4/30/2024

speaker
Terje
CEO, Scatec ASA

Good morning. A warm welcome to all of you attending our first quarter presentation. I'm excited to take you through a strong quarter for Skatec. The first quarter has been eventful with many significant achievements, including the inaugurations that we've had for Mendebym in Brazil and Kennhart in South Africa. In the quarter, we have continued also to make good progress on our strategy. We have reached a number of important milestones that we will get back to, and also the financial results are strong. So as usual, I will take you through the highlights of the quarter, and then Hans-Jakob will take you through the financials. And at the end, as usual, we will also open up for questions. So then, let's start with going through the key highlights of the quarter. And I'm pleased to say that this quarter was a good quarter with strong overall results, with proportional revenues reaching 1.2 billion and EBITDA reaching 848 million. Power production reached 901 gigawatt hours, and EBITDA in the power production segment increased to 870 million, up from 707 million same quarter last year. And we finalized construction and started commercial operation of Mandibim in Brazil and Sukkur in Pakistan, moving 681 megawatts from construction and into operation in the quarter. And also we embarked on the next growth phase with moving 333 megawatts of projects into construction, and we'll also get back to more information about this project later in the presentation. We also significantly improved our debt maturity profile. We issued a 1.75 billion bond and used this to buy back a large portion of our 250 million euro bonds. And on top of this, we also refinanced our RCF and our green term loan, moving the maturity of both of these debt instruments into second half of 2027. And finally, we also launched Lyra Energy. This is a CNI platform that we have established in partnership with Stanlib and Standard Bank in South Africa in order to move into the growing deregulated private energy market in South Africa. And then, to demonstrate some of these achievements, we have also this quarter put together a small video. So this quarter, we finalized our largest construction program to date, and we have celebrated this through inaugurations several places around the world. First of all, Mendebym, 531 megawatts, close to one million panels, and we are, from Mendebym, delivering energy to Alle Norte and supporting Alle Norte, a significant aluminum refinery in their decarbonization journey. Then we have Kenhart, 540 megawatts, also close to one million solar panels, but not only that, also 225 megawatts of energy storage, 456 storage containers, and this project we believe is providing a glimpse into the future providing dispatchable baseload renewable energy to ESCOM. Finally, we also have secure, albeit only or smaller, at 150 megawatts, still a significant achievement and a significant milestone in Pakistan, delivering competitive affordable renewable energy in the country. And we are celebrating the performance of our project teams related to this. During 2023, we have completed a massive construction program on budget, on schedule, and with strong HSEC performance. And we are immensely proud of the performance of our project teams, as you will see here in the picture. And now... we are turning the page. And these projects are already contributing to the power production segment, with them being a key reason for the growth in generation in EBITDA in the segment this quarter. The new projects added 194 gigawatt hours, and in total we delivered 901 gigawatt hours in the quarter. And this is an increase of 20% when we adjust for the divestments during last year. EBITDA is up 37% to 870 million, compared to last year, adjusted also for divestments. And this is mainly due to start-ups of Mendebim, Ansukkur and Kennhart, these three projects contributing 135 million in the quarter. We have further recognized a one-off of 85 million in Honduras. This is based on a settlement with the off-taker Eni, which included a one-off payment, which we have recognized also in the quarter. And then there are also positive contributions from Ukraine, and again from the sale of 3.3% of Mendebim to the offtaker of Alunorte. This is something that has been pre-agreed between the parties, and Alunorte is now owning 10% of Mendebim. Finally, as expected, the EBITDA from the Philippines came in below same quarter last year, but still, overall, There's very strong financial results in the power production segment in the quarter. So as usual, let me then also explain some of the main elements when it comes to the Philippines in the quarter. So EBITDA in the Philippines came in at 75 million. This is above the outlook range we provided at the last quarter presentation. But it's down from 113 same quarter last year. And also, when it comes to net revenues, they were down to 116 million from 161 million same quarter last year. As you will see from the chart, ancillary services revenues were basically in line with last year, while it is the spot and contract revenues that came down. This quarter, spot prices came down to the same level as SNAP's contract prices, so the short position that we typically talk about in terms of the first quarter has limited effect this time around. Still, it is good to see that contract volumes, as we have communicated, continue to come down, which is visible at the top right end of this graph. And then, let me also add some comments on the ancillary services market and segment in the Philippines. There is still regulatory uncertainty in this segment, and we are currently taking a cautious approach in terms of recognizing revenues in this segment. So there's two parts of this segment. First of all, last year, as you might remember, we secured long-term ancillary services contracts, but the new contract price is still pending regulatory approval. So what we're doing is we are expecting this to come later this year with a retroactive effect, but we continue to recognize revenues based on the old prices, and we're not taking the new higher prices into account yet. We will wait for this to be confirmed before we do that. Then secondly, in the first quarter, the spot market for ancillary services was launched. This is what we call the reserves market. But they were suspended already after two months due to high price volatility during the first two months of operation. An audit is currently being performed on the market, and we are also here not recognizing revenues until we see that the results of this audit has been confirmed. The unrecognized revenues related to these two situations amount to about 250 million. We believe it is likely that both situations will be concluded in our favor by the end of the year. And therefore, these amounts are also included in our full year outlook in total. Then let's move to the DNC segment. We continue to grow our renewable energy capacity according to our disciplined, self-funded growth strategy. And I'm pleased to say that we have started construction of 333 megawatts in South Africa and in Botswana. In South Africa, it is the 273 megawatt growth project. And in Botswana, it is phase one of the Madinare solar complex, which is 60 megawatts. And I'm very pleased also that on the groundbreaking ceremony that we had in Botswana, we also had the president present in that groundbreaking ceremony, which shows the level of commitment and importance these projects have for the countries we operate in. The equity returns of these projects exceed our hurdle rate of 1.2 times cost of equity. And this is demonstrating our commitment to continue to add a profitable growth above our hurdle rates and also with attractive margins. Construction activities are still in an early phase and we recognize 152 million of revenues in the DNC segment in the quarter. The gross D&C margin came in at 49%, and this includes the release of 65 million of contingencies from the EPC contract. Again, an evidence of the strong performance that we're having in the EPC construction activities, and we are coming in at budget and on schedule. The combined gross margin for new projects under construction was 9% in the quarter, and this is in line with our guidance of 8-10% DNC gross margin going forward. So the remaining EPC contract value related to projects in construction is 2.3 billion, and the projects represent about 350 million in gross equity investments. So when we have completed these projects in first half of 2025, we will reach 4.6 gigawatts of renewables capacity on a 100% basis in operation. This represents an increase of 35% since the first quarter of 2023, and that is also taking the successful divestments of 415 megawatts into consideration. Our backlog now stands at 685 megawatts, and the projects are progressing positively. Adding this brings us up to a total potential capacity of 5.25 gigawatts, also on a 100% basis. So last week, we signed a 10-year PPA with StartCraft for a new 142 megawatt project, solar project in Brazil. And the project is now added to our backlog and is part of this 685 megawatts. It is expected to reach financial close and start construction this year. with COD at the end of 2025. And the benefit of this project coming now is that we are in the process of demobilizing our EPC teams from Mendebim, and we can basically use the same teams moving them over to the new project, taking the experience that we have from Mendebim into this new project. So this is our third solar project in Brazil, which solidifies our position as one of the leading IPPs in the country. Later this year, we also expect to reach financial close and start construction of 103 megawatts of BES in South Africa and the second phase in Botswana of 60 megawatts. We also see significant progress of our 120 megawatt projects in Tunisia, which are advancing towards financial close. And we also see positive development of our green hydrogen project for the globe in Egypt, where we see several potential offtake opportunities emerging. So I am excited about 2024, and I believe that we will continue to have significant activity in the DNC segment through this year. So then, in terms of the overall pipeline, this now stands at 10.8 gigawatts, and we continue to high-grade and mature our pipeline to fuel further growth in our business. And in line with our self-funded growth plan, we continue to focus mainly on solar, on wind, battery storage, and hybrid projects, because these are the projects that have the best fundamentals and are the projects with the shortest development cycle. During the quarter, we have increased the share of solar. It is now representing 63% of our pipeline, and projects related to our focus markets are representing 93% of our pipeline at the end of the quarter. We also continue to selectively work and develop our projects within green hydrogen in Egypt, and here we are only focusing on brownfield projects. and also within hydropower through our JV with BII and Norfun in Africa, and the JV SNAP with Aboitis in the Philippines. So in terms of the total pipeline, around five gigawatts of the pipeline is currently related to South Africa. And we see significant growth opportunities in this country. I would therefore like to spend some time on South Africa to give you some further insights into the opportunities that we are currently seeing there. So in South Africa, we have developed and we have constructed about one gigawatt of solar projects in total. And currently, we have 730 megawatts in operation. Obviously, the capacity was significantly increased by the addition of Kennart into the operational mix towards the end of last year. We now also have Grootfontein under construction, and we have the best project in backlog, expecting it to reach financial close later this year. So with this, we will add another 376 megawatts to the portfolio in operation in South Africa. And then on the back of the five gigawatts that we currently have in the pipeline, we see significant opportunities, both in the traditional public segment, but also now strong emerging opportunities in the private sector in South Africa. So in terms of the traditional public segment, we see several tender opportunities coming up. We have the REAP round seven, which is tendering out five gigawatts of solar and wind, which is expected to come later this year. And we are also expecting this year best round two and best round three. And we have good projects available for all of these tender opportunities. And then in terms of the private segment, as I said, we are very excited about the Lyra energy platform, which we launched during the quarter in partnership with Standard Bank and with Stanlib. The intention with Lyra is to offer renewable energy from utility scale projects to private, commercial and industrial customers that have significant electricity demand. The project will be developed and built by Skatec, and we will also operate the project. And then together with our partners, Standard Bank and Stanlib, we will work on securing the offtake and also work on the financing together with them. And our customers will then benefit from green and attractively priced energy, which will support them towards increasing the bonds when it comes to decarbonisation, which is obviously also relevant in South Africa. We have a very strong team with a strong track record in South Africa. We have a good pipeline, we see good opportunities, and I believe that we will see some attractive announcements from South Africa through 2024. So with that, I will hand it over to Hans Jakob to take us through the financials.

speaker
Hans-Erik Holt
CFO, Scatec ASA

Thank you, Terje. Good to be here, and let me take you through the financials. We reported total proportionate revenues of 1.2 billion in the quarter. The revenues from power production increased by 20% to 1.1 billion, driven by new plants in operation. The settlement in Honduras and Ukraine that outperformed. We also booked a gain from sale of 3.3% of Mandubim to Olonorte. Power production EBITDA increased by 163 million to 870 million. DNC revenues of 152 million reflect early stage construction activities in South Africa and Botswana, compared to last year when we were ramping up construction for these three large projects, which are now finalized. The DNC EBITDA was 7 million, including contingency release for Kennard. This compared to an EBITDA of 96 million year-on-year. Total proportion of EBIT was 429 million in the quarter, including a 60 million impairment in Honduras following the PPA amendment. This is up from 405 million year-on-year. Let's have a look at the consolidated financials. We delivered total revenues of 1.3 billion compared to 919 million year-on-year, an increase by 39%. Revenues from power sales increased by 45% to 1.2 billion, mainly driven by 285 million from new plants in operation and 152 million from the settlement in Honduras. Net income from JVs and associated were down from 78 to 62 million, driven by the performance in the Philippines. This led to an increase of 62% in EBITDA to 1 billion compared to 629 million in the same quarter last year. EBIT ended at 643 million compared to 353 million, including our 81 million impairment in Honduras due to lower tariff in the amended PPA. The net profit was negative 26 million compared to negative 98 million last year. Total proportionate net interest bearing debt increased by 1 billion to 21.8 billion, mainly due to the weakening of the NOC against our main currencies. Our proportionate net interest bearing debt consists of two different debt classes. We finance our power plants with non-recourse project debt, which is serviced solely by the cash flow from the individual power plant with no direct support to Skatek also. Additionally, we have debt on corporate level, which is serviced by distributions from the power plants. Total net non-recourse debt increased by 200 million due to currency effects and change in cash. Non-recourse project debt related to Mendubim and Sukkur were reclassified from under construction to in operation in the quarter, and our corporate debt increased by 700 million, with negative currency effects of 500 million, and decreased cash of approximately 200 million, which I will come back to. And finally, we had 179 million of net interest expenses on our corporate debt and an increase of 51 million year-on-year. During the quarter, we have significantly extended our debt maturity profile through several successful transactions. We extended the 150 million green term loan to Q4-27 and the 180 million RCF to Q3-27, both as retractive terms supported by our core bank group. We also issued a four-year 1.75 billion NOC green bond The bond is swapped to dollars with a fixed interest rate, which increased the interest hedging ratio to 36%. The proceeds from the bond were partly used to buy back 136 million of the 250 million euro bond, maturing in Q3 2025. The remaining 114 million euro is now the only large debt maturity over the next three years. We will continue to amortize $25 million annually under the term loans. And additionally, as previously communicated, we are considering additional repayments from proceeds from upcoming divestments. At the end of the quarter, we had close to 2 billion of liquidity, including on-drone RCF. I will now take you through the main movements in cash. In the quarter, we received 144 million in distributions from power plants. We had 178 million in negative working capital movements and invested 129 million in growth projects, both mainly related to Kennard, and we reported cash flow from financing of minus 84 million. And now, let's have a look at the outlook. We have updated the guiding based on this good start of the year. In power production, we estimate a proportionate full-year power production of 4.2 to 4.6 terawatt hours, unchanged from the previous quarter. The full-year EBITDA is, however, increased by 350 million NOK to a midpoint of 3.9 billion. This reflects the overperformance in the quarter, the inclusion of services and foreign currency. The Q2 power production is estimated at 1,000 to 1,100 gigawatt hours. In the Philippines, we estimate an EBITDA of 10 to 70 million in the second quarter. This is reflecting continued low prices due to El Nino and high power prices, which has a negative effect as we continue to be a net buyer in the market in the second quarter. In DNC, we have remaining DNC contract values of 2.3 billion net of the revenues recorded in the quarter. We continue to report DNC gross margins of 8-10% for projects under construction in line with our guidance. And finally, the full year EBITDA estimate for the corporate segment is negative 120 to 130 million, unchanged from the previous quarter. And then I leave the word back to you, Terje, to take us through the final slide.

speaker
Terje
CEO, Scatec ASA

Thank you, Hans-Erik Holt. And then before we take questions, let me just sum up. We have grown significantly in the quarter and we have completed our largest construction program in the history. On time and on budget and with strong HSEC performance. The new power plants are now contributing substantially to our financials and we are delivering a strong EBITDA in the quarter. We continue to grow, and we have started construction of two new attractive projects in the quarter, and our pipeline and our backlog are progressing well. So finally, we are also maturing this, and we aim to start construction of several new projects during the year, which is in line with our self-funded growth plan that we have communicated, and we continue to progress. So thank you for listening, and then I think we will open up for questions.

speaker
Operator
Moderator

Yes, we will then open up for questions. We will start with questions from the audience here in the room and then move over to our online listeners. So, any questions?

speaker
Andreas Nygaard
Analyst, Nordea

Yes, good morning. Andreas Nygaard, Nordea. Could you give some color on how you're looking at refinancing your assets in operations? We see some of them coming down on leverage and you obviously could use some more cash to corporate. Could you give any color on that, what you're thinking and what assets are the most likely to see refinancing going forward?

speaker
Terje
CEO, Scatec ASA

We continue to work on both refinancing assets and also recycling capital through selling down or divesting assets in non-core assets. As we previously communicated, it's a bit difficult to give sort of a precise timeline when this is going to happen, but we do have ambitions to do also some actions in this space during 2024. So that's where we are currently on that. I mean, clearly, the ones that are more likely from a divestment point of view are the ones that are in our non-core markets.

speaker
Andreas Nygaard
Analyst, Nordea

And secondly, Ukraine is performing really well. And is it possible to see the financing of Ukraine change from... from paying down on that to extending it to a normal maturing financing?

speaker
Terje
CEO, Scatec ASA

Well, I think there are two elements in Ukraine. I mean, one is the portion of the projects that are financed through traditional non-recourse project finance. That's about half of the portfolio. And they are financed and they have a maturity synchronized with the tenor of the FIT contracts that we have. So for the time being, I don't think it's possible to do anything with those. And the remaining portfolio is 100% owned by us and was financed by the Power China vendor loan. Currently, with the situation in Ukraine, I don't think it's likely to be able on a short-term basis to bring in more debt into those projects.

speaker
Andreas Nygaard
Analyst, Nordea

Okay, thank you.

speaker
Unknown Analyst
Analyst

Thank you. Just two questions on your EBITDA guidance. So as I read the wording, it's predominantly driven by Q1FX and not really any significant changes in your operational view for the coming quarters. Is that how I should read the 350 NOC upgrade to EBITDA?

speaker
Hans-Erik Holt
CFO, Scatec ASA

I can take it, yeah. As I said, there are three elements, the strong start of the year, the inclusion of the power, the services segment, and the FX. That's the main elements for updating the 350. And also then, Terje said that tariffs in Philippines is included in the overall for the year, but we haven't accounted for them in the actual accounts.

speaker
Unknown Analyst
Analyst

Also, just following up on Andreas' questions on Ukraine, what type of level of activity in Ukraine is included in the EBITDA guidance for H2? I can't recall what your previous comments was, if you assume zero EBITDA contribution from Ukraine, or if we should expect sort of the similar run rate as we've now seen for the last couple of quarters?

speaker
Hans-Erik Holt
CFO, Scatec ASA

We haven't changed the guiding for Ukraine, but we, of course, make a point of the strong performance of our team and a relatively high payment rate.

speaker
Unknown Analyst
Analyst

So no EBITDA in Ukraine as a baseline for the guidance for the coming three quarters? Is that how I read it?

speaker
Hans-Erik Holt
CFO, Scatec ASA

Yeah, we continue on the same conservative line. Perfect.

speaker
Operator
Moderator

Any further questions from the room? OK, I'll then read up the questions from the ones online. We have one question from Nash from Barclays. Good morning. Congratulations for the strong results. Or two questions, actually. Could you please clarify on Philippines, what is the price difference between the old and the new regulation? What and how much EBITDA is included and not included in the full year guidance? And then secondly, could I get an understanding of your latest financing cost post the refinance activities, please? Thank you.

speaker
Terje
CEO, Scatec ASA

Okay, let me at least take the first one on the Philippines. Just to be clear on that, in terms of our outlook for the year, the ancillary services, the expectations for ancillary services market were included in our guidance when we delivered our guidance at Q4 presentation, and it's also in our guidance now. So there's no difference in our guidance principles when it comes to the Philippines. So we haven't changed that since Q4. The change that we did this time is that we are putting a number on how much is related to the unrecognized revenues in the Philippines related to this segment, and that is 250 million Norwegian kroners for a year. So that, I think, is on the Philippines in terms of the price. We are not sharing prices when it comes to unsalable services market in the Philippines, as this is sensitive information.

speaker
Hans-Erik Holt
CFO, Scatec ASA

Yeah, and I think if you take a bit on the consolidated as a starting point, the financial expenses was 685. 466 was new plants in operations, and the net interest cost on the corporate debt was the remaining. So maybe that's one guidance to national.

speaker
Operator
Moderator

Okay, we have one more question from Eivind Garvik from Carnegie. How comfortable are you with your funding capacity in relation to future construction programs?

speaker
Terje
CEO, Scatec ASA

The current construction program that we are foreseeing going forward through 2024, including the backlog, is what we've had in our plans all the time, also when we announced the self-funded growth plan. So there is no change in that, and we are comfortable with the funding capacity that we have for the new project.

speaker
Hans-Erik Holt
CFO, Scatec ASA

Yeah, and that's the headline of the presentation that Peggy gave today. We are progressing our self-funded growth plan, so that includes the confidence in financing.

speaker
Operator
Moderator

There are no more questions from the web. So I think with that, we finish today's presentation, and thank you all. Thank you very much. Thank you.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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