Eolus Vind AB (publ)

Hi all and welcome to Eolus' presentation of the Q2 report 2024. Eolus is a developer of renewable energy projects within solar and energy storage. Our activities are based on close to 35 years of experience from the industry. with more than 140 skilled and committed employees covering our operations in seven countries in Europe and North America. We have a portfolio of about 250 projects with a potential of 28 gigawatts. Our business model is to develop and sell renewable energy projects to utilities and financial investors. We construct the projects on behalf of the customers and we're often also entrusted by our customers to perform long-term technical and commercial asset management services for their operating assets. So currently we also have 967 megawatt under asset management. Our portfolio was more or less stable during Q2 and amounted to the 28.4 gigawatts. Currently Roughly half of the projects are located in Sweden and 20% each in Finland and the US. The mix between the techniques and technologies is almost 40% offshore wind and almost 30% onshore wind and the rest is solar PV and battery storage projects. We also have a lot of combinations where these different technologies are used at the same site. During the second quarter we had a strong focus on the ongoing construction and sales processes for the U.S. battery project POM and for the three Swedish onshore projects Foglås, Boab and Dollebo. Completion and handover of the Storsjön project is also high on our priority list. There were no new transactions closed during the quarter and revenue recognition has therefore not started for the projects that are under construction and not yet sold. This is the main reason why we have a negative operating result for the quarter. So for the second quarter, we have net sales of 54 million SEK. We have a net loss of 50 million SEK. So the earnings per share was a loss of 1.99 SEK. We have an equity to asset ratio of 44%. And as you can see, there is a significant difference in both net sales and net profit compared to the second quarter last year. And the reason for this is that the second quarter 2023 was the best quarter so far in EOLU's history and included both the sale of 125 megawatt wind power projects under construction in Sweden and a large milestone payment from the customer regarding the American Centennial Flats project. Katarina will elaborate more on this later to give a deeper understanding of the fluctuations. Anyhow, EULUS's earnings will continue to vary between quarters and between years. mainly depending on completed sales processes and revenue recognition for ongoing construction in several projects so therefore we often say that it might be quite relevant to look also at rolling 12 months where we have an EBIT of 203 million SEK and the net profit of 83 million SEK. Near-term revenues and profits and cash flow will very much be determined by quite a few projects and events. is the sale of 88 megawatt wind projects in Sweden. It's the sales of the POMBES battery energy storage project and completion of the Storsjälsjön project and upcoming milestone payments from the Centennial Flat project. I want to do a little deep dive into some of these projects to give a status update. We've started the construction and the sales process for the Foglås, Boab and Dollabo projects in Sweden. Deforestation and the construction of roads have started. We entered into a turbine supply agreement with Vestas earlier this spring. All projects are located in price area three in Sweden which have a good higher electricity prices and forecasts compared to projects further up up north so in attractive price area and the the turbines in in fog laws they are the highest turbines constructed by euros so far with a tip height of 247 meters We expect to complete the sales process during Q4. Next project to highlight is the battery project POM in San Diego. It's a 400 megawatt project with a four hours duration. It comes with a long-term PPA. Construction is ongoing and the delivery of the battery systems will start in September. As of the end of Q2 the investment in this project was quite heavy for us. We have entered into project finance with an American bank that we have signed and closed here in August. The sales process have advanced over the summer and the sale of the project is expected to take place during the coming months. A commercial operation is planned to commence in the beginning of 2025. The Stor Själsjön project is a 260 megawatt project north of Sundsvall in Sweden where we are 51% owner of the projects. The project is not yet completed due to technical problems that the turbine supplier has. All turbines have started producing electricity during the spring and currently 37 out of the 42 turbines have passed the test run. We repeat that our assessment is that the delay will not have any significant impact on Eolus' margin from the project since we are covered by late delivery liquidated damages from the supplier and we also receive the operating net from the electricity production from the project. During the quarter we submitted a permit application for an offshore wind project in Sweden called Skidbladner. It's located in the Baltic Sea north of Gorska Sandön. It's a large project with a potential electricity production of up to 12 terawatt hours per year. Roughly comparable with the largest nuclear reactor in Sweden. I also want to give you an update on what you can expect to see from EULS. What projects are prioritized in the pipeline and in our ongoing activities. I start with the PNAVAP project in Latvia. It's a project of up to 158 megawatts. When constructed it will be the largest wind project in Latvia. All major permits have been obtained will secure the grid connection and construction is expected to start in early 2025 and with a commercial operation planned for for 2027 and we expect to initiate the sales process in the near near future. Next American battery project is 126 megawatt project in Nevada. where we have received all main permits. We have secured the grid interconnection agreement at really attractive terms and conditions. We have procured the long lead lead time components such as transformers and high voltage breakers for the project. So we're now doing the final design and applying for the construction permits. We expect to run the sales process during 2025 and which would give us the possibility to have the project in operation already during 2026. Turning to Finland we have the Motormechi 2 project and this is the most advanced project from the portfolio that we acquired from EIT last year. So I'm very pleased to see this project progressing and maturing. It has the potential also to include some solar PV parts to be added to it to utilize the grid connection and make the combined facility more valuable from a system perspective. The land use plan was approved and gained legal force in July. We will now complete the wind measurements and apply for the construction permits and aim to enter into grid connection agreements. Which could give us an opportunity to reach commercial operation during 2027. Fageråsen, also in Sweden in the attractive price area 3, is a partnership with the regional partner Dalarbind. So Eolus owns 49% of the project that in total is 238 megawatts. And here we also expect to start construction during 2025. run the sales process in 2025. There are a couple of local partners that are interested in investing in at least parts of the project and also for this project we plan for commercial operation during 2027. Finally and added to the list is another Swedish SE3 project called Ölme located in the municipality of Kristinehamn where we have all projects now in place and intend to run the sales process during first half of 2025 and also then start construction. Thereby I hand over to Katarina.

Hi everyone and thanks Per. Then return to the financial slides for the second quarter 2024. Net sales was 54 million SEK and that is significantly lower compared to the second quarter last year where we had the net sales of about 1.7 billion SEK. For this quarter, revenue recognition from Storfallfön, based on the degree of completion for the second quarter, is included in the net sales with 3%. In total, Storfallfön has a percentage of completion of 85%. The delays in completion and handover are due to the previous communicated technical problem with the turbine supplier. Our assumptions are still that the delay will not have any major negative effects on EBLU's margin, as the delay penalties and net operating income from electricity production will compensate for the delay. And the remaining 15% of the completion is expected to be accounted for during 2024. The significantly lower revenue and profit, if we compare this quarter to the same quarter last year, are primarily due to the substantial positive contribution from the sale of Skalberg, Utterberg, Tjernes, Rosenskog projects during second quarter last year. As also Per said, it was the best quarter ever in ALUS history. three this project were under construction both revenue from the sale of shares in the product companies and revenue recognition from the construction contributed to results in q2 2023 and the fact that the construction of the products had reached an advanced stage when the projects were sold that resulted in higher revenues as the customer reimbursed airless for incurred costs And during second quarter last year, we also received a significant milestone payment related to the US solar and battery storage project Centennial Flats, which also made a significant contribution to the profit in Q2 last year. And overall, one of the reasons ALS net sale is fluctuating between quarters and sometimes also between years is the timing of sale transactions. Another factor is the degree of completion of projects where we have started the construction before they are sold. When the product companies are sold, the shares in the product companies are handed over to the customer, and that's a high impact on the revenues. And at closing of the transaction, the requirements are fulfilled for revenue recognition according to the percentage of completion method. And at that point, all incurred costs that Aeolus has deployed will be reimbursed and reported as net sales. However, the margin will not be affected by the reimbursement of costs. Only sales price and revenue recognition from construction management agreement, if we have that for the project, will affect the total margin. And for now, as POM in U.S. and the Swedish onshore wind farms Frågelås, Boab and Dollebo are under construction and not yet sold, it will have a significant impact on Aeolus net sales and profit once they are sold and the product companies are handed over to the customer. Then the requirements for revenue recognition according to the percentage of completion method are fulfilled. And the revenue recognition based on the degree of completion will start. And as mentioned, Aeolus would also be reimbursed for all incurred costs and report them as net sale. And if we go to expenses for Aeolus Group, that is 6 million SEK higher compared to the same period last year. And the higher expenses are following the business plan for expansion for 2022 and 2024. However, we will see for the remaining 2024 a lower activity compared to 2023 when it comes to recruitments. We had a negative operating profit for Q2 of minus 26 million SEK and compared to a positive amount of 517 last quarter, same quarter last year. And the main reason for the negative operating profit is the low degree of completion and that with no selling of any products has taken place. Net from financial items for the quarter was minus 19 million SEK compared to 14 million SEK minus last year. And interest cost is higher for the quarter because of financing of the ongoing constructions. We had a net loss for the period of 50 million SEK compared to a net profit of 422 million SEK same quarter 2023. And the difference in net profit compared to the same quarter last year are mainly explained by the sale of the products last year, as mentioned. If we go to the balance sheet for ALUS Group, We had total fixed assets amounted to 313 million SEK. And that amount has increased compared to the second quarter last year. And that's due to land lease agreements in the U.S. battery storage product POM and future payments according to conditions in that agreement. And when POM is sold and handed over, this item will be reduced with approximately 200 million SEK. We have a high number for work in progress and projects under development. It was 1,557,000,000 SEK. And for advanced payments to suppliers, almost 760,000,000 SEK. And approximately 1.1 billion of these items is referable to investments in the ongoing construction of POM in the US and the Swedish onshore Windfarms, Fogelros, Boab and Dollebo in Sweden. As the projects are not sold, the constructions are on our own books and impacting both balance sheet items and cash flow until the sales process is completed. And as Per informed, we have signed a separate project financing with a bank in US for the construction of POM. And the project will now be fully financed until commissioning. Also other investments in the project portfolio during the quarter has also contributed to increased work in progress compared to second quarter last year. We had cash of 526 million SEK end of June this year and that is compared to 1.3 billion SEK end of June 2023. And the lower cash amount is due to financing of the ongoing constructions. Also investments in the project portfolio and financing of the running business. And we had total assets of 3 billion and almost 400 million SEK. And that's the highest number so far in ALS history. We had total equity of 1 billion, 493 million SEK. whereof equity of 73 million is related to minority stakeholders. Also, interest-bearing liabilities have increased nearly 1 billion, 200 million SEK, compared to less than 500 million SEK in June last year. And the previous mentioned lease agreement for POM is included in the long-term liabilities with approximately 200 million SEK. Once again when the product is sold the liabilities referring to the lease agreement will be removed. The overall increased interest bearing liabilities is referring to loans to finance ongoing constructions. If we have a look at the key figures we have the two Divided net sales and operating profit in product development and asset management. And to start with the net sales for asset management is 8 million with an operating profit of 1 million SEK. And the remaining net sales is referring to product development with 47 million and an operating profit of minus 27 million SEK. We had earnings per share for this quarter minus 1.99 SEK. And on a 12-month rolling, earnings per share is 3.35 SEK. Cash flow from operating activities during the quarter was minus 570 million SEK compared to a positive number of 860 million SEK same period last year. And again, the main reason for the negative cash flow from the operating activities in comparison to second quarter last year is referring to the ongoing constructions and investments in the portfolio. Equity per share about 57 SEC compared to 56 SEC end June last year. We had a net debt of 417 million SEC due to capital tied up in projects. And from this quarter, the net debt and net cash is defined as current and non-current interest-bearing liabilities to credit institutions, less cash. And for previous periods, the definition also included liabilities regarding lease agreements. And this means that mainly liabilities regarding future lease payments have been excluded from the calculation. And we think the adjusted definition is a better way of measuring the debt. And also the previous period has been restated, so the net debt net cash number is comparable. During the Q2, we also paid out the dividend to the shareholders. The amount was 56 million, which is 50% higher than we paid out last year to shareholders. Full-time employees. end of quarter were 146 compared to 104 the year before. The order backlog is about 660 million SEK and that is lower compared to June last year and we expect to increase the order backlog when the ongoing selling process are completed and also the structure of the transaction will impact the number of the backlog. Equity to asset ratio, 44%. And we're still having a solid platform. But the tied up capital in ongoing construction is lowering the equity to asset ratio number. And return on equity after tax is 6% for 12 months rolling. And that's the period 1st of July 2023 to end of June 2024. And also worth mentioning that ElucidNet profit on rolling 12 months is 83 million SEK. And then we had the last slide mentioning the projects under construction. In total, 456 megawatt were under construction end of June. And Storfallfam had a degree on completion of 3% during the Q2, and in total, 85%. And the remaining degree of completion will be accounted for during 2024. And the rest of the ongoing constructions are not fulfilling the requirements for percentage of completion method as the product has not been sold yet. And revenue recognition will start for those projects when agreements with customers are signed and when the predefined construction milestones are achieved. Then I'm handing back to Per again.

Thanks Katarina. So to summarize, we had a strong focus on sales and construction of the US battery project POM and the Swedish wind projects Fogloss, Boab and Dollebo. And we also signed a separate project finance agreement amounting to 175 million dollars for the POM project in August. No transactions were closed during the quarter, which of course have a huge impact of the result for the quarter. Revenue recognition for Fogelhavsbo up and the dollar bow projects will start as soon as the projects are sold. We have several mature projects in Sweden, Latvia, Finland and the US approaching ready to build status. So sales processes are estimated to be closed in 2025 for three to five of these projects at least. We have appointed Kista Badenhansen as new chief operating officer and Osalam as the new chief people and culture officer and also will start in September. We're soon coming to the end of the three-year business plan and we are working on the business plan for the next three years and when that is concluded on we will plan to present new updated financial targets for the three years to to come uh thank thank you for for listening in and uh we open up for for questions if you wish to ask a question please dial pound key five on your telephone keypad to enter the queue if you wish to withdraw your question please dial pound key

6 on your telephone keypad. The next question comes from Lara Motadi from ABG Sundal Collier. Please go ahead.

Hi, Lara from ABG here. Just a couple of questions from my end. I would first like to start off with a bit on the market. Would you say that the market sentiment has changed or improved over the last quarter, given, for example, the potential rate cuts which could improve the attractiveness of your projects?

Probably too early to see yet. But we have the combination of the last year's increased CapEx prices and cost inflation. But on the other hand, we have the interest rates starting to go down. So yes I would say that we see signs of the increased activities and interest in the projects. I cannot say yet that we've seen it in the investors valuations but expect that to come if the trend continues.

Thank you, very clear. Could you maybe discuss the most recent pricing and cost trends? Are you confident that the project margins will remain at the healthy good level?

Yes, for best projects, absolutely. Of course, we have also to prioritize within our portfolio and focus on the best projects. But we see prices for wind turbines now being stable for the last half year at least. We see significant reduction in cost for PV panels and also the prices for lithium affecting battery storage projects have come down significantly.

Thank you. Regarding your technology mix, how do you expect the mix to evolve going forward? You currently have a significant amount of offshore and onshore projects in your portfolio. Do you expect solar and storage to increase or will you see a similar mix in the future?

Our main focus and the basis of the portfolio is onshore wind. Of course when we add offshore projects it has a huge impact on the size of the portfolio due to the size of each offshore project. When it comes to offshore we see our position as earlier in the in the value chain compared to onshore and PV and BESS projects. So we would typically look to exit at permits granted. So I don't foresee under current conditions that we will start any new offshore wind projects.

Thank you and just the last one from my end. How is permitting developing would you say are there any signs that lead times are changing for the better or for the worse? If you could discuss this maybe for both your technologies offshore and onshore but also how the trends are in the different countries you operate.

We always think lead times are too long compared to what they should be. They are really long in Sweden. They are shorter in Finland. In Poland, permit lead times are shorter, but lead times for grid connections are much longer. But I would say that the EULUS benefits in this market also from our long history and our large and diversified portfolio spread over both markets and technologies. So it's important for us to have a constant flow of projects that can can compensate for long permitting lead times.

Okay, thank you. That was all from my end.

Thanks, Laura.

The next question comes from Ojan Roden from Carnegie Investment Bank. Please go ahead.

Yes, hi everyone. Start with Centennial Flats. I suppose that it's just hitting the cash flow here. Could you indicate roughly how much that is? Is it marginal? There's no point in highlighting that specific part.

No, remaining main milestone payments from Centennial Flat is really, really significant. We have guided, I don't remember the exact figures for the interval, but the lower end of the interval is for total expected revenues is well above 100 million US dollars. where we so far have collected 40%. So we have another 60% to collect. The exact timing of the milestones are dependent on our customers' decision. to proceed with the project and to make their final investment decision. The milestones are spread out from their notice to proceed to COD commercial operation of the project. So we expect to collect the remaining payments up until 2026.

Okay, thank you. Can you say anything how the progression is going relative to the range you have indicated? Are you having any any gut feel on where in the range you will land at the end or is it entirely still up in the air?

It's much related to the final design of the project so it's very much up to the investor and what kind of revenue streams they will try to capture and how tax equity will be sized for the project so I'll have to pass on that question for now but we'll definitely come back with an update in our reports as soon as we can close in on the spam.

Okay thank you and you touch upon the market and and the challenges you're facing and looking a little bit outside your own business. I can see that a lot of other companies are struggling as well. What would you say would be the key trigger in order to generate a renewed interest? Is it down to electricity prices or is it a first cut from ECB or is it... combination of everything. What's your kind of sense when you talk to customers? What are they waiting for in order to be more active?

It is of course a combination. Interest rates, funding possibilities is of course of great importance for both doing transactions and that also have a huge impact on valuation of course. Clear political guidance also have an effect on many markets on where to invest. All that, of course, have an impact on the long-term power price forecasts as well.

Okay. And just a detailed question. The lease agreements you have removed from your net debt, how much has that been roughly? Is it single-digit or double-digit or triple-digit?

I can help.

Approximately 200 million SEK.

Okay. So almost 10 SEK per share. So it was not reasonable to include it in the calculation of the net cash net debt per position.

And that is not treated as a lease debt according to IFRS 16. Is that correct or how should I interpret that?

Because normally lease agreements are included in... But in the item in the balance sheet we have included it. It's just a calculation for the net debt. That definition has been changed and that's up to us to have the definition.

Okay, I understand. Okay. Thank you very much. That was all from my side. Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

Okay, thanks for questions and comments. We have received some written questions in the chat. We'll try to answer some of them, and for some more detailed questions, we'll try to get back to you with answers in emails. First question is about the project Timmele called Böne in some external publications. It's a small two turbine project in Sweden where the municipality retracted their positive veto that they had given in 2014. They retracted that after we even have ordered the wind turbines for the project. There is an ongoing court case about it. We have appeal. and in so it's still in the portfolio and in we're also running a parallel track to relocate turbines to another project worst case but the project has therefore been quite postponed. Next question is about conditions for wind energy and concern related to low prices during high wind times and seasons. This is an expectation of what's called lower capture rates for technology that becomes dominant in the system. So how we work with this and how investors deal with it is of course they have to make assumptions of the capture rate. that is the price that a specific project will receive compared to the average monthly price in that electricity price in that price area so investors are already considering that and have done so for years so it's included in the long-term power price forecasts for instance. So what we can do is to optimize project layouts for instance with longer blades that captures more wind during low wind times. We develop a hybrid projects where we can include for instance a battery component or a solar PV component in in the same grid connection to make the combined project more valuable. Our project can also participate on the regulating power markets for especially for the down regulating markets to receive revenues also during ours with very very low power prices and we can also make partnerships with consumers that industrial consumers that is interested of course to buy electricity at low prices for instance for hydrogen production Next question is what is most profitable energy storage in the US or standard onshore wind projects? uh and i would say that there are no standard uh projects every project is unique both when it comes to technology and um and and markets both energy yield and the capex costs and operating costs differs a lot between technologies and and markets but but on average if we would put all uh historical project margins uh uh look at them i from the quarterly reports uh i guess we would end up at seeing a number like after around roughly around 15 percent and of course that must be true for also all new investments in best projects or other technologies otherwise if it's not at that level or better we should not do it. The next question is about the EU wind power action plan, if we see any meaningful benefits from that, and we do. A lot of the proposals and uh the decisions from the eu are very favorable but it needs to really be implemented in the main member member states that can really boost the industry reduce the costs of both development and the construction of projects that would lead to lower power prices for both industry and consumers. Next question is about the prices on battery storage and that the prices have fallen quite a lot during the recent year and if it has any effect on POE specifically. It doesn't affect POM. The price is fixed since a year ago. On the other hand, the PPA was signed at the same time. So prices are locked in both on the CAPEX side and also the operating revenues are... are locked in. But of course it's a positive effect on all future battery storage projects if battery prices stays on a lower level. And of course the revenues from PPAs or tolling agreements will depend on the supply of battery projects. There's also a question regarding POM that we guided in the Q1 report that we expected to close the POM project with the investor during the summer. that were now a guide that we expected to happen later. And it is a complicated project. It is a massive project of more than, with the Carpex, around 200 million US dollars. Several of the investors that had the highest bids wanted us to secure both the construction financing for the project and to construct the project. So we decided to go that route since we think it gives us substantially higher value compared to the risks. compared to just selling it off as project rights and with the agreements. There are also some questions regarding the share buyback program that was approved by the annual general meeting in May. Make sure that Iulis has the most efficient capital structure. Currently, as you see in the balance sheet, there's a lot of resources invested in the projects. You see that from the Net Depth position. I would say that probably introduction or launching of the approved share back program would probably require that we sell at least some of the mentioned projects before it's launched. The final question is about the US election and if it matters who becomes president after the election in November. Yes, of course it can affect the market situation. The Inflation Reduction Act is important for the projects and for for the financing system. Donald Trump has had some speeches against the system, but we should also bear in mind that it is an agreement between the Democratic and the Republican Party. And also that now a lot of the American enterprises are heavily relying on this way of financing project and the large American corporations to set off some tax burdens. So our opinion is that it doesn't matter that much. It will be difficult to make radical changes in the system. And also when it comes to legislation, there's very much legislation that is dependent on state level legislation and not so much on federal level. That was the last question we received. Thank you all for listening in today.