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Orrön Energy AB (publ)
2/12/2025
Hi everyone and welcome to our energy's webcast for the Q1 2025. Today we will listen to our CEO Daniel Fitzgerald and our CFO Espen Henny presenting the Q1 results and giving an update on the developments in our 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 our 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 percent of them are in Sweden and 20 percent 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 focusing on extending life 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 group large scale Greenfield pipeline of projects primarily in the UK Germany and in the Nordics and we'll touch on that a little bit through this presentation where we're starting to see the monetization of those projects and we expect to start seeing some revenues through the course of 2025 from that portfolio. And finally the company remains in a robust position financially with over 100 million euros 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 business units and business areas and the company's 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 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. The two 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 curtailment see the link to ancillary services all linked to price curtailments and the majority of that being ancillary services. Our revenues for the first quarter amounted to 10 million euros leaving us with EBITDA of 1 million euros on a proportionate basis and a cheap price of around 40 euros per megawatt hour. 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 projects reach the right level of maturity and entering the market. In the UK we've had a second project now is it ready to permit and we'll touch on that in a little bit as well. We have a good portfolio in the UK ready for sale once we reach the conclusion of this grid reform process. Our net debt at the end of Q1 was 69 million euros leaving us with over 100 million euros of liquidity headroom against our 170 million euro facility. So all in all I think the things within our control during Q1 we performed quite well. The market conditions in Q1 weren't as strong as expected and both on a weather conditions and electricity pricing 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 1050 gigawatt hours. Obviously with the slight shortfall in Q1 we are slightly below the midpoint on that if we just forecast the rest of the year. But as with 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 curtailment linked to ancillary services the primary asset that we have online for ancillary services is MLK and we bid into 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 the grid operator. So we are better off and we achieve slightly higher revenues by providing these services even though we curtail production because the revenues 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 two thirds 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. 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. Our Greenfield teams are making really good progress both in the UK and Germany on maturing projects and we're seeing every quarter now we're seeing more and more of these projects reaching key milestones. As of as of the end of last year we had one point seven gigawatts sorry one point nine gigawatts worth of projects in the UK at ready to permit and we'd launched a sales process for that project. Now unfortunately at the end of last year the UK 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 we're going through that process now the 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 UK 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 timeline for those grid connections and we will look to mature more projects to the ready to permit stage. So we have two and a half 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 will see the results in the second half of this year. In Germany we have our first project just shy of a hundred 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 two years we expect to see around another an additional three 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 UK 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 into the pipeline for sales processes. Looking at our first project in Germany it's an angry PV project which combines working the land and the agricultural farming on the land with the photovoltaic solution and it allows both to exist in 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 industry. And so these types 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 angry PV project with 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 range a broad range of investors in this project. So I'm keen to be able to share a little bit more once we we reach the sales the conclusion of the sales process on this. And as we say on the bottom of the slide there's there's many more projects that are advancing towards ready to permit. And I expect that both the UK and Germany this is this year is going to be a pivotal year where we start to see more and more projects entering maturity and entering the sales pipeline. And so with that I'll pass over to Espen to cover the financials for Q1.
Thank you Daniel and good afternoon everyone. I'll go through the financials for the first quarter of 25 starting here with some of the highlights. The quarterly power generation came in at 251 gigawatt hours as Dan already mentioned and achieved price for the first quarter was 40 euros per megawatt hour. And we will look at the achieved price a bit more in detail at the later slide. The quarterly volume and price equates to revenues of 10 million euros and we achieved an EBITDA excluding non-cash GNA items of one million euro for Q1. We ended the quarter with a very comfortable net debt position of 69 million euros. And when you compare that to our debt facility of 170 million euros it is obvious that a 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 items during the first quarter of the year starting with operating costs. We had actuals in Q1 of five million euros 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 SEC strengthening versus the euro during the quarter. But it is also important to note that we do expect the OPEX to come down over the next couple of quarters as we also expect somewhat lower volumes before picking up again in Q4. And that is why we reiterate our full year guidance of 17 million euros for operating costs. For GNA 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 which is consistent with our 12 million euro guidance for the full year. Taking 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 and achieved price. But we did see an uptick of 1.4 million euros versus Q4 driven by stronger price more than offsetting the lower volumes. On EBITDA there is a lower gap versus the preceding quarter mainly driven by the sequentially higher OPEX which I touched upon on the previous slide. And we can see the same pattern of a quarter over quarter improvement in the reported CFO before working capital changes which came in at minus 0.6 million euros for Q1 compared to minus 0.6 in Q4 last year. Then a bit more details on our achieved price during Q1. The Nordic system price achieved 46 euros per megawatt hour during Q1. Whereas the average production weighted spot price for our portfolio was 47 euros per megawatt hour. Ancillary service income, sale of GOOs and hedging had a total positive impact of 1 euros per megawatt hour for the quarter on our achieved price before deducting capture price discounts to arrive at the quarterly achieved price of 40 euros 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 two preceding years. So far this year 70% compared to then about 20% on average for the two full years 2023 and 2024. If we then move to our quarterly reported cash flow and our liquidity position, the CFFO excluding working capital was minus 0.6 million euros as mentioned earlier. And the impact from working capital changes was a positive 1.2 million euros during the quarter. Cash flow from investing activities totaled minus 4.3 million euros and that consists of 2.4 million euros of CAPEX being investments into Greenfield projects and just shy of 2 million euros of cash flow impact from acquisitions of producing assets. And taking these changes into account leads to a proportionate net debt position of 69 million euros at the end of the quarter. And as we can see on the right hand chart on the slide, this results in approximately 100 million euros of liquidity headroom at the end of Q1, consisting of 20 million euros of cash on the balance sheet and more than 80 million euros of undrawn amounts under our RCA facility. We presented the 2025 cash flow outlook at our CMD in February, which we now have updated post Q1 to reflect the actuals here to date. And for this outlook, we assume 975 gigawatt hours of power generation being the midpoint of our guidance and also costs as per our guidance as we touched upon on the earlier slide. It is important to note that 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 hand of the chart, price ranges from 25 to 45 euros per megawatt hour in achieved price for the remaining quarters of 2025, which we view as a realistic range of possible outcomes. And we are then obviously reflecting the 40 euros achieved for Q1. Starting then with revenues, we now expect that to end up between 28 and 43 million euros for 2025, based on the mentioned assumptions, with a corresponding EBITDA excluding Sudan legal costs ranging between 2 and 17 million euros. With a corresponding EBITDA break even price of 27 euros per megawatt hour, meaning that all prices are above 27 euros 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 temper and 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 5 and plus 10 million euros for the year as per our outlook. Moving to free cash flow before CAPEX, we anticipate minus 3 to plus 12 million euros, excluding legal costs, and minus 10 to plus 5, including the Sudan legal costs. I think the key takeaways from this chart and taken into account the 100 million euros of available liquidity is that we have ample headroom to finance our planned investment activities and multiple 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 a creative opportunities if and when they arise. So with that, I'll hand the floor over to Dan for some concluding remarks.
Thank you, Espen. And I think important to look at that, that market context in the broader picture in Sweden where we're sitting here with Q1 and futures pricing below the break even cost for the year. We've seen a lot of new supply come into 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 supportive as it has been in the past for some of these technologies. So I think even though we're we're in 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, say, one or two quarters and last 12 months. And our 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 have long term cash generation potential with a relatively low break even cost. We have a greenfield pipeline that the revenues from that will start to hit the balance sheet of 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 kind of cyclically when markets are like they are today. We have strong teams across five countries which are growing organically, which is by far one of the best ways to create value once you have the platforms established. And as I touched on the 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.
Thank you very much. As mentioned before, we will have now have a Q&A session. You have a function on the bottom of your screen where you can submit a question. And let's go right into it. How do you see M&A opportunities in this market environment? I
think there's there are M&A accretive M&A opportunities and we're seeing as the prices remain low, we're seeing more and more opportunities coming to the market. So 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. And we're seeing as the seller's expectations are still probably a little bit higher than where we would transact today. But what we're seeing in the larger scale assets, we're starting to see a bit more 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 Kastgrove, the Kastgrove asset in southern Sweden. And the equivalent valuation that Equinor paid is 150 million for our Kastgrove asset. And that that goes against them an enterprise value or market cap of the company today of 120 million euros and an enterprise value of 190. So the market is still valuing assets like Kastgrove MLK and the bigger assets that are much higher multiple than when where public companies are trading. So I see a bit of a mix in M&A. There are opportunities in the market. We will execute on those where they make sense. But there's also opportunities for divestment should the the buy universe be be in the right place.
And looking at the Nordic market, the electricity price has been fairly low. Is this something you think will continue moving forward? Or what's your view on the long term pricing? I
think the shorter term there's with market sentiment, Trump's Liberation Day tariffs, global growth expectations, companies ability to invest it. It's a really challenging time, I think, for all sectors today. The shorter term period, I think, is we should expect some some weakness, which has been shown in the financials for this year that we're we're forecasting that weakness in the guidance we're giving. I think medium term with no new supply coming on, GDP growth still still moving forward in in a fashion we're going to see increasing demand over time. So I think that has to have an impact on pricing 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.
No, I agree. And just again, want to highlight sort of the resilience and robustness of the company and the balance sheet and fairly low break evens, which we went through in the presentation. So which means that although although if it actually happens that we see a prolonged period of low prices, we can clearly withstand it and capitalise 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 we're on track with our strategy and it's as resilient in a low priced environment as in a high as I spent touched on. We have a relatively low break even price all in for 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 based on futures and looking at where the market is willing to pay. So we executed on the like hanging a transaction last year, which was very creative and much higher than where we would be receiving revenues today. So we are active in in understanding the value of all of our our assets, both from a sale perspective and a purchase perspective. So you should expect us to continually update or nudge the strategy as markets evolve over time.
We got some questions about acquisitions. Are we also looking at buying assets in Germany, UK, France or other regions than the Nordics?
So we're always active in a range of regions. I think Germany and the UK, we see much stronger electricity pricing on our projects that we're 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 a much higher electricity price. So I wouldn't say it's easy to go and step into M&A in the UK and Germany, but to really meet our return requirements, I think it's it's challenging at this point to find the portfolios and platforms that are really creative 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?
Yes, 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 our capital markets day presentation on the website. In the Nordics, we have a broader portfolio than the Greenfield pipeline we have than the Greenfield pipeline in the UK and Germany. And we have wind, solar and batteries within that pipeline. I think we 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 them.
Good. 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 levels. And I think that's a that's a resounding theme when when we speak to investors trading today at around four and a half sec a share gives us a market cap of 120 million euros. Where we see if I just look at the multiples on MLK and cast group from recent transactions in the market, we're probably sitting north of 200, 250 million euros on a conservative basis just for those assets. So I think there is there remains a disconnect between our share price and the underlying value of the assets. I think you should expect you should expect this discussion to remain alive at the board level. And if the if and when the board are comfortable to move forward, we have all of the required AGM support and shareholder support to move forward on the buyback. So when the conditions are good for a buyback, the board will make that decision and move forward.
Great. Looks like we have one final question and it's about the recent allegations surrounding the legal case. And what do you have to say around the recent allegations on this?
Yeah, I think the I assume this is in relation to the Califactor production. And I think it's it takes a very one sided view of and a non contextualized view of some of the elements. And the one thing that comes out of both the Califactor program and the prosecution who have investigated this is it was all closed down back in two thousand and twenty three with absolutely no link between the allegations and the company. And so I think there's from our side, there's absolutely no wrongdoing. There's been a bunch of material that's completely taken out of context and and the investigation that's been undertaken has proven no link between the company and these allegations. So unfortunately, there's nothing nothing behind that that makes any sense from our perspective.
Great. I don't see any more questions. If. And with that, I would like to say thank you to Dan and Espen for this. Thank you very much for joining us.
Thank you. Thank you
to everyone who asked questions and feel free to reach out in case you have any additional questions. You know where to find us. Thank you.