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

[Audio Gap] to the Arise Q1 Report 2025. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Per-Erik Eriksson; and CFO, Markus Larsson. Please go ahead.

Thank you very much. I will start with a brief introduction of the company. Slide 3. Thank you. Arise was founded in 2007, the first company in the sector in Sweden to be listed on Nasdaq in 2010. And we are nowadays some 76 employees in 6 different countries. We have 3 business segments, starting with IPP part of production. Currently, we have 172 megawatts installed corresponding to some 430 gigawatt hours per year annual production, budgeted production, I could say. We also have the Development segment. Currently, we are at 9,000 megawatts in our project pipeline. We have since inception divested some [ 16, 20 ] megawatts, adding some 125 to this during the quarter with the transaction of the BESS in Finland. And the third leg is our, what we call solutions, our services business, asset management and also construction management. Currently, we have some 2,000 megawatts under asset management, and we have under construction management some 380 megawatts. With that, I leave the word to Markus.

Thank you, Per-Erik. Yes, Q1 2025 was affected by FX to quite some extent. I will come back to that within short. Our reported net sales amounted to SEK 85 million for the quarter. EBITDA came in at SEK 24 million, EBIT at SEK 2 million. Profit after tax totaled negative SEK 19 million, but adjusting for our refinancing one-offs of minus SEK 19 million, profit after tax totaled 0 or SEK 0.07 per share. Our operating cash flow was SEK 26 million and cash flow after investments amounted to minus SEK 10 million. Own production generated 91 gigawatt hours, pretty much in line with the same period last year. The average income decreased to SEK 555 per megawatt hour. And during the quarter, the project portfolio increased by almost 150 megawatts. Illustrating some FX and one-offs effects on this slide, as we have our revenue from earn-outs recognized in euro, a weaker euro impacts the revenue within the Development segment. In the first quarter, this corresponded to approximately minus SEK 18 million, hitting net sales, EBITDA and trickling down to profit before tax as well. The weaker euro obviously had the opposite effect within our net financials, where we instead had a positive effect of SEK 11 million. In connection with the refinancing and redemption of the outstanding bonds in January and as we communicated at that time, we took one-off costs of approximately minus SEK 19 million in the quarter. So the total impact of the above, these items amounted to an EBITDA effect of minus SEK 18 million and an effect on profit before tax of minus SEK 26 million, which is worth keeping in mind. So if we look briefly into our segments, Development posted negative EBITDA of SEK 5 million during the quarter, primarily then explained by the FX effects I just discussed. Happily, we signed an agreement for the first Finnish project sale in March, the battery project that Per-Erik mentioned. The earnings effect will come in the second quarter. Overall, continued maturation of projects across all markets. Within our own production, we posted an EBITDA of SEK 35 million. January and March saw a decent wind speed, but February was kind of horrible and burdened the full quarter. Realized price decreased to SEK 555 megawatt hours, but still on a historically good level. During Q1, we also entered into our first hedge positions. We hedged roughly 9 gigawatt hours each for Q4 2025 at EUR 61 per megawatt hour and Q1 2026 at EUR 72. Our Solutions business posted SEK 0 in EBITDA and that's due to the fact that the construction management agreement for [ Kolvallen ] has been fully invoiced, which implied a revenue drop by approximately SEK 2 million for the quarter. There will be no further revenue under the construction management agreement, but instead, the operations management agreement will kick in at the commercial takeover, which we expect in the first half of the year. Looking into our portfolio a bit in -- as I mentioned, it increased by some 150 megawatts. In Finland during the quarter, obviously, focus on the sale of Pysayspera, but also maturing other projects, not least other BESS projects. We saw good progress in the U.K. We expect projects to enter into planning during the year and we now also see opportunities for a first portfolio sale in the latter part of this year. Finnaberget still waiting for line concession. We expect that -- to have that in place in late 2025 and also to initiate the transaction process in late 2025. We have now also initiated the development operation in the German market with a sole focus on BESS projects where we have the aim to get projects to ready to build already in 2026. So all in all, satisfactory development of the project portfolio. That I'll take a breath and hand back over to you, Per-Erik.

Thank you. Looking at the power markets. In general, I could say that we had quite soft power markets during the quarter in the Nordics, very much influenced by a strong hydrological surplus entering into the year in the Nordics. If we start with the spot prices, you can see the graph to the upper left. We had a quite mixed and volatile spot price environment. Cold and dry February shifted into wet and very mild March. We still see low demand and very low prices in the north and healthier pricing in the south. Should also mention that we had a very turbulent balancing market during March. If you look on the graph, you can see the orange line, which is SE4 and the blue line, which is the system price. You can see prices peaking in February and then losing and weakening during March and peaking in SE4 around EUR 90 per megawatt hour and losing down to some EUR 50 currently. So quite a big drop during the quarter on spot prices. Looking on forward prices to the bottom left, calendar year '26. Here, you can see in the bottom, the blue line is system price, the orange one SE4 here as well. And the green line is the German forward prices. And you can see it's a quite big gap between them. Nordic prices very much impacted by a strong supply and continuing low demand, but a bit different story when it comes to the German prices, low demand as well in Germany, but also very much impacted by weakening fuel prices, gas prices as winter risk dissipate. Important to notice the gap between Nordics and Germany. Even though markets are soft, there is a big gap. And if we have a hot and dry summer, it can make a big difference in Nordics coming closer to Germany, but that remains to be seen. With that, we change slide again. Our agenda for this year, we are very much focused to deliver on our financial targets. The shorter term one is to have sales of some 400 megawatts in total '24 and '25. With the Pysayspera transaction, we reached some 165 megawatts. So we are below 50% of the target, but we are still optimistic that we will be able to manage that target. In the more long-term target, we have a target of 10 gigawatt or 10,000 megawatts in the total project pipeline by end of '25. We are currently, as Markus shown, some 9,000 megawatts in the project portfolio. So we are quite close to that target, I would say. One other main target for us this year is to achieve commercial takeover of Kolvallen, which we expect to do during first half or second quarter this year. And we are continuing our efforts to maturing early-stage projects into late stage to realize our long-term target of having some 500 megawatts project sales or FID per year, the years '26 until 2028. And that is obviously ongoing as we're not there yet. And with that, we change slide again, a bit deep-diving into the first project sale in Finland. I think that we are really happy to be able to deliver on our strategy. One is, of course, to diversify in terms of technology. This is the second one we are doing on BESS, but also to diversify in terms of geographies, our first transaction in Finland. So we are very happy about that. A quite big-size BESS project, some 125 megawatts, which we sold to Alpiq. As we understand, it's the largest BESS project sold in the Nordics so far. Purchase price of EUR 6.7 million to be paid on closing and we expect to have closing very soon this quarter. Following price shown and in the end of '24, I think -- we think that this further illustrates the results from our diversification efforts and some kind of evidence that this model works for us. Should also mention that the BESS projects are quite much different to developing wind and also solar. We can do it with a very low capital spend. Of course, it requires competence, but not much capital. And we actually -- as we did for [indiscernible] and we also had a quite quick process for Pysayspera around 1 year from start to sales. And looking at the IRR, it's quite impressive numbers we are looking at here where we are talking about the 4-digit IRR percentage. We are quite confident that we are able to do more transactions on BESS and we are well positioned to do further transactions already this year. Short-term outlook, as we all experience, there are a lot of geopolitical turbulence globally. And as we see it, this is another driver for what we do, distributed power production, security of supply or you could say national security as having distributed power production, it's less sensitive for attacks in a war situation. And as we see, this should increase the attractiveness, not just for Arise, for the whole sector in reality. Looking a bit more on Arise, we are aiming for at least 2 more transactions this year. The successful diversification has provided us with a number of transaction opportunities. We have not just 1 or 2 alternatives here. We have a number of alternatives in different regions, which makes life a bit easier for us. We have experienced quite and we are currently in quite soft power markets, but we should keep in mind that power markets are really sensitive, weather-driven with high volatility. We have so far been quite successful in doing price hedges when there are opportunities in the market and we are still -- we are active in monitoring the market on a daily basis and we will -- if we see opportunities, we will do some further price hedges short-term during the year as well. And as said earlier, we see a quite big price gap, Continental Europe. And if we see some different weather conditions, hot and dry, we will see -- most likely see a market change north again. With that said, I think we are through the presentation and leave the floor open for questions.

[Operator Instructions] The next question comes from Kaleb Solomon from SEB.

Just a few questions from my side. In the report, you said FX had a negative impact of roughly SEK 18 million. Can you quantify how much of that was kind of due to negative effect on the electricity prices and the revenue recognized this specific quarter in Development versus the kind of negative revaluation of Development and construction projects you have on your balance sheet?

Thank you. The SEK 18 million mentioned in the report is kind of carved out only for the contract assets or for the revenue recognition. So that's the major FX effect in the quarter, which we wanted to illustrate. And that's due to the all the earn-outs being recognized in revenue. So there is a revaluation also for the kind of historical revenues that has been recognized. So SEK 18 million is on the contract assets alone.

Okay. That's clear. And last quarter, you secured hedges for Q4 this year and Q1 next year. But since then hydro balances have come up a lot. So can you say anything about how the kind of pricing of those baseload contracts has moved since then and if you were able to secure any new ones during Q1?

Yes. I would say that in the -- let's say, if you go back just a few weeks, we have been a bit sideways in short-term prices. We are -- as said, we are monitoring the market closely. And if we will see which we probably will see some dry weather and hot weather during the summer, then it can change. I mean, it can change in a 2 weeks' time to be totally different. And we are basically waiting for those peaks to happen and then we are ready to strike, as simple as that. So we are focusing on short-term market as it is right now. Looking at our targets, I would say that the closest ones are in Q1 '26 as it is right now. '25 prices doesn't look super good in the short-term. So we expect perhaps more and more during Q4, Q1 and perhaps to stay open during summer. We'll see. But that's where we are right now.

And just a follow-up, should I interpret that as they have moved sideways since last quarter or they're slightly down from I think it was EUR 70?

No. Sorry. From last quarter, it's down. I was in a much shorter perspective than you, Kaleb. So from last quarter, it's definitely down. And as you can see in the previous slide that we had in SE4, we had prices in February around EUR 90 per megawatt hour dropped down to EUR 50. So it's quite a big drop there. But I will -- in my world, I was just the closest weeks. But looking back a quarter, definitely lower, yes.

Okay. That's clear. And in Q4, you also said that SEK 1 million per megawatt should be considered as sort of a blended average for the projects you sell. And I get that this differs depending on what technology and stage you sell the project at. But considering that the last projects or the one you're expecting to close in Q2 was just below SEK 0.6 million per megawatt, does that imply that we should expect some of the projects this year to be more tilted towards technologies with higher selling prices like ready-to-build wind? Or should we kind of expect the average price to be lower than SEK 1 million per megawatt this year?

I would say then that is a quite rough -- the SEK 1 million is a quite rough blend of different technologies, different geographies and different timing as well. So it's really a rough number. I would say that if we do more BESS transactions this year in Finland, we will be in the same neighborhood as you can see for Pysayspera. If we would do wind in some other geography, it would be -- we expect the DP to be higher. So it's really a bit of a moving target there. But obviously, we have a bit soft markets. So I would say that the DPs this year will not be a record level.

Okay. That's clear. And has the recent kind of global turmoil at all impacted your clients' willingness to invest in new projects in the sense that you're more hesitant? And are you as confident in your volume targets today as you were one quarter ago?

Yes. I mean, we haven't changed our mind when it comes to what we aim for this year and what the expectations for this year. Obviously, the geopolitical turmoil have impact on all markets and also especially on financial markets. But as we see it, what we do should really -- it really strengthen our business case, I would say, what's happening in the world, as said before that, I mean, security of supply with the distributed power production is better in more situations. I think all in all, it strengthen our business case, the turmoil we see.

Okay. And just one last kind of housekeeping question. I just noticed you said you're expecting to sell 2 projects this year. And I think that's the first time I've heard in a while you actually specify how many projects. So why is that? And can you expand on what projects that is? And you also mentioned you're expecting Finnaberget to initiate sales process late 2025. Do you also expect to close it 2025? And is that one of the projects you're referring to? Or is that more a '26 thing?

I think I said -- I didn't say 2. I said at least 2. And we are actually -- we have more opportunities. I think we also said that the diversification has been successful for us. And we expect to do more in Finland. We expect to do something in the U.K. as well during the year. With that said, we don't exclude the possibility that we will do something in Sweden as well. So we are looking at a number of opportunities, alternatives in parallel right now. Coming back to Finnaberget, it's possible, but unlikely that we will close that one this year.

The next question comes from Hanna Grimborg from Handelsbanken.

Hanna here. So I have 2 questions. So the first one is when it comes to reaching your financial target of selling 400 megawatts, do you feel as confident in reaching this now as you did last year? Or do you think that the uncertainty has increased? So that's the first one. And the second question is just in the Production division, how have the capture rates developed during the quarter? And how do you think that, that will develop now going forward?

Okay. Should I make an attempt, Markus, or...

I can take the first one. The financial targets, I mean, yes, we are as confident and as confident as you can be in the Development business, right? So we are confident that we're having the -- we're having a number of balls to play so that we will be able to reach the financial targets. But on the other hand, it's a development business. There's always inherent risk in that. But in that sense, nothing has changed from the last quarters, not least since we signed the Pysayspera in the quarter. Capture rates going forward, very difficult to say. I don't know if you have some flavor on that, Per-Erik.

What we have seen so far is lower power prices has also been higher capture rates and most likely that will continue. So we had some improvements in capture rates, I would say, recently. But on the other hand, power price has been lower as well. So it tends to be connected to each other. Like for instance, we had super high capture rebate discounts during '22 at super high prices. But in the end of the day, we had -- even though high capture discounts, we had high revenues. I should also say back to the first question on the portfolio and expectations and that we have been expecting from first -- when we set the target that it would be a backloaded one. So I think we are progressing as we had hoped.

The next question comes from Mattias Ehrenborg from Redeye.

Mattias here from Redeye. Just wanted to start off by asking regarding the Finnaberget project. You touched upon it already in your presentation and earlier in the Q&A session here. But in the last report, you mentioned that you aim to divest the project in 2025. It now says that you hope to initiate the sales process here in 2025. What has happened since the last quarter, I mean, in terms of progression? Is it still a line concession that is a bit uncertain in terms of timing or what's the status?

Yes. It's a waiting process really. And of course, we have the hope that authorities could be quicker to handle this quite simple permitting processes, but it takes time, unfortunately. Of course, there are matters of resources, et cetera, the authorities, but nothing really happened other than we are just waiting and we have no news on that really. So it's more about what we expect.

Okay. And in terms of the capacity, it's still uncertain what the final capacity is going to be and if it's going to be divided into 2 phases or what's the status there?

Yes. I would say that is pretty clear now that it will be a step 1 and 2 in total, 200 megawatts in 2 steps, starting with 100 megawatts. So that's the information we have received from the TSO.

And regarding Kolvallen, what remaining effects in the P&L and the cash flow can investors expect?

We expect to have the COD in Q2. So as of now we're continuing for the time being, the revenue recognition at the same pace. But as we come closer to the COD, that might change. As you've seen with, for instance, [indiscernible] and Twin Peaks, we also had some buffer in the end to cater for the final settlement and the final agreement on the earn-out payment. So that's on the P&L side. And then obviously, we expect the COD payment to be paid shortly after.

Okay. Perfect. Just a final question regarding the Development segment. How would you describe the current state of the transaction market? And are there any trends worth highlighting in terms of customer risk appetite or pricing and lead times and so on?

Yes, it's difficult to say really. Obviously, the geopolitical turmoil and also financial turmoil in financial markets has some impact. And of course, you can see some -- you might see some more risk in the markets. But I think to us, we don't see any clear signals that there is less appetite. And for instance, we have seen a few transactions now in Finland quite recently. So we see there is capital still in the market to deploy. So we don't see an immediate difference, I would say. Obviously, we had quite soft power markets in the Nordics for a short time now. Will that continue, it might have some impact, but this is -- we are used to this as well being in the Nordic market that things happen fast, up and down. So we are not that stressed actually. I think we are quite confident that we will be able to do what we're aiming for this year.

Okay. If we move over to the Production segment, just I mean, going -- or by the end of this quarter, I had a look at the total wind production in SE3 and SE4 and each region was down 20% quarter-on-quarter. Despite this, your production only declined 6%. Are you able to provide any color to these numbers? Because from my point of view, this difference seems bigger than before, which is in your favor in this situation.

That's a trickier one. You mean that we have been hit less than competitors. Is that what you say or...

Yes, exactly. Or -- yes, exactly. I had a look at the total production for the end market in general in SE3 and SE4, yes.

Yes. I mean, it could vary between different wind locations, obviously. And then there are also -- it could be also that there have been issues with availability, et cetera. Obviously, we are not super happy with the production we had last quarter, but it could be so that competitors have a worse situation. But here we are. I haven't seen that comparison actually.

Okay. And another question regarding the OpEx per megawatt in the Production segment. It amounted to SEK 176 per megawatt relative to SEK 110 in Q1 '24. Could you just provide some color on the reason for this increase?

Yes. This quarter, I would say that mostly explained by the lower production since we have [indiscernible] in this quarter, which we did not have in 2024. So I think ballpark, if we would have produced according to budget, you would have like between SEK 40 and SEK 50 maybe per megawatt hours lower OpEx per megawatt hour. So it's mostly production-driven.

Okay. Okay. That makes sense. The final question from my side regarding the CapEx in the quarter amounted to SEK 36 million. What's included in this figure this quarter? Is it related to a grid concession or what does it look like?

Yes. No, it's not related to any grid investment. It is related to the grid in -- towards Fasikan. And this -- the kind of short summary is that what we do is that we build and we own the grid and then we sell the right to use to Fasikan. So that gives rise to an accrued income which Fasikan paid for and an asset in Elnat. So that's the top-up, so to speak, in the CapEx you see in the cash flow statement. That was roughly SEK 13 million in the quarter. But important to understand is that all this is net cash 0, net EBITDA is 0, but we get an asset within Arise Elnat. So we own the asset and that's why it pops up in the investment line item in the cash flow.

There are no more questions at this time. So I hand the conference back to the speakers for written questions and closing comments.

Okay. I will do some closing comments then. First quarter finalized, we are happy to conclude that our strategy start to show results. Extremely happy to see the great performance we have in the Finnish organization I should say as well. We expect to continue realizing value from our project portfolio during the year to do more sales transactions, as already mentioned. On top of that, we have lower financing costs due to a successful refinancing of the company. And we also see some potential upside in our own production during the year. So all in all, we are quite optimistic and expect that 2025 will be another good year for Arise. So thank you very much for attending and listening. Have a good day.