Orrön Energy AB (publ) (ORRON) Earnings Call Transcript & Summary

Hi, everyone, and welcome to Orrön Energy's Webcast. Today, we will listen to our CEO, Daniel Fitzgerald; and our CFO, Espen Hennie, presenting the Q1 results and giving an update on the developments in Orrön Energy. We will have a Q&A session at the end of the presentation. So please feel free to send your questions across. We will collect and go through them at the end. And with that, I would like to hand over to Daniel to start off this presentation.

Thank you, Jenny. Good afternoon, and welcome to our Q1 results for 2025. Just before we dive into the results, a quick recap on Orrön Energy. We are a pure-play renewable energy company, and we have around 380 megawatts worth of producing assets, which are wind assets, where 80% of them are in Sweden and 20% in Finland. And that gives us a really good platform for long-term asset life and long-term cash generation and organic growth out of that platform is something we're really -- times of assets expanding the opportunities to produce energy from those sites is something we're really looking for across both the producing asset base and the greenfield platform. We have a large-scale greenfield pipeline of projects, primarily in the U.K., Germany and in the Nordics, and we'll touch on where we're starting to see the monetization of those projects. The company remains in a robust position financially with over EUR 100 million worth of liquidity headroom. So, when we look at the quarter, I think we're delivering against our strategy. There's been some really strong performance across all of the business units and business areas. And the company is in a great position to grow from here. However, we do need to acknowledge that the market conditions in Q1 remain like we have seen towards the end of 2024, where Nordic electricity pricing still remains slightly lower than where we expected to be. And that, of course, impacts our financial results. Turning now to the quarterly results. We delivered power generation of 251 gigawatt hours in the quarter, and that's slightly below where we expected to be in terms of our base case. And the 2 reasons for that, around half of the reduction is due to weather conditions in the first quarter where we've seen lower-than-expected wind speeds. And the second portion of that is due to curtailments either linked to ancillary services or linked to price curtailments and the majority of that being ancillary services. Our revenues for the first quarter amounted to EUR 10 million, EUR 10 million on a proportionate basis and achieved price of. On the elements that we can control, which is our internal costs, we delivered in line with our expectation and our guidance for Q1 on all of those costs. On the greenfield project side, I'm excited to share that we've now launched a sales process for our first project in Germany, which is at the ready-to-permit stage, and we'll touch on that a little bit later in the presentation, but that's the first project in Germany starting to hit the market. And it's a really pivotal point for the greenfield business as we're starting to see security and entering the market. The project now is at ready to permit, and we'll touch on that in a little bit as well. And we have a good portfolio in the U.K. ready for sale once we reach the conclusion of this grid reform process. Our net debt at the end of Q1 was EUR 69 million, leaving us with over EUR 100 million of liquidity headroom against our EUR 170 million facility. So, all in all, I think the things within our control during the market conditions in Q1 weren't as strong as expected and both on the weather conditions and slightly less favorable than what we had hoped during the quarter. On the production side, as I touched on, we delivered 251 gigawatt hours, and we remain on track at this stage for our production guidance range of between 900 and 1,050 gigawatt hours. Obviously, with the slight shortfall in Q1, we are below -- slightly below the midpoint on that. If we just forecast the rest of every quarter on weather conditions, we will see some quarters above and some quarters below. So, we remain on track with our guidance at this point in time. For the curtailments linked to ancillary services, the primary asset that we have on online for ancillary services is this market and potentially curtail volumes to provide these services to the grid operator at points in time when we can achieve a higher price than the spot price for that period of time. And so, we are better off and we achieve slightly higher revenues by providing these services even though we receive is in excess of what we would have received had we been producing the volumes at that point in time. The second element that we have running on around 2/3 of our assets and will increase during the course of this year is the price-dependent bidding. When we see really low pricing or negative pricing below our marginal cost of production, we do step in and purposely curtail some of the volumes from our production because economically, it's a much better thing to do. And on both of these elements, both ancillary services and price-dependent bidding, these are things that we've put in place through the course of the last year to ensure that we have the ability to mitigate some of the effects of market volatility within our portfolio. On ancillary services, we will look to qualify more of our assets into the ancillary services market. MLK is there right now and operating. Karskruv is in the final stages of qualification and testing, and we should have that online, and we're looking at more of the portfolio to add into this because it does optimize our revenue slightly compared to producing the volumes into the market. Progress both in the U.K. and Germany on maturing projects. And we're seeing every quarter now, we're seeing more and more of these projects, as of the end of last year, we had 1.7 gigawatt -- sorry, 1.9 giga sales process for that project. Now unfortunately, at the end of last year, the U.K. national system operator and the regulator launched a grid reform process, which aims at accelerating grid connections for projects that are ready and, in the queue, and looks to push out projects which don't have the right level of maturity. And so, we're going through that process now. The actual steps in the process have been approved by the regulator, and we're now in the stages where we're reapplying for some of the elements of grid that we have to get either a better or a more certain connection date as a part of this process. So, with a broader portfolio in the U.K., we expect to hear more during the course of the second half of this year. Towards the end of Q3 or early Q4, we should know more about where our projects sit in terms of time line for those grid connections, and we will look to mature more projects to the ready-to-permit stage. So, we have 2.5 gigawatts at this stage just awaiting the confirmation of grid. And then the remainder of the projects that we're high-grading towards this process; we'll see the results in the second half of this year. In Germany, we have our first project just shy of 100 megawatts, which has reached ready to permit, and that's now moved into a sales process, and we'll touch on that in the next slide. And overall, over the next 2 years, we expect to see around another -- an additional 3 gigawatts worth of projects reaching key milestones in terms of ready-to-permit and then moving through these processes. So unfortunately, we have to wait for the outcome of the U.K. grid connection reform to understand where our projects sit in the queue, the final dates and then move into the sales processes on those. But Germany remains unaffected by that, and we see a number of projects that are coming beyond this first project into the pipeline for sales processes. Looking at our first project in Germany, it's an Agri-PV project, which combines working the land and the agricultural farming on the land solution, and it allows both to exist in coexistence where the German government in a lot of places, and we see this across France and some of the other European countries are really trying to protect the agricultural of solar projects we expect will become more and more prevalent compared to just traditional ground-mounted solar. So, on this project, it is an Agri-PV project. We've secured land, secured grid, and we have unanimous approval from the municipality on the project moving forward into the final stages of permitting and approval. And so that gives us a really strong foundation to move into a sales process. And we launched that earlier in Q2. We have strong appetite from a range of bidders, and we expect to hear more through the summer of this year and expect to be able to share more on the process. Unfortunately, with the process ongoing, it's too early to comment, but we are seeing strong interest and strong appetite from a broad range of investors in this project. So, I'm keen to be able to share a little bit more once we reach the conclusion of the sales process on this -- the slide, there's many more projects that are advancing towards ready-to-permit more projects entering the pipeline. And so, with that, I'll pass over to Espen to cover the financials for Q1.

Thank you, Daniel, and good afternoon, everyone. Financials with some of the highlights. The quarterly power generation came in at 251 gigawatts mentioned and achieved price for the first quarter was EUR 40 per megawatt hour, and we will look at the achieved price a bit more in detail at a later slide. The quarterly revenues of EUR 10 million, and we achieved an EBITDA excluding noncash for Q1. Ended the quarter with a very comfortable net debt position of EUR 69 million. And when you compare that to our debt facility of EUR 170 million, it is obvious that the financial position of the company is highly robust and resilient. Taking a look at our full year guidance and how we performed on the different of the year, starting with operating costs. We had actuals in Q1 of EUR 5 million. And it is fair to say that we did face some headwinds related to higher-than-expected balancing costs, but also some impact from the SEK strength in the quarter. But it is also important to note that we do expect OpEx to come down over the -- before picking up again in Q4. And that is why we reiterate our full year guidance of EUR 17 million for operating costs. For G&A and Sudan legal costs, it was very much business as usual for the first quarter, and we are sticking with our previously disclosed full year guidance on these items. For CapEx, we do expect higher spend during the upcoming quarters, with guidance for the full year. Taking then a look at some of the key financial metrics for Q1 and the preceding quarters going back to the same quarter last year. Revenues came down year-over-year on lower volumes, but we did see an uptick of EUR 1 -- driven by stronger price more than offsetting the lower volumes. On EBITDA, there is a lower gap versus the preceding quarter slide. And we can see the same pattern of our quarter-over-quarter improvement in reported CFFO before working capital changes, which came in at minus EUR 0.6 million for Q1 compared to minus EUR 0.6 million in Q4 last year. Then a bit more details on our achieved price during Q1. The Nordic system price achieved EUR 46 per megawatt hour during Q1, whereas the average production weighted spot price for our portfolio was EUR 47 per megawatt hour. Income, sale of GOs, impact of EUR 1 per megawatt hour for the quarter on our achieved price before deducting capture price discounts to arrive at a quarterly achieved price of EUR 40 per megawatt hour. And as we said at our CMD back in February, we do expect average capture price discount for the year to end up not far away from the levels we saw in 2024, but it is encouraging to see that we have started 2025 on a somewhat lower trajectory in percentage terms compared to what we saw in the 2 preceding years. So far this year, 17% compared to then above 20% on average for the 2 full years '23 and '24. If we then move to our quarterly reported cash flow and our liquidity position, the CFFO, excluding working capital was minus EUR 0.6 million, as mentioned earlier, and the impact from working capital changes was a positive EUR 1.2 million during the quarter. Cash flow from investing activities totaled minus EUR 4.3 million, and that consists of EUR 2.4 million of CapEx being investments into greenfield projects and just shy of EUR 2 million of cash flow impact from acquisitions of producing assets. And taking us to a proportionate net debt position of at the end of the quarter. And as you can see on the right-hand chart on the slide, this results in approximately EUR 100 million of liquidity headroom at the end of Q1, consisting of EUR 20 million of cash on the balance sheet and more than EUR 80 million of undrawn amounts. We presented the 2025 cash flow outlook at our CMD in February, which we now have updated post Q1 to reflect the actuals year-to-date. And for this outlook, we assume 975 gigawatt hours of power generation being the -- also costs as per our touched upon on an earlier slide. Revenues from greenfield sales are excluded from this illustration. So that will obviously come in addition to the figures on this chart when it occurs. And we are applying, as you can see at the right end of the chart, price ranges from EUR 25 to EUR 45 per megawatt hour in achieved price for the remaining quarter which we view as a realistic range of possible outcome reflecting the EUR 40 achieved for Q1. We expect that to end up between EUR 28 million and EUR 43 million for 2025 based on the mentioned assumptions with a corresponding EBITDA, excluding Sudan legal costs range of EUR 17 million, with a corresponding EBITDA breakeven price of EUR 27 per megawatt hour. So, meaning that all prices above -- at or above EUR 27 per megawatt hour, excluding Sudan, we are generating positive EBITDA for the year. When including Sudan legal costs, and as we have said numerous times before, it is important to remember the temporary nature of those costs compared to the more than 20 years of average remaining lifetime of our assets. But if you include the Sudan legal costs, EBITDA will end up between minus EUR 5 million and plus EUR 10 million for the year as per -- to free cash flow before CapEx. We anticipate minus EUR 3 million to plus EUR 12 million, excluding legal costs and minus EUR 10 million to plus EUR 5 million, including the Sudan legal costs. I think the key takeaways from this chart and taking into account the EUR 100 million of available liquidity is that we have ample headroom to finance our planned investments times over even in a low-price scenario. And it clearly shows that the company is resilient and can withstand prolonged periods of low prices if necessary. And importantly and finally, the company has liquidity available to pursue and capitalize on accretive opportunities if and when -- the remarks.

Thank you, Espen. And I think important to look at that in the broader picture in Sweden, we're sitting here with Q1 and futures pricing below the breakeven cost of new supply coming to market. And we've seen that in the lack of investment decisions across the Nordics for new power generation, and that will have an impact longer-term. We're seeing offshore wind is slowing down. We're seeing the political regime not as a strong position to withstand these conditions. I think in the medium- and longer-term, the fundamentals for renewable energy are much, much stronger than what we've seen in the last, say, 1 or 2 quarters and last 12 months. And Orrön Energy is really well established and set up to withstand this period of low market pricing, but also to generate value through that period. The assets we have long-term cash generation potential with a relatively low breakeven cost. We have a greenfield pipeline that the revenues from that will start to hit the balance sheet and the P&L statement through the course of this year. We're financially resilient with a lot of liquidity headroom to go and build a business countercyclically when markets are like they are today. We have strong teams across 5 countries, which are growing organically, which is by far one of the best ways to create value once you have the platforms established. And there will be a change as we start to realize revenues from the greenfield platform. It really is a change for the company moving forward. And so, with that, I'll pass back to Jenny and invite Espen to join me up here for the Q&A.

[Operator Instructions] How do you see M&A opportunities in this market environment?

I think there are accretive M&A opportunities, and we're seeing as the prices -- we have the financial firepower to go and act on that, but we also have to take into account what the shorter-term futures price looks like. And so, we were active through Q4 and a little bit into Q1 with some of the transactions. The sellers than where we would transact today. But what we're seeing in the larger-scale assets, we're starting to a few more opportunities where people are looking through the shorter-term nature. And one of the recent deals was the Equinor deal, which is right next to the Cars Group asset in Southern Sweden, and the equivalent valuation that Equinor paid is EUR 150 million for our Cars Group asset. And that goes against an enterprise value or market cap of the company today of EUR 120 million. [Audio Gap] M&A, there are opportunities in the market, there's also opportunities for divestments should the buy universe be...

Looking at the Nordic market, is this something you think will continue moving forward? Or what's your view on the long-term pricing?

I think shorter-term, with market sentiment, Trump's, liberation day tariffs, ability to invest, it's a really challenging time, I think, for all sectors today. The shorter-term period, I think, is we should expect some weakness, which Espen has shown in the financials for this year, coming on GDP growth, still moving forward in a fashion we're going to see increasing demand over time. So, I think in the medium- and longer-term. So, our expectation still is that pricing will pick up as we move into the medium- and longer-term.

Now, I fully agree. And just again, want to highlight sort of the resilience and robustness of the company and the balance sheet and fairly low breakevens, which we went through in the presentation. So, which means that although if it actually happens that we see a prolonged period of low prices, we can clearly withstand it and capitalize when the market rebounds.

And will your strategy change given if the current prices remain? Or will you look into other opportunities?

I think strategy-wise, we're on track with our strategy, and it's as resilient in a low-price environment as in our EBITDA and free cash flow, especially once the Sudan case finishes. So, I think we're always looking at the valuation on our assets. We're looking at the cash flow of the assets that the market is willing to pay. So last year, which was very accretive and much higher than where we would be receiving revenues today. So, we are active in understanding the value of all of our assets, both from a sale perspective and a purchase perspective. So, you should expect us to continue to evolve over time.

We got some questions about acquisitions. Are we also looking at buying assets in Germany, U.K., France or other regions than the Nordics?

So, we're always active in a range of regions. I think Germany and the U.K., we see much stronger electricity price bringing to market, we're seeing that pricing reflected in buyers' willingness to pay. So those markets are a little more challenging in terms of a lower expected rate of return and much. I wouldn't say it's easy to go and step into M&A in the U.K. and Germany, but to really meet our return requirements, I think it's challenging at this point to find the portfolios and platforms that are really accretive in those countries.

We also have a few questions around batteries in the Nordics, and also solar. Is this something we're looking at in the Nordics?

So, we have a pipeline. We haven't shared a lot of it today. We shared a bit more at the Capital Markets Day. So, if there's more questions on the Nordic pipeline, there's more information on the website. In the Nordics, we have a broader portfolio than the greenfield pipeline in the U.K. and Germany, and we have wind, solar, and batteries within that pipeline. I think we saw a period when batteries first started hitting the market in commercial quantities. We saw really strong revenues for a number of years, and we quickly saturated some of the early ancillary services. We're starting to see more depth in some of the ancillary services, and we're starting to see battery economics picking up again. So, we have opportunities that are ready to build at this stage. We have opportunities that are ready to hit the market in terms of sale, but they're much smaller in terms of megawatts than our greenfield platform. So, where we reach economics that we are happy with, we'll take investment decisions and move forward on.

We got a few questions about the current share price. When will you start buying back shares? Is this something you're looking at? Or are you happy with the current share price levels?

Not happy at all with the current share price level. And I think that's a resounding theme when we speak to investors, trading today at around cap of EUR 120 million, where we see, if I just look at the multiples on MLK and Cars Group from recent transactions in the market, we're probably sitting north of EUR 200 million, EUR 250 million on a conservative basis just for those assets. So, I think there remains a disconnect between our share price and the underlying value of the assets. I think you should expect this discussion to remain alive at the Board level and comfortable to move forward. We have all of the support and shareholder support to move forward on a buyback. So, when the condition will make that decision and move forward.

Great. It looks like we have one final question, and it's about the recent allegations surrounding the legal case. And what you have to say around the recent allegations on this?

I think the [ Calefactor ] production, and I think it takes a very one-sided view and a non-conextualized view of some of the elements. And the one thing that comes out of both the Calefactor program and the prosecution who have investigated this is it was all closed down back in 2023 with absolutely no link between the allegations and the company. And so, I think from our side, there's absolutely no wrongdoing. There's been a bunch of material that's completely taken out of context, and has proven no link between the company and these allegations. So unfortunately, there's nothing behind that, that makes any sense from our perspective.

Great. I don't see any more questions, and with that, I would like to say thank you to Dan and Espen for this.

Thank you very much for joining us.

And thank you for everyone who asked questions, and feel free to reach out in case you have any additional questions. You know where to find us.