OX2 AB (publ)

STO:OX2

Earnings Call Transcript 2022-Q2

[Paul Stormoen, executive]

Good morning, everyone, and good summer. Welcome to the Q2 presentation. My name is Paul, and I'm here with Johan. And with that, we kick it off.

We have an agenda similar to what we have gone through in the past. This is our fifth public quarterly report. And we will start with highlights and portfolio updates before Johan takes you through the financial review, market and outlook and then ample time for Q&A in the end. And feel free to send both through the IR web mail and/or the phone, as explained earlier. And Henrik will then support us in the Q&A reading the questions.

So with that, I think we're kicking it off. Following the listing on the main markets during the quarter, we would like to start by welcoming several new shareholders, stocks too. And with that also explaining a bit about the business model itself. We present ourselves as a European leader in renewable energy. We develop and sell wind and solar farms and are active in the energy transition since almost 20 years back. We do not have the operating wind farms on our balance sheet, but we develop them, we sell them and we deliver them to our customers, mainly existing of financial investors, but we also have energy companies and industrial investors in the portfolio of clients.

So as said, solar and onshore wind is the main part of the business as of today, but we have a large and growing pipeline in offshore wind, which we'll talk a bit more about today. And we also have supporting technologies in the portfolio that looks very promising for the future with both hydrogen and battery storage development. So really covering all of the technologies necessary to meet the increasing energy demand coming from electricity across 11 or 10 markets we are active in today.

So let's have a look at just in the last 12 months. We know that development and construction is a bit of a volatile business when it comes to quarter-by-quarter. So we look at last 12 months and see a net sale of SEK 6.1 billion and operating margin during the same period of 13.2%. And strength with this business model is of course that you can deliver and expect a quite high return on capital employed, which we have for the last 12 months booked in at 33.2%. I mentioned that we have been operating in this space since almost 20 years back now, have developed more than any other developer in the renewable space in Europe, 3.5 gigawatts is what we have realized by now, which puts us in a very good position also when it comes to the future development of the energy transition.

We have invested heavily in the development portfolio and the organization driving the development portfolio over the last years. And it now stands, as you see in the center of the screen, at 24 gigawatts. Main part of the portfolio is still centered around Sweden. We have a large portfolio in Finland and Poland as well. And we see a growing presence in our new markets, Southern Europe with Greece, Italy, France, Romania and the latest addition during the quarter was Estonia.

Technologies on the mid-center part of the lower center part of the screen is shown as half of the portfolio in terms of megawatt or gigawatt is centered around offshore development, very exciting part of the future energy system in Europe. And then we have a growing part, which is solar, and that stands at about 2.8 gigawatt by now. So it's a very growing part and we already see a very positive EBIT contribution from the solar part. Headquartered in Stockholm, where we are also located today, but present everywhere all the way down to Seville and Italy in Southern Europe, all the way up to Northern Finland. So we really cover most of the interesting markets in Europe already by now.

Looking at the next page, we can close the second quarter of 2022 confirming that we had a very strong demand on the product side and we had very strong operational performance. Johan will describe exactly how those 2 parameters were translated into numbers a bit later on. But looking a bit on the operational side here, continued progress in the development portfolio, standing at almost 24 gigawatts by now. We see a strong need to start new greenfield projects and we have done so in Sweden and Finland over the period, 650 megawatts of new projects started.

We have also signed a development agreement in Estonia, but that is not added to the portfolio just yet. But very excitingly also on the offshore side, we completed the most extensive of the permits to the Aurora offshore sites. It's a 5.5 gigawatt offshore site between Oland and Gotland outside of Sweden, and that was completed and submitted during the period. So a big milestone there, but there is one permit remaining for the project to move to the mid-phase of our portfolio.

Looking a bit at the sales traction, we sold 2 projects. One very strong project in Poland called Wysoka, 63 megawatt onshore wind. It's a project we bought fairly recently and have been able to optimize it and develop it into a very valuable asset that contributed quite significantly to the Q2 results. We're also very happy to see the solar team completing our first solar project. It's a project also in Poland called Recz. That was also sold during the period. Both these projects result to Ingka Investments. That is the largest part of the largest franchiser of IKEA stores and the customer we have worked with all back since 2010. So it's a long-term standing relationship that we continue to build on.

Also contributing to the numbers during the quarter has been the construction portfolio. We have had more than 12 projects in construction and handed over 2 of them. So we ended the quarter handed over Andberg, which was a large project now in operation in SE2 in Sweden. And we have handed over projects in Finland called Korkeakangas, also an onshore wind project. And those projects has of course then been able to release contingencies and contribute to the results over the last quarter.

Other significant events. I mentioned that we are now trading at the main market in Stockholm on the large cap segment and have seen a good inflow of interest following that uplisting. But -- and we have also signed a strong large contract managing a 253 megawatt project in Northern Sweden on behalf of EIB. Also mentioned in the report is the acquisition of the 30 megawatt wind late-stage project in Italy that happened after the period ended.

Looking a bit on the value chain and our 28 gigawatt portfolio, both in development, construction and in operation. The project remains fairly stable compared to Q1. We have seen additions to the early stage pipeline and this is much to a large extent because there is a long-term big need for larger sites. And I will come a bit back to one of the examples of a project that has been added to the early-stage phase.

We also have handed over, as you see in these numbers, about 300 megawatts. That's why the construction portfolio has been reduced a bit from 1.4% to 1.1. And we have added a new project with an external party explaining the increase in the TCM portfolio to 3.5 gigawatt as well. But besides that, there has been a stable development of the portfolio within these different phases.

If you look at the more breakdown of the portfolio, you can start by looking at Q1 '22 where we ended at 23.4 gigawatts. We have sold about 100 or 92 megawatts during the period. We have also changed the volume to some projects, which has resulted in a slightly decrease in the volume of the portfolio with about 100 megawatts. And then we have these additions coming mainly this period from greenfield. We have had a very high activity also on the acquisitions, but this quarter, we did not complete many acquisitions, but the first half of the year is still very much on track when it comes to acquisition of projects.

And I have already discussed the portfolio split as it's done. So I'll bring you through a couple of examples of projects. I mentioned that we are now present in Estonia where we have operations through a partner, now developing about 500 megawatt of onshore wind, but yet to be included in the portfolio and this is a very cost-efficient and efficient way of expanding the business to new markets for OX2.

We also see Grubban coming through as a very good example of how local development teams are able to make big impact. This is a project in Sweden, SE2, Harjedalen municipality, where we got full support for a large onshore development. This is coming in a period of time where a lot of projects are being kind of turned down by local municipalities. But we here show proof that it is possible to work actively with local communities in order to gain positive feedback from the municipality boards. And the application is expected to be filed -- was filed earlier this year.

Then we come back to the 2 Polish sales projects for the quarter, 63 megawatts Wysoka and 29 megawatt Recz, Recz being the first solar project sold by OX2. Very great proof of concept and good profitability on both these projects. Ingka Investments, as I said, being a very long-standing client. And we have done our operating also quite a few of their assets that we have not sold and developed for them.

We're moving a bit, continue on the Polish success story for OX2. Given that we are a quite expanding company, still we want to demonstrate that we have the expansion capacity. And there are quite a few proof of concepts, Poland being one of them, where we established OX2 according to our strategy of becoming a Pan-European renewable player back in 2019, much based on the attractive case for renewables already back then. There was a high share of cost sales. It was quite complex market back then as well. And we have been able to make a very strong impact in Poland.

Since 2019, we have sold and constructed 7 projects, almost 250 megawatts by now, and built a very strong team of 60-plus people, developing 1,500 megawatts in the portfolio. So it's a very strong presence we have been able to establish in just under 3 years. And this is also the methodology we are going into Italy with, Spain, Greece and Romania. So I think there is great kind of learnings we have made from our previous expansions that we are applying. And we do not expect kind of these new expansions to be a cost burden on the EBIT for an extended period, but we have a quite kind of short sight until when the countries should become positive on the EBIT contributions. So that is a bit on Poland, and we also see the Polish market following the Ukraine, war being even more focused on speeding up the energy transition.

Looking a bit before I hand over to Johan at the construction portfolio. We have 12 projects at the end of Q2 in construction. Most or all actually in onshore wind. We have 3 projects in Sweden. We have 4 projects in Finland and 5 projects in Poland. And we have a very well established progress and framework to manage the cost in these projects. There is a lot of writing about cost increases and inflation, but the way we work with project is that at the time of construction start, we lock in the contracts and are not either -- not exposed to increases or inflation during this period. So we can with kind of positive outlook see that these projects will be handed over during 2022 at solid numbers as well. 171 megawatts left to be handed over during the year.

So I think with that, Johan?

[Johan Rydmark, executive]

Thank you, Paul. Let's look at some numbers here. And yes, it's been a very fun quarter, Q2, I must say. We have seen good performance across many parts of our business, which all in all is contributing also to the strong figures that we have in Q2. The main driver obviously to our performance from a financial perspective this quarter is the 2 projects that we sold in Poland, the Wysoka wind farm as well as the Recz solar farm. And very happy to see IKEA, Ingka coming back and trusting us also with our first solar project. And we've had for both those 2 projects very strong interest demand. And that is also impacting the margin that we see from these projects. When it comes to the solar project, this project is not something that we will construct ourselves. So the full revenue and margin impact from Recz is showing up in our Q2 figures.

Also for us, we touched upon this in earlier calls as well, our quarterly performance, especially when looking at our sales and operating income, it's not a linear development. That's important to bear in mind when looking at very strong quarters like Q2. However, when looking at the longer trends and looking at the LTM figures here, I think it's very comforting to see that basically all KPIs here on an LTM level as well are pointing in the right direction. We've sold 767 megawatts during the last 12 months to gross profit and especially to gross margin, very strong at 26%. I'll come back a bit more on this gross profit and gross margin development on later slides. And this is also what is driving our strong operating income.

On the acquisition side, Paul commented a bit on this, we didn't conclude many new acquisitions in the quarter. We're a bit shy of the SEK 600 million plus in capital that we want to deploy in project acquisitions, but we have a very strong project acquisition pipeline. So we envision that this figure will increase in the coming quarters. And we also had a very strong Q1 with acquiring. I think there was 1.3 gigawatts in Q1. So it will also fluctuate a bit between quarters. But the promising outlook was on the acquisition side.

Moving on and looking a bit on our net sales to operating income bridge here. The one figure that stands out here very much to strong gross profit and gross margin. Now we're looking at the last 12 months. So really what this is a result of is the combined impact that we've seen from the 767 megawatts that we have sold at attractive margins for us as well as a good performance in our construction business and efficient delivery in our asset management. And to me, this is also an acknowledgment of the strong business model that we have, that we've been able to coup with the inflationary pressure, the increase in material prices that we've seen during this period and really a strong position in the value chain.

Moving on, looking at the operating costs here. Here, we continue to undertake the planned growth investments in growing our development capabilities as well as organizational capabilities to deliver on our medium-term targets and gearing up to be able to handle that kind of volume and project development as well as in sales and construction. So very much on track there as well. And I think we have guided on that on previous earnings calls as well as well as in our report that we see that the level in absolute terms on the development of personnel costs will basically double this year compared to what we had in 2020 and we're on track for that as well.

Moving on to the next slide. Here, we're illustrating a bit the fluctuations that we've seen between quarters. And here, you can see as well the strong operating income and margin in Q2 comes out very strong, but also in a historical perspective, when we have sold a lot of new projects, we've seen the same kind of performance before as well. And in this quarter as well, the 2 projects that we handed over, the sizable Andberg project in Sweden as well as Korkeakangas in Finland is also contributing to the operating income and even more so to the net sales development.

Here, we're looking at the longer trend, the growth trend in net sales and operating income. What we see is driving our net sales development, very much comprised of the growth in new sales. 767 megawatts last 12 months as well as then having a larger construction portfolio that we're now delivering on and executing on as well as a sizable growth in the asset management business, where we've grown that part of the business with roughly 1 gigawatt during the last 12 months.

On the profit development side, 26% gross margin, very much the main driver for our operating income. You can also see when looking at the operating income and the spread here that we have when we take out the development expenses that you can see that we -- even though we have a strong operating margin of 13% reported, that is still very much impacted by the growth investments that we are undertaking.

In terms of guidance for gross margin, I'm sure that we have a lot of analysts that are interested in this. We've said before that we envision our gross margin for the full year 2022 to end up in the range of what we saw in 2020 and 2021. Now with the strong performance in Q2, we see that our guidance is that we will end up in the higher part of that range.

Very comforting to see our solid financial position, SEK 3.2 billion of cash sitting on our balance sheet end of the quarter. The main drivers in the quarter being a strong contribution from our working capital. Again, this is illustrating what we've talked about before as well that we are able to execute our construction projects in a very capital-efficient manner where we are not tying up capital, but rather operating with a negative working capital during the construction phase.

Now end of Q2, we had negative working capital in the construction part of our business of 18%. This is on sort of the higher negative working capital level that we typically see. I think we've said that historically, we've been in the range of 0% to 20%, now minus 18% being on the higher end of that range. So one shouldn't expect the same kind of contribution from the working capital in the coming quarters, but very good position to be in. We're able to act on the opportunities that we see. We have a strong acquisition pipeline as well as other opportunities that we're looking at as well.

And the next slide touches a bit upon exactly the project acquisitions. We, for sure, have a very high activity in this field than in terms of how many acquisitions we were able to conclude in Q2. It was a low number, but we see that, that figure will pick up in the coming quarters and we still target to be able to deploy the SEK 600 million plus that we had as a target for this year. Also comforting spread in the acquisitions that we've been able to do across geographies and division between technologies as well where we have a quite sizable solar portfolio that we have acquired the last 12 months. And here, we also see a bit shorter development cycle on these projects.

And in terms of financial targets, we're well on track now having sold 269 megawatts so far this year to deliver on the 500 megawatt plus for the full year 2022 as well as gearing up for the 1,500 megawatt on average per year in '23, '24 based on both continuing with project acquisitions as well as a late-stage portfolio now of 2.2 gigawatt and a sizable mid-portfolio with quite a lot of -- I think we have some 1.1 gigawatt of solar in the mid-stage where we see a shorter development cycle. But we're very much focusing on operationally to gear up to the medium term in terms of what we're doing in the organization as well as on the development side, and well on track to gear up for the medium term there as well. And our operating margin, the 10% still stands. But of course, comforting to see the strong performance that we have already now with 13%, which is still impacted by the growth investments that we're undertaking.

And with that, handing it back a bit to you, Paul, on the market and outlook.

[Paul Stormoen, executive]

Thanks, Johan. So looking at the market outlook, very much what is driving the strong demand. What we have now is the conclusion of the energy transformation. We're starting to kind of see the end picture of how the energy system in Europe is going to look like. And it's very much a consensus that this will be a renewable system and OX2 is well positioned to drive this transition and capitalize on the new energy system across Europe.

We have still but limited impact from the global supply chain challenges, but both our suppliers and OX2 and our clients I think have found new ways to work in this climate that we may consider to be the new normal. And still the focus for OX2, I mentioned it in the beginning, big need for new permits in order to supply all of the new consumption of electricity that is expected to come in over the coming 10 and 20 years, which is why OX2 is now focusing quite a lot on establishing new greenfield projects in the markets where we are active in.

So I think that's a bit of a response to the market outlook. Before we head over to Q&A, concluding Q2 on strong traction on the sales side, very much driven by higher valuations coming from higher electricity prices long-term and as well as high interest from our clients. And of course, we can also be very happy with the projects we have in the portfolio. They have a high quality which we were able to prove now during the quarter.

Continued progress in development, exciting to see how the traction on the offshore is going as well as what Johan also said, the growing PV or solar pipeline contributing quite a lot in the coming years to sales. Strong net sales and operating profit, we have discussed based on both sales and the performance in the construction part of the business. So remaining year, we have some 177 megawatt of projects to deliver through our construction, which are looking good.

We have continued to focus on both acquisition and greenfield ways of growing the portfolio. We have good tractions in the acquisitions and also being a main part of the geographical expansion. So we will continue with the strategy we have communicated creating this European -- stronger European footprint. And we will continue to establish OX2 in the markets where we find good opportunities in near-term.

Our targets for the full year 2022 remain unchanged. And as Johan said as well, we are still in an expansion phase. So we are recruiting quite a lot. We're still increasing the development costs. This in order to reach the 20 -- the post '24 target, which we call mid-term targets. And the '23, '24 targets is kind of, as described, more to a larger extent, covered by the portfolio already at hand.

So I think that's ended -- ending the presentation. And we have now set aside time for Q&A. And maybe there has come some questions through the channel should we start with basically back to the conference here.

[Henrik Vikström, executive]

[Operator Instructions] The first question comes from Oskar Lindstrom, Senior Analyst at Danske Bank.

[Oskar Lindström, analyst]

Good morning, Paul and Johan. A couple of questions from me. I mean, the first one, I'm looking at your Note 2 in the financial setup there and it talks about half of your sales in the quarter came from this -- from Poland. I presume it's the 2 projects that you sold in Poland. Could you say how much of your Q2 earnings, gross profit or EBIT, was driven by this and were sort of gross margins more normal in the other geographies?

And then a follow-up on this topic is, is this a type of sales model where you sort of divest the entire project and book the earnings immediately? Is this something that you could consider doing more of in the future? So that was my first question. Maybe you -- do you want me to go ahead with another question?

[Paul Stormoen, executive]

We can take it here and then you can -- so if you start.

[Johan Rydmark, executive]

Yes, our memory is short. Good question. In terms of the Polish contribution, in addition to the 2 projects that we sold in Poland, we have a construction portfolio as well that is also contributing to the sales and gross margin. We don't go into sort of exact numbers how much is coming from these 2 projects that we've sold. But the main part of the Polish revenue and margin contribution is coming from the Wysoka and the Recz project. And again, just highlighting that again, when it comes -- getting a bit of an echo. When it comes to the solar project, Recz, we're not handling the construction there so that full revenue from that part is recognized in the quarter.

[Paul Stormoen, executive]

And maybe I can talk a bit about the sales models. We see kind of 2 variations here in what we sold in the quarter. We saw Wysoka being sold very much as what we have done over the last 10 years where we sell a kind of an operating asset, we take the construction through OX2 and deliver to the client operating assets. And we also saw the sales of the solar project Recz at 29 megawatts where we sold the asset as is and where Ingka will be responsible for the construction of it.

This is kind of -- we are value optimizing for OX2. In this case, we found it to be exactly that, value optimizing to leave the construction to Ingka. But I think this will differ a bit over the technologies that we are developing. I mentioned that we are developing both onshore, offshore and solar as well as hydrogen and battery storage projects. So we are very happy to see that we can kind of have that flexibility of optimizing when to create and book value from the development part of the development technologies.

So we do not -- we have not kind of historically either been religious, but for the last 10 years, we have seen building the organization based on competencies to deliver operating wind farms have been kind of a quite strong backbone of the company and not leaving too much kind of room for variation on that sales side. But on this specific project, it was value optimizing for us.

So you can continue with your...

[Oskar Lindström, analyst]

Yes, maybe if I could just follow-up on that. I mean, so this type of where you sell the assets without constructing it, is that something you could see yourselves doing more of in the future, especially as solar and offshore become a larger part of what you sell?

[Paul Stormoen, executive]

Both, yes and no. I think still that what we have ahead of us is going to be our main product, the wind onshore being sold as operating assets and there are different variations to exactly what that looks like as well. But yes, there will be some sales from time to time, but not kind of a growing part of the business selling as we did on Recz.

[Oskar Lindström, analyst]

If I could maybe just ask my final question. You mentioned in the -- in your opening remarks, I think anyway that you would talk a little bit more about next steps in the offshore wind portfolio development. Maybe I missed it, but what are the next steps in the offshore wind portfolio development?

[Paul Stormoen, executive]

Next step is to -- yes, sorry, that I moved a bit quick over that in the portfolio, so well caught. On the offshore, we have gained very good traction. We participated with a delegation out on this political week, Almedalen. And so that's the whole political agreement in Sweden is to support a build-out of the offshore sector in Sweden. So very strong. We came back from that week with very strong confidence that we have the support of all of the decision-makers in that they want to tap into that resource in Sweden, which we are very positive about. They have now 3 projects from us on their desk. These 2 that is in mid-stage and now also Aurora which is the most significant part of that first batch of projects in Sweden, offshore coming through mid-stage now very, very shortly as well as we finalized the last permit in the coming weeks and months.

So I think focus for now is in Sweden to develop these projects, focus on getting them through in the permitting phase. We're investing quite heavily in Finland as well on both our own portfolios and expanding that portfolio. And we have a very well established framework in Oland as well. So hoping to see that development moving forward. We had good contribution from the Government at Oland also during summer, a lot of development there. So I think next step is to increase investments in offshore because of the value we see this portfolio actually has now.

[Henrik Vikström, executive]

Our next question comes from Olof Cederholm, Equity Research Analyst at ABG.

[Olof Cederholm, analyst]

A couple of questions from my side. It was obviously an excellent quarter in almost all respects, apart maybe from the acquisition pace of projects. So maybe a bit unfair, but I will ask about that. What is holding you back? Is it just temporary? You say you have a good acquisition pipeline, but are there anything holding you back here that we should worry about?

[Paul Stormoen, executive]

I can take that. No, there's nothing holding us back. As Johan said, we have the capital on hand to conclude on the processes we are currently involved in. But we rather don't want to jump to signing on contracts just to not get that question from you on these type of calls. We are not concerned whatsoever about acquisition pace. We did more than 1,300 megawatts during first half. And the quality is what we focus on and the prospects of not overbuying and overpaying is much more important. We're kind of very confident looking forward to the coming quarters on continuing acquisitions. So no alarm internally based on this.

[Johan Rydmark, executive]

I'd say that the acquisition pace internally is about -- it's the same as we've seen in previous quarters and then it's a bit on the timing as well. We announced that after the quarter ended, we concluded on a late-stage project in Italy, our first sort of onshore wind there, a very promising project. We have high hopes on that. So yes, it looks good.

[Olof Cederholm, analyst]

And Johan, when you talked about the project acquisition pipeline before you said that you have a good pipeline and you have some other opportunities as well. And then I'm wondering what those other opportunities can be that could require investments, but are outside of project acquisitions?

[Johan Rydmark, executive]

Well, a quarter maybe vaguely formulated by me, you should never be vague. No, it's -- in this climate, it's -- whether it's project acquisitions or smaller developers with small portfolios, I think it's those kind of opportunities that we're able to act on if the right situation occurs.

[Olof Cederholm, analyst]

And then my last question is about the cash position then. You have SEK 3.2 billion at the moment, which is clearly better than at least I had expected. Is that necessary to carry out your plans? Is there a potential that the company could start handing out dividends maybe sooner than expected?

[Johan Rydmark, executive]

I think when looking at our cash balance, it's important to bear in mind that we have fluctuations. We had a very strong contribution from the working capital, now quite a high negative construction working capital that will normalize over time. So that's one component. And then for sure, we see that from our board and owners as well, if we see that we are not able to deploy the capital, we will -- and that's also linked to how we're geared to operate, focusing very much on the return on capital and return on capital employed, we will, for sure, not be sitting on that cash. But for the moment, we see that there are opportunities out there for us to deploy the capital. But we don't need to operate with a positive cash balance over time, that's for sure.

[Olof Cederholm, analyst]

And sorry for kicking up your time, I have one more, I realized. Can you talk a little bit about the opportunities that you see in hydrogen and battery storage? You mentioned it a couple of times and it would just be interesting to see.

[Johan Rydmark, executive]

No, absolutely. These are 2 parts of what we may kind of define as enabling technologies in the energy transformation. So you have production and you have more kind of enabling light grid like hydrogen, which is long-term storage and then short-term storage and frequency response in battery. So our first battery project is kind of ready to go fairly soon. We see that already now you can kind of get profitability in supporting the grid operators by building large-scale battery in Sweden. And this will also become more of a permit enabler in several countries. So we have both Spain, we have Poland, Italy, all in dialogue with the DSOs, that grid operators where they kind of can prioritize assets, which also can contribute with other services to the grid. So that is one part, a quite significant part actually of our product development and engineering team working on the battery storage.

We also have quite a few already actually announced projects in hydrogen's cooperation with different companies in Sweden. You have out on Gotland, some developments now on with cement and on concrete development. So I think that comes more as a natural enabler, a take out order. This 5.5 gigawatt offshore sites will produce a massive amount of electricity. Parts of that electricity will be translated into hydrogen and piped probably into the industries onshore as kind of enabling solution to access all of the energy produced and while not still congesting the grid.

So I think we see it not as that we are a hydrogen developer, but hydrogen is an enabler for us. And that's not -- that's also why we don't talk about it that much in the portfolio. But it is all kind of if you take a look at the first battery project, which is permitted and in kind of in late realization phase now. This is -- we will not kind of do it with a negative EBIT contribution. It will be very positive. And that's kind of the main proof makers for OX2 on the technology side that we don't do kind of product development unless we can see profitability within near-term of it. So I think that's all I can say on hydrogen and battery for now, but consider it as enabling technologies that will be profitable for OX2.

[Henrik Vikström, executive]

Our next question comes from Eivind Garvik, Equity Research at Carnegie.

[Eivind Garvik, analyst]

Congrats on a great quarter. A lot of questions have already been answered, but I want to circle back a bit on the Recz solar project in Poland and why you choose to kind of do this sales model on this project? And is that a question about the risk you're not necessarily willing to take on that project right now?

[Paul Stormoen, executive]

It's quite simple, I think, Eivind. On Recz, it was a 29 megawatts, which is a fairly small project in terms of being able to capture the best possible supply chain costs. It's a bit of a different fundamental in solar. What we had as an option was basically to wait a bit and bundle it with a larger project in order to get up the volumes so we could get maximum CapEx efficiency. So we had kind of a bit of a different choice. So we wanted to do it standalone on a good valuation as a classical operating sales. But we decided that this is proof of concept enough.

We have delivered the project completely kind of wrapped and ready to start construction. But we could not really see that it was value optimizing for us to add the construction risk as well. So we have the option, but in this case, we chose to basically take the sales as that part. But as I also said this is not necessarily the sales model. We will aim to do a bit bigger project with a bit bigger volume. And then I think the value will be kind of more obvious to deliver as operating solid forms.

[Eivind Garvik, analyst]

And then -- yes, and just talking a bit about kind of gross margin guidance. You're now saying higher, in the higher part of the range. And I get a feeling that that's maybe a bit conservative or just means that kind of margins for H2 will be significantly lower than what we've seen for the first 6 months here?

[Johan Rydmark, executive]

Eivind, we aim to over-deliver. But no, that is the guidance that we will be in the higher part of that range. What we see is that we have projects that we have under realization for the second half, a very strong demand for those projects as well. And then where we end up in the end in terms of valuation and margins will -- we will need to see. And one should bear in mind as well that the valuation and the individual dynamics in each project differs. In Wysoka we had very good wind conditions and basically all fundamentals being very strong. And over the portfolio it of course differs. But yes, so that's why we stick to that guidance.

[Eivind Garvik, analyst]

And one final question and that's just me being a bit curious. But Paul, you said something about projects being turned down a lot by municipalities in Sweden. And what's the main reason for that? Is that kind of going constraints or is there any other factors that affects...

[Paul Stormoen, executive]

No, it's -- I was referring to what is being written quite a lot about the media, about the municipal digital rights existing in Sweden as a quite unique feature actually in European context and that this has been used to a quite large extent over the last couple of years by Swedish municipalities, but it's not anything new. It's rather on the other side. What is new is that we are finding quite good ways to cooperate with municipalities and locals so that we can get acceptance for the projects.

[Henrik Vikström, executive]

There are no additional questions at this time from the telephone line. I will hand over to the speakers. Thank you.

[Paul Stormoen, executive]

Okay, thanks. No questions has either come through e-mail. So I think by that, we're concluding this call. Wishing everyone that has participated, a nice rest of the summer and a good weekend on your context.