OX2 AB (publ)

Thank you and good morning everyone. Thanks for joining Ox2's third quarter presentation for 2023. Flipping to the agenda, we will take you through some highlights of the quarter and some on the portfolio before going through the financial review and I will mention some market and outlook in the end before we leave ample time for questions and answers and you are aware how the technical aspect works. I have caught a nasty cold so if I start to cough my colleague Johan Rydmark will swiftly jump in and carry forward and I'm sure we will take it through a good hour here together. So flipping to the landing page where we introduce Ox2 as a European leader in renewable energy. I think it's kind of good to just start with a bit of a backdrop why we are here. And I feel that this quarter has continued to bring even more answers to where the energy transition is heading. It's no longer a question about if or why or when. It's a question about how. And OXTU sits on several of the solutions, which has also been confirmed and acknowledged by the EU as late as yesterday when confirming the importance, the need of the wind to grow in the energy system in Europe in order to maintain European industrial competitiveness. And we're now talking about a doubling of the installed capacity in just seven years. So that's ahead of 2030. It's not something that is happening way out in the 2040s. This is happening now. The other part is the importance the EU has put on maintaining a European supply chain when it comes to wind. Here we failed when it comes to solar PV. And although having a head start in the industry in Europe, practically all production is now Asian based. And the message from Brussels was quite clear yesterday that that will not be allowed in the wind sector to happen, which I think is a strong sign and something we welcome. So quite a lot of movements in the right direction during the quarter in the macro backdrop. And this is why OX2 is here. We are participating in powering this what we call great shift. And we have for 20 years now run a very profitable and growing business model within this space. So not all companies are running the same business model just because they are in the renewable or wind space. We have a part of the value chain that we feel is the most valuable meaning onshore wind development, offshore wind development and solar and energy storage development. We are monetizing on these different technologies slightly differently. As we have shown during the year in offshore wind, we have sold down stakes in the developments a bit earlier on. And when it comes to onshore wind, we have sold both projects where you only see the numbers in the financial statements when we hand it over. So forward sales and we have in this quarter also concluded two of more standard land-based onshore sales structures. So this is important and this is what contributes to the numbers here you see on the page. We present LTMs of growing 8.2 billion, strong operating margins. And return on capital employed continued to be very strong also for this last 12 months. And summing up the volumes, we have now booked 11.1 gigawatt of sold projects. Looking at the portfolio, we also see that continue growing. We now operate a 47 gigawatt total portfolio where we have a record high construction portfolio of more than 1.3 gigawatts. TCM technical commercial asset management part of OX2 is also growing and is booking record volumes of more than 4.7 gigawatts and we have the development portfolio shown in the pie chart center lower part of the screen standing at 34 gigawatts, now spanning Australia and most of the European countries that we find attractive. So we have a fantastic position to capture this great shift or the energy transition, both in Europe and in Australia currently. Looking a bit more on the changes, if you flip to the next page, On Q3, we go through the development portfolio, which has seen additions from Greenfield of more than a gigawatt and project acquisitions of about 700 megawatt. The sales that we booked during the quarter comes from a project in southern Sweden called Onglarnav, 115 megawatt, and also Beiche in Poland, two core markets for Ox2. The construction portfolio have not had any handovers during the period, but progress has been solid and we have executed on the timelines, health and safety and quality as expected. Technical commercial management, we also see, as I mentioned, continued growth. And for the first time, we have also, after the period ended, reported a sale in France, where we sold a 23 megawatt solar project at good valuations. So that means concluding, as of today, we have sold projects in five different countries this year alone. If you have a look at the next page, you can see growth in construction, we see growth in technical and commercial management, and we see growth in mid-stage development. Late stage and early stage being fairly stable, and we continue to report these numbers on a on a quarterly basis. But the important part here is that we are able to monetize on projects in different stages of the portfolio. So we have this year seen early stage sell downs from offshore projects. We have seen monetization on late stage and then there will be monetization and booking of sales post construction for both energy storage and for wind right now being built in Italy. So this picture gives you an overview of what we have to work with. And the whole portfolio is healthy and producing kind of good tools for us to work with when it comes to reaching the 25% CAGR on operating income that we have as a financial target. Moving to next page eight. Here you see the waterfall changing from 32.4 end of last quarter to 34.1 starting or end of Q3. And you can also see that the split to the right, if you would compare that to a couple of years back, there's a lot more diversification, both geographically and also technically. technologically in the portfolio, which is very much in line with the strategy we laid out in the IPO in 2021. We move on. A couple of projects all having been mentioned. So far, the offshore portfolio is progressing well. We have this year received our first permit. Q2 and we have also for the project called Triton received during the quarter a Natura 2000 permit which was a very important permit and then puts the project right on the government's table ready to be approved total capacity of 1.5 gigawatt as you recall we have sold 49 to Inka And we are both positive that there will be good development on this going forward. And next year we could see also then milestone payments for both this and the Galena project that we have already been approved by the government in Sweden. Important part and contribution to Southern Sweden, which is of course something Swedish government is aware of we would be able to produce in the area of seven terawatt hours and connecting to SE4 with this project then we have the in the middle here the project we sold in southern Sweden attracted a good valuation high competition for this project in southern Sweden 115 megawatt awarded to Vestas also after good competition on the supply side. Planned commissioning a couple of years out, but also concluding a long-term TCM agreement with this project, which was very, very positive. Then to the right, you have our project sold in the quarter in Poland called Beiche, fairly Straightforward construction area, 20 megawatts sold at good valuation. Here we are at close to 3 million euro per megawatt. And we have sold this to a Polish fairly large energy company called Enea. Planned commissioning next year. And as you can see on both the sales we booked, these went to large energy companies, one from Switzerland and one from Poland. And we do see quite strong interest across the board from energy companies picking up our assets. So moving on. We give you a bit more details than last quarter on the volumes here. multiple sales processes totaling 1.2 gigawatts. And we are constantly starting new processes as well. So this is not all, but some of this we aim to conclude on this side of the year and some will be on the other side of the year. But we do see good support from the portfolio on near-term progress as well. And you see a good division of geographies and the technologies whereas in sweden we have a fairly large storage project out in the market and this is now being built on oxto's balance sheet and is online by end of the year so here we ran through the sales model slightly differently but it's now proven that this is That was a wise decision and we do see strong valuation on this project. In Finland, we have both energy storage and onshore wind, several projects of a strong portfolio. We continue in Poland with solar, a fairly large solar project. And France, more solar. Spain, we have commented on that we have our first projects to be sold. They will not be They will not be adding a lot of profit to the quarter if it's concluded on this side. But it's still a first in Spain for Ox2. Then you have some solid projects in Romania, followed by quite significant portfolio in Australia that is also being marketed currently. So good traction, lots of technologies. And on top of this, we have have discussions on further realization or monetization of more offshore pipeline so we feel quite confident that we have good volume and good projects also near term looking towards the next page on construction as I said more than 1.3 gigawatts is getting close to a record or if it's not a record quarterly ending volume in construction or the backlog. Quite a busy Q4 with several projects here named on the top 374 megawatt being handing over and then we have quite a high put volume for handing over in 2025. You remember that we moved some of the projects from 24 to 25 due to Siemens Gamesa's delay. And this has been accounted for here and we do not expect any negative financial impact on the projects from this delay. And then we have added a 26 project here as you see from the quarter Ånglarna. So good progress also in the construction portfolio looking a bit on page 12 you are aware that we have been growing the company quite significantly over the last four or five years you can see it to the top left here the operating expenses meaning salaries and And the development costs and other type of corporate operating expenses in OX2, they are taken on the P&L. So that affects our operating income. And it has increased from 400 to 1.3 billion just over the last three years. And we now see that this increase is leveling out and we have the cost costume that we need to have in order to deliver on this growth in operating income that is typically following us or lagging a bit past the or behind the investments we do since there is a time shift window here and you can also of course notice then that the operating expenses is connected with working a much larger development portfolio. It has more than close to tripled over the last three years. When you see 12.7 in 2020 and now ending Q3 at more than 34 gigawatts. So this is what will continue to drive our gross profit in 2025 and beyond as well. So fairly confident about the volumes and the the operating platform we have currently to take us to the next step. With that said, I think we can flip to the next page. And Johan, you're ready with some more numbers.

Yes. Hello, everyone. And we can move on to the next slide. As you said, Paul, a solid foundation that we have in place in terms of looking at the inventory of the 34 gigawatt development portfolio that we're progressing and good development there also in the quarter, especially in sort of the mid phase of the portfolio, but also from the acquisitions that we did in the quarter, both with onshore projects in the early and mid stage in our core markets. When we zoom in on Q3 financially, obviously a quarter then characterized a lot by the two sales processes that we concluded the Ånglana wind farm in Sweden as well as Beja in Poland and as you can see on our gross profit and our posted operating income for the quarter a solid performance good profitability coming through on the gross margin level and that's also driving the strong operating income LTM figures longer trends I keep on reiterating that with the quarterly swings that we have which are impacted by the timing of when new project sales occur as well as the overall progress mainly in the construction portfolio is having a significant impact then better to look at long longer trends and here you can see both in terms of volumes significant volumes having been sold during the last 12 months to remind everyone a bit about the composition here here we have two offshore transactions our portfolio that we sold last year in sweden or part of the portfolio that we sold and 49 and then the the follow-on transaction that we did in Q2 contributing here with significant volumes. As we have also highlighted in our financial targets for megawatts and growth there is one thing we're targeting and zooming in more on the overall operating income growth for the foreseeable five-year period. and here we see good development when we look at our operating income development very much driven by the strong gross profit development I'll come back a bit to how this stands also in a historical perspective on a later slide but here it's important also to remember a bit what is driving this it's really also the product mix here in the LTM figures we have sizable permit sales volumes which as Paul explained a bit on how we're treating development expenses we're expensing that as they occur so when we are selling permits or big envelopes without the construction that is coming at very good gross margins for us and here in the sales mix for the last 12 months we have sizable volumes from that type of sales which is impacting our gross margin in a positive direction return on capital employed really the core measure how we're steering and how we are prioritizing internally in terms of what projects to go after and what markets to prioritize posting a solid 37% here LTM basis and that is also taken into account that we are now which we also commented a bit on with our updated financial targets having a target of 25% return on capital employed we are now having a bit of a different mix in what we are having on our balance sheet I was mentioning the storage project that we are constructing as well as the forward sale that we did in Italy despite that we see good returns also from the actual numbers but as well going forward we can move on to the next slide here again highlighting the quarterly fluctuations I mentioned a bit what this comes from and why we're seeing this kind of volatility the timing of new sales the timing of construction progress timing of handing over project this is all tying into the type of sales growth as well as operating margin that we see in the quarter here Q3 if you compare that to Q3 of last year when we didn't have any megawatts sold you see also the mix in the margin where last year we only had construction progress and TCM revenues. Paul was also commenting a bit on the construction portfolio that is, of course, also contributing in the quarter on our profit generation, continue to see stable delivery there. And we're gearing up and our colleagues in the construction teams across our different markets are gearing up for a very busy Q4 with quite a lot of volumes to be handed over in Sweden and Finland. with good visibility on the profit on those projects as well. And here you can also see Q4 last year, the sizeable volumes that we sold, large offshore partnership that we concluded, as well as two onshore projects in Sweden and Finland, which really drove a very strong profit for us in Q4 of last year. We can move on. Longer trends development very promising to see when we look at what we've done so far this year we have now posted sales in four markets different technologies or products and then also following Q3 and we concluded our first sale in France as well that will start contributing to our sales and bottom line and that was really if you remember what we set out as operational targets for us going into 2022 really being able to ramp up the activities based on the expansion and activities that we have undertaken over the last couple of years to start seeing more markets more technologies contributing to our bottom line And I think this is also the theme when we look into 2024, how we will see more markets, Romania, Australia, markets nearest in time start contributing to the overall oxygen performance. But that's very much what's been driving our sales development, growing 5% on an LTM basis here. Core markets continue to be Sweden, Finland and Poland for us. Profit development and here you can also see a bit what I was commenting on our gross margin development and here it's important to understand the sales mix which is really pushing the strong gross margin in Q3. We can move on to the next slide. We continue to have a solid financial position. We continue to be able to act on the opportunities that we see in the market. This quarter, a bit slower quarter for us in terms of capital deployed in project acquisitions. That said, as I mentioned, good additions coming in to our onshore wind portfolio in Sweden as well as solar in Italy. the one thing that stands out in Q3 which did so as well in Q2 as well our working capital development big big negative impact here from our construction portfolio we're also commenting a bit more the details to what has been driving this in our report but as we're also stating there, this is normalizing in Q4. We're now a bit outside of the range that we typically see, the zero to minus 20%. We actually had a slight positive working capital in our construction portfolio. And that's very much related to the timing of payments from our customers. We did quite big prepayments as well of expenses. And that is... normalized in Q4, so you will not see that kind of negative impact from the construction portfolio in Q4, and we will be back in the range of 0 to minus 20%. We can move on to the next slide, zooming in a bit more on the project acquisitions here, LTM basis, good additions in the quarter as said, but here more highlighting the diversified portfolio that we have and that's also not only from the overall development portfolio but also in terms of the acquisitions that we've done over the last year obviously Australia being a significant positive contributing factor here and as Paul said we're also really ramping up activities there and are seeing near-term contribution from Australia also when we look into 2024 which looks promising. We are also leveling out not only on our operational expenses but in terms of the capital that we are redeploying in further project acquisitions around the 1 billion mark. And moving on to the next slide, I think we're also stating exactly that in terms of project acquisitions of about a billion. That's what we see for this year. Here, quarterly fluctuations will happen depending on when the ink is on paper, when we conclude new project acquisitions. But this is also the level where what we see going into 2024. We are providing some more colors on the sales processes that we have ongoing. Like Paul mentioned, we continue to see a good demand and it is a bit of a mixed customer universe, which is also tying in a bit to how we're running these sales processes. But as you can see from our posted figures in the quarter, We continue to see good profitability. It's also important to understand that we're operating across very many different markets with different products, technologies. But all the technologies that we have have good fundamentals in the markets where we are. That's why we've decided to be there. There is a strong underlying demand. And there will continue to be quite big variations between price levels, between markets, just like you saw in this quarter. If you look at sort of the multiples being achieved in Sweden versus Poland, it is quite different, but with good profitability in both. And I think that's important to understand as well. And that's why we keep coming back to our financial target in terms of growth really zooming in on the operating income growth rather than the megawatt growth as that is very different how a megawatt in different markets in different technologies in different stages is translated into profitable growth for us with that I hand it back to you pal excellent thank you Johan and just wrapping it up

Concluding the quarter, we saw strong profit development based on good cost and quality control. We also saw, as Johan mentioned, very strong valuations in our projects and were able to capture good profitability based on these valuations. Project portfolio continued to grow, both with acquisitions and with greenfield and in multiple technologies. So we have a couple of months left of 23. We are now working on the sales processes. Some aim to conclude on this side of the year, others to conclude on the other side of the year. But we see good progress across the board. We are also handing over quite a significant construction portfolio during the coming weeks and months. And we are continuing to investing and to work with achieving milestones in our portfolio. And with that, I think we can wrap it up for the presentation and open for questions.

If you wish to ask a question, please dial star five 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 Olaf Cederholm from ABG. Please go ahead.

Hello, gentlemen. Fantastic profitability in the quarter. On that subject, when you look at your sales processes, And I know there are regional variations and things like that on pricing, but do you see any differences in project profitability in the ongoing processes compared to what you delivered over the last quarter on those projects?

I think the clear answer is yes, there is significant profitability variations between both technologies and countries. So what you saw from us this quarter was two strong core markets delivering core products, meaning onshore wind as a full operating asset capturing the maximum value that we can provide. there is quite a bit of difference spanning from the very low to the good and high. And I've mentioned on some markets producing fairly low profitability and being Spain, for instance, right now, and we have others producing quite good, but also inside of countries, it's not given that just because you have a permit, it's in the money. You are seeing markets that you need to really optimize and work on getting profitability on projects, just as it's been in the past. So that is playing into our hands.

And I think to put some perspectives on that, Olof, also, if you remember what we said in connection with Q1, we showed just, I think it was over the last two years, the span on gross margin levels that we've seen on the projects that we've sold, I think it was a range from, you know, 8% to 85%. So that's stating what Paul just said that, yeah, it is a broad, broad range. We keep coming back to how we're steering the business focusing on the return on on capital employed, which is very important.

That makes sense. So let me then rephrase a little bit. Do you see any sort of, do you think it's been more difficult to get good prices for your projects? You know, they're different, all of them, but has pricing become more of an issue in your sales processes over the last months compared to before the summer?

not the last months compared to before the summer.

Yeah, okay. Something you said I thought was quite interesting. You said you were discussing in discussions right now on monetizing your offshore projects further. Does that include monetizing projects where you've already sold 49%, i.e. selling down on your 51% shares?

Yeah, I think the palette of options is fairly large. So we have newly started projects that are kind of in the similar stage as what we saw us selling. in Finland earlier this year so that is one portfolio we also have portfolios outside of Åland and we have outside of Sweden and Finland in the Inka portfolios but we're not referring to currently selling down the 51 percent because that will be for the next phase when we have achieved the next milestone then we will decide on what to do with those 51 But of course, those milestones can be achieved fairly soon as well. We have, as you know, already received the permit for the first.

And the main driver in the development growth from the greenfield in the quarter was relating to offshore 500 megawatt Pleone project outside of Gotland, which has progressed well. So, yeah.

Very good. And then my last question would be on your cost base. You mentioned that you've now sort of reached operating costs where you think they can stay for some time. Could you maybe elaborate a little bit on that? Should we simply assume the current level, 12-month level, to stay roughly the same going into 24 and 25 or will you have to get back on adding cost again at some point?

Yeah, I don't think we said that explicitly that we are now sort of at the level where we foresee that we will be in the future but in terms of and I think that was the key point that Paul highlighted in terms of the quite massive expansion that we have undertaken in growing the portfolio and growing our geographical presence and that's also a bit to The focus for us now going forward, as we stated, that it's really ramping up the activities across our existing markets where we will see significant growth from new projects to be sold. And there we still have some way to go, but you will not see the magnitude in terms of percentage growth in OPEX that you've seen over the last couple of years.

Sounds good. Thank you very much. I'll get back in line.

Thanks, Olof.

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

Yes. Hello, everyone. A couple of questions already answered, but I had two more questions. The first one, I mean, let's just go back to the gross margin. I know the project that you did this quarter was very profitable, strong valuations. We tried to reflect that in our estimates, but still the gross margin is a blowout compared to what we estimated. Is there anything else that we need to account for here? Did you sell any electricity from projects that you haven't handed over yet? Can you just give some more color on the 30 plus percent gross margin that you did at this point?

Yeah, the sales processes, as stated, obviously a key driver for our strong profit generation in the quarter. That said, we also saw, even though we didn't hand over any projects from the construction portfolio, but in a good position to do so here in Q4 good progress in the construction portfolio with solid delivery no sort of one-off items from the construction portfolio as we had for example in Q1 of this year from the trial runs on some of the finished projects that we handed over there you might remember that we had a quite good profit contribution from that so it's really stable delivery from the construction and asset management in line with sort of the gross margin levels that we typically see from these business areas and then it's these two projects that we've sold the smaller one in Poland as well as Onglana project in Sweden and none of these projects it's also important to understand when looking at the broad span on gross margin level it's also the type of okay market technology is one thing as Paul mentioned but it's also a bit is it projects that we have acquired or is it developed by ourselves or we have expensed all development expenses and none of these projects we had any significant amount in our balance sheet so that is all also tying into the good gross margin for us.

Okay so is it fair to assume that construction revenues were actually pretty low this quarter and could you also remind us about what kind of gross margin you do on TCM?

So above Above single digit is what we say on the asset management and for construction it's high single digit to low double digit gross margins. And you had another question there as well.

No, I think you actually answered the question. We talked a little bit about the office space. I think you answered that adequately, but the working capital, can you just provide a bit more flavor on the movement and what has basically happened to kind of reassure the market a little bit?

Yes. So the one thing if I, Just to highlight one thing which drove this negative development, and then there are individual things in all our 15 construction projects, which is capital intensive. But the timing of the sales that we did, the Ånglanda project in Sweden, that transaction was concluded in Q3. However, the first payment, and as you know, we get significant upfront payments, and we're not tying up capital during the construction phase. That first payment from EWZ came on the other side of the quarter, which has a significant impact.

All right. Thanks.

The next question comes from Oscar Lindstrom from Danske Bank. Please go ahead.

Yes, good morning. Two questions from my side. I mean, the first one is, you gave us here the size of the, sorry, of your 1.3 gigawatts in our construction portfolio. Could you give any indication of how much income we should expect from that over the coming two years or so? That's my first question. The second question is on the Australian operations. Can you say anything about upcoming projects being sold or other progress in that operation since you acquired it.

Thank you. Yes, I'll take the first one and then maybe you can comment a bit on Australia there. In terms of the order backlog, we're not commenting on the total size of that, but nothing has changed in terms of how the sort of on average profile for our construction projects look like in terms of how much we recognize at the point in time of when the sales happen and then the facing during the construction phase and that of course then depends a bit on how big of a project how long the construction will be and there from From that, for example, with us now also posting the contract values on the BayShare project that we sold in Poland, as well as Onglana, you can then run the analysis how quite significant we've grown our order backlog from these two projects in the quarter. And now also with the six projects we have for Q4 handover, which is really the final milestone for these projects. I think that's the way to think about it.

Just a brief comment, Oscar, on the Australian operation. We have ramped up the team. We have put in place a very solid country manager. We have integrated into our systems and set up the operating model so it kind of fits with the rest of the Ox2 system. So it's been a good first six months. First project portfolio is in the market and achieving kind of good attention. And next year, Australia will be one of the kind of main contributors already to the Ox2. volume and revenue. So good traction in line with high expectations.

And now when I think about it, actually, we said that we have five markets contributing, even though it's small. But we actually have Australia, as you can see in our report from the TCM side.

I think it was six million or something contributing. So six markets, actually. But there will be significant more coming from Australia. Thank you. from Carnegie. Please go ahead. Yeah. Hello. I need to ask about a little bit of weight. Obviously, but still

targets of doing 1.5 gigawatt an average per year in 2023 and 2024.

Yes, we still stick to our targets. And as you see, and as we said also when we communicated our revised financial targets and sort of upgraded our financial targets here in Q1, we're not seeing that the megawatt targets as such for 23 for 24, as you can see also from the numbers that we posted, will be a stretch for us. given the significant volumes that we've sold.