Arise AB (publ) (A4W.F) Earnings Call Transcript & Summary

This call is being recorded. Welcome to Arise Q2 Report 2023. [Operator Instructions] Now I will hand the conference over to CEO, Per-Erik Eriksson; and CFO, Markus Larsson. Please go ahead.

Thank you very much. And again, welcome to our second quarter and half year report. I will do a presentation -- a brief presentation on the company, Markus will take us through the numbers and in the end, we will do a summary on strategy moving forward. Starting with the company, Slide #3. Arise was founded in 2007 and listed on NASDAQ 2010. We are today around 50 employees. We have 3 business segments. The first sign of production, which basically was the scoping point for Arise, I50. We have 139 megawatts own production and an annual budgeted production of some 340 gigawatt hours per year. We also have the Development business, a growing pipeline today at about 5.7 gigawatts or 5,700 megawatts, a growing portfolio, and we will come back to that later on. We have, since 10 years, when we started the development business, divested some 1.3 gigawatts during this period. We have a third leg in our business segments, which we call Solutions, basically our services business where we provide asset management services, financial management and technical management. Basically, we provide a complete owner's sanction to our investors. And on top of that, we do the construction management. So we take responsibility for the whole supply chain from development, construction to asset management. We have under management today some 1,800 megawatts. We have also under construction 550 megawatts about, and then we should -- I should mention also that we have been taking over now Skaftåsen project, 231 megawatts during the quarter. So that has decreased a bit. With that said, I'll leave the word to Markus.

Thanks, Per-Erik. Yes, Q2 was another very strong quarter for the company. Net sales for the quarter more than doubled compared to the same quarter last year to SEK 110 million. Mainly, this was driven by revenue recognition in our Development segment, but also from record high realized prices in our own Production. EBITDA came in at SEK 69 million and the EBIT at SEK 53 million, both representing a significant increase compared to the same quarter last year. If we look at net income, it totaled SEK 36 million as compared to negative SEK 6 million and this corresponded to SEK 0.85. Operating cash flow was SEK 60 million, more or less in line with the same quarter last year. And cash flow after investments amounted to a negative SEK 167 million, and that's obviously explained by the acquisition of Pohjan Voima as well as investments in the Lebo project. Our own production generated 54 gigawatt hours below Q2 2022 and also well below budget. But the average income, on the other hand, was SEK 947 per megawatt hours. Furthermore, during the quarter, we completed the acquisition of 51% of the shares in Pohjan Voima. So if we look into our segments briefly in Q2, development showed very strong EBITDA during the quarter. And this is due to revenue recognition, not only for Kölvallen, but also for Skaftåsen, which Per-Erik mentioned was taken over. For the quarter, we recognized EUR 2 million for Skaftåsen alone, and we expect the final settlement of that are now to occur in the third quarter this year. During the quarter, the portfolio also grew by 200 megawatts in the Development segment. Our own production posted EBITDA of SEK 36 million despite the much weaker winds than normal, as mentioned in the previous slide, the realized price was actually at a new all-time high level, and this is very much driven by strong contribution from our hedges. The Solutions segment is clearly developing in the right direction and starting to see some benefits from economies of scale and some efficiency improvements, and I expect to see it generate some profits in the coming quarters. Our project pipeline has now grown to 5.7 gigawatts. During Q2, our late-stage development grew somewhat, and that's due to the fact that the conditions for grid connection in the Finnåberget project has improved. So that project is now at 200 megawatts. Also some growth in the early-stage development seen in wind project in Sweden and Finland. And we also added a new battery project in Sweden during the quarter. So all in all, I would say, we're pleased with the growth, which we expect to continue in the coming quarters as well. Looking at our -- the prices, the market prices on the left-hand side on this slide, you can see that our realized prices in Q2 was not only at the record level, but actually well above what are the market prices. And again, due to the contribution from the hedges, but also in combination with less volatile prices in the market. So kind of the pattern that we saw in Q1 more or less remained in Q2. Our own production, not much more to say about that, affected by extremely weak winds in the quarter with only 54 gigawatt hours in Q2, which again then was -- that was kind of offset by hedges. So if we look into the hedge portfolio on the bottom right-hand side, during the quarter, we added some volumes in Q4 2023 as well as calendar year in 2024 at what we deem as attractive levels and we continue to look to and add volumes if we find attractive price levels. On that, I'll hand back over to you, Per-Erik.

Thank you, Markus. Yes, some market developments in the power markets starting with the forward markets on power. As you can see, both on left the calendar year '24, you can see the curves for system prices and also spot prices. And basically, we had prices moving sideways during the quarter. We had an energy supply situation, which is quite comfortable on continuing low demand. It's -- we can conclude that the pricing is really rather dependent, and we expect that to continue. We still see fuel prices on a relatively high level, natural gas and mainly unchanged over the quarter. Looking at spot prices, very much a weather game as well, very much weather driven. You can see to the upper left, the spot prices development. We had a very strong inflow during the snow mounting period with hydropower, which pushed prices lower during May and early June. We also -- especially during June, we saw a lot of EU solar generation had a quite a big impact on the Nordic prices, very much from the Netherlands actually. We have also seen that Olkiluoto 3 now is in commercial operations, which have been lowering the exports of Finland. Looking into Continental Europe quite stable prices on healthy supply. We can see that gas storage levels are on a quite high level. We have seen LNG liquefied natural gas deliveries into Europe being on a lower level due to weak demand. Spot prices, mostly around EUR 100 per megawatt hour on working days, but to sum up all in all, at the moment, strong supply versus demand, but a very sensitive system in terms of the weather dependence, which means that if we enter into, for instance, a cold winter, it will change quite rapidly. With that said, I changed slide. Our strategy going forward, the keywords for us is profitable growth in all business segments. We are going to use the strong financial position we have within the company. And of course, we have been in the market for a while, so we have a developed platform to use that for growth. We can see only organic growth in the project -- organic growth in the project portfolio as well as we are looking into evaluating acquisitions of project portfolios as we did in Finland, for instance, could be companies, but also production assets. Core markets, Nordic countries and the U.K., but we are also looking into business opportunities in other large markets, like, for instance, Poland. So we are continuously evaluating different opportunities in other markets as well. If we move -- looking at 2023, we will continue to have focus to grow the product portfolio. Sweden, obviously, wind, solar, batteries; and same in the U.K., where we have strengthened the team in the U.K. recently; and in Finland through Pohjan Voima, we have mainly big focus on wind, but also there are solar opportunities in that portfolio as well should be mentioned. We have a focus to achieve ready-to-build for Fasikan as well as solar and battery projects in Sweden. We will continue to evaluate acquisition opportunities as said, could be project portfolios or production assets. And obviously, we have a quite strong focus also to manage our construction projects towards completion. Some concluding remarks. As said, we had a very strong quarter and a very good first half year for the company. We had a strong contribution from our hedging activities, which is very satisfactory, I would say. And this underlines that we have a quite solid business model, combining on production and product development. We have high expectations for second half as well. Production is expected to continue delivering results, I would say, on the same level as we see in the first half. We expect to do at least 1 sales transaction. We also expect to have continue the growth of our portfolio. And we will have a commissioning of Lebo planned during Q4 starting to produce power in reality and commercial takeover in the first quarter 2024. With that, I think we are through the presentation and leave the floor for questions.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you for listening. As said, we are extremely pleased with the first half of 2023. We certainly expect to have a good year all-in-all. Now we are going to have some holidays here. So I hope you all will have a good summer. Thank you very much.