Hexicon AB (publ)

Welcome to the Hexacon Q1 2025 report presentation. For the entire time of the presentation, participants will be in listen-only mode. If you are listening to the presentation via webcast, you can ask written questions using the form below. Now, I will hand the conference over to the CEO, Markus Thor. Please go ahead.

Good morning, everyone, and welcome to this presentation. And my name is Marcus Tor. I'm the CEO of Hexacon. And I want to spend around 20 minutes here for some questions to address some of the key events and developments in our market being floating offshore wind, as well as our operations at Hexacon. And, and let me just with the controller here, I don't see a presentation on my screen. Here we see something loading. There we are. Apologies for that. Now to it. So as part of the agenda, I will provide an update on where the market is going, some trends, obviously some significant events during the quarter, and also touch base on some of our key projects and the technology before wrapping up with a look ahead and priorities going forward. So with that said, perhaps as a reminder to a lot of you, but I just wanted to provide a glimpse of where the evolution of offshore wind is and particularly floating wind. And why I'm doing this is to just get a feel for how mature floating offshore wind is compared to traditional bottom fixed offshore wind and also onshore wind. and this is an evolution and developments that have gone from onshore to offshore bottom fixed in shallow waters deeper and deeper and now we're at this shift from bottom fixed into floating and it's really driven by a a need to harness uh wind power in more areas than are available in bottom fixed sites with that said There has been a few years now of a market downturn and delays in the development of floating offshore wind. So if you look at the status of it today, there are somewhere over 13,000 turbines on the seabed, so bottom fixed around the world, only around 50 on floating foundations. So it is still a big difference in the maturity of these two technology types. With that said, this is what we're looking to see now in the next few years, are commercial wind farms on floating foundations. And that leads me to this next slide, which I think says a lot. So if we go back and look at the evolution of floating offshore wind, The first ever full-scale turbine on floating foundation was installed in Norway in 2009. This is the same year as Hexagon was founded. Then you had somewhere 10 years of really favorable market conditions, low interest rates, etc. There was a clear hype and drive for cleantech. You had some really high valuations. of cleantech renewable projects, floating winds expectations were extremely high. Somewhere around end 2020, early 2021, we had that peak. This coincides more or less with Hexagon's IPO as well. And since then, for a lot of reasons, COVID inflation, rising interest rates, a war, et cetera, this really turned down. To the place where we are today, in in our view we see that we are at what we believe is the bottom the difficulty is determining or judging the pace of uh or how fast the market will come back up what we also do see is that i think there's a a more robust realism built into the expectations and valuations of projects today so i think we will over the next few years As floating projects are being built of commercial scale, which we will see happening now over the next three years, that will gradually improve. Again, how quickly this will happen is very hard to say, but we are seeing a bottom of the market. We are seeing things moving back up, political initiatives. We are seeing some or expect some increase in transactions over the next three years and then slowly onwards to a real commercial state of this industry. And a few things that have happened here, I mentioned that we are seeing signs of recovery. I'll give a few examples, which are not transactions as such, but I think clear signs that improve the industry and that leads to transactions in the next few years. So the first one is that last year, we saw almost two gigawatts of commercial projects on floating wind being auctioned in OECD countries. Those were last year spread across the UK, France and South Korea. We're also seeing some political initiatives in various countries, the UK as an example, that are looking to not reach their near-term renewable targets, are therefore boosting their regulatory framework for floating offshore wind and offshore wind in general. So the UK as an example, we are hearing now discussions around improving the CFD scheme over there, potentially the length of the revenue scheme being CFD that you might get in the UK. So there are initiatives that push forward even in this market where we haven't clearly seen delays in the last few years to make sure that we can catch up in the next few years. Again, and I mentioned this before, I think that over time, so long term forecast, they are not so changed. They look more or less the same as they did three, four, five years ago. But we are definitely seeing and we have witnessed a delay in the deployment of commercial scale floating wind in the last few years. Back to ourselves and the quarter. As always, a busy quarter, but I do want to highlight two big events during the quarter. The first one is in January, when our project Mareld, that is held by our joint venture Frey Offshore, that Texcon runs together with Mainstream Renewable Power, received its Natura 2000 permit from the county administrative board. This is a project of somewhere 2.5 gigawatt that is planned off the west coast of Sweden. With that in place, it's just a matter of receiving the final permit from the government. At the end of the quarter, so this is the end of March, Hexagon signed the sale and purchase agreement with Inke Investment and Oxfam Energy. And to sell our stake, which we held a 50% stake of two Italian projects. And this I'll come back to this as a bit of detail to go through some of the details of the transaction. And that was signed at the end of the quarter and transactionals closed just in the first few days after the quarter. So in April. And if you look at the project portfolio today, it's very much still a decent sized portfolio. There is, if we compare this to the same period last year, there is a decrease in the capacity stemming from two things. One is what happened in early November in Sweden, where on all, I should say, which was 13 projects in the Baltic Sea that were in the application phase were rejected. by the government arguing for military reasons. And the other is an internal decision to cancel two projects, very early stage projects in Korea called Pohang 1 and 2. So these two reasons reflect a decrease in the capacity from last year's end period and this period. With that said, And especially comparing to Hexacon and the size of Hexacon, this is very much a sizable portfolio still that requires a lot of our resources to develop, push forward onto next milestones. Looking quickly at South Korea, which remains our most mature large-scale commercial project, one that as of last year went through quite a lot of changes as oil major Shell pulled out of the industry more or less a top management decision that led to us finding the ways to take over this whole project went through a regulatory change of control process as well so that took a lot of efforts last year and finally concluded at the end of the year and we were about to at that time then go forward and divest that project and find new partners for it. At that time, there was an imposition of martial law and subsequently political turmoil in the country led to impeachment in April. All this has caused delay in that process. We're continuing to push forward on the project itself. We still very much believe in the project. We very much believe in the market. The process of finding new partners, investors into this, that has really suffered delays because of this. And just to give you two examples, we've been talking to a lot of potential partners into this. A lot of the international companies that we're speaking to have more or less said that, you know, hey, look, this is a promising project. We would like to look into it, but we prefer to wait until the political turmoil is settled. while some of the local, perhaps more low-hanging fruits that we've been speaking to, are state-owned companies, they cannot even make decisions in times like these. So we have, of course, suffered delays. What is promising right now, if you look forward, there is an election that will be held on the 3rd of June. So this is next week. That's good, A, obviously, get out of the uncertainties and chaos and the fact that there will be a president going forward. But on top of that, as the polls look today, everything is pointing to the opposition party, the Democratic Party in Korea, and their front runner, Lee Jae-myung, winning the presidential seat and why is this good for us well the democratic party is uh significantly more pro renewables and offshore wind compared to the current government so we would be surprised if that's not the outcome of the the results and the elections next week continue to closely monitor that that means that once that's done we are ready to ramp up the speed again and go forward with the partner search. A quick update on our technology as well. We haven't shared a lot of news around the TwinHub project. And the reason for it is we are looking at ways to progress with that project. There's no secret that it's challenging. So the CFD level that our project won back in 2022 is a lot more challenging today with what's happened with cost increase across the sector. So we are looking at alternatives for that that I hope to be able to come back to you with shortly. But what we have been able to progress and verify, I should say, is the technology itself. So we have been able to run a so-called integrated load assessment with turbine manufacturer Ming Yang, which I think that might be the first time, or one of the first times at least, where a turbine OEM has conducted an evaluation of this kind for a floating foundation that hosts two third-party turbines. So there's a lot of interactions, thousands of load cases back and forth, And all results so far indicate that low performance is as we've expected. There are no significant risks identified. Basically, confirming this works, there are no obstacles for it. Going forward, it continues to be an optimization procedure, of course, that never stops. But at least having crossed this first milestone is a significant event that very few to date have been able to successfully achieve. So that gives us a lot of confidence in technology itself. How we go forward with the TwinHub project, we'll have to get back to you on, or if there would be another market for the technology. A quick, excuse me, just a quick deep dive into our divestment recently now with our Italian project. obviously where we sit today a key part of our business model and receiving money in is related for the divestments um in the market and where it's been over the last few years it's been more challenging than before uh there are buyers but they are fewer so i think that to be able to achieve this and with this type of buyers i think we are extremely pleased about um There's both, of course, the fact that we think that in this market we received a good and reasonable payment for our projects, but it's also a matter of who buys our projects. And why that is important is that the transaction is not only an upfront portion, but it's also a milestone payments over time. So it's very much a believe and trust in the partners that come in, both in competence and financing capacity, to drive them onwards through milestones where we will receive additional payments. And this I think we found a perfect match in the buyers being Inke Investments and Oxen Energy, where they are, you know, the combination of them provides significant capital and significant competence, not only governing projects, but actually operating, running project developments, a lot coming from the technical teams in Oxan Energy. So this was a, to summarize it again, it was a purchase price of two and a half million euro. This was received upfront. and plus milestone payments that in total with the upfront payment can be in the order of 20 million euro. So if the product goes forward in the size and capacity they are developed today and then go through EIA and later on CFD, securing CFD in Italy, then Hexcom can receive up to 20 million euro. And we've illustrated here a few divestments from earlier as well. These are presented in our quarterly report as well for anyone wanting to look more into them. Now, wrapping up with where we sit today and our focus going forward and starting with projects. Yes, and I've talked about it a lot. We are continuing not expanding the portfolio right now. We're focusing on our key projects as they stand today, ensuring they preserve or improve value through additional milestones, with a parallel focus on divestments. And this is very key. It is the core of our revenue generating capacity, lies in divesting projects. There have been fewer over the last period of time. We did, if you asked me a few years ago, when I had not seen the market downturn as it turned out to be. We were expected to and hoping to divest more products than we have so far. Extremely pleased to have done the Italian transaction now just a few months ago. And we are seeing an improved market in the next period of time. So this focus remains and very much I do expect to be able to get back to you in the short term with some additional announcements. On the technology side, I talked about the TwinHub project. I will get back to you on that once we've nailed down how to go about that. With that said, we want to and have been able to recently confirm the performance of our own technology. We want to ensure that we maintain that technical asset as it is and the value of it. And if it's within or without TwinHub, establish a route to market. So how do we commercialize the technology? This is obviously key. And I have a hard time seeing that it can go through any other way than a full-scale demonstrator of some sort in some way. So to be able to get back to you on that a bit later. And finally, I have to mention financing, of course. We are definitely in a strange situation. The market has led to, as I mentioned before, not being able to get projects divested at the pace and the valuation we had hoped for, that you were able to do a few years ago. So what have we done then and what are we focusing on? Well, improving our operational efficiency, so being able to cut costs and increase our focus and efficiency. We are continuing, as I said, on projects as well. Definitely a core focus remains on divestments. The tricky thing, not the least in this market, is to judge the timing, the exact timing of these divestments. That our portfolio holds a significant inherent value, I'm absolutely certain of. And over time, that will be able to be realized. But the exact timing of it is really hard to predict. So we need to ensure that we establish efficient runway for ourselves. If that's only then through divestments or if it's additional financing means, I cannot say for sure right now. I can't say that we are progressing and discussing in several parallel tracks at the moment, that includes more or less all of the above. And of course, we'll get back to you as soon as we have matured something and selected amongst these alternatives. So with that said, I'll thank you for the presentation part. I will go to questions here. that I will read out myself and then answer them. So I'll just read them as they have come in here. What is the timeframe for the first potential milestone payments for the Italian deal? So that would be when we have an approved EIA. So those projects when they were sold were sort of midway through the EIA work. So this is the environmental impact assessment. We are expecting that somewhere during next year that that will be approved. So hand it in end this year or early next something, and then somewhere mid next year or Q3-ish, we expect that next milestone payment, which is the EIA. And then we have a final one, which is the potential to be the biggest one as well, which is related to securing the CFD, so the offtake during auction. And that can be anything, I would say, between two and three years from now. Let's see. You are in a financially strained situation. Do you see a solution or what does it look like? So again, I think I addressed it on my last slide. I definitely see a solution. I think we're working across multiple tracks. Which one it will be, I can't say for sure. I don't want to give an impression that it is pointed to either this or that. The focus is always on divestments. There will be additional divestments. Will that be complemented by something else? I'll have to see, and we'll get back to you on that. So I definitely see a solution. There are alternatives. We haven't finalized something yet. When do you expect to divest the South Korean project? Is the plan to sell the entire project or will you retain a part of it? I think that is not set either. I mean, when we managed to secure the process, taking over shares from Shell, getting that approved by the authorities in Korea, we literally went out to market to, at that time, a plan to attract a main owner, an industrial, probably complemented by a minority or two being more of the financial character. What all the political turbulence have caused now is that we have... That's the ultimate goal. We're still having that as one alternative that we will ramp up now following the elections. But we complement that. Because of that, and having lost half a year, We've complemented that with, which might be a more likely scenario, that we'll bring in a, call it more of a development partner, so a minority investor that helps us ensure that we can make it through an auction. So there are offtake auctions in Korea as well. That's where you secure all your revenue that makes the whole business case of the project. Those are scheduled throughout next year. Beyond that, they would like to continue to be a scheme of some sort, but we don't know what it is yet. So we think it holds a lot of value to be able to secure an offtake auction during next year. So the idea would then be to bring in a minority partner now that can support us with financing and competence and whatever is needed to go through an auction. and then do the bigger transaction post auction so that that's a two-step approach then with something smaller now in the near term get to an auction do a bigger transaction post that which would then be somewhere during next year and we're pursuing both in parallel but if anything that might be as i see it right now today might be a more likely option for us pushing that product forward Let's see here. You mentioned milestone payments on several locations. When do you expect to start receiving revenue through these? So yes, the Italian one, I mentioned what that looked like. There are additional ones from other projects as well. And most near-term, I think it's related to the Yongguan project over in South Korea that was sold, what is it now, a year and a half, four to two years ago. And that first one is related to that project securing so-called EVL, so electricity business licenses in Korea, which we do expect somewhere after the summer Q3 this year. And that's, however, a deal made with Hexium Korea, so a joint venture company in Korea. So those revenue will come into Hexium Korea. But it's really a key and important one, the milestone payments of these schemes, because the more transactions we do, and they are in Jone Peter Reistadler, You know they've always been, I would say, in this type of project, but more so in the market like it is today. Jone Peter Reistadler, We are seeing more and more Muslim payment schemes, rather than you know heavy up from payments and the more transactions we do, obviously, the more Muslim payment schemes that we are in the more regular. cash flow we will receive. It's not the type of business where it's regular per se on a weekly, monthly basis, but it becomes more regular, more frequent, and more milestone payment schemes that we are in, of course. So they continue to be very important. How do you perceive the development of willingness to pay for offshore wind projects? Are investors willing to pay less now compared to a few years ago? I think the short and honest answer is yes. I think we're seeing there are buyers, but there are fewer buyers. In a market like this, there are certain buyers that pull back to more mature technologies, onshore wind, bottom fixed, and so on. However, there are definitely buyers. Valuations, yes, they've come down across the last few years. Costs have increased. i think with that said what we are seeing and expecting uh not the least with some uh political issues initiatives as well in countries like the uk and more auction results in you know obviously countries that happened across last year more projects coming into the fabrication phase of actually building commercial scale offshore floating wind farms we expect that to come back up it's going to start increasing uh more or less from now how quickly very uncertain but there are there are investors or they're paying for the same amounts they were a few years ago no i expect that to come back up not sure of the pace of it um see there's one more here can you elaborate a bit on your potential earnouts related to monogram and wavehub if you were to divest mobile realm uh how much would hexagon retain after earnouts um so i i i'm not able to here now provide that number um but i can say that First of all, we don't know what the structure will be at that point in time, how much upfront, how much is ready to earn out. We do, however, expect that if you look across our portfolio, Moomoo Brown is the one that holds the highest value. It is the one that is of largest scale compared to and combined with the majority of it and in a market that offers a lucrative revenue scheme that is certificate based that is not only you know it's a certificate scheme that you get more certificates per megawatt hour the further off the coast and the deeper the water is so it's very much a premier floating wind market you can achieve revenue if you combine certificates with merchant you can achieve revenue that is north of $300 per megawatt hour. It's not the best wins in the world, but that revenue size very much calls for a lucrative market. So that's what the majority of the value is. I unfortunately cannot share here and now values that we expect through that deal or if the combination of upfront milestones, how that would look like. Again, that's what the majority of the value is. in a divestment or side sharing scenario twin hub equally so i can't share clearly so that the korean projects is of much greater value compared to twin hub um i'll time for maybe one more uh Back to Italian deal. When is FID expected on that deal? Sounds like FID is not connected to any milestone payments. Is that right? Yes, that's correct. Or maybe it can be to be technical, but it's more a rate of development milestone that is EIA and CFD. In the odd scenario or chance that the project would secure an offtake that is outside the CFD, we can potentially secure that, but later stage at the FID phase. But no is the short answer and the most likely answer, which means that it is related to EIA and CFD and not FID. With that said, seeing that I've reached the half hour, I've managed to get to, I think, most of the questions at least. So very much a big thank you to all that have been listening and we will keep everyone updated as we go along and progress here and look forward to seeing you all soon again. Thank you very much.