OX2 AB (publ)

Q1 2024 report. My name is Paul, CEO, and I'm here with Johan, CFO, and we'll take you through the current business state. The agenda is as follows, highlights and portfolio updates. We'll go through the financial review with Johan, then I'll have some comments on the market outlook. before we have ample time for Q&A in the end. Yep, excellent. So today you will hear our main message, which is that we are making good progress towards our 2024 targets. We've had a volatile quarter in the past and also this year has been a fairly volatile quarter based on the non-sales of new assets and no handing over either. However, we will take time today to talk about the two gigawatts of projects we have in sales that gives us the good visibility towards 2024 targets. We see strong fundamentals driving the demand and this is all kind of giving us the visibility we need to reiterate our 24 targets. In addition, we want to comment on that we do have a strong financial position, but we are continuing to prioritize investments and focusing on efficiencies. So Ox2 is in the space of the energy transition, which is long term, very solid and the fundamentals we see are strong. But of course, it's not a straight line forward and our business model is being impacted by that, as a lot of people have asked questions about this morning, about Q1. We have however to date transacted on all technologies we are currently working on. That means onshore, offshore, wind, solar and lately the battery storage project in southern Sweden we will talk a bit about. We have a long-standing history, and if you look to our LTM last 12 months numbers, you see we are trading above operating targets, but slightly below our return on capital employed target, which Yvonne will give some more explanations to. The overall development portfolio is what gives us good visibility into the future. It also stands fairly stable compared to last year. but there's been good development within the portfolio and I will take you a bit through that. The geographical presence is the same as last quarter. Main bulk of this year will be in our core markets and core products. So we're going to talk a bit about the sales processes now and as you will see it's Nordic and Polish wind, some PV But that's the main product mix that we have today with the addition of some Australian assets as well in late stage sales. So summarizing Q1, we see good demand on the underlying product and also progress in ongoing sales processes. The development for portfolio decreased a bit. We're going to talk a bit exactly what caused the decrease, but there was also additions of about 290 megawatt of greenfield plus some 50 megawatt of acquisitions. But of course the big point today is the sales. No new sales were recorded in Q1. There has been quarters in the past as well with no new sales recorded, this one was the first time we actually came below zero on returns that is due to that fewer milestones were achieved in construction no handovers and we have a bigger cost base we're carrying the platform that will take us below or above the one and a half gigawatt targets per annum So we're very much geared and have invested for the platform to start to deliver and this is what we see is currently happening now. Comment on the sales besides the processes technologically wise, we're also seeing a lot of different geographies now contributing to the sales. initiated another large 800 megawatt project sales in Finland which has caused a lot of attention and there's a very strong demand a bit new is that the financial investors are very much back in the game looking very actively into our processes And in April, we signed an agreement as well for the energy storage project will be developed and constructed in southern Sweden, which is expected to be handed out over now in Q2. We have started construction of 100 megawatt project in Poland backed by a CFD, which is a contract for difference with the Polish state gives us very strong visibility into the financial of that project as well. we intend to see sales complete during the year on that project and the management portfolio continues to be strong with close to five gigawatts of operating assets looking through the portfolio distribution if you lay this next to the last quarter you will see mid-stage growth on PV and wind onshore This is a lot what will drive the coming year's sales as well. So you should note that we have about 2.4 gigawatt or two in late stage, but there's a fairly significant mid-stage portfolio being developed and coming up to late stage. And the PV is, of course, growing a bit faster through these cycles than what wind is doing. another change was the so we see a reduction from 2.5 to 2.4 in the late stage while that is explained by the 100 megawatts construction start on the Polish PV project so that is now in construction The border fall between Q4 and Q1, mainly consistent, but the changes in existing portfolio, we are balancing the size of projects on a going basis. And here there's been a total net reduction of some 700 megawatts. In addition to the balancing of some onshore in the Nordics, we've also taken out some PV projects in Estonia. and also moving some projects back to the developer. So the original developer that we had acquired the projects from. So there's a minor change only with some additions as commented upon. Looking through the portfolio highlights we signed in April, energy storage sale, that's the first one we've completed. The construction is now completed and we're waiting for regulatory approvals for the deal to close. Conditional also on approval from the TSO, which means that we should be trading energy on this project during or before end of summer. We have, as we said, a fairly large solar project in Poland in construction. Panels have arrived to the site and it's a project we have been developing for a lot of years. It has grown in size over the time and we won a CFD in an auction a couple of years back. The expectation of sales is that it's completing in 24. And then we have a large process ongoing. The largest we have had so far, 800 megawatts. Strong demand, as I mentioned, financial investors and industrial investors alike are looking very much for bigger volumes now. And we feel and see that this has really caused global attention from investors. Good demand also for the PPAs on this project, where we see that we are providing very valuable new power production to the market. There's all types of industrial applications, et cetera, that will take use of this new power. And this is a new page. We're adding some flavor to the sales processes. Here you see the geographies, seven geographies we currently have active sales in. Technologies, energy storage, onshore wind, solar. But the majority is onshore wind. And on the bottom to this page, you also see we have laid out the flow chart of how a sales project is running. So basically we start the sales, we distribute and have discussions with the market. And right now we have 800 megawatts. It's the finished portfolio in this early phase. We're expecting that to be bids received very shortly because it has been in sales through the most of the last quarter as well. Once we have received bids that we can work on, we place them in the bucket bids received, meaning 140 megawatt currently is in that process. And once we have selected a buyer or started due diligence, either non or fully exclusive, we are putting it in the next bucket, which is 890 megawatt now. So out of the full two gigawatt portfolio we have in sales, And then of course sorry I forgot 90 megawatt is now signed including the energy storage project and the two projects we've sold in France. But they are waiting for closing different types of regulatory approvals or other types of closing conditions for the project to close. But that means in practice that we are out of the two gigawatts we have bids received on practically 1.2 gigawatt of them. And we're very close to receiving bids on the remaining 800. So when we talk about that, we have good visibility and good reasons to repeat the guidance for the year. It's based on these ongoing, very late stage discussions. So I hope that gives you a better understanding of how we back up this confirmation that we see 24th to be growth in EBIT compared to 23. A difference is also, as you see, there's no offshore like we had last year. When we sell onshore projects, when we construct onshore projects, then they do create revenue and profits that we carry on, not just the year we sell it, but also in the following years. But last year we sold quite a lot of offshore contributing to the EBIT that didn't really carry on into 2024. But what we expect now is to see quite a bit of this volume being sold and then carrying on both revenue and EBIT in the coming years. So there's an element of recurring revenue into the way we do sell these projects. Another very important part is, of course, the long-term price forecasts. We know that it's not the short-term price forecast, we've been talking a lot about that, that sets the price for our projects, but it's the expectations of the long-term outlook. We've seen updates from most analysts during the last quarter, This is annual updates. Typically last year, there was a very tough reduction on the long-term expectations. This year, it has come up with some 15 to 20%. This has a direct impact of how most banks and financial institutions are valuing a renewable asset. You can also see that they've reduced the near term so up to 2027 forecast expectation on price has come down a lot but that does not impact our projects because we are not producing electricity until 2027 from these projects that we now are taking to sales. So this has a huge impact on the sales processes, and we expect this to drive a lot of future demand as well. Now, as we saw last year, being fairly low in most markets on new construction starts. The demand is driven long term by increased industrial demand, increased data center demand, And of course, you are all aware of the transition in the transportation space, as well as our 2x coming in, utilizing the opportunities in the Nordic grid system, especially where you can actually produce green electrons post 2030, push them into the grid and for that qualify for European green certificates. So there's a lot of positive trends here as well. So I hope that you will see to more than just the last quarter when it comes to valuing OX2. The construction portfolio is of course also something that will have a big impact over time. We are dependent on delivering on quality budgets and time which things are going well now we have a bit smaller portfolio to deliver in 24 given that a lot of volume was pushed to 25 by the delay caused by Siemens Gamesa's platform issues those turbines are continuing to be constructed as we talk and the development is according to plan on those projects as well. So we reiterate that we have control of the construction portfolio and quality is being met both on health and safety and also environmental issues in these projects, which is, of course, very important. So I will open up for Johan to come and dig a bit into the financials. Thanks.

Hello, everyone. Yes, let's dive into some numbers. So like Paul was saying as well, we're off to a bit of a slow start when it comes to new project sales. We didn't complete any new sales in the quarter with the variability that we see in our business model. This is no surprise to us. We had the same start to the year last year as well, where we didn't have any new projects being sold. That said, as Paul was also giving some more flavor on, and I hope you also get the same comfort as we are having in terms of that there is significant progress that have been made when it comes to how our sales portfolio has developed. Very happy to see the signing of the first energy storage project. in Sweden, Bredhella, now only awaiting sort of final FDI clearance as well as the final qualification from the Swedish TSO in order for that project to deliver the ancillary services. In addition, we also signed new project sales for solar in France. All of this expected to be closed in Q2. as well as then the 890 megawatts that we have in quite advanced stages the diligence is being conducted by our customers procurement work is progressing us having good customer dialogues and good commercial insights as well to how the 890 megawatts will play out commercially for us so very much look forward to come back to you and present also the data points on when these projects have been sold a bit back then to Q1 the numbers that we look at here strong gross profit gross profit or gross margin I should say 28% taken into account that I also try to explain on a recurring basis on these calls that, okay, product mix impacts our gross margin quite a bit. So in this Q1 quarter, the sales mix is made up of the bulk construction revenue and then a smaller part TCM sales. On the construction side, the sales margin or gross margin that we typically have there is high single digit to low double digit. And then coming in at 28%, very strong or exceptionally strong gross margins given this sales mix. We had the same sales mix in Q1 last year. And then the natural question is of course, well, how come you have these strong margins? Well, last year it was mainly driven by the projects we handed over where we had exceptionally good trial run revenues from these projects with very high electricity prices. on the trial runs. In this quarter, the explanation is a bit different. We have been able to renegotiate the payment terms on a project that we have acquired and sold. So the payment consideration for this project, we've been able to renegotiate down, depending a bit on the developer's financial situation. So very good work there from our transaction team in Finland. It's a Finnish project. And the other component which is driving the gross margin in the quarter is foreign exchange impact, which is impacting the result in a positive direction. We are hedging our foreign exchange exposure in the construction projects. We're hedging the net exposure. And what that means is sort of the cash flow, the expected cash flow coming from from these projects, the margin, the net margin in the projects. And when there are differences in the inflows and outflows, that can cause quarterly fluctuations in the accounts, which we saw a big positive impact in the quarter that we expect to be reversed over the coming quarter. Operating income, so in a quarter where we didn't post any new project sales, operating income negative 100 and 10 million. So these variabilities on individual quarters will continue to be a theme with the project based business that we have. So like I've been saying, looking at the longer trends is more important. There we can see that on an LTM basis we've sold significant volumes. Paul was also commenting a bit on the sales mix and how that is impacting also our financials. So last year the bulk of the volume was made up of the two partnerships that we did in Sweden and Finland on the offshore side, which is... My slides are moving here a bit for me. Partnerships in Sweden and Finland. And then we sold some 300 megawatts of onshore wind and solar. Looking at the near term sales outlook for this year, the bit more than 1.9 gigawatt that we currently have in sales, the product mix is completely different. Close to 1.2 gigawatt of the sales is onshore wind in the Nordics. And this will have a big impact on how the financials will look for us in the near term. Gross profit wise, last 12 months strong gross margin, very much a result of the good delivery from the construction portfolio, the good profitability that we've seen from the projects that we've sold. And as said, very much look forward to also provide some new data points on the good profitability that we see in the existing sales pipeline. So gross profit increased over the last 12 months, looking at the operating income, down 300 million, very much then driven by the increase in the OPEX, driven by the larger project portfolio, the more advanced project portfolio, the increase in development expense, as well as the increase in personnel with the ramp up that we've done over the last year, the acquisition in Australia, the ramp up in markets like Romania, where we are yet to see the first sales. The return on capital employed, super important KPI for us in terms of how we prioritize internally, both when it comes to markets and what technologies we want to work with in different markets. Now a bit below our financial target of 25%. it's of course one thing being the operating income down and the explanation that I just said why that is the case the other one that one needs to take into account is of course these significant investments the acquisition in Australia a bit more than 800 million project portfolio acquisitions of close to a billion over the last year where we're yet to see the sales come from that in addition to that as you can see if you look at our balance sheet end of the quarter we have also now three projects that we're constructing on our own books one project being the storage project in Sweden that we target to hand over here in Q2 then as well the onshore wind project in Italy that we've sold on a forward sale contract as well as the solar project that Paul was commenting on in Poland. Quarterly fluctuations, so Q1 here, no exception. There will continue to be variability on quarterly basis. Looking near term, we are not providing specific guidance on quarters, given the inherent difficulty in sort of zooming in and promising exactly when new sales will happen. What we are commenting on today is that the transactions that we've signed in Sweden and in France, we expect to close in Q2. The longer sales trends as well as the operating profit development sales last 12 months down 2% given We're driven by less sales from the construction portfolio and we're working very hard to ramp that up again and have good belief that that will be the case also given how the product mix look in our sales portfolio. Finland biggest market for us in terms of sales followed by Sweden and Poland. Profit development commented a bit on that already. The strong gross margins that we're seeing and then when it comes to the operating income, it's important to remember how we're treating development expenses. Also the expansion investments that we've done over the last year and the time lag impact from from when these investments is impacting the profits. Very solid financial position, 3 billion in net cash end of quarter. Again, it's the construction portfolio that is the main contribution to the positive cash flow in Q1, close to 300 million coming very much from advanced payments from customers. When I was summarizing the positive contribution from the construction portfolio over the last two quarters, it is now close to 1.8 billion. And I also typically comment on where we are in relating to a more normalized level. And now we're very much on the high side when it comes to negative working capital in the construction portfolio. And this we should expect to be normalizing in the coming quarters. What else worth commenting here may be the investments in project portfolio a bit slower than a normal quarter. As you might remember, and as we also reiterate in the report, our target is to deploy around a billion in project acquisitions, a bit slower quarter. in Q1 just like with the timing of our own project sales it's also when it comes to new project acquisitions this varies quite significantly in individual quarters but very much target to be able to ramp this up with attractive opportunities that we are seeing in our markets And yeah, this is a bit of a snapshot on an LTM basis. How has the project acquisitions been divided? Obviously the acquisition in Australia last year significant contribution, but also as you can see quite diversified mix both when it comes to geographies and technologies. Summing up a bit then, We are in a good position. We have a big portfolio of ready to be sold projects, advanced stages close to 890 megawatt. We have good commercial insight to how these projects look like. Paul was also commenting on some more external factors when it comes to both the customer universe, how that looks, a bit stronger interest from what we've seen in the early phase of discussions with the portfolio that we just in beginning of Q1 started marketing in Finland. Also positive direction in terms of factors like the long-term electricity price outlooks and good reasons for why that is being the case very much the underlying energy transition behind that. Timing of new project sales will continue in terms of variability on individual quarters. Solid platform in place for sure. There is expansion in different buckets across Ox2 in different markets and technology ramp ups. But if you look at the pace on the OPEX development, like we said also and commented on going into this year in Q4, That pace will level out and you will start seeing leverage on the existing platform that we have. Investments hope to see ramp up in the activities there with a bit of a slower Q1. And with the portfolio that we have at hand, good outlook for the year and reiterate the growth in operating income for the full year.

Thanks, Johan. So concluding Q1, we repeated we saw good progress in the ongoing sales processes. initiated large scale sales in Finland and increased expectations for long term electricity prices. So what's the rest of the year going to look like? We will start to close sales processes during the coming months and quarters. uh we are focusing on investment prioritizations and efficiency we have a bigger body we can use efficiency measures more now to to gain further traction of course to continue development processes we have a lot of projects in mid-stage that we are advancing to late stage during the year so Exciting year for AUX2. We are going to see a lot of activity. And I by now then open up for questions. I think we have to the operator the opportunity to dial in questions.