Welcome to the Eolus Q2 2025 Earnings Call. For the first part of the conference call, the participants will be in listen-only mode. During the questions- and- answers session, participants are able to ask questions by dialing pound key five 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 Second Quarter of 2025. Your presenters today will be myself, Per Witalisson, CEO, and Catharina Persson, CFO. Eolus is the leading pure-play developer shaping the future of renewable energy. Please note that we, during the second quarter, changed the company name from Eolus Vind to just Eolus to reflect that our business targets several renewable techniques and energy storage. We are positioned to take advantage of structural growth in renewable electricity demand resulting from the worldwide electrification and decarbonization trends. We apply our pure-play business model to create value efficiently in every step of developing our diversified 26 GW portfolio of onshore and offshore wind, solar PV, and battery energy storage projects across six different markets. Leading energy investors, PPA off-takers, and OEMs trust our 35 years of proven experience executing and optimizing market-leading energy assets.
I will begin with a walkthrough of the Q2 highlights and give an update on our portfolio. Catharina will follow with a closer 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. I'm now turning to page 5 in the presentation. This quarter, we delivered SEK 364 million net sales with an operating loss of SEK 74 million. Despite the positive contribution of the Pienava Wind Project transaction, provisions following a decrease in expected project margin in the POM battery energy storage project due to a delay caused a loss for the quarter. There are also some negative effects affecting the operating profit, but we have a positive effect in the financial items.
Eolus' business model leads to large quarter-to-quarter swings in revenues and earnings since transactions are timed to market demand, buyer needs, permitting milestones, and grid connections. This means that quarterly estimates are inherently uncertain. Even analysts who know our projects well face a challenge in predicting in which specific quarter a handover will close or how deals are structured. Annual numbers matter much more. Our value creation and financial performance are best measured on a rolling 12-month or longer cycle basis where the effects of timing even out more. Consensus should be read with this in mind, and previews provide a useful benchmark, but they should not be overinterpreted as precise short-term forecasts. Catharina will go into more detail on the numbers later in the presentation.
We're moving to page 6, showing our project portfolio that is the core of our value creation, covering more than 26 GW of projects diversified across markets, technologies, and level of maturity. We added more than 0.5 GW of projects during the quarter and made good progress in existing projects overall. One particularly interesting addition is land secured for a battery energy storage in southeastern Sweden. It is an early-stage 100 MW battery energy storage positioned in a good connection spot in SE4, which could provide supporting services to the national and regional grid. We're excited to finally bring our experience in grid-scale battery energy storage projects to the Swedish markets. We move to page 7. In the second quarter and thereafter, we showed resilience despite soft market conditions regarding new transactions. We sold the 147 MW Pienava project to Latvenergo.
That is our first project in the Latvian market, and construction started immediately after the transaction was concluded. After the quarter, we also sold the project Fageråsen, which is a joint venture with Dala Vind, that was sold to OX2. That offloaded significant upcoming grid connection commitments, releasing resources to recycle into further product development. There is a persistently slow market for projects in Northern Europe, and therefore, pay-as-produced power purchase agreements (PPAs) are becoming an increasingly important attractor. Regarding the Pome battery energy storage project and the delay, the project has reached a degree of completion of 85% at the end of the quarter. The anticipated completion and handover is delayed from Q2 and expected to be completed and handed over during the second half of 2025. The project is fully constructed. As of today, commissioning has been performed.
There are some final tests and some final approval from the authorities before we can hand it over. It is like a EUR 200 million project when it comes to CapEx. Of course, any delays late in the project have an impact on project margins, with a negative impact on expected project margin and consequently also Q2 operating profit due to the provisions made. It is important to emphasize that Pome remains a profitable project overall from start to finish. We have adjusted the remaining expected cash flow contribution down to $10 million. Regarding refinancing, SEK 550 million senior secured green bond issue successfully closed despite bond market turbulence during the spring. In addition to that, SEK 175 million revolving credit facility and up to SEK 1 billion project finance facility signed in this refinancing package. This increases our flexibility and gives us more flexibility for taking on our larger portfolio.
We turn to page 8. Our progress in the value creation pipeline continued steadily in the second quarter, except for the delay of Pome . We have almost 1.5 GW of value in mature projects that we aim to realize over the coming three years. Fågelås, Boarp, and Dållebo, the construction proceeded according to plan. We have made continued progress on securing a PPA for the projects and are in exclusive negotiations. This PPA would lock in long-term revenues and strengthen the commercial attractiveness of the projects. The next U.S. battery project, Roccasecca, is proceeding in line with plans. We have secured equipment suppliers with the appropriate clauses handling potential changes in trade tariffs. We have made good progress on negotiating a tolling agreement, which is the equivalent to a PPA for a battery energy storage project.
Fågelås was sold to OX2 after the quarter, and OX2 assumes all rights and obligations of the project and will continue development with the support of Eolus and Dala Vind. CapEx reimbursements and significant additional payments to Eolus are conditional on regulatory approvals and subsequent financial investment decisions from the buyer. We flip to page 9. Looking now at the overall portfolio development, we added a net 675 MW to our development portfolio in Q2 with new projects in the U.S. making up the largest part of the increase. Pienava proceeded to construction, and we removed the divested U.S. solar PV project, Centennial Flats, from the late-stage portfolio. Remaining expected revenue from that project are included in the order backlog. Changes in the portfolio are overall in line with our strategic focus on prioritizing value creation.
On page 10, I'll end this section with a look at the progress towards our financial goals for 2025 - 2027. The negative operating profit in Q2 puts us at a SEK 90 million cumulative EBIT, so that's somewhat below the track towards the 2027 total target. Return on equity is at 19%, measuring the rolling 12-month period. Our equity-to-asset ratio remains high at 59%. I'll hand over to our CFO, Catharina Persson, for a walkthrough of the quarter's financials.
Thank you, Per, and hi, everyone, joining the call today. I start on page 12. Our net sales for the second quarter amounted to SEK 364 million, yielding an operating profit of - SEK 74 million and earnings per share of SEK 1.51. At the close of the quarter, our equity-to-asset ratio stood at 59%. Compared to 2024, our sales increased, but our profit decreased in quarter two. Turning to page 13, we have some overall guidance to reading our statements, reiterating some points made by Per earlier in the presentation. 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.
We capitalize project costs on our balance sheet under projects under development, projects under construction, and advanced payment to suppliers. Project CapEx for equipment and construction services increases the working capital significantly when we build on our own books. Working capital is then rapidly reversed when we divest projects with high capitalized CapEx like Pome in Q1 2025. Our net debt position is similarly affected. It increases with project cash outflow and use of construction credit in projects that are under construction. It decreases as the project debt is either amortized from proceeds or transferred to a new owner when the project is divested. Generally, we advise investors to analyze our business over longer periods, rolling 12 months to capture the full investment and sales cycles. Nevertheless, I'll go through the changes in quarter-to-quarter numbers for the purpose of clarity.
Just remember that this quarter-on-quarter analysis is not at all indicative of a run rate. On slide 14, we show a change in the operating profit between Q1 and Q2 2025. Last quarter, we divested Pome at a 75% degree of completion. There was a large and expected decrease in revenue in our second quarter. Underneath this change, revenue recognition from Pome and proceeds from Pienava share purchase agreements made a positive contribution. Pome revenue recognition contributed with 10% progression in the quarter, going to 85% in total. Correspondingly, the level of cost flowing through our income statement was much lower too compared to Q1. What this change masks is the negative contribution of the provisions made due to the delay to Pome and lower expected project margin. All in all, we reached a - SEK 74 million operating profit for the second quarter.
On a rolling 12-month basis, the operating profit was SEK 433 million in quarter two. Next slide, looking at the balance sheet on the asset side, we opened the quarter with total assets amounting to SEK 2.841 billion and ended at SEK 2.843 billion. That's a minor net increase of SEK 2 million. The changes during quarter-to-quarter are due mainly to investments in Fågelås, Dållebo, and Boarp, and transfer of Pienava to Latvenergo. Projects under construction increased by SEK 325 million, mostly due to the construction CapEx in Fågelås, Dållebo, and Boarp projects. We invested a net of SEK 40 million in development portfolio value creation, even as the Pienava project left the balance sheet. Advanced payments accounts receivable decreased as we took delivery of equipment to Fågelås, Dållebo, and Boarp projects and transferred the Pienava project to Latvenergo.
On the equity and liability side of the balance sheet, there was a slight net decrease in total equity due to negative operating profit and the refinancing increasing current interest-bearing liabilities. Accounts payable decreased as we settled CapEx payments in Fågelås, Dållebo, and Boarp. At the end of the second quarter, our equity-to-asset ratio amounted to 59%. Turning to cash flow on page 17, opening cash balance for the quarter was SEK 200 million, and closing cash balance was SEK 152 million. Operating profit, tax, and interest payments contributed negatively to operating cash flow before changes in working capital. Investments in Fågelås, Dållebo, and Boarp contributed to an increase in the working capital this quarter. Net flows from financing activities were dominated by refinancing and bond proceeds and amounted to + SEK 278 million, but also includes payout of dividends during the quarter of SEK 19 million to shareholders.
Finally, looking at projects under construction on slide 18, Pome has progressed to 85% degree of completion. Pienava has been added at 0% degree of completion following the sale in Q2. For the Pienava project, the project management agreement differs somewhat from our usual construction management agreement, mainly that Eolus does not bear any downside construction risk. Pienava revenue would therefore be recognized based on predetermined milestones and project management service supplied as the project progresses. Thank you. Handing it back to Per for a comment on the near-term outlook.
Thank you, Catharina. I'll now turn to page 20 of the presentation. We will continue to focus on advancing sales for Fågelås, Dållebo, and Boarp since we have a lot of deployed capital into those projects. In total, they have a CapEx of between SEK 1.4 billion and SEK 1.5 billion. We are making good progress on a PPA connected to the projects, which will lock in long-term revenue and significantly de-risk operating cash flows. Our late-stage Roccasecca battery energy storage project in Nevada will continue to make progress during Q3 with focus on securing a tolling agreement and to advance the sales process for the project. Of course, in the U.S., our team is working around the clock to mitigate the delay, complete commissioning, and handover of the Pome battery energy storage project to our customer.
In the value creation portfolio, we will continue to balance investment toward prioritized projects, markets, and technologies in line with our business plan. Overall, we will pay close attention to our financial position and optimize sources and uses to current market conditions while aiming to reduce the corporate net debt. Our new construction credit facility opens up opportunities to deploy non-recourse debt in mature construction projects going forward when deemed attractive. Thank you for listening. We will now proceed to Q&A.
If you wish 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.
Hi. Lara here from ABG. You mentioned that the delay in the Pome battery energy storage project reduced your operating profit in the quarter. Is it possible to quantify the effect of the provisions on EBIT?
Hi, Lara. According to the report, we expect an overall profit margin of the project of $10 million. We have then accounted for a degree of completion of 85% so far.
Okay. Just to clarify, the remaining $10 million you're expecting to be paid out is project margins, so it's not reimbursement for project costs?
That is expected remaining cash flow. Since we are accounting for, according to the degree of completion method, we have already accounted for 85% of the expected project margin. We have a larger expected cash flow coming than remaining project margin.
Great. Thank you. Just a question on the Dållebo, Boarp, and Fågelås. When can we expect these to be divested? Do you expect to sell the project as a turnkey project since you've already started construction?
Yes. The sales process is ongoing. It's been for quite a while, which of course shows that the market is soft. All projects are constructed, and all of them have now produced their first kWh of power. We are, of course, looking to conclude that transaction as soon as possible during the autumn, which would free up a lot of cash to both reduce our net debt and to give us opportunities to invest in the upcoming pipeline.
Great. Thank you. A question on Roccasecca. It's a similar project to Pome . Should we expect a similar strategy as Pome , that you would construct the project and then sell it during or after completion, or how does it seem to be on that side?
We're looking to do an earlier sale to sell project rights. We're looking to secure non-recourse project finance to sell the project much earlier than the Pome battery energy storage project, with a more limited construction scope for Eolus, and to secure the tax equity part of it along with the transaction.
Okay. Great. That was all from my end. Thank you very much.
Thanks.
The next question comes from Markus from Private. Please go ahead.
I think that could be me. Markus here. Can you hear me?
Yes.
I have plenty of questions. Unless you have plenty of American investors on the line, I prefer to both ask the questions in Swedish and the answers in Swedish if possible. Is that okay?
Yes, okay for us.
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The next question comes from Örjan Rödén from DNB. Please go ahead.
Yes, hello everyone. Örjan Rödén here, and most of my questions have been answered. Can you elaborate a little bit more on the Pome situation? Would you claim that this was very specific to this project, or should we make any read-throughs to other U.S. projects? What do you think?
It's mainly, of course, the life of a project developer that all risks cannot be so easily put to the investor or other parties. Of course, there are learnings for us in the management and in our U.S. part of the organization to continue to try to limit these risks. Of course, there are project-specific reasons for it, as this gas emission and the delayed final permits. Mainly, it is when the project size is that large, like EUR 200 million, the projects, of course, the interest costs in the late phases amount to easily get to really large amounts that have impact on the margin.
Thank you. Final question on Fågelås, Boarp, Dållebo. When do you think production is at full speed, and do you think that is the key trigger to get this project sold, or is it anything else that could be an obstacle in the process?
We expect the projects to be in full commercial operation at the end of October, I would say. The key trigger for the sales process is definitely to conclude the pay-as-produced PPA that is under exclusive negotiation.
Okay, thank you very much.
Thank you, Örjan.
The next question comes from Eric Oberg from DNB Carnegie. Please go ahead.
Hi. Thanks for taking my questions. Eric Oberg from DNB Carnegie Credit Research. Following up on Orjan's last question there with regards to the three onshore wind parks, if you hold them until completion, what's the remaining project equity that Eolus needs to provide to bring those three wind farms until completion, which you can't draw from the new construction facility?
With the PPA in place, I would say that we could have like 60% bank debt leverage of the SEK 1.4, 1.5 billion. The remaining is then equity that comes in both in the form of true equity and the use of the bond proceeds. We have until today, there are roughly SEK 1.2 billion accumulated in the three projects.
Sorry, following up on that one, in the balance sheet, we see the book value of projects under construction, and that is around SEK 600 million, right?
We said what we have deployed so far. That's numbers during August included as well.
In the balance sheet, it splits between the two lines with different headings.
Projects under construction and advanced payments to suppliers. You should add those two together.
Got it. With that said, how much project equity do you need to invest to bring them until completion?
From the end of July, or end of June, I mean, SEK 150 million or so.
Something between 150 and 200.
Okay. Thanks. Given the somewhat weaker divestment market tied to those projects, do you consider to sort of change your approach here to actually build them on your own books when those projects seem to be harder than expected to sell? I mean, risks seem to be a bit higher and you're not fully compensated for it. How do you go about that?
It is our general aim to sell earlier to reduce construction risk. We also need sometimes to de-risk projects more and to be able to secure the PPAs, for instance. Our general aim is to sell earlier to have investors finance the construction. The construction facility that we now have gives us the optionality to proceed through construction as well if we deem that a better path.
Okay. On Pome , when did you conclude that the project was about to be delayed?
It was late June, I would say, and the beginning of July when these issues on that site appeared.
Okay. Thanks. I think this question was asked before, but I didn't grasp the answer. What was the provision recognized in Q2 related to Pome ?
We don't announce that direct number, but we have said that we have a negative result in Q3 on EBIT level that's proposed to the Pome battery energy storage project.
We have adjusted the total expected margin for the project to roughly $10 million and accounted for 85% of that accumulated until Q2. Since we have had recognized a higher expected margin in Q2, we had to make those provisions in Q2. Rough numbers, it has impacted like - SEK 15 million in Q2.
Okay. Thanks. I think you touched upon this as well early in the call, but what was the revenue recognition related to Pienava now in Q2?
The full contract, the selling of the shares was accounted for. The remaining to be accounted for is deferred payments connected to that agreement and also the services we will provide under the project management agreement.
How much revenue is recognized in Q2, and what's remaining of the share purchase agreements?
I would say that the full contract has been accounted for, the share purchase agreement. We have a couple of deferred payments that we will account for as smaller parts during 2025, and when the project reaches operation, expected to happen in 2027.
Are none of those possible to quantify in any way?
Rough numbers once again here. We have recognized a project margin of roughly SEK 50 million for the Pienava so far in Q2.
Okay. Thanks. What's the size of the project management agreement tied to Pienava ?
The project management agreement compared to the other projects is a much more limited scope, quite low revenues, and very limited risks for us. The main revenues and project margins will come from additional payments from the share purchase agreement as milestones are achieved.
The largest one is when the project is completed.
Yes, expected in 2027.
Okay. The more limited project management agreement scope, should we see that as a template going forward as well? I mean, the contract management agreements have been a great P&L driver historically. Should we see the more limited approach here, less risk as well as the new template, or is this a one-off?
It's another tool in the toolbox suitable for more limited risk exposures. I expect that we will see both contract structures going forward depending on the risk appetite both on the customer side and on our side. This Pienava wind project, it's a large project in a very small market in Latvia. The customer is the state-owned utility. It was definitely a structure that fitted well for that project.
Okay. Thanks, all for my side.
Thanks.
There are no more questions at this time. I hand the conference back to the speakers for any written questions and closing comments.
This is Harald Kaveri-Björkman, Investor Relations Manager at Eolus. We have a very limited amount of time left on the webcast. Please get in touch with me via email or by telephone if you feel that there are any further questions you'd like to ask. I'd be happy to help you resolve those. My contact details are available in the press release and in the report itself. Handing it back to Per here.
Yes. Thank you, Harald. Thank you all for joining the conference call. I wish you all a nice day. Thank you.
Thank you.