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Edited Transcript of SSO.OL earnings conference call or presentation 19-Jul-19 6:00am GMT

Q2 2019 Scatec Solar ASA Earnings Presentation

Oslo Jul 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Scatec Solar ASA earnings conference call or presentation Friday, July 19, 2019 at 6:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Mikkel Tørud

Scatec Solar ASA - CFO

* Raymond Carlsen

Scatec Solar ASA - CEO

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Presentation

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Raymond Carlsen, Scatec Solar ASA - CEO [1]

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Good morning. We're here to present the second quarter results of 2020 (sic) [2019]. I'll take the first part, and then Mikkel will do the numbers, and I'll sum up and provide some input to the future.

Last quarter has been, I would say, almost as usual, extremely busy for us. We're also happy to share with you that in all business segments, we are hitting previous records by the numbers we're presenting. The project backlog and pipeline is exceeding 5 gigawatt. I'll get a bit back to that with more input on the backlog and pipeline. The power production reached 198 gigawatts, and we produced an EBITDA of NOK 221 million. Development & Construction revenues of NOK 1.339 billion and with an EBITDA of NOK 165 million. And if you compare the power production to last year, that's up 83% while we have increase in the D&C results as well with an increase of 18%.

We have added 326 megawatts of new capacity into operation, and we have started construction on new projects of 245 -- 247 megawatts. In terms of the market traction, 170 megawatts is added to backlog, and we have added almost 700 megawatts to the pipeline. So as I said initially, if you sum up the backlog and the pipeline, we are around 5 gigawatts.

Now we're also just about to touch 1,000 megawatt or 1 gigawatt in operation. And you can see some of the plants in operation here. And since the beginning of the year, where we produced 2,000 megawatt hours per day, we're up to 5,000 megawatt hours per day. As I speak, I checked this morning, we touched 5,000 megawatts. That's up 2.5x just in 6 months. So that just gives you the feeling you should have that we are on a very steep growth trajectory.

A bit more than a year ago, we said that we've seen interesting opportunity in Ukraine, and we have not been disappointed. We have been working extremely hard to develop projects in Ukraine. There is a feed-in tariff in Ukraine. It's fairly high, around EUR 0.15 per kilowatt hour. That will be reduced at the end of the year and will be -- go down by 25%. So for us, building quickly and connecting these plants as quickly as we can will benefit us all.

We have, during the past year, built up an organization from nothing to about 50 people. And we're running 5 projects in parallel. If you take a look at the partners that you see we are cooperating with: in Progressovka, we are working with PowerChina; on Chigirin, we have European Bank of Reconstruction and Development, NEFCO and Swedfund; in Boguslav, FMO, GIEK and Green for Growth Fund; and Rengy, EBRD again, Black Sea Trade and Development Bank; and finally, Kamianka, EBRD and FMO. And for those of you who have a bit more insight, you know that these are extremely solid partners. And they're quite a lot, but I think it just underlines how we are building our business. We're building our business based on partnerships.

We have almost 1 gigawatt under construction on 4 continents as well. So if you add the 2, once we have finished these projects, we are in operation with plants around 2,000 megawatts. That is substantial. So the 5,000 gigawatt -- sorry, 5,000 megawatt hours per day is going to probably double and more than that when we have finished these projects.

Then I think it's time to leave the floor to you, Mikkel, to go through the numbers.

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Mikkel Tørud, Scatec Solar ASA - CFO [2]

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Okay. So we are very pleased to report another quarter with great results, solid financial results.

If you look back at the last 12 months, revenues reached NOK 6.1 billion on a proportionate basis across our business segments; EBITDA, close to NOK 1.3 billion; and free cash flow, back to Scatec Solar's equity at NOK 700 million. So we continue to grow, and we have established a very stable Development & Construction business. It's delivering about half of the current reported EBITDA, and both revenues and margins remain fairly stable and within the guidance that we had provided earlier.

And we continue to reconnect plants, and we will do so also in the quarters to come. And through the long-term power purchase agreements, we secure cash flows for 20, 25 years. And if you look at the current portfolio in operation, the remaining tenure of the PPAs are 19 years at the moment. And as we connect new plants, that average will actually increase in the year to come.

When it comes to operations, we obviously continue to focus on that, making sure we have stable operations, that we deal with any upcoming issues and maximize production. And we have been ramping up quite a lot of new capacity without any major issues so far.

Now looking at the second quarter. Total proportionate revenues reached NOK 1.6 billion; and EBITDA, NOK 388 million. And it's a growth from last year close to 50% year-on-year. It's both related to construction activity, but also mainly now connection of new power plants, more power production.

And if I then go briefly through the segments. Power Production revenues reached NOK 272 million in the quarter; EBITDA, NOK 221 million. Production ended at 198 gigawatts hours compared to 133 gigawatt hours in the previous quarter and 68 gigawatt hours in the same period last year, so it's a significant growth. And if you look at the last 12 months, revenues reached NOK 816 million; and EBITDA, NOK 655 million.

Yes. When it comes to the Operation & Maintenance segment, we reported revenues of NOK 29 million and EBITDA of NOK 14 million. There was an underlying growth in revenues and EBITDA in this segment. And in the same quarter last year, we had a one-off catch-up of the revenues in Jordan of about NOK 8 million. So adjusted for that, we saw an increase also in the revenues and EBITDA year-on-year.

In the Development & Construction segment, NOK 1.3 billion of revenues; EBITDA of NOK 165 million. We have projects ongoing now, as we saw in Malaysia, Mozambique, Egypt, South Africa, Ukraine and Argentina. Accumulative progress across those projects were about 46%. And we've added several projects to the backlog and pipeline, as Raymond also mentioned.

When it comes to the financial position, total consolidated assets stood at NOK 17.5 billion, up now NOK 2.6 billion since the beginning of this year, obviously driven by our CapEx investments across our asset portfolio. Consolidated cash ended at NOK 2.4 billion; and free crash at the group level, NOK 560 million. We maintain a revolving credit facility of NOK 775 million that is undrawn. The group-level book equity remained unchanged really at NOK 3.3 billion, and the same with the equity-to-capitalization ratio at 82%.

If we then look at movements of cash -- free cash at the group level through the quarter, we received NOK 29 million of dividends from our operating plants. We generated NOK 130 million of cash flow from Development & Construction. And we invested NOK 264 million of equity in new projects mainly Ukraine. And this quarter, we paid NOK 108 million to our corporate shareholders in the quarter. And there were no major changes in the working capital in the construction projects. And the cash balance ended up at NOK 560 million.

When it comes to short-term guidance, we reiterated the Operation & Maintenance revenues of NOK 110 million to NOK 120 million for the year with an EBITDA margin around 30%. And if you look at the Development & Construction value, the contract value of current portfolio, it's about NOK 5.3 billion, of which NOK 2.9 billion is -- remains to be recognized as revenue. And that will be mainly done in the second part of this year, early next year. Lastly, we see growth in power production volumes also into the second half of this year. And if you look at the guidance here, we expect power production to grow with about 35% from the second quarter into the third quarter based on the plants that are currently in operation.

Okay. Raymond?

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Raymond Carlsen, Scatec Solar ASA - CEO [3]

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Thank you, Mikkel. If we just spend a couple of minutes on the market. The market continues to be very strong, and that is -- has manifested itself in the increase in the pipeline and backlog to more than 5 gigawatt. Latin America, a slight increase of 50 megawatts. Africa, we're still seeing strong growth and opportunities, 174 megawatts added to the pipeline. In Europe, more or less stable, but keep in mind that we have added -- or we have actually moved quite a lot of the pipeline into backlog, and some of that -- those in the backlog into construction.

The biggest growth right now that we see is in Southeast Asia with almost 0.5 gigawatt of opportunities added during the last month. And there's one particular country that is growing very fast, and that is Vietnam. I'm sure that a lot of you have been to Vietnam. It's a country -- a long country, a bit like Norway, very long, but they have a few more people. I mean they're approaching 100 million, and the economy is growing like crazy. They are growing right now between 8% and 9%. And of course, any country that grows is in desperate need to add electricity. Normally, the growth in electricity market would be higher than the growth in the GDP. So we see that the country with an installed capacity of 50 gigawatts will increase, and this is what's confirmed when I was there a couple of weeks back. From 50 gigawatt installed capacity to 100, so that's a lot. That's almost 10% increase every year. And to let you know how much that is, that is the same installed capacity as Thailand. That is their need.

So -- and also their energy plant was more or less based on coal, which sort of have fallen a bit out of favor, but if you have no other choice, of course, you'll look at that. So I noticed when I met with authorities there that they were extremely interested in renewables. They've had a feed-in tariff in Vietnam, a reasonable and good feed-in tariff. They're revising that now. And we think it's interesting -- very interesting. And we -- some of you might remember that we had -- or Norway had the Prime Minister of Vietnam visiting Oslo last May, and we signed a development agreement with the partner of ours of almost 500 megawatt. And that had a very positive effect on our position in Vietnam. In fact, there were 100 articles about Scatec Solar in Vietnam press after that visit.

So we had a lot of developers that contacted us during the month of June, some of them we have talked to for a long time. And we signed up with some new agreements. So right now, the backlog stands at 108 megawatts. The pipeline is 750 with opportunities that could materialize above that over the next couple of months. A big portion of the 750 megawatts is floating solar. Vietnam is a big country with a lot of people, so there is limited amount of space available, so we have seen a very focused interest around floating solar. Also in the projects that we are working on now, in the first 485, there is floating solar.

So if you look at it from Scatec Solar's point of view, this is the new big market for us, bigger than South Africa, bigger than Egypt and bigger than Ukraine. So that means that if the feed-in tariff comes in at the levels we believe, if the Planning Commission in Hanoi gives a go-ahead to the next phase of the renewable projects, we will immediately start building up an organization that is going to handle this project both during the development phase and during the operational phase. So for us, very optimistic. And you see that TV is only interested in Scatec Solar in Vietnam, so we were actually interviewed on 2 TV channels 2 weeks ago.

The final slide. We are further enhancing our emerging market footprint. And that means that we are strengthening our market position within -- going deeper into certain markets but also spreading out into new countries within the developing world. This is actually driven by lower costs, technology improvements and cost reductions in general so that it makes sense, independent upon technology, to actually go to solar because it's the cheapest way of reducing electricity. So it's not a very difficult, subsidized governmental decision that you have to deal with there. This makes sense seeing from everybody's point of view. So for garments, it's important to create the framework that can actually support the acceleration of deployment of renewable energy.

I've used this statement before: a well-proven business model with a present execution capacity of 800 to 1,200 megawatts. Well, this is only limited to construction. Our development team is actually handling 5,000 megawatt under development. Our O&M team and asset management team is handling 1,000 megawatt. They have no problem increasing that to 2,000. And of course, we have a 3,500 goal by end of 2021. So this is actually our execution capacity. That is flexible. Should we outperform ourselves, of course, we will add capacity to our organization within Pål Helsing's solution organization.

We have decided to invite you all into our Capital Markets Day on the 18th of September. And the theme of that day is going to be: Expanding our Platform for Increased Growth.

Thank you very much, and I'm sure there's a lot of questions. It's summertime. Well, again, thank you very much, and we'll see you sometime in October -- September, sorry. First in September and then the next quarterly report in October.