Hexicon AB (publ)

everyone and thank you for taking the time to listen in today. My name is Marcus Thor, I'm the CEO of Hexicon. I'll be now the next 20 or so minutes providing an update to our business at Hexicon, as well as providing an insight to the world of floating offshore wind and any related development. Let me get to it. The agenda for the day is to start very briefly on floating offshore wind, give a bit of a new view of where the market is today, and where it's been very recently, and going into some key insights of Hexicon, and ending up with some highlights of our business during the last period. So let's get to it. I'll start off with just a slide to summarize floating offshore wind. Many of you have listened to me before, and I'm for those repeating myself, but it's worthwhile just to frame this in. Floating offshore wind, which Hexicon has been dedicated to for about 15 years, is where you place turbines on floating foundations, which provides a lot of opportunities. Not the least, the fact that on a global scale, 80 percent of waters accessible for offshore wind are in deep water. So from a global perspective, to really increase the part of the renewables energy mix that comes from offshore wind, it needs to be a significant part that is floating. What are the advantages then? Well, I'll summarize them here in four words. One is environmentally friendly. It's less intrusion on the seabed, and you're more flexible in where you site these projects. It means that you can avoid things like nature-preserved areas, avoid conflicting with other marine mammals, birds, and whatnot. Second is reliable. So out further off the coast, winds are stronger and winds are more stable. Additionally, the flexibility of not being constrained by water depth allows you to find the best wind locations. Third is scalable. So again, not constrained by patches of shallow water areas allows projects to be really big. It also allows projects to utilize one and the same foundation. So it's literally a blueprint copy across all the foundations in a really large wind farm, which is not the case if you consider bottom-fixed projects, where every second foundation needs to be a specific design because there are variations in water depth and seabed. And this is a true driver to reach cost reductions, is to make projects really big and industrialize across the complete supply chain. The last one is adaptable. So the ability to adapt to market conditions, the ability to place them where the demand is. And the fact of the matter is, as I said, around 80% of waters across the globe are deep. And the vast majority of the power demand across the globe are in coastal areas. So with these four words, we're summarizing floating offshore wind, which can be seen as the third generation of wind power, started onshore, then went into water, so offshore in shallower waters, and then went deeper and deeper and deeper as the demand grew. And now we're at the transition, going from fixed bottom into also floating offshore wind. It hasn't been built in commercial scale yet, but there are multiple projects across the globe, some that we are engaged in, that will start construction over the next few years when it comes to floating technology. Looking at the market as such, and where we are today, if we look back at last year, it was a challenging year for the industry. We did see a lot of projects being affected, we did see delays, and it was very much related to interest rates going up, inflation, and also supply chain bottlenecks. So a lot of late stage projects, that were closing in on needing to make hardware decisions and investments, were put on hold, or even abandoned in some cases. And with that said, we're seeing a lot of the earlier or mid-stage projects, where a lot of our portfolio is, not significantly affected here and now, from a cost perspective at least, but certainly the general market sentiment, have or was, I should say, across 2023 week. We are seeing signals on the more positive front at the moment, markets starting to stabilize, and there's clear signals related to, again, the general global economy looking a little bit brighter when it comes to inflation rates and whatnot. We are seeing some positive signals also in projects, but it hasn't really come back yet to where we were a few years ago. So for Hexicon, that means that we have seen somewhat of longer lead times in any discussions that are related to transactions and investments into projects, etc. We are seeing a lot of consolidations across the market. So both the various type of companies merging, bigger players coming in and taking over smaller players and whatnot. So there's definitely some market consolidations being seen. Lastly, it's good to note, though, that there's a lot of political initiatives that are increased and have continued to increase during last year to support floating offshore wind. Both seeing that across the EU, we're seeing it in the UK, and we're seeing it over in the US. It's related to things like speeding up permitting processes. It's relating to increasing ceilings where there are subsidy schemes, such as the UK, and so on. So all in all, a challenging year behind us, looking brighter ahead. How quickly markets will come back and stabilize, that is, of course, very hard to say, but certainly we're seeing it a lot brighter looking forward than looking back at last year. A few key insights of Hexicon just to summarize in four bullets. Number one, Hexicon has been working dedicatedly to floating offshore wind for 15 years. And that is very unique to have that experience. And that's taught us a lot across the years, both on technology and project developments. Number two, the impact of the Hexicon on the world. Having our own fully-owned IP for a competitive technology for the twin wind, which is a dual turbine floating foundation, I'll come back to that in a few slides, is also very unique in having that combined with the project development expertise. Number three is a diversified portfolio. So we've purposely gone out for projects in markets that have certain prerequisites that make them very good for the specifics of floating offshore wind rather than being in a certain region. So that means today that we're both diversified across the globe, geographically, but also in terms of maturity. And lastly, our whole fundamental business model and growth plan over the last six, seven years have been very linked to solid partnerships. So partnerships with both local and industrial players and not the least to obtain the local competence in various markets that we are active have been a key ingredient in our growth and will continue to play a significant part going forward. And just as a reminder probably for some of you, but it is worthwhile mentioning that Hexicon operates with a dual business model in the sense that we're both a project developer and a technology provider. And these truly commercially reinforce one another, but they're also independently, and we run them independently at this stage. So until our technology, the floating foundation, which is called TwinWind, is verified and demonstrated, we are treating and developing all projects on a technology neutral basis. And the reason for that are a few, but fundamentally, any project development, you want to ensure that the project chooses whatever ingredients when it comes to technical components or any of the supply chain that is fit for purpose for this specific project. And that may vary because they're different parts of the world, different environments, different waves, water depths, et cetera. And also the fact to allow projects to grow with maximum value increase and to allow investments to happen also during the development phase, you don't want to lock in projects with specific technology too early. So that's how we operate these two parallel legs of the business model, if you will, but the learnings across the two and the opportunities they provide one another are substantial. So we are using the fact of having our own IP both to get into markets and certain partnerships. And one slide on the technology. We are focusing a lot on the technology. And I'll come back to in a few slides where we are revisiting or restructuring the Twin Hub project, which is a demonstrated project in the UK for our technology. But that doesn't mean that we're down prioritizing the technology as such. So what we are doing is both generic technology developments as well as specific engineering work with the key partners and suppliers for the Twin Hub project. When it comes to the generic technical developments, we've carried out over the last eight, nine months a significant technology assessment across a handful of different topics to ensure competitiveness. The market is growing very quickly and there's probably over 70 different foundation technologies out there today. So we need to at all times assure ourselves that we're keeping this technology cutting edge and competitive. And some of those areas for our technology are related to things like the control system, not only control system of the individual turbines, but the control system of the overall system, so the two turbines on the same foundation, how that rotates, how that aligns with the wind, if it's misaligned with the wind, how long, what does that mean? It's related to the fabrication of it all, how to scale that, how to serial fabricate, it's related to the foundation weight, and it's related to the mooring system. So there's a few key and big aspects of this whole system that we carried out quite a significant assessment that makes us as confident as we've ever been that we're on the right track. And as a reminder, a key part of the driver for this technology has been to offer something that is truly long-term competitive. Placing two turbines on the same foundation is not going to yield the first installation of a floating foundation, but we're out for the truly long-term play here. And why we're saying that is that with two turbines on the same foundation, you're able to install more turbines in a given area. That entails certain direct cost benefits, but it also allows a higher degree of coexistence with other stakeholders. So not occupying the same area allows it to be easier to avoid such conflicts. And also if you look at it, waters are not endless, at least not the ones that are suitable for power production. So when you start laying different stakeholders and their interested areas on top of each other, you've got an area over there and one area here and so on that are suitable, so to make most use of that area is key. That's going to be more and more important over time as more turbines are installed offshore. So that's what we're in for, to really provide something that is meaningful over time, not just the ability to install the first floating wind turbine, but to install the competitive long-term scalable solution. When it comes to TwinHub Works, all by reorganizing that development, and there will be some scheduled impacts for TwinHub that I'll come back to in a second. It's certainly so that some of the key areas, especially the engineering work streams with suppliers, including the turbine supplier, Ming Yang, are ongoing. To that integrated work with a turbine supplier and a foundation supplier, that is key, and that's ongoing right now, and it's truly exciting for our whole engineering team to ensure that the whole system works as one system confirmed by a turbine supplier. So that's a key step for any foundation supplier, and it's one that very few have crossed to date. Very quickly on the project development as well, so this is just visualizing our three steps through the product development process and life cycle, if you will. To start by identifying, investing into projects, very often we originate, so we start projects ourselves, grow them through project development, and then during the development phase, somewhere between sort of the end of the early stage phase and up towards FID when fabrication starts, is where we divest sometimes through steps and sometimes in bigger chunks. And this is ongoing right now across several projects and several discussions. Looking at our portfolio, they're spread between early stage, mid stage, and late stage, and currently with our active projects, we've got nine that are in the early stage, none in mid stage, and three in late stage. And this shows on this slide as well where we are spread out geographically. So looking at the overall portfolio of projects where we have a participation interest, that's in total around 23 gigawatts, and the net holding for Hexagon, so that's Hexagon's ownership across these projects, are just shy of 13 gigawatts today. So that's a substantial portfolio, especially considering the force and the size of Hexagon, and the main projects I would say that are most advanced and in the largest scale are in the three countries being Sweden, Italy, and South Korea. And if we talk about Korea specifically for a moment, we've announced previously the SBA that was signed with Shell to take over their shares in the late stage project in South Korea called Moonmobaram. And there are many aspects to this. First and foremost, it's a project that is well positioned, a mature, healthy sound project that is in one of the most promising floating offshore wind markets in the world. And why I say this, Korea as a market, are both because there's a government-backed subsidy scheme for offshore wind that pays a premium that is higher the further off the coast you are, also pays an additional premium the deeper the water is. So this is really a sweet spot scheme for floating offshore wind. Why does the Korean authorities offer this? Well, it's their way to avoid conflicts. If you look at other uses of the sea, whatever that is, if it's a fishing industry, if it's shipping, if it's leisure boating and whatnot, those activities are higher in their activity closer to shore. So to incentivize projects to be further off the coast, you minimize such conflicts. So that fits perfectly for floating offshore wind. Additionally, it's a market that has a really significant shipyard industry. So three out of the top six or seven shipyards in the world are located in South Korea, and they are very suited to build floating structures, as well as what they've typically done, of course, shipping or oil and gas. But having the ability for really high local content when it comes to jobs makes the political push to increase floating offshore wind more reliable long term, and that it will be seen through regardless of political changes when it comes to the government. So the Monobaran project is not only the right way to go forward when it comes to the commercial aspects or the potential to actually gain revenue from it, but it's also a learning. So across some of these projects, South Korea and Monobaran is the most advanced large scale project that we have. And the ability to continue that and to control and run it, even though we won't be 100% owner of it over time, of course, so we are in process to look at new shareholding structure for it, we are really steering the developments right now and will continue regardless of the ownership structure to have meaningful roles in the operations and developments of it. And that can be translated to a lot of the other projects that are of significant scale, but behind in terms of development timeline, including Sweden, Italy and South Africa. So this knowledge and learning experience through Monobaran that we've been active in for over six years now, how we're able to translate that to the rest of our portfolio is going to be one key ingredient why we're making this move. And looking at the last quarter and some significant events, a key one was in the middle of the quarter where we signed the sales and purchase agreements to acquire 80% of the shares in the Monobaran project. As of that, we've also immediately initiated the process to establish a new ownership structure. So I want to make that clear that our ambition is not in any way to own a late stage large project like this ourselves. But the opportunity for various reasons to acquire these shares for a price that in our view is very favorable calls for an opportunity that is substantial. It is now ongoing still, the regulatory approval process, and I'll come back to that in a bit as well, which is a key priority to close. But again emphasizing that regulatory approval process is ongoing as well as in parallel to set that new ownership structure. Hopefully we'll be able to announce that in the near future or the next few months. With that agreement and the choice we made to prioritize Monobaran for all the right reasons, this is also partially a reason for us needing to reprioritize and slow down the development pace of the Twinha project in the UK. So as I said before, some of the heavier engineering works within that project are still run. We're still actively maturing the Twinwind technology as such. But the parts of that project that are related to the supply chain and the finalizations of the construction, those are right now reorganized and we're revisiting all of that, not only in light of us putting in place a lot of efforts towards Korea, but also reflecting the markets and where that is. So we need to make sure that we're able to see through the construction of that project as well. And that's forced us to reorganize and restructure parts of that project. So there will be some effects when it comes to the schedule of that project and exactly what that means we'll have to get back to you with. So after the quarter, the one and a half months since the end of Q1, I think it's fair to say that the main focus has been on the regulatory approval for the MUMO-BARAM project. There's a lot of documentation and material needed for us to get that over the line. And not only MUMO-BARAM, but we are also for additional projects having discussions for partial divestment. And it's on a similar theme. I want to just end by looking ahead as well. Where are our priorities? Well, in the short term, it's absolutely crystal clear that it's to get MUMO-BARAM both over the line, get the regulatory approval in place, that all shares are transferred, and then as a second step to establish that new ownership structure for the project, the long-term ownership structure. So again, these go in parallel at the moment. They're not closed and we will be looking forward to coming back with new announcements over the next few months. In addition to that, we're of course not forcing everything else. So MUMO-BARAM is not everything we do, although it's near-term and have very much the priority. So we are having dialogues with additional projects for divestment. We will continue some of the key projects to mature such, not the least looking at Sweden, where we have three projects where we've applied for permits to the government. So we're waiting for decisions on all three of those large-scale projects, one on the West Coast and two on the East Coast. But also, we'll of course continue to grow. So this is not the utmost priority at the moment. But as divestments are also put in place and closed, we will look to secure additional projects and continue to develop such. Both new projects being added to the portfolio, but significant developments within some of these bigger projects that are already ongoing. With that said, thank you very much for listening. And now I believe we've gotten some questions in. Then my colleague here, Panila, will read to me.

Yes, thank you Marcus for the presentation. We have received quite a few questions. So I start with the first one and see how many we have time for today. How's it going with the regulatory approval process? When can we expect an answer on the outcome? And if Exxon does not receive needed approval, how will you proceed?

So this is of course, assuming to be related to Moolenaramn in South Korea. And the process is going well so far. It's slightly difficult to say when the answer will come. Our expectations, not the least in guidance from our legal counsel in Korea, is that we expect that answer in anything between two to four months from now. Now, if Exxon does not receive that approval, that's a very good question. Our priority is right now to ensure that we get the outcome we need so that we have all the approvals in place. However, that approval is very much linked to the licenses of the project holes, the so-called, in Korea, so-called electricity business licenses. So without that approval, you would not be able to continue to have such licenses with the new main ownership of the project that Exxon is applying for. But that's not, it's a key ingredient of the project, don't get me wrong, but it's not the entire project. So if we don't get that, how will we restructure and organize that project that we don't know yet? But the focus is now to achieve that. When we get a bit further in time here, we'll also of course look into and investigate different scenarios and see what that means for Hexicon.

Thank you. Next question. I read the report and as far as I can see, your evolving credit facility will expire in July. What is your plan for financing moving forward?

So that is correct. So that credit facility will expire in July. When it comes to the financing moving forward, we're having discussions on multiple fronts. Both of course related to projects and divestments, which is a key ingredient in the future, future financing of Hexicon. But there are several others as well. So we are having talks on other ways and we're definitely also of course in close discussion with the lenders within this credit facility. So I think that's all I can say for now, but there will be news as we go forward. And of course, I want to restate that the project part and the divestment of projects that we will see across the year is a key ingredient of this.

Okay, next question. When can we expect any divestment and what is the project that you will divest first?

Good question, with potentially not a crystal clear answer at this stage. But first of all, as we've announced already, we are in process to set that new ownership structure. So what that means is that what we've agreed for moving around with Shell is to take over 100% of the shares. That is the regulatory approval process as well. That now the authorities are looking through all the documentation to prove that. Once that's confirmed, Hexicon will sit with 100% of the shares. What we're doing in parallel is to prepare for the long term ownership structure to be ready to execute upon once that change of control is approved. So once the regulatory approval process is closed. So that's if that becomes the first one, we'll see. But it's a clear one and top priority. But we are having additional discussions for additional projects to at least divest partially. Which of these comes first, we'll see. But when it comes to the when aspect, it is during the year.

Okay. So how is the competitive landscape of floating offshore wind at the moment? There are a lot of floating technologies out there. What talks in your favor and why do you think your technology will be selected?

It's definitely a really competitive environment out there. There's a lot I think I mentioned, there's over 70 different foundation technologies that we know of. They're very different in the maturity of such. But again, I think what talks in our favor and what we really are set out to do that I think will be a clear game changer over time. Is the ability through having two turbines on the same platform, the ability to squeeze in more turbines in the given area. And that is something that we're already seeing a change from five years ago to today. Where, you know, maximizing coexistence, avoiding conflict, these things really become more and more important. They'll continue to grow in importance as more turbines are installed. Of course, on top of that, it always and at all times needs to be competitive on an LCOE basis of the cost of energy. But the real game changer compared to the competition is related to the ability to install more turbines in a given area.

Thank you for that. Two more questions before we finish. Are Hexagon's projects only focused on floating offshore wind or could bottom-fix wind power also be considered?

It could be considered. And in fact, there is one project in our portfolio across the globe that is bottom-fixed. It's fairly deep water, but still probably be using bottom-fix technology. And that's in Sweden. So the project called Cirrus in southeast of Sweden outside of Blekinge is bottom-fixed. And that was a, you know, from a portfolio risk perspective in a market like Sweden, it fitted well, we thought. And there we're obviously developing that in collaboration with mainstream renewable power. But in general, no, we won't focus on it. We won't prioritize bottom-fix. But we are truly credible and we are key skill sets is within floating offshore wind. If then it makes sense from a market or portfolio perspective to have a bottom-fix project, we can definitely consider this because it's a lot of overlapping competences. But our focus is floating.

Thank you. And last question. Do you think offshore wind could be subsidized in the future? And I don't know what Mark gets the question referred to, but in general.

Yes, I think that, you know, with any new technology and a little bit depending on where you are in the world, new technologies being subsidized is not unusual, regardless of what type of technology that is. Over time, subsidies will reduce and go away. I'm absolutely convinced. What I have ever think is that, and we're already seeing this in a lot of markets, offshore wind is subsidy free already today in several markets. And offshore wind, that's bottom-fixed, of course, has been, you know, developed for some 20 years till today to reach that point. Will floating wind get there as well? Absolutely. I'm certainly and absolutely convinced that it will get there. Does it need subsidies in certain markets to grow and get to that point where it becomes subsidy free? Yes, I think so. But not over time.

Okay, perfect. Thank you, Markus. You saw the questions that we have time for today. And back to

you. And I just want to end then by saying thank you, everybody, for listening in. And we'll be in touch and communicate as we go onwards. Thank you very much.