OX2 AB (publ)

Good morning, everyone, and welcome to the earnings call for the second quarter 2024 of OX2. Today, as usual, it will be myself, Paul, and CFO Johan presenting. And on the agenda, page four, we'll give you, as usual, highlights and the portfolio. Financial review, market outlook, and there's time for a Q&A in the end. Starting at page five, Ox2 is, as we are aware, in the middle of the transition. We call it powering the great shift. Long term, we see good movements towards an electrified energy space. But there is volatility near term, as we are also aware of. Despite that, we look back at more than 20 years now of track record being a leading pure play developer in Europe and having more than four gigawatts constructed and or in construction. So we have a long and proud history and also looking forward to participating in the next phase of this transition phase in the energy space. Looking at LTM, Johan will go more into the details, but you can note that we now have fallen slightly below the communicated thresholds and targets. We still focus on longer time periods than quarters, and we see and reiterate also this quarter a good full year 2024. So main part of the year was expected to be backloaded on the sales part. And this is showing as well now that we are experiencing a lower operating margin dropping down to 5.5% LTM as well as return on capital employed down to 9%. based on that the construction or the sales have not concluded in the first half, but are looking now to conclude in the second half. However, we see a strong portfolio being stably pushing forward, and we have more than two gigawatts of projects ready to build in the in the sales process as we discussed in the last quarterly report as well. So nothing has dropped out. Everything is moving ahead. And we have sales processes practically in most of the countries we are geographically located in. It's also important. Page six, we summarized the quarter as being a quarter where we saw good development in construction and also growth in the asset management portfolio. We added a greenfield project of 115 megawatts, but did not conclude on any acquisitions during the quarter. On the sales side, we completed 42.5 megawatt hours of battery storage, as you have been informed during the quarter. We have also had good progress in the construction portfolio, summarized at a bit more than a gigawatt during the quarter. The 100 megawatt solar project Rytki continues to be developed and constructed on our own books. And that shows good progress as well. And we now have exceeded five gigawatts in asset management, which is a first for us. Also summarizing more than 1000 wind turbines. So this is a sizable operating portfolio we now have generating income. Looking at page seven, the total project distribution, you can see a bit of a drop in the early stage because we have moved some projects forward to mid stage by having completed applications. And we've also seen a bit of growth in the late stage portfolio. But all in all, a fairly stable quarter when it comes to volume. But very, very happy to see a significant late stage portfolio, which gives us a lot of comfort into the construction phase for the coming years. We have good assets to work with in good markets. Looking at page eight and the development portfolio, as you can see, very slim movements on the overall portfolio, which both starts and ends at 33.1 gigawatts. And even the distributed among the geographies and the technologies you have to the right. So no big changes in the quarter. We looked at portfolio highlights on page nine. I mentioned the sale that was completed in southern Sweden of a project called Bredhella, which was Ox2's first energy storage project. We have a solid portfolio in energy storage, and we were very happy with both the margins and the timelines, the quality of the construction on Bredhella. So this is something we could foresee ourselves repeating and participating more on this technology. What we also see is that this technology is growing quite fast. There's a lot of construction being concluded on in Sweden. So this was Sweden's largest project for about a week or so until a slightly larger project came online. And there's a lot of movements in this space. So this is good for the energy system that it's proven to quickly be able to add storage, which can contribute to a stable frequency and grid stability. So this is a project we're very happy to have handed over and we operate on behalf of our customers. Looking to technical and commercial management, we concluded a management contract with 142 megawatts in Poland with energy company Orlen. Total now five gigawatts. and more than a thousand wind turbines, which is also unprecedented for OX2. Very strong growth and very good quality demonstrated on the services we provide here, which is appreciated by the customers. In Poland, we continue the construction of Project Rutki. This is on-site, almost completed. We're looking to connect during the fall. And as we've also notified about earlier, there's a limited financial risk in this project, given the CFD, the contract for difference we have in place with the Polish state. So this is a solid project where we have flexibility on whether to sell or to retain going forward. So this is almost ready to produce now. Looking at page 10, we break down the construction portfolio, which is slightly more than a gigawatt. We have three projects more to hand over and complete during 2024. One in Italy and two in Poland. And as you recall, the Italian project is sold on the forward sales structure. So that will all be booked at the time of handing over. The two Polish projects are the classical EPC side that we continuously book. In 25, 100 megawatt, and we even have a project in 26 to complete. So all in all, good progress. And Johan will talk a bit more to what you see in the numbers coming from the construction portfolio. Page 11, we're just commenting quickly on the EQT bid on OX2. On May 13, a bid was launched, supported by the independent board and also by our main owner, Peace Industries, at 60 kroners per year. share with the condition to clear regulatory approvals and reach 50% acceptance. The 50% acceptance period has been reached and the equity currently directly owns 19.8%. In addition, then you have the PC industry's commitment to the acceptance. So we are now waiting for the regulatory approvals. We have three down and three to go. Sweden, France and Romania has all been approved and we're waiting for FSR and merger control in the EU and FURB in Australia. So that's all I can update you on that process, but it's moving along. Heading over to Johan and financial updates.

Thank you, Paul. Looking down at slide 13. And hello, everyone. Q2, quite sort of uneventful if we look at what has happened in terms of new project sales. Paul talked a bit about our first energy storage project in Sweden. That in itself, super exciting and we see a lot of exciting opportunities in that space, as Paul mentioned also going forward. And we have, as we talked a bit more about last quarter, when we look at the sales pipeline, more projects also in the energy space to come, hopefully near term. But a slow quarter from a new sales perspective. And if we compare a bit to Q2 of last year, we had sizable volumes being sold in partnership for three years. offshore projects in Finland and also if we look at the gross profit and the big deviation there comparing this quarter to Q2 of last year that is the main driver given the very high gross margins that we see on those type of products for us so the gross margin that we see and that we post in Q2 is a very representative figure for us when we look at the sales mix that we had which is very largely driven from the construction portfolio and also in a quarter where we haven't had any significant handovers or contingency releases from the construction portfolio so a representative figure in terms of operating income then the lowered gross profit as well as a continued increase in the OPEX base is the main driver behind the negative development in operating income. LTM figures more representative for us given the quarterly swings that we keep coming back to but also as Paul mentioned looking at the LTM figures we're now in a place both in terms of new sales as well as profitability and returns where we are slightly or in some numbers also quite a bit below where we want to be and our targets. That is very much driven by lower sales volume in Q2 LTM figures of this year. The most significant volumes that we have is from an offshore transaction that we concluded in Q4 in 24, but quite low volumes from onshore and solar. We have the Swedish onshore, Polish onshore and then the storage project that we have sold over the last year. That said, like we talked a lot about in Q1, we have a very sizable sales portfolio that we have ongoing in different markets and different technologies the discussions are progressing we are as we say in the report targeting to conclude on most part of this portfolio in this year the way it looks currently is that most of these sales processes will conclude towards the end of the year. Looking at gross profit, LTM figures, gross margin holding up well, 27% is a healthy gross margin. But on operating income, given the lower sales volume, we're falling behind our target of 10%. So this is where we need to increase the volume and as I mentioned we are about to do that as well with the two gigawatt that we currently have in ongoing sales. And that's also what needs to change in order for our return figures to come back to the level where we want them to be. Moving on to the next slide highlighting again the quarterly swings reiterating a bit why this is the case. our financials very much driven eventfully driven in terms of new project sales in terms of the progress that we see in the construction portfolio this will continue to be the case maybe worth highlighting when we look at Q1 this year Q2 this year a bit the same product mix that we had in sales so why then the difference in in terms of profitability. Well, as we highlighted also in Q1, we had some events of a more one-time nature in Q1, positive FX impact, as well as renegotiation of a milestone payment in a project that we had acquired and are currently constructing, which had a positive impact in Q1. So that's the main driver behind the differences there. Moving on to slide 15, looking at our financial position, continues to be in a very healthy financial position, continue to have quite significant positive impact from the changes in the construction portfolio, the working capital in the construction portfolio. This is worth mentioning and highlighting again that this swings also big time between quarters we are now when looking at the numbers in a very negative working capital territory when we look at the construction portfolio minus 30 percent if we disregard the projects that we're constructing on our own books and typically a normalized figure is in the range of zero to minus 20 percent so this we should expect And we forecast we'll be reversing quite significantly over the coming quarters. Other things highlighting we have had in the quarter as well as in Q1 quite low acquisition pace. We want to see this figure increase, but just like with the timing on new project sales for us, it's hard to to pinpoint and forecast exactly when these acquisition opportunities that we're working on will conclude but it's also worth mentioning that it is a bit slower pace than what we've seen also on the acquisition side but there are some interesting opportunities here for sure in some of our markets. Also worth highlighting on the financing the significant positive impact that we have in terms of cash flow contribution there. The project that Paul mentioned in Italy that we're constructing on behalf of our customer, there we have put an external financing in place, which has freed up some capital for us. Looking ahead then on slide 16, what to expect and what are we expecting for the remaining part of 24? Well, If it was an uneventful quarter in terms of not much happening, we foresee a very eventful second half of this year. Super high activity on the close to two gigawatt sales portfolio that we have across markets in Romania, in Finland, in France, in Australia. So there should be a lot of exciting things happening. All of these projects in terms of where we are today, we see a healthy profitability, which is also behind why we reiterate our outlook for the full year in terms of operating income. Obviously, as we're stating also in the report, the outlook is very much dependent on us also being able to conclude on these sales processes. we hope and also from the visibility that we have in terms of the project acquisitions to be able to ramp up a bit the pace also on the acquisition side you could see in the quarter that when looking at the project development expenses that that has started to flatten out a bit the increase and this is also what we see going forward we have invested over the last couple of years quite significantly into our different markets and technologies. And we see that that platform is starting to pay off and we're not seeing the same increase in investments there. With that, or I conclude on my part, Paul, and hand it back to you.

Excellent, thank you, Johan. And if we jump to page 18 and just summarize and conclude the second quarter where we finalized the sale of our first battery project that we constructed on our own books and basically handed over and constructed then sold during the same quarter this last quarter we were very happy with and we also saw good progress during the quarter in both construction and growth and delivery of the asset management services so That's the second quarter. What we're spending all our time on now is to execute the sales portfolio, which has, I repeated, remained intact and been pushing forward. We're continuing to be prioritizing our investments, both when it comes to technologies and when it comes to geographies. and also working on efficiency measures to be able to push forward even more volume in the future. Also, the growth and the progress in the development portfolio will be important for us. We have, as we have seen today, more than 2 gigawatts, 2.6 gigawatts in in late stage, but the majority of the portfolio is still early and mid. So we're spending a lot of resources both to create the environment for a healthy development of the renewable technologies we're working with, in the markets we're working with, but also on the project levels. We're spending both local and central resources to push them forward. So that's the remaining focus of the year and with that if there are any questions let us know we can move to page 19 and open for any potential questions so back to you operator Okay, feel free to contact us at IRTalks2.com for any questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Olof Cederholm from ABG Sundal Collier. Please go ahead.

Hello, Paul, Johan. You're still on, right?

We're still on. Yeah, sorry for the technical confusion there.

No worries. No worries. I thought maybe I had the conference call to myself there for a second. Just a question on the market sentiment. You're talking about the customers still have lengthy decision-making processes and now Q4 is when you think most things will potentially be sold. Has it changed compared to three months ago? Any differences in types of customers? Any more flavor on that would be interesting. Thank you.

No, I think we have continued. Remember in Q1 we gave a bit more color on due diligence is ongoing, etc. And that is what has been continued during the last quarter as well. So we haven't seen any big movements in the customer landscape on projects. We've launched a couple of new projects as well, with very good traction in Poland, for instance. So, yeah, it's the same landscape as three months ago. So no big change and still movement with the sales processes.

Okay, so no change in decision-making then, because some of these projects have been in sales for more than a year. Yeah, yeah. But it's as expected, basically.

What is the case is, as we recall from earlier conversations, that the need to put together both offtake agreements and debt financing packages at closing has continued. So in the past, we were able to have customers who underwrote equity to a larger extent. While we have a bit more demanding customer landscape now where you need to kind of provide the full closing of the debt and PPAs or offtake agreements at equity closing. So it's a bit more complex and it's for good reasons that things take a bit more time, but we don't see an elevated... risk on project level, but rather, or margin level, but an elevated risk on timing is what we also comment on in the quarterly report.

Okay. So in terms of price, that's not really affected. It's just all the things around the project.

Correct.

Excellent. Well, that's it for me. Thank you very much.

Okay. Thank you, Olof.

The next question comes from Oskar Lindström from Danske Bank. Please go ahead.

Good morning, Paulo Johan. A couple of questions for me. First off, if you could perhaps say something about the status of the Galena and Triton offshore wind projects. You know, what's the status of those? And, you know, when would you expect to be able to make a final investment decision on those? So that's my first question.

Okay, good. So this is something that we had a bit of movement on in the quarter. On Galena, we got the 2,000 permits. So that's one permit outstanding only now with the government when it comes to the SES, which is more related to the, or no, it's not SES, it's the KS, what is it called? KSW or something.

Kontinental Sockella.

KSL. KSL. Exactly, so there's a permit for the grid cable that needs to be granted by the government. We're working otherwise with the grid to design exactly how the connection will look like and we will be ready fairly shortly following the final permits from the government to connect this now. Of course, we are also looking at the potential appeal to the High Court or the Supreme Court on the Natura 2000. We hope and expect that will not be then taken up for further trial, but let's see. But I would say 25-26 is the time slot where we are looking to be ready for a financial investment decision on Galena. Then, you know, it's difficult, Oskar, to say exactly how long the permitting takes. We cannot do anything before the permitting is in place. And unfortunately, we are stuck with the government still, despite that they gave us the permits more than a year ago. So they still need to do some work on this project. And then you have for Triton, we have the Natura 2000, which is in full legal force since last year. then we need the government to approve of the project, which has basically been waiting for a bit more than a year as well. Difficult to see, we were expecting decisions on that before the summer. It may have slipped to after the summer, but there are signals that there's near-term decisions to be made on 13. And should Triton then be permitted, we have, yeah, basically 26, 27 is more of a kind of a FID timeline for that one to put us in construction before, to put us in operation around 2030. It's all pretty near term, but still quite a lot of uncertainties related to the government's handling on the timing.

Right. Thank you. And I have a second question on Australia, which you mentioned. I think it was you, Johan, who mentioned it in things happening next year. What can you say about the development there?

uh well hopefully i didn't mention next year i'm hoping and what we're seeing is very much this year and second half of this year so i think that answers your question we're targeting to see our first projects there across the finishing line in terms of ending up with a customer during the second half of this year and these are also maybe just worth highlighting there's a lot of

There's a lot of new experiences from Australia. We're doing first time hybrid projects there with fully integrated battery and PV panels. So it's quite interesting as we see that that will come in and in the future dominate also PV development in Europe. So we're quite excited about all of the learnings we've made during our first year. We just celebrated, I think, a year in Australia. The team is pushing forward. It's a strong, good atmosphere for renewables down there. A bit of a different debate than what is in some of the European markets we're in. So strong push towards renewable and we now can build a bit on the experience from our Swedish battery construction as we go into constructing both PV and battery sites in Australia. And as Johan said, the timing is very eminent. Okay, great, great.

And finally, if you're willing to comment a little bit, I mean, you mentioned it in the report, the strategy or the intention of EQT to expand your business into also owning assets. Is that something that you are willing or able to comment on a little bit more? How do you see that?

I think I can just reiterate, I think as we've been talking about for a couple of years now, development assets are getting more and more scarce. We see a lot of the good markets are experiencing very long timelines on producing new permits and new development rights. So it's good to keep some assets over time to also produce a stability long term when it comes to revenue and profit. So I think we're excellently placed to keep some. And then it will, of course, be depending on the strategy by EQT on how much and the division between what we keep and what we sell and what markets. But I think it's adding a strength to the business case.

And is this a strategy which you've already shifted towards so that some of the projects in your pipeline that you are expected to sell perhaps next year, you would instead, you're already now considering building for yourselves?

Not anything else than what we talked about historically when we for instance, talked about keeping, you remember we set a threshold on 25% return on capital employed, which would actually allow for investing in some CapEx, which is what we decided on, that we have the flexibility, take a route again in Poland, where we have the flexibility to actually keep it and still see that we can deliver on the long-term 25% return on capital employed threshold. target so that that's the only flexibility we currently see that we have there's been no other kind of changes in strategy the projects we have in the market will be sold it's been very important for us to clarify that to the customers that this is not something we pull under the rug or pull the rug under their feet. So this is more of a gradual shift, which will, of course, require capital as well. So this is post-closing. We will start to discuss this with you.

Okay, thank you. Those were all the questions I had. Thanks. Thank you.

Thanks, Oskar.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

Good. Thanks, everyone, for participating in this second quarter earnings call from Ox2. I wish you all a good rest of the summer.