Magnora ASA

OSE:MGN

Earnings Call Transcript

[Erik Sneve, executive]

Welcome to another exciting quarter with a lot of geopolitical risk, and I'll speak a little bit about how we have solved that in Magnora. So Q1 report 2025. So highlights from the quarter. We've had continued very high growth in our project portfolio. The numbers for 2024 was 15% global growth in all renewables due to the fact that they're really cheap and outcompete any other power production technology. We have had 66% growth in our land bank since Q1 2024. 19% growth during the quarter. Our land bank reached 7.5 gigawatts and the highest growth was our onshore project portfolio in South Africa. We have a low cost. We're loyal towards our greenfield operating and business model. Our costs were moderately down during the quarter.

What's been really interesting is that interest from potential customers and partners have picked up significantly during the quarter due to scarcity of good projects and improved sentiment in Europe driving growth and inbound requests. We have commercial discussions across all our regions and all our technologies, solar PV, wind, onshore wind and offshore wind. We have a strong cash position, allowing us to sell when the price is right. Our German subsidiary, really picking up pace and good commercial discussions. More than 50 projects -- prospects for high grid potential, and we have identified sites above 5,000 megawatts since our start last year.

We had a premarketing campaign in Q1, showing strong demand for both small and large BESS projects in Germany. This has significantly changed since 2024. Magnora Offshore Wind, reviewing details in the grid agreement, and we're also working on the farm down. As of Q1 2025, there are no environmental red flags, and we observed an improved supply chain also on the development expenses.

Magnora Italy has partnered with the coal developer and secured 250-megawatt of mid-stage BESS projects. And we also initiated commercial discussions regarding that platform. As you know, the Italian transmission company, [ Turner ], have launched 15-year capacity contracts coming up later this year and '26 and '27. So we're in the process of expanding the portfolio, the team and partnerships, same as in Germany.

Magnora South Africa surpassed the 5 gigawatt mark and initiated project sales for a fully permit 500-megawatt onshore wind and solar project, which could also combine BESS. And we're running a structured process due to the high interest. We have multiple other commercial discussions around the projects and new type of portfolios.

In the U.K., we have advanced 140 megawatts of solar, PV and BESS, and we're reviewing the grid agreements or we're expecting to receive the great agreements very soon based on the communication we have with the grid company. So they also be possible to sell those during 2025. We're also pleased to announce our quarterly dividend unchanged at NOK 0.187.

So the highlights from the quarter, really, really pleased with interest. And we've not really seen a strong interest for anything we worked on over the last 6 years as battery storage in Europe for the time being. So this has been very happy and pleased by our investment decisions last year, and we really think this will be fruitful over the years to come.

So market observations. I mentioned the high growth in renewable energy in 2024, up from 2023. We see a general improvement in sentiment across Europe, some due to fundamentals happening in '24, but also due to geopolitical. So we see increased PPA agreements in Europe, up by 14% in 2024. So due to the U.S. campaign, we've seen the German government allocates NOK 500 billion to new investments in infrastructure. And the green party there required a EUR 100 billion of those would go to energy and the climate fund, which is very positive for our whole German business center. We also see that data centers and AI expect to fuel growth far beyond what most analysts have estimated so far.

Italy is starting auctions later this year, as I mentioned and offshore wind in U.K. has really strong public support and also strong policy support from both the tourist and the labor party. We also might see some improved terms for CFDs, longer extensions. And the government is backing the supply chain by the establishment of GB Energy, a state-owned investment company, supporting the projects and the supply chain for offshore wind and [ titled turbines ] and similar. We see shifting interest towards early projects, especially within battery storage, but also onshore wind, which is becoming much more scarce in many areas. South Africa, a few days ago, outlined very ambitious targets for grid expansion and renewable energy integration.

Now I would also like to highlight that onshore wind projects in South Africa gained premiums of 3 to 4x higher than BESS battery storage and solar PV. And this is very supportive for our growth happening over the last year on onshore wind in South Africa. We're still a pure-play asset-light profitable renewable developer. We have a land bank of 7.5 gigawatts, and our goal is to grow this to 10 gigawatt by the end of the year. 0 debt, low cash burn and near-term cash flow. This is on the main board of Oslo Stock Exchange.

A little bit about our dividend policy. I mentioned our dividend, NOK 12 million, down from NOK 12.5 million since we -- own our own shares. We returned NOK 1 billion knocked to shareholders since 2018. And in the continuation with the weak stock market, we might be more likely that we'll do more buybacks then increase the dividends if we have excess cash flow coming in. But this will be on the Board's discretion based on market circumstances, when we receive the cash.

Some highlights. Pareto had a slide we saw recently where the -- our return on equity is 49%, 2024 as opposed to the average return for European IPPs to be between 2% to 10%. So we think our business model is quite successful. We have around NOK 230 million in cash, and we renewed our credit facility with a leading tier Nordic bank at NIBOR plus 185 basis points, showing the support we get from the finance banking community on the cost of that credit line. We have some cost reduction compared to Q1 driven by management discipline, but also we have the merger of Hermana, first half last year. Land bank, is growing healthily. And here, you can see it quarter-over-quarter since 2023.

We tried to spread across various technologies, and we have a high focus on battery storage, onshore wind and solar PV. Our business model, start up new companies in countries such as Germany, Italy, initial business plan of NOK 2 million to NOK 20 million. Our return requirement is minimum 5x return on our investment. We're strong across the value chain, but where we really have a high focus is greenfield start stuff from scratch, identify sites, identify all the risks associated with the environment with neighbors, with the municipality, with a county and the national government and the grid company. Then we package these projects and sell them to energy companies or IPPs. We could also help in the construction phase with construction management, or in the operational phase with technical management services.

We have simple rules we apply to. We keep a war chest, for instance. So we have a strong negotiating position towards big customers. Always when we enter a new market, we try to sell early, we would sell at maybe some discount to secure that the local team has paying customer and that we understand the local risk. So we're not going to own any of the assets in the operational phase. It's really expensive and we don't have that type of money. Our business model works. We've shown that it works for years. And we have other competitors in other markets that have done this successfully for many years. A little bit about the risk and where we hand over the projects, and then you see typical clients or hybrid competitors down the middle. We have really good clients who have a lot of equity, and they're not that dependent on project finance, which is very good at financial close, leaving a few open items at the financial close.

Here you see our technologies across geographies. So our focus really on solar PV and storage and then onshore wind in South Africa. In South Africa, onshore wind is really scarce and it pays really well. So we would do onshore wind in other markets, too, but in many markets, it's too expensive or it's really not possible at least in the areas where we operate today.

So a little bit about portfolio updates. We have projects ready for sale in Norway. We are working on a farm down in ScotWind. We have 140 megawatts of solar PV and BESS projects ready for sale very soon in England. We have a portfolio of above 500 megawatts, if you add also the BESS possibility in a very exciting wind project in South Africa. And we're working on multiple other sales opportunities in South Africa as well.

In Germany, we have a lot of interesting dialogue with potential partners and customers for our portfolio but also for one of our projects. In Italy, they are very exciting auction coming up, and we have a good local team and a good local co-developer and looking for more new projects. And we think basically in all these markets, it's going to be possible to sell this year.

In Kustvind, we have slow progress due to legislation in Sweden. We see steady progress with the grid in Sweden and the Helios portfolio. and we expect earnouts both from Evolar and Helios in the future, and these earnouts can be valid up to 2029. So this will be very exciting as well.

So there is a lot of geopolitical uncertainty. But we think that in the markets we are, it, to some extent, benefit our business because we will see more demand for locally produced power. So Europe will import less LNG, we believe, from the U.S. and other markets, and there will be very little Russian natural gas coming into Europe. So the only real option short to midterm is solar, PV, onshore wind and battery. And we have a healthy position here, and we see big interest, as I mentioned in Q1 due to lack of good projects and projects with grid connection.

I would like to just highlight another risk is the risk of lack of energy. And recently, Eric Schmidt, the former CEO of Google in a hearing before the House Energy Committee in the U.S. Congress asserted that artificial intelligence will consume 99% of world's electricity in the future. This seems maybe a little exaggerated, but I think the future demand from data centers and AI will be very, very big and will be much higher than the supply of new energy coming into the market. And as you know, lead times are very, very long. We have a huge land bank, and we're going to increase these land banks. We think this land bank will have great value in the future, and we will just keep on building on this land bank.

We have a strong German best market emerging and due to the fact that they're moving away from natural gas, Russian and more renewable power into the system means more periods where you also have, on a total basis, less wind and little sun. So this drives volatility in the market and really that drives the growth for battery storage. There's also a streamlined legal framework and some benefits operating in the German market today. There is a broad consensus now in Germany to spend much, much more money, NOK 500 billion in infrastructure and NOK 100 billion on energy and climate Investments, as I mentioned previously.

Little over to the highlights. EBITDA of NOK 41 million mainly driven by the revenues from Penguins. Shell, that money is flowing through and paid to Hermana as a result of the demerger last year. Operating costs have come a little bit down and also development and M&A expenses due to the fact that we're even more focused on spending as little money as possible for the highest quality in our projects. Loss from associated companies was negative NOK 4 million as opposed to a gain of NOK 9.3 million in Q1 '24.

I'd like to remind you of our tax loss carryforward, NOK 3 billion, meaning we don't pay tax on our profits, most of the profits at least. Paid-in capital of NOK 6.9 billion, leaving us ample room to return capital instead of returning money as a dividend, which is a huge tax benefit for many type of shareholders. So net profit at NOK 38.6 million.

Operating activities, negative NOK 15.4 million investment activities, NOK 6.5 million mainly as a result of an option sale for a project where we expect to receive a significant payment if our client is awarded, that project in an auction. We have returned NOK 12 million, and we did some buyback as well in Q1. We ended the quarter with a cash balance of around NOK 230 million, together with the credit line. We have approximately NOK 380 million. Our fixed cost base is around NOK 40 million per year.

A little bit about the consolidation. So if you own a company more than 50%, we can't consolidate the whole company. And if it's less, we -- between 20% and 50%, we only account for a percentage of that we own. Management and Board members own shares in the company. So we are well invested and interested in that the company develops in the right direction. The outlook, sales accelerating in growing markets, combined with good capital discipline. We work on farm down and sales in all markets and expect many, many interesting events during the year. We also expect and hope for earn-outs and revenue sharing and milestone payments from divested companies and previous option sales and look forward to financial close on the -- also the Red Sands project, the largest battery storage project in Africa, which, was a sale in 2023.

We are looking at new countries, and we also see growth potential for co-location with data centers on some of our energy projects. So we've been working a little bit on that over the quarter as well. We feel we're well on track for 10 gigawatts by the end of 2025, and we're accelerating development efforts in all markets where we already have establishments like in Germany and Italy, South Africa, Norway. We believe we have a sustainable and recurring project development bank for many, many years ahead. Quarterly dividend, more active on buybacks going forward with a weak stock market.

So some guiding. An update, 10 gigawatts by the end of 2025. Our sales target for the year, we believe we'll be between 600 and 725 megawatts. We have a lot of large projects. So 2 large projects will make us beat the estimates. Our average sales price per region from NOK 500,000 to NOK 1.5 million per megawatt. So in South Africa, solar PV and BESS is on the soft side. But as I mentioned, the onshore wind is beyond the midpoint of this range.

With that, I would like to end our presentation, and thank you for your patience. We wish all our listeners a really good day. And if you have any questions, just send us an email. Thank you very much, and have a good day.