Earnings call transcript: Hexicon AB highlights potential revenue in Q1 2025

Hexicon AB’s recent earnings call focused on its strategic project developments and potential revenue streams rather than specific financial results. The company reported a €2.5 million upfront payment from the sale of an Italian project, with possible additional milestone payments totaling €20 million. Hexicon’s stock saw a 5.13% increase, reflecting investor optimism about future growth and technology advancements.

Key Takeaways

• Hexicon received a €2.5 million payment for an Italian project, with potential for more.
• The Twin Hub floating wind technology continues to progress with successful performance verification.
• The floating offshore wind market is expected to recover gradually from its current low point.

Company Performance

Hexicon AB is concentrating on its project portfolio, emphasizing potential future earnings from project divestments and milestone payments. The company’s strategic focus includes advancing its Twin Hub technology and exploring commercialization routes. Despite challenges in Sweden and Korea, Hexicon maintains a strong presence in the floating wind sector.

Financial Highlights

• Upfront payment: €2.5 million for the Italian project.
• Potential milestone payments: Up to €20 million.

- Project portfolio adjustments due to government rejections in Sweden and Korea.

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Market Reaction

Hexicon’s stock price increased by 5.13%, reflecting positive investor sentiment towards the company’s strategic focus on project development and technology advancement. This rise is notable within the context of its 52-week range, suggesting renewed investor interest.

Outlook & Guidance

Hexicon is optimistic about the floating wind market’s gradual recovery and is focusing on project divestment and financing alternatives. The company anticipates milestone payments from its Italian projects and potential political shifts supporting renewable energy in South Korea. Financial metrics from InvestingPro show the company maintains a current ratio of 1.39, though it operates with a high total debt to capital ratio of 0.9. These metrics underscore the importance of successful project execution and milestone achievement for the company’s financial stability.

Executive Commentary

Markus Thor, CEO of Hexicon, emphasized the company’s focus on divesting projects as a core revenue strategy, stating, "Our core revenue generating capacity lies in divesting projects." He also noted the market’s cyclical nature, saying, "We are seeing a bottom of the market. We are seeing things moving back up."

Risks and Challenges

• Government rejections impacting project portfolio in Sweden and Korea.
• Current market cycle at a low point, affecting investor confidence.
• The need for successful commercialization of new technology.

Hexicon remains committed to its strategic initiatives, aiming to leverage its technological leadership and project portfolio to capitalize on future market opportunities.

Full transcript - Hexicon AB (HEXI) Q1 2025:

Conference Moderator: Welcome to the Hexagon Q1 twenty twenty five Report Presentation. For the entire time of the presentation, participants will be in listen only mode. Now I will hand the conference over to the CEO, Markus Thor. Please go ahead.

Markus Thor, CEO, Hexagon: Good morning, everyone, and welcome to this presentation. My name is Markus Thor. I’m the CEO of Hexagon, and I want to spend around twenty minutes here for some questions to address some of the key events and developments in our market being floating offshore wind as well as our operations at Hexagon. And let me just check with the controller here. I don’t see a presentation on my screen.

Here we see something loading. There we are. Apologies for that. Now to it. So as part of the agenda, I will provide an update on where the market is going, some trends.

Obviously, some significant events during the quarter, and also touch base on some of our key projects and the technology before wrapping up with a look ahead and priorities going forward. So with that said, perhaps as a reminder to a lot of you, but just wanted to to provide a glimpse of where the evolution of offshore wind is and the particularly floating wind. And why I’m doing this is to just get a feel for how mature floating offshore wind is compared to traditional bottom fixed offshore wind and also onshore wind. So this is an evolution and developments that have gone from onshore to offshore bottom fixed in shallow waters deeper and deeper, and now we’re at this shift from bottom fixed into floating. And it’s really driven by a a need to harness wind power in more areas than are available in in bottom fixed sites.

With that said, there has been a few years now of a market downturn and delays in the development of floating offshore wind. So if you look at the status of it today, there are somewhere over 13,000 turbines on the seabed, so bottom fixed around the world, only around 50 on bottom fixed sorry, on floating foundations. So it is a still a big difference in the maturity of these two technology types. With that said, this is what we’re looking to see now in the next few years, our commercial wind farms on floating foundations. And that leads me to this next slide, which I think says a lot.

So if we go back and look at the evolution of floating offshore wind, the first ever turbine, full scale turbine of floating foundation was installed in Norway in 02/2009. This is the same year as Hexagon’s founded. And then you had somewhere ten years of really favorable market conditions, low interest rates, etcetera. There was a clear hype and drive for cleantech. You had some some really high valuations of clean tech renewable projects.

Floating wins expectations were extremely high. Somewhere around end twenty twenty, early ’20 ’1, you had that peak. This coincides more or less with Hexagon’s IPO as well. And since then, for a lot of reasons, COVID inflation, you know, rising interest rates, a war, etcetera, this really turned down. To a place where we are today, in in our view, we see that we are at what we believe is the bottom.

The difficulty is determining or judging the pace of or how fast the market will come back up. What we also do see is that I think there’s a a more robust realism built into the expectations and valuations of projects today. So I think we will over the next few years, as floating projects are being built on commercial scale, which we will see happening now over the next few years, that will gradually improve. Again, how quickly this will happen is very hard to say, but we are seeing a bottom of the market. We are seeing things moving back up, political initiatives.

We are seeing some or expect some increase in transactions over the next few years and then slowly onwards to a real commercial state of this industry. A few things that that have happened here, I I mentioned that we are seeing signs of of recovery. I’ll give a few examples, which are not, you know, transactions as such, but I think clear signs that improve the industry and that leads to transactions in the next few years. So the first one is the fur last year, we saw almost two gigawatts of commercial projects on floating wind being auctioned in OECD countries. Those are last year spread across The UK, France, and South Korea.

We’re also seeing some political initiatives in various countries. The UK, as an example, that are looking to not reach their near term renewable targets are therefore boosting their regulatory framework for floating offshore wind and offshore wind in general. So The UK as an example, we are hearing now discussions around improving the CFD scheme over there, potentially the length of the the revenue scheme being CFD that you might get in The UK. So there are initiatives that push forward even in this market where we haven’t clearly seen delays in the last few years to make sure that we can catch up in the next few years. Again, and I mentioned this before, I think that over time, so long term forecast, they are not so changed.

They look more or less the same as they did three, four, five years ago, but we are definitely seeing and we have witnessed a delay in the deployment of commercial scale floating wind in the last few years. Back to ourselves and the quarter. As always, a busy quarter, but I do wanna highlight two big events during the quarter. The first one is in January when our project, Mareld, that is held by our joint venture, Frey Offshore, that takes on runs together with mainstream renewable power, received this Natura 2,000 permit from the county administrative board. This is a project of summer ’2 ’2 and a half gigawatt that is planned off the West Coast Of Sweden.

With that in place, it was just a matter of receiving the final permit from the government. At the end of the quarter, so this is March, Hexagon signed a sale and purchase agreement with Inke Investment and Oxon Energy to sell our stake, which we held a 50% stake of two Italian projects. And this I’ll I’ll come back to this as a bit of a detail to to go through some of the details of the transaction. That was signed at the end of the quarter, and transaction was closed just in the first few days after the quarter, so in April. And if you look at the project portfolio today, it’s very much still a decent sized portfolio.

There is if we compare this to the same period last year, there is a decrease in the capacity stemming from two things. One is what happened in early November in Sweden where a on all, I should say, which was 13 projects in the Baltic Sea that were in the application phase were rejected by the government arguing for military reasons. And the other is the infantile decision to cancel two projects, very early stage projects in Korea called Pohang One And Two. So these two reasons reflect a decrease in the capacity from last year same period and this period. With that said, and especially comparing to to Hexagon and and the the size of Hexagon, this is very much a a sizable portfolio still that requires a lot of our resources to develop, push forward onto next milestones.

Looking quickly at South Korea, which remains a you know, our most mature large scale commercial project, one that as of last year, went through quite a lot of changes as oil major Shell pulled out of the industry more or less, a top management decision that led to us finding the ways to take over this whole project, went through a regulatory change and control process as well. So that took a lot of efforts last year. It’s finally concluded at the end of the year. And we were about to, at that time then, go forward and divest that project and find new partners for it. At that time, there was an imposition of martial law, and subsequently political turmoil in the country led to impeachment in April.

All this have caused delay in that process. We’re continuing to push forward on the project itself. We still very much believe in the project. We very much believe in the market. The process of finding new partners, investors into this, that has really suffered delays because of this.

And just to give you two examples, we’ve we’ve been talking to a a lot of potential partners into this. A lot of the international companies that we’re speaking to have more or less just said that, you know, hey. Look. This is a promising project. We would like to look into it, but we’ve preferred to wait until the political turmoil is settled.

While some of the local, perhaps more low hanging fruits that we’ve been speaking to are state owned companies, they cannot even make decisions in times like this. So we have caused suffered delays. What is promising right now, if you look forward, there is a election that will be held on the June 3. So this is next week. That’s good, a, to, you know, obviously, to to get out of the the uncertainties and chaos and, you know, the fact that there will be a president going forward.

But on top of that, as the polls look today, everything is pointing to the opposition party, the Democratic Party in Korea, and their front runner, Lee Jae Myung, winning the presidential seats. And why is this good for us? Well, Democratic Party is significantly more pro renewables and offshore wind compared to the current government. So we would be surprised if that’s not the outcome of the the results and the elections next week. Continue to closely monitor that.

That means that once that’s done, we are ready to ramp up the speed again and go forward with department search. A quick update on our technology as well. We haven’t shared a lot of news around Twin Hub project. And the reason for it is we are looking at ways to progress with that project. There’s no secret that is challenging.

So the safety level that our project won back in 2022 is a lot more challenging today with what’s happened with cost increase across the sector. So we are looking at alternatives for that that I hope to be able to come back to you with shortly. But what we have been able to progress and verify, I should say, is the technology itself. So we have been able to run a so called integrated load assessment with turbine manufacturer, Ming Yang, which I think that is might be the first time or one of the first times at least where a turbine OEM has conducted an evaluation of this kind for floating foundation that hosts two third party turbines. So there’s a lot of interactions, thousands of load cases back and forth, And all results so far indicate that the low performance is as we’ve expected.

There are no significant risks identified. Basically, confirming this works. There are no obstacles for it. Going forward, it continues to be an optimization procedure, of course, that never stops. But at least having crossed this first milestone is a significant event that very few to date have been able to successfully achieve.

So that gives us a lot of confidence in technology to sell. How we go forward with the TwinHub project, we’ll have to get back to you on, or if there would be another route to market for the technology. A quick excuse me. And just a quick deep dive into our divestment recently now with our Italian project. Obviously, where where we sit today, a a key part of our business model and receiving money in is related to product divestments.

In the a a market and where it’s been over the last three years, it’s been more challenging than before. There are buyers, but they are fewer. So I think that to be able to achieve this with this type of buyers, I think we are extremely pleased about. There’s both, of course, the fact that we think that in this market, we received a a good and reasonable payment for our projects, but it’s also a matter of who buys our projects. And why that is important is that the transaction is not only an upfront portion, but it’s also a milestone payments over time.

So it’s very much a, you know, a belief and trust in the partners that come in, both in competence and financing capacity to drive them onwards to milestones where we will receive additional payments. And this, I think, we found a perfect match in the buyers being Inka Investments and OXAN entity, where they are you know, the combination of them provides significant capital and significant competence, not only governing projects, but actually operating, running project developments. A lot coming from the technical teams in Oxnard Energy. So this was a a to summarize it again, it was a purchase price of 2 and a half million euro, and this was received upfront. And plus milestone payments, that in total with the upfront payment, it can be in the order of €20,000,000.

So if the product goes forward in the size and capacities, they are developed today and then go through EIA and later on CFD secure and CFD in Italy, then HEXcon can receive up to €20,000,000. And we’ve illustrated here a few divestments from from earlier as well. These are presented in our quarterly report as well for anyone who wanted to look more into them. Now wrapping up with where we sit today and our focus going forward. Starting with projects, yes, and I’ve talked about it a lot.

We are continuing not expanding the portfolio right now. We’re focusing on our key projects as they stand today, ensuring they preserve or improve value through additional milestones with a parallel focus on divestments. And this is very key. It is the core of our revenue generating capacity lies in divesting projects. There have been fewer over the last period of time.

We we did you know, if you asked me a few years ago when I had not seen the market downturn as it turned out to be. We were expected to and hoping to divest more products than we have so far. Extremely pleased to have done the Italian transaction now just a few months ago. And we are seeing a improved market in the next period of time. So this focus remains and very much I I do expect to be able to get back to you in the short term with some additional announcements.

On the technology side, I talked about the Twin Hub project. I will get back to you on that once we’ve nailed down how to go about that. With that said, we want to and have been able to recently confirm the performance of our own technology. We want to ensure that we maintain that test technical the technical asset as it is and that the value of it. And if it’s within or without TwinHub, establish a route to market.

So how do we commercialize the technology? This is obviously key, and I have a hard time seeing that it can go through any other way than a full scale demonstrator of some sort in some way. So to be able to get back to you on that a bit later. And finally, have to mention financing, of course. We are definitely in a strange situation.

The market has led to, as I mentioned before, not being able to get projects divested at the pace and the valuation we had hoped for that you were able to do a few years ago. So what have we done then, and what what are we focusing on? Well, improving our operational efficiency. So we’ve been able to cut costs and increase our focus and efficiency. We are continuing, as I said, on projects as well.

Definitely, a core focus remains on divestments. The tricky thing, not the least, in this market is to adjust the timing the exact timing of these divestments that our portfolio holds a significant inherent value, I’m absolutely certain of. And over time, that will be able to be realized, but the exact timing of it is really hard to predict. So we need to ensure that we establish sufficient runway for ourselves. If that’s only then through divestments or if it’s additional financing means, I cannot say for sure right now.

I can’t say that we are progressing and discussing in several parallel tracks at the moment that includes more or less all of the above. And I’ll, of course, we’ll get back to you as soon as we have matured something and selected amongst these alternatives. So with that said, I’ll thank you for the presentation part. I will go to questions here that I will read up myself and then answer them. So I’ll I’ll just read them as they have come in here.

What is the time frame for the first potential milestone payments for the Italian deal? So that would be when we have an approved EIA. So those projects when they were sold were sort of midway through the EIA work. So this is the environmental impact assessment. We are expecting that somewhere during next year that that will be approved.

So hand it in end this year or the next something, and then somewhere mid next year or q three ish, we expect that next milestone payment, which is EIA. And then we have final one, which is the potential to be the biggest one as well, which is related to securing the CFD, so they offtake in auction. And that can be anything, I would say, between two and three years from now. Let’s see. You are in a financially strange situation.

Do you see a solution, or what does it look like? So, again, I think I addressed it on my last slide. I definitely see a solution. I think we’re working on across multiple tracks. Which one it will be, I can’t say for sure.

I don’t want to give an impression that it is, you know, point to either this or that. The focus is always on divestments. There will be additional divestments. Will that be complemented by something else? I’ll have to see, and and we’ll get back to you on that.

So I definitely see a solution. There are alternatives. We haven’t finalized something yet. When do you expect to divest the South Korean project? Is the plan to sell the entire project, or will you retain a part of it?

I think that is not set either. I I can’t I mean, when we when we managed to secure the process taking over shares from Shell, getting that, you know, approved by the authorities in Korea, we literally went out to markets to, at that time, a plan to attract a main owner, an industrial, probably complemented by a minority or two to being more of the financial character. What all the political turbulence have caused now is that we have that’s the ultimate goal. We’re still, you know, having that as one alternative that we will ramp up now following the elections. But we’ve complement that because of that and, you know, having lost half year, we’ve complement that with which might be more likely scenario that will bring in a we call it more development partners.

So a minority investor that helps us ensure that we can make it through an auction. So there are offtake auctions in Korea as well. That’s where secured all your revenue that makes the whole business case of the project. Those are scheduled throughout next year. Beyond that, they would like to continue to be a scheme of some sort, but we don’t know what it is yet.

So we think it holds a lot of value to be able to secure an offtake auction during next year. So the idea would then be to bring in a minority partner now that is you know, can support us with financing and competence and and whatever is needed to go through an auction and then do the bigger transaction post auction. So that that’s a two step approach then with something smaller now in the near term, get to an auction, the bigger transaction post that would then be somewhere during next year. We’re pursuing pursuing both in parallel. But if anything, that might be as I see it right now, today might be a more likely option for us pushing that project forward.

Let’s see here. You mentioned milestone payments on several occasions. When do you expect to start receiving revenue through these? So, yes, on the the Italian one, I I I mentioned what that looked like. There are additional ones from from other projects as well.

And most near term, I think, is related to the Yongwang project over in South Korea that was sold, is it now a year and a half, four to two years ago? That first one is related to that project securing so called EVLs, so electricity business licenses in Korea, which we do expect somewhere after the summer q three this year. That’s, however, a deal made with Hexagon Korea, so a joint venture company in Korea. So those revenue will be coming to Hexagon Korea. But it’s it’s it’s really a a key and important one, the milestone payments of these schemes, because the more transactions we do and they are in you know, they’ve always been, I would say, in this type of projects, but more so in the market like it is today, we are seeing more and more milestone payment schemes rather than, you know, heavy upfront payments.

And the more transactions we do, obviously, the more milestone payment schemes that we are in, the more regular cash flow we will receive in the it would you know, it’s not the type of business where it’s regular per se on a weekly, monthly basis, but it becomes more regular, more frequent, the more milestone payment schemes that we are in, of course. So they continue to be very important. How do you perceive the development of willingness to pay for offshore wind projects? Are investor willing investors willing to pay less now compared to a few years ago? I think the short and honest answer is is yes.

I think we’re we’re seeing there are buyers, but there are fewer buyers. So in a market like this, there are certain buyers that, you know, pull back to more mature technologies, onshore wind, bottom fixed, and so on. However, there are definitely buyers. Valuations, yes, they’ve come down across the last few years, and cost have increased. So I think with that said, what we are seeing and expecting, not the least with some political issues initiatives as well in countries like The UK, more auction results in, you know, overseas countries that happened across last year, more projects coming into the fabrication phase of actually building commercial scale offshore floating wind farms.

We expect that to come back up. It’s going to start increasing more or less from now. How quickly? Very uncertain. But there are there are investors.

Are they paying for the same amounts they were a few years ago? No. I expect that to come back up. Not sure of the pace of it. Let’s see.

There’s one more here. Can you elaborate a bit on your potential earn outs related to and WaveHub? If you were to divest, how much would Hexagon retain after earn outs? So I I I’m not able to hear now provide that number, but I can say that, first of all, we don’t know what the structure will be at that point in time, you know, how much upfront, how much is related to earn out. We do, however, expect that if you look across our portfolio, Mumu Brown is the one that holds the highest value.

It is the one that is of large scale compared to the or and combined with the majority of it, and in a market that offers a lucrative revenue scheme that is certificate based, that is not only you know, it it’s it’s a certificate scheme that you get more certificates per megawatt hour the further you are off the coast than the deep the water is. So it’s very much a a premier floating wind market. You can achieve revenue if you combine certificates with merchant. You can achieve revenue that is north of $300 per megawatt hour. It’s not the best wins in the world, but that revenue size very much calls for a lucrative market.

So that’s where the majority of the value is. I I unfortunately cannot share here and now values that we expect through that deal or if the combination of upfront milestones, how that would look like. And, again, that’s where the majority of the value is in a divestment or site sharing scenario TwinHub. Equally so, I can’t share clearly so that the Korean projects is is of much greater value compared to Twin Hub. I have time for maybe one more.

Back to Italian deal. When is FID expected on that deal? Sounds like FID is not connected to any months of payments. Is that right? Yes.

That’s correct. So or maybe it can be to be technical, but but it’s more or less a rate of development milestones that is EIA and CFD. In the old scenario or chance that the the project would secure an offtake that is outside the CFD, we can potentially secure that but later stage at the FID phase. But no is the short answer and the most likely answer, which means that it’s related to EIA and CFD and not FID. With that said, seeing that I’ve reached the half hour, I managed to get to, I think, most of the questions at least.

So very much a big thank you to all that have been listening, and we will keep everyone updated as we go along and progress here and look forward to seeing you all soon again. Thank you very much.

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