Orrön Energy AB (publ)

Good afternoon and welcome to Oren Energy's second quarter financial results webcast presentation. Thank you for joining us today. We will follow the usual format and have a presentation by CEO Daniel Fitzgerald and CFO Espen Henne and then there will be plenty of time to answer to ask any questions you want and we will try to answer all of them so there is a q a function at the bottom of your screens so please use that not the chat function or raise hands or anything but the q a function and we'll gather all your questions and make sure to answer them when the presentation is done so with that again welcome everyone and i would like to hand over to daniel fitzgerald

Thank you, Robert. And it's a pleasure to be here today to share the results of the second quarter and also to give an outlook of the performance of the company and what we expect to do in the second half of this year. If we take a minute to have a look at Oron Energy for those who aren't as familiar with the company, we are a pure play renewable energy company. We're diversified across a range of renewable technologies, solar, wind, batteries, and expanding into some of those areas further. And we have organic growth established across our entire life cycle from early stage greenfield projects through to producing assets, repowering, life extension. And so our strategy is quite clear and simple. We have two pillars to our strategy. The first one is to have a suite of power generating assets, delivering long term cash flows and affording us the ability to then grow organically and create more value out of those out of that portfolio. And today we have 365 megawatts worth of installed capacity. That's wind power spread across Sweden and Finland. And the second pillar of our strategy is to grow a portfolio of large scale greenfield projects across solar, battery and wind. And we have a 40 gigawatt portfolio spread across five countries. And we'll share a little bit more about both of those as we move through the presentation today. And we are a part of the entrepreneurial Lundin group. The Lundin family have been backing a range of companies over decades and delivered fantastic value for shareholders. And it makes us proud to be a part of that group and to have the backing of the family as we look to create a renewable energy company of scale. If we spend a little bit of time on the first six months of this year before I pass over to Espen later, who will talk about in a bit more detail around the second quarter results, our power generation for the first half amounted to 456 gigawatt hours of power generation. And that represents a 20% increase from the same period last year. So we've seen the full impact of Castgroove coming online, which is a material increase for the company. And we've seen Lycanger step out of the portfolio on the back of the sale. Unfortunately, in the first half of this year, we've also seen quite weak wind conditions. And so even though we produced a good result in terms of power generation, it was around 10% lower than we expected for the first half of this year. and so as we look to the full year 2024 we expect to produce between 900 and 1000 gigawatt hours of production and that's primarily dependent on wind speeds in the second half if we look at the financial performance of the company in the first half of this year we produced a proportionate EBITDA of 13 million euros excluding some non-cash items and including the sale of the Leichhanger asset We achieved a price of 42 euros a megawatt hour, and that's made up of 49 euros a megawatt hour in Q1 and 31 euros a megawatt hour in Q2. And we'll touch on that a little bit more on the next slide. At the end of Q2, we have a net debt position of 46 million euros, and that's a significant reduction from 91 at the end of the first quarter. And that reduction in net debt is primarily due to the sale of one of our non-core assets, which is a Leichhanger hydropower asset. And so we sold Leichhanger during Q2 for 53 million euros enterprise value. And that marks a big reduction in net debt. It increases our finance capacity or financial capacity for growth. And it gives us more than 120 million euros of financial firepower to be able to go and execute on our internal growth, investing in our own portfolio and growing through M&A. And Leichhanger was a non-core asset for us. It was our only asset in Norway. And the sale to a strategic buyer, we sold at a valuation that is significantly higher than that reflected in our share price. And today we're trading around 50% of the asset values that we hold in the Leichhanger transaction. is another data point that suggests the asset values of renewable assets are much higher in the hands of strategic and private buyers than they are potentially in some of the publicly listed entities. And we'll touch on that a little bit as we go through the market conditions in the next slide. And finally, we had a strong performance on our greenfield portfolio during the quarter. We've added additional projects and additional opportunities into the portfolio, and we'll touch on that in a couple of slides' time. If we look at the market conditions in the second quarter and some of the recent transactions we've seen as well, it's clear that in the second quarter you can see on this chart that electricity prices were quite low in the second quarter. As I touched on before, first quarter we saw achieved price of just shy of 50 euros a megawatt hour. And the second quarter around 30 euros a megawatt hour. And that difference driven by a warmer end to the winter, lower demand and gas storage and gas demand being quite low and low prices on that front as well. And interestingly, that the price achieved in Q2 is lower than the breakeven cost of any new power generation technology, be it renewable, nuclear or fossil fuel fired power generation. The pricing in Q2 is significantly lower than the cost of producing any new facilities to generate power. And I think that's really important to understand that although seasonally in Q2 and Q3 we see weak pricing, I think for these conditions to persist long term, we're going to end up in a place where very little new capacity comes online. And that's what we're seeing in the market at the moment. In the first half of this year, and especially in Q2, we've seen very few investment decisions for new technology coming to market and new investments in renewable power generation. And so my view is quite clear that the electricity price and the valuation on electricity public companies has to increase. And if we look at the transactions we've seen also in the first half of this year, there's three public players listed on this slide, anywhere between a 30% and a 50% premium to where their stock is traded when these transactions have gone through. And we see that public to private transaction where all of the buyers on this front are private entities, where asset managers and private equity capital is able to see more value in the underlying assets and portfolios of these companies and public markets are. And we said earlier that Oron Energy is trading at around a 50% discount to NAV. And I think this market condition we've seen in Q2 is amongst the lowest we've seen for a while. And players are starting to take advantage of those opportunities. And I expect while pricing remains low and valuations remain low, I expect to see more of this coming through. Oron Energy sees no valuation for the Greenfield portfolio in its stock price either. And if I take a look at Ox2, they have a very strong company with a proven track record and a portfolio of opportunities roughly the size of what we're looking at in our Greenfield portfolio. We also saw the sale of Helios, which is a pure solar developer in the Nordics, at a strong valuation as well. So the market is starting to warm up to some of these opportunities and we're seeing capital flowing back into the sector, which is a positive step in my mind. If we look at our power generation for the quarter and our outlook for the rest of the year, as we already touched on, we delivered 456 gigawatt hours of production in the first half of this year, representing an increase from the same period last year. You can see on the chart that Castgroove adds a material improvement into our power generating capacity, and we see an uplift in the second half of this year, giving us around 950 gigawatt hours of production for the full year. Now, if we see low wind conditions like we did in the first half, we'll be down at the bottom end of our guidance range. And if we see stronger wind conditions, we'll be at the upper end of our guidance range of 900 to 1,000 gigawatt hours for the year. And our long-term outlook of production remains unchanged. And on average weather conditions looking back historically, the portfolio of assets we have will generate around 1,000 gigawatt hours of production in any given year. And on our greenfield pipeline, we've continued to make important steps on our greenfield pipeline. And the second half of this year will be an interesting period where we expect to see some of our first projects coming to market. We have a 40 gigawatt pipeline of opportunities spread across our five countries of operation. And in the first half of this year, we've added over 700 megawatts worth of opportunities in wind and solar in Sweden and Finland alone. In our portfolio in the rest of the UK and Germany, we've signed a material amount of land leases and we're aiming to have our first projects reaching important ready to permit milestones in the second half of this year. And once we reach those milestones, we will aim to monetize some of our early stage projects when we have land and grid secured as we move into the permitting phase. And we expect to start some of those processes for some material projects in the second half of this year, aiming for conclusion in the early part of next year. And so really, really strong progress in my mind operationally for the company, high availability, strong production, 20% growth in production from last year. And we continue to make important steps on our greenfield portfolio, setting us up for some monetization events in the coming 12 months from now. And so with that, I'll pass over to Espen, who's going to touch on some of the financial results for the quarter before coming back for Q&A.

Thank you, Daniel. And good afternoon, everyone. I'll cover a quarterly financial performance and also touch upon the full year outlook. We have an updated cash flow outlook at the very end of my presentation, also reflecting the actuals here to date. I think the key takeaway today is that the company is in great place financially. We have a strong balance sheet. We have ample liquidity headroom, which means that we can, that ensures that we can continue to pursue both organic and inorganic growth, which you will see the more details of as we go through And of course, the key sort of moving part for this quarter, what really has created a very robust financial situation for us is closing of the Nikon transaction, which you will see now as we go into the financials a bit more detail, the impact of both in the P&L and in our cash flow statement. If we start with some of the financial highlights, Dan already mentioned the power generation being slightly below expectations for the first half and also for the second quarter due to lower than normal wind speeds. 182 gigawatt hours of power generation for the second quarter. at an achieved price of €31 per MWh in Q2. We also had low or weak power pricing during the quarter, as Dan mentioned, with improving hydrological situation in the Nordics on the back of rapid snow melting and also quite weak pricing across the power-related commodity complex being gas, coal and carbon in quotas. So that led to revenues for a quarter of 6 million euros, excluding any gain from Laikanger, which comes into other income, and then an EBITDA of 8 million euros for Q2, including the counting gain from the Laikanger transaction being just shy of 11 million euros, and then excluding non-cash items in our GNA of 0.8 million euros. As I said, we are in a very robust financial situation with a lot of flexibility. And if you look at our net debt situation and position, that reduced from 91 million euros of net debt at the end of Q1 to 46 million euros at the end of Q2, as we received the proceeds from the lack of transaction during the quarter. And this compares then to our debt facility of 170 million euros in place, meaning that we have a lot of flexibility and optionality and resilience to pursue on our plans to grow both, like I said, both organically and inorganically going forward. The Laikangi sale, as I mentioned, shows up as an accounting gain in the P&L of 11 million euros. And you'll also see the impact in our cash flow statement where it has a positive impact of 49 million euros in our cash flow from investing activities when we get there. And obviously this accounting gain is due to the fact that the sales price exceeded our book value quite significantly by 11 million euros then showing up in our EBITDA. We then move to our cost guidance for the year and update there, tracking how we are performing year to date. And also, we have made a small adjustment to our legal cost outlook, starting with operating expenses. First half, actual cost, 8 million euros. We are reiterating our full year guidance there of 15 to 17 million euros. Based on our performance year-to-date and our outlook for the rest of the year, we expect to end up close to the midpoint of that guidance range. G&A expense, €5 million in actual cost year-to-date. We are reiterating also there our guidance for the full year on €9 million, as we do expect slightly lower running cost for the G&A item in the second half compared to first half. Sudan legal costs, as I said, we have there reduced our guidance by 1 million euro from 8 to 7 million euro for 2024, reflecting that we see a lower cost base for the coming six months compared to the actual cost year to date, which has been 4 million euros. And that 7 million euros is also now our estimate for next year. Capital expenditure, we have spent 4 million euros for the first half. We do expect a ramp up there in costs in the second half of the year, which is according to our activity plan and budgets. So we still expect to end up at 14 million euros for the full year on CapEx, which is then mainly investments into our greenfield portfolio. Moving then to some key financial metrics and comparing to the preceding quarter and also the corresponding quarter last year. Due to quite strong seasonality, both in wind speeds and power pricing in the Nordics, we argue that the same quarter last year is a more relevant comparison than the preceding quarter. So if you start with power generation, 182 gigawatt hours, as we already said, that's below expectations, as mentioned, due to lower than normal wind speeds during the quarter, but still 11% increase compared to the corresponding quarter last year, as the car screw volumes contribute more and offsets the volumes that we lost after divesting Lekangir. A cheap price, €31 per megawatt hour. That's approximately 40% reduction compared to the Q2 in 2023. And as I said, there's a range of factors there, sort of, which has contributed to quite weak pricing throughout the summer in the Nordic region. This explains then the difference in revenues when we move from Q2 2023 to this quarter, the second quarter of 2024, which has fallen from 9 to 5.6. There's 3.4 million euro lower revenues explained by those two factors, as I mentioned earlier. And then when we moved to EBITDA, we reported an EBITDA excluding the non-cash items in our G&A cost base of 7.5 million euros for the quarter, including the like-hunger gain. If you strip that out, we reported a negative EBITDA for the quarter of 3.4 million euros, which is then again explained by these lower revenues due to the lower achieved price in the quarter compared to a year ago, and also some increases in our operating costs and gna and legal costs compared to the corresponding quarter last year we see the same pattern then as we move to the cash flow from operating activities as you can see on the slide here and as mentioned on an ebitda level we have this accounting gain For the like-minded investment of 10.9 million euros and in the cash flow from investing activities when we get there on a later slide, the impact is then a positive 49.1 million euros reflecting the proceeds that we got from closing. If we then touch upon the achieved price for the quarter, reconciling the average system price in the Nordic region with our achieved price for our portfolio, starting with the average Nordic system price during Q2, that was 35 euros per megawatt hour. Whereas the average regional spot price of our portfolio was 40 euros per megawatt hour during Q2. And that reflects the very favorable geographical mix of our assets, with 85% of our power generation during the quarter coming from SE3, SE4 and Finland, and approximately 40% coming from SE4 alone and being the being the very strong price region in the Nordics. So we have this premium of 5 euros per megawatt hour for the quarter. Then we have a small positive impact from sale of guarantees of origin and hedging before then deducting the capture price discount In Q2, which was 25%, very similar to the level that we observed in the first quarter of the year, leaving ethanol in a cheap price of 31 euros per megawatt hour in Q2. If you then jump to the underlying cashflow generation of our portfolio representing sort of proportionate cashflow generation, starting with revenues, total revenue, including other income was 16.4 million euros for Q2. If you remove the gain on the lack going sale to get sort of the underlying cashflow generation, that leaves us with 5.5 million revenues for the quarter. And then we have the operating cost of 4 million euros and GNA of 4.9 after excluding non-cash items. Out of those 4.9, we have 2 million euros of legal costs relating to the Sudan case. That results in an EBITDA of minus 3.4 for the quarter, excluding non-cash items. And then from that, we deduct interest expense and the capex, capex being then investments into our greenfield portfolio, progressing those projects mainly, leading to an all-in operating cash flow after interest and capex for the quarter of minus 7 million euros. I think it's important to keep in mind, as I mentioned in the start here, the seasonality, both in wind speeds and typically in Nordic power prices, means that we do expect the largest proportion of our earnings and cash flow to occur during Q1 and Q4. Looking at our reported cash flow and changes to net debts from Q1 to Q2, we started the quarter, ended Q1 with a proportionate net debt of 91 million euros. Then we had a cash flow from operating activities excluding working capital of minus 3.9. and a positive working capital impact of 2.3. Before then, the very significant impacts from Lake Ganger, as I mentioned, we have a positive cash flow from investing activities of 46 million euros for Q2. That is made up of the Lake Ganger impact, 49 million euros. And then we have the capex of 2.4 and some other investing activities of less than 1 million euro, being then a net 46 million euro positive impact or reduction to net debt. Then after some small other impacts, we are closing then Q2 with a net debt, proportion net debt position of 46 million euros. And as I said before, very, very significant drop from the 91 at the end of Q1. And as you can see on the right hand of this chart or this slide, sorry, you can see that we are in a very, very robust financial position with total liquidity exceeding 120 million euros. Made up of our cash balance of 16 million euros at the end of the quarter and an undrawn portion of our RCF of 110 million euros. So all in more than 120 million euros available liquidity for the company. Ending then with an update to our 24 cash flow outlook, as I mentioned initially, that we are now providing. This reflects the actuals that we had year to date, so the actual outcome for the company for the first two quarters. And then for the second half of the year, we have here included three different scenarios. So achieved price ranging from 30 to 70. So either 30, 50 and 70 for the three scenarios that are laid out there. A couple of things to note, the Leitganger gain is not included in these figures. And we are here is assuming the midpoint of our updated power generation outlook. In terms of volume, so 950 gigawatt hours for the full year. So please keep in mind that if you project this going forward, our long-term annual power generation forecast is 1000 gigawatt hours and 950 is for this year due to the lower than normal wind speeds for the first half of the year. So if we start then with revenue based on, like I said, the second half achieved price ranging from 30 to 70 euros per megawatt hour, we expect to end up with the revenues ranging from 35 to 55 million euros for the full year and an EBITDA of 11 to 29 million euros before we deduct legal costs related to the Sudan case. So EBITDA excluding any Sudan legal costs and As you said before, the importance of looking at EBITDA generation before Sudan legal costs is because we have an average remaining asset life of our portfolio of more than 20 years, whereas we expect the cost level related to the Sudan legal costs in the current shape or form to only be with us until the end of 2025. So that's why EBITDA before legal cost is the really relevant metric for a long-term cash flow generation capacity of this company. As you can see, we have a break-even price on EBITDA level before legal cost of 25 euros per megawatt hour. So for every quarter we have an achieved price exceeding 25 euros per megawatt hour, we will generate positive EBITDA going forward. When we then deduct the legal costs, as I mentioned, which is now 7 million euros for the full year, and we expect a similar level 25, you get the corresponding EBITDA, including the legal costs, ranging from 4 to 22 million euros for the full year. And then after deducting interest expense, we expect a free cash flow pre-CAPEX ranging from minus 2 to 16 million euros for 2024. And even if you look at the low case here, so €30 achieved price for the second half of the year, minus €2 million of free cash flow pre-CAPEX. You can add then our CAPEX forecast for the year or guidance, which is €14 million. That implies that we will only increase our net debt of €16 million for the full year. And you can compare that to more than €120 million of available liquidity. which then highlights the very strong or very high financial flexibility and resilience as we currently have. And of course, as you can see on the slide here, and very important to note, is that this cash flow generation that we're presenting here obviously doesn't include any impact or value upside from our green feed pipeline.