Good morning, everybody. I'm extremely happy to welcome you to the second quarter presentation 2018. As usual, the agenda will cover some highlights and project updates that will be handled by myself. Mikkel will go through the financials, and I'll have a short summary and an outlook. We're now seeing, as you will also see in the numbers, a tremendous upswing in the construction activities. We're also pursuing new opportunities that you will see reflected in an increased backlog and an increased pipeline. The Q2 proportionate revenues was this quarter, NOK 1,229 million, compared to NOK 167 last year. Of course, the difference here is on the second bullet here. We are now ramping up construction. The EBITDA is up from NOK 100 million last year to NOK 266 million for this quarter.
The D&C revenues, a bit more than NOK 1 billion Norwegian kroner, NOK 140 million, reflecting what I just mentioned, high level of construction activities, as we have been expecting. In addition to that, we shared with you on the Capital Markets Day an increased ambition with the target of 3.5 gigawatts by end of 2021. I'm happy to confirm that we have been adding them over the quarter, 117 megawatts of backlog in Argentina and 130 megawatts in Ukraine. We've also added equity by issuing rights that added NOK 600 million to our balance sheet. A bit on the projects that we have under construction up to in the right, left-hand corner, sorry Malaysia. These are three projects at three different locations in Malaysia, almost 200 megawatts.
They are in their final stages sequentially of being completed, and the first project, Gurun, is in final testing right now, while the other two will follow over this next few months. Brazil. This is a project that we are doing 50/50 with Equinor. We were experiencing some heavy rainfall as a few others in Brazil. That brought us a bit behind the schedule, but all key performance indicators now are showing that we're picking up speed and are targeting early fourth quarter grid connection. Honduras, a project that have had a few challenges. This is past history. We're now in the final phases also of erection of the panels, and the substation is complete, and we're aiming towards the end of this quarter, beginning of early fourth quarter to complete Honduras, this Los Prados project. Egypt, the largest project in Africa, 400 megawatts.
This is just north of the Aswan Dam, south in Egypt. We have started construction. Not an interesting picture, but it shows that we're trying to fence in the future plant. Just to show to you that there is activity. This substation there has actually been completed. This was handled by the utility, by the way. Mozambique. Up. If you're familiar with Africa and Mozambique, you know that this is deep in the jungle. Logistically, this is a bit of a challenge. As you can see, we have troops on the ground, we are starting to do the groundwork there too to make sure that the place where the plant will be erected is plain and going to be receiving all this equipment in a good manner. South Africa, also a large project. Three projects, in fact, but same location considered.
The way that I look at it as one. A lot of synergies. This is in Upington, a tremendous place in terms of solar influx. We have started there the road construction, access roads. And we will then really kick off for the rest of the project on the first one in. With regards to, it's a country that has been going through some turmoil lately and also over the past 10 years. They have now been given some assistance. They are growing. In that respect, we're extremely happy that Equinor and ourselves on how our relationship with Equinor is evolving. Here we're looking for financing, debt financing, but we will only have that in place after COD, after commercial operation date, when we're producing electricity. And Statoil, sorry, Equinor is. I've been saying this for 30 years, right?
Equinor is providing construction finance, allowing us to start construction very early and complete without actually having a debt financing in place. Ukraine. I was in Ukraine in Kyiv three weeks ago. I met with top officials in three departments, and I was extremely, I have to say, impressed and also happy with the determination of the administration in Ukraine to add renewable energy. They are clear that the 10-year feed-in tariff is a short period, which is reflecting the fairly high tariff. They are revising their program now, and they are committed to add more renewable energy in the years to come. And of course, we have shared with you our ambition to add 300 to 400 megawatts or complete 300 to 400 megawatts in Ukraine. You should expect us to financially close some of these projects already in the second half of 2018.
For the backlog and pipeline. The pipeline increased about 500 megawatts to four and a half. And you can see that all our projects are in the solar belt, the sun-drenched part of the world, the emerging markets. And we see a very positive market development. And I also see that with the reduction in equipment prices, as you have seen over the past few weeks, I think the growth over time will start to accelerate further. But yes, that is still to be seen. But that is at least our expectation. I'll hand the word over to you, Mikkel, to go through the numbers.
Thank you. So let's jump into it. The proportionate revenues reach NOK 1.2 billion, as Raymond mentioned, in the quarter. EBITDA, NOK 266 million. And the increase here on a proportionate basis is basically driven by the significant construction activities that we now have achieved. And last year it was, in the first half of the year at least, very limited activity. Revenues and margins across the other business segments remain fairly stable, and I'll revert to that in a minute. And when it comes to EBITDA, about NOK 140 million of the NOK 266 million that we report for the second quarter came from development and construction. Last year, we had a negative EBITDA of NOK 18 million in that segment. Just also to comment on the EBITDA margins in percentage terms, it's really affected by the mix of business activities.
We have above 80% EBITDA margins on the power production business, while on development and construction, we report this quarter 13% EBITDA margin. When we have more activities on the construction side, the overall EBITDA margin is coming down. That's why we see a lower margin in this quarter compared to the quarter a year ago. Cash flow to equity reached NOK 136 million, up from NOK 20 million last year. Again, the main bulk of that growth is coming from construction. Looking at power production these days, during this year, we have had the same assets in operation. You can really see the stability of the financial results of this portfolio. Production reached 68 gigawatt hours in the quarter compared to 70 gigawatt hours a year ago.
On a 100% basis, we reached 144 gigawatt hours, which is more or less in line with what we guided on. Same goes with EBITDA, really reflecting the steady state of these plants. Again, we're selling power on fixed tariffs. Irradiation is a very stable resource, and the plants are operating at a high level of availability. You will basically see that the EBITDA compared two years ago and the last 12 months is more or less the same. It's, I think, proving that solar is such a good resource for power production. O&M this quarter, NOK 30 million of revenues, NOK 19 million of EBITDA. It's affected by a catch-up effect where we recognize revenues of NOK 8 million in Jordan that stems from the period October 2016 to March 2018 for two of the three plants in Jordan. That's a catch-up effect.
Furthermore, we saw a good performance of the plants in South Africa. We have somewhat higher O&M bonuses also in this quarter compared to the same period last year. Again, NOK 1 billion of revenues from development construction. Six projects, Raymond talked about them. Honduras, Malaysia, Brazil, Mozambique, Egypt, and South Africa all contributed to revenues in this quarter. Accumulated progress across that portfolio was about 21% at the end of the second quarter. This is a portfolio with a contract value of about NOK 8.5 billion, meaning that about NOK 6.7 billion is the remaining value of these contracts and the revenue from that before we start construction of any new plants. Gross margin came in at 16%, and this is fluctuating.
It's been down and up from quarter to quarter, and it will continue to be like that depending on the mix of projects that we are realizing. On the balance sheet, main event, obviously, in the last quarter, in June, we raised NOK 600 million. We now have a very good basis for funding further growth of the company, and we have strong ambitions. As Raymond alluded to, we expect to deploy more capital already in the second half of this year. We have a good basis for doing so here. Total assets stood at NOK 11 billion, a bit up from end of last year, mainly based on CapEx investments that we have done in the first half of this year. When it comes to cash, NOK 2.4 billion on a consolidated basis, while NOK 1 billion was free cash at that group level.
Book equity strengthened further to NOK 2.8 billion after the equity raise, and the equity ratio stood at 79% at the end of. Looking at the cash movements through the quarter, you will recognize how we present this. We received NOK 21 million from operating plants in terms of distributions and dividends. We have NOK 100 million or so of cash flow from D&C. We invested about NOK 300 million of equity in new projects or existing projects, I would say, both in Malaysia but also in Egypt in the quarter. We spent about NOK 30 million on development CapEx on new projects in backlog and pipeline. 590 million of net proceeds from the equity raise, while we had a negative movement of working capital of about NOK 300 million in the quarter.
We've had a very positive working capital movement over the last 6-9 months, and now we see some reversal of that as especially the project in Malaysia is getting completed. I thought I could repeat some of the key figures that we presented also on the Capital Markets Day at the end of May in terms of the new targets, the new growth targets that we set out. Aggregate investments for reaching 1.5 gigawatts by the end of this year, then further to 3.5 gigawatts by 2021. CapEx is expected at NOK 13 billion and NOK 15.5 billion respectively. Our share of equity investments for the current portfolio is about NOK 1.85 billion, while we expect to invest about NOK 2.2 billion for the additional 2 gigawatts over the next 3 years or so.
If you look at the D&C contribution from us realizing this portfolio is about NOK 1 billion, and NOK 1.2 billion for the 2 steps of this growth path. Basically getting us to NOK 2 billion-NOK 2.5 billion in total from D&C. While the annual cash flow to equity, the long-term cash flows over 20-25 years, is expecting to grow from current NOK 170 million or so to about NOK 800 million when we have the 3.5 gigawatts in operation. We expect then to enter into long-term contracts, power purchase agreements, where we fix the tariffs and have stable long-term cash flows as a basis for this. I'll then leave it to you, Raymond, to summarize.
Thank you, Mikkel. I thought I was going to just bring back a slide that some of you may have seen on the Capital Markets Day. The theme of the Capital Markets Day was accelerating growth. We thought we would want to capture this in a slide showing 4 important pillars. Of course, it's interesting to win new projects and put them into the backlog, but you need to deliver these projects. Right now we are building projects at 3 different continents. Having been in the EPC business, although this was subsea and oil and gas, I have deep respect for execution.
We have been working extremely hard on making a new operating or updating our operating system that is tailored in a way that we can roll it out into different environments, make sure that we have the right ingredients of competence, marry that with local competence to make sure that we are meeting the schedules, the quality, and the local content requirements. Sometimes that is a challenge, but of course we are following these projects in a detailed manner. In a broad brush, most of the projects that we are executing at the moment are following the schedule that we were planning to follow. There are some delays, as I've said to you before in Malaysia, but again, there we are approaching the end of the construction period. Accelerating growth, you need to feed the animal. You need to discover new projects.
You need to discover the projects with a content that allows you to meet the investment criteria that we have, that allows you to meet a lot of other criteria, security, land issues, how you interface with the local population. All of these criteria, which is a long list that cannot fit into an A4 page, but we are scrutinizing these projects, and when we move them from just an opportunity into the pipeline, they have met certain criteria. Then we talked about new opportunities. Solar, utility-scale, this is what we know, this is what we have been doing most of. We are now adding to the opportunities or the menu, a broadened scope.
We presented one project at the Capital Markets Day, which is a small project with the UN in Africa, where we actually are seeing a combination of power or solar power with batteries, maybe with a backup from diesel. We can actually reduce the cost of power that they are actually paying for in these rural areas by 50%. A lot of opportunities like that, but of course, we have to find customers that have a solid balance sheet and can pay us. There are numerous opportunities like that that we're pursuing. Furthermore, we talked about corporate PPAs. Why is that now entering the scene? Well, in some countries, for example, in Brazil, the power that is being produced from solar today is actually costing less than the base power that is spread into the market. That, of course, industrial players watch this all the time.
If they see an opportunity, it is a regulatory regime that allows you to buy from us or from a similar company to us directly, then they're looking at that to maybe spice up their energy mix so that they can reduce the overall cost. We are pursuing opportunities like that in several parts of the world, and that will increase as more and more countries will deregulate the energy markets and allow for this type of power purchase and that alike. Finally, of course, a lot of the cost that we have is financial cost. If you can optimize the way that we raise funds, the way that we distribute funds, that is healthy, and it actually reduces the cost of the project tremendously, and in other words, you can have a lower tariff and hopefully also we can get the benefit from it.
We also said at the Capital Markets Day that we may rotate some of our assets. We have talked about this in the past, but the rotate it, maybe we can combine it with other assets to increase the returns or actually take the proceeds from one investment into something else that will enhance our financial performance. You should watch us on all these pillars on how we perform. I think we are going to share with you a lot of interesting news over the next few quarters on how we are performing here. This slide you have seen before. We have updated this slide to show our new ambitions, our goal for end of 2021. We only have 300 megawatts in operation, but we have 1,100 under construction.
Some of these plants will, or most of them I suppose, will be connected at least over the next 12 months, but a lot of them also in the second half of this year. We have been starting to add backlog to the 2,000 megawatts that will be on top of the 1,500 megawatts. We are moving up, and a bit ahead of our schedule for the time being. We will see projects that will mature and that will go from the pipeline into the backlog sequentially as they meet certain targets, giving us then at the end of 2021, the 3,500 megawatts of projects. Mikkel covered this a bit before. The D&C contribution, NOK 2 billion-NOK 2.5 billion, which gives a bit of a piece of information with regards to our ability to create capital from development and construction activities.
Cash flow, once we are done, NOK 800 in average to generate capital, in the range of 12%-15%. Equity IRR, here we are also talking about average. It will vary a bit from country to country, but we are targeting 15%. Of course, what is the foundation of our business, health, safety, security, and making sure that we are not having a negative impact on the environment. Interfacing with local communities through our sustainability programs will continue to be a very important part of Scatec Solar foundation moving forward. I am ready, Mikkel and I are ready for questions from the audience.
Andreas Bertheussen with Kepler Cheuvreux. A couple of questions, if I may. First of all, could I just on a maintenance question, the equity invested so far in Malaysia, are you nearing a completion there or are you still expecting to invest more equity?
We're nearing completion. It's a bit left, but not much.
Could you just give us some color on, I don't know, you don't disclose the completion on single projects in 2021 overall, but are you, especially in Brazil and Malaysia, when do you expect to be the final quarter that you will receive D&C earnings?
Okay. Well, when it comes to revenue recognition, it's again following an S curve and you will normally have a certain portion of revenue recognition left at the very end of the project. I would say that we're talking about Brazil grid connection in the fourth quarter, and Malaysia now in the second half of this year. I think you will see revenue recognition for both of those projects, both in the third and the fourth quarter, but less so in the fourth than in the third.
Okay, thanks. It's an interesting observation the recent transaction in South Africa, Globeleq acquiring the Brookfield assets, 178 megawatts, I think. Were you approached for a bid for your South African assets, and do you know anything about the pricing?
I do not.
No, I have not seen anything on the pricing of that transaction. No, we have not been a seller of assets, so we have not really been engaged.
Okay, thanks. Two more, if I may. One is on the component prices coming down on the back of this Chinese demand drop. Are you able to benefit from this in terms of D&C margin, or are you experiencing the opposite, that the counterparties are backing down on pipeline projects wanting to renegotiate on the back of potential lower tariffs?
In terms of renegotiation, we haven't had any initiatives taken by our customers. That doesn't say that could happen, but we do not expect it. Some of these contracts are signed in ink and are sealed. I think that mostly this is a benefit that is hitting our D&C margin straight on. We've seen price reductions of 10%-15%, depending on the type of module. We are, I would say, technologically in front when it comes down to taking new panel technology into our plants. In Egypt, for example, we will install panels that are producing electricity, not only from the front side, but also from the backside, which is the first time. This is 400 MW, so this is going to be a major activity or installation.
We will see a boost because these panels are installed in the desert, when you're producing from the bifacial panel, you are actually taking the indirect light. You know that you can get sunburned even if you're not directly in the sun, right? This is the light that we're actually picking up on the backside of the modules and are increasing the efficiency and the output of our plants. Those panels used to be fairly expensive. They have come down in the past year 20%. Monocrystalline technologies has come down the same level, and polycrystalline, which we used to install on all our plants, are trading now at $0.26 to $0.27. Although the upstream part of the business is hurting to a certain extent and we will see some consolidation, we happen to be, at least this time, on the receiving end.
Thanks.
Can you come over, Mikkel? Perhaps you should stand on that.
Just going back to the asset rotation potential in your portfolio. Have you been in any firm discussions regarding asset rotations with potential counterparties? How do you see the interest rate sensitivity to the asset rotation potential? Thank you.
I think it's fair to say that when we have talked about this, we've done it in the context of us growing our portfolio and beyond the one and a half gigawatts that we're currently realizing. I think also from our perspective, to do an asset rotation would probably make more sense once we have some more operating experience from the plants that we're currently constructing. The answer is no, we have not really initiated any specific processes around the asset base at this moment. I think that will be a better discussion to have once we have sort of realized at least the current portfolio of construction projects.
If I may just add to that, what Mikkel is saying is, of course, very true. We are seeing in some of the markets that there are interested parties that are wanting to enter the market. A bit surprising maybe, but even before Egypt is finished or even started construction, we see that there is a lot of Middle East interest in the Benban project. That is good for Egypt, it is good for the electricity price in the future, and it is also good for the companies that are investing into Benban. We are seeing some of that in South Africa as well. Different investors that were risk-averse on the construction, but then see the parks in operation. You saw Mikkel's numbers. There is not much variation when you are producing electricity from solar.
Okay, thank you. Also just a final one from me. On the added capacity to the pipeline, could you just share some thoughts on sort of where we are in those projects? We have seen a quite big spread on the lead time from entering pipeline and going into backlog. So how mature are these projects you have added to the pipeline and just some color on those.
It is 500 megawatt, and they went up to 4,500. It is very difficult to be specific about it because it is a whole host. Some of them will take some time to develop. Others, as you have seen in the past, may jump from being an opportunity, not being a part of the pipeline, and straight into the backlog. If I should anticipate the behavior of the pipeline, I think more projects will move quicker into the backlog, which is also reflected in our view of the increased or accelerated growth. For example, in Ukraine, we are not developing the projects. We are spotting opportunities, companies and people that have been developing projects for the past 12 months to 24 months. We are looking at them. Are they interesting? Do they have all the permits?
If we are happy, then we start negotiations, and we reach some kind of an agreement that satisfy our criteria and their criteria. Then we move ahead. Then they go straight into the backlog, like the one we just signed when I was in Kyiv two weeks ago.
Thank you.
Okay, I just checked. We don't have any questions from the web, so I think.
We're done?
We can end it there.
Okay.
Yeah.
Very good. Thank you very much. In fact, it's more sunny here than at some of our plants in Norway. Maybe we should reconsider and bring our home market or our home place into the portfolio of opportunities.
Yeah.
Thank you