Good morning, and welcome to Otovo's Q4 Presentation. Today's presenters are Andreas Thorsheim, Founder and CEO, Petter Ulset, CFO. My name is Sondre, and I work with Investor Relations. Now, over to Andreas with a business update.
Good morning. Today we have a lot of news for you. I thought I'd start by setting the scene. Today we will look at our Q4 numbers released this morning. We will give the details on our new debt facility that I know a lot of you have been waiting anxiously for. We'll give the details on the private placement that will be conducted later today. Let's zoom in on Q4. This has once again been a record quarter in terms of installations. We did more than 2,200 solar panel installations across Europe. That drove, of course, record numbers. We're coming in at NOK 282 million in revenues, handsomely above what we guided for the quarter.
Both, subscription revenue and direct, sales revenue, are up during, the quarter. 2022 was an exceptional year in which demand far outstripped supply. We utilized this, we came into Q4 with an enormous pipeline consisting of more than 5,000 consumers waiting in line and wait times that were close to eight months. Focus for us this quarter has been to increase throughput speed, to stabilize the pipeline and to get the waiting times towards six months so, we don't take a risk that people be fed up waiting in line.
In Q4, we also saw that search volumes on the major search engines was down and the cost of activations from social media and other performance advertising was up. In Otovo, we constantly optimize the way that we get our consumers, and this was not the quarter to be adding more people to the pipeline. Our aim now is to stabilize waiting times at six months and to keep this up by having a sustained pace of installations in Q1 and Q2 and thereafter. Now, the environment that we see going into 2023 is one where demand once again is harder to come by. This is a good terrain for us.
Last year, everyone and their brother could find a solar consumer, and so a lot of handymen had sold-out pipelines. The environment that we're now facing is conducive to the type of company that we are and the type of people that our GMs are. We've been planning for this for a while, and a major focus for us has been to get more partnerships. Partnerships are a great way to have proprietary modes of distribution. Adding to what you can do in PR, in search, in blogs, where the marginal traffic is free. Adding to what you can do in performance media, where you're competing for search words, need to be smart at how you convert that.
Partnerships represent a third type of channel in which you have reliable sources of trusted brands that rub off on you and can generate the solar customers on a regular basis. During 2022 and increasingly towards the end of the year, we signed major partnerships like with Castorama, one of Europe's largest do-it-yourself stores, or large energy or mobile operators across the continent, or even great new power companies like Tibber. Put together the partnerships represented more than 10% of the sales we did in 2022, and this is a number we expect to keep growing throughout 2023. It's a major focus area for us in the beginning of the year. Let's look at the subscription portfolio.
Another strong quarter in terms of the subscription ratio, showing that the numbers we had in Q3 were not a blip. We expect to see these numbers sustained going into the beginning of the year. Our ambition is to move towards a 50% subscription ratio in our sales and installations during the year ahead. When you have a high subscription sales number on increasing numbers of sales, then you add more and more to your portfolio. This quarter is one where we added NOK 80 million in accumulated contracted subscription revenue, and we crossed the NOK 300 million mark to reach NOK 305 million.
Once again, we show that the subscription portfolio is now sizable and scalable and our ability to grow this is very strong, as we'll also say when we talk about the outlook for next year. With regards to the business health metrics that matter the most to us, battery attachment rate, ticket size, battery attachment rate, and gross margins, in general, they're all moving up and to the right if you look at individual countries. We're once again proud of this quarter. Now there will increasingly in the beginning of this year be mix effects as new countries are coming in and some are contributing towards the north and some are contributing towards the south, so to speak.
We'll see some mix on these things before things once again stabilize towards the end of 2023. We've been in launch mode in 2022, and I'm proud to say that we've gathered a fantastic group of general managers and managing directors to bring this company forward in 2023. This line-up is probably one of the strongest that you'll find at any platform company and is a big explanation for why we're consistently able to deliver high numbers and why we're so bullish on our own growth throughout this year.
In particular, I'd like to shout out to our new markets, the GMs in the UK, in Portugal, in Switzerland, and Austria and in Belgium and the Netherlands. Some really fine general managers here that come and fill out the full team that we have in Otovo. If we look at the countries they're leading, these are countries that will be, in general, contributing positively to the subscription percentage. They will be contributing, in general, positively to the battery attachment rate. Then there will be some mixed effects due to consumers in these different countries having different purchasing power and different preferences in terms of system size that will affect our numbers. As I said, 2022, launch mode.
Now increasingly performance mode on these different countries. At the end of Q4, we could announce in a separate message that we had sold systems in 13 countries in Europe. We are the first Pan-European player. We've established a strong parameter from which to grow. During this year, we'll be putting more green into this table. The installation column we will fill in Q1. The unit positive column we will also fill in Q1. Now, what remains is profitability on these countries. By the end of the H1 , we will have six positive countries, and our ambition is to have nine to 10 by the end of the year. Where does this leave us as we start 2023?
Otovo is really three different business lines with different maturities. The first one is the marketplace, in which we originate assets, we sell them directly to consumers, or we hand them off to the asset portfolio company, and we take a margin when we do so. The name of the game there is to get geographical coverage and utilize our strong ability to be asset light and digitally backed, which is an advantage to us when fighting for market share in multiple countries in Europe. The focus for management there now is to grow volumes and to do that in a way that brings us to increasing profitability, both in existing markets and increasingly in new markets as well. The second line of business is the asset portfolio.
Here, we make money from consumers signing up for 20 years of inflation protected subscriptions on solar assets. We build, and they pay monthly for the assets. The key to succeed here is to get to volumes. You need a reliable source of volumes, and Otovo's marketplace really is that, and we're proving that once again this quarter. The focus for us now is to develop this balance sheet. Today's news on the debt side is a big contribution to that. The next question will be, well, how will you monetize that? That's the next horizon for us in 2023. The third element is what all these assets enables you to do.
When you have tens of thousands of homes with solar panels on them, when you have thousands of batteries that are connected to the grid, and they're on your balance sheet, they are digitally connected to your systems. We have contractors that have carved out a way for you to control those assets. It represents a tremendous value that can be used as a fleet to stabilize the grid, to arbitrage beyond what a single consumer can do. That is a next growth horizon for us and the horizon that we can explore like our peers in the U.S. with very limited resource use. More about that at a later stage. I'll hand off to Peter for a detailed look on our financials for the quarter.
Thank you, Andreas. Now looking over to our reported financials. In the Q4 of 2022, we had total operating revenue of NOK 205 million. That's more than double from the Q4 in 2021. However, if you look further down in the P&L, our OpEx increased only 60%, meaning that we have an improvement in EBITDA, which ended the quarter at - NOK 75 million, which is an improvement of 16 percentage points from the Q4 in 2021. Turning over to the balance sheet, we had non-current assets at NOK 477 million in the quarter. The increase here is mainly driven by CapEx in our subscription segment.
Inventory is at NOK 11 million, which is up from zero at the Q4 last year, but a decrease of NOK 6 million from the Q3 . I will get back to the movement in our cash position and other current assets at a later slide. Turning over to our Alternative Performance Measures, which we believe is a better representation of value creation in the business at, as it includes the contribution from our subscription business. Revenues Generated increased from NOK 109 million in the Q4 of 2021 to EUR 282 million in the Q4 of 2022. That's an increase of 2.5x.
If you look at our subscription segment, Revenues Generated increase from NOK 26 million in the Q4 last year to NOK 81 million, which is almost an increase of 3x year-over-year. Looking at the Gross Profit Generated, we had NOK 22 million in the Q4 last year, increased to NOK 56 million in the Q4 of 2022. That is a decrease in margin from the Q3 . This decrease is driven by a higher share of batteries in our subscription business, which has the same yield, but a lower duration as well as country mix effects, where certain countries had a larger weight in the Q4 . Zooming in on the subscription segment, we saw a continued growth in the Q4 . Total subscribers increased 160% to 2,737.
Those consumers have a accumulated value of around NOK 305 million, and we realize NOK 18 million in Annual Recurring Revenue from those customers. If you zoom in on profitability, we saw that the EBITDA generated came in at NOK 57 million. That is down NOK 6 million from the Q3 , which is driven by investments in primarily new markets. Of the NOK 57 million of EBITDA generated, we have significant non-recurring items as well as non-cash cost components. Turning over to movements in our cash position. We started the quarter with NOK 291 million of cash. We saw that cash flow from operating activities was a - NOK 78 million. Within this cash, EBITDA was - NOK 68 million. We had improvement in operating working capital, releasing NOK 19 million over the period.
We saw that non-operating working capital increased by NOK 26 million. This is mainly driven by Italian tax credits. However, we now see that our credits originated, sold, and converted is now in balance intra-quarter, and that the volumes that we originated in December were sold and are expected to convert to cash in the month of January. Looking at investing activities, we had a - NOK 67 million, where we paid in NOK 4 million into Holu, our Brazilian JV. However, as reported, we have signed an agreement to sell Holu for NOK 24 million with cash effect in Q1 of 2023. We had capitalized R&D of NOK 8 million, and we invested NOK 54 million in our subscription assets.
We had not NOK 50 million of net cash flow from financing activities, which is in large due to the drawn debt from Nordea. Turning over to our new financing facility. We today announced that we have secured NOK 100 million in financing from DNB and SR Bank. This has been the result of a structured process that we have run in the Q3 and the Q4 of this year, where we had a field of both Norwegian, Nordic and international banks. The facility that we ended up with is a RCF of NOK 50 million, with a NOK 50 million accordion option. That last accordion option is of course subject to a new credit approval, but will be based on the same documentation.
The leverage that we achieved is 75% for Norway, Sweden and Germany, 60% for all other countries. Looking at the volumes that we expect for 2023, this will result in an average of 64%. To be precise, this 67% is measured towards the ticket size, which is the direct purchase equivalent, i.e., what would Otovo sell a system for to a consumer, which is the same as Otovo sells a system for to EDEA, our subscription SPV. The facility is priced on Euribor plus 350 basis points. This is 100 basis points higher than our existing facility. We see this to be just the increase in spreads that we have seen in credit markets over the last year.
The facility has a duration of two years within one year extension option. It's an RCF with a bullet repayment, so there is no amortization over the lifetime of the facility. To zoom in on leverage. This has been something that we have received a lot of questions about, so I wanted to take some time to try to clear away this confusion. When we sell a project to a subscription customer, we, for this example, see that to have a value as measured by contracted subscription revenue of NOK 130. If we look at the leverage ratio measured towards those NOK 130, they are quite modest.
We see this to be based on a ticket size of NOK 100, and of those NOK 100, the Otovo margin is NOK 20, and NOK 80 is what we pay to the installer. The leverage that we have then is received in this financing is 67% measured towards those NOK 100, i.e., what our subscription SPV pays to Otovo. The old facility for reference purposes was 50% as measured towards those NOK 100. Now, if you think about how does this then translate towards what we pay the installer, in this example, we pay the installer NOK 80.
The new facility would give us 84% of the 80 in debt, meaning that the cash that we had to then take from the balance sheet or the equity would be 13, which is way lower than what it was with the old facility. Turning over to how we have built the balance sheet of our subscription SPV over time. We started out with only equity. That allowed us to build a portfolio until we reached a balance sheet of EUR 15 million. We started to draw on the debt from Nordea, we continued to draw on the debt until we reached a balance sheet of a total of EUR 30 million. That gives us a leverage ratio of 50%.
With the new leverage ratio, we can continue that journey and build the portfolio only using debt until we reach a leverage of 67% or a balance sheet of roughly EUR 45 million. With the new equity financing that was announced today and flexibility that we have in the portfolio, we will continue to build the balance sheet to utilize the full capacity of the new debt facility. That will allow us to build a total portfolio with a value of more than NOK 200 million with a total balance sheet size of NOK 150 million. A larger portfolio also gives us more flexibility. The underlying assets have high quality. They have attractive IRRs. They have low default rates. They are certified green by Cicero, which makes them highly attractive for investors.
Higher volumes, of course, means that we have more flexibility on the debt side, and it also makes them attractive for a larger set of counterparties. This provides us with flexibility on monetization through either bilateral sales, securitization, or other leveraged finance structures. We expect to launch a process in 2023 where we explore the options for monetization. As mentioned, the new debt facility increases capital efficiency. That also improves our equity IRRs. In the old facility, for a project with Contracted Subscription Revenue of NOK 130, with a ticket size of NOK 70, meaning that we have an originator mark-up of NOK 20 and COGS of NOK 80, we would have to invest NOK 50, and with a cash need of NOK 30, that would give an equity IRR of 20%.
In the new debt facility with the same example customer, the debts that we would be able to draw on would be higher, 67. That would reduce the cash need, as mentioned earlier, to 13, and this would lift the equity IRR to 40%. Turning back to the update on the private placement. I leave the word to you, Andreas.
Now let's move to the private placement. Today, we wanted to have all the answers out at once. We wanted to take the uncertainty about funding out all at once. We are proud to announce that the private placement we will be conducting this afternoon is fully guaranteed by our largest shareholder, Axel Johnson, through Axel AB, at the price of NOK 19.88 per share. In addition to them indicating a pro-rate share subscription at least in this offering, we also have support from Nysnø, the Norwegian Green Climate Investment Fund, OBOS, and Agder Energi. Beyond that, we see strong support for the deal from our cap table and beyond.
Where does this leave us at the end of the Q4 as we enter 2023? We are a confident management, we continue on our path and our ambition to double this business every year. That starts with 2023, keep going at this pace that we've been holding up in 2021 and 2022 all the way to 2025 to become the European equivalent of the type of player we see in the residential sector in the U.S. In 2022, we launched six new markets. Those launches have happened on time and on budget, fresh markets will increasingly throughout this year add to sales and installations. In fact, they're the guarantors of continued growth in this company as we approach the end of the year.
The market conditions we've been facing throughout 2022 changed markedly in Q3. From being supply constrained, those constraints lifted. We have a very positive outlook on the supply side, both of labor and of equipment. Maybe a bit further down the road, we will see cost decreases on both, and that is something that benefits us and benefits European consumers. There's been a change in the weather towards focus on demand. That too is something that we like. Our DNA is one of creating demand, much more so than creating installations or running a supply chain. We are marketplace people. I am, and so are the GMs that we have in the local markets. This is what we excel at.
When we look at the implications of all this for the year ahead, we have good visibility on installation volumes for the H1 of 2023, and we expect to double compared to the H1 of 2022. We can confidently also reiterate our guidance on at least doubling the revenues in the same period. We've come so far on the land grab and the country expansion, our attention turns to profitability, both at the country level and at the group level. We expect all new markets launched in 2022 to be unit economics positive in Q1. That means that their gross margins cover all variable costs, and they will be contributors to covering the fixed costs of the company.
We also aim for six countries to be EBITDA positive by the end of Q2, and to keep adding to this list of profitable countries throughout the autumn and into the winter of next year. We like profitability, and we'll be watching cost and watching the unit profitability of each country. With regards to the portfolio that we are announcing funding news about today, we are confident in our ability to keep growing that at ever higher paces and our accumulated contract and subscription revenue will pass NOK 500 million by the end of the Q2 . To sum up, today we announce financing for our portfolio, and an ability to build that to EUR 150 million.
The marketplace is growing rapidly. We've passed NOK 1 billion in Revenues Generated as a run rate. We did a record number of installations 2,200. We have a sales quarter that helps reduce our pipeline. We have a pipeline of 4,600 and some projects as we enter the new year, providing us flexibility on timing, in addition to flexibility on geography to reduce customer acquisition costs and keep adding sales throughout the year. Our Revenues Generated comes in at NOK 282. Total revenues under IFRS NOK 205, upto 2.6 and 2.1 multiples, respectively. Gross Profit Generated up 2.6x.
New markets on track and on budget, increasingly adding to sales and installations. Financing secured through a large debt package from DNB and SR Bank, giving good visibility for the portfolio. NOK 200 million in a fully guaranteed private placement with backing from Axel Johnson and other large shareholders, and an outlook that is confident and strong, reiterating our guidance of at least doubling revenues in the H1 of 2023, and expecting six countries to be profitable by the end of the H1 . With that, we will be only having one task remaining, and that is the uplist to the main list of Oslo Børs.
That process will follow immediately on the heels of the private placement, EGM notice and all those events, and expects to conclude in February. See you all on the main list shortly. With that, we turn to the Q&A, and I have seen that we have a couple of questions coming through here. Let me just have a moment to have a look at this. Question number one: Basically you waited out Q4 in marketing and sales. How do you see Q1 developing?
That's a question for you.
I guess it is. Yes. Yes, you can say that we waited out Q4, living off a rich pipeline of more than 5,000 customers at the time where the spot price for marketing was exceptionally high, highest we've seen in probably Q7 or Q8 , if I remember correctly. That was not a good time to be adding to the pipeline. In Q1, Q2, and Q3, we added to an already full pipeline because marketing cost was so low. In Q4, the marketing cost was high, and it didn't make sense to buy customer spots to add them to the back of a queue that had almost eight months of waiting time. That's a risky move. In 2023 and going forward, we will optimize our customer acquisition costs along two axes.
One is timing. When your pipeline is full and costs are high, you can market less and wait for your sales to be done the month after or the week after. When you find yourself in the opposite direction, you go full speed on marketing. The other axis is geography. As we start this year, we have 13 markets. We will put our marketing budgets into the countries that have the best ROI on marketing and the fastest conversion from marketing to Gross Profit cash back. During this year, we will steer our marketing to keep OpEx as low as possible both on geography and on time. That being said, management finds no reason to take down our sales and installations ambitions for next year.
We remain confident on hitting the targets for the year ahead. To second question, at Euribor 350 basis points, you are close to the 5% assumed discount rate in your Alternative Performance Metrics? I guess, the question there goes to you, Petter.
Thank you, Andreas. Yes. It's in our APM, we do assume a 5% discount rate and a 2% inflation, keeping in mind that these are inflation-protected cash flows and inflation is considerably above the 2% that we assume. The two and five have been chosen in collaboration with our auditor more to reflect what we have seen in transactions in this market over the cycle. We think this is a fair assumption to use over the cycle, and we are not adjusting these quarter-to-quarter. However, we provide in the quarterly presentation and report enough information that investors can make their own judgment, if they choose to have a higher discount rate, keeping in mind that you should then also adjust the inflation in those calculations.
All right. The third question: how do you assess the likelihood of monetizing the portfolio? Maybe we can go both at that one. I'll go first. Over the period that we've had this subscription portfolio, we've seen recurring incoming interest for taking it over. We've used that interest as a source of learning, educating us on how we need to structure the portfolio for maximizing the exit value of it. We believe that entering a more structured process during 2023 will add to the interest for this type of portfolio. Petter maybe have more to add to that.
Yes. I think we should point to the fact that these are high-quality assets. They are high yielding. The underlying consumers are at low credit risk. These are inflation protected. They are green as, like, certified by CICERO. They are increasingly of interest for a wide range of investors. With size also comes more flexibility. The size of the portfolio is increasing. That makes it possible to transact with a larger set of investors. It also help us to constantly optimize the financing that we have in our subscription SPV. We have also been through a structured process to get the debt financing in place. Through that process, I think we understand, as Andreas said, better what is required to transact in the market.
Question number four, why are margins so soft? Would expect the strong pipe to convert to high-margin projects?
Yes. From a financial point of view, we did sell systems in the start of 2022, especially in Germany, as we were building up Germany, at quite low margins. These projects are now being installed and that weighs negatively on the gross margin for installed projects in the Q4 . As we're building up new markets, this is also an effect that we will see in Q1.
I think it's worth noting that the direction of travel with regards to markups and gross margins for countries remains on the up. As the watering down effects of new countries and Germany kind of out of the woods now for Q4, and then new markets like Portugal, the first edition coming in. Now once that watering down effect quiets during the H1 , we will see the averages come up again. Question five I guess. Are you doing anything to your cost base going forward? Yes, we don't want to add a single euro or kroner or zloty of cost that we don't need.
We will have OpEx in order to assure that we grow our sales and installation volumes. Beyond that, we are smart. We don't add head Q staff or other types of staff that isn't absolutely necessary. That under-scales a lot, and we'll see the operational leverage from this company more and more visibly throughout the year ahead. We also think about where we put our costs. During 2022, we established a service center in Madrid, with lower taxation and lower costs than what we find in the majority of the large cities in which we're present. FTE growth happens to some extent there helping keep the cost in check.
As I said, customer acquisition costs may be the most manageable part of the cost in the short term. Is also something we watch closely and something where that finance will be increasingly involved in order to manage this as a portfolio where you put your cash where the ROI is highest. Next question. Please elaborate on why sales decreased in Q4? Looking from September to November this year, power prices came down as Europe had an unexpected hotter autumn. Some countries put price caps or changed the pricing mechanisms in power markets.
That doesn't directly translate into lower demand, but the press writing that the crisis is over, less problems in the power sector, that translates into the searches for solar. From September, where we were at all times high, November saw much, much lower search volumes on Google and other search engines. That also translates into the cost for finding a customer in performance marketing, so Facebook and Google paid search. When there's fewer people looking for solar on these platforms, the cost of finding them goes up, measured by the cost per activation, CPA. We saw historically high CPAs in Q3, historically high in Q4.
Given that environment, you don't press the accelerator on sales more than you need to sustain your business. Going into Q1, we're seeing those numbers revert back quite a bit. Search is up, CPAs are down, and we're in a more favorable environment. Then you press the accelerator more, and by feeding the engine more, you get more sales out at the other end. On top of that, you don't want to only rely on this fluctuating marketing source. You want to add these other things, and that's why we put some emphasis today on the partnerships. 10% of our sales in 2022 came from partnerships.
We signed strong partnerships with stores that people go into a lot in France and the rest of Europe, with companies in the utility and mobile sector that have a lot of customer contacts that provide a reliable source of customer contact for us. That increasingly is a way to stabilize the fluctuations in the influx of customers. Next question. When do you expect EBITDA generated to improve in absolute terms? When do you expect break even? EBITDA generated improved in absolute terms, maybe you want to elaborate more on that. Yeah.
We have stated that we will now bring more and more countries to profitability. As we move them to profitability over the year, of course, then EBITDA in absolute terms will also improve. We have also said that we expect the last countries to do so in 2024. When all countries are brought to profitability, then of course there's a question about covering the group cost. As the mature markets contribute relatively more, then we should be in a position to see that happening.
Margins decreased in both segments, direct and subscription. Why?
Germany of course weighs both in the direct and in the subscription segment. We see that effect in both segments. In addition, we are increasingly selling more and more batteries. Batteries have the same yield as solar systems. However, the duration of the contract is 10 years, meaning that you get less uplift from the subscription element. That also takes down the gross margin generated for the subscription segment.
Margins, that's... Sorry, that's the same one. That seems to be the last question. Yes, it does. I guess with that said, thank you for your time and interest. Looking forward to seeing you in the oversubscribed private placement this afternoon.