OX2 AB (publ)

STO:OX2

Earnings Call Transcript 2024-Q1

[Paul Stormoen, executive]

Good morning, everyone, and welcome to OX2 Q1 2024 report. My name is Paul, CEO; and I'm here with Johan, CFO, and will take you through the current business state. The agenda is as highlights and portfolio updates will go through the financial review with Johan. Then I'll have some comments on the market outlook before we have ample time for Q&A in the end. Good Yes. Excellent. So today, you will hear our main message, which is that we are making good progress towards our 2024 targets. We've had a volatile quarter in the past. And also this year has been a fairly volatile quarter based on the non-sales of new assets and now handing over either. However, we will take time today to talk about the 2 gigawatt of projects we have in sales that gives us the good visibility towards 2024 targets. We see strong fundamentals driving the demand, and this is all kind of giving us the visibility we need to reiterate our ‘24 targets. In addition, we want to comment on that we do have a strong financial position, but we are continuing to prioritize investments and focusing on efficiencies. So OX2 is in the space of the energy transition, which is long term very solid, and the fundamentals we see are strong. But of course, it's not a straight line forward and our business model is being impacted by that as a lot of people have asked questions about this morning about Q1. We have, however, to date, transacted on all technologies we are currently working on. That means onshore, offshore wind, solar and lately, the battery storage project in Southern Sweden, we will talk a bit about. We have a long-standing history. And if you look to our LTM last 12 months numbers, you see we are trading above operating targets, but slightly below our return on capital employed target, which Johan will give some more explanations too. The overall development portfolio is what gives us good visibility into the future. It also -- it also stands fairly stable compared to last year. But there's been good development within the portfolio, and I will take a bit through that. The geographical presence is the same as last quarter. Main bulk of this year will be in our core markets and core products. So we're going to talk a bit about the sales processes now. And as you will see, it's Nordic and Polish wind some PV, but that's the main product mix that we have today with the addition of some Australian assets as well in late-stage sales. So summarizing Q1, we see good demand on the underlying product and also progress in ongoing sales processes. The development portfolio decreased a bit. We're going to talk a bit exactly what caused the decrease, but there was also additions of about 290 megawatts of greenfield plus some 50 megawatt of acquisitions. But of course, the big point today is the sales. No new sales were recorded in Q1. There has been quarters in the past as well with no new sales recorded, but -- this one was the first time we actually came below on returns that is due to fewer milestones were achieved in construction, no handovers, and we have a bigger cost base. We're carrying the platform that will take us below or above the 1.5 gigawatt targets per annum. So we're very much geared and have invested for the platform to start to deliver, and this is what we see is being currently being happening now. Comment on the sales besides the process is technologically wise. We're also seeing a lot of different geographies now contributing to the sales -- we have initiated another large 800-megawatt project sales in Finland, which has caused a lot of attention, and there's a very strong demand. A bit new is that the financial investors are very much back in the game looking very actively into our processes. And in April, we signed an agreement as well for the energy storage project will be developed and constructed in Southern Sweden, which is expected to be handed out over now in Q2. We have started construction of a 100-megawatt project in Poland, backed by a CFD, which is a contract for difference with the Polish state gives us very strong visibility into the financial of that project as well. We intend to see sales complete during the year on that project. And the management portfolio continues to be strong with close to 5 gigawatts of operating assets. Looking through the portfolio distribution, if you lay this next to the last quarter, you will see mid-stage growth on PV and wind onshore. This is a lot what will drive the coming year's sales as well. So you should note that we have about 2.4 gigawatt in late stage, but there's a fairly significant mid-stage portfolio being developed and coming up to late stage. And the PV is, of course, growing a bit faster through these cycles than what wind is doing. Another change was the -- so we see a reduction from 2.5% to 2.4% in the late stage, while that is explained by the 100 megawatts construction start on the Polish PV project. So that is now in construction. The [indiscernible] between Q4 and Q1, mainly consistent, but the changes in existing portfolio. We are balancing the size of projects on a going basis. And here, there's been a total net reduction of some 700 megawatts in addition to the balancing of some onshore in the Nordics, we've also taken out some PV projects in Estonia and also moving some projects back to the developer. So the original developer that we had acquired projects from. So there's a minor change only with some additions as commented upon. Looking through the portfolio highlights. We signed in April energy storage sale. That's the first one we've completed. The construction is now completed, and we're waiting for regulatory approvals for the deal to close, conditional also on approval from the TSO, which means that we should be trading energy on this project during or before end of summer. We have, as we said, a fairly large solar project in Poland in construction, panels have arrived to the site, and it's projects we have been developing for a lot of years. It has grown in size over the time, and we won a CFD in an auction a couple of years back. The expectation of sales is that it's completing in '24. And then we have a large process ongoing, the largest we have had so far, 800 megawatts. Strong demand, as I mentioned, in financial investors and industrial investors the like are looking very much for bigger volumes now and we feel and see that this has really caused global attention from investors. Good demand also for the PPAs on this project, where we see that we are providing very valuable new power production to the market. There's all types of industrial applications, et cetera, that will take use of this new power. And this is a new page. We're adding some flavor to the sales processes. Here you see the geographies, 7 geographies. We currently have active sales in technologies, energy storage, onshore wind, solar, but the majority is onshore wind. And on the bottom to this page, you also see we have laid out the flow chart of how a sales project is running. So basically, we started sales. We distribute and have discussions with the market. And right now, we have 800 megawatts. It's the Finnish portfolio in is early phase. We're expecting that to be bids received very shortly because it has been in sales through the -- most of the last quarter as well. Once we have received bids that we can work on, we placed them in the bucket, bids received, meaning 140 megawatts currently is in that process. And once we have selected a buyer or started due diligence, either known or fully exclusive, we are putting it into the next bucket, which is 890 megawatts now. So out of the full 2 gigawatt portfolio we have in sales. And then, of course, sorry, I forgot 90-megawatt is now signed, including the energy storage project and the 2 projects we've sold in France, but they are waiting for closing different types of regulatory approvals or other types of closing conditions for the project to close. But that means in practice that we are out of the 2 gigawatts, we have bids received on practically 1.2 gigawatt of them, and we're very close to receiving bids on the remaining 800 megawatt. So when we talk about that we have good visibility and good reasons to repeat the guidance for the year. It's based on these ongoing very late-stage discussions. So I hope that gives you a better understanding of how we back up this confirmation that we see ‘24 to be growth in EBIT compared to SEK 23 million. difference is also, as you see, there's no offshore like we had last year. When we sell onshore projects, when we construct onshore projects, and then they do create revenue and profits that we carry on, not just the year we sell it, but also in the following years. But last year, we sold quite a lot of offshore contributing to the EBIT that didn't really carry on into '24. But what we expect now is to see quite a bit of this volume being sold and then carrying on both revenue and EBIT in the coming years. So there's an element of recurring revenue into the way we do sell these projects. Another very important part is, of course, the long-term price forecast. We know that it's not the short-term price forecast. We've been talking a lot about that, that sets the price for our projects, but it's the expectations of the long-term outlook. We've seen updates from most analysts during the last quarter. This is annual updates typically last year. There was a very tough reduction on the long-term expectations. This year, it has come up with some 15% to 20%. This has a direct impact of how most banks and financial institutions are valuing a renewable asset. You can also see that they've reduced the near term, so up to 2027 forecast, expectation on price has come down a lot but that does not impact our projects because we are not producing electricity until 2027 from these projects that we now are taking to sales. So this has a huge impact on the sales processes, and we expect this to drive a lot of future demand as well. Now as we saw last year being fairly low in most markets on new construction starts. The demand is driven long term by increased industrial demand, increased data center demand. And of course, you are all aware of the transition in the transportation space as well as OX2 coming in, utilizing the opportunities in the Nordic grid system, especially where you can actually produce green electrons post 2030, push them into the grid and for that qualify for European green certificates. So there is a lot of positive trends there as well. So I hope that you will see to more than just the last quarter when it comes to an OX2 -- the construction portfolio is, of course, also something that will have a big impact over time. We are dependent on delivering on quality, budget and time, which things are going well. Now we have a bit smaller portfolio to deliver in '24, given that a lot of volume was pushed to 25% by the delay caused by Siemens Gamesa's platform issues. Those turbines are continuing to be constructed as we talk and the development is according to plan on those projects as well. So we reiterate that we have control of the construction portfolio. And quality is being met both on health and safety and also environmental issues in these projects, which is, of course, very important. So I will open up for Johan to come and dig a bit into the financial.

[Johan Rydmark, executive]

Yes. Thanks. Hello, everyone. Yes. Let's dive into some numbers. So like Paul was saying as well, we're off to a bit of a slow start when it comes to new project sales. We didn't complete any new sales in the quarter with the variability that we see in our business model. This is no surprise to us. We had the same start to the year last year as well where we didn't have any new projects being sold. That said, as Paul was also giving some more flavor on, and I hope you also get the same comfort as we are having in terms of that there is significant progress that have been made when it comes to how our sales portfolio has developed. Very happy to see the signing of the first energy storage project in Sweden, Bredhälla, now only awaiting sort of final FDI clearance as well as the final qualification from the Swedish TSO in order for that project to deliver the ancillary services. In addition, we also signed new project sales for solar in France. All of this expected to be closed in Q2 as well as then the 890 megawatts that we have in quite advanced stages, the diligence is being conducted by our customers. Procurement work is progressing as having good customer dialogues and good commercial insights as well to how the 890 megawatts will play out commercially for us. So very much look forward to come back to you and present also the data points on when these projects have been sold. A bit back then to Q1, the numbers that we look at here. Strong gross profit, gross profit or gross margin, I should say, 28%, taking into account that I also tried to explain on a recurring basis on these calls. That, okay, product mix impacts our gross margin quite a bit. So in this Q1 quarter, the sales mix is made up of the bulk construction revenue and then a smaller part TCM sales. On the construction side, the sales margin or gross margin that we typically have there is high single digit to low double digit. And then coming in at 28%, very strong or exceptionally strong gross margins given the sales mix. We had the same sales mix in Q1 last year. And then the natural question is, of course, well, how come you have these strong margins. Well, last year, it was mainly driven by the projects we handed over where we had exceptionally good trial run revenues from these projects with very high electricity prices on the trial runs. In this quarter, the explanation is a bit different. We have been able to renegotiate the payment terms on a project that we have acquired and sold. So the payment consideration for this project, we've been able to renegotiate down depending a bit on the developers' financial situation. So very good work there from our transaction team in Finland, it's a Finnish project. And the other component, which is driving the gross margin in the quarter is foreign exchange impact, which is impacting the result in a positive direction. We are hedging our foreign exchange exposure in the construction projects. We're hedging the net exposure and what that means is sort of the cash flow -- the expected cash flow coming from these projects, the margin, the net margin in the projects. And when there are differences in the inflows and outflows, that can cause quarterly fluctuations in the accounts, which we saw a big positive impact in the quarter that we expect to be reversed over the coming quarter. Operating income, so in a quarter where we didn't post any new project sales, operating income, negative SEK 110 million. So these variabilities on individual quarters will continue to be a theme with the project-based business that we have. So like I've been saying, looking at the longer trends is more important. There, we can see that on an LTM basis, we've sold significant volumes. Paul was also commenting a bit on the sales mix and how that is impacting also our financials. So last year, the bulk of the volume was made up of the 2 partnerships that we did in Sweden and Finland on the offshore side, which is slides are moving here a bit for me partnerships with -- in Sweden and Finland. And then we sold some 300 megawatts of onshore wind and solar. Looking at the near-term sales outlook for this year, a bit more than 1.9 gigawatts that we currently have in sales. The product mix is completely different. Close to 1.2 gigawatt of the sales is onshore wind in the Nordics. And this will have a big impact on how the financials will look for us in the near term. Gross profit wise, last 12 months, strong gross margin, very much a result of the good delivery from the construction portfolio, the good profitability that we've seen from the projects that we've sold. And as said, I very much look forward to also provide some new data points on the good profitability that we see in the existing sales pipeline. So gross profit increased over the last 12 months. Looking at the operating income, down SEK 300 million, very much then driven by the increase in the OpEx driven by the larger project portfolio, the more advanced project portfolio, the increase in development expense as well as the increase in personnel with the ramp-up that we've done over the last year, the acquisition in Australia, the ramp-up in markets like Romania, where we are yet to see the first sales -- the return on capital employed, super important KPI for us in terms of how we prioritize internally, both when it comes to markets and what technologies we want to work with in different markets. Now a bit below our financial target of 25%. Here, it's, of course, one thing being the operating income down and the explanation that I just said why that is the case. The other one that one needs to take into account is, of course, the significant investments, the acquisition in Australia, a bit more than SEK 800 million project portfolio acquisitions of close to SEK 1 billion over the last year where we're yet to see the sales come from that. In addition to that, as you can see, if you look at our balance sheet end of the quarter, we have also now 3 projects that we are constructing on our own books. One project being the storage project in Sweden that we target to hand over here in Q2, then as well the onshore wind project in Italy that we've sold on a forward sale contract as well as the solar project that Paul was commenting on in Poland. Quarterly fluctuations. So Q1 here, no exception. There will continue to be variability on a quarterly basis. Looking near term, we are not providing specific guidance on quarters, given the inherent difficulty in sort of zooming in and promising exactly when new sales will happen. What we are commenting on today is that the transactions that we've signed in Sweden and in France, we expect to close in Q2. The longer sales trends as well as the operating profit development, sales last 12 months, down 2% given were driven by less sales from the construction portfolio, and we're working very hard to ramp that up again and have good belief that, that will be the case also given how the product mix look in our sales portfolio. Finland, biggest market for us in terms of sales followed by Sweden and Poland. Profit development commented a bit on that already, the strong gross margins that we're seeing. And then when it comes to the operating income, it's important to remember how we're treating development expenses also the expansion investments that we've done over the last year and the time lag impact from when these investments is impacting the profits. So very solid financial position, SEK 3 billion in net cash end of quarter. Again, it's the construction portfolio that is the main contribution to the positive cash flow in Q1, close to SEK 300 million, coming very much from advanced payments from customers. When I was summarizing the positive contribution from the construction portfolio over the last 2 quarters, it is now close to SEK 1.8 billion. And I also typically comment on when we -- sort of where we are in -- relating to a more normalized level. And now we're very much on the high side when it comes to negative working capital in the construction portfolio. And this, we should expect to be normalizing in the coming quarters. What else worth commenting here may be the investments in project portfolio, a bit slower than a normal quarter. As you might remember, and as we also reiterate in the report, our target is to deploy around SEK 1 billion in project acquisitions, a bit slower quarter in Q1, just like with the timing of our own project sales, it's also when it comes to new project acquisitions, this varies quite significantly in individual quarters, but very much target to be able to ramp this up with attractive opportunities that we are seeing in our markets. And yes, this is a bit of a snapshot on an LTM basis, how has the project acquisitions been divided. Obviously, the acquisition in Australia last year, significant contribution. But also, as you can see, quite diversified mix, both when it comes to geographies and technologies. Summing up a bit then. We are in a good position. We have a big portfolio of ready to be sold projects, advanced stages, close to 890 megawatts. We have good commercial insight to how these projects look like. Paul was also commenting on some more external factors when it comes to both the customer universe, how that looks a bit stronger interest from what we've seen in the early phase of discussions with the portfolio that we just in beginning of Q1, started marketing in Finland, also positive direction in terms of factors like the long-term electricity outlooks and good reasons for by that is being the case very much the underlying energy transition behind that. Timing of new project sales will continue in terms of variability on individual quarters. Solid platform in place. For sure, there is expansion in different buckets across OX2 in different markets and technology ramp-up. But if you look at the pace on the OpEx development, like we said also and commented on going into this year in Q4, that pace will level out, and you will start seeing leverage on the existing platform that we have. Investments hope to see ramp-up in the activities there with a bit of a slower Q1. And with the portfolio that we have at hand, good outlook for the year and reiterate the growth in operating income for the full year. Paul?

[Paul Stormoen, executive]

Thanks, Johan. So concluding Q1, we've repeated we saw good progress in the ongoing sales processes, initiated large-scale sales in Finland and increased expectations for long-term electricity prices. So what's the rest of the year going to look like? We will start to close sales processes during the coming months and quarters. We are focusing on investment prioritizations and efficiency. We have a bigger body. We can use efficiency measures more now to gain further traction and of course, to continue development processes. We have a lot of projects in mid-stage, but we are advancing to late stage during the year. So exciting year for OX2. We are going to see a lot of activity. And by now, then open up for questions. I think we have to the operator, the opportunity to dial in questions.

[Operator]

[Operator Instructions] the next question comes from Hannah Grimborg from Handelsbanken.

[Hanna Grimborg, analyst]

My first question is, when it comes to your expectations of achieving improved operating income in 2024, that would mean that you expect very strong quarters for the rest of the year. So what you see as the biggest risk that could change that expectation? And how big are these risks?

[Paul Stormoen, executive]

I can start by commenting on Johan can jump in. I would say timing continues to be the risk, exactly which quarter it happens in. We see very strong underlying fundamentals. We have very good visibility into the processes that we are currently running. So it's not like we are out there looking for new investors on all of these 2 gigawatts. Most of them have actually attracted the counterparties that we intend to see throughout the process with. But stating exactly what falls into Q2, Q3 and Q4, I think that's the main risk as I see it.

[Hanna Grimborg, analyst]

All right. And I have one more question. And it's -- you gave some info on the average sales price for onshore wind projects and said that the price levels have come up. Can you just give some details on how you expect this development to look going forward, if you expect it to continue or remain at this level for the coming years?

[Johan Rydmark, executive]

Yes. Good question. So the average sales prices have come up quite significantly, as you can see on those data points. And then we're relating it back to the time of when we listed the business -- around 3 years ago. And yes, we're not sort of speculating in direction going forward. That's more of, okay, where we have been over the last years and back to what Paul was also commenting on the data points and commercial nature that we see in the existing portfolio where a bulk of this volume is in Nordic onshore. And as we write in the report, average being around EUR 1.8 million per megawatt is a good reference point.

[Hanna Grimborg, analyst]

All right. And just my last question. Do you still feel confident in reaching your long-term growth target of 25% in operating income.

[Johan Rydmark, executive]

Short answer is yes. And then it's back to, again, the platform, the portfolio that we have, all the investments that we've done over the last year and that we continue to do as well, we believe us to be in a very good position. And the underlying demand is very much there.

[Operator]

The next question comes from Olly Jeffrey from Deutsche Bank.

[Olly Jeffery, analyst]

Three questions for me. The first is, you've given this indication you give this indication of where the sales processes are in terms of how developed from bids received the due diligence and sales started. Now if you said this during the call, maybe help to reiterate as I missed it, but with the products that you consider to be in the due diligence stage, what is the average length of products from once they're in the due diligence? Could we -- would you expect for those products to complete? I know there'll be variability, but it will be good to have an understanding of that. And also when you go from having products being bids received, how long does it take for them to move to due diligence, just to help kind of give us an understanding that these products are getting closely being signed? And then second, given that you've showed this chart around power price improvement in terms of the long-run power prices that are used by some of your customers, I presume that means that with the pricing that you're seeing that that's in line with gross margins that you've seen last year and that the types of valuations that you hope you might be able to secure are in line with what we've seen previously and that obviously, these aren't coming down. So thoughts on both of those would be great.

[Johan Rydmark, executive]

Yes. So on sort of the sales timing, we're not commenting on sort of specific, how does this look in the due diligence phase and we'll have [indiscernible]. And what we've also been talking about on previous quarters is that, okay, well, over the last year, sales processes have taken a longer time. Some have been going on for sort of 18 months. And then depending on sort of where in these phases, yes, they are -- it varies very much depending a bit on the customer that we have on the other side. But when you have a project in the due diligence phase, then it's not going to go on forever. That's as much of an answer as you get from my side at least.

[Paul Stormoen, executive]

And I can just also just highlight that we have never to date in 20 years of the history started a project sales process that has not completed. So as Johan says, it's a bit hard to say exact timing, but the due diligence phase specifically, it's a quite kind of high activity limited time period.

[Johan Rydmark, executive]

And the other question was -- yes, in terms of profitability --Yes. So yes, I think, again, important when you look at the gross margin that we have posted, it's one thing to take into account is also the product mix, right? So last year, a lot of volumes from offshore and the dynamics, as you know, relating to how that plays out from a gross margin perspective. Therefore, looking at the return on our investments is I think more important on how we sort of steer. But yes, we continue to see good profitability gross margin-wise, also on the onshore and PV volumes that we now have. And I think, yes, very happy to see this type of product mix as well for the near term.

[Operator]

The next question comes from Kaleb Solomon from SEB.

[Kaleb Solomon, analyst]

Just 2 ones for me. You mentioned again that financial vectors have been more active this year. And I know you don't comment on specific timing or anything, but can you tell us anything more generally about what that does to average lead times for projects under ongoing sales? Like how big is the difference?

[Johan Rydmark, executive]

It's difficult to say exactly, but we saw last year and maybe even kind of starting already back in '22 industrials or strategics being more competitive, which led to basically a fairly slow long time processes in '23.‘24, a large part of the ongoing due diligence processes we have with already with financial investors. So we do see activity levels picking up. We do see time lines coming back. So without saying anything, we can just say that we expect that average sales timing will be more limited than what it was end of '23.

[Kaleb Solomon, analyst]

Got it. And just one more from me. Is there anything you can tell us about just how to think or reason about the price valuation of the Bredhälla project you sold in Q2?

[Johan Rydmark, executive]

I think what we guide and say in the quarter, right, is that we expect to close the transaction here following the clearance from FDI and SEK. And then the numbers will be in Q2.

[Operator]

The next question comes from Olof Cederholm from ABG Sundal Collier. Please go ahead.

[Olof Cederholm, analyst]

So just actually have a quick follow-up on Bredhälla as well. Did you -- maybe I didn't hear well on the call. But did you say that you will be getting some revenues from electricity trading there as well before you hand it over in Q2?

[Paul Stormoen, executive]

No. The batteries will not be starting to operate until closing.

[Olof Cederholm, analyst]

Okay. I misheard. And overall, transparency, very good. We haven't talked much about the offshore portfolio. So I just wanted to touch base on that. How is the outlook now for milestone payments in the different projects there. If you could run through them very quickly, just to talk about the individual projects and where you are.

[Paul Stormoen, executive]

Okay. I don't think we will go into every single project this cool off. But we have the Galan the project running up front. We are still waiting very much for the government to release the final permits. We have received permits on the following 2 projects or at least recommendations to receive permits. So I don't know, it's very much up to the government to speed up and support us in putting pressure on the government for that to happen because we're ready to take this to the next stage. There's a lot of interest to follow us on that. So we're a bit puzzled to why nothing is happening on the governmental side and releasing the next stage of these projects.

[Olof Cederholm, analyst]

Understood. And so you don't hear anything back has it to do with NATO membership or anything like that? Or is it just quiet from their side?

[Paul Stormoen, executive]

There's a lot of discussions, but less action to say like that. But there's no reason for this not to be executed and expedited.

[Olof Cederholm, analyst]

Yes. And on long-term electricity prices, you gave us more information about Finland. Is the trend similar in other countries as well, Poland, for example, what's the trend there and maybe also Sweden.

[Paul Stormoen, executive]

Can I get to Sweden, a bit less so in southern parts of Sweden, where there's been less increase, but they came from a higher level as well. But Northern Sweden have definitely seen the exact same trend. The other parts of the world where we're active, have had similar updates. And we can also see that these are reflected in all of the PPA dialogues that we're having that it's a different world than a couple of years back when it comes to PPAs. It's really much they are seeing the same thing that there is a big risk we will be in a squeeze for power supply in a large part of the world. So I think we're sitting on very valuable assets and very valuable competencies, being able to develop these cost competitive assets. But yes, it's a general trend.The next question comes from Eivind Garvik from Carnegie.

[Eivind Garvik, analyst]

Yes. A couple of questions. The first one, I mean, you now have 2 gigawatts in active sales processes. But looking at kind of the stock reaction today and looking at multiples, your company looks very cheap, Consensus is probably a bit too high, but the overall theme is that it seems like the market doesn't believe in your ability to divest this capacity. So what more can you say about progress, time line? When should we think about projects being sold? What are the customers basically waiting for it? Because to me, it feels like the bulk is in their court and not the New York court basically. But can you give any more color on the 2 gigawatts and basically confidence for 2024 and beyond.

[Paul Stormoen, executive]

I think we already opened up more than we have done in the past by double breaking on kind of laying out were about in the processes they are. But I think it's fair to say that no one engages in a costly and very extensive due diligence and as they plan to complete the transaction. And that's where we are. There's nothing new to that these things take a bit of time. If you will come over, we could show you kind of the amount of work is required to go through a due diligence, setting bank processes, nailing the PPA, et cetera. So it's a very high activity level once the project is in that phase as well. So it's not just like it's on their court and they're sitting home thinking about kind of should we do this or not. It's not that type of a dialogue -- it's much more kind of work by we have, I don't know, 10 different type of advisers on each side involved completing the due diligence, checking off that all the land leases are actually valid and in place. But it's just that these are processes that takes time. And at the same time, we're negotiating all of the sub-supplier contracts, which is also in new markets, taking a bit of time. We're about to start construction, for instance, in Romania, where we have a lot of new suppliers and a lot of new jurisdictional issues to kind of come across for both us, the financing bank and the equity investors. So there's a lot of elements like that as well to it, but the intention is to complete these processes as fast as possible because they are also costs consuming I don't think I want to go too much into the details, except for that. But there is high activity levels and good intention of getting these projects closed on price levels that we have agreed upon with our suppliers and with our buyers. So that's why we stand here confident about the year. So I think that we will need to show and demonstrate, I think we've said all we can say and we've said it over the last quarters as well that things take a bit more time. We're not kind of considering the targets to be set too high or that we need to realign with different targets. I don't know, you need to help us as well as the analysts following the company on getting the message out there.

[Johan Rydmark, executive]

But I think there are -- I mean, one thing, again, the quarterly variability, that's inherent. And yes, in the public setting, it is problematic. We love to be here on a quarterly basis and update you. But again, the judgment, and I think that's still the journey -- the educational journey that we, as a listed company, are on and sort of out there advocating trying to explain what is happening in our business and where do we see and how can you not being on the inside, get comfort. And yes, we learn as we go. Now we're providing some more insight to it. I keep coming back to gross margin, looking at sort of the longer trends there. That's sort of the summary of the type of profitability that we've seen and proven in the market with our customers. There, we also -- when we look into the portfolio, the 1.9 gigawatts that we have, to Deutsche Bank's question here earlier, we continue to see good profitability in that as well. We are also a bit frustrated that we also want to get these proof points, the data points out there with the new completion on sales. And yes, for now, we -- yes, you need to be keep posted on that.

[Paul Stormoen, executive]

Yes, I think, you can kind of look to yourself as well, what do you need for us to start putting only the quarterly results on top of your reports on us. That's not really the way you should look at OX2's performance, but it still comes back at every quarter the quarterly EBIT is what's being kind of highlighted. So for us, internally, the quarterly EBIT is not that kind of descriptive of how things are going.

[Eivind Garvik, analyst]

That's landing clear, Paul, in on. And I agree with you. I just wanted to get a bit more color on it. And just one more question, and please arrest me if I'm wrong. Maybe it looks like it has become a bit more challenging to divest these types of projects before they reach commercial operation considering that you're building a bit capacity here and there. Is that the right way to think about it? Or is it purely from a commercial standpoint that you want to do it this way?

[Paul Stormoen, executive]

There is no trend like that, Eivind. You can also see that we've actually divested 2 projects in France before we have completed the supply quotations on it. So we don't -- we can actually choose if we leave the projects as kind of permits as paper and let the customer take it over, I do it our standard way as we do it in the Nordic onshore business and also looking to do in Romania, but also taking it through construction. But then we need to be fairly confident internally on that the financial viability of the project is secured and strong before we take like take this 100-megawatt Polish project that we now took to construction. We have a full -- it's a 15-year for that project backing up very strong financial fundamentals. So we're not seeing that we're taking on additional risk by doing so. So it's case by case, but definitely no trend that it's difficult to sell the products we've been doing for the last 15 years.

[Operator]

The next question comes from Olly Jeffrey from Deutsche Bank.

[Olly Jeffery, analyst]

Just a follow-up on -- one follow-up on one separate question. The guidance that you set this year of wanting to improve the operating income, is that predicated on getting the inter payment for [ Glen ] this year? Or do you think that that target is still achievable even if that process moves into next year? And can you please just clarify that I think what you're waiting for on that is mainly the [indiscernible] appeal? Can you clarify that, please? And then the second question is on the projects you're selling in Finland, when you showed the chart of the change in the long-term power forecast, I think you said that the finished 800 megawatts to COD in 2027. I presume the other products you have to sell of COD obviously, in different years, and it's just that 800-megawatt slug that has COD in 2027.

[Paul Stormoen, executive]

‘27 will be probably the full first full year of operation for all the projects we have in sales right now. It typically takes about 2 years. If we construct, take a project to construction site now, you get probably turbine delivery and of 25, 26 and then full first year of construction will be 27%. So that's not just the 800 megawatts, it's rather more of them. On [ INCA ], I don't think we'll go down into the composition of our own view on what's contributing to the 24% EBIT growth. But you're right that we're waiting for the [ Natural ] 2000, but we're also waiting for the cable permits being released by the government. So -- which is -- yes, can come soon rather than late.

[Johan Rydmark, executive]

And it's still, like we've also said on earlier reports, we expect the second milestone for the Galliane project to happen this year.

[Operator]

There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.

[Paul Stormoen, executive]

We have one question or some questions through the web. Yes. We have one question regarding the split between industrial and financial buyers in the sales processes that are in due diligence. Yes. And I think it's -- in terms of volume, roughly 50-50.

[Operator]

And one question relates to our cash position and whether the Board is considering to initiate the buyback program.

[Johan Rydmark, executive]

No, again, I mean, strong financial position worthwhile again pointing out that part of that strong financial position is also the negative working capital position in the construction portfolio that will normalize, but very happy to see the strong position that we have and the flexibility that we have to also create value like we've now, for example, started the construction on the solar project in Poland and to add to what Paul was saying there. So why are we doing that? Well, again, the return on capital employed that we need to see in the projects across the different markets. And when we see good opportunities for value creation, we can also back it my own financing needs. We're very happy and keen to do so.

[Operator]

Yes. And then I got a question about Energy Systems. Are we seeing an increase in demand? And if so, in what regions?

[Paul Stormoen, executive]

Well, different structures are already showing as expected, first in Australia where they have a bigger intraday or intra-hour volatility on price levels. So there you do see more hybrid systems being demanded. We're developing a fairly large battery project combined with a PV project, which is in sales. It's in due diligence category right now, significant battery combined with PV. Besides that, hybridization of Nordic production is a bit further out with the stand-alone assets being developed. But as we also do get a question on negative pricing in today, those are definitely solutions to those, but we haven't seen the kind of the extent, the impact so far in the Nordic system on negative pricing, which I doubt will be kind of near term, a bit more out given the amount of hydro, we have active as price stabilizers in the Nordic systems.I believe those were all the questions. Thanks a lot for a good discussion, good hour, and please stay tuned 25th of July or Q2, and we will keep you updated throughout the quarters on our high activity level -- thank you.