OX2 AB (publ)

STO:OX2

Earnings Call Transcript 2022-Q1

[Operator]

Welcome to the OX2 Webcast with Teleconference Q1 2022. [Operator Instructions] Today, I'm pleased to present CEO, Paul Stormoen; and CFO, Johan Rydmark. Please begin your meeting.

[Paul Stormoen, executive]

Good morning, everyone, and welcome to the first presentation of OX2's quarterly report 2022. My name is Paul Stormoen. I'm the CEO. And I'm joined here by Johan Rydmark. So we are looking forward to spending an hour with you here, taking you firstly through the highlights and some updates on the portfolio. Then Johan will bring you to a detailed financial review of the quarter, before I will talk a bit about the market and outlook. We will have ample time for Q&A in the end. So we expect to talk for about 30 minutes. And thereafter, there will be possibilities to ask questions on the phone or through e-mail, [e-mail].

And with that, I think we're ready to kick off. So before going into the quarter in detail, I want to say a couple of words about OX2. As a European leader in renewable energy, we are developing a product, which is operational wind and solar farms, which we then sell pre-construction and take the full responsibility to handle the construction and deliver the operating wind farm to our clients. The client base is mainly constituting of international, institutional and strategic investors. And we have had a good quarter, a net sale of SEK5.6 billion. We have a healthy operating margin at 9.6% adjusted for listing expenses. And we have a strong return on capital employed at 32.3% also adjusted for listing expenses the last 12 months.

For the 17 years that we have been operating, we have to-date built 3.4 gigawatts of wind than in the Nordics and Poland. And having a look at the future, you can read quite a lot out of the development portfolio, which covers mainly Sweden, Finland and Poland, but also a growing segment is Southern and Southeastern Europe. It stands today at about 23 gigawatts and is divided in onshore and offshore and solar PV, where offshore is today about 50% in terms of gigawatt, but in terms of number of projects, fairly limited compared to solar PV and offshore -- onshore.

You also see that the solar PV portfolio is growing quite rapidly, that we will take you through. And that is very much connected also with the geographical presence of OX2 expanding through Southern Europe and Mid-Europe where we see solar PV being a steadily more competitive source of electricity. And we also have good ambitions expanding in solar PV in the Nordic markets going forward.

So if we look to the first quarter, we can conclude that it was a very strong start to the year with good continued progress in the development portfolio, standing at 23,428 megawatts. We build the portfolio through acquisitions and greenfield development, meaning we start some projects from the scratch ourselves that lead to a steadily and increasing amount invest in portfolios and projects throughout its life cycle. And here, we can see that we have 1,352 megawatts acquired across a number of different markets, including a new market for OX2, which is Greece, a very exciting market that we will come a bit back to.

We also added 2 important Finnish offshore projects to the portfolio that I will also come back to. And importantly, we set up our operations in Aland, which will be, for the beginning, focused on offshore, but here, we also see great potential in providing good volumes in the sea between Sweden and Finland around the Coast of Aland.

Looking at the sales, we had strong traction. 177 megawatts sold at very strong valuations. One project up in Northern Sweden called Klevberget at 145 megawatts, and in Southern Sweden 32 megawatt project, Marhult, I will come a bit back to this one as well.

Looking at the construction portfolio, we ended the quarter at a total of 1,352 megawatts. And during the quarter, we were also able to hand over and complete the 153 megawatt project, Metsalamminkangas in Finland. We've also released some significant events after the end of Q1, listing on the NASDAQ Stockholm main market, maybe one of them, where we have now a share trading in the large cap segment here in Stockholm. After the quarter, we also signed a cooperation agreement to develop onshore wind project in Estonia, and this is a business model or part of the business model that we see very good traction on where we can come in and expand fairly rapidly to new markets and get good volumes through the expansion.

Looking at the value chain, we currently have 28 gigawatts across development, construction and TCM, which is the operation service that we provide to our customers. The development I've said a bit about, it's the 23.5 gigawatts. That basically is going through early-stage where we have secured access to the land and are working actively to develop the project. We have mid-stage, which is the part of the business where we have projects, where we have filed an application. And here, we see -- we give a fairly wide estimate of years to sale, at about 2 to 5 years.

And here I can emphasize that some of the technologies, like PV, is very much in the early or in the lower part of that time range. So we know that when we have the applications filed for a PV project, it typically goes fairly rapidly into first permits received, which is also the qualifier to be categorized in the late-stage part of our portfolio. And here, we have seen good traction on the PV portfolio. So far, it's been growing, as you can note, quite rapidly and constitutes the 1.1 gigawatts.

So the development portfolio ends by OX2 having a competitive sales process of the project. This is also the part where we procure the turbines, procure all of the construction work and sell the project and agree the price with our customer and fixed price of our construction of the project. Then and only then it moves into the construction phase. And the construction phase, we have a very fixed base to work with when it comes to construction costs. So we have very good visibility of what it will actually cost us to deliver this project. And we have a fixed and agreed price with our clients. And that, in turn, means that we have little exposure to indexation and inflation, et cetera, during the construction phase with this contractual setup. And only when the project is in full operation and handed -- ready to be handed over, it leaves the construction phase and it goes into the technical and commercial management part.

So looking at the volumes, we can just summarize in the bottom. I mentioned that we have had a strong growth on overall development pipeline. Quite a lot is coming from the addition in offshore wind in Finland where we had some 4 gigawatt of projects coming into the pipeline in the early-stage. Then on the mid-stage, we had applications completed for 2 large offshore projects outside of Southern Sweden. And they have then been categorized in the mid-stage portfolio. And here, we have now completed the 3 applications necessary for the government to really start handling these projects before they will move further on in the pipeline. We have had a stable addition to late-stage. In turn, we have also sold projects in late-stage that has moved over to construction, which is now standing at 1.4 gigawatts. And then the TCM portfolio is continuing to grow, standing at 3.2 gigawatts compared to last quarter at 3.0.

So that's the overall project portfolio. As you can see here, we also have a category called pre-early, which we don't report on, but this is of course a very important part of how we fuel the development portfolio. And we do this, as I said in the beginning, both by greenfield when the project hits the early-stage and then also acquisitions. And then it can actually hit early, mid or late-stage, and acquisition is a main part of OX2 business and something we will continue to focus on.

Looking at the development portfolio and the bridge between last reported quarter, which was end of 2021, we can see that we've sold this 177 megawatts. We have had a similar amount, 200 megawatts of discontinued or changes in megawatts because during the lifetime of projects, they might actually increase or decrease in size as well as being discontinued because this is development and there are development risks in each project. So we've had 200 megawatts of projects we've taken out of the portfolio or they have been reduced in size.

Then we have greenfield additions. I mentioned about 4 gigawatts of projects in offshore, but there is also roughly 1 gigawatt of onshore and PV projects, about 500 in each category being added to the portfolio. And of course, we also acknowledge that PV goes fairly rapidly through the development cycle, the way we have set up the portfolio, we have done all of the studies with regards to grid and conflicting interest before taking the projects on to the portfolio. And here, we have also added 1.4 gigawatts of acquisitions. And I mentioned that this can actually hit a quite wide range of categories in the portfolio, both when it comes to technology and when it comes to the phases, the early, mid and late phase. So that's the bridge between Q4 and Q1 where we see that we had very strong growth on the portfolio, not just in offshore, but also in onshore through PV and wind acquisitions and also in PV and wind greenfield additions.

So I said, I would come back a bit to some of the projects. For instance, offshore, the portfolio stands today at about 12.4 gigawatts, which is roughly half of the total portfolio. And here, we have added 2 new offshore projects. These are large in size in Northern parts of Finland. They are already pre-approved by the Finnish Defense, which is a major blocker in general for development offshore in -- outside the coasts to the Eastern Sea, Baltic Sea and Kattegat. So we have a very good expectation on the development going further on these projects. And just to give you a size feeling these are together constituting about 1/3 of the total electricity production in Finland. So a very important contribution to the Finnish overall electricity production, now coming out of a geopolitical uncertainty where they need to reduce their dependency on their neighbor to the East.

We also moved to Swedish offshore projects ahead by having completed the 3 very important applications, constituting a total of 2.8 gigawatts that has now moved to the mid-stage of the portfolio. And we here see that the first phase of the development is completed and it is now up to the Government of Sweden to rapidly and efficiently handle these projects. We have also a project as an example here of what X2 does. This was a project in Northern Sweden that have been under development from -- by a Swedish utility. That in the end, sold the project. We bought it in November as a project rights package and we reengineered it and we were able to through a very competitive sales process sell this to RPC, which is the investment arm of Canadian Pension Fund CPPIB in February 2022. So this is the fourth wind farm we sold to RPC in less than 2 years. And this project is having a handing over expected second half of 2023. So this is an example of how projects can quickly come into the late-stage and then later to be sold and turned into strong EBIT contributing assets.

Then I mentioned also the Metsalamminkangas project. This is the third largest project currently in operation in Finland. We started construction in early 2020. It coincided very well with the start of COVID. And we have throughout its construction period been working in a fairly complex market environment, but we're still able to hand it over, and it was also contributing very well to the strong numbers we reported in Q1. So this is a good example of us having the ability to handle complex and large projects in very difficult market environments.

Looking at the development portfolio, we established ourselves in Greece. This is an interesting market for OX2 in many -- by many reasons. They have a high share of fossil energy in their mix and very strong ongoing development of renewables. So here, we do feel that we are very well positioned to make a strong impact in the market. We started by acquiring 2 portfolios of combined wind and solar PV, constituting more than 500 megawatts. And we have ramped up the cross-functional teams, including country managers and local resources. And this is done in a way that we have successfully done similar expansion to Poland and we have done a similar successful expansion into Romania and also Italy where we also see very strong progress.

So a bit just on the construction portfolio. We comment on that we have good traction. We have been able to hand over projects both in Finland and in Poland during the first quarter, but we still have a lot to do in 2022 with 523 megawatts and 6 projects to be handed over in Finland, Sweden and Poland throughout the year. And you can also see the number of projects in the coming years that will be handed over and during this time contribute to our revenue.

And with that, I think I will hand it over for a financial review. Johan?

[Johan Rydmark, executive]

Thank you, Paul. Indeed, like you said, Paul, a good start to the year, Q1. Also when looking at the more longer trends, the LTM figures, as you can see here on this slide, very happy to see that basically on all our key KPIs, we're moving in the right direction. And I think this is also reflecting the performance across the whole business, both in terms of our ability to continue to grow the development portfolio, the geographical presence, also the delivery that we see in the construction portfolio as well as the asset management side as well as on the new sales.

I would also like to come back a bit to what Paul said earlier when it comes -- because we get a lot of questions on this for natural reasons, when it comes to the status in our supply chain to the extent that we're seeing any inflationary pressure impacting our margins. And here, I think Q1 is really a good example of what we are experiencing. We have had a lot of activity in the construction portfolio. We've handed over 2 projects within the set budget that we've had. We've also been able to sell 2 projects where we've been out in the market procuring 2 projects in -- under the circumstances that we're seeing, and that is all reflected in our gross margin here, as you can see, 18% and also in line with what we've seen historically.

On the operating income side, 7% margin, SEK105 million. Here, we continue to see the impact from the growth investments that we are undertaking in terms of growing the development portfolio, doing development activities on that as well as growing our organizational capabilities, now Greece also having been added as a new market. And this will continue to be the case when looking at our operating margin until we see the ramp-up in volume in '23, '24 and beyond. Also, high activity, really happy to see that on the acquisition side in the quarter. That is also ramping up, and I'll come back a bit on this as well on the following slides.

Here, our P&L dissected a bit. Given that this is our first earnings call listed on the main market, we have quite a few new joiners on this call. I'll use this a bit as an editorial or tutorial for you guys. So when looking at our net sales, what does that all comprise of? Well, basically 3 revenue components. We have the sales coming from the progress, the milestones that we see in our construction portfolio. We have the sales coming from selling new projects as well as sales, which is the smallest part coming from the technical and commercial management.

Looking at COGS, 3 components here as well. The biggest component here comprising of the CapEx that we have in the construction portfolio. And then also expenses coming from the project rights that we have acquired when we sell these projects that is being released through the COGS. And then sales costs associated with selling projects.

Still a few words on the operating costs and coming back a bit to when I commented on the operating margin on the previous slide. Here, you can really see the impact from expansion that we are undertaking. Having grown the net sales quite significantly during the last year. Still, you're seeing in percentage of sales, quite significant increases here when it comes to development costs as well as personnel costs. And this is all related to us now building the platform to be able to deliver on our medium term targets, the 2,000 megawatt plus. One final remark on other external costs here. The growth is mainly related to costs that we've had associated with the main market listing as well as increased activities that we see in the organization, increasing traveling costs.

This is looking at our development on a quarterly level. And to remind us all that -- and Paul, you commented a bit on that earlier as well, there is volatility when looking at individual quarters. Q1 is a good example of this. Here, in Q1, we've been able to sell 2 projects, 177 megawatts. We've also been able to hand over 2 projects, 153 megawatts. And that when comparing to Q1 '21 when we sold 109 megawatts and we didn't hand over any project is of course impacting both our net sales and operating income.

Looking at the longer trends, that's more reflective on the overall development of OX2. And here, as you can see, when looking at our sales figure, SEK5.6 billion, quite a significant increase compared to a year ago and compared to 2021. So what is behind that? Well, there is basically 2 things, both the construction portfolio that we have now up roughly 40% a year ago. And then also the new sales that we've been able to undertake during the last year, now trailing at 780 megawatts compared to some 250 a year ago, and that's a significant growth and that's also what is reflected in the top-line.

On the profit side, the gross margin, I've commented on that. We also have guidance out there for '22 that that will be in the range of what we saw in 2020 and 2021. And also when looking at the operating income and the adjusted margin for development expenses, we're starting to see that flattening out that difference, and that is also what we expect going forward.

We are in a very solid financial position, strong cash balance. We are able to act on the opportunities that we see in the market and we see a lot of opportunities. You can see that in Q1 also from the acquisition pace that we had some 1.4 gigawatts acquired, otherwise, quite small changes in the net working capital in the quarter. But also happy to see on the 2 projects that we sold in the quarter, we continue to be able to structure these projects in a very capital-efficient manner for us where we're not needed to tie up any significant capital during the construction phase.

Project acquisitions, really significant ramp-up here during the last couple of years and also in Q1 and a good division, both among geographical markets as well as technologies. SEK499 million now on an LTM basis. We're getting closer to the target and guidance that we have in excess of SEK600 million for 2022, and we're really seeing a lot of opportunities. So one should hopefully see also that in the coming quarters, there will be further additions coming from our acquisition muscle.

And I think this is also a good bridge when looking at our more longer financial targets, both the growth that we've had in the development portfolio, the 23 gigawatts that we have, the growth that we've seen in the mid-phase coming from both addition from offshore, but also very much from onshore and PV. And then the acquisition on top of that, Paul commented on that earlier with Klevberget. That was a project that we sold now in Q1 that we acquired less than 6 months ago. And that is also something that one should take into account when looking at the volume to be sold from OX2 in the years to come.

On the profitability side, 10% operating margin here on an LTM basis. Here, one should expect to continue to see the impact from the growth that we are undertaking in development expenses and the organization growth as well as the guidance that we have on gross margin.

And with that, I'll hand it back to you, Paul.

[Paul Stormoen, executive]

Thank you, Johan. A quick comment on market and outlook before we take questions. So we -- based on the last quarter and the projects we have currently in the market, we see strong and positive feedback on investments in the energy transformation. The market is really adaptive to both the increasing electricity prices forecasted to be hitting the market for decades to come. And this is also a good way where we see that the division of a wide client base is important in the market where you have moving interest rates, et cetera. So we can really see that there is a strong and positive feedback all across the markets we are active in.

We have commented on that we continue to see an impact on the supply chain as still an effect of COVID-19, but Metsalamminkangas in Finland is a good example of how we have been able to maneuver around it. Yes, there are some months delay in projects, but they have not been financially impacting OX2. There are some uncertainties connected to the war in Ukraine that we are continuously monitoring, but we are not active in any of the markets directly impacted other than the way that the energy transformation is now being put on top of the agenda for most European markets. This was a transition that has been ongoing for a decade or so, but the long-term target remains.

We want to see a Europe that is energy-independent and fully renewable. And the targets that we now see being pushed throughout the whole market presence of OX2 is an increased focus on supporting a transition that is going even quicker and based also much on the communication from the IPCC report where we have clearly stated that -- or where we clearly read that wind and PV are the 2 main sources of contributing factors to slow down the climate change, and that will need to be prioritized.

I think this is highly recognized now by more and more governments. We see permitting -- investments in permitting in general across the markets are speeding up, both to support the handling time of permitting processes, but also on the handling time and integration of renewables in the system through increased investments and short handling time of grid investments. So a strong and positive market outlook that is being kind of fueled by the need for new renewable electricity production, big volumes of it at a cost-efficient way.

The focus ahead for OX2, we have now concluded Q1. We sent good continued progress. We see good continued progress in development and construction. We had good traction with sales, strong valuations, very strong interest for the projects we have had out in the market during the last quarter. We see strong net sales, as Johan has commented on and explained how the operating profit derives from the sales. And we can also conclude that up until now we have seen very limited impact on our construction portfolio following the work in Ukraine.

Focus for the remaining part of 2022 is to continue to grow portfolio through acquisitions and greenfield. We're capturing a lot of opportunities. We are in a strong cash position to capture this. And it is a part of the OX2 pedigree and DNA to actively work with acquisitions. The geographical expansion is high on the agenda. We are diversifying ourselves to more and more markets. We see both Italy, Greece and Romania speeding up now with development portfolios. And we expect to see more markets throughout the year, with target to achieve new sales we reiterate that in 2022 of more than 500 megawatts. And of course, we're very much focused on the '23, '24 targets that we also reiterate that we are in good progress of reaching.

So I think with that said, we can open up for Q&A. So if you want to join me and Johan, and I assume we have people on the line with questions. So if the operator wants to send in the first.

[Operator]

[Operator Instructions] Our first question is from Olof Cederholm of ABG Sundal Collier.

[Olof Cederholm, analyst]

It's Olof from ABG. I have a couple of questions. First, on the supply chain after COVID, you say -- you talk about lingering effects. And if we can maybe nail this down a bit further, how is the near-term trend here? Is it better or worse in Q1 than compared to 3 or 6 months ago or is it sort of getting worse?

[Paul Stormoen, executive]

We can say that it's better to the extent that I think we are now more used to working in an environment which is volatile. And we see that as an example, the projects, [indiscernible] and MLK that was handed over. We're able to circumvent the most kind of -- the biggest uncertainty with regards to this. So we have adjusted our construction timelines and our construction portfolio in general to meet this volatility. So I would say that we are in a better place.

[Olof Cederholm, analyst]

And can you say anything about -- do you see any change in this going forward towards a more normalized situation or is the Ukraine situation with its specific impact on potential supply chains making it still very uncertain?

[Paul Stormoen, executive]

I think for the current moment, we don't see any significant improvements, but we are adjusting with the knowledge we have of operating 2 years in a very volatile market. So that I think the change more comes from our side of being able to cope with the extended timelines and the difficulties to move resources throughout basically a global scene. So I think to that extent, it's the same, but of course, it's a lot better. And I think you can see that also in Q1 when it comes to our own ability to travel again, and that makes it a lot easier. So from the supply side, maybe no major change just yet or even observed for the future. But from our own part, we're able to travel again, we're able to be a lot more physical on the ground with both suppliers and with our own personnel, which is improving the situation.

[Johan Rydmark, executive]

And maybe just to add that. On the projects that we've sold in this market, of course, this uncertainty is very much considered from all parties. So I think from that perspective also, yes.

[Olof Cederholm, analyst]

Very good. And one more -- one question on the margin -- the project margins, and you talked about the cost inflation. I think you made it clear that so far it hasn't affected the margin. In ongoing sales discussions, is there -- are you sensing that this may be a problem going forward or is sort of the high electricity prices offsetting the higher cost also and going forward? Can you talk a bit about that?

[Paul Stormoen, executive]

It's more to the direction of your latter alternative here that you're very familiar with our business model, Olof. And it derives from kind of when we sell projects, it's the current view on the future long-term price curve of electricity that sets the top-line to a large extent, and that has of course come up quite a bit. And then we have also -- I can just reiterate that, yes, we need to adjust to the market pricing of construction as well.

So for the new projects that we take to the market, yes, construction is up. So we are affected to that extent. But we have a quarter where we booked both relevant prices of the top-line on the sales and relevant prices on the construction, and you can basically read your readouts. The margin has been kind of safeguarded throughout that period and we don't see any major change to that.

Yes, there will be movements, but we feel comfortable that we will be able to handle that. And we're also very much, as you know, are having competitive sales processes. And that dynamic and the overall interest on the customer side is something that is playing into that as well. And there, like you commented on, we're actually seeing even more interest from investors and potential customers.

[Olof Cederholm, analyst]

Very good. And my last one. You talked more about PV today than you usually do, and maybe it's a trend, the start of a new trend. Can you talk a little bit about how much faster PV projects go through the development stages compared to onshore wind, for example? I know, I mean, you have limited track record on PV, but just so we get a sense how much faster it is.

[Paul Stormoen, executive]

Absolutely. I think what is limited is the Nordic experience of developing large scale PV, and that's in the market as such. But for OX2, yes, you're also correct that we have to date not constructed a PV plant, but we expect to do so within short. And the team that we have built over the last years, they are very, very used to handling both development and EPC delivery of the PV in the PV market. So we have a fantastic team with a lot of track record developing and building, delivering both from the EPC side and the investor side on the team, which now constitutes, what is it like 30, 40 at least people working uniquely on PV.

So the team is very much ready and the portfolio is now ready. The market is ready. I think that's why we can maybe comment a bit more about it, also highlighting that it's moving ahead in the development cycle now being more than 1 gigawatt in mid-phase. And typically, it don't have that much more than kind of the handling time for PV. So that's very much in the low -- there aren't any kind of out or extended appeal processes typically for PV as what you see more and more in wind, which we are in the very low end of that 2 to 5 year range we have. So on the very low side of that.

[Operator]

Our next question is from Oskar Lindstrom of Danske Bank.

[Oskar Lindström, analyst]

A couple of questions from my side. First off is the growth of the development portfolio, which was very impressive in this quarter. And you say that that's going to be your focus very much for the remainder of this year. Now have price -- a lot of this has been through acquisitions as we saw in this quarter. I mean, have prices to acquire projects risen in line with the prices that you're selling these projects for? Is it the same? Are you buying -- expecting to buy mainly earlier stage projects or more late-stage projects? I was thinking around this sort of given how that impacts your margin when you do sell these projects? That's my first question.

[Paul Stormoen, executive]

So yes, growth of the development portfolio will continue to be a main focus throughout the year. We're capturing a lot of opportunities. And the strength there is that we are able to price these when we bid for the project rights in different phases with the best possible market knowledge given that we sit on current sales processes, current procurement processes, we know where the market is. So we're able to adjust very well the prices that we offer in order to capture and secure, safeguard our own margin going forward, also utilizing the 4 competencies of the company, applying the latest technology.

So I wouldn't say that it's just a flat out trends that we pay more for the projects in a way that it will hit our own margins. But yes, we are paying more just as we are paying more for turbines now than what we did 2 years back. But still, you can observe the gross margins increasing as well. And we feel very comfortable that the projects we do acquire will be good value contributing to OX2. So this is very much the part of the screening and the bid process that we participate in every day.

[Johan Rydmark, executive]

If I could just add to that, Oskar. Also the example here with Klevberget project that we acquired late-stage end of Q4 and are now able to sell at good margins reflected in our gross margin. And the other component that we're seeing a bit is maybe not so much the total payment for project rights, but rather the phasing that we're paying maybe a bit more than what we did a couple of years ago upfront, but the overall payment is more or less in line. And that's also the background to the capital raise that we did.

[Oskar Lindström, analyst]

So I was just trying to figure out a little bit if this is going to impact your margins going forward that you're paying the same or more for projects which you are then selling for more as prices have moved up in the market, but it seems like we shouldn't expect this to have any significant impact on your margins?

[Paul Stormoen, executive]

That's the price of acquisitions.

[Johan Rydmark, executive]

Exactly.

[Oskar Lindström, analyst]

My second question is on offshore wind, which is a huge part of the growth portfolio and your overall potential. You moved now a couple of projects from early to mid-stage. Now you mentioned the PV projects being at the lower end of the mid-stage, 2 to 5 years, where should we think about these offshore projects? Are they 5 years or is it more towards the 2 years of that in terms of timing? And also, I think during the listing process, you were saying that your plan was not to do the construction of the projects yourselves, but rather to sort of sell them as projects, which the buyer would then need to organize the construction. Is that still your plan for these offshore projects?

[Paul Stormoen, executive]

It's a good question, Oskar, and great memory there from the listing process a year back that we said we were not planning to do it in the exact same way we package and productify our wind and PV projects. Exactly the role we will take in construction. I think we remain kind of explorative on. But no, I don't -- we have not changed our opinion that we will definitely not deliver a full EPC wrap of these large-scale offshore projects.

And that of course opens up the question where in the development cycle do we start to monetize on the development. And here, we are opportunistic currently on exploring when the market is positive to enter the offshore portfolio. When it comes to the handling times, I said, it's a lot of work to get these 3 applications handed in, and they are now sent to the government. They follow a different route than wind projects, onshore in Sweden and also in Finland. They go directly to the government. They are not going through the court system in the same way. And here, we will see -- well, it's quite a lot up to the government on how quick they will be able to handle it. But from all we can read out of their feedback is that this will be a prioritized case.

And you can also read fairly recently in the -- there were articles about how the defense, et cetera, will try to cooperate and adjust to how to get offshore as a natural part of the Swedish energy mix, because today, that is of course something that remains how to solve in Sweden, where it's been sold in Germany, U.K., Holland, et cetera, for decades ago when they started offshore development. So here, we are a bit late as a country on how to deploy offshore wind, but we see that there is quite a lot of focus on this -- on the permitting authorities here which is then the government. So I can't give you an exact date for permitting, but the feedback we have is that it will be expedited and prioritized.

[Oskar Lindström, analyst]

All right. And just a final question from my side. I mean, you mentioned that permitting times are being sped up. And I interpreted that as being sort of across Europe, and in general, regarding all types of projects. Is that a -- I mean, a correct interpretation? And is there any data on this or can you tell us a little bit more about this?

[Paul Stormoen, executive]

Yes, I can just put some examples out where you have in Finland announced very heavy investments in the court system so that they can employ people to prioritize renewable handling times. It's not that the industry is looking for kind of like a fast lane or not be judged on the same principles as before. But what has been an issue for the last 5 years is that the court systems has been dragging out on just handling the time. And that has been announced quite heavy investments over the last 6 months in Finland on personnel and resources to really speed up and prioritize these handling times of renewable resources.

We see the same in Italy. We see Poland with the same communication with the adapting to new environment. They need to drop this long distance rule, which is now going through the system in order to speed up and increase development. I think there's basically examples, you can take Denmark, you can take basically any country in Europe right now are pushing their internal systems to speed up again. And this is something the industry has been looking for, for the last year, very kind of actively communicating the need for.

[Johan Rydmark, executive]

And here, COVID has played in looking at last year in terms of the access to authorities. So that is opening up as well a bit more.

[Operator]

Our next question is from Kristian Johansen of SEB.

[Kristian Tornøe Johansen, analyst]

I just have one question here, getting back to your projects in the procurement phase. So you make it fairly clear that the continuing inflation you were able to offset and safeguarding margins. But sort of listening to both Siemens Gamesa and GE over the past week, they are both talking about sort of increased customer hesitation on their order side. So from your perspective, can you elaborate a bit on sort of the decision-making on new projects and how the current market situation is impacting that?

[Paul Stormoen, executive]

Yes, we do of course see that we need to adapt to a new price level, talking to the turbine suppliers. They clearly show that they need a higher price in order to keep business running, and we are adapting to that. Maybe that's why we're treated with quite high priority as well. We are not hesitating. We have to date still not started procurement of any projects that has not been realized. So that gives us quite a lot of focus from all of the major suppliers. And we do not see any trends that we would do the same today. And I think this is a strong sign in volatile markets that customers that kind of have less of a track record of reaching financial close do get some lower priority.

So no, we do not see any hesitation from our own customers on coming through with these investments. And I think it's very much to the way that we've built up the whole business model using the kind of a very efficient way to price through competitive auctions, the project in the market when we sell it. And at the same time, competitive auctions when we procure the turbines. So they are very well matched, so to say, in the same time phase.

I see that if you're not able to do that and sit with kind of last year's expectations of where prices would be on turbines, of course, you do not buy turbines today at today's rates because they're much more expensive. But we do not need to hold back any decision-making or any processes based on this very agile market dynamics, capturing business model we have.

[Operator]

Our next question is from Eivind Garvik of Carnegie.

[Eivind Garvik, analyst]

I have just one question here. We've seen throughout the renewable value chain that kind of the OEMs have had their profitability disrupted. They've had real compression on their asset ownership part of the business model and the value chain, but developers have so far been unaffected by increased competition and rising costs. So I'm just going to ask a very suited and short question here that kind of wraps up everything we're talking about. Are you kind of concerned that we are at peak margin on new projects that have yet not been divested to the market?

[Paul Stormoen, executive]

Evan, just to drop in a bit there on the question itself, I really don't agree that all developers in the history has actually been able to perform. But yes, I agree with you on yield compression on the asset management side and also that OEMs definitely have had issues, but so has -- there's a large number of developers that has gone bellied up as well. So just being a developer in itself is definitely not a kind of proof of profitability or success. It's very much coming down to the way you operate in that environment. And we have done this for now with this exclusive business model of providing operating assets and operating services for more than 12 years.

And if you wind the clock back kind of to 2010-2011, the world was in a quite difficult situation as well. We have been able to throughout this 12-year period, year-by-year, start new constructions, sell and broaden our client base, broaden the geographical presence and maintained a very profitable business. So I feel very comfortable that we have in our DNA, we have in the track record and the business model this commercial connection with a market that is and has been, let's remember that, it's not like the first time the renewables have been exposed to volatility, but we have been able to manage through that.

And with the outlook we have on both the volume that we have on the projects, the quality of the projects and the quality of the market, I see no kind of clouds on that side of the business when it comes to safeguarding future margins either. So that's why we do feel comfortable about guiding as we are to kind of remain in that range of gross margin. We're doing kind of sound and strong investments. And we are reiterating our step-up in '23, '24 and path towards the medium target of 2 gigawatts. So no, we do not want to kind of shed any light on that or shed any darkness, which I don't snip into.

[Operator]

There are no further questions at this time. So I'll hand back over to our speakers.

[Paul Stormoen, executive]

Excellent. Thank you. Let's see if there's come any questions through our IR web.

[Johan Rydmark, executive]

Yes. We have a couple of questions from the e-mail. One is, do you feel that your business model is sufficiently well understood among investors?

[Paul Stormoen, executive]

Well, I think it's coming there. We have spent quite a lot of efforts now also with the uplisting in Q1. We're meeting a lot of -- participating in a lot of conferences. And however, we still need to remind ourselves that it's not a given, I agree with that, that we are able to operate in volatile markets with this business model, safeguarding margins based on that. We price projects through competitive auctions in kind of every given project, every given market, and the same date we'll lock in the construction prices.

So I think there's still some more work that we need to do on educating that the construction portfolio is very much kind of not affected by what we've seen, and as well, we have a very strong both track record and client base and reaching good attention and price levels when we sell projects, and that is very much based on the quality of the product that we provide. So I think there is -- we're not kind of there yet, but we're getting there. And we're doing our best to continue to reiterate what we actually do and what kind of risks we are exposed to.

Anything else?

[Johan Rydmark, executive]

Yes. The next question is actually a 2-part question. It's what is the Q1 revenue split on revenues resulting from financial close of projects and revenues resulting from construction activities? And in the same way, what is the Q1 gross margin split on revenues from financial closed projects and from construction activities?

[Paul Stormoen, executive]

Very good question, and we are not presenting sort of segmented revenues or margins. We have been providing guidance on how to think around revenue recognition in our construction portfolio, revenue recognition at the timing of the sales. And I think we had -- and I tried to illustrate that a bit when looking at the volatility between quarters, where in this quarter, both had good volumes coming from new sales, 177 megawatts as well as volumes handed over the Polish project and the large Finnish project.

And typically, like we've said before, at the late-stage of a construction project, there is quite a lot of revenues flowing through that project. And also, as we've said before, construction margin, typically for a typical project being lower than for new sales. And the 2 projects that we delivered and handed over to customers in Q1 were all delivered according to budget and then we have also a positive impact on the gross margin.

[Johan Rydmark, executive]

And then the last question is, please give an example of what kind of yield your projects offer a project buyer at the current project prices and short or long-term electricity prices?

[Paul Stormoen, executive]

Well, the yields is -- I would kind of -- it's difficult to say exactly what type of yield it delivers. It depends very much on how you structure the ownership of the assets, which is what we provide as a quite large very optionality on. You could lock in your prices for a very long period of time when it comes to electricity. So let's say that you do that, then you derisk the ownership of the project and the yield would go down. But you can also be more opportunistic selling electricity at short contracts or even at the spot market, which of course, then you get some more volatility in the ownership of the project, but you would also then get a higher yield.

So the same goes with the service agreements. For instance, if you want to kind of run it on a very slim service package, that's possible, but then you are exposed to maybe a different type of costs connected with operations and service or you can, as many of -- most of our clients opt-in for a very long fixed term price on service, which in the same meaning kind of lowers the risk of the project, but then also cost a bit more on the OpEx, which would then lower the yield.

So I think it's difficult to structure exactly. You can also work with different type of financing packages on how to work with yield. But if we're talking about an unlevered yield, it's kind of in the below 10% at least is what I think the market typically look for and differs a bit between, very geographical markets as well and technologies as well where maybe there's a bit less variations in the PV project growing the yield slightly lower and the same with some kind of offshore --onshore wind projects compared to offshore.

So there's a bit of differences there as well. So it's unfortunately difficult to say exactly, but the good thing about our product and the way we sell it is that we meet the whole spectrum basically of different yield investors. So we meet and are able to sell to the strategics that want this type of higher yield, higher volatility. And we're also able to offer long fixed prices on the electricity, meaning that we can sell to lower returning investors with -- lower yield investors with less risk appetite. So big strength for OX2 here to be able to capture that full market.

And with that, there are no further questions, and we are right on time. So thanks everyone for participating. And we are having our next quarterly report end of July -- 26th of July and looking forward to speak to you all then. Have a good day.