Aker Horizons Asa

Welcome everybody to today's presentation of ArcHorizons third quarter 2024 results. My name is Lars-Peder Suvogsberg and I'm happy to be the new CEO of ArcHorizons. Joining me here today we have Christoffer Dahlberg, CFO of ArcHorizons and Mary Kenny, CEO of Mainstream Renewable Power who will present the main developments in the last quarter. You are invited to submit your questions during the presentation, and we will respond to them in the Q&A session at the end. So, I will start with a short summary of the main developments that we have seen in the third quarter. The joint venture between Aker Carbon Capture and SLB, where ACC holds 20%, unveil its new company name, SLB Kapturi. And in August, SAA Captura announced an important milestone when it secured its first US-based project. They were awarded a feed contract by the partner CO280 for a large-scale carbon capture plant at the pulp and paper facility on the US Gulf Coast. This project is large and aims to remove a full 800,000 tonnes of CO2 annually. Importantly, it paves the way into the above 100 million tons of CO2 per year emissions US pulp and paper market, which is an important building block for the JV. Also, the board of ACC continues the process to determine future strategy and structure for ACC. The conclusions of this process will be communicated within the first quarter of 2025. Moving to mainstream, mainstream renewable power will be streamlining its business, with a focus on growth in selected core markets, South Africa, Australia, and the Philippines. In South Africa, the company continues to deliver on its pipeline, and we're glad to see that the 50 megawatt solar project, ILIQUA, came to financial close during the quarter. At the same time, the construction of a 100 megawatt solar project is on track to be completed in 2025, which is really good and will start delivery of renewable power under the corporate PPAs. In Chile, the Andes Renewable Platform, which has one gigawatt of operational onshore wind and solar PV capacity, has reported improved commercial margins in the third quarter. Looking at the offshore segment, Mainstream continues to commit in key projects. The South Korean 1.1 gigawatt floating offshore wind farm project KF Wind achieved major milestones during the quarter with, among others, securing the environmental impact assessment approval. Finally, across Mainstream's portfolio, cost-based reduction targets are on track, which is important for the business. Next, we look at the Ark Horizons asset development arm, where the team has completed a concept optimization for the Narvik Green Ammonia project. Conclusion is to move the project to a different site in the Narvik region, enabling reduced complexity and significant capex saving for the project. And also, in the clean hydrogen segment, an MOU was signed with Mastar, Abu Dhabi Future Energy Company, with the purpose to explore investment opportunities across the green hydrogen value chain. Looking at Powered Land, our joint venture with the regional electricity utility company Nordkraft. We have a portfolio of eight industrial sites in Northern Norway, which is attracting significant interest from data center players. And we are working hard to maturing this into business options. And lastly, a few words on the portfolio company Supernode, which specializes in the development of next-generation superconducting cable systems for large bulk volume of electricity transmission. During the quarter, Supernode got confirmed €7 million in grants and funding to continue its research and development activity, including from Ireland's Foreign Direct Investment Agency and the UK Office of Gas and Electricity Markets. We are really pleased to see Supernode's work being supported by such reputable institutions. Finally, SuperNord also opened a new cable technology center in Blev in the UK. This center will enable the first production and deployment for testing of the company's superconducting cables outside its laboratory in Dublin, where the activities have been ongoing up to date. So all in all, several important milestones reached and a good direction into the fourth quarter work. Now, I will hand it over to Mary, who will present the developments in Mainstream in some more detail.

Thank you, Lars. I will take you through Mainstream's developments during quarter three, where we've made significant strides across the business, starting with the key highlights. In South Africa, our ELIQA project, a 50 megawatt solar farm, has successfully reached financial close. This is an important milestone which reflects our position as a leading developer in the region, with a new flexible power purchase agreement providing a wide range of businesses access to affordable, reliable and, of course, renewable power. Construction is also progressing well on our 100 megawatt solar project, which is located close by on an adjacent site and remains on track for COD next year. Combined, these projects highlight our team's expertise in executing large scale renewable energy developments efficiently and effectively. Turning to South Korea, our KF Wind project has achieved a number of major milestones towards reaching construction ready stage, including its environmental impact assessment and also transmission service agreement. I will discuss this project and ILIQA more in the coming slides. In Chile, our one gigawatt Andes Renovables platform has seen an improvement in its commercial margin during the quarter, while construction is advancing well on the Curi project. Our cost base reduction targets that we announced last year are on track to deliver 28 million euro in savings from payroll and overhead in 2024. with then the remainder of our €45 million target expected to be achieved in 2025 through further cost optimisations which are underway. Despite this progress, we have recognised an impairment net of tax of €134 million, reflecting increased market risk on the Andes Renovables portfolio and other non-core investments and assets. I will discuss this and our overall business plan update on the following slide. In 2023, we provided key actions that we were taking following a comprehensive review of both the business and operations following the financial losses sustained due to market distortions in Chile. Today, we would like to provide an update on this plan. In terms of our core markets, our focus remains firmly on driving value creative growth. As such, our core growth markets will narrow in focus to South Africa, Australia and the Philippines, while maintaining our commitment to key offshore projects within the portfolio. Over the past quarters, we have highlighted in detail the attractiveness of these markets and projects with significant progress in developing projects in each, including reaching financial close on two key projects in South Africa and several positive milestones for early stage projects in Australia and the Philippines. This core market strategy allows us to leverage and focus our expertise in the markets where we see the most significant value creation opportunities while stopping or exiting from other regions. As such, we are planning further cost optimization programs into 2025 with a number already underway, including a material reduction to our headquarter cost base as resources are streamlined and focused to deliver growth in our core markets. Developing and strengthening partnerships in our core markets remains a top priority. We believe that collaboration with local stakeholders and industry leaders is essential to accelerate project development and deliver renewable solutions that meet the specific needs of each market. Our capital recycling plan is ongoing and we are actively exploring additional funding sources to fuel future growth. By recycling capital from our assets and securing new funding avenues, we can reinvest in high potential projects and expand our renewable footprint within core markets. Together, we believe these initiatives underscore our commitment to advancing value creating projects across our portfolio while boosting our operational efficiency and paving the way for sustained growth at mainstream. Moving on then to an update on the Andes portfolio. In Chile, the Andes Renovables platform continued to maintain a positive commercial margin in Q3. For the quarter, we delivered a 27 million euro commercial margin. including 6 million relating to the Tariff Stabilisation Law's second publication. This sustained performance was due to lower internodal price differences on a year-on-year basis and PPA price increases from updated indexations. The reduction in internodal price differences was mainly driven by seasonally higher hydro generation, which resulted in lower withdrawal prices. For the Elena wind farm where we experienced an incident with a turbine tower earlier this year, we continue to expect a replacement turbine to be in service by year end and that plan is on track. On construction, positive progress continues at our 109 megawatt Curie wind farm in Northern Chile. We received full construction release from the Chilean National Monuments Council, the CMN, in July, and our contractors are now mobilised across the main site, substation and overhead line. We are maintaining our commercial operation date target for 2025, reflecting our commitment to advancing this important project. And as a reminder, the successful termination of the project's distribution company PPA in 2023 provides the project with interesting PPA optionality going forward. On the regulatory front, Chile's energy minister has proposed an electricity subsidy bill to avoid a price increase affecting vulnerable customers and small companies. While the bill has faced a number of challenges and delays, first round votes happened at the end of October and were closely monitoring its progress. Regarding the Tariff Stabilisation Law, the second publication has released payments corresponding to the period from November 2023 to February 2024, and as noted for the Q3 margin, we have recognised a positive €6 million in reassessments in the P&L, while the cash impact, including accrued amounts, is expected to be approximately €14 million. As a reminder, the expected cash inflow of 37 million euro from the first decree publication was received in October. Moving on then to South Africa, as discussed earlier in our business update, South Africa is a core market for mainstream and one where the energy landscape is undergoing a transformative shift. The chart on the right-hand side of this slide demonstrates the attractive supply-demand balance that is emerging, driven by the retirement of end-of-life coal plants and growing electricity demand in the market. This combined with deregulation opening up the private market segment creates significant opportunities for renewable energy developers such as mainstream to meet the increased need for clean and reliable power that is also quick to deploy. Renewable Energy Supply Agreements, or RESAs, are one of the solutions at the forefront of this transformation. This new flexible PPA product opens up the energy market by giving a wider range of businesses access to affordable, reliable and renewable power. Private customers can procure anything from 5 to 50 megawatts, achieving many of the same benefits as traditional power purchase agreements, but with more flexible terms such as shorter term energy contracts. This flexibility allows businesses to tailor their energy procurement to their specific needs, accelerating the adoption of renewable energy across various sectors. For our 50 megawatt solar project Ilikwe, we achieved a significant milestone with reaching financial close in October. This marks Mainstream's first dedicated RESA project and reinforces our commitment to delivering flexible and innovative energy solutions in South Africa. Our ILIQA project, a partnership between Mainstream and Investec, has already commenced construction and is expected to reach commercial operation in 2026. The project exemplifies our strategic focus on growth in a core market, and we're excited about the potential of bringing further races to the South Africa energy market. Moving on then to another positive update, I'm pleased to report that our KF Wind project in South Korea has made significant developments over the quarter, with a number critical to allow the project to participate in up and coming auctions. South Korea presents a compelling opportunity for renewable energy development, with the government planning a five-fold increase in wind and solar capacity by 2038. As part of this plan, South Korea's offshore auction process is designed to encourage both fixed and floating wind developments through a technology-specific revenue multiplier and separate allocations for each technology. KF Wind, in conjunction with our partners, is a well advanced 1.1 gigawatt floating offshore wind project located off the coast of Ulsan. The project is divided in two phases, with the first phase of 375 megawatts and then the second being 750 megawatts. Over the past few months, the project has achieved several significant milestones. In August, KF Wind secured its environmental impact assessment approval for both phases of the project. In September the geotechnical survey for the first phase was completed. This survey will provide essential data for the design and installation of the floating wind turbines and in October the project secured a transmission service agreement for both phases. With auction criteria just released of an auction this quarter and a further auction anticipated in 2025, we are now reviewing and working with our partners on the business case and next steps. And so to conclude, Mainstream is increasing its focus on core markets, which we believe will offer the greatest value creation potential. This is evidenced by the significant progress in these markets throughout 2024. As we move forward, we continue to see strong opportunities for capital recycling and are exploring additional funding sources to deliver future growth. Our strategic initiatives, including focusing on growth in South Africa, Australia and the Philippines, developing and strengthening partnerships in our core markets and further cost optimization programs position as well for consistent value creation. We believe our robust project pipeline and strong partnerships will drive our mission to deliver sustainable and innovative energy solutions globally. And with that, I hand to Christopher.

Thank you, Maria. starting with some highlights from Acra Horizon's asset development. The previously announced concept optimization process for Narvik Green Ammonia has been concluded, where we have decided to move the project to a new nearby site, Lallarsletta, which reduces execution complexity and risks, and results in significant CAPEX savings. In October, we signed an MOU with Masdar to explore collaboration, developments and investment opportunities across the green hydrogen value chain, targeting the decarbonization of hard to abate sectors. For the Rukan project, the previously announced dialogue around liquid hydrogen with an industrial gas player has been terminated. We are currently evaluating options on the way forward with alternative partners on compressed hydrogen. The Ukra project was discontinued in September, as the market conditions for blue hydrogen are not in place for the planned new export pipeline from Norway to Germany to be materialized. Interest for our industrial sites in Northern Norway from energy intensive industries, including data centers, continues to be strong, and we are exploring sale of sites and also powered shell business opportunities. In Q3, NVE approved the grid facility permit for 130 megawatt for our Balangen site. Moving to Narvik, our large scale green ammonia project in Northern Norway. Narvik Green Ammonia has decided to move the hydrogen and ammonia production from the Kvandalen site to the Laila Sletta site to be able to co-locate production, storage and offloading functions on one compact site. This change will eliminate the need for a costly and complex tunnel system from Kvandalen and reduce construction complexity, thereby reducing costs and associated risks. While the concept remains highly mature, the change will introduce some new factors. Akerland, which is owned 80% by Aker Horizons, has secured 480 MW of grid capacity, with 250 MW earmarked for green hydrogen and ammonia, and the remaining 230 MW designated for industrial purposes. As a consequence of moving the hydrogen and ammonia production from Kvandal to Lallasletta, the 230 megawatt not earmarked for green hydrogen ammonia will now be deployed to other opportunities at Kvandal in order to capitalize on the investments made on that site. Offtake discussions have matured further during the quarter, and we are now in late-stage discussions with a large European offtaker for a significant volume. Furthermore, processes to secure right-of-way and permits for the grid extension and an updated zoning plan for La La Shleta are underway. Powered Land is a joint venture with Nordkraft to develop industrial sites in NO4 in Northern Norway. Our eight industrial sites are strategically located close to the 420 kW central grid and are at various stages of permitting for power intensive industries. As communicated at the last quarter, we are exploring the opportunity to have data centers established on our sites in Northern Norway. We are progressing several mature dialogues with data center players for our sites with an aim to make the region the next large scale data center region in the Nordics. Also during the quarter, as mentioned, NVE approved the grid facility license for 130 megawatt for our Balangslæla site, an important milestone towards commercializing the asset. This marks the end of the update on asset development, and I will now move on to Aker Horizons Financials. On the financials, the consolidated income statement for Aker Horizons shows a net loss of NOK 2.2 billion for the third quarter, compared with a net gain of NOK 4.4 billion in the second quarter. ACC reported a net loss of NOK 47 million, of which Aker Horizons' share is 20 million. The loss reflects a 87 million negative result from the SLB Capturi JV, countered by a NOK 53 million positive financial items driven by interest income on the significant cash position. For MRP, the commercial margin in Andes was positive 27 million euros, equivalent to NOK 313 million, as mentioned by Mary. EBITDA for the quarter was negative NOK 142 million. However, adjusting for the impairment of development assets, EBITDA came in at a negative 12 million NOK. Cost reductions are on track with 28 million euro savings in 2024, equivalent to NOK 325 million, with a reminder of MRP's 45 million euro target expected to be achieved in 2025 through further cost optimizations. Reflecting impairments of Andes and non-core assets, net loss was NOK 2 billion in the quarter, where of Aker Horizon's share is NOK 1.1 billion. AAD reported a net loss of NOK 21 million, reflecting maturing hydrogen projects and the land portfolio. Total loss in Q3 of NOK 2.2 billion, where of Aker Horizon's share is NOK 1.2 billion. Net capital employed reflects our initial investment in the portfolio company, adjusted for any profit loss since then, additional investments and FX revaluations. Over time, we expect to get a healthy return on our capital employed. As of Q3, we have NOK 2.4 billion employed in ACC, 2.8 billion in MRP, 543 million in AAD, 197 million in Supernode and 242 million in other assets. Total net capital employed of NOK 6.1 billion, whereas 3.5 billion is funded by debt net of cash and NOK 2.6 billion by equity. During the quarter, the capital employed was reduced by NOK 20 million from our share of the loss in ACC and by close to NOK 1.1 billion in MRP, countered somewhat by investments in Arca Horizon's asset development to support our hydrogen and land portfolio, in addition to a small capital injection in Supernode. Other of positive NOK 39 million is driven by a combination of sponsor fee income from MRP funding and Aker Horizons SG&A costs. In sum, net capital employed was NOK 6.1 billion at the end of the quarter as mentioned. Our external financing and commitments are shown here including the maturities. The shareholder loan of NOK 2.5 billion and convertible bond of just below 1.6 billion matures in January and February 2026 respectively, whereas the 2.5 billion NOK green bond matures in August next year. The RCF matures in May next year and we have a one year extension option. This facility remains undrawn with a total facility size of up to 500 million euro. MRP's DNB facility, supported by the shareholders, matures 15th of March next year. MRP is currently exploring various sources of refinancing, including potentially calling on the commitment from the existing shareholders to provide MRP with shareholder loans, which then may be due in January next year. As previously reported, Aqua Horizons will evaluate its strategic options and continue to optimize its balance sheet to position itself for future growth through M&A, incubation, capital recycling and partnerships across assets in its portfolio. The RCF and Green Bond has an LTV covenant defined as senior interest bearing debt, less cash divided by the market value of listed companies plus the book value of unlisted companies. Based on MRP's proposed updated business plan and asset developments termination of the AUKRA and RUKON projects, we have updated our internal valuation of the companies, which is reduced from previous levels. Despite this, the LTV component still has ample headroom. This brings us to available liquidity. The RCF of 500 million euros was undrawn at quarter end, as mentioned. With a cash position of close to 3 billion and the RCF undrawn, that sums up to a total available liquidity of 8.8 billion. The liquidity is at the same level as second quarter, driven by a weakening of the NOC as the RCF is denominated in Euro, somewhat countered by the cash use of 113 million NOC in the period. The net interest bearing debt position was up from 3.4 billion at Q2 to just above 3.5 billion, reflecting mainly operating costs, interest paid and investments in our green projects and companies. Thank you for your attention, and then we move to the Q&A section.

Yes, my name is Mats Ektvedt. I'm the media contact for AquaHorizons, and I will delegate the questions we have received this morning to the management of AquaHorizons and Mainstream Renewable Power. So also joining us for this session is Julie Berg, the CFO of Mainstream. And I guess the first question goes to you today, Julia. You have commented that mainstream cost based reduction target is on track. Can you confirm that the previously referenced euro 45 million is achievable?

Yeah, thanks Mats. So we've made good progress in 2024, achieving solid reductions in payroll and overhead of 28 million euros. And we are on track to deliver the overall target of 45 million in 2025 through further cost optimization programs, which have been initiated already in Q4 of this year.

Very good. We have received some questions on how our horizons plan to recapitalize the balance sheet regarding outstanding senior unsecured debt maturing in the short term, as well as the medium term convertible loan maturing in 2026. A question for Christopher Dahlberg, CFO.

Thank you. As of Q3, Aker Horizons has a cash position of 3 billion NOK and an undrawn RCF of 500 million euros, which puts us in a position to continue to fund growth investments in our portfolio companies. Furthermore, we will evaluate our strategic options and continue to optimize our balance sheet to position ourselves for future growth through M&A, incubation, capital recycling and partnerships across assets in our portfolio.

Thank you. We also received a question whether it is relevant to consider selling all of mainstream. There are rumors that you are trying to sell the assets in Chile. Can you say anything about that, CEO Lars Sparre?

Well, as a general matter, we don't comment on speculations in the media, but on a more general level, our interest is certainly to maximize the value of mainstream. And we do continuously assess strategic options, including potential partnerships. We view Mainstream as a proven development engine for renewable energy with a strong track record for both opening and shaping markets through large-scale renewable deployment and also combined with the material pipeline of projects. So all in all, we believe that the growth markets now focused for South Africa, Australia and the Philippines will provide us quite an attractive value proposition. This is certainly a key focus for both Horizon and Mainstream going forward to deliver on.

Thank you. On hydrogen, we received a question. With the termination of gas discussions on the Rukan project and the shelving of the Aukra project, is Narvik in reality the only project you have left? And how do you assess the risk that the Narvik project could also be shelved at some point? I guess that's a question for Kristoffer Dahlberg.

Yeah, thank you. I think we, as everyone else, are experiencing that the green hydrogen market is taking longer to materialize than we initially expected. We do, however, continue to see it as a key contributor to net zero. We adjust the spending along with the commercial progress in the market and have taken necessary steps in Aukra and Rukan. However, we continue to see good interest in offtake from the Narvik Green Ammonia project, and we continue to mature this. And we are also maturing a few early phase opportunities selectively with a low cash burn.

Very good. And then the question for Mary Quaney, CEO of Mainstream. Could we see Mainstream pursue more sales of ready to build projects or will you predominantly seek to construct and realize projects on your own books?

Yes, thank you for this question. The business plan for Mainstream involves a combination of sales of ready-to-build projects, so a focus on capital recycling where it makes sense, but also retaining stakes in projects typically with partners so that we continue to build operating cash flows to deliver a sustainable business model.

Excellent. And the last question of today's session goes to Lars Spare, CEO in Aqua Horizons. What strategies are you considering for Aqua Horizons moving forward, Lars?

Well, since my start the first of October, I've been certainly working with the team to review and get into the portfolio. And I'm happy to see that we've achieved important milestones, both for ACC to embark in the U.S. market and certainly with the mainstream team on an updated business plan, which we now will start to impose. So mainly for now, it is to extract the values you have inside the opportunities in Arca Horizon. That is the key focus for now.

Thank you. And with this, we conclude the presentation of the third quarter results for 2024 for Oracle Horizons. Thank you for listening and following us and we'll see you next time.