Magnora ASA

OSE:MGN

Earnings Call Transcript

[Erik Sneve, executive]

Welcome to Magnora's Q1 2024 Presentation. I'm Magnora's CEO, Erik Sneve. It's April 16. It's just 6 weeks since we presented Q4, so we haven't had that much happening over the last 6 weeks, but we have had some breakthrough, which I'll be delighted to present.

So first thing, we're still an asset-light developer. Our land bank keeps growing faster than we anticipate. We are at 9.1 gigawatts. And as you remember, we raised our goal to 11 gigawatts recently. Our new sales target for 2024, still the same, 500 to 625 megawatts. We have mentioned that we have quite a lot to potentially sell in multiple markets. So that's further back in the presentation listed on the Oslo Stock Exchange main board.

So highlights in the quarter and subsequent events and a look ahead. So we have the restructuring coming up with Hermana Holding ASA, our legacy business. We have rapid growth, and we have cash conversion with the award by Globeleq at the Eskom, a week back. So subject to approval, we have a huge dividend share distribution coming up with the shares in Hermana Holding, our legacy business and as a shareholder in Magnora, you will for free receive 70% of the shares in Hermana Holding. Magnora will keep 30% of the shares. And we'll consider further the handout of dividends a little later.

We've had a huge breakthrough in South Africa. The first project we sold last summer to Globeleq was won by Globeleq with Eskom, it was an auction, and they showed us our project to Eskom, and they were the lowest bidder. And that's 153 megawatts, 612 megawatt hour project, the Red Sands project, and it triggered an other milestone, and we have a third one coming up later at financial close, second half of 2024. So it's approximately above NOK 50 million for its project.

And as you remember, this was originally a wind and solar project, and we're lucky that Eskom decided to have a battery storage project at our site. It's the largest battery storage project in Africa to date. The project will cost $360 million for Globeleq to develop. That's around NOK 4 billion. The battery in itself equals 8,160 Tesla Model Y Batteries just for comparisons.

In February, Helios delivered a large-scale PV project to Nordic Solar, 40 megawatt. It's a plant there, but it's actually a project. Sorry for that. We have further developed our land bank to 9.1 gigawatts and we have robust growth ahead in all onshore markets. Our battery energy storage portfolio leaped 50% in the quarter, and we're now at 1.6 gigawatts. A lot of new projects added in Finland, South Africa, and U.K.

We're very pleased by the growth and the success in South Africa so far, and we're accelerating the growth, new hires coming on board to assist with more origination and more sales. At the end of Q1, cash and cash equivalents declined by NOK 39.7 million from the end of the year to NOK 308 million. We returned another NOK 0.187 per share to our shareholders, and we also increased our investments in South Africa and the U.K.

We have high activity across the board with a particular focus on sales as well as many deliveries coming up soon and milestones being met like the one in South Africa. So we're securing revenue recognition for the short to midterm. So this is very, very exciting.

Some highlights. Our portfolio since Torstein Sanness, the Executive Chairman, and I took [ Helmut ] at the end of 2018, we have returned NOK 586 million to our shareholders. Since June last year, we've returned NOK 69.1 million in dividend capital distribution and share buybacks. We have 0 debt, and we have a credit facility of NOK 150 million.

Our portfolio keeps growing, trend line growth, 20% quarterly, and we are very happy by that. We have projects to sell for many, many years, a decade or 2 as we grow at the speed. Half of our portfolio, almost is in Sweden, a little less, and we have very healthy growth in Finland and South Africa. We also see good growth in Norway.

Norway has a more challenging landscape, and we have a lot of potential growth coming up in England with Solar PV and Battery Storage. And we have multiple projects there for sale as we speak as well.

So outlook for 2024, large potential dividend in Q2 with the Hermana legacy coming up for the general assembly for vote. We have a lot of recognition as the projects we've sold previously in South Africa and Sweden, goes over to deliveries. So a bit more revenue recognition and cash conversion, and we have a very nice breakthrough in South Africa with a win of Globeleq to Eskom.

Our focus is on organic growth. We grew strongly in the companies and projects we are currently, but we are looking at new business development opportunities in new markets. And we have a team of 4 people looking at that on a daily basis. So we're excited about those initiatives and hope to bring some news in the short to midterm.

We have multiple milestone payments coming up, as I mentioned. And we're also working on farm-downs and alliances, are some of our bigger stuff. So we hope to be able to bring some news about that in the short to midterm as well. And we still have very high focus on capital allocation, dividend, and buybacks. And as we receive more cash we'll return more cash to our shareholders.

Our business model is still the same. We like to invest greenfield early stage, NOK 2 billion to NOK 20 million initially and develop a good business plan with the local team or with our own staff to develop a new project or a portfolio of projects. Minimum return requirement 5x. Our business model is to develop the projects to the ready-to-build stage.

And if you look on the bottom, you see some are larger, much larger competitors and also our investor Hafslund. So we don't take operational CapEx of the projects. We deliver the projects at the ready-to-build stage for others to finance the construction and working capital for the construction phase. So we offer construction management services and also technical management services over the lifetime of the assets, which is important for some of our clients.

We also offer procurement management. And what we do is secure the land, secure all permits, and a grid connection agreement. So it's quite complex. It takes a team of 15 to 25 people to deliver these specific services in a certain market. So in Sweden, we have 25 people; in South Africa, we have 15. And in other markets, we will develop similar organizations.

So the project demand is much larger than the project supply. This is driven by zero CO2 by 2050, EU, Japan and many other countries. And we also now see that artificial intelligence is driving demand for energy. And a lot of consumers and businesses are free that if they spend big money on cars or industrial processes with fossil, there'll be obsolete quickly. So you see a faster transition towards green energy than many anticipated just a few years back. So we secured a lot of land and permits and that's a clear, a very valuable land bank for Magnora and its shareholders.

So this chart is quite similar over the last 40 years. I think it was the exact same in 1980 when I was in elementary school. So around 80% of the engine in the world is delivered by fossil and renewables 14 and the remainder by nuclear. So we still have a long way to go to become a CO2-neutral economy.

Our customers in our respective markets are leaders, Globeleq, a very serious company owned by the Norwegian and British government; commercial, large German bank, Hafslund, second biggest utility in Norway, one of the biggest green utilities in Europe with 21 terawatt hours of annual production and the list goes on. So very excited to have very well-financed customers who are not dependent on high yield market to develop and build their projects.

We'll update about South Africa, beautiful country. And South Africa has a major problem with rolling blackouts. It's a quite well-developed economy, and it's a huge, huge play. So coal-fired power plants have installed effect of 50,000 megawatts. And if you multiply that by 4,000 hours, which is half of the year, we have around 200 terawatt hour production. So it used to be much higher, 30% higher, meaning they have lost 100 terawatt hours since 2016 alone. And this creates a headache for the South African government, consumers and businesses.

So in addition, they have a goal of increasing their renewable power, but we think it's a very, very huge opportunity for Magnora and its shareholders to be there with a great team of developers who can provide projects for Eskom and for South African consumers and businesses based on solar, wind, and battery.

So South Africa, the right market, the right team, and we have close to 1 gigawatt a little above actually for sale in the upcoming year. So the South African market resembles or the South African business resembles a lot our Helios business in Sweden just 15 months ago. So we believe we are there at the right time.

Our organization, very flat structure, different people, different backgrounds, Torstein, one of the first employees in Saga Petroleum and Founder of Lundin in Norway; we have Peter Nygren, who's a shareholder as well in South Africa, together with Magnora. He's also a co-developer in Helios and also a founder of Arise, wind power in Sweden; we have Stein Bjørnstad, he used to be assistant professor at Norwegian School of Management; Haakon Alfstad, who was the Senior Vice President of Renewables offshore and onshore wind in Statkraft for multiple decades; and younger people like Espen, Emilie, and Bjørn Erling, who very savvy and research oriented and very good project developers. So we have a team in Oslo that sort of help with the governance and the growth and sales process in the various countries.

Torstein, our big shareholders as well as Haakon and the other employees own shares basically. And Hafslund is our largest single shareholder.

Over to financials. You see that as we deliver more projects, our bottom line improves. We'll have handover of our project in Sweden, so that you can see that on the profit and loss from associated companies. And we have a total result of negative NOK 4.9 million versus NOK 15.9 million at the end of Q4 2023. You see our legacy business under discontinued operations.

And under other income, you see part of the contingent revenues from Globeleq, since they won a project with Eskom just recently, and there's then a high probability of the remaining revenues there. So for IFRS purposes, you see some percentage of the revenues for second half under other income. We have a nice tax loss carryforward and a lot of paid in capital.

So there is the cash flow. Operating activity reduced our cash by NOK 22.6 million, net investment NOK 5.4 million and net financing negative NOK 11.7 million. So we ended up with NOK 308 million.

So the outlook, very strong prospects for further sales and growth, a lot of stuff happening in our project development but also our sales. You see that in South Africa, they reduced the time needed to get a permit for a solar or battery energy project, meaning that we potentially have more to sell this year as opposed to what we believe just 6, 7 weeks ago. So a lot of good stuff happening in the renewable business for Magnora. CapEx on solar and batteries falling dramatically over in 2023, and we still think it has further room to fall, which includes the pricing power of Magnora's projects.

We guide to sell our projects between NOK 500,000 to NOK 1.5 million per megawatt depending on the attractiveness of the project, the matureness of the project, the technology and the various markets.

So 2023 was all about going to market. 2024 will be cash and profits. So we're very happy to see our underlying activities and our growth in the markets where we're strong. We look forward to receive more milestone payments potentially from Evolar and from Globeleq sales and also from all the projects Helios have sold already. In addition to new sales coming up in U.K., Helios and potentially also Norway and Finland second half of this year.

That was it. We are very pleased with the quarter and the underlying activities, and we are very excited about the rest of the year and Q2 and Q3, in particular.

So with that, I wish you a very good day. Feel free to send me an e-mail about any question you have. I look forward to hearing from all of you. Have a great day.