as we go through the slides. So just some of the financial highlights for Q1. We had a power generation of 274 gigawatt hours at an achieved price of just shy of EUR 50 per megawatt hour on average, generating revenues of EUR 40 million and an EBITDA, if you exclude noncash items of EUR 6 million during Q1. When we ended the first quarter, we had a proportionate net debt position of EUR 91 million, which is a small reduction compared to what we had at year-end '23. And as we have announced earlier, early January, we increased our debt facility from EUR 150 million to EUR 190 million to exercise a portion of our accordion option in that facility. And then after quarter end, we sold Leikanger, which we announced then in April for an enterprise value of approximately EUR 53 million and consequently also reduce the debt facility then on the back of that significant increase in liquidity, we reduced the debt facility from EUR 190 million to EUR 170 million. So net, we have an improvement or an increase in liquidity headroom for the company in the order of EUR 30 million as we have proceeds of around EUR 30 million against the reduction in our debt facility of '20, meaning that as of today, if you take the Q1 reported net debt and adjust for the Leikanger sale, we have north of EUR 130 million of liquidity headroom, which of course, provides us, as I said, with a lot of optionality so we can pursue both organic and inorganic growth opportunities as they arise. We then move to our guidance. And just to sum up, I mean Q1, we did deliver in line with our guidance on all parameters, as you can see on the slide here. We start with operating expense, EUR 4 million during the quarter against the full year guidance of EUR 15 million to EUR 17 million. As you might have seen in our quarterly report, we are reiterating our full year guidance of 15% to 17% also post the Leikanger sale, where we see we have a reduction in OpEx on the back of the Leikanger divestment. At the same time, we see some increase in grid tariff costs in Sweden, offsetting each other. So we're sticking to the EUR 15 million to EUR 17 million guidance for EUR 24 and Q1 was very much in line with that plan. G&A expense, EUR 2 million for the quarter, and we are repeating our EUR 9 million full year guidance, meaning that you should expect a small uptick in the coming quarters to reach the guidance level. And for Sweden, legal costs, in line with our EUR 8 million full year guidance with EUR 2 million for the quarter, and we expect that run rate also for the coming quarters. Capital expenditure, EUR 2 million in Q1 against the full year guidance of EUR 14 million. We expect that based on the current project plans and activity set that most of our CapEx will be back-end loaded in '24. So you should expect second half of this year to be higher than first half, but also with a modest increase from Q1 to Q2. But as Dan touched upon when it comes to our greenfield portfolio and the progress of that, all is going according to plan and schedule. This is phasing of cost is according to what we initially were foreseeing when we put forward our CMD guidance. Then a quick look at our key financial metrics for the quarter, comparing it to the same quarter last year and also the preceding quarter. If we start with revenue on the left-hand side of the slide, you can see we had revenues in Q1 of EUR 13.5 million, which is quite similar to what we had in the same quarter last year on the back of lower prices, but then helped by a full quarter contribution now from Karskruv, which we had now in Q1 is the first quarter with full contribution from that asset, which you can see that despite significantly lower prices, we are around the same revenue level. And compared to the preceding quarter is a very significant improvement on the back of both higher volumes and also stronger pricing in Q1 compared to Q4 '23. And you see the same pattern in EBITDA, a bit down from the same quarter last year on the back of lower price, but also now we have some higher operating costs as we also have higher volumes with Karskruv in the mix, but a very significant uptick from the EBITDA we generated in Q4 '23. And again, the same, you can see the same in CFFO. If you focus on CFFO, excluding working capital, as it's a bit cleaner and less volatile from quarter-to-quarter. We had EUR 3.9 million in Q1, almost a fourfold increase from the preceding quarter. And just to note that the same quarter last year was very much impacted by the dividends received from our JVs. So if you strip that out, you can see the same change between Q1 '23 and Q1 '24 and CFFO as we see in EBITDA. Then I look at our achieved price during Q1. The average Nordic system price during the quarter was EUR 58 per megawatt hour, whereas our portfolio had an average regional spot price of 61%, which then that represents the geographical mix of our portfolio, which is quite favorable, where we have a high share of our volumes in what has historically been high-priced regions, which you can see the result of here in Q1. So EUR 3 per megawatt hour on average higher than the average system price. On top of that, we had a positive impact from some hedges that we have in our portfolio, EUR 1 on average on our achieved price, and we achieved EUR 2 for the guarantees of origin, which we sell in the spot market. When you then compare that to the average achieved price of EUR 49, you can see that we had a capture price discount of EUR 50 per megawatt hour, which represents 25% capture price discount. Clearly, a very positive development, so that's significantly smaller capture price discount than what we saw in the second half of '23, where we had very elevated capture price discount of north of 30%. And so we have seen a normalization so far into 2024. And we still expect that our portfolio on average long term, we expect to see a captured price discount around 20%. So that was what we guided upon at [ RCF ], and we're still in the same view. Obviously, it's volatile. We will have quarters where you see a lower capture price discount, and we also have quarters with higher. But over time, over the long term, we expect around 20% for our portfolio. And if you move to the underlying cash flow generation of our assets. And as we have said before, we think this metric is a highly relevant and important metric to follow to track the underlying cash flow and financial performance and potential of our assets. And for Q1, we had revenues of EUR 13.9 million, if you include other income, operating cost of EUR 4 million, as we touched upon already. And then G&A, if you strip out the noncash items, EUR 4 million, and that includes EUR 2 million of legal costs. So then EBITDA after excluding noncash items, EUR 5.9 million. And against that, we had interest expense of EUR 1.7 billion, which is our interest costs related to our external debt. And CapEx, which is predominantly allocated towards our greenfield portfolio. So that's investments into future cash flow and future value creation of EUR 1.9 million during Q1. So you can see, all in all, for the quarter, we covered all our costs. We covered all our expenditure investments into organic growth and then had a positive operating cash flow after interest and after all CapEx of EUR 2.3 million.And if we then look at our proportionate net debt, how that has developed over the quarter and also comparing it with our outstanding debt facilities to get the total view of the liquidity of the company. You can see on the left-hand side, we started the year with a proportionate net debt of EUR 92 million. We had the CFFO, excluding working capital of $3.9 million and a negative impact from changes to working capital of just shy of EUR 1 million. And the mentioned investments into organic growth of 1.9%, predominantly progressing our greenfield portfolio of EUR 1.9 million means that the total reduction in proportionate net debt over the quarter of EUR 1 million and resulting in an ending quarter net debt level of 91%. If we then move to the right-hand side of the slide, you can see we had a total cash position at the end of Q1 of EUR 22 million, including the cash balances we had in our joint ventures. And then an undrawn portion of our RCF facility of EUR 82 million, leading then to more than EUR 100 million of total liquidity. But of course, important to note that when you take into account the impact from the Leikanger sale, that adds another EUR 30 million on top of this. As we said, we have proceeds of around EUR 50 million against a EUR 20 million reduction in our debt facility. So at the end of Q1, adjusting for Leikanger sale, more than EUR 130 million liquidity headroom for the company. And then a quick look at our full year cash flow outlook. This is the same format as we presented at our CMD in February, where we are here now updating to reflect the Leikanger divestments. We are still applying the same achieved prices from EUR 30 to EUR 70 per megawatt hour, which we still see as a very reasonable range of realistic outcomes given current market pricing and futures. And on the back of that, and our power generation outlook of 1,000 gigawatt hours now, excluding Leikanger, we will then have revenues between EUR 30 million and EUR 70 million for the full year. Then moving from the revenue to the EBITDA, excluding the Sweden legal costs. And we want to stress again the importance of focusing on our EBITDA and cash flow generation, excluding the legal costs. Our portfolio have a remaining technical lifetime of more than 20 years, and that's before you add repowering and before you add life extension. So that more than 20 years, that's a minimum, and they will, in reality, be a lot more. And you compare that to legal costs, which will be in the current shape and form in '24 and '25 only. So 2 years of remaining legal costs in current shape and form and more than 20 years of remaining lifetime before you add the potential from life extension and repowering. So that's why the EBITDA, excluding the legal cost is what is representative for the value of our portfolio. And you can see on the price ranges that we put forward here, we expect that to be between EUR 6 million and EUR 44 million for 2024 with an EBITDA breakeven level of EUR 24, meaning that we only need an achieved price of EUR 24 per megawatt hour to be breakeven on EBITDA before you add the temporary legal costs.Moving then from the debt EBITDA before legal cost to the reported EBITDA prior to noncash items. So then you deduct the EUR 8 million of expected legal costs for the year, and that results in a range going from minus EUR 2 million to EUR 36 million for '24 on that EUR 30 to EUR 70 per megawatt hour achieved price and a corresponding breakeven of EUR 32 per megawatt hour.And if we then look at the all-in free cash flow pre-CapEx for 2024, where we then adjust for expected net finance expense of EUR 6 million. That's a lower figure than what we put forward at our CMD to reflect a lower debt level following the Leikanger divestment. We also had in our original guidance, payable tax of EUR 1 million. That's also now removed because all that payable tax was related to Leikanger asset. So now going forward, we don't foresee any significant payable tax for the company since Leikanger is not part of the power generation mix anymore. So all-in free cash flow pre-CapEx going from minus EUR 8 million to EUR 30 million on that EUR 30 million to EUR 70 million range. So I think there's a couple of things worth focusing on here. First of all, you can see at the midpoint of that range at EUR 50, you can see that we will then fund almost entirely all of the organic cash flow that we have for this year of EUR 40 million. And even in the low case, you can see low case of minus EUR 8 million for 2024. If you compare that to the more than EUR 130 million of liquidity for the company, you can see that we have a lot of flexibility and resilience to fund all our current plans and also to pursue other organic and inorganic growth opportunities as they arise. And then in the high case, you can see that we are expecting them to fund our current CapEx for '24 multiple times. Also, please keep in mind, I mentioned the payable tax earlier, which we previously had in our guidance, but now it's not relevant anymore as we have divested Leikanger. And we have very significant tax shields for our remaining portfolio. In total, EUR 500 million of tax shields split between Finland and Sweden, meaning that we will generate EUR 500 million of EBITDA on average before we enter into any material tax paying position for the company. So that is very valuable to us. It means that all you should expect to see a high conversion of EBITDA into cash flows for the coming years. And then, of course, on top of this, here you see the cash flow outlook from our power generating assets or our, call it, bread-and-butter business. But on top of that, there is obviously a lot of value represented through our greenfield portfolio, which we expect to see the first results from during next year at the latest, and we are progressing these projects to be in position to make the first divestments from that portfolio, which obviously is not reflected through this day-to-day cash flows as you see on the slide here. So with that, I would like to hand the word over to Daniel for some concluding remarks.

[Daniel Fitzgerald, executive]

Thank you, Espen. And I think as both Espen and I have touched on, I think you need to look at this company with a long-term lens or an energy really is building the foundation of what is going to be a value-creating platform for many decades to come. Our assets have 20-plus years of operating life left. We're starting to sow the seeds in the greenfield development and have secured a 40-gigawatt pipeline from scratch in that portfolio. We continue to deliver cash flow from our operating business. And in the short-term headwinds, I think when you look at the lifespan of this company and the lifespan of the assets plus the upsides in organic growth, I think you really do have an opportunity to invest at almost the lowest point in the cycle into a company such as this. We are financially strong, as Espen touched on the breakeven cost of our assets operating cost around EUR 15, EUR 16 a megawatt hour all in, including our normal sustained level of G&A puts us into a breakeven EBITDA breakeven of around EUR 24 a megawatt hour. So the company really is resilient to low prices and we have ample financial firepower to step in and step into acquisitions and investments at low points in the market. And so with that, I think we'll step into Q&A next.

[Robert Eriksson, executive]

I think we should get right into the questions and start with the first one here. Could you give us some more flavor around the greenfield projects you are targeting in the U.K. and Germany as well as France, what scale are you targeting? Will you keep them and operate them yourself?

[Daniel Fitzgerald, executive]

I think there's a mix across our greenfield. So if I touch firstly on the Nordics, there's a range of organic growth opportunities that we're doing, anything from 1 to 10, 20 megawatts in and around existing assets, I think we're the natural owner of all of those projects. So over the coming 12, 24 months, you should see some CapEx going into growing our portfolio. In Finland and some of the other Nordic opportunities at a much larger scale, so 50 to 100-megawatt opportunities, we have the ability to invest in those ourselves if the economics are strong enough or to farm them down to other owners, which have a much lower return requirement on those projects. So the Nordics is a mix of both. However, when we step into the U.K. German platforms, I think nearly every project in the U.K. is between 700 megawatts to a gigawatt project, solar and battery in that portfolio. We're not going to be the natural owner of those. The natural owner is a much larger strategic player who has a much bigger depth of capital. When we look at the German portfolio, similar to the U.K., but slightly smaller scale, it's probably 50 to 150-megawatt projects, again, solar and battery, and we're probably not the natural owner of those. So we will be looking to monetize some of these projects early in their life cycle to ensure that we see the revenues coming in and validate that business model, which allows us to continue to invest long-term into that. However, in the Nordics, we'll do a mix of investing ourselves or farming down depending on whether the best opportunity to create value lives.

[Robert Eriksson, executive]

Next question about offshore wind. Is that something that Orrön Energy would consider looking at? Or are you looking at offshore wind?

[Daniel Fitzgerald, executive]

I think we've looked at a range of opportunities: hydrogen, ammonia offshore wind, and where the underlying economics aren't strong enough without some form of government support or intervention. We've chosen to stay out of that. And so today, more than ever, we're focusing on the lowest levelized cost of energy technologies, onshore wind, onshore solar, and batteries is where this company is focused today, and I think you should expect us to stay there.

[Robert Eriksson, executive]

Thank you. And next question is about renewables being a somewhat crowded space right now as a quite small player at Orrön Energy. What is your strategy for succeeding in this space and thriving?

[Daniel Fitzgerald, executive]

Yes, I think it is a difficult marketplace for renewables and there's a place for the larger players and the smaller players. As we touched on in the presentation, our strategy is quite simple, and there are 2 key areas where we see value to be had. One is the owner of assets, but medium to later life where we have the opportunity to add value through organic growth, repowering, life extension, and secondly, in the greenfield business. So we can see strong returns out of those 2. But when it gets to large-scale derisked projects, I think there are other natural owners of those projects where they have much lower return requirements. And we do see a lot of competition in that space, especially for funds, low-cost capital strategic players, all of them are playing in that space at much lower return requirements. So I think there's absolutely space for us. I agree with the comment that we are a little bit small at this stage, and we're actively looking at opportunities to grow. So you should expect us to continue to grow over time, but where we see opportunities to invest, we'll continue to do so at attractive returns.

[Robert Eriksson, executive]

Thank you, Daniel. And we have a few questions on the potential for share buybacks. You say that the share price is attractive. So are you then looking at buybacks? And could we expect a buyback program starting after tomorrow's AGM?

[Daniel Fitzgerald, executive]

I think buybacks are certainly one option in front of us to manage this disconnect. And we saw the bid [ Frosk 2 ] earlier this week, I think, which comes into a little bit on this. There's a huge gap between where public markets are valuing listed players and where strategic buyers are stepping into companies and assets. Leikanger is a perfect example where a strategic buyer is paying a significantly higher price than what is reflected in our share price. The same for EQT, where they picked up box to it around a 45%, 46% premium to market. So I think for us, we're working the Leikanger sale is really important for us. It gives us a big amount of firepower and is quite strategic. We will be asking at the AGM tomorrow for a mandate to repurchase 10% of the shares. And assuming we do that, we'll consider that option going forward. I think while we remain significantly undervalued, we have to look at the best way to deal with that. One is to get some value on the greenfield projects that we're investing in for people to understand the true long-term cash generation of this company, but share buybacks are absolutely a lever we are considering.

[Robert Eriksson, executive]

And considering the Leikanger sale, are you looking at selling more assets?

[Daniel Fitzgerald, executive]

Not at this stage. I think Leikanger was our only asset in Norway. It was a highly taxed asset. We didn't have anywhere near the same tax shields that we do in Norway. And if I look at 2024's revenues or free cash flow more than that from Leikanger it was around EUR 2.5 million. So this represents 20 years' worth of free cash flow from the assets. So for us, it's a stand-alone, it's a good deal. I don't think you should expect us to step into any more asset sales. We should be moving into the M&A and investments in our own portfolio.

[Robert Eriksson, executive]

And if you look at the acquisition opportunities, what kind of acquisition opportunities are you targeting? Are those in the Nordics, Europe, or elsewhere?

[Daniel Fitzgerald, executive]

I think Nordics primarily, we have looked at some in the remainder of Europe but focused on the Nordics, and we're active at any point in time, we're active on a range of opportunities. So you should expect us to continue to be stepping into that domain as we go forward.

[Robert Eriksson, executive]

And the follow-up question to that is, why haven't you already executed on more deals given your financial capacity?

[Daniel Fitzgerald, executive]

Yes, I think it's a fair question. In times of high volatility, it's difficult to get sellers and buyers to come to the table on a price that meets the needs of both. So as we've seen pricing come down into Q1, I think seller expectations are a little bit too high. As we see that stabilize a little bit more, which we have seen through Q1, I think there's more opportunity to step into that. On the flip side, we are now seeing a lot of opportunities in our Nordic development pipeline that are going to come towards us for investment. And so we need to ensure that we have the firepower to do both of those things with the Leikanger transaction completed. We have the ability, not only for share buybacks and investments in our own portfolio but also accretive M&A.

[Robert Eriksson, executive]

Thank you, Daniel. And a question comes here on short-term revenue growth, say, from now and the 3 years ahead, where is that revenue growth going to come from?

[Espen Hennie, executive]

Yes, thanks. A good question. I mean we have several avenues for revenue growth going forward. I mean, the first is the still progress and then potential divestments of our greenfield portfolio, which we're actively pursuing and working at. As we said at our CMD in February, we are aiming to be in a position to conclude our first divestments from that portfolio during next year at the latest. So that's definitely a big upside to our cash flow generation and revenues. And on top of that is, of course, the ongoing focus on inorganic growth, M&A, and bolt-on acquisitions where you should expect revenue growth, of course, on top of a potential increase in power prices, which will increase revenues from our 1 terawatt hour of power generation, which will stay at that level for many, many years. As I said, we have more than 20 years left of technical lifetime of our assets before we step into the lifetime extension and repowering.

[Robert Eriksson, executive]

Thank you, Espen. And we have a couple of questions around the share price basically focusing on what is the reason for the sharp share price drop that we have seen over the past year?

[Daniel Fitzgerald, executive]

Yes, I think it's up to our shareholders in the market to ultimately decide the value of the share. The whole renewable sector has seen headwinds from the summer of 2023, all the way through till today. So I think the whole market on renewables has dropped. A lot of the renewable players, if we look at the end of 2023, have reshaped their strategy and focused on profitability ahead of scale. And I think importantly, we are reiterating our strategy, again, that we're already focused on profitability accretive growth rather than scale and size where we let go of project returns.So I think we certainly are more than patient to ensure that we end up with the core of a company that's going to deliver value over the long term. The greenfield portfolio is growing nicely. And as Espen said, it's one of the triggers towards revenue growth over the next 12 months or so. And then the operating part of the business is continuing to perform. There's organic growth coming out of that. So in my mind, I expect things to step up in terms of share price over time. And if not, we have the ability to step in at officially and deal with that through share buybacks and other means.

[Robert Eriksson, executive]

And coming back to what we have discussed before here about the EQT bid on the offer for OX2. How do you view the price in this cash offer that was announced yesterday?

[Daniel Fitzgerald, executive]

Yes, I think it's a difficult one without having the inside knowledge of the transaction. It obviously makes a lot of sense for both OX2 and shareholders of OX2 and EQT shareholders. I think the key point that I take away from that transaction is there's a significant undervaluation on publicly listed renewable players today. And there are so many data points that are evidencing that, whether it's the sale of Leikanger, the Encavis bid by KKR, which was earlier in the year, the OX2 bid, all of these are coming in at significant premiums, and strategic players are seeing a lot more value than where public markets are putting value on these companies today. And so in my mind, I think we have to address that over time. Otherwise, we're going to see more and more consolidation and more and more of the private players coming in to take up or to extract some value out of the market where they can. So for me, difficult to know exactly what the price point is. It seems fair from both parties, but it demonstrates the true value undervaluation in public markets today.

[Robert Eriksson, executive]

And then we have a question on the Sweden legal case. For how long will Orrön Energy be paying the legal costs for the defense in this case? And for how long will the case be alive?

[Daniel Fitzgerald, executive]

So the district court will run until early 2026. We expect to predict in the summer of 2026. So in our guidance, we've guided EUR 8 million of this year. You should expect roughly the same level next year. And obviously, that has an impact on our financials while that goes on. In our minds and from the time we've spent in court following the case, the case is going extremely well. I think the defense teams have now finished all of their case presentations and there's absolutely no evidence linking the individuals or the suspects to any of the alleged crimes. And so today, more than ever, and not that we've ever been not ever had a different view of it, but today, more than ever, we expect full acquittal of the individuals and that will come in the fullness of time. So for the next 2 years, this year and next, we expect to have that impact on our financials because of the Sweden case, and we'll continue to guide on both the progress of the case and the cost impact for the company.

[Robert Eriksson, executive]

Thank you. And we have a longer question here. Can you talk a bit about the price dynamics on Leikanger? Ground rent taxes increased 8% since you first bought, which alongside interest rates probably had a negative impact on valuation. But at the same time, long-term power price forecasts have come up significantly. What were the major components here? And can you quantify the impact of the higher tax rate on valuation?

[Espen Hennie, executive]

Yes, as I mean, a fair comment and well-observed. I mean, of course, the increased ground rent tax had a significant impact on our valuation since we bought the asset. On the other hand, long-term power price expectations have come up also a lot, and although, of course, interest rates have increased since we first bought it, the typical buyers of these assets have normally a significantly lower cost of capital than we as a company currently have. So I think that was a very key driver for that transaction. Of course, it's the expectation of long-term power price but also the cost of capital. As we have said before, what we observed was that we could recycle that capital into other projects, which we see as highly accretive and compared to Leikanger and will yield a higher return for the company or shareholders over time. And hard to quantify all the moving parts and the exact result on valuation. But all in all, we are very, very pleased with that investment. I think it's a very good outcome very accretive divestment for us, which puts us in a position to pursue a lot of organic and inorganic growth opportunities and provides the company with a lot of financial headroom and resilience.

[Daniel Fitzgerald, executive]

And I think you'll see the true impact of that in the Q2 financials given that it closed in early May. So we will book a profit on the sale of Leikanger the value received was significantly in excess of the book value of the asset, and we'll see that coming through the Q2 financials when we release those in early August.

[Robert Eriksson, executive]

Thank you, both Espen and Daniel. And we have one final question here. What would be your guideline to becoming more profitable? Or when are you expecting to become more profitable?

[Daniel Fitzgerald, executive]

And I think maybe Espen, you can touch on the financials in terms of the consolidated level. But on a consolidated basis, as Espen touched on in his presentation, it's not truly reflective of the underlying cash generation of the company. Simply looking at the financials on a consolidated basis, I think the Sweden costs would have a significant impact on the financials and put us into a positive net profit for the consolidated level. As Espen showed in his slides on the proportionate level looking at the cash generation of the company, we're breaking even on OpEx at EUR 15, 16 megawatt hour. And then if we follow that all the way down to operating cash flow, including CapEx, et cetera, on a proportionate basis, we're generating positive free cash flow out of the assets. So I think we're investing in growth. We're building the core of a company that's going to deliver value over decades. And in the short term, as prices and other elements move, I think people should expect that to be a little bit volatile. Anything to add?

[Espen Hennie, executive]

No, I think that the observation here is that Q1 figures, if you look at the proportionate basis, adjust for legal costs, as Daniel mentioned, and also strip out, we had some unrealized non-cash FX items. If we strip that out together with the legal costs. We were profitable in Q1. So on that basis, we are already profitable at the price we saw during Q1. Again, I want to come back to the fact that you need to look at our portfolio with a plus 20-year lifetime compared to 2 years of legal costs. So of course, that will make a big, big difference to the company and the financials. And then as Daniel said, operating cost, EUR 15 to EUR 16 per megawatt hour and just slightly north of EUR 20 per megawatt hour EBITDA breakeven when those legal costs are behind us.

[Robert Eriksson, executive]

Thank you, Espen and Daniel, and that actually concludes the Q&A session.

[Daniel Fitzgerald, executive]

Thank you very much, and have a good afternoon.