Welcome to the presentation of our first quarter results. It is good to see you all, and it's a privilege for me to present a very strong quarter for Scatec. With me today, I have our new CFO, Hans Jakob Hegge, who will present the financials. Hans Jakob has broad experience as CFO and from the energy industry, and I'm very excited to have him on board with me. He started just a few months ago. After our presentation, we are ready to take your questions. Before we start and go into the highlights, I'd like to draw your attention to the picture on the front page. Last month, we reached the milestone of receiving the first containers with batteries on site in South Africa. Here you can see this crane starting to lift the containers in place.
This South African project, together with Release and also together with the battery storage projects that we're doing together with SNAP in the Philippines, is putting us in the forefront of experience regarding structuring and operating battery projects, storage projects, in combination with renewables and integrated with the grid. This is competency and track record that will be important contribution to our competitiveness and our growth going forward as the renewable energy industry matures. Now let's turn to the highlights of the quarter. Our group EBITDA reached NOK 765 million in the quarter, representing improvements across all segments. Specifically, we had good construction progress in the quarter, an increased recognized gross margin related to the EPC contract to 11%, up from 10% last quarter. This is confirming the attractive economics of our projects currently in construction.
Finally, we continue to work on optimizing our portfolio as communicated during CMU. We have entered into agreements to sell Upington. We are focusing our pipeline portfolio. Finally now, we will streamline our organization in support of our targets. For the avoidance of doubt, this does not change our growth objective of investing NOK 10 billion by the end of 2027, meeting our hurdle rates 1.2 times cost of equity, and also capturing good margins in D&C and in O&M. We have a strong platform to support this growth, with operating assets providing strong, predictable and growing cash flows. First of all, around 80% of the project debt is hedged against increase in interest rates. Secondly, most of the EBITDA either has some level of inflation protection or is in hard currencies.
Finally, all the project debt is in the same currency as the PPA revenues, ensuring protection against fluctuations in currency exchange rates on a project level. This means that EBITDA on project and project debt numbers for the operating portfolio will move together based on currency fluctuations. The projects we currently have under construction will add around NOK 750 million in additional EBITDA once they come into operation. This shows that the cash flow from operating asset base is robust and it is growing. In terms of the quarter, the safety of our employees is obviously our priority number one, and I'm proud to say that we generated 887 GW- h in the quarter with high availability and without any incidents. Production in the Philippines increased by 20%, leading to EBITDA of NOK 130 million.
This is an increase of 55% compared to the same quarter last year. Production from hydropower in Laos and Uganda came in lower than Q1 last year. This is mainly related to hydrology, but the EBITDA come in slightly higher, which is related to FX. The production in solar and wind is slightly up, with a significant increase in EBITDA by almost NOK 150 million to NOK 440 million for the quarter. One of the main drivers here is Ukraine. We re-recognized an impairment of receivables for Q1 last year, and we have now this year continued to receive partial payments for the first quarter. Two weeks ago, I also visited Ukraine. It was good to go back there to meet with the organization.
It was a fairly emotional trip, both to see the damages in Kyiv and also see the damages in Bucha. We also met with the authorities, and the authorities continue to be committed to support the contract that we have entered into. It's very impressive to see the performance of our projects in Ukraine. In the power production segment as a whole, we increased EBITDA 40% compared to the first quarter last year to NOK 686 million. Moving to the D&C segment, we currently have three large projects in construction, representing the largest construction activity in the history of Scatec. This is contributing to significant growth for us. We recognize D&C revenues of NOK 1.7 billion and an EPC margin of 11%, up from 10% in the previous quarter.
In South Africa, we are constructing one of the largest solar and storage facilities globally. As mentioned in my introduction, the first batteries have arrived on site, and they are currently being installed. In Brazil, we are progressing according to schedule with a large project that we have together with Equinor and Hydro Rein. Finally, construction has also progressed significantly for the 150 MW solar project that we have in Pakistan. It was recently hit by a heavy windstorm, but we still expect to complete construction according to the previously communicated timeline. In total, construction of these three projects, they progress according to plan. The remaining contract value of our EPC contracts is NOK 6.4 billion after progress recognized this quarter, as well as FX movements.
One other important milestone for us during the quarter is having our net zero emissions targets and strategy verified and approved by the Science Based Targets initiative. We are growing responsibly with the strategy to minimize direct emissions by 2030 and to achieve net zero emissions by 2040. Our ambitions are in line with the climate science from the IPCC to limit global warming to 1.5 degrees. This is important as we aim to ensure that Scatec does not contribute to further emissions and concentration of CO2 in the atmosphere from our activities. Let there be no doubt, Scatec is committed to improving our future through driving the clean energy transition in a responsible and a transparent way. In terms of the industry outlook, investments in renewable energy must be significantly accelerated to reach the objective of the Paris Agreement.
We continue to see strong growth opportunities in renewables. Scatec is well positioned and remains committed to deliver on growth as we have set out in our plans. Government regulations and incentives are being put in place to continue to grow the renewable shares in the energy mix. We see this also in our focus markets with countries like South Africa, India, the Philippines, all committing to increase the pace of implementing renewable energy in their countries. Renewables also continue to improve its position as the most affordable and available source of energy. Re-renewables is the obvious choice in our markets, which is the emerging part of the world.
Solar and wind has seen close to 30% lower cost compared to 2019 in terms of levelized cost of energy. Scatec is benefiting from this, while coal and gas have seen costs increasing in the same time period. Part of this development is PV module prices, which are down 20% since 2022, reflecting capacity increases in the industry and easements in the supply chain. This will also contribute to improving the economics of projects already in our pipeline as well as it will enable our future growth. At CMU last year, we presented several initiatives to optimize our portfolio to increase efficiency and value creation. During the first quarter, we have sold the Upington power plant for NOK 569 million.
We have a mature pipeline of 13.2 GW to support our growth targets after some projects have been stopped and as we focus on shorter-term opportunities. We are establishing Release as a separate platform, we are working on raising external equity and debt to fund the further growth of this platform. Finally, we are streamlining our organization with a target to reduce annual operational costs by NOK 150 million across the organization compared to the current level we have in Q1. The aim is to make us more focused and efficient while we continue to protect our product development capacity through this process. We are maintaining our growth ambitions for 2027. Over to Hans Jakob. I'm very excited to have you on board, bringing the experience from both Equinor and HitecVision. He will take you through the financials.
Thank you, Terje. Good to be here. Let me take you through the financials. The strong operational performance consists of two main elements: solid power production and good progress on our construction activities. Both are clearly visible on this chart with revenue growth and EBITDA growth. Year-on-year, the power production increased by 21% to NOK 882 million. Underlying EBITDA from power production increased by 19% to NOK 686 million. In the development and construction segment, revenues increased to NOK 1.7 billion compared to NOK 5 million in the same quarter last year due to the high construction activity in the quarter. Gross margin increased from 10%-11% compared to the previous quarter. The EBITDA turned positive to NOK 96 million.
In the quarter, we recognized NOK 44 million in impairments related to projects in Oma-Oman and Brazil. Our financing consists of two elements: debt on project level and debt on corporate level. Our project-level financing sits within the SPV for each individual project, with no direct support from corporate. This debt is solely serviced by the cash flow from the individual power plant. In return, we get dividends, payments to corporate, and with that, we pay the debt as well as the dividend to the shareholders. Total net interest, the bearing debt in the quarter was NOK 20.3 billion, of which corporate debt was NOK 7.1 billion. In total, we recognized new project debt of NOK 861 million for projects under construction. These projects will generate around NOK 750 million EBITDA once they are up and running.
We made our first drawdown of NOK 271 million for Mendubim in Brazil. As debt and EBITDA increased, NOK 1.2 billion of the debt increase in the quarter was due to the weakening of the NOK against the main currencies, US dollar and euro. Our consolidated net interest-bearing debt was NOK 22.2 billion, and our financing costs increased by NOK 100 million to NOK 413 million. We paid NOK 100 million in taxes. On this slide, we are providing visibility on our corporate debt maturity profile. We have no debt maturity until the first half of 2025. In the quarter, we refinanced a $193 million bridge facility, which was due to the first quarter of 2024.
This was done by a new $100 million green term loan provided by DNB, Nordea and Swedbank, and a green bond of 1 billion NOK. The new debt will mature in 2027. In the quarter, we also extended our $180 million RCF by one and a half years until the third quarter of 2025. After the refinancing, the weighted average margin on our corporate debt is 3.25%. We will continue to optimize the capital structure and look at several measures to finance our growth. We will continue to pay a dividend to our shareholders based on our updated policy to pay 15% of the cash flow from operating power plants. We have a solid cash position of 3.3 billion NOK in available liquidity, including the unused RCF.
In this graph, you show, w e show the main movements in the free cash flow. In the quarter, we received NOK 202 million in distributions from our power plants. We generated NOK 88 million in cash flow from development and construction, driven by the high construction activity. NOK 18 million of cash flow from the service segment. We had NOK 157 million in corporate costs, including interest expenses on corporate financing. We invested NOK 431 million in growth activities, of which NOK 302 million was invested into projects under construction. The cash flow from financing of NOK 32 million includes net proceeds from the bridge financing and amortizations on corporate debt. We expect our cash flow to remain solid in the next quarter. Let me explain our renewed framework for capital efficiency. First, strict prioritizations.
More emphasis on capital discipline, capital efficiency, value over volume, and staying committed to be very disciplined in our investments. Only projects with margins of attractive margins, covering the cost of capital of 1.2 will be brought forward. Second, asset rotation. In the quarter, we finalized the sale of Upington in South Africa. An asset rotation of core and non-core will be provided given that the price is right. Third, high-grading the portfolio. Focus on solar, onshore wind and battery storage. Continue to develop our hydro positions and concentrate on green hydrogen efforts in Egypt. We also select project based on technology, project location, timeline and value with focus on the main growth regions. We have reduced our pipeline from 15.7 GW to 13.2 GW, taking out projects that do not match these criteria.
Last but not least, a lean organization with a target to reduce the OpEx by NOK 150 million across the organization compared to the current level. We have increased our focus on development expenses and ways of working. Let me provide an update on the outlook. The full year 2023 EBITDA estimate from power production is increased by NOK 150 million to a range of NOK 2.85 billion-NOK 3.15 billion, driven by the strong performance in the quarter, estimated performance in the second quarter, and foreign currency effects. In the second quarter, we expect EBITDA from the Philippines to be in the range of NOK 10 million-NOK 50 million, driven by the weak hydrology, increasing power prices, and a short-term suspension of the ancillary services.
In development and construction, we delivered high D&C revenues of NOK 1.7 billion in the quarter. We expect this to grow even further in the next quarter as we are benefiting from the high construction activity. Scatec has NOK 6.4 billion in remaining contract value with an expected gross margin between 10%-12%.
Thank you Hans Jacob. Summing up, we have delivered a strong operational quarter with high availability and 40% EBITDA increase in power production relative to same quarter last year. We have had very good progress on our construction activities with NOK 1.7 billion in revenues in the D&C segment and a gross margin of 11%. Last but not least, we are progressing on our initiatives to optimize our portfolio and become more efficient and focused. Thank you for your attention. We will now take questions.
Okay. We will first take questions from the audience here, and then we will move over to our online listeners. If you have a question, please raise your hand.
Thank you. Jorgen Bruaset from Nordea Markets. Just visiting a bit on the full year outlook, can you just confirm that in the guidance range from power production for this year, there is 0 EBITDA contribution for Q2 to Q4 reflected in that range, if I remember correctly? 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.
You want to take it or should I take it?
You can start and I can pitch in.
Yeah. In terms of the EBITDA results this quarter in Ukraine, it was partly related to the partial payments of the energy produced this quarter. It was partially a catch-up payment related to unpaid revenues from last year. As you know, currently our re-revenue recognition approach in Ukraine is to only recognize revenues related to what we get paid. That's sort of the starting point. Conservatively, in terms of moving forward, we are still having zero EBITDA as a basis for the situation in Ukraine.
Okay. Perfect. Thank you. 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?
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 service side, what has happened is that there has been an auction for ancillary services going forward. We secured a good contract for that in SNAP at prices that are better than what we've had historically for the ancillary services.
To build on that, there is no contributions from ancillary services in the second quarter guiding, that will kick in in the third quarter.
Okay. Final question from 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? Any views on the mix between debt and equity in that?
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.
Thank you very much.
Other question from the audience?
Hi. Roald Hartvigsen from Clarksons Securities. You say you're working on optimizing your 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. The 2027 bond is currently at 9.6% yield. 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 to get there beyond divesting plans?
Well, I think currently. Well, 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. That's sort of the main starting point. In terms of the debt level that we currently have and the debt tenure that we have, we are comfortable with that, but we will look to continue to extend that over time.
The average margin is 3.25%, so we're quite pleased with that.
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. If I understand you correctly, you have no sort of specific targets for how your credit profile should look like. You're more sort of looking at how to manage liquidity.
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 the debt situation of the company going forward, and we are comfortable with the current debt level.
Okay. Thank you.
Andreas Nygard, 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?
We are seeing good progress on divestment processes for some of the non-core assets. 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.
Okay. Do you think we will see divestments coming through this year?
Well, it's a good chance that that will happen.
Thank you.
No further.
Okay. No further questions from the audience. We'll 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?
They are expected to be completed around year-end. Some a bit before, some a bit after.
With an average margin within the guiding that we have provided.
Thank you. We have two similar questions from Eivind Garvik from Carnegie and Helene Brønmo from DNB. How do you expect to achieve the NOK 150 million efficiency program? When do you expect it to be completed?
This will be a combination of general OpEx reductions as well as streamlining the organization. We expect to see the full effect of this towards the end of the year.
Another one from Eivind. Can you provide a circa split on the NOK 750 million EBITDA contribution from the three projects under construction?
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. Obviously also it is the South African project that has the majority of the margin.
We have three questions from Nai Sheng 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?
I think as we also mentioned in our Q4 presentation, we have over time seen that PPA prices are moving upward, 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. In the round six we achieved better margins by, I think it was 14%, and also, in the second round, in India, as Terje said, we increased the best prices for our wind projects to date.
I think it's important obviously now that when CapEx is coming down again in the PV industry and the solar industry, we see module prices coming down. Obviously the projects where we have already secured PPAs, the economics of those projects are now starting to improve again.
Thank you. Another one from Nai Sheng. What is the debt financing cost for your most recent transactions?
Well, the announced margin on the recent bond that we did was 660 basis points above NIBOR. Again, the average margin on our debt is currently 3.25, which we think is a decent level.
Finally, could you please comment on your costs, both, CapEx and OpEx trend? Any ease in inflation?
I think 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 have in our EPC team.
Yes. Thank you. We have two questions from Manuel Palomo from AXA Investment Managers. 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.
Yeah. The projects that we have under construction, they are meeting our hurdle rates, so the spread is above 1.2 times the cost of equity.
Could you please quantify the impact from the FX move? To what extent it explains the increase in guidance?
We have an example in power production. I think the FX impact was just out of NOK 70 million. That's an example that FX has an impact in the quarter. As we explained in the presentation, FX is also a part of the movement as the question indicate.
Thank you. We have 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?
I think we already answered that.
Mm
T hat the new projects will contribute within the guided range of 10%-12%.
One final question from Eivind Garvik again from Carnegie. What about the debt co-cost on project level on the three projects under construction?
We'll not go into the details or the specific debt cost of the individual projects. What we're seeing is that we are achieving good debt, project debt levels. The projects are well-funded, and obviously debt levels are in the range based on the market we are operating in and the currency they are in under the PPA.
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? Has the competition in the tenders changed in any ways in your view? I think we partly answered that.
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 follow done on the increase in CapEx. That has now 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.
Another question came in just from Nash. Sorry if I missed this. What is the funding gap situation right now? Any plan for equity issuance?
We commented on our funding need in terms of reaching the NOK 10 billion target that we have for 2027. For the time being, we have no concrete plans for an equity emission, equity raise.
Okay. That was the final question. Thank you very much. That ends the presentation for today.
Thank you.