OX2 AB (publ)

Thank you and a warm welcome to everyone for listening in on the first quarter 2023 of OX2. My name is Paul and I'm joined by Johan Rydmark. Good. And we'll take you through the last couple of months of operations and financials here at OX2 and starting off on page four in the deck. I will start with some highlights from the quarter, then Shortly, Johan will be back talking more about the financial review. Before we end with market outlook, some comments on near term, as well as a Q&A. Flipping to page five, we continue to describe ourselves as a European leader in renewable energy. We have the four technologies that we are active in, onshore wind, offshore wind, solar PV and energy storage. All of these technologies are a major part of the next generation of energy systems and we see a significant demand for these technologies as the world is now going both electric and renewable. So we continue to focus on these technologies. Looking back at the last 12 months, we can today report sales of 7.5 billion, a strong operating margin of close to 15%. We continue to deliver strong on the return on capital employed of above 35% LTM. And to date, 8.1 gigawatts sold. And that's the same number as in the Q4. The business model is, as you recall, we hold the development rights. We deliver the operational wind and PV farms to institutional and strategic buyers. And for them, the lifetime or a long time, we operate them. So we don't hold the operating assets, which means that we can recycle the capital. and deliver a growth on the pipeline as well as on the financials. So profitable expansion, profitable growth is what we are continuing to work towards. The portfolio stands in total at 43 gigawatts by end of Q1. If you look at the development portfolio, ending at 33 gigawatts and growth in all technologies. We are covering most of the European markets. You see the geographical presence to the right. But also interesting, during the quarter, we have added Australia. That deal is expected to close within very short now and be included in the Q2 portfolios going forward. Looking further on page six, we summarise the first quarter of 23. Looking to the development portfolio standing at more than 33 gigawatts, we have signed an agreement to acquire Esco Pacific, a leading PV and battery developer in Australia. They have a total portfolio of close to or a bit more even than two gigawatt. We will report about 1.2 gigawatt to the portfolio as of Q2 when the deal is expected to close. But during the quarter, we have now just ended. We added two offshore projects, one in Sweden, one in Finland of total 300 megawatts, 3.3 gigawatts. But also I think important for this year, and we will come back to this also, we gained two very important legal force permits for onshore projects, one in Sweden and one in Finland. Attractive sites developed from scratch by OX2, so strong gross margins and good conditions expected. Those projects are now in procurement and final stages before being taken through the sales process. We continue looking at Q1, no new sales as you have noted was recorded. This is not unique. We've had that situation over the last couple of years, multiple times that we have had quarters without any separate sales agreements booked, but then it's very comforting to see that on the construction portfolio, standing at 1.2 gigawatt at the end of the quarter, we have delivered very strongly on milestone achievements and also on the handover of the three projects we talked about in the Q4 that was delivered to Renewable Power Capital, which is a subsidiary of the Canadian Pension Fund, CPPIP. There we could book strong gross margins, good quality on the projects handed over, and a good relationship with the customer. Also worth noting that these projects have been in construction during a very turbulent period in Europe when it both comes to COVID lockdowns, to supply chain and material increased prices, and also latest, the war in Ukraine that has affected of us so very very strong signs from us too to deliver this project with gross margins at good levels um some significant events after the end of the period we reported a 475 megawatt solar acquisition in finland um yeah not much more to say about that we will continue to update you on how this portfolio is being developed this is the largest solar PV development that we have in Finland, and we have good view on that this will be a new profitable source of development projects from OX2. Looking on page seven, we split down the portfolio across development, construction and TCM, looking to the development portfolio at 33 gigawatts. Majority is still early stage, fueling the future with strong projects. Here we have, as I said, added a couple of projects in offshore, in total more than three gigawatts. We have also a strong mid-stage portfolio. And here I can reiterate that mid-stage in PV, for instance, tend to go slightly faster than mid-stage in offshore or in wind. So the time to revenue recognition for start of construction is slightly different. Late stage continue to be at a stable and strong level, delivering good visibility for the near term. And I think as we did last year, you recall the process we ran where we sold 49% of the early stage portfolio of three projects in Sweden offshore. which contributed significantly to the results last year. That process is going to continue to be one of the core structures of OX2 sales processes. We will not only sell at ready to build or start of construction, but we will continue to generate revenue and income from projects in different phases. So we have communicated, expected earlier that we sell more offshore more portfolios also in the earlier phases, which is a good toolbox. Construction stands at stable at 1.2 gigawatt as well. Expect that to be decreasing somewhat during the year with some 300 plus megawatt of projects being delivered, but of course also increasing with new projects as we go to construction start on quite a significant volume. Worth noting is TCM is growing quite a bit as well. We have won a couple of contracts that has been not developed or constructed by Ox2. So very happy to see the performance and the way the TCM product is received in the market. Looking to page eight, this is the breakdown between start and end of first quarter. As you can see here, did not move any projects out of the portfolio by being sold. We have done some changes in the existing portfolio when it comes to volume on certain projects. The greenfield additions you see here relates to majority or almost all of it is the offshore projects standing at some 3.3. Then there's some wind and PV projects in addition to that. And we have added acquisitions one gigawatt of some wind projects. We have Estonia in that group, for instance, with a significant volume. Yeah, and I think you see the split to the right here on page eight. So that split is starting to be more and more diversified, and it will continue to grow in a diversified way also going forward. Looking to some of the project examples that we are working with now, we've said the two offshore projects we added in economic zones in Finland and Sweden, Tyski and Neptunus, bringing the total offshore portfolio to a solid 18 gigawatt. These projects are found kind of in areas that are deemed profitable to build on non-subsidized basis and also good part of the grid structures in respectively Finland and Sweden. Good opportunities to connect these two industrial areas. If you look at onshore, I mentioned in the opening that we have better visibility now than we had some time back, which is good. We have two significant projects in Sweden and Finland that gained legal force early this quarter. And we are now in procurement and sales processes. So very happy to see that the permitting process can also be slightly more fast or faster than we expected. The three projects we handed over to RPC in the quarter was, as you may recall, slightly delayed, but we still managed to hand them over with very strong profitability. So once again, proof of that the contracting structures we have during the construction phase is very working. I want to spend a couple of minutes as well on the acquisition of the ESCO for those of you who have not Read into that. I just got back a couple of days from Australia, meeting the team and spending a good week with the market there. Very excited about the sizable market with significant growth. Political climate is very much supportive of a significant build-out. And we have a good position now with ESCO being a leading solar and energy storage developer already. So the portfolio is very active. We expect to see significant volume coming from that market in near term. And the portfolio, as I said, stand at about 1.4 gigawatt. The pre-early is what we call it, the portfolio they have reported on their web page, but we did not include it in the Ox2 portfolio just yet, all of it, lacking some land leases in order to fit the Ox2 classification of an early project. will be added and expanded during the year. The idea is that the team of some 22 people have been focusing on PV until now. We will continue to do the PV development, but also add the construction, being able to bring projects to turn key sales, bring the value even further, similar to what we do in Europe. as well as expanding to onshore and ramping up acquisitions because the portfolio that we acquired is all a greenfield portfolio. So they are focused very much on greenfield development. Moving to page 11, a couple of words on the transaction overview in numbers. We are paying about 872 million on a debt-free basis. That's taken out of the cash. funding um we are acquiring 49 from shell and the remaining from the founder the estimated closing is as i said very near term and definitely within q2 we have a strong cash balance at the end of the quarter one will come back to how that is expected to develop going forward but that is sufficient to fund this acquisition The impact on the P&L operating costs of about 51 million SEK being booked for fiscal year or slightly in that range for fiscal year 23. But we are looking at EPS, a creative contribution in 24 and beyond the portfolio is as we said, it's a mature portfolio with significant late stage projects as well. Yeah, coming to the financial impact, megawatts are included then in the volume targets that we have communicated at latest now at the capital markets day and it will positively contribute to the operating income growth that we also talked about the CAGR of some 25 percent we see that it fits the probability metrics that we have laid out. We expect above 10% operating margin from the acquisitions and also return on capital employed. This was a very strong investment from us, so it fits very much the targets we communicated earlier. Looking to page 12. Construction portfolio continues to be strong. We have reached several milestones during the quarter. Several of the projects, I think we have six projects, two, four, six projects during 2023 that we expect to hand over. So the construction team is busy during summer with turbine installations. All positive from that perspective. that portfolio, also good visibility into 24 and 25 deliveries. So I expect the construction portfolio to grow over the year in more markets as well, which is what we're ramping up now to handle. Good. I think we will open up the scene for Johan on page 14. Right.

Thank you, Paul. And hello again, everyone. Yeah, as you heard, we're off to a good start of this year with a lot of promising development. Obviously, the one thing that stands out a bit in this quarter, like Paul mentioned, is the acquisition in Australia that we now will be targeting to close here within short. But also, if we look broader across our existing business, a lot of promising development that we've seen, the product development portfolio, two sizeable projects, Finland, Sweden, on the offshore side being added to the portfolio, but also from Estonia, the acquisition that we did there, some 660 megawatt of our core sort of onshore product being added to the portfolio, as well as the growth in the PV portfolio, mainly driven by the Swedish development. So very promising. If we look at the financial perspective on Q1, quite straightforward quarter, I'd say, as you've seen, no new project sales in the quarter. So the full revenue mix in Q1 was comprised of revenues from the construction portfolio, as well as then PCM, which is a quite small part of the overall sales. The one thing that stands out in the quarter when we look at the profitability being derived from this product mix is a very solid and very high gross margin coming and driven by the three projects that we handed over, the 171 megawatt in Finland and As Paul also said, we touched upon it in the Q4 earnings call as well, that the original plan for these projects were to hand them over already in Q4. What we've seen now with having a lot of turbines up and spinning over a quite long period of time, also in a period with high electricity prices in Finland, I think the average captured electricity price for the production, the trial runs that we were doing on these projects, was some 90 euro per megawatt hour, which is quite high if you look at the average prices in the Finnish market. So that contributes positively when we look at the revenues for us coming from these trial runs, which stands out also when we look at the typical handover in a construction project where we usually have some trial runs. The other thing which is impacting the gross margin positively from these three projects is that we didn't have to use the construction contingencies that we had for these projects. Paul also touched upon the turbulent period that we have constructed these projects in. So promising and positive to see that we were able to hand these projects to our customer without having to use that. And that is also impacting the gross margin in a positive way in the quarter. If we move on and look then at the gross profit coming in at 390 million, and then also take into account the growth that we're seeing on the OPEC side of things, development expenses growing with 40% here in Q1 on a year-over-year basis. The same thing for our personnel expenses. We were still coming in after operating income in line with what we saw in Q1 last year. Looking at the LTM figures, good indication of how the underlying business is performing. Given the volatility that we see on quarterly basis, we can see that impacted by the positive gross margin development in Q1, gross margin as well as operating income continues to improve. Also when comparing to Q1 last year, sold volumes and ROSI is improving. Moving on to slide, As you can see here, the Q1 results, sales and operating income, the swings that we saw in Q1 is nothing that stands out. We continue to reiterate that this is also something that will be seen going forward. also when we look at the remaining quarters in 2023. The one thing, again, that stands out with this quarter is looking at the profitability and the gross margin from this type of revenue mix. And why are we having these swings? Maybe a word on that once again. Well, it is due to the fact that the revenue is impacted by the timing of when we do new project sales. We didn't have any new project sales in this quarter, as well as then the construction progress that we see in the portfolio. And when we look at the gross margin development, then again, Margin is impacted also by the fact that we have different profitability on new project sales as compared to construction margin. We typically see higher profitability on the new project sales. But when we look ahead, and I'll come back a bit to this, on the planning assumptions for the rest of the year, As we stated also when going into this year, the majority of the sales that we see for this year is expected to come in the second half of this year, where we have good visibility and an overall positive outlook to 2023. Moving on to the next slide, looking at the longer trends. Here, the net sales growth that we've seen over the last couple of years is coming from the ramp up across our business, us having sold more volume, us having more projects under construction, in addition to the growth in the asset management part. And these are the three revenue streams that we have. Looking at the LTM sales here, end of Q1, we have revenues coming from three markets, Sweden, Finland and Poland. As we've also stated in the Q4 earnings call, when looking at 23 in total and our priorities there, we are expecting that we will have more markets starting to contribute to our revenue generation during this year. This is a high priority for us and we have ongoing sales to be able to see that happening as well. I think that will be promising to see here going forward. If we look at the operating income development, we continue to prioritize investments into our growth. Our portfolio have grown with 40% year over year, standing at 33 gigawatt, our development portfolio. And of course, the ramp up that is needed in order to handle the development of this sizable portfolio continues. And we continue to prioritize that. Project development expenses, as I said, are growing quite significantly, as well as our organizational capabilities. And here again, It's important to remember how this is impacting our profitability, our reported profitability, given the time lag from us realizing the sales from the growth in the development portfolio. Moving on, looking at our financial position and our cash position. As you can see here in Q1, we had a very strong cash flow generation in the quarter. And the one thing that stands out is of course the strong contribution coming from the network and capital development. And this is not something which is unusual for us, just like with volatility and swings on net sales and earnings. We also see that in the cash flow. and then coming from the construction portfolio, where we had significant advanced customer payments in the quarter from our customers and had a positive contribution of about 1 billion from this in the quarter. And if you look at our construction networking capital, it ended at minus 30% end of Q1. And for those of you who remember, I've, on previous earnings call, have said that we typically, when we look historically, we've been in the range of zero to minus 20%. So we're a bit outside of that region. And what we see going forward is that this will be reversed over the coming quarters, where we will then be coming to more normalized levels. And that will have an impact on our cash flow in the coming quarters. also when we look ahead in terms of the cash flow development we are now targeting to close the escrow acquisition here within short and that will also as Paul said be financed by our available cash moving on looking at slide 18 our project acquisitions we are happy to see that we are acting from a strong financial position. I think this is very good for us, as we see also that, in especially some markets, there is a bit of a softening in the overall market development, and that gives us good opportunities to act on opportunities that we are monitoring. So that is very promising and looking at the Q1 project acquisitions, the one thing that stands out there is of course the 660 megawatt of projects in Estonia, in onshore. And we're now at the level when we look at the acquisition pace where we foresee that we will be also going forward at around 800 million. And of course, There will be swings also a bit above and below, but this is the overall range that we foresee going forward. And this is, of course, excluding the ESCO acquisition. Then on slide 19, looking at our planning assumptions here. reiterate that we have a positive outlook for the full year 2023. We have a lot of ongoing sales processes, good visibility and good traction on that. Also some newer markets in this mix, which looks promising. And also that the majority of this new project sales, we expect to happen during the second half. touched upon this, that we continue to ramp up our capabilities and the impact that this is having on our short-term reported profitability. Important to keep in mind when looking at our operating margin and then on the investment sides and how this would play into our financial position going forward. We are at about the level we want to be in terms of acquisition, 800 million on sort of a recurring basis. And then keeping in mind also that the ESCO transaction is targeted to be closed here within short 870 million that we will finance by our cash balance. And then also the normalization that we foresee coming from the construction portfolio on the working capital. And with that, Paul, handing it back to you.

Excellent. Thank you, Johan. So page 21 wrapping up. the call before we move over to Q&A. Concluding the Q1 of 23, of course, integrating, well, if you look at first what we did in Q1, signed the agreement of ESCO, we continued development progress, including two new offshore projects and the significant permits that was achieved during Q1. and strong results both operationally and financially from the construction team and handing over 171 megawatt to renewable power capital. Looking further at what we're spending time on these weeks and months ahead, growing the sales, we have several sales processes ongoing as Johan alluded to. Multiple markets, multiple technologies, a very diverse portfolio that has now been matured in a long period of time, coming to market and show strong interest. We have continuous discussions with growth of acquisitions. Greenfield continues as well to be a long-term build-up of the portfolio. And of course now integrating the ESCO mark team, the Australian market and really kind of taking full advantage of having a good position in a high growth profitable market as Australia. So we have a busy period ahead. I'm sure you have questions on. What we will focus on and a bit on the Q1 results so. If we move to. The Q&A can land on page 22, and we are opening for questions, so back to the operator.

If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Olof Sederholm from AGB. Please go ahead.

Hi, gentlemen. It's Ola from ABG. A couple of questions. The margin was very good probably then due to the revenue from the power revenues before handing over the project. Is this something that we should start thinking about also for future handovers Or was this something of a one-time character, you think?

Hi, Olof. As I said, we typically have trial runs during the last phase of our construction projects. But the one thing that stands out here on these three projects is that we had trial runs for a longer period of time. and also in a period with very high electricity prices. So overall, we're not going to see this kind of gross margin coming from the construction portfolio. Typically, we had a quarter of pure construction revenues in Q3 last year, And then also what we see when looking back, typically the gross margin from the construction portfolio is in the range of high single digit to low double digits. Whereas we saw here in this quarter that it was 27% significant above that.

Very good. And looking at how you face the project sales now, You've said that the majority will be in the back half of the year. And you also said you had lots of things going on, obviously. But is it reasonable to expect that we should see something during Q2?

We don't give specific guidance on quarters. As we've said, we have a positive outlook to the full year. And also reiterate that the majority of the new sales we expect to happen in in the second half.

All right, I tried. On acquisitions, it's nice to see you have this good underlying 800 million run rate on project acquisitions, but you did ESCO now and you have lots and lots of cash on the balance sheet. So could there be more ESCOs

going forward also like in the near term you've talked about the us for example yeah i i think we will continue to invest wisely um having kind of cash at hand to do that does not kind of give us the privilege to to spend the money unwisely um so there are opportunities that we're pursuing but we will not kind of rush into anything. We will continue with the bread and butter, which is portfolio and project acquisitions. Should there be openings like ESCO, we will definitely be open to pursue that. But as we also said, growing the portfolio down in Australia is maybe kind of more key to us right now, the coming weeks and months, than necessarily rushing into a whole new large and complex geography.

Understood. Makes sense. Thank you very much.

Thank you. The next question comes from Anders Rosenland from SEB. Please go ahead.

Thank you. Could you give us an update on the portfolio, which is in the Inc. OX2 joint venture? with respect to progress on the approvals and so forth.

Okay. The first project we have during the quarter received the approval from local authorities or the county administrative board stating that it is recommended by the county to approve the project. The other two are in similar positions, expecting these responses during the year. We have a good dialogue with the grid companies. I think the armed forces will continue to be the key to unlocking offshore, not just for OX2, but for Sweden in general. That dialogue is, of course, extremely important. We still continue with positive feedback as well from the energy minister and the decision makers around her. This is a prioritized area. The poll is coming from the industry. There is a strong demand. So we're basically kind of trying to just serve with questions and continue at this point to wait for further information from the energy minister around the permitting. Key question is of course the overlaying areas with other developers. The two first projects out, Galatea Galena and Triton, has both competing areas, so here we're leading discussions on kind of how that could be resolved by some kind of cooperation, or how that could be best opened up for a swift and fast development of offshore. In Sweden, the energy is much needed. So I think that's The briefest update, nothing else on that. Their relationship with IKEA or Inka continues to be strong. They are very supportive of the development relationship and working environment is very good. We're positive.

The milestone of having necessary approvals at hand and And the partners having the decision to move on or not, when will that happen? What's the best assessment of when that could happen? Is that a 23 event or a 24 event or a 25 event?

I think they're quite clear on that. They want to see movement within this mandate period from the government. But if that means 23, 24, 25, it's difficult to interpret. It's a limit, of course, to how long they can keep a permit just waiting. They have this completed application on their desk now. So I think it's maybe more in the early phase than in the late phase of the years you mentioned here. But it's very difficult to forecast the political scene right now, as you are probably aware. agreeing with me on.

And it's purely a political question as of now, the way you see it?

Yes, that's the only permitting instance that we have currently.

Okay, thank you.

The next question comes from Ivan Gavik from Carnegie. Please go ahead.

Yes. Hi guys. Thank you. Even from Carnegie, a couple of questions. The first two ones goes to you, Han. And you said, you said something about the softening market development activities in some markets, which I think related to your acquisition pace, but what does this really mean? That's my first question.

Yeah. Hi, Eivind. You're spot on there. That was relating to the opportunities that we're pursuing on the project acquisition side. But also, of course, and we've touched upon that on earlier earnings calls as well, is that sort of the leveraged, our leveraged customer universe, we see that being less competitive also on the new project sales that we have, especially in markets with higher interest rate environments than what we see in the Nordics and higher inflation pace than what we see in the Nordics.

Okay. And the next one is, you also talked a little bit about TCM revenues and you said it's still kind of marginal, but I guess in some point of time it will not be insignificant. Can you say something about the impact on financials from TCM and maybe a bit about when you may consider start reporting on it?

Yeah, well, my hope is that it will actually from an Ox2 perspective, and that's my strong belief that that will be the case also when we look into the crystal ball of our business here going forward, that there will be still quite marginal as we continue to grow the overall business, so that the mix will be about the same. But we've said that before, that it's, yeah, it's a single digit, low single digit contribution to our sales.

And low single digits in terms of percentage of sales?

Sales, yeah. And we've also said that profitability is good for this business.

Yeah, it deserves another multiple, I guess. And the final question is to both of you, and it relates to kind of the visibility on 2023. I mean, most of sales is expected to come in H2. There's always some risk of sliding into 2024. But how strong is the visibility on 2023? hails when we exclude offshore wind as well.

But as Paul said also that we have a lot of ongoing sales processes that we've started already. The two projects that we also pointed out in the report, the Finnish very sizable project and not quite sizable project in Sweden. And given where we are there in terms of the preparation, the ongoing pre-procurement work, we believe us to have good visibility also on the time.

Yeah. And then I can add to that. If you, if you would kind of look a bit back to last year's reported acquisitions of late stage projects, you could kind of quite easily come to that. We have had a large number of, of permitted projects for a while that is giving us this comfort in this ability. We can mention, you remember this in Spanish portfolio, the, the, Now the Polish portfolio that is growing, Italian portfolio is growing, and then we have the Nordics now that we've covered. So quite positive outlook on not kind of permitting activities that is currently delaying that process. It's more the time to strike the right deal with the suppliers. I think that's going to be key this year. to find good volumes, both with panel suppliers and with turbine suppliers, in order to get good terms and conditions, as well as utilizing the full market, as we have been historically good at in finding the correct buyer for each project. You remember, we reach a quite wide market when we take these projects to sales. It's both a the highly levered financial investors, but also the long-term buy and hold, more pension fund structures, and also strategics and utilities. I think this year will be very much about finding the right partner for each project, a bit more than in the past where it's been just managing a very large portfolio of interested buyers. I think that's when we come to also the comments about somewhat softening market, but that has been the strength talks too in the past.

All right, super. Thanks, guys.

As a reminder, if you wish to ask a question, please dial star 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.

Excellent. We see no written questions and thereby thank everyone for participating. Wish you all a good weekend. Thank you.