Otovo records best ever margin in Q3, eyes strong 2024 for European solar

Otovo, Europe’s leading marketplace for residential solar and battery installations, today published its financial results for the third quarter of 2023. The quarter was strategically important as Otovo completed a first-of-its-kind solar portfolio sale in Europe to Swiss Life Asset Managers.

This was a record quarter for Otovo in terms of profitability, with a substantial improvement in IFRS reported margins, now reaching 21%. Gross Margin Generated, which also accounts for the value creation in the subscription segment, came in at a solid 26%.

Despite annual growth in both installation and revenues, the market has experienced a slowdown after overheating in 2022, driving Otovo’s sales to contract in that transition. With most of its countries selling below peak levels, Otovo is ready to absorb new volumes immediately when market rebounds.

- We remain very hopeful regarding the market forces at play, with hardware costs at unprecedented lows and installation expenses continuing to decline, improving the business case for consumers. This, combined with several European governments’ expected subsidy packages to encourage consumers’ return to solar, makes the outlook for further improvement during the winter much stronger than it has been in several quarters. Otovo is setting itself up to take the maximum advantage of this, says Otovo’s founder and CEO, Andreas Thorsheim.

Moreover, this quarter, Otovo expanded its product portfolio, having launched EV Chargers in Germany in response to the German government’s 'Solar Power for Electric Cars' subsidy program and started to pilot heat pumps in Italy. Adding these products increases ticket size by 1.9x and 2.8x, respectively.

Otovo completed Europe’s first solar portfolio sale with Swiss Life Asset Managers

In 2020 Otovo established the structure for creating subscription assets in residential solar in Europe.

- There were doubts about whether this product would be attractive to European consumers and if the portfolio would be valuable at the end of the day. Three years later we have proved that consumers like the convenience of a zero-money-up-front product and built a portfolio of several thousand residential projects across Europe, says Thorsheim.

Earlier in October, Otovo sold its NOK+SEK portfolio’s ‘20-’24 vintages to Swiss Life Asset Managers at attractive valuations, proving its ability to monetize the built up portfolios, and return cash to the company. This transaction also opens the door to the optionality to monetize EUR portfolio and release additional cash back to Otovo in the future.

- Otovo is unique in Europe in having these capabilities, positioning us for regular portfolio sales going forward. We are headed for a situation where we can monetize a new portfolio every year - something that would greatly benefit our ability to generate cash flows, says Thorsheim.

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Highlights:

(1) Strong annual growth, despite market taking a breath after spur in 2022

• 2,629 installations versus 1,970 same quarter last year, up 33%

• 2,073 unit sales versus 2,740 same quarter last year, down 24%

• IFRS Revenues of NOK 235m, up 35% versus last year

• IFRS reported margins 21%, up 1.5%p versus last year

• Gross Margin Generated at 26%, up 4%p versus last year

(2) Proving that portfolios can turn to cash

• Completed first-of-its-kind solar portfolio sale in Europe, with Swiss Life Asset Managers

• Building new portfolio cohorts, deploying NOK 94m Subscription SPV Capex, up 2x

• Significant increase in IRR, at 13.5% for projects installed this quarter v.s. 9.6% same quarter last year, up 3.9%

(3) Increasing share of projects handled from Madrid

• A full 24% of projects installed in Q3 were handled from the Shared Service Center, up from 0% one year ago, and 8% last quarter

• 1 in 5 of Otovo’s employees are now situated in the Shared Service Hub in Madrid

(4) Adding new hardware - will boost ticket size

• EV launch in Germany as a response to the German government’s 'Solar Power for Electric Cars' subsidy program and Italy starting to pilot Heat pumps, with 1.9x and 2.8x impact on ticket size, respectively

(5) Progressing towards profitability - Otovo will consider a potential share issue to finance growth

The Company is currently working toward profitability, which is planned to be reached through a combination of sales volume growth, operational cost improvements, and the monetization of its euro denominated assets.

• To fund this expected growth journey, the Company is considering a potential share issue to raise capital, and has retained Pareto Securities; DNB Markets; and Bryan, Garnier & Co to assist and advise.

• The Company’s largest shareholders have expressed strong interest in supporting a share issue.

The timing, structure and size of any share issue will be subject to, inter alia, prevailing market conditions, and necessary corporate resolutions, and no assurance can be given that the Company will carry out any share issue. More information about the share issue will be published in due course.