Transcripts
Scatec ASA (STECF) Q1 2023 Earnings Call Transcript
Operator
Okay. We will first take questions from the audience here, and then we will move over to our online listeners. So if you have a question, please raise your hand.
Jorgen Bruaset
Thank you. Jorgen Bruaset from Nordea Markets. Just visiting on the full-year outlook, can you just confirm that in the guidance range from power production for this year, there is zero EBITDA contribution for Q2 to Q4 reflected in that range, if I remember correctly. And if that’s the case, maybe you can say something about the EBITDA contribution in Ukraine in this quarter and how you see that progressing through the year? That’s my first question.
Terje Pilskog
You want to take it or should I take it.
Hans Jakob Hegge
You can start on.
Terje Pilskog
In terms of the EBITDA results this quarter in Ukraine, it was partly related to partial payments of the energy produced this quarter, and it was partially a catch-up payment related to unpaid revenues from last year. And as you know, currently, our revenue recognition approach in Ukraine is only recognized revenues related to what we get paid. So that’s sort of the starting point. And conservatively, then in terms of moving forward, we are still having zero EBITDA as a basis for the situation in Ukraine.
Jorgen Bruaset
And also on the Philippines, obviously, there’s been some impact on ancillary services in Q2. Are there anything you can provide in terms of color on the fluctuations on a quarterly basis through the year or the expectations of that versus normal seasonal patterns? Are you experiencing any outliers currently versus what we should expect as a baseline?
Terje Pilskog
We are expecting the same hydrology pattern in the Philippines through the year as we normally do. In terms of prices in the Philippines, they are currently higher than what we saw last year. On the ancillary services side, what has happened is that there has been an auction for ancillary services going forward and we secured a good contract for that in SNAP at prices that are better than what we’ve had historically for the ancillary services.
Hans Jakob Hegge
So to build on that, there is no contributions from ancillary services in the second quarter guiding. That will kick-in, in the third quarter.
Jorgen Bruaset
And final question for me. On release, I think that going back a couple of years, we talked about funding and growing release. You’re now saying that you’re looking to finance this with both debt and equity, are you able to say anything about the total funding need for the next step of release and any views on the mix between debt and equity in that?
Terje Pilskog
No, I think we will have to come back to specific numbers when it comes to release. We hope to be able to provide updates on that at the Q2 presentation.
Jorgen Bruaset
Thank you very much.
Roald Hartvigsen
Hi, Roald Hartvigsen from Clarkson Securities. You say you’re working on optimizing our capital structure. In the meantime, over the last two years, we’ve seen your unsecured bonds trading from 250 basis points to north of 600 basis points. The 2027 bond is currently at 9.6% yield. So when you say you’re looking to optimize your capital structure, what kind of credit profile are you really targeting and what measures are you taking together beyond divesting plants?
Terje Pilskog
Well, I think currently we have funding available for finalizing the construction of the projects that we have in construction currently, and we also have funding available for the pipeline or the backlog that we have. So that’s sort of the main starting point. And in terms of the debt level that we currently have and the — that tenure that we have, we are comfortable with that, but we will look to continue to extend that over-time.
Hans Jakob Hegge
On the average margin is 3.25%, so we’re quite pleased with that.
Roald Hartvigsen
I think you’d also have to acknowledge that once you have to refinance your current bonds that one will increase unless your credit profile improves. So if I understand you correctly, you have no sort of specific targets for higher credit profile should look like, you’re more, sort, of looking at how to manage liquidity?
Terje Pilskog
Well, we are managing liquidity, but I would also say that we have a good dialogue with our banks, with our relationship banks in terms of how we manage that situation of the company going forward, and we are comfortable with the current debt level.
Roald Hartvigsen
Okay, thank you.
Jorgen Bruaset
Jorgen Bruaset from Nordea. Just a follow-up question regarding asset rotation. Are you able to say anything more about the geographies you outlined as, let’s call it non-core with the Capital Markets update? Are there any progressions in terms of dialogues on divesting non-core assets?
Terje Pilskog
Yes, we are seeing good progress on divestment processes for some of the non-core assets. But we also have to recognize that it’s not necessarily the non-core assets that is going to contribute most in terms of new capital. That will also have to include recycling of capital related to larger, more core assets.
Jorgen Bruaset
Okay. And do you think we will see divestments coming through this year?
Terje Pilskog
Well, it’s a good chance that, that will happen.
Jorgen Bruaset
Thank you.
Operator
So no further questions from the audience. We will move on to our online listeners. We have one question from Anders Rosenlund from SEB. What is the planned completion of the three projects currently under construction.
Terje Pilskog
They are expected to be completed around year-end. Some a bit before, some a bit after.
Hans Jakob Hegge
With an average margin within the guiding that we have provided.
Operator
Thank you. We have two similar questions from Eivind Garvik from Carnegie and Helene Brondbo from DNB. How do you expect to achieve the NOK150 million efficiency program? When do you expect it to be completed?
Hans Jakob Hegge
This will be a combination of general OpEx reductions, as well as streamlining the organization, and we expect to see the full effect of this towards the end of the year.
Operator
Another one from Eivind. Can you provide a circa split on the NOK750 million EBITDA contribution from the three projects under construction?
Hans Jakob Hegge
Well, what we have there is that the — it is clearly the project in South Africa that has by far the biggest CapEx and also have by far, the biggest EPC contract that we are running. So obviously, also, it is the South African project that has the majority of the margin.
Operator
We have three questions from Naisheng Cui from Barclays. Good morning, congratulations for the strong set of results. Hans, congratulations to your new role. Three questions on very popular areas, if that’s okay. Could you please comment on the PPA price trend you see recently? Do you see overall margins expansion or squeeze?
Hans Jakob Hegge
Well, I think as we also mentioned in our Q4 presentation, we have over-time seen that PPA prices are moving upwards, both in markets where there is a more merchant type of market where there are bilateral negotiations, as well as in the tender situations that we have followed closely for instance, in South Africa and in India.
Terje Pilskog
And around six, we achieved better margins by — I think it was 14%. And also in the second round, in India, as said we increased the best prices for our wind projects to-date.
Hans Jakob Hegge
And I think it’s important, obviously, now that when CapEx is coming down again in the PV industry in the solar industry, we see module prices coming down. Obviously, the projects where we have already secured PPAs, economics of those projects are now starting to improve again.
Operator
Thank you. Another one from Naisheng. What is the debt financing cost for your most recent transactions?
Hans Jakob Hegge
Well, the announced margin on the recent bond that we did was 660 basis points above NIBOR. But again, the average margin over debt is currently 3.25%, which we think is a decent level.
Operator
And finally, could you please comment on your costs, both CapEx and OpEx trend? Any ease in inflation?
Hans Jakob Hegge
I think especially on the CapEx side, we are seeing an ease in inflation. We have already commented on the price development on modules. Obviously, the fact that we are increasing the gross margin on our construction portfolio is also some indication of what’s going on in the industry, in addition, obviously, to the good performance that we had in our EPC team.
Operator
Yes, thank you. We have two questions from Manuel Palomo from Exane BNP Paribas. Could you please elaborate on the evaluation of the IRR WACC spread you expect for the assets under construction. I guess that’s a cost of equity spread.
Hans Jakob Hegge
Yes. The projects that we have under construction, they are meeting our hurdle rates. So the spread is above 1.2 times cost of equity.
Operator
And could you please quantify the impact from the FX move? To what extent it explains the increase in guidance?
Hans Jakob Hegge
Yes. So we have an example in power production, I think the FX impact was just out of NOK70 million. So that’s an example that FX has an impact in the quarter. So as we explained in the presentation, FX is also a part of the movement as the question indicate.
Operator
One question from Magnus Solheim from Fearnley. You delivered a gross margin in the D&C segment of 11%, but EBITDA margin of 5.5%. Is it fair to expect similar EBITDA margin from D&C from the remaining part of the construction portfolio?
Terje Pilskog
I think you already answered that, that the new projects will contribute within the guided range of 10% to 12%.
Operator
And one final question from Eivind Garvik again from Carnegie. What about debt cost on profit level on the three projects under construction.
Hans Jakob Hegge
The — I will not go into the details of the specific debt cost of the individual projects. What we’re seeing is that we are achieving good project debt levels. The projects are well funded. And obviously, debt levels are in the range based on the market we’re operating in and the currency, they are under the PPA.
Operator
Okay, I thought it was final, but we received one more from Magnus Solheim. Can you comment on how you see the development of PPAs feed-in tariffs in your target markets? And has the competition in the tenders changed in any ways in your view? I think we partly answered that.
Terje Pilskog
I think we have answered that. I think we see an uplift in PPAs in the markets we operate in. That has come with a — followed-on on the increase in CapEx, but that has not been adjusted in and they are increasing. In addition, we obviously also, as we mentioned during the presentation see an increase in the energy price levels, electricity price levels in the Philippines, which is an important market for us.
Operator
And another question came in just from Naish. Sorry if I missed this, what is the funding gap situation right now? Any plan for equity issuance?
Hans Jakob Hegge
Yes. We commented on our funding need in terms of reaching the NOK10 billion target that we have for 2027. And for the time being, we have no concrete plans for an equity ownership — equity raise.
Operator
Okay. That was the final question. Thank you very much, and that ends the presentation for today.
Terje Pilskog
Thank you.