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

Welcome to Arise Q3 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. Then let's start with Slide #3 a short introduction of the company Arise. Founded in 2007, listed on NASDAQ in 2010. Currently, we are 57 employees, including Pohjan Voima, which was an acquisition made in the March-April this year. We have 3 business segments. So start with production, which you could say is the original Arise. We have some 139 megawatts own production corresponding to some 340 gigawatt hours in annual production. The second segment is development business. We have currently a project pipeline of 6,800 megawatts, and we have divested since inception 1,450 megawatts. The third leg in the business segment is the services business, which we call Solutions. Today, we have some 200 megawatts (sic) 2000 megawatts under management and under construction, some 650 megawatts. I could also mention that we have closed to take over Ranasjöhöjden 242 megawatts and Lebo, which we build in on book 33 megawatts. With that, I hand over to Markus.

Thank you, Per-Erik. Yes, happy to see another strong quarter in our view. We have some -- the quarter, the year-on-year is quite tough comps due to the sale of [ Svartnäs ] the same period last year. We posted net sales for this quarter of SEK 96 million. EBITDA came in at SEK 59 million. EBIT at SEK 43 million. Profit after tax totaled a solid SEK 35 million with a corresponding earnings per share of SEK 0.84. The operating cash flow was negative SEK 47 million, and that's due to the fact that we made a prepayment of SEK 140 million related to the thermal supply agreement for the project, Fasikan. This amount has not been reimbursed in October 2023, so we will see the kind of corresponding working capital release in Q4. Investments amounted to SEK 183 million, and that's in all material aspects driven by Lebo, which is the project that Per-Erik mentioned. We also drew down new loans for Lebo project of SEK 149 million. I'll get back to the production in a bit, about 60 gigawatt hours compared to 52. An average income of SEK 718 per megawatt. With Skaftåsen, settled earn-out during the quarter at EUR 6.4 million, of which EUR 2.5 million was recognized in Q3. Some announcements after the period, which you probably already have seen, then we sold Fasikan to SCA in October 23, was a ready-to-build transaction structure with a total purchase price of SEK 125 million. This includes an earn-out component, which is dependent then upon the actual construction cost and how that relates to the budget. And you can say that the proportion of the earn-out is more or less in line with previous transactions. We also signed a partnership agreement with SCA, where we will cooperate developing 6 identified land areas. Total potential is about 1,000 megawatts, we have included them as early-stage projects in our portfolio, which I'll get back to in a moment. And once these projects reach ready to build, we will have an ownership of 49%. So that's a partnership we're very happy about, of course. Yesterday, we announced that the Board of Directors have decided to repurchase our own shares up to a maximum amount of SEK 100 million. Briefly then on our segments. On the -- within development, I mentioned the Skaftåsen revenue recognition, which positively affected EBITDA during the quarter. We grew the portfolio isolated during the quarter of 160 megawatts, which then is excluding the SCA partnership. So total pipeline now 6.8 gigawatts. Within production, somewhat weaker winds than normal, still higher than the same period last year. We realized the price, as I mentioned, of SEK 718 per megawatt hour, which was well above market average and positively impacted by our hedges. We updated our impairment test now in Q3 of our production assets, which indicated a value in use exceeding the carrying amount by some EUR 60 million. Also happy to see our Solutions business contributing positively now in the quarter. And total assets under management there is 2,000 megawatts. We have a growing pipeline of 6,800 megawatts, which now also includes the SCA partnership, as I mentioned. There is no movements really in the late stage during the quarter, but we saw growth in early stage. Except for SCA, that growth is particularly within solar, and that also has naturally lower lead times than wind, for instance. All in all, very good progress in the portfolio at the moment. If we look at market prices on the left-hand side, you could see that in Q3 2023, the average market price was north of SEK 400 per megawatt hour. We have a realized price that for the second quarter in a row, is well above the market price, again, mentioning our hedges as a contributing factor, if we look at year-to-date, I'll say we're close to 900 in realized price in January to September. This obviously has a strong impact on our EBITDA in production. On the top right-hand side, we now can see that we have an LTM EBITDA of more than SEK 180 million, which we have been proud about, of course. In terms of hedging portfolio, during the quarter, we saw no movement or additions in the hedging portfolio. This is something that we continue to monitor and are prepared to act if we will see that the winter will have positive impact on the price levels. With that, I'll hand back over to you for Per-Erik.

Thank you, Markus. On Slide #9, we can see a brief summary on the market development in the Nordic power market. But on left, we can see the forward curve calendar year '24. And the power market, as you can see, has been pricing lower and the reason for that has mainly been driven by the fact that we have an extremely wet summer period, which leads to a strong hydrological situation. Basically, a strong supply versus a low demand situation. On the other hand, we can still see quite high fuel prices in Continental Europe. And it's a quite huge price differential between the Nordic area and the Europe price levels at the moment. Looking at spot prices, it's a bit the same story. We can see spot prices under pressure from a strong hydrology. We have seen during the quarter, sometimes negative spot prices during the summer period. Demand is quite slow still and we also have seen due to the high volatility in the market that we had very low capture rates for wind power during August, September period. Looking into Continental Europe, power prices felt quite stable on a healthy supply situation. We are moving to the wind with high gas storage levels. Gas market is very sensitive due to -- for potential supply disruptions, a very sensitive market. We also see low demand in Continental Europe. Spot prices mostly around EUR 100 per megawatt hours on working days, so still quite high levels looking in a historic perspective. But all in all, we have a very strong supply situation versus demand, but it's a really sensitive system. If you have a change of weather conditions, cold weather might change the situation rapidly. With that said, I think we flip slide to #10. Our focus areas this year for the last quarter, we have a very strong focus to continue to grow the project portfolio in all our core markets: Sweden, U.K., and Finland, and that goes for all technologies, wind, solar and battery storage. We have a target to achieve ready-to-build status for solar and battery projects in Sweden. We are continuously evaluating acquisition opportunities. And of course, we have a strong focus also to manage the ongoing construction projects towards completions. And as I said earlier, we have 2 projects close to take over now with Ranasjöhöjden and Lebo. I think we flip little forward down to #11. As already communicated in our Capital Markets Day, our financial targets, our growth targets, meaning that we have a target to reach more than 10,000 megawatts by end of '25 in the project portfolio. In short term, '24-'25, we have our target to divest more than 400 megawatts in total, '24, '25. And in 2026 until '28, we have a target to have a turnover of in average 500 megawatts per year during that period. We expect to have a continued good cash flow, EBITDA margin for our production, more than 60%. We will continue to be disciplined when it comes to capital and have an equity ratio of above 30%. And we have an ambition to be a dividend case for the future. More than 20% of net profit for dividends every year. Some concluding remarks. As I said earlier, we think we had a very strong quarter and a strong first 9 months of the year. Strong contribution from our hedging activities. I think we have a record level, actually, in Q3, we had SEK 718 per megawatt hour in Q3. And year-to-date, we have almost SEK 900 per mega megawatt hour, which is a really good result. And I think also that our result underlines that we have a solid business model combining our production and project development and I think also that Skaftåsen and Fasikan projects highlights a successful development business. We just introduced a buyback program, combined with the growth strategy. We think, it's an evidence of strength in the company and also that we have confidence in what we are doing. We have high expectations for this year. We expect that production will continue to deliver strong results. We continue to have a portfolio growth and also to be mentioned that we are in process to commission Lebo during Q4, and we have a formal commercial takeover in Q1 '24.

And then just chipping in on Lebo noting a few questions in the chat function. The remaining CapEx in Lebo is, give or take, SEK 100 million and the debt sizing. If we talk about the general rule of thumb, at the moment, of CapEx of EUR 1.2 million, EUR 1.3 million per megawatt. I think that goes both for Lebo as well, and we will utilize the full debt of roughly 60%. And speaking of the buyback program, Per-Erik, worth mentioning that this will not -- does not interfere with our growth ambitions in any way. And once you keep in mind that even after the Capital Markets Day, we've received the full payment from the Skaftåsen and also Fasikan, so unchanged growth targets and that's the state. Okay. With that, I think we'll leave the floor for questions, right?

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

Yes, I think let's address one of the questions in the chat which were quite a few. I think we've answered some of them. One of the questions is, if we could shed some light on the time lines of Finnåberget, Tormsdale and late-stage projects in Finland.

Yes, I can take that one. Yes, the fact that we have the late-stage projects, it means that we expect to have them ready to build within 2 to 3 years. And I think when it comes to Finnåberget, Tormsdale and that's really [ tricky ] to believe. When it comes to Finland, we have a few projects there as well in the same stage basically. So yes, we expect to have projects ready to build in that time period.

And another question from Green Investment Partners about the current cash balance and how we see that in the next 12 months. The cash balance was [ SEK 830 million ] by Q3. And I wouldn't comment more about any kind of liquidity forecast for the next 12 months. But bearing in mind what we mentioned about at least for the TSA prepayment in which were received in Q4 as well as the Fasikan transaction in Q4 as well. Yes, maybe if you would like to comment something about the collaboration with the SCA? And question is basically if it have capitalized as it looks or if there are any capital commitments?

No, no, that's very capital-light. It's only a normal development cost and a lot of that work will be done with the in-house resources, might be that we will use some consultants do some inventories, et cetera, during initially, but those costs will be shared pro rata between the parties, so it will be a very capital-light process to start with.

And with that, I think we're mostly through. Yes, I think if there are no more questions that we close the broadcast.