Interim / Quarterly Report • Jul 19, 2022
Interim / Quarterly Report
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We are seeing considerable uncertainty in the global economy, with turbulent stock exchanges, rising market interest rates and extreme inflation. This volatility can largely be traced to the ongoing war and its consequences, which have had a direct impact on the European energy markets given Russia's actions with respect to the export of natural gas and electricity. The turbulence in the energy markets is continuing and has escalated further now that Russia has also stopped the export of electricity to Finland and continued to limit the gas deliveries in Nord Stream 1 as recently as in mid-June. As a result, electricity prices have increased further, and volatility and the differences between price areas have reached new record-breaking levels.
Arise's production for the quarter was approximately 15% under budget as a result of weaker winds than normal. Due to extreme volatility, our realised prices were low in relation to average market prices, while our price hedging had a negative impact on earnings. Despite these challenges, our production delivered relatively strong cash flow compared with the same quarter in the past.
The company has successfully issued green senior unsecured bonds of MEUR 50. The fact that the company was able to attract capital of this magnitude through its green financing framework despite the challenging conditions prevailing in the market is a confirmation of our strength. The capital will be used to accelerate our growth plan.
After ten years and two protracted permit processes (the first of which was denied), we have finally succeeded in completing the sale of the Kölvallen project. The project is our largest to date in terms of installed output and our strongest in terms of production conditions. We can proudly say that thanks to our successful and determined efforts, this outstanding project, which will generate nearly 1 TWh of renewable electricity annually, is now a reality. The company has made a good profit, and we are now building for the future by investing part of this profit in an ownership in the project. And all of this was achieved in a market climate with extreme cost increases and turbulent financial markets.
With the capital from the green bond and now the profit from the Kölvallen project, the company is in a good position to deliver growth. We intend to continue developing our strategy to diversify our operations in terms of geography and technology. Arise will expand its personnel resources over the short and long term, and we are now intensifying our focus on growth in both our existing main markets and other new markets. We are also increasing our production portfolio by more than 90 GWh through the Lebo project, while our stake in the Kölvallen project corresponds to approximately 85 GWh.
In conclusion, the Kölvallen deal is proof that the market for onshore wind power remains strong. Demand for renewable and cost-effective electricity production has never been higher, and there is still a surplus of capital to be invested. At the same time, it has never been more difficult to secure permits for projects. Going forward, we hope that the permit process will become more reasonable so that we will be able to handle the challenges involved in realising sufficient new power production in time to meet the current, growing need for electricity consumption.
Half the year has passed, and I'm pleased to report that the company has exceeded our high expectations. We have now created a platform to take Arise to the next level.
Halmstad, 19 July 2022 Per-Erik Eriksson
"Half the year has passed, and I'm pleased to report that the company has exceeded our high expectations. We have now created a platform to take Arise to the next level."
| MSEK | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 |
|---|---|---|---|---|
| Profit/loss before items affect- ing comparability |
||||
| Net sales | 53 | 36 | 141 | 82 |
| EBITDA | 25 | 12 | 86 | 34 |
| EBIT | 10 | -6 | 56 | $\mathbf 1$ |
| EBT | 7 | $-10$ | 49 | $-7$ |
| Items affecting comparability Exch. rate diff. loans in for. cur- rency, (financial items) |
$-13$ | 4 | $-17$ | $-3$ |
| Recognised profit/loss | ||||
| EBITDA | 25 | 12 | 86 | 34 |
| EBIT | 10 | -6 | 56 | $\mathbf 1$ |
| EBT | -6 | -6 | 32 | $-10$ |
| Profit/loss after tax | -6 | -6 | 31 | $-10$ |
Items affecting comparability comprise exchange rate differences on bank loans, bond loans and unallocated bond proceeds, all in foreign currencies.
Income from Development was impacted by the fact that there is now a risk that the Ranasjöand Salsjöhöjden project could be affected by higher costs due to the extreme market situation. The company's assessment is that there is high risk that the project will not reach the full earnout payment and revenue recognition has thus been stopped. Construction commenced on the Lebo project, and the sales process for the Kölvallen project continued. Income from Solutions was as expected. For Production, the quarter was characterised by significantly higher market prices for electricity compared with the year-earlier period, and also by weaker winds than normal, although in line with the preceding year.
Net sales increased to MSEK 53 (36), essentially driven by higher income in Production. Production generated 61 GWh (61) of green electricity while the average realised price increased to SEK 675 per MWh (420) due to higher market prices compared with the year-earlier quarter.
Other operating income amounted to MSEK 2 (0) and operating expenses to MSEK -32 (-26). Own capitalised work amounted to MSEK 2 [1].
EBITDA thus increased to MSEK 25 (12). Depreciation amounted to MSEK-15 (-18), resulting in EBIT of MSEK 10 [-6]. Net financial items, excluding items affecting comparability, amounted to MSEK -2 [-4]. The company's electricity production assets are valued in EUR and income is received in EUR. The company therefore chose to take loans in EUR, creating a natural hedge. Changes to the EUR/SEK exchange rate will continue to affect comparable net financial items,
whereby a strengthening of SEK will improve the net and vice versa. Corresponding reverse value changes in SEK terms for the underlying assets are not recognised. In the second quarter, the comparability of net financial items was impacted by exchange rate differences for bank loans, bond loans and unallocated bond proceeds in foreign currencies of MSEK-13 due to the EUR strengthening against the SEK.
Recognised profit/loss before tax amounted to MSEK -6 [-6] and after tax to MSEK -6 [-6].
Income from Development increased year on year despite the discontinuation of revenue recognition for both Skaftåsen and Ranasjö- and Salsjöhöjden. At the same time, income in Production increased sharply, mainly as a result of higher market prices for electricity but also due to stronger production than in the year-earlier period. In total, 161 GWh (143) of green electricity was produced, and the average price for production totalled SEK 725 per MWh (444). Income from Solutions performed as expected. Net sales increased to a total of MSEK 141 [82] compared with the same period last year.
Operating expenses amounted to MSEK-60 [-51]. Own capitalised work amounted to MSEK 3 [3].
EBITDA increased to MSEK 86 (34), and EBIT increased to MSEK 56 (1). Profit/loss before tax, before items affecting comparability, thus increased to MSEK 49 [-7]. Recognised profit/loss before tax amounted to MSEK 32 [-10] since the EUR strengthened against the SEK, which impacted the recognised net financial items by MSEK -17 [-3].
Recognised profit/loss after tax was MSEK 31 [-10], representing earnings per share of SEK 0.76 $[-0.27]$ .
Cash flow from operating activities before changes in working capital was MSEK 22 [9]. Changes in working capital amounted to MSEK 45 [3] and were impacted by an increase in current liabilities related to project investments. Accordingly, the total operating cash flow was MSEK 67 (12). Net cash flow from investing activities was MSEK-79 (-56), driven primarily by investments in the Lebo and Kölvallen projects. Cash flow after investments thus amounted to MSEK -12 [-43]. During the period, a green bond corresponding to MSEK 523 was issued. Amortisations totalling
MSEK -7 [-9] were paid during the quarter. Interest and other financing costs of MSEK -10 [-4] were paid, after which cash flow, adjusted for lease effects, amounted to MSEK 492 [-58] for the quarter.
Cash flow from operating activities before changes in working capital was MSEK 81 [29]. Changes in working capital were MSEK 54 [-2]. Total operating cash flow was thus MSEK 134 [27]. Net cash flow from investing activities was MSEK-99 (-62), driven primarily by investments in the Lebo and Kölvallen projects. Cash flow after investments therefore amounted to MSEK 35 [-35]. During the second quarter, a green bond corresponding to MSEK 523 was issued. Amortisations totalling MSEK -11 [-9] were paid, of which MSEK 4 was attributable to the redemption of convertibles in the first quarter. Interest and financing costs of MSEK -14 (-9) were paid. No net payments to or from blocked accounts took place, after which cash flow, adjusted for lease effects, amounted to MSEK 529 (-57) for the period.
Net debt was MSEK 290 (477). During the first half of the year, all convertibles outstanding were either converted or redeemed at a nominal amount. The company issued a green bond of MEUR 50 during the second quarter. Cash and cash equivalents at the end of the period totalled MSEK 611 [29]. In addition, the company has an overdraft facility of MSEK 75, which remained unutilised at the end of the period. At the end of the period, the equity/assets ratio was 35 [51] percent. After the end of the period, the company signed a project financing agreement for the Lebo project, which is not expected to be utilised until 2023. In conjunction with this financing, the tenor of other bank financing was extended to 2025.
| MSEK | Q 2 2022 | Q 2 20 21 | H 1 2022 | H 1 2021 |
|---|---|---|---|---|
| Income | 7 | 4 | 14 | |
| Cost of sold projects and contracts |
O | |||
| Other operating expenses and capitalised work |
-6 | -2 | -8 | -5 |
| Operating profit before depreciation (EBITDA) |
1 | 6 | 2 | |
| Operating profit/loss (EBIT) | 1 | -1 | 6 | |
| Profit/loss before tax | -3 | -3 | Ω | -5 |
Income for Development was impacted by the previous discontinuation of revenue recognition for Skaftåsen as well as the discontinuation of revenue recognition for Ranasjö- and Salsjöhöjden in the second quarter. In the case of Ranasjö- and Salsjöhöjden, there is a high risk of cost increases due to the extreme market situation. It is difficult to assess the extent of these increases at present, which is why revenue recognition has been discontinued. However, the company is still expected to receive an earnout payment, but there is considerable uncertainty as to the amount. At the same time, the quarter was impacted by additional income and expenses related to the Bröcklingberget project after an agreement was entered into with a subcontractor regarding the settlement of certain historical project costs. The net effect of this settlement amounted to positive earnings of approximately MSEK 1.
The sales process for Kölvallen continued during the quarter, and an agreement to sell the project to a fund controlled by Foresight Group LLP was signed after the end of the period.
Construction commenced on the Lebo project during the quarter and it will initially be financed by Arise. This will give the company the flexibility to either divest Lebo or keep it in the production portfolio once the project is in commercial operation.
Development activities continued for the HT Skogar portfolio, with the potential for more than 1,500 MW. The features common to these projects is that they are located in electricity price area 3 and that they could potentially strengthen the electricity supply in a part of the country located close to the large cities of Stockholm, Uppsala, Västerås and Örebro, where the long-term electricity demand is extensive. The company had continued dialoque with landowners in Norway concerning significant project rights for greenfield development. In total, excluding Kölvallen, the company now has a portfolio of wind power projects with more than 2,300 MW at its disposal, which is presented in more detail under the Portfolio section. In addition to this portfolio, work also continued on a large solar project in the UK, with a potential of about 200 MW. During the quarter, efforts also continued to secure project rights for solar power in Poland. In Poland, together with a partner, discussions are being held with a handful of smaller developers for the purpose of securing solar power projects. The projects are primarily in an early phase.
Income increased to MSEK 7 (4), of which MSEK 5 was attributable to income related to Bröcklingberget. The cost of sold projects amounted to MSEK 0 (0). Other operating expenses and
Arise's development portfolio, excluding Kölvallen, is presented below, totalling over 2,300 MW of wind power at the end of the period. The consolidated carrying amount of the portfolio, excluding Kölvallen, was approximately MSEK 110 at the end of the period. Fully developed, the portfolio would equate to an investment level of about SEK 25-30 billion.
The portfolio is divided into projects in later developmental phases, which now amount to a total of approximately 330 MW, and projects in early developmental phases, which amount to a total of more than 2,000 MW. The company is working actively to expand the project portfolio particularly concerning wind power and solar power in the Nordic countries and solar power in Poland and the UK. As part of this work, the company has expanded the organisation and is also planning for continued growth in terms of human resources.
In working to increase its project portfolio, Arise has screened a number of different conceivable projects. The vast majority of the projects screened do not qualify for further development as they do not meet the strict demands that Arise places on projects in terms of wind and solar conditions, permit risks, electricity grid capacity, and an assessment of their economic potential. These primary factors were determined to be promising for the projects below. While individual projects may not always be realised, the overall project portfolio represents high potential value for the company, with relatively little capital tied-up and low risk.
| Projects - late developmental | WTG | MW | Schedule | Profit potential |
|---|---|---|---|---|
| phases | ||||
| Lebo, SE 3 | 5 | 30 | $2024*$ | Good |
| Fasikan, SE 2 | 15 | 90 | 2022-2023 | Good to Excellent |
| Finnåberget, SE 2 | 25 | 150 | 2023-2024 | Good to Excellent |
| Tormsdale, Scotland | 12 | 60 | 2023-2024 | Excellent |
| Total | 57 | 330 |
*] Under construction
| Projects - early developmental | WTG | MW | Schedule |
|---|---|---|---|
| phases | |||
| SE 2 | 18 | ~110 | 2024-2025 |
| SE 3 | 8 | ~50 | 2023-2024 |
| SE 4 | 3 | ~20 | 2024-2025 |
| Norway | 30 | $\sim$ 200 | 2024-2025 |
| Scotland | 20-30 | ~150 | 2024-2025 |
| HT Skogar | $\sim$ 250 | >1,500 | 2027-2028 |
| Total | >300 | >2,000 |
| MSEK | 02 2022 | 02 2021 | H1 2022 | H 1 2021 |
|---|---|---|---|---|
| Income | 42 | 26 | 117 | 63 |
| Operating expenses | -9 | -10 | $-19$ | $-22$ |
| Operating profit before depreciation (EBITDA) |
33 | 15 | 98 | 41 |
| Operating profit (EBIT) | 18 | O | 68 | 11 |
| Comparable profit/loss before tax | 19 | $-1$ | 68 | 8 |
| Recognised profit before tax | 6 | 3 | 50 | 5 |
In Production, winds were weaker than normal for the period and production in the company's wind farms amounted to 61 GWh (61). At the same time, average income for electricity increased to SEK 670 per MWh (415) and average income for certificates, including quarantees of origin, amounted to SEK 5 per MWh [5]. The volatility in the market escalated further during the period, which means that prices during low-production hours were extreme. Average income for electricity was therefore 51% below the market price for electricity (weighted average for SE3 and SE4) during the period and was also impacted by price hedging on lower levels than the market average price.
Income amounted to MSEK 42 (26), an increase directly attributable to higher average income compared with the year-earlier period. The specific operating expense decreased to MSEK 145 per MWh (168) compared with the same period last year, partly due to availability bonuses for the company's Vestas wind farms. Continued investments have been made in the GE wind farms. No agreement has been reached with the previous service provider yet, and the arbitration process will likely begin after the summer.
EBITDA increased to MSEK 33 (15) compared with the second quarter of 2021. Depreciation amounted to MSEK -15 (-15) and EBIT thus increased to MSEK 18 (0).
Comparable financial items amounted to MSEK 1 [-2]. Profit/loss before tax, before items affecting comparability, thus increased to MSEK 19 [-1]. The company's electricity production assets are valued in EUR and income is received in EUR. The company therefore chose to take loans in EUR, creating a natural hedge. Changes to the EUR/SEK exchange rate will continue to affect comparable net financial items, whereby a strengthening of SEK will improve the net and vice versa. Corresponding reverse value changes in SEK terms for the underlying assets are not recognised. In the second quarter, the comparability of net financial items was impacted by exchange rate differences for loans in foreign currencies of MSEK -13 due to the EUR strengthening against the SEK. Recognised profit before tax thus amounted to MSEK 6 [3].
| Hedged electricity prices |
03 2022 | 04 2022 | 2023 | 2024 | ||||
|---|---|---|---|---|---|---|---|---|
| MWh. SE 4 | 30,900 | 48.600 | 96,200 | 35,100 | ||||
| EUR/MWh. SE4 | 80 | 1በ4 | 1N9 | Q7 | ||||
| In addition to the above bedging the company has a portfolio of CfD contracts in which the full area price has not yet |
been hedged. With the high volatility and uncertainty as well as low liquidity at the end of the period, the market value of this portfolio amounted to MSEK-39.
Production at the company's wind farms increased to 161 GWh (143) due to stronger winds during the first quarter than in the year-earlier period. At the same time, average income for electricity and certificates, including guarantees of origin, amounted to SEK 718 per MWh (435) and SEK 6 per MWh [10], respectively. Average income for electricity was therefore 43% below the market price for electricity (weighted average for SE3 and SE4) during the period.
Income amounted to MSEK 117 (63), an increase of MSEK 8 due to higher production and an increase of MSEK 45 due to higher average income compared with the year-earlier period. The specific operating expense amounted to SEK 118 per MWh (155) and EBITDA therefore increased to MSEK 98 (41). Depreciation amounted to MSEK -30 (-30), in line with the year-earlier period, and
| MSEK | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 |
|---|---|---|---|---|
The Parent Company's operations comprise project development (identifying suitable locations, signing leasehold agreements, producing impact assessments, preparing detailed development plans and permits), divesting projects, contracts and project management of new projects, managing internal and external projects (technically and financially) and managing the Group's electricity and electricity-certificate trading activities.
The Parent Company manages the Group's production plans and electricity hedges in accordance with the adopted financial policy.
During the first half of the year, the Parent Company's total income amounted to MSEK 17 (16) and purchases of electricity and certificates, personnel costs and other external expenses, capitalised work on own account and depreciation/amortisation of non-current assets totalled MSEK -42 [-31], resulting in EBIT of MSEK -25 [-16]. A net financial expense of MSEK -2 [1] and group contributions of MSEK 67 (40) led to net profit/loss after tax of MSEK 40 (26). The Parent Company's net investments amounted to MSEK -1 [7].
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Johan Damne Per-Erik Eriksson
Joachim Gahm Eva Vitell Mikael Schoultz
FOR FURTHER INFORMATION, PLEASE CONTACT
Per-Erik Eriksson, CEO
Markus Larsson, CFO
| (Amounts rounded to the nearest MSEK) | 2022 Q2 |
2021 Q2 |
2022 6 mon |
2021 6 mon |
2021 FY |
|
|---|---|---|---|---|---|---|
| Total income | ||||||
| Operating profit before depreciation (EBITDA) | ||||||
| Operating profit/loss (EBIT) | ||||||
| Profit/loss before tax | ||||||
| Net profit/loss for the period | ||||||
| 2022 | 2021 | 2022 | 2021 | 2021 | |
|---|---|---|---|---|---|
| (Amounts rounded to the nearest MSEK) | Q2 | Q2 | 6 mon | 6 mon | FY |
| Net profit/loss for the period | |||||
| Items that may be reclassified to the income state ment |
|||||
| Other comprehensive income for the period, net af | |||||
| ter tax | |||||
| Total comprehensive income for the period |
| (Condensed, amounts rounded to the nearest MSEK) | 2022 30 Jun |
2021 30 Jun |
2021 31 Dec |
|---|---|---|---|
| Total non-current assets | |||
| Total current assets | |||
| TOTAL ASSETS | |||
| Equity | |||
| Total non-current liabilities | |||
| Total current liabilities | |||
| TOTAL EQUITY AND LIABILITIES |
| 2022 | 2021 | 2022 | 2021 | 2021 | ||
|---|---|---|---|---|---|---|
| (Condensed, amounts rounded to the nearest MSEK) | Q2 | Q2 | 6 mon | 6 mon | FY | |
| Cash flow from operating activities before changes in working capital |
||||||
| Cash flow from operating activities | ||||||
| Cash flow from investing activities | ||||||
| Cash flow from financing activities | ||||||
| Cash flow for the period | ||||||
| Cash and cash equivalents at the end of the period | ||||||
| Net debt |
| (Condensed, amounts rounded to the nearest MSEK) | 2022 30 Jun |
2021 30 Jun |
2021 31 Dec |
|---|---|---|---|
| Closing balance |
| 2022 Q2 |
2021 Q2 |
2022 6 mon |
2021 6 mon |
2021 FY |
|
|---|---|---|---|---|---|
| Operational key performance indica tors |
|||||
| Financial key performance indicators | |||||
| 2022 | 2021 | 2022 | 2021 | 2021 | |
|---|---|---|---|---|---|
| (Amounts rounded to the nearest MSEK) | Q2 | Q2 | 6 mon | 6 mon | FY |
| 2022 | 2021 | 2022 | 2021 | 2021 | |
|---|---|---|---|---|---|
| (Amounts rounded to the nearest MSEK) | Q2 | Q2 | 6 mon | 6 mon | FY |
| Unallocated | |||||||
|---|---|---|---|---|---|---|---|
| 2 | Development | Production | Solutions | ||||
| Depreciation/amortisation | 0 | $\Omega$ | $-15$ | -15 | 0 | $\overline{\phantom{a}}$ | $\overline{\phantom{a}}$ | $-15$ | -16 | ||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Impairment and reversal of impairment |
$-2$ | $\sim$ | $\sim$ | $\sim$ | $\sim$ | $\sim$ | |||||
| Depreciation and impair- ment |
O | $-2$ | $-15$ | $-15$ | 0 | - | $\overline{\phantom{a}}$ | $-15$ | $-18$ |
| Unallocated | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 6 months | Development | Production | Solutions | |||||||
| Depreciation and impair ment |
||||||
|---|---|---|---|---|---|---|
| NOTE 5 – PROFIT/LOSS FROM FINANCIAL ITEMS | ||||||
|---|---|---|---|---|---|---|
| ------------------------------------------- | -- | -- | -- | -- | -- | -- |
| (Amounts rounded to the nearest MSEK) | 2022 Q2 |
2021 Q2 |
2022 6 mon |
2021 6 mon |
2021 FY |
|---|---|---|---|---|---|
| (Amounts rounded to the nearest MSEK) | ||
|---|---|---|
| Assets | ||
| Liabilities | ||
| (Amounts rounded to the nearest MSEK) | 2022 30 Jun |
2021 30 Jun |
2021 31 Dec |
|---|---|---|---|
| Net debt |
| (Amounts rounded to the nearest MSEK) | |||
|---|---|---|---|
| Total income | |||
| Operating profit/loss before deprecia | |||
| tion (EBITDA) | |||
| Operating profit/loss (EBIT) | |||
| Profit/loss after financial items | |||
| Profit/loss before tax | |||
| Net profit/loss for the period |
| (Condensed, amounts rounded to the nearest MSEK) | ||
|---|---|---|
| Total non-current assets | ||
| Total current assets | ||
| TOTAL ASSETS | ||
| Total equity | ||
| Total non-current liabilities | ||
| Total current liabilities | ||
| TOTAL EQUITY AND LIABILITIES |
| (Condensed, amounts rounded to the nearest MSEK) | ||
|---|---|---|
| Closing balance |
| (Amounts rounded to the nearest MSEK) | 2022 Q2 |
2021 Q2 |
2022 6 mon |
2021 6 mon |
2021 FY |
|---|---|---|---|---|---|
EBITDA margin EBITDA as a percentage of total income.
Operating margin EBIT as a percentage of total income.
Return on capital employed Rolling 12-month EBIT as a percentage to average capital employed.
Return on adjusted capital employed Rolling 12-month EBITDA as a percentage to average capital employed.
Return on equity Rolling 12-month net profit as a percentage to average equity.
Equity per share Equity divided by the average number of shares.
Equity per share after dilution Equity adjusted for conversion of convertibles divided by the average number of shares after dilution.
Net financial items Financial income less financial expenses.
Average equity Rolling 12-month average equity.
Average capital employed Rolling 12-month average capital employed.
Exchange rate differences on bank loans, bond loan and unallocated bond proceeds, all in foreign currency.
Cash flow from operating activities after changes in working capital.
Net debt
Interest-bearing liabilities, excl. lease liabilities, less cash and blocked cash and cash equivalents.
Interest coverage ratio Operating profit (EBIT) plus financial income in relation to financial expenses.
Debt/equity ratio Net debt as a percentage of equity.
Specific operating expenses, SEK per MWh Operating expenses for electricity production divided by electricity production during the period.
Equity/assets ratio
Equity as a percentage of total assets.
Capital employed Equity plus net debt.
In its reporting, Arise applies key ratios based on the company's accounting. The reason that these key ratios are applied in the reporting is that Arise believes that it makes it easier for external stakeholders to analyse the company's performance.
Figures in this interim report have been rounded while calculations have been made without rounding. Hence, it can appear like certain tables and figures do not add up correctly.
Arise AB, Box 808, 301 18 Halmstad
Telefon 010-450 71 00 | www.arise.se
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