I think it's time. Good morning everyone, and welcome to this results presentation. I'm Terje Pilskog, and I took over as CEO of Scatec earlier this week. Still, I'm not new to the industry, nor to the company. I've been part of Scatec's management team for the last nine years, with responsibility for many different functions in the company. For the past years, I've been head of product development in the company. I have also more than 15 years of experience within the industry. I've been working with renewable energy in that period, basically across the globe. Since 2013, I've been working closely together with the team here in Scatec in developing the position that we currently have today.
I think, at this point in time, I would like, on behalf of the management team and the company to thank Raymond for his leadership and vision in terms of bringing the company forward to the position that we have today. Today, together with our CFO, Mikkel Tørud, I will present our Q1 results. First, the time to act is now. We see, and this is also commented by the UN Climate Change panel, the pace of the green energy transition is going too slow. At the current pace, we are not going to reach our 1.5 degrees target. We'll not be able to limit the increase in temperatures to 1.5 degrees, and we will also not be able to limit it to 2 degrees. The situation is dramatic for the globe.
We need to increase the pace, and in here also lies the opportunity for Scatec going forward in terms of our focus on renewable energies. Scatec was founded with a mission to bring renewable energies, clean and affordable energies to countries where the energy gap is still significant and where the energy transition needs to increase. For the past 15 years, Scatec has been in the forefront of the investments and deployment of solar energy on a global basis. Today we have evolved into a leading provider of solar, wind, and hydropower plants with about 3.5 gigawatts of capacity across 4 continents. I look forward to continue developing our strong position as a leader in renewable energy. Overall, I would say the direction of the company is going to stay more or less the same.
We will now work over the next months to further fine-tune and refine our strategy and ensure that we have the appropriate focus and discipline in our activities going forward. At this point in time, before moving forward, I would also like to say a few words about Ukraine. We continue to see war and aggression on the country and people that are very close to us and where we have spent a lot of time. We have 66 Ukrainian colleagues. Happy to report that all of them currently are safe and sound. As a matter of fact, we also met with some of them last week.
I have to say it was quite emotional and touching meeting, which impacted all of us quite a lot. As I've said, I've spent a lot of time over the past few years in Ukraine.
It has been a very progressive and promising country. Obviously now we hope that the war is coming to an end as quickly as possible, so that we can limit further human suffering. Let me turn a bit more to the macroeconomic situation. As you all know, we are currently experiencing turbulent macroeconomic times. We have lived through the pandemic. We are seeing supply chain disruptions. CapEx is being impacted. Interest rate developments are uncertain. On top of this, the war in Ukraine is creating an unprecedented energy crisis on a global basis. If you look at these charts, you will see that fuel and energy prices are going through the roof. The impact of this current turbulence on a long-term basis is hitting thermal energy sources significantly more than renewable energy sources.
On a relative attractiveness basis, this is actually improving the position of renewable energy going forward in this context. If you look at our portfolio and where we are operating, we are also operating some deregulated markets, like for instance in the Philippines. This picture with increasing energy prices will also over time positively impact our positions in these markets. In summary, on the macroeconomic side, we believe renewable energy will continue to gain competitiveness and that the green energy transition will continue to offer attractive growth opportunities also going forward for Scatec. This is especially relevant in many of our key markets, where the current dependence on coal, oil, and gas-based energy is very high.
These are the countries where we will see a significant need of transition, and these are the countries that are currently mostly impacted by high energy prices. Now turning to the quarter. As we have announced, the quarter is impacted by the war in Ukraine, and we've had to take impairments of receivables and asset values in the country. Furthermore, the EBITDA has also been impacted by seasonality. Proportionate revenues came in at NOK 1 billion and EBITDA at about NOK 400 million. Mikkel will obviously come back with more details about this, but the hydrology is within normal variations and does not impact our expectations for the H2 . During the quarter, we also announced refinancing of several assets, South Africa, Vietnam and Egypt. This constitutes, in total, about 600 MW of our portfolio.
It's a significant chunk of our solar portfolio that we have refinanced during the quarter. This has led to reduced interest rate margins and also increased tenors for these projects. In addition to that, obviously there has also been some release of capital. It has contributed to cash distributions from operating companies in Q1, which, including normal dividends, has reached almost NOK 500 million. This shows that even in these turbulent times, we have good assets that are generating good cash flows. Also, during the quarter in the Power-to-X segment, we have entered into partnership agreements for green ammonia in Oman, and we are finalizing our first long-term contract for hydrogen in Egypt. I will further come back to these topics a bit later in the presentation.
Finally, we have also made a final investment decision for a 20 MW storage, battery storage, investment in the Philippines. The Philippines is an important market for Scatec, and we see promising opportunities across all renewable energy technologies in the country. The country is currently heavily dependent on coal and gas for their energy supply, and obviously also impacted by the energy crisis. This is increasing the attractiveness of renewables. We also have a significant hydropower operation in the country and see that renewable energy will play an important role in the country going forward. With increasing power prices, this will add to the value of that portfolio. The storage project marks our first standalone investment in a battery system.
It will be integrated with our Magat Dam and hydropower plant, in the country and mainly provide ancillary services to stabilize the grid. The project will be implemented through SNAP, our JV with AboitizPower, and SNAP is now making the final preparations for construction start in 2022. We aim to have it operational in 2024. One of my key priorities during 2022 will be to move our backlog into construction. We have a backlog of five projects, totaling 1.7 gigawatts, and included in that backlog is also 1.1 gigawatt hours of storage capacity. This will ensure our continued growth in the short term. Obviously, finalizing all agreements, and approvals from the authorities, and concluding on the loan agreements and, meeting all the conditions required to have first drawdown. That is a tedious process.
It can take a bit of time, but we have made good progress on this during the quarter, and we still aim to reach financial close, and start of construction on all of these projects by the end of 2022. I'd also like to add that despite challenges on the CapEx situation on a global basis, these projects are good and robust also from a financial point of view. We expect these projects to deliver returns and margins according to our targets and our guidance. Together with my team, when it comes to the pipeline, we have developed a significant pipeline over the last years, and we will continue to develop this high quality pipeline. We are ramping up our development activities to build the basis for further growth.
On the traditional utility scale, renewable energy projects, we are increasing focus on our core markets, where we see a long-term and predictable demand for renewable energy. From the chart here, you will see that we have a good distribution of both solar, wind and hydro opportunities, and you should expect that in general, PV will take shorter to mature, while wind is taking a bit longer and hydro is taking the longest. Further, you should also expect from us that over time, the projects that we pursue will increase in size as we continue to optimize our portfolio.
Several of these markets are also deregulating and opening up for PPA with corporate off-takers and for shorter term merchant contracts. This is the situation, for instance, in the Philippines, in India, and in Brazil. We see that this development enables us for...
enabling us to accelerate growth and also being in a position to capture higher energy prices. Converting these projects into backlog construction and operation will also be one of the team's main priorities going forward. Based on the project opportunities that we are currently seeing, we are still aiming to reach 15 gigawatts by 2025, representing a CapEx of about NOK 100 billion. At the end, it is more about the CapEx, the returns and margins than the gigawatts. Then another one of my key priorities will be building out our Power-to-X business. From the previous page, you saw that currently this only represents about 5% of the total pipeline. This is partly due to the fact that we are conservative in adding in some of these very sizable projects in the pipeline at this point in time.
Power-to-X for us means marine fuels. It is about green hydrogen and green ammonia. That's where our focus will be. These will become game changers in hard to abate sectors, and we see emerging demand both from fertilizer producers, from the shipping industry using this as marine fuels, and also from power producer intending to blend green ammonia into the mix when they're producing based on coal. We are positioning Scatec in this sector for a large global export market, and we see that demand is likely to pick up from around mid-2020s, so around 2025. To be competitive in this market, you need to access large amounts of renewable energy. It needs to be very cheap and low cost renewable energy.
There are important, then, that you have good resources in terms of solar irradiation and/or also good wind resources. In addition to that, it's important to be close to the coast and ideally also be close to significant shipping routes. If you look at where we are located today, the Middle East and North Africa are ideal areas for developing this kind of business. These are also the areas where we are and we are having a very strong position today already. From that point of view, we believe that we are well-positioned to capture opportunities in this area. During Q1 , we signed an agreement with ACME to partner up for a green ammonia project in Oman, in Duqm. The project will be implemented through several phases.
The P hase II will be 100,000 tons of ammonia, and the P hase II will be up to 1.2 million tons of ammonia. The P hase II is already very well advanced. The land has been allocated by the authorities. We have done the design and the engineering. We are finalizing the negotiations of long-term offtake agreement for the sale of the green ammonia, and we are about to mandate the lenders. It's a very mature project from that point of view. I would also like to add that as far as we know, this is the first project that has received a green certificate, meaning that the products coming out of this project has already been certified for delivered under the green regime in Europe.
Some of you might also have noticed that Egypt as a country has set out a strategy and an ambition to become a hub for green hydrogen and green ammonia. Based on our existing position that we have in Egypt, we think that also here we have a very strong position. We have already partnered with Fertiglobe, a large fertilizer producer, The Sovereign Fund of Egypt and Orascom to develop a 100 MW green hydrogen plant supplying Fertiglobe's ammonia production. We are currently working on finalizing the long-term green hydrogen offtake for that project. Further, we have also signed an MoU with the Economic Zone of Suez, where we intend to develop at least 1 million ton green ammonia project.
All in all, we are very excited about the opportunities that we have in this area, and we believe that we have a very strong starting position. Let's go a bit back to my top priorities and the top priorities of the company and the management team going forward. We aim to bring our backlog into construction during 2022, and we will grow our pipeline in core markets for a traditional renewable energy business. We will build out the Power-to-X business. This includes continuing the development of the current projects, developing further the strategy in the area and building team and capabilities around this area. We will be focused and disciplined in terms of driving the growth going forward. This probably means larger projects, fewer markets, more leverage of existing market understanding and more repeat business.
Obviously, we will also then continue to further strengthen and develop our team through new hires. We will do internal mobility and focus on competency development. In this context, to ensure that we have the right focus and the right capacity in our management team, we are also making some immediate adjustments here. Our current Head of Strategy and M&A, Kate Bragg, has been promoted to the executive team, and she will take the role as Head of Corporate Development, supporting all our growth related activities. In addition, Ann-Mari Lillejord will join the executive team and will lead product development for our traditional utility scale business. This includes hydropower. Power Tracks is moved up to the executive management level, as we develop our strategy for green solutions further.
This will be managed by Pål Helsing, our Head of Solutions, together with our current Power Direct team that is also already working on the development side. In addition, EPC will continue to be built as an independent unit. At the end, I would just like to say that I look forward to working together with this extended management team. I also would like to welcome both Ann-Mari and Kate on board into the executive management team. With that, I'd like to hand over to Mikkel for him to go through the financials.
Thank you, Terje. Let me then go through the financials, the segment financials, the proportionate numbers. Q1 revenues reached NOK 1 billion and EBITDA NOK 398 million, and this is down then from NOK 636 million last year. Power production continues to be the main business segment with revenues of NOK 933 million and EBITDA of NOK 490 million. We saw increased production in solar and wind compared to last year, while hydro production was down. Looking at EBITDA compared to last year is mainly impacted by two elements. First, the seasonality in production in the Philippines and that led to increased purchase of power at relatively high prices in the quarter. Secondly, we made a credit loss provision in Ukraine of close to NOK 90 million.
I will refer to both the Philippines and Ukraine in a minute. When it comes to development construction, we report limited revenues in line with our earlier guidance. We report negative operating profit of NOK 772 million impacted by impairments. Impairments in Ukraine of NOK 770 million, but also impairments related to discontinued projects in Mali, India and Bangladesh. In Mali and Bangladesh, this is due to the security situation we see, but also the economics of these projects. India is the 900 MW that we earlier put on hold that is now impaired. Now, moving into the Philippines, this is an important asset for us, generating about 25%-30% of the EBITDA in the company.
As we guided on earlier, we produced about 25% below the five-year average in the quarter. As you would expect for hydropower, production is really relying on weather, relying on hydrology and water inflow. As you can see on the graph, there's both a clear seasonal profile through the year, but also variations year-on-year when it comes to production on hydropower. Now, around 80% of the expected production is sold through bilateral contracts with the purpose of basically hedging the spot price market volatility. As indicated on the graph, with a seasonal production profile, power is then purchased in the market in periods where the production is below the contracted volume. Then we buy power, and especially now in the Q1 , we buy.
Bought more power and at relatively high prices that impacted EBITDA. On the other hand, when we have excess volumes, like in the H2 of the year, we can sell more volume in the spot market or to the ancillary services, depending on the market and market prices. Over time, this approach is stabilizing earnings and cash flow, but obviously had an impact now in the Q1 . Again, in the current environment where we see very high power prices, we see the value of the hydropower assets increasing. We are here in the Philippines exposed to short to mid-term power price developments, and we believe that the energy price levels we see now globally will not return to normal anytime soon.
That means that we will benefit from this development also on the Philippines going forward. Let me move to Ukraine.
We're operating 336 megawatt in that country. Happy to report that still after Russian invasion, 95% of our capacity is available and operating. These pictures are from earlier this week, and, before maintenance, and, really proud of our team that is out in the field and maintaining our assets in, under these very difficult circumstances. Demand is down, and grid operator needs to curtail production for us and other operators on and off, depending on how the market evolves. We are also really impressed by the government of Ukraine. We are receiving payment for about 15% of the volume that we deliver to the grid. This is covering our operating expenses, and the government has committed to this approach also going forward. The government has obviously also committed to pay any outstanding receivables.
At the moment, we only recognize revenues in line with the 15% that we're actually getting paid for. That is obviously something we hope to change as the situation improves. We also see very strong support from EBRD, our main lender in the country, not only to us, but also to the government Ukraine. They are supporting the government and the energy sector in the country quite a lot also in these times. We have agreed a standstill with our lenders without formal waivers, and we see no intention from the lender side to act on their pledges of assets. Now, obviously this situation also triggers the need to review the asset values, and there is a lot of uncertainty on how things will develop in Ukraine.
We have developed three scenarios with equal weights, with two scenarios where the invasion is impacting cash flow for two years and five years respectively, and one scenario where we see no value in the assets. This translates into a 30% impairment of the asset values, and as I said, NOK 770 million, and we've used the same approach when we look at our receivables in the country. Now, as Terje also mentioned, we've been able to refinance and improve debt terms under these turbulent times, and we're quite satisfied with this. We've been working on this for quite some time, and we see a very clear trend and a strong demand, I would say, for green assets also in the debt markets, and this is really documented in our ability to refinance.
We've achieved improved debt terms, and we see reduced interest margins of 100-200 basis points. That's up to 50% reduction of the margin that the banks are charging us on the project finance structures. We see release of cash reserves, and we see increased leverage. This is obviously improving the return on capital to us as a sponsor. In Egypt, we have established a landmark first green bond, a very strong structure with credit enhancement from the World Bank and EBRD, allowing international investors to participate in this green bond. It's the first of its kind in Africa. We have now refinanced assets in South Africa, Vietnam, Egypt, and the Philippines over the last 15 months, and we see other opportunities in our portfolio as well.
The other point that we would like to highlight here is that the maturity of the asset class, also in our core market, is helping us when we look at new investments. The margins are coming down, and that is reducing the impact of the increased underlying interest rates increases that we see at the moment, making sure that we can continue to invest, and that's good news for the climate, and it's good news for us when it comes to growth. Now, let me touch on the financial position very briefly. Consolidated assets stood at NOK 32 billion at the end of the quarter. It's down by NOK 1 billion from the end of last year. Consolidated cash in the group was NOK 4.2 billion, and proportionate net debt ended at NOK 15.1 billion.
Looking at the movements of cash at the group level, NOK 480 million received from the operating power plants, including the refinancing proceeds from South Africa that came in in this quarter. We have more coming in in the Q2 . We've invested or capitalized around NOK 100 million related to development of our pipeline and backlog in the quarter, and cash position increased to NOK 2.6 billion, and we have a total of NOK 4.2 billion of available liquidity, including our undrawn credit facilities. We see us being in a very strong position from a liquidity perspective, and we are ready and well-positioned for the investments that we have ahead of us. Let me end this by updating you on our 2022 guidance.
We expect to produce about between 3.9 and 4.2 TWh in 2022 and generate EBITDA of NOK 2.3-NOK 2.6 billion. The EBITDA guidance is down by NOK 400 million to reflect Ukraine, and this includes then the write-down of receivables in the Q1 , but also that we expect no contribution from Ukraine on the EBITDA line in 2022. For the Q2 , we expect to produce 860-960 GWh. It's also good to note that the reservoirs in the Philippines have filled up. We have water, and we're expecting to produce 20% above the five-year average for the Q2 . We also expect slightly higher power prices in the Philippines for the remaining part of the year.
That is compared to how we saw it, in our previous EBITDA forecast. With this, I thank you for the attention, and, I think we're open for questions, Terje. Maybe we can start if there's questions in the room. Jørgen.
Thank you. Jørgen Bruaset from Nordea. Just going back to Ukraine, could you elaborate a bit on what would be the worst case outcome in terms of economics for you? You mentioned you haven't received any formal waivers. Just remind us, what's the receivables left in Ukraine, and what would be the economic impact to the parent company of Scatec, I mean, on the corporate level, if your lenders should choose not to be as supportive as they are today?
If we start with the receivables, we have about NOK 300 million receivables in our balance sheet related to Ukraine. We have about NOK 2 billion of asset values after the impairment we've done now. When it comes to the project finance volume or debt volume, the non-recourse part of that is around NOK 800 million-NOK 900 million. That is not. That, again, non-recourse to us as a group. We also have additional commitments to PowerChina of approximately NOK 700 million that is recourse to us as a group.
If we take the 300 plus the 200 plus the 700, we're at NOK 1.2 billion, which is sort of economics at risk in a total scenario where we are very negative on the future. Is that how I should think about it?
Yeah. I mean, you can take it from that angle, or you can take it from the asset value, right? NOK 2 billion.
Perfect.
The receivables. Yeah.
Thank you. Also, just a quick question. I note that you are not making any changes to your long-term outlook, and then obviously 2025 is approaching relatively fast, and we're coming out of 18 months of COVID and then into the situation in Ukraine now with basically bottlenecks across all value chains. How do you think about your midterm growth outlook, both in terms of availability of projects and execution capacity, but also on the funding side, given the equity need to realize that growth versus the recent development?
Yeah, I can take that. Yeah, I mean, the basis for maintaining our targets is the pipeline that I talked about and the fact that we are currently seeing that we have a lot of good and interesting project opportunities that we are working on, and they are fairly diverse in terms of countries and technologies. We believe that we have a robust starting point in terms of reaching that target. In terms of the funding, I mean, these projects will, as we've done historically, be funded through non-recourse project debt. Obviously we together with our other partners will contribute the equity. There are many different ways of raising the equity required. I mean, we have our positive cash flow.
We have our current cash balance. We can sell down and take smaller stakes in the projects if that is required. We feel that we have a lot of different tools that we can use in order to fund the projects that we are working on going forward.
Thank you. Just a follow-up question on that. You mentioned initially that it's the CapEx and attached IRR that's the key things to monitor here and not the gigawatts itself.
Mm.
Obviously, the ambitions for 25 is still linked to gigawatts.
Mm.
Assuming that changes a bit when you are also more diverse in your technology approach and such like that. Would you expect that the CapEx plan towards 2025 will remain unchanged depending on how the mix of types of capacity goes into to where you would be in the future? Is still sort of the 15 GW target a hard ambition for you?
Well, I think it's the 15 gigawatts in combination with the NOK 100 billion, which is the ambition for us. As I said, at the end, it's more important the capital that we're able to put in work than exactly the number of gigawatts. Because a gigawatt of PV is different from a gigawatt of wind, is different from a gigawatt of hydro, and definitely also Power-to-X opportunities will look quite different.
Very clear. Thank you.
Some questions here.
Hi. Magnus Rasmussen from Capital Shinra. Can you elaborate a bit on the status of the PowerChina loan? I think it was originally due in a month or 30 days from now.
Yeah. It's difficult to elaborate. As you probably would understand, this is a bit of a sensitive issue. We have indicated that we are working on a solution here, but we'll have to get back with more on that when we have that established.
Okay. Thanks. The NOK 400 million reduction in power production EBITDA guidance, did I understand you correctly that is just related to Ukraine and implies the negative Q1 and then zero for the remaining three this year?
Correct.
Okay. Thanks. One question on ammonia as well. Can you explain a bit how you're thinking in terms of how many gigawatts of power do you need to run a 1 million ton ammonia plant? Also what it would take for you to include this in your pipeline. Like, what are the milestones you need?
Well, it obviously depends a bit on the energy mix, whether it's only solar and wind or other renewables. If you assume on sort of a pure solar basis, it would be in the range of 4.5-5 gigawatts. In terms of what it will take to include it in our pipeline, I think our key targets for moving this into pipeline here is the same as it is for other types of projects in PV, wind or hydro. I mean, we need to have a secure project. We need to have the land. We need also to have a good visibility on the offtake, and that we are seeing the possibility of having a robust business case around it.
Thank you. That was it.
Okay. It sounds like we should maybe go to the web, Andreas, and then of course, we can take questions here if there are more.
Yes, sure. We have a couple of questions, one from Eivind Garvik in Carnegie. What's happening in Pakistan?
In Pakistan, we are continuing to ensure that we are preparing the land for start of construction. We have had good progress there during the quarter, and there is now only a limited part of the land which is left until we can start construction.
Thanks. Couple of questions from Nash Kui in Barclays. Good morning. First, congratulations, Tarje, for your appointment. Two questions. First, capacity in operation and under construction remained flat, but both project backlog and pipeline decreased quarter-on-quarter. Wonder if you could provide more color around this. Do you expect this trend to continue, and do you see logistics challenges to continue for the rest of the year? You can start with that.
Okay. Well, in terms of projects in operation, what we have said today is that we are targeting to convert the current backlog into construction. That does not mean that those projects will come into operation by the end of the year. They will come into operation next year. In terms of pipeline and backlog, obviously, our ambition is to continue to grow that, so we don't expect that trend to continue.
Second, on Ukraine, what will trigger further impairment as the current impairment is still below the book value? Do you see any possibility of impairment reversal, and counterparties resume payments?
Well, we've tried to approach this in a way which makes it robust for basically different scenarios as I indicated, right? There's obviously potential for the situation to deteriorate, but as of now, we believe we have approached this in a fairly robust manner, so that, you know, based on how we see things now, this is our best estimates, obviously. This is with high uncertainty. That is clear.
One third from Nash. With European energy security becoming a more important issue, will that change your strategy so Scatec can invest more into Europe?
Yeah, that's a question. Will we move into Europe? Well, first of all, we are already in Europe. We are currently working on project development and opportunities in Poland. For the time being, we will continue to focus on Poland in the European context. Our DNA and where our key competitive advantages lies is still related to emerging markets. What we will do here is that we will continue to focus and increase our attention to the larger emerging markets that we've already been talking about.
Another one came in from Eivind Garvik. Why have you not taken FID on 100 MW in Tunisia? If I'm correct, you have secured project financing.
We have secured project finance, but also as I said in my communication earlier, it's always some time between the fact that the banks are approving a loan until you reach first drawdown. It's about timing and making sure that we meet all the conditions of the banks, make sure that we are ready on the EPC side, and that we find the optimal timing of initiating the construction.
Okay. We have another one from Richard Alderman. In full-year guidance adjustment, can you be certain there is nothing further from the Philippines? If so, why? Is it because you have built in all anticipated shortfall for rest of 2022?
Well, the visibility on hydrology and production in the Philippines is relatively, you know, short. We're basically looking two to three months ahead. Our estimates for the H2 of this year is based on P50, basically what is expected to happen based on P50 estimates. That is the basis. There are uncertainty related to that. We believe that uncertainty is also captured in the range that we communicate around when we talk about NOK 2.3 billion-NOK 2.6 billion of EBITDA. The main uncertainty is there related to Philippines.
Couple of more. What expectations do you have for sale of ammonia in terms of price per unit from Knut Elutson?
Yeah, we are currently in the negotiations of sales agreement for green ammonia, but at this point in time, we cannot obviously comment on the pricing.
I think one last one. We have covered the rest. Good morning. Can you elaborate more on discontinued project in India? What were the main reasons for it?
Yeah, this is related to a 900 megawatt project that we were working on last year. We saw throughout the H2 of last year and beginning of this year that input duties but also cost inflation impacted the CapEx and the returns on this project, this specific project in India. This was won in a tender in India 18 months or two years ago now. That is the reason why we discontinued development of that project. This was announced a bit early in the year.
Okay. Another one just came in from Michael Schneider from EQT. How much did building power in the Philippines cost in the Q1 ?
Well, what I have at hand is the increase in cost of the sales or cost of buying the power. That was NOK 180 million. That was the increase from last year. We also bought a bit of power in the Q1 last year, but it was a fairly limited amount. Around NOK 200 million would be a rough estimate there.
Okay. Thanks. That ends the Q&A.
There's one more here.
Thank you. The Q1 financials was apparently weak compared with the market expectations. Why do you think that was the case, and what will you do going forward preventing repeatedly large negative quarterly earnings surprises?
Well, there's you know, two key elements to that as we've highlighted today. You know, Ukraine, the impact of Ukraine, I think that is something which is quite difficult to sort of guide on upfront and give. That's one deviation. The other one is related to the Philippines. Again, it is difficult for us to give precise guidance on the implications of the volatility that we see short term on the production side. You know, we are of course striving to improve and provide clarity around this. We've explained today again how we operate the Philippines. Hopefully that is giving you know, the market a better understanding of how this works.
Another one, if I may, and this, goes to Terje. How will you reestablish capital market enthusiasm for Scatec?
I think that's the starting point for this is by starting to deliver on what we have talked about and obviously on a short-term basis. The importance is to convert our current backlog into construction so that we can both see that we are starting to regain short-term growth, providing margins on the D&C segment and relatively quickly moving these projects also into operation so that we see that we start generating also power production revenues related to these projects.
I think the other thing, which is important, is that we are able to bring a larger part of our own pipeline into backlog so that we can more visibly talk about some of these opportunities and explain to the market exactly where they are and how mature they are relative to bringing them forward also to backlog and construction.
There's one more question here.
Thank you. Jørgen Bruaset from Nordea. Just following up on the previous question. So what we're also seeing in the industry as such is that more and more players are engaging in a more structural type of processes to crystallize value and regain that momentum that might have diminished a bit over the last couple of quarters. How do you see the Scatec playbook in terms of engaging in transactions or other type of structural plays to crystallize the value in your portfolio?
Well, that depends a bit on sort of what part of our business you're talking about. I think on the traditional utility scale business, we are continuing to look for structural opportunities. We will consider that if we find good opportunities related to that. On the more Power Direct side of the business, it is clear that these are larger projects and partnerships is most likely going to be an important part of the playbook going forward.
Thank you.
Okay. One more question popping in here, from Magnus Solheim, Fearnleys. Can you comment on the overall inflation impact for the existing portfolio of assets given that a lot of your assets have inflation clauses?
Yeah. No, I mean, that's, that is exactly right. We have inflation protection in a number of our assets or large assets where we also operate in local currencies, like in South Africa, in Brazil. So that is, you know, that is of course giving protection in the current environment. So that's also, you know, as is, as highlighted, important to keep in mind here. Okay.
Just one last one.
Yeah.
It's popping in. I've said last one several times, but Eivind Garvik has another one, Carnegie. Will construction start be back end loaded in 2022, or do you see projects reaching construction before summer?
I think that we are not going to comment on specific dates in terms of when we enter into construction of these projects. I think I will just refer to what we have already said that we target to have them in construction by the end of 2022.
Okay. With that, I think we're finished with the Q&A. Thank you.
Okay. Thank you, everyone.
Thank you.