Cloudberry Clean Energy ASA (CLOUD) Earnings Call Transcript & Summary

Hi, everyone, and welcome to Cloudberry Clean Energy's Second Quarter Presentation. My name is Anders Lenborg. I'm the CEO of Cloudberry. And today, I'm joined by our CFO, Ole-Kristofer Bragnes. We have, as always, prepared a presentation for you that we will go through over the next 20 or so minutes. And please also use the Q&A button to send us questions, and we will try to answer as many of them as possible after the presentation. All in all, we are going to be on for the next 30 or so minutes. So the agenda, we have this quarter agenda that also includes the Orron transaction. So after going through some of the highlights, we will dive into the transaction in more detail, and Ole-Kristofer Bragnes will take us through the numbers, and we will finish off with some comments on the power price and market. Yes. Let's start out with the highlights. And before we go through the numbers, let me just say that these numbers do not include the Orron transaction, except for the installed capacity down on the right-hand side, where we have included the megawatts that will be added from the transaction. The rest of these numbers are purely Cloudberry numbers. And we have had a very strong second quarter. We had a strong first quarter. Second quarter, usually a bit softer, but we have had a strong quarter now with high realized power price of NOK 0.85 and EBITDA almost doubling the EBITDA from same quarter last year to just above NOK 100 million. It's based on the higher power price, but also we have added approximately 20 GWh of new production to the portfolio over the last year, as you can see here on the right-hand side on added capacity. In addition to that, as mentioned, we have had a large transaction, a game changer for Cloudberry that we will talk more about later in the presentation with the acquisition of about 750 GWh of Orron Nordic wind portfolio. And in addition to that, we have also made some improvements on the BESS side, putting the Dingelsundet BESS project into production and in operation in July and at time and below cost. And we are already looking at second phase and enlarging that battery over the next half year. And we have also acquired a new battery storage project in Sweden of 20 megawatts and applied for new BESS projects in connection with our wind assets in Sweden. So it's been an active quarter with focus on the transaction and the BESS projects. As you can see here, we have continued to develop our Nordic IPP strategy. Our business model to develop, own, and operate is the same. We think it's important to be in all of the phases of the lifetime of our projects. It gives us fantastic flexibility to focus sometimes on greenfield and development. Other times, it's more interesting to focus on the acquisitions and structural deals like we have done over the last quarters. We see that we can grow our portfolio with acquiring assets at below CapEx. So that makes a lot of sense for us now to continue to look at this window of opportunities that we have in the Nordics. And as you know, we have taken down the focus on early greenfield development. Still, we have our portfolio of backlog exclusive projects. We have projects with permits. We are, as we're speaking, constructing six hydropower plants. Three of these hydropower plants will be delivered over the next quarter. So we will get back to that in more detail in the next quarter, but they are now on time and cost. And we, of course, now also a much more diversified portfolio after the acquisition. As you can see here on the right-hand side, we are now in all 12 price areas in the Nordics. Of course, most of our production is still in the South of Norway, South of Sweden and DK1, where we see the highest power prices in the Nordics. But we have added through the transaction with Orron, a lot of new production capacity in SE4 but also in SE2. So this is just 100% aligned with our strategy and it adds more network, more assets and more flexibility into the Cloudberry platform. This is the production portfolio. So you see we came from around 20, 21 GWh in 2020 with hydropower in Norway, and we have grown that in the last years to over 2,000 throughout the Nordics and different technologies. And as you see here on the right-hand side, our first BESS projects are also now part of the mix. More than 90% of this portfolio is merchant exposed. We have entered into some PPAs -- financial PPAs over the last quarter. But still, we have 90-plus percent in the merchant exposed market, also according to our strategy. And we see now that we have the full exposure to the higher power prices in the Nordics. The strategy going forward, as I said, the Orron acquisition was 100% aligned with our strategy to grow the platform scales really well. We can -- we have managed to almost double the production portfolio with not a lot of overhead, but we will continue to put profitability over growth. So it's important for us to grow the portfolio in the right way to stay profitable, also to stay fully financed, of course, to have a strong balance sheet. And last but not least, to also develop the platform. So we have a team. And today, we have a fantastic team covering all our technologies and all parts of the life cycles from early phase development to we sell the power in the market. So this is not going to change. We are on our way to reach our 2030 goals of tripling the business from 1 terawatt hours to 3 terawatt hours, and we will -- you will see continuous growth in -- on the Cloudberry platform going forward. The -- continued also reporting on ESG, and we are focusing on our ESG profile, and that is also involved in all our transactions and in our development of our assets. And the most important here is that we have had no injuries also over the last quarter. So that was just a quick introduction to Cloudberry. And then let's dive into the transaction, the Orron transaction in more detail. As you have -- we all know, we have acquired the Nordic wind portfolio, more or less the whole Nordic wind portfolio from Orron and also with a small team. As I said, it has -- it is a game changer for Cloudberry. It's scaling, showing how we can scale the platform. And as you know, we have -- we wanted to build the Nordic -- the leading Nordic IPP, and this is a very important step in that -- to build the Nordic leading IPP. And the Orron transaction fulfills Cloudberry in a very good way. It's a perfect match when it comes to assets. As you see here on the right-hand side, we have complement each other on the asset level, but also to get in a new active owner, a 27% owner with a lot of knowledge when it comes to develop and owning infrastructure assets and also bringing in the Lundin network into the company. It's very positive. And I think also that is going to affect our growth opportunities going forward. So we see we want to pursue the growth opportunities. We want to be the Nordic consolidator in the renewable space. And it also shows how we can grow efficient through using our share and also to bring down the cost of the platform. Here, we just touch upon some of the effects from the transaction. Scaling, of course, we bring down the overhead per kilowatt hour with this transaction. And we also have a more diversified portfolio and bringing down, as Ole-Kristofer will comment on later, the financial cost. We have entered into a new facility with our banks. And all of this will affect the platform going forward. And of course, the Orron team also brings in a lot of know-how. And also here, we fulfill each other with the Orron team and the Cloudberry team, having different knowledge and different know-how on the different technologies and markets. So this slide just shows you how we have grown the portfolio with the acquisitions and the structural deals we have done through the years and not focusing so much on the in-house developed projects, but here on the acquisitions. And then you see on the right-hand side here, the effect of the Orron transaction. So that was just a very quick run-through of the transaction, and I will pass on the word to Ole-Kristofer that will take you through the financials. Thank you.

Thank you, Anders. Hi, everyone. My name is Ole-Kristofer Bragnes, CFO of Cloudberry. I'm very happy to take you through the financial story of this quarter. So starting out, we saw the vast growth in our portfolio size that Anders talked about and showed briefly on the last slide, and we have the same story on our balance sheet and shown have been able to grow in an accretive manner. Fundamental values has been important and being well financed as well, beginning -- starting by raising equity over the market, continuing and constructing the assets that we had in our development portfolio, while also utilizing some M&A and also some capital recycling in order to showcase the value in our portfolio. Throughout the last year or so, we've also seen the potential to utilize our share in order to grow more directly. We've some attractive opportunities like increasing our exposure in Denmark last year at printing shares at accretive levels and then also doing the first MLK transaction, increasing the portfolio size in Cloudberry and adding Finland as our first country and then now the Orron transaction greatly improving our -- strengthening our balance sheet, increasing diversification in the portfolio and the portfolio size, while also keeping debt relative at low levels compared to our portfolio size as that portfolio is relatively less leveraged. So all in all, a healthy balance sheet with strong growth across this journey since inception of listing. Diving into this quarter, we report an equity ratio of 56%, which we are happy with. We've shown strong growth in the balance sheet size in relation to total assets, total equity and so forth. And that is explained by the transactions that we have done Q3 last year. Forte Vannkraft, Forte Energy Norway, the hydro platform that we combined together with Swiss Life, now consolidating in both those two portfolios, greatly increasing our exposure towards the hydro space in Norway, but also then the MLK now in Q1 this year, raising total assets and total equity. That's an associated company within these accounts. and now acquiring the last 50% of MLK, but also the great -- the vast Swedish portfolio, which Anders talked about through the Orron transaction, which is not reflected in the figures and will be after close expected in Q3 after we now received all regulatory approvals, which we're happy with and reported on already yesterday through the -- or the day before the stock exchange notice. In today's increasing interest rate environment, we're happy also to have our strategy with 90% of our proportionate interest-bearing debt has been hedged at an all-in rate of below -- of approximately 4% with a weighted average tenure of 8 years. So more or less covered on that front, and that creates resilience in our cash flows and reduces risk. And talking about -- on the debt side, we're very happy to report that we have secured additional attractive financing, extending the maturity of our credit facility with 3 years with an option for additional 2 and also then increasing our debt facility with an additional NOK 1 billion and an option for an accordion of NOK 750 million. This is with the same bank syndicate that has been with us for a long time, supporting Cloudberry in its growth journey. And I'm happy to see that we're able to achieve an improved margin, well below 2% on this facility in today's environment. So that shows a lot of support. We have also increased our purpose. We can now do BESS, we can do Finland, we can do solar while maintaining a good covenant structure as we have in our previous facility. And we still want to achieve a relatively modest leverage target with a cap of 50% loan-to-value under this agreement, which we are fine with. And this is expected also to close now in Q3 in relation to the Orron transaction, and this facility will be used to finance that. So very happy to have this in place. Looking at profitability in -- over the latest years, profitable growth has always been important and is a nice buzzword, and we've utilized different ways of achieving that. We have our underlying financials from our production portfolio. Our production metric has grown quite rapidly across the years and are now up almost 2x the run-rate of our portfolio of our producing assets of over 2 terawatt hours compared to the 818 GWh we reported last 12 months. But we also utilize capital recycling to showcase gains in our portfolio and, of course, development gains as we have constructed the assets that we've had in our portfolio near term and that all these kind of transactions impacted '22 to '24 financials in a very positive way. And now we have a very strong underlying cash flow from our operations from our commercial segment with the power production at -- yes, over 2x what we have historically. So at a very good place. Looking at the quarter specifically, we've had -- we are doubling our EBITDA. We're almost 50% up on the revenue side. And Q2 is normally a relative soft quarter in terms of power price, but it's very good to see that the power price has been held very well across -- throughout the summer and now into Q3 with strong reported power price, as you can see on the Nord Pool exchange. That is the main reason behind the increase in revenue and profitability, the increase in power price, but we also have a modest growth in production volumes. I'll come back to that on the next slide. And it's important, again, as Anders talked about, that the transaction is, of course, not included in these figures as the transaction is not closed, but expected to be so in Q3 and start impacting the financials and to see the returns and how our portfolio scales. Diving into the commercial segment, I talked about the production volumes. That is modestly up compared to the same quarter last year, but it's -- and the reason for that is the full quarter contribution from MLK, the Finland acquisition we did in Q1. But it's important to note that compared to the normalized production levels, output has been negatively affected by weaker wind resources in Denmark, historically low hydrological balance in Southern Norway, reducing hydro volumes at the time where they should be higher from a dry and cold winter, but all these elements are also increasing prices, and we see the realized power prices has greatly improved compared to the same quarter last year. And again, this highlights the importance of being diversified across the Nordics. We now have a very diversified portfolio and can capture differences in wind resources, et cetera. For instance, now it's been playing very well in Denmark with very high power prices, whereas not in Sweden. And this will offset each other, and it's important to have that diversified portfolio and show resilience in our earnings. And these two elements, the production volumes and the increase in realized power prices is, of course, what's explaining the drive in the commercial segment compared to the same quarter last year. Looking at our other segments, projects mainly driven by realization development gains, which has not been evident over this quarter, while we are driving our portfolio forward and very happy to see Dingelsundet now subsequent to the quarter being in commercial production on time and below cost. That's an important value driver. And the explanation why the difference in numbers there is related to the increased project segment, call it that from the Forte Vannkraft acquisition in Q3 last year, the Norhard coming into the Drilling segment and then also, yes, realizing a higher operating cost base from the acquired activities. Asset Management, very happy to see that the operational improvements and the profitability improvements that has been set into motion are showcasing themselves in the P&L. We do have improved EBITDA supported by lower operating expenses and also a slight growth in revenue, and we have some interesting new contracts on the asset management side as we reported out -- reported on in the quarterly report and very happy to see that growth. On the corporate segment, we have a reduced operating cost base down from -- down to NOK 11 million from NOK 15 million same quarter last year, although this quarter has also been impacted by NOK 3 million of transaction-related costs. And if we do compare and annualize this figure and compare it to a total proportion of asset base, this is around 0.5% in relation to proportionate assets. So although we want to be value enhancing throughout all levels in Cloudberry, just as a strictly cost base, this is 0.5% in relation to the total proportionate asset base. And we do expect this number to decrease further with the Orron transaction that Anders talked about from the synergies. The platform really scales. We do not expect a significant growth in corporate costs at all. We have some numbers in the presentation of our expecting an increased overhead, but this scales well, and this really improves the profitability and resilience in our platform as we're able to continue to grow and move forward. So that is all on the financial side for all -- for now, sorry, and then I'll hand it over to Anders for some marketing summary before we do some Q&A. Thank you.

Thank you, Ole-Kristofer. And as Ole-Kristofer mentioned, we have had a strong power price over the last quarter. We don't try to predict the power price in Cloudberry, but we use third parties. And as you can see here on the left-hand side, we have had a historical delivery on the power price above 45% over the system price. So historically, due to our portfolio and due to the price areas where we are -- we have our production, we, in general, deliver over the system price, which is the average of the price areas. Here, going forward, we have used the forward price in 20 -- for 2027, where you can see the forward price going -- increasing sharply. And then we have used the Thema price curve from '28 until 2035. What we have done this time is also to show the spread between Thema's high case and low case. So before, we have just shown the base case on the price. But here, we have taken in also the high case and low case. And as you can see, this is of great importance for Cloudberry with our exposure to the spot price and the power price with our merchant portfolio. So as you can see, it looks like we're going to have stronger and stronger higher power prices over the next year, but also it's likely to see that we will continue to have high power prices over the years. I mean this is also driven by -- in the short term by the hydrological balance, as Ole-Kristofer touched upon, which is very low, giving high power prices. It's dry in the south of Norway and Sweden, but also high gas prices. We have increased demand, especially from the digital industry. We have increased demand all over the Nordics. And we see very little new production added. I mean, we see upgrades. We see some smaller projects. We don't see the larger added new production over the next years. And if you also look at the new permits and new applications, it's quite low all through the Nordics, especially Norway, Sweden and Denmark. So this is a very interesting part of our business and important to pay attention to. And when we, of course, see in PPA opportunities where we can fix the price on good high levels, we also do that. So we have entered into some fixed price agreements in -- for '26 and '27, but still 90% plus is merchant exposed as of now. Yes, then I think we have been through most of our presentation. I think Cloudberry is perfectly positioned for the energy transition and for the new energy reality. We have a large producing portfolio of over 2 terawatt hours, producing long-term cash flow for the company. And we also have our in-house developed exclusive portfolio of projects and where we can tap into these projects where we see that is beneficial. We have plenty of M&A and structural deal opportunities in the Nordics. There's a lot of interesting opportunities now, and we will also continue to develop and grow the platform through acquisitions and always to stay well funded and we have a strong cash position. We have strong bank facilities, and we are also using our shares to grow the business. So all in all, we are very happy where we are today. Thank you so much for your attention. And I think we have probably gotten some questions that we will try to answer over the next minutes.

Thank you, Anders. So we have received some questions about the cost base in the commercial segment and also see this from the first from the analysts. So just to explain quickly, the wind has been the predominant producer over this quarter. And for wind technology, we have more of a fixed cost base. So the incremental revenue above the fixed cost base that creates the EBITDA. And of course, that's driven by two factors, production volumes and average realized prices. For this quarter, average realized prices have been doing very well, production volumes below, call it, P50 estimates and then that reduced factor impacts EBITDA margins. And I think that explains the forecast and the cost base are more or less the same, but they scale a lot more on the wind side at higher realized prices compared to -- in addition to high power volumes. Hydro on the other side, much more stable EBITDA margins as you have more, call it, profit split with the local landowners, et cetera. So that's more stable, more, call it, defensive in a way, and then you have a much more fixed cost base on the wind side. So that's the explanation for it. The cost base is more or less the same as it has been, for instance, over the last quarter. So that's that question. Do we have...

Thank you. We have also received a question when it comes to our Powerland Initiative, and we touched upon that very high level last quarter. But we have, as we have said, looked into the combinations of our production portfolio and developing Powerland projects. And I think we have continued to work on these projects. We do have a lot of knowledge when it comes to zoning, when it comes to securing power and capacity in the grid. And we do -- we have continued to work on these projects, but it's a bit too early to give an update. But over the next half year, we will also be ready to give a more extensive update on our Powerland portfolio and how we are working on that going forward. So I think that was it, and that was all we had for today. And thank you for your time and for your interest in Cloudberry, and have a nice day.

Thank you.