To the Eolus Q3 2024 earnings call. For the first part of the conference call, the participants will be in listen-only mode. During the Q&A session, participants are able to ask questions by dialing #5 on their telephone keypad. Now I will hand the conference over to the speakers, CEO Per Witalisson and CFO Catharina Persson. Please go ahead.
A warm welcome to this presentation of Eolus results for the Q3 of 2024. Your presenters today will be myself, Per Witalisson, CEO, and Catharina Persson, CFO. Eolus is a leading pure-play developer in the business of shaping the future of renewable energy. Leveraging more than 30 years of experience, we work across seven markets, developing a 26 GW portfolio of onshore and offshore wind, solar, and battery energy storage projects for major energy investors. We also manage close to 1 GW of assets on behalf of our customers. I will begin with a walkthrough of the Q3 highlights and give an update on our portfolio. Catharina will follow with a closer look at the financials. I will then conclude the presentation with our view on the near-term outlook before we move to the Q&A session.
Starting with the Q3 highlights regarding sales, we had no new sales transactions during Q3, which explains a little more than half of the negative operating results for the quarter. We made steady progress towards sales for the projects Fågelås, Boarp, and Dållebo, the onshore projects in Sweden, as well as the Pome battery energy project in the U.S. We anticipate to close sales processes for these projects in Q1 2025. We also have proceeded to commercialization for the two now ready-to-build onshore wind projects, Ölmö in Sweden and Pienava in Latvia. Turning to construction, after the end of the quarter, the owner of the U.S. Centennial Flats, our PV and BESS project, which we sold in 2022, decided to proceed to construction. This triggered a milestone payment of $64.7 million to Eolus that we have received in our bank accounts.
With this really large payment, we anticipate a positive effect equal to $51 million on the Q4 operating result. Of course, thereby we anticipate that the full year 2024 will be quite okay for us. Construction of our Swedish onshore wind project, Storsjön, is close to completion, while Fågelås, Boarp, and Dållebo are progressing according to plan. We've also updated our order backlog, which is the future remaining revenues to be recognized for sold projects. It grew by slightly more than SEK 100 million to SEK 832 million during the quarter. That was due to that we now can estimate the final revenues that we will receive from the Centennial Flats project.
When it comes to the project portfolio, our total portfolio size decreased from about 28 to 26 GW as a result of negative permit decisions from the Swedish government regarding the Arkona and Skidbladner offshore wind projects after the quarter. We are pausing the development of those projects now, and we have taken a full write-down amounting to SEK 40 million for the two projects in the Q3. The Swedish government's blanket rejection of applications in the Southern Baltic Sea shows the uncertainties surrounding offshore wind in the Nordics. And I would like to stress that Eolus has a balanced portfolio of mixed technologies. The near-term uncertainties around offshore wind triggers more focus on offshore wind, which is the technology that without doubt can meet and does meet grid parity and can produce the cheapest fossil-free electricity.
I'd now like to dive into updates for three of the projects mentioned so far, Centennial Flats, Pome , and the three Swedish projects, Fågelås, Dållebo, and Boarp. Starting with the Centennial Flats project, it's a project of 767 MW, a combination of solar PV of 500 MW and 267 MW battery energy storage. We sold the project at development stage after securing grid connection and permits in 2022, and we are getting paid by milestone achievements. Total Capex for this huge project is estimated to be around $1.2 billion that our customer is going to invest in this project. So it's a really, really large project, and the decision by our customer to proceed to construction in Q4 triggered this milestone payment to Eolus of $64.7 million, as already mentioned.
With this expected positive impact on profits in Q4 of $51 million, I just want to highlight again the size of this number. It equals slightly more than SEK 20 per share. With this milestone reached and our customers declaring notice to proceed to construction, we also now can update our forecast for the total revenues from the project to be $116.9 million, of which we have already now, including Q4, have collected $110 million. We expect to receive the remaining $6.9 million at start of operations expected to occur in 2026. Staying in the U.S., we have the Pome project under construction. It's a 100 MW project with 400 MWh of energy. It's a standalone battery energy storage system. The construction is ongoing. Battery systems are delivered and installed on site as we speak.
And during the journey with this project, we found out that we could create significantly higher value by taking it through construction ourselves and delivering a more de-risked asset to our customers. It's a project with a CapEx of roughly equivalent to SEK 2 billion. So in August, we managed to negotiate and sign a separate project finance agreement with a U.S. bank of $175 million. So the project is fully financed until start of operation. And this even includes a term loan also as an option for our customers to take over if they want to. Catharina will come back to how this affects our balance sheet. But the important message is that the project is fully financed until start of operation, and we have provided the owner's equity that is needed to take it to operations.
The sales processes have advanced during Q3, and we expect to announce the sale in the coming months. And commercial operation is planned for Q1 2025. And then turning to the three wind projects in the south of Sweden, Fågelås, Boarp, and Dållebo, with a total capacity of 88 MW . Construction is ongoing and is progressing according to time plan and budget. Commercial operation is planned for Q4 2025. The Fågelås project in the municipality of Hjo, on the western side of the Lake Vättern, includes the tallest turbines constructed by Eolus so far and has excellent wind resources. And the projects are all located in the south of Sweden in price area 3, where we have significantly higher power prices than in the north of Sweden.
We communicate in the report that the market is slower in the Nordics and that we now expect the sales processes to be completed in Q1 2025, and thereby, I hand over to Catharina to walk you through the financial updates.
Thank you, Per, and hi all. These are the summary numbers for the quarter, but let me proceed with more figures on the next slide. Here you have the income statement, and Eolus' net sales were SEK 24 million , and that is lower compared to Q3 last year when we had net sales of SEK 127 million . Revenue recognition from Storsjön, based on the degree of completion for Q3, is included in the net sales with 9%, and in total, the degree of completion is 94%, and the remaining 6% is expected to be accounted for in Q4 this year.
The rest of the ongoing constructions, Boarp, Dållebo, and Fågelås in Sweden, and Pome in U.S., are on budget and time plan. Once these projects are divested, we will start to recognize revenue by percentage completion reported as net sales. Also a reminder that projects that are not yet divested, like those mentioned previously, do not contribute to net sales via progressive revenue recognition during their construction. At the time of divestment, however, construction costs incurred up until that point are reimbursed and recognized as net sales in line with IFRS 16. Further information about Eolus' revenue model can be found on page 12 in the Q3 report. At the end, the Swedish government denied permits for the offshore wind projects, which included Arkona and Skidbladner, as Per also informed about.
And full write-down of the two projects amounting to SEK 40 million impacted operating profit for the quarter three. And note that the write-downs affect costs for goods and project development in the profit and loss statement, but it will not affect cash flow. Expenses for Eolus Group are SEK 20 million higher compared to the same period last year and the result of the expansion for business plan 2022 to 2024. And going forward, we will see lower growth compared to 2023 when it comes to recruitment and expenses. We had an operating profit for the quarter of negative SEK 94 million compared to positive SEK 159 million comparing quarter last year. And the main reason for the negative operating profit is that there were no divestments during the quarter and the write-down for the offshore wind projects.
Net from financial items for the quarter was plus SEK 6 million compared to negative SEK 25 million third quarter last year. We have a higher interest cost than quarter because of the financing of the ongoing constructions. And the items have also been impacted by reevaluation of positions and also loans in other currencies than SEK. Net loss for the period was minus SEK 79 million compared to positive SEK 94 million in quarter 2023. And once again, the differences in net result compared to comparing quarter last year is mainly explained by the divest that's not completed yet and the write-down of the offshore projects. If we go to items in the balance sheet, we had total fixed assets amounted to SEK 306 million .
And 200 million of those are due to specific land lease agreements in the U.S. battery storage project Pome and referring to future payments according to the conditions in the agreement. And just to highlight, when Pome is sold and handed over, fixed assets will be reduced by approximately SEK 200 million . And if we go to work in progress and projects under development, that was nearly SEK 3 billion and advanced payments to suppliers nearly SEK 200 million . And approximately SEK 1.9 billion of these items refer to investments in the ongoing construction of Pome , Fågelås, Boarp, and Dållebo. And until divestments, constructions are on Eolus books and impact both balance sheet and cash flow. And Eolus balance sheet will shrink substantially with divestments of these projects. And once again, regarding the construction of Pome , that project is fully financed by separate credit facility.
Other investments in project portfolio during the quarter have also contributed to increased work in progress compared to Q3 last year. If we go to the cash position, we had SEK 425 million end September this year compared to SEK 980 million end September 2023. The lower cash amount, that's due to financing of the ongoing construction and investments in the project portfolio and also financing of the running business. If we add, we have total assets amount to approximately SEK 4 billion. When it comes to total equity, that was SEK 1.4 billion. Also highlight the interest-bearing liabilities, nearly SEK 2.1 billion compared to SEK 680 million end September last year. The increased interest-bearing liabilities is referring to loans to finance constructions. Also total equity and liabilities amount to approximately SEK 4 billion. We have some key figures.
Net sales for the third quarter are divided into project development and asset management. Net sales for project development was SEK 16 million with an operating profit of minus SEK 97 million. When it comes to asset management, the net sale was SEK 8 million and operating profit of SEK 3 million. Earnings per share for the quarter was minus 3.16 SEK. Regarding cash flow from operating activities during quarter was minus SEK 1 billion, 42 million compared to minus SEK 369 million corresponding quarter last year. The main reason for the negative cash flow from the operating activities, it's once again the ongoing constructions and investments in the portfolio. Equity per share, that's about 52 SEK compared to 59 SEK end September last year. We had a net debt of SEK 1 billion, 450 million, and that's due to the capital tied up in the projects.
Full-time employees at end of quarter were 140 compared to 115 the year before, and if we compare to Q2 this year, the number is in line with that. We have an order backlog of about SEK 830 million, and that is higher compared to September last year, and also we have end of quarter asset management assignments of 967 MW and also signed agreements of coming 268 MW , and equity to asset ratio is 35%, which is lower than Q2, and the tied up capital in ongoing constructions and the increased liabilities lowers the equity to asset ratio number. Return on equity after tax, that is negative due to negative result, and this slide, you have the projects under construction and the degree of completion, and in total, 456 MW were under construction end September this year.
And as mentioned at the top, projects Storsjön had a degree of completion of 9% during the Q3 and in total 94%. And the remaining will be accounted for during 2024. And with that, I'll hand back to Per now for comment on the outlook.
Thanks, Catharina. To give you some color on what we're focusing on in Q4 and beyond. The softness in the Nordic market continued in Q3, while activities in the U.S. remained very, very strong. We are confident about our staying power over these cycles while we capitalize on opportunities in Europe and our rather unique exposure to the U.S. market. Of course, the election in the U.S. brings some uncertainties also to that market. But we've been in the U.S. since 2015 with a good track record of doing projects and deals.
We were also there during the last Trump administration and did some good deals during that time as well, and the underlying need for transition of the U.S. energy system is so fundamental, and we are mainly also focused on the southwestern states of California, Nevada, Arizona, with projects with possibilities to feed into the California grid, and California is among the states that has the highest ambitions for renewable energy. We will work intensely on advancing the sales of Pome , Fågelås, Dållebo, and Boarp, as well as the newly initiated Ölme and Pienava projects that we expect to close in the next year, so the pipeline for 2025 is shaping up well, I would say, and I look forward to presenting our business plans and updated financial goals for 2025 to 2027 together with the Q4 report.
Finally, before proceeding to Q&A, I want to mention that we have recruited an IR manager. So we welcome Harald Cavali- Björkman to our team, who will be your first point of contact for share-related questions. So please feel free to reach out to him at any time. So thank you for listening. I will now proceed to Q&A.
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 Lara Mohtadi from ABG Sundal Collier. Please go ahead.
Hi, Lara from ABG. In your report, you write that your ROI requirements have increased among investors. How do you expect this to impact your project margins going forward? Can we expect lower margin levels compared to historical levels?
Thanks, Lara. Yes, all energy projects are extremely capital intensive with higher interest costs. The return expectations increase. And if that is not accounted by higher forecasts for electricity prices, it will affect our margin if we cannot drive CapEx and OpEx down enough. So of course, it is a softer market where there is a risk that it affects our margins. On the other hand, of course, we see there is, of course, the trend of lower interest rates in most of the countries and markets where we are active. We also, of course, see that there are significantly higher electricity prices and also long-term forecasts of much higher electricity power prices in continental Europe, where we are also active, especially then in the Baltic states and in Poland. So we expect some pressures on margin, but at the same time, expect to do okay deals.
Okay, thank you. This quarter, you booked SEK 40 million in impairments on the offshore projects of Arkona and Skidbladner. Can we expect any more impairments in rejected offshore projects or are the book values now set to zero?
There are book values for other projects. We have taken the full write-off for these projects. There are other ongoing processes in other areas. And we have, for instance, other projects that are on the government's table, and we see it as a positive signal that the government has said that they will add extra resources now to evaluate these projects. But of course, just as for onshore projects or any projects, if projects are denied in the end, there's a risk of write-offs.
Okay, great. Thank you. I was just wondering a little on your balance sheet on work in progress and projects under development and also advanced payments to customers. You mentioned that roughly SEK 1.9 billion is referred to ongoing constructions in your projects. Can we assume that the rest is related to development costs for late phase and early phase projects then?
Hi, Lara, Catharina here. Yes, that's what you can expect.
Okay, thank you. That was all from my end. Thank you.
The next question comes from Örjan Rödén from Carnegie Investment Bank. Please go ahead.
Hello everyone. My first question relates to Pome . Could you elaborate which factors spell for the project to be divested in the next few months, as you highlight, and which factors could drive the project towards the later end of 2025?
Thanks, Örjan . We are in quite advanced stages in the sales process, and the construction has progressed so far now. So we expect to reach mechanical completion for the project early in Q1 and to take it in operation during Q1. So that speaks together with that it's a fully financed project. That speaks for that we should be able to close the sale during Q1. What could delay it, of course, be if there would be massive disruption during when the new administration takes office.
Okay, thank you very much. Given that you have taken the construction on your own book, is your feeling that customers in the U.S. in general want you to build on your own books, or is it more just related to this project rather than a general trend?
We have to evaluate what brings the most value compared to the risk for a project-by-project basis. But for this project, we really learned that there was a substantially higher value for Eolus if we could progress the project and de-risk it by taking on the construction on our own. And that's why it was so important for us also to finance the project separately and with a very high debt ratio.
Okay, thank you very much. And also, can you elaborate which activities are you actually undertaking the Boarp, Dållebo, Fågelås project? How far have you got into the construction process right now?
We are constructing roads, hard stands, foundations, and delivery of turbines to site will start during the spring after the thawing season.
Okay, thank you very much. And final question from me. Ölme and Pienava, the next months to enter your backlog, as you mentioned, can you elaborate why do you believe these projects will enter your backlog at this stage?
They are fully permitted grid connections secured for both projects. In Latvia, we have, it's a very good project with very good wind resources in a market with significantly higher power prices than in Sweden. Ölmö is a quite okay project in the south of Sweden in SE3 of suitable size. Our initial view here is that we get quite good traction in the market for those projects.
Okay, thank you very much. That was all from me.
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 will hand the conference back to the speakers for any written questions and closing comments.
Yes, thanks. We have received a couple of questions in the chat that we will try to answer. First question is when we expect Stor-Skälsjön to be handed over to the owners?
The status of the project is that there is now only one turbine remaining to pass its test run. So we expect to be able to hand it over before the end of the year. And we repeat that the delay caused by the turbine supplier, that we are sufficiently covered by the late delivery liquidated damages that we will receive from the power generated from the project. So we don't expect any significant impact on our margin for that project.
We also then have a question: why has the sales process for Pome been delayed?
And it was along the road an active choice from our end to do the construction of our own since we saw that that was valued quite high from our customers compared to just selling the project rights in this case.
And there is also a question: if delayed sales processes for Pome and Swedish wind projects will lead to postponement of startup of sales processes for other late-stage projects and if that may impact construction? Yes, of course, we want a steady flow of sales transaction, as steady as it can be in this industry. That makes it easier to plan ahead. But we can adapt our business model. We can sell earlier. We can sell later. And of course, under that we need to align start of construction with how we can fund the construction if we are to do it on our own. There is a question regarding price development over the last couple of years. If prices have come up sufficiently to offset higher Capex and higher interest rates or has project profitability come down?
I think I answered that in an earlier question that it risks, of course, to put some pressure on project margins, and we have to be very selective to make sure that we bring the focus on the strongest projects and that it's them that we bring to the markets, and there is also one final question about sales processes for Fågelås, Rokkaseka, Murtemäki 2. These are late-stage projects that we have highlighted in previous presentations, and without going into specific projects, yes, we expect to sell more projects during 2025 than the ones we highlighted here today, so thank you all for listening in to the presentation, and we wish you all a nice day.
Thank you and bye.