Q1 2025 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 first quarter 2025. Your presenters today will be myself, Per Witalisson, CEO, and Catharina Persson, CFO. Eolus is a leading pure-play developer shaping the future of renewable energy. We're positioned to take advantage of structural growth in the renewable electricity demand resulting from worldwide electrification and decarbonization. We apply our core asset-light business model to create value efficiently in every step of developing our diversified portfolio of onshore and offshore wind, solar, and battery energy storage projects across six markets and a portfolio of 25 GW. Major energy investors trust our 35 years of proven experience executing and optimizing market-leading energy assets. I will begin with a walkthrough of the Q1 highlights and give an update on our portfolio, including some news on external reporting.
Catharina will follow with a close look at the financials, and I will then conclude the presentation with our view on the near-term outlook before we move to Q&A. We achieved SEK 164 million operating profit, mostly due to the sale of our 100 MW BESS project in Palm, California, where we have so far recognized 75% of the expected profits based on the construction completion method. We have still 25% remaining from that project. Together with our partner, Hydro Reim, we also formally handed over the Swedish onshore wind project, Storsjön, to our customers, MEAG and Hydro. It is a project of 42 wind turbines in the municipalities of Sundsvall and Timrå, and thereby transferring 260 MW from our development portfolio to our asset management portfolio. For the first time, Eolus now manages more than 1 GW of assets on behalf of our customers.
The first quarter 2025 was a strong start for us in a turbulent context. If we look at what we call value realization, our value realization was strong with SEK 275 million collected from the sale of Palm, and where we expect an additional payment in the range between $25 million-$30.5 million by commercial operation. The final payment amount depends on certain performance conditions, and the project was divested at 75% degree of completion, and the remaining 25% is then expected to be completed with revenue recognition during Q2. I know that some may have expected 100% revenue recognition already in Q1. The transaction meant that all liabilities and assets connected to the project left our balance sheet, substantially reducing our net debt and working capital, and increasing the equity-to-asset ratio and our order backlog.
As part of the Storsjön transaction and completion of the project, we acquired all future Guarantees of Origin from the project at the fixed price. We have then resolved those rights at a good margin, where we expect SEK 100 million of revenues and SEK 100 million of cash flow over the coming 10 years. That means roughly SEK 2.5 million expected in revenues and also in cash flow without any costs for each quarter during the coming 10 years. If we turn to the strategic review of offshore wind, that came to an end during the first quarter. We have concluded that there is currently little commercial viability in offshore wind in the Swedish and Finnish markets. We have therefore taken measures to reduce staffing and to minimize product development expenditures going forward.
There is no question that offshore wind is needed to achieve the ambitions, plans of national politicians and to reach climate goals and the electrification of the energy-intense industry, and the market needs to return. That would require more certainty in electricity demand growth and credible policy support. Of course, the uncertainty has rocked the macro environment for all sectors due to the trade policy changes, and renewable energy is not an exception. Eolus has little direct exposure to tariffs because our suppliers have a large degree of local or regional manufacturing. Those suppliers do import components and materials from abroad, and tariffs will likely affect the pricing. We work to ensure that the risk of tariff-driven price changes are isolated and managed in our contracts with both suppliers and customers. We need to be able to pass on such risks further down the value chain.
We also announced a potential bond issue after the quarter closed due to the subsequent macroeconomic turbulence. The bond market activity decreased across the board during April. We see positive trends in the market, and we continue to monitor the market and the alternatives together with our financial advisor, DNB. Because of the increase in the short-term uncertainty, the board decided to propose that the payment of dividend for 2024 be divided into two installments, with SEK 0.75 paid out in May and SEK 1.25 paid out in November. The purpose of this change was to expand our headroom for maneuver in the short term if conditions would have become worse than expected in the beginning of April. Our progress in the value creation pipeline was steady in the first quarter.
We have almost 1.5 GW of value in mature projects that we aim to realize over the coming three years. Foglås, Bollabo, and Boab construction proceeded according to plan. Installation of turbines is ongoing in all three projects. We have made substantial progress on securing a PPA for the projects. A PPA would lock in long-term revenues and strengthen the commercial attractiveness of the projects. In parallel, negotiations with potential project buyers are ongoing. Our Latvian project, PINOA, is attracting interest, and negotiations with potential customers are ongoing. We are also seeking a PPA in parallel for that project. Foglåsen, which is one of our larger projects in Sweden, is a joint venture with the local partner, Dalavind. We are in the transaction market with that project, and we are seeing solid commercial interest and are making progress with potential buyers there.
Mabek, a Swedish onshore wind project with a potential hybrid component, achieved an important value-creating milestone with a positive environmental permit decision in the first instance during the quarter. This is an extremely good project from a wind resource perspective. We continue to develop our investor communications to increase transparency and understanding of our business. Close watchers may have already picked up on the latest change to product portfolio reporting. We have now split the phase early development into early and mid development. This structure aligns better with how we track value creation internally. A project in mid phase is, of course, worth more than it is in early phase. The update can be seen on this slide, where you can see that we have 20.2 GW in early phase, 3.3 GW in mid phase, and 1.8 in late phases.
Note also here that Poland and the U.S., two key markets, make up an increasingly larger share of our mid phase portfolio. This is in line with our growth positioning and long-term view of market development. Another piece of news in our communication is that we are making available more granular project portfolio data. You can now find an Excel spreadsheet comprising the full development portfolio in megawatt, split across price area, technology, and maturity. This data will be updated and shared quarterly. I'll wrap up this section with a look at the progress toward our financial goals for 2025- 2027. Our first quarter of the business plan puts us slightly ahead of our EBIT target. Return on equity for the quarter is at 17%, so we're above the 15% target. Our equity-to-asset ratio is substantially above the 30% target and is at 61%.
I'll now hand over to our CFO, Catharina Persson, for a walkthrough of the quarter's financial figures.
Sorry for the delay. Thank you, Per. And hi, everyone joining the call today. Our net sales for Q1 amounted to SEK 1,975 million, yielding an operating profit of SEK 164 million and earnings per share of SEK 3.60. At the close of the quarter, our equity-to-asset ratio stood at 61%. All key figures are significantly above the first quarter 2024. I will now go into why that can be the case. As a pure play developer, our revenues derive mainly from large project sales. This means key reporting figures can be lumpy and vary widely between reporting periods. EBIT will rise considerably in the quarter of divestment and construction management revenue recognition, especially for a project that has started construction, like POEM.
We capitalize project costs on our balance sheet under projects under development, projects under construction, and advance payment to suppliers. Project CapEx for equipment and construction services increases working capital significantly when we build on our own books. Working capital would then significantly reverse when we divest the project with a high-capitalized CapEx like POEM. Our net debt position is similarly affected. It increases with project cash outflow and use of construction credits in projects that are under construction, and then decreases as the project construction credit is either amortized using sales proceeds or transferred to a new owner when the project is divested, like POEM. This slide shows change in operating profit compared to Q4 2024. This is mostly a story of impact of POEM with a large increase in revenue and a corresponding large increase in cost as capitalized costs are recognized on the income statement.
Also, the completion of Storsjön has contributed to the revenue. Other external costs decreased somewhat, while cost for employees increased due to one-off redundancy costs as we right-sized the Swedish and Finnish organization. Operating profit amounted to SEK 164 million for the quarter. Also note the effect of late-stage project sales like POEM on our margin. A project that is sold before construction start could yield the same operating profit, but with significantly lower revenue and capitalized costs affecting the income statement. Opening cash balance for the quarter was SEK 356 million, and closing cash balance was SEK 200 million. Positive contribution mainly from POEM payment, but also recurring asset management fees. There was also a substantially negative cash flow contribution and a change to working capital from payments related to ongoing constructions of the onshore projects Foglås, Bollabo, and Boab.
The remaining POEM revenue of 25% is expected to be progressively recognized until completion and has been added to the order backlog, which amounted to SEK 750 million in total at close of the quarter. Negative cash flow resulted from transfer of project debt financing for POEM to the buyer, and the cash flow effect is equivalent to full amortization recorded under financing activities. Looking at the balance sheet, we opened the quarter with total assets amounting to SEK 4,562 million and ended at SEK 2,841 million. That is a net reduction of about SEK 1.7 billion. The change had a large effect on net debt, which decreased by about SEK 1.4 billion, and on our equity-to-asset ratio, which increased by 23 percentage points to 61%. The change is a result of the POEM transaction, which transferred the project assets and debt financing from Eolus to the buyer.
We had a substantial increase in advance payments to suppliers, and mainly equipment for Foglås, Bollabo, and Boab. Account receivables increased with invoices issued for Storsjön, and prepaid expenses and accrued income increased by SEK 121 million, and is referring to the percentage of completion for POEM. Cash decreased due to construction CapEx in Foglås, Bollabo, and Boab, but also due to investments in other projects under development and other expenses. Finally, looking at projects under construction, POEM has now been added at 75% degree of completion, while Storsjön, due to the handover, has been removed from the list. The remaining 25% of revenue for POEM is expected to be recognized in Q2. With that said, I'm handing it back to Per for comment on the near-term outlook. Thank you.
Thank you, Catharina.
Our focus is on advancing sales for Foglås, Bollabo and Boab, PINOA and Foglåsen. POEM, the construction completion and the final collection of the final milestone payments expected to range between $25 million-$30 million expected in Q2. We're looking to close pay-as-produced PPA for Foglås, Bollabo and Boab, and line up key supplier contracts in late-stage projects. We have also significantly, during the last quarters, advanced our next Latvian project, Valpane. We're performing a lot of design optimization for that project in line with the environmental permit that we have received. We're looking to optimize the financing structure for business plan 2025- 2027, including a potential bond issue. Of course, we keep a close eye to and evaluate and mitigate the value chain tariff exposure.
Finally, before proceeding to Q&A, I wanted to mention that we will once again distribute a very short survey via email to the participants of today's call. The purpose is to improve our investor communications. We are very grateful for your input last quarter and hope that you can recognize some of the changes already made in response to your feedback. Thank you for listening, and we will now proceed to Q&A.
To ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Dafina Shehu from ABG Sundal Collier. Please go ahead.
Hi, thank you for taking my question.
My first question is, you mentioned that Eolus expects to receive installment payment for the POEM project in the range of $25-30 million. Is this payment part of the project margin, or does it relate to reimbursed project costs?
It will be a high margin on that since we have already been reimbursed for all the project costs that we've had.
Thank you. You reported an order backlog of SEK 750 million. What is the expected timeline for converting this backlog into revenue, and what are the key projects contributing to this?
POEM is the key project, of course, of the order backlog. That's the main part.
Yes, thank you. My last question is, in your report, you mentioned strong demand for PPAs for Eolus projects.
What is your view on the current PPA market dynamics, and how is Eolus ensuring attractive PPA terms for its projects?
We see definitely a trend for requests for PPAs, and mainly pay-as-produced PPAs from the investor side. On the sell side for PPAs, it is mainly data centers and both cloud service centers and AI-driven data centers that provide those kinds of PPAs. We have a long history of securing PPAs. We have done for the last 10 years PPAs with both Google for six or seven wind projects, with Amazon, for instance, on both sides of the Atlantic. The pay-as-produced PPA is a PPA where we do not take any risk in volume, but we get a fixed price per megawatt hour as produced.
Yes, thank you. That was all for me.
No more questions at this time.
I hand the conference back to the speakers for any written questions and closing comments.
Hello everyone. This is Harald Björkman, IR Manager at Eolus. I will now go through some of the written questions and in some cases also collect them together to make sure we cover all incoming questions. I'll start with one on the Storsjön transaction. The sellers used an option to acquire the Guarantees of Origin. I believe it was Eolus that exercised that option. The impact for Eolus is that roughly SEK 100 million in EBIT that was expected to be recognized today now comes evenly distributed over the next 10 years as a SEK 2.5 million cash flow and EBIT each quarter. An opportunity to clear up the transaction.
Yes. The investor in the project valued the Guarantees of Origin at a very low value, way below market price.
When we sold the project a couple of years ago, we agreed on an option for Eolus to buy the future guarantees of origin from the project for a fixed price. That option we have exercised. We have, in our turn, sold that future or entered into an agreement with a buyer of the guarantees of origin. All that is produced from the wind project during the first 10 years, we will sell to this buyer also at a fixed price per guarantee. Yes, we expect to have revenues which equals EBIT since we do not have any costs associated with it of SEK 2.5 million per quarter. Over the 10 years, that amounts to SEK 100 million.
At Eolus, we have not in our forecast accounted for this as a profit recorded in the first quarter, but that we would record it as we deliver the guarantees of origin in the future. This is, of course, a very good deal for us, and it also means a stable cash flow for the quarters to come and the 10 years to come. We have also in this made a sales agreement, so selling the next 10 years, but what we have bought is the rights to the guarantees from the project as long as the project is in operation, which is estimated to be 35 years.
A question on buyback of shares.
You previously talked about potential buyback of shares, and you look on track to receive the preconditions for the share buyback with the POEM sale and the milestone payment from Centennial Flats. Your decision to split up the dividend payment makes it look unlikely that you will do a share buyback. Is that the correct interpretation?
The board of Eolus currently has an unused mandate from last year's annual general meeting to do share buybacks to adjust the capital structure. The reason for that it hasn't been used is that we have deployed significant capital in first the POEM project and now currently in the Boab, Bollabo, and Foglås project. Of course, the sales of those projects will, of course, free up a lot of cash. The board is seeking the same mandate for the coming year.
In our financial targets and in our dividend policy, it also states that share buyback can be used as an alternative for dividends.
Thank you. Next question from Oscar Rönnow at Kepler Cheuvreux. What kind of working capital release can we expect for this cash inflow?
It is mainly, of course, from the sales of the projects. Currently, we have invested like SEK 800 million in the Boab, Bollabo, and Foglås projects. It is more, higher than 50%. Substantial amounts will be, of course, released from the sales of those projects. Of course, also from sales of PINOA and the Foglås projects. We will also at the same time have to continue to invest in mainly the late-stage pipeline to secure value from those projects and make them commercially attractive.
Thank you. A question from Pamela Stänger Kytke.
Given that the U.S is a large part of your development portfolio, what is your view of the recommended adjustments to the IRA credits as announced on May 12th by the Ways and Means Committee and the outlook for your growth in the US market?
It might be too early to do the analysis of the proposals put forward the other day. Of course, in general, it's good if the rules and regulations are being cleared. It is more or less uncertainty in the market. In general, we think it was a proposal that was better than expected. Best of course is if there is a bipartisan agreement between the Democrats and the Republicans about it, just as it would be in Sweden regarding energy policy.
In the U.S., offshore wind has come to a complete halt, but I want to emphasize that Eolus is not involved in any offshore activities in the U.S. There has also been a presidential order signed pausing leasing out federal land to wind projects. We have some such projects in early phases. Of course, we have to adapt and prioritize projects on privately owned land and state-owned land. We are also focusing a lot on solar PV projects in California, Nevada, Arizona, and BESS projects and combinations of them. Especially the battery energy storage projects are the ones that are least affected. We have a positive view still on the American market, and the needs and demands are huge for the decades to come.
Thanks. We have received two questions that are similar regarding the bond.
I'll collect them into one from Markus and Sander. Why do you want to add long-term debt through the bond to the capital structure?
We see that it fits good in the capital structure. We want to realize the business plan for 2025. On top, we have equity, of course, with a return requirement of at least 15%. We see that we can use the bond proceeds for investments in our project pipeline, mainly in the later stage if we are not able or if it's not the commercially best decision to sell early or at ready-to-build stage. In addition to this, we are negotiating more flexible construction facilities. It is all about being able and being in a good position to realize the value of all investments we have done in the growing pipeline during the recent years.
We have another question from Sander.
What are the remaining steps to begin construction on the Nevada BESS project?
That would be for the next project in line, Rokaseka, I guess, since the POEM project is constructed and is under energization as we speak. We have the grid connection secured. It has been fully permitted with all the main permits: procurement of a battery energy system, construction agreement, EPC agreement, and tolling agreement that is kind of a PPA. Those are the main activities that are needed to both make the project sellable at the market and also bankable for non-recourse project finance. We are active in all those processes.
Thank you, Per. That was the last of the written questions we have received. We may have time for one or two more if there are any others, so please go ahead and write in if you have any further questions. I believe we are done.
Thank you all for listening in, and wish you all a nice day. Thank you. Bye.
Thank you.