Ladies and gentlemen, welcome to Eolus's audiocast for teleconference Q4 2021. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Today, I'm pleased to present Per Witalisson and CFO Catharina Persson. Speakers, please begin.
Hey, thank you for the introduction, and welcome to the presentation of Eolus's Q4 report for 2021. We're starting with this winter picture of our Norwegian Stigøya project. Next slide, please. The key takeaways from the Q4 report is that we had net sales just above SEK 1 billion.
We had a net loss of SEK -7 million. For the 12 months, 2021, we had net sales of SEK 2.6 billion, with a net loss of SEK 24 million. In December, we sold our first battery storage project in California. That is a major breakthrough for us.
It was the first our battery storage project that we have developed and we're able to sell in Q4. There are several other projects like that to come from our developing project pipeline. Another significant thing to highlight is rapid growth of the project portfolio. It increased by 4,500 MW during the quarter.
We procured wind turbines from Siemens Gamesa for our Swedish 260 MW project, Stor-Skälsjön, that we own together with Hydro. Also, together with Hydro, we entered into a partnership to develop 672 MW Swedish wind projects from Eolus's project portfolio.
The Øyfjellet project, the Norwegian 400 MW wind project will be further delayed, and will have an estimated completion within Q2 2022. Based on our business plan, we now communicate updated financial goals.
I'll come back to them later. The board proposes a dividend of 1.5 SEK per share. Next slide, please. Just a few words about Eolus's. We are, on a general level, a developer of renewable energy projects. We develop, construct, sell, and then operate renewable facilities on behalf of our customers. Everything we do and all our activities are based on more than 30 years of experience from the industry.
We have so far constructed more than 660 wind turbines, and we currently operate more than 900 MW of operating facilities on behalf of our customers. We have a total project portfolio under development of now almost 14,000 MW. Technology-wise, we have onshore wind, offshore wind, solar PV projects, and energy storage projects in our portfolio.
Our market scope is the Nordic countries, the Baltics, Poland, and southwestern U.S. Next slide, number 4, please. To dive into some of the recent events, I mentioned that we managed to sell our first battery storage project, Cald, in Los Angeles.
We sold it in December to Aypa Power, a Blackstone company. We have developed the project. We have secured the grid connection and land lease agreements. The project is still in the permitting process, but we have sold the project rights to Aypa Power. We will continue to provide development services until the project is construction ready.
In total, revenues for this project is estimated at about $15 million with a project margin of roughly 50%. We have recognized about 50% of both revenues and margin during Q4 2021 and expect to be able to recognize the rest of it during 2022.
In December, we bought 42 Siemens Gamesa turbines for our project Stor-Skälsjön in the Sundsvall area in Sweden. This project is also covered by a long-term PPA with Hydro. Eolus is owning 51% of the project and Hydro as the minority owner is owning 49%.
This project is in the same space and should be completed and constructed and taken into operation in late 2023. In December, we also entered into a partnership with Hydro Rein regarding development of project pipeline of early-stage projects from Eolus portfolio. We will own these projects in a 50/50 joint venture.
We received an initial payment from Hydro in January, and we'll continue to develop those projects jointly. Next slide, number five, please. The Norwegian 400 MW project, Øyfjellet, that we earlier communicated to be completed during Q1 2021 will not be completed until Q2 2022.
The main reasons for the further delays are some technical issues relating to commissioning, the peak of COVID-19, and some extreme winter weather conditions at the site, which is just 100 km south of the Arctic circle. Of course, winter conditions are really harsh. The completion rate amounted to 65% at year-end. It's definitely lower than what we expected and had hoped and worked for.
We have updated the financial forecasts for the project. Of course, the delay and increased costs have had a negative impact on Q4 results. We expect a lower margin for the completion of the project due to the same reasons going forward.
Also in December, we announced that we increased a PPA that we initially signed for the projects Boarp, Dolebo and Rosenskog, where we had some permitting issues remaining for Boarp and Dolebo. We therefore transferred the PPA agreement to the new projects through Skallberget, Utterberget and Tjärnäs that we also are in the process of procurement of turbines and selling.
These projects should also be constructed and completed during 2023. Next slide, number six, please. These are the projects that are currently under construction. It's the Øyfjellet that I mentioned, the Rosenskog, the Dolebo and the Boarp projects in the south of Sweden, a small project Timmele, and the large 260 MW Stor-Skälsjön.
Here we then expect very soon to add the 117 MW project Skallberget, Utterberget and Tjärnäs. Our midterm success is very much dependent on how the project portfolio that is in late stage and optimization phase and sales phase are developing.
That's why we are communicating about these projects, and we have here at the top the projects mentioned, Skallberget, Utterberget, and Tjärnäs. Sorry, did I forget to say next slide to page 7? Sorry for that. We'll also have further projects, mainly wind projects.
But as you can see from project number 8 and further down, there are projects now coming through the pipeline from the other markets than Sweden. We have Finnish project with a Latvian project and some U.S. projects. Cald is still listed here due to that we have remaining revenues to receive from that project.
We also, during this quarter, have added the next battery storage project in California, Pome that had now advanced to this late phase stage level. Next slide, number eight, please. This is an overview of our total project portfolio comprising now on 13.8 GW spread across the markets and technologies.
You can see the growth of the portfolio from 9 GW to 13.8 GW during the Q4 quarter, meaning that we've added net of almost 4.8 GW. The majority of the projects added are offshore wind projects that are, of course, in quite early stage but that we are developing.
To the bottom left, you can see the portfolio splits by technology, market and also by maturity, early stage development, late stage development and construction phase. I will go to next slide, number 9, and I'll leave the word to Catharina Persson, our CFO, to take us through the financials of Q4.
Thank you, Per. I will now guide you through the figures for quarter four and also year-end 2021. On page nine, you have income statement for the group. We had net sales of SEK 1,009 million for quarter four, and a decrease of SEK 60 million compared to the same period last year. We handed over the battery storage project, Cald, in Los Angeles, and the revenue is included in the net sales for the quarter.
The revenue recognition from project Øyfjellet is also included according to the degree of completion. For quarter four, the degree of completion was 22%, and that was lower than we internally expected, as Per already mentioned. Operating profit was minus SEK 4 million in the quarter, and the operating profit was affected by higher costs for Øyfjellet due to the delay.
We have net financial items, -SEK 5 million, and net loss for the quarter was -SEK 7 million. For the full year 2021, the net sale was SEK 2,614 ,000,000 and with a net loss of SEK 24 million. If we go to slide 10. We have the balance sheet for the group. We have total fixed assets amounted to almost SEK 60 million.
When it comes to inventories and work in progress and certificates, that was SEK 843 million, and advanced payments to suppliers, SEK 178 million. These items include 100% of project Stor-Skälsjön. That project was acquired 51% by Eolus and 49% by Hydro last summer. We have cash, SEK 625 million, and total assets, SEK 1,885, 000,000
Total equity SEK 1,264,000,000 whereof equity of SEK 280 million is related to minority stakeholders in the Stor-Skälsjön project. We have interest-bearing liabilities of SEK 186 million, and total equity and liabilities SEK 1,885,000,000 . If we go to slide 11, we have key figures, and if we have the net sales 2021 divided to the segment, then we have net sales for project and project development of SEK 2,588,000,000 and operating profit of -SEK 34 million.
Net sales for asset management was 27 million, with an operating profit of SEK 9 million. Loss for the year per share is minus 74 Swedish krona. We have equity per share about 40 Swedish krona.
Strong net cash position with net cash of SEK 439 million. For the financial year 2021, the board of directors proposes a dividend of 1.50 SEK per share. That corresponds to an unchanged level considering that the previous year comprised 16 months. We are ramping up the number of employees to match project portfolio and be in line with the new business plan. Average number of employees is 61.
We have order backlog of SEK 1.8 billion, and we have asset management assignments of 940 MW. Eolus has a strong balance sheet with asset ratio of 67%, but return on equity after tax is negative due to the net loss for the financial year 2021.
If we go to slide 12, we have projects under construction and degree of completion on the right, on the slide. At year-end, we had 737 MW under construction, but only project Åskö has had a degree of completion. In total, it was 65%, and in quarter four, the degree of completion was 22%.
The rest of the projects mentioned on the page are categorized as under construction, due to that we have entered into turbine contracts. A revenue recognition will start when the agreement with customers are signed and when predefined construction milestones are achieved. I hand over to Per again.
Thank you, Catharina, and then we go to next slide, number thirteen, please. To sum it up with some other highlights, yes, the large increase of the offshore wind portfolio of 2,200 MW during the quarter.
That ties well into the Swedish government approved the general location plan for offshore wind during last week. They also instructed the energy agency to start work for pointing out other suitable areas for offshore wind. We've added for the first time solar PV projects both to the portfolio, both in Sweden and in Poland.
We signed the BOP agreement for construction of roads, hard stands, foundation and the internal electrical grid for Stor-Skälsjön in February. Construction of that project will start immediately now. We have also received some positive decisions from environmental courts regarding the projects Ölme, Boarp, and Fågelås, that are all in the late development stage.
This supports the late stage project pipeline. We have also communicated that our COO, Marcus Landelin, will leave his position by the end of April, and the recruitment process to find his successor is ongoing. Finally, we have adopted a new business plan for the years 2022 to 2024.
This is based on that we see possibilities to expand over all technologies and in all markets where Eolus are active. This is driven by the electrification trend, the transition towards a sustainable energy system and on the technological development.
Based on this business plan, we communicate a new financial targets. We have two sales and growth targets. The first one is sale of at least 1,000 megawatts per year on average during the period 2022 to 2024. We see good opportunities to ramp up and to increase and expand even more after that.
That's why we communicated a goal to sell at least 1,500 megawatts per year on average from 2025 and onwards. Of course, this means that we already now have to invest in people and in projects to be able to meet that target due to the lead times for permitting and for construction.
The return on equity at group level shall exceed 10%. Eolus should always be a financially sound company. We should have an equity ratio at group level of at least 30%. The dividend to shareholders shall over time amount to in the range of 20%-50% of the profit after tax. That is an unchanged dividend policy. Next slide, 14, please. Thank you all. That was all that we had to present today. Opening up for any questions.
Ladies and gentlemen, if you have a question for the speakers, please dial 0 and 1 on your telephone keypad. We have a first question. It's from Olof Cederholm, ABG. The line is now open for you.
Hello, Per and Catharina. It's Olof from ABG. I have a couple of questions. If we start with the quarter, on Øyfjellet, so clearly, things have not been helpful with COVID and the weather. Can you talk a little bit about what kind of, you know, if you can just explain the provisions you've taken during the quarter, and what your confidence level is in terms of profitability for the overall project now? If we start with that, and then I have a couple of other questions as well.
Yeah, yes. Okay. Then we have updated the forecast for the entire project since we recognized revenues related to the degree of completion. We always have to do that each quarter.
Of course, with the delays, which in itself, of course, comes with costs for snow clearance over the winter period and the maintenance of road and et cetera, and just keeping the site organization for longer time. That of course affects the total project margin.
That is lower than we have expected before. I would say that the effect on Q4 is substantial. We expect still the project to be profitable on total level, and we expect a positive cash flow from the remaining operations.
Thank you for that. On your new financial targets, they are pretty ambitious and which is good. Can you talk a little bit about the projects that you have in the late phase part of the portfolio? Because I guess, you know, it's 1,000 MW per year on average in 2022 through 2024, but it means that at least you will have to do quite a lot in 2022. I'm just wondering you know, how close to financial close the late stage part of the portfolio is.
The projects that are closest to that is the 260 MW Stor-Skälsjön project. The roughly 114 MW project, Skallberget, Utterberget, Tjärnäs and Rosenskog. If we refer to the projects listed at page 7 in this presentation, the projects Stockåsbodarna, Fågelås, Ölme are also quite likely that we can sell this year as well. We definitely have the aim to sell at least one more American project during the year. They are, on average, the American projects are much larger than the European ones.
Yeah. Can you, on that subject, thank you very much for that, but on that subject, can you talk a little bit about the American project you have? You have, if I remember that slide correctly, you have about 1,000 MW in the U.S.
Yes.
In late stage. What is that? Is it more of the, you know, is it the battery things like Cald or do you have other things as well in the U.S.?
The largest project in late phase is the Centennial Flats project in Arizona. Solar PV project of roughly 500 MW with an added energy storage, battery storage project of 250 MW. In combination, around 750 MW.
Excellent. Thank you. Good. My last question is on costs now. You said you would increase cost or investment into the organization, which makes sense. When should we start to see the effects of this in the numbers? Is it immediate? Is it a Q1 thing or will this ramp up gradually during the year?
It will ramp up gradually, but as Katarina mentioned, we have grown the head count already. We are adding talents now every month. Especially the single function that needs the most recruitment is the offshore project.
Yes. Good. Actually, I have one more just on cost pressures. The turbine purchases that you have done, what is the pricing situation for those? Are you confident that you'll be able to pass on these costs or is there a sort of a medium term margin pressure in projects?
Well, turbine prices has definitely gone up as we communicated in our Q3 report. It's still a fact due to post-COVID issues, supply chain issues for the suppliers and transportation, steel prices.
So far, we have been able to offset it due to the higher electricity prices seen in most of the markets. Of course, it's dependent that we can sell at those higher margins and that the investors is willing to take that into their calculations.
For instance, the Stokholmen is supported already by a PPA, long-term PPA with Hydro. There we know quite well what the figures look like. The same goes then for the Skallberget, Utterberget and Tjärnäs projects where we have also entered into a PPA.
Thank you very much for that. I'll step back into the queue. Thank you.
Thank you. The next question is by Thomas Timm with Zalivest.
Thank you. I have a number of questions, but first, some clarifications. The Cald battery project, was it correctly understood that you have $15 million in sales with a 50% margin?
Yes, that's correct.
You booked half in the fourth quarter, and you expect to book the rest during 2022?
Yes.
It's gonna be commercial in 2024, according to the slide.
Yes. Our development
Yeah. Sorry.
Our, our-
Please go ahead.
Go ahead.
Our development service agreement, under that, we get paid as certain milestones are achieved, and that is until notice to proceed at the construction ready point where the customer, IPP, is taking their investment decision. We will not construct the asset. We get all our revenues at that stage, at notice to proceed, which we expect to happen during 2022.
All right. That's clear. Thank you. Have you booked any profits from the sale of the 672 or half of the 672 MW to Hydro REIN?
No, we haven't in Q4. Catharina, maybe you can elaborate a little on that because it's related to some accounting topics as well.
Yes, that's correct. We signed the agreement with Hydro regarding the portfolio, and it was entered. We closed the deal beginning of January and got the purchase price. Since it's jointly owned, it will be consolidated into Eolus' group. We will not have any result before the progress is realized and sold to an external party.
All right.
We suggest it will just be cash flow.
Yeah. Then you have these new targets of 1,000 MW in the next three years and then 1,500 MW from that point on. Is just to make sure I understand the target correctly, is it sales that you would profit on or is it announced sales that you could profit further into the future? Is it commissioned projects? How are these MW measured?
Announced sales.
Announced sales. Okay. We did touch on this earlier, but when we look at your portfolio, the construction part and the late phase part of your portfolio, it looks like there is a pretty large gap to your target of 1,000 MW the next three years and what you actually have in your portfolio. How are you gonna bridge that gap?
Yes. The portfolio has to ramp up and also sales, since the target is sales, and sales will happen before construction. We see a trend that investors are willing to take on more construction risk, for the time being, and that it is therefore also a possibility for us to sell somewhat earlier than what we have done historically. The project pipeline must continue to deliver, to make this possible to achieve this quite ambitious targets, definitely.
Yeah. All right. You actually expect to be able to reach it organically with your own developments. You're not gonna buy a lot of brownfield to projects to reach this goal.
Well, the base is definitely our own portfolio. We should each and every day challenge our own project to see if there are better projects to buy in the market. That could happen as well. The base is definitely our own portfolio.
All right. On the profitability target, as far as I know, a rule of thumb is that on onshore wind development, you usually get a profit around SEK 1 million per MW. When I compare, obviously other technologies probably have lower profitability, but still, when I compare your target of 1,000 MW with your target on profitability, which is just +10% on equity. If I do the calculations, I reach a return on equity that's closer to 100% than 10%. What am I missing when I look at your sales targets and your profitability target?
Of course, it depends on at what stage we are selling. The profitability on different technologies can be different, definitely. Yeah, yes, of course we hope also to overachieve on the return on equity goal.
Okay. There's no lower future profitability baked into the targets. You don't see any pressure on the historic profitability levels on onshore wind developments and the like?
Not for project margins on onshore wind, I would say. Of course, profitability or project margins for solar PV is, of course, for a megawatt lower than for onshore wind definitely.
All right. A final question from my side would be, it sounds quite ambitious that you want to expand with all technologies in all markets where you conduct business. Maybe you could walk us through the business rationale behind trying to do everything, you know, and maybe partly also you could touch on which markets are auction-based markets and which markets are the old school development type where you don't have to participate in auctions to develop renewable energy.
For instance, we've been in the U.S. since 2015. The project portfolio has been developed since then. We've seen the first project coming from that pipeline during 2021, then the first, the Wind Wall project that we built and the Cald battery storage. In the U.S., we will concentrate on the southwestern states, Arizona, Nevada, California, mainly, where we have our office in San Diego. We have around 15 full-time employees there. It's a
Both when it comes to onshore wind and solar PV in those states, it's market-based and no auctions, but there could be. It's a lot of corporate based on corporate PPAs, but there could also be public tendering processes from cities and like that procuring for instance energy storage solutions.
The U.S. market is quite bullish on renewables now with the Biden administration and the new renewable targets and potentially also with a Build Back Better plan, which entails enormous amounts of investments in the renewable field.
Going back to Europe, we see that Norway will be a difficult market in the short run due to the halt in the concessions granted. We're ramping up in Finland. Sweden will keep the pace, I would say.
In Poland that we entered last year, we're building up in the short run, mainly solar PV portfolio because the lead times are so much shorter than for onshore wind. We are in parallel building up a more long-term onshore wind portfolio in Poland that we will not participate in the remaining auctions with old technology for onshore wind.
Poland is of course a very interesting market due to its dependency on coal, the size of the country and the size of the population, and also the intention to close coal mines by 2049. Offshore wind, the majority of our efforts will be focused on Sweden, where we have announced our first projects.
Sweden is still a market-based market for offshore wind. With a decision from the parliament a couple of years ago that the TSO should invest in the grid out to the connection points into some offshore wind projects.
All right. Thank you very much. That was my final question. Thanks.
As a reminder, if you want to ask a question, please press zero and one. There are no further questions, and so I hand back to the moderators. Speakers, please continue your meeting.
Okay. No further questions. We will have the presentation on our website in a short while. Thank you very much for listening today. Thank you all. Bye. Bye.