Magnora ASA

OSE:MGN

Q2-2025 Earnings Call

[Erik Sneve, executive]

Good morning, and welcome to Magnora's Q2 presentation 2025, here in another beautiful summer day in Oslo, Norway.

Highlights and subsequent events. We continue to grow our portfolio, 65% up the last 12 months, 7% over the last quarter. We've now reached 8 gigawatts, and we're closing in on the 10 gigawatt goal of 2025, end of 2025.

We've completed the transition to become 100% renewable company, selling our remaining shares in Hermana Holding after bid from existing Magnora shareholders in June. We signed the first site in Germany and the letter of intent with a leading European infrastructure investor for our German projects as well.

We see really high demand in particularly Germany and Italy for BESS projects. Magnora Italy strengthened its partnership, and we're scaling up for the MACSE auctions, but we also see an opportunity for trading markets in Italy and are ramping up our team.

Our portfolio grew 125% during the quarter, up to close to 450 megawatts. We received confirmation on grid connection in 2030, and there are new terms out for the CfD auctions from AR7. So that's quite interesting from 15 years to 20 years. So that could be beneficial for our potential owner of the Magnora Offshore Wind project in Scotland. We have no red flags.

Magnora South Africa initiated a new sales process for onshore wind and solar project of 250 megawatts each, combined 500 megawatts with optional BESS. And we had, after the quarter ended, financial close to Globeleq, the project we sold in 2023, the largest BESS project in Africa so far, 4-hour duration, 153 megawatts, 612-megawatt hour BESS projects. And this competence we can use in Europe.

Some interesting market observations in Q2 in SE2 in Sweden, there are 500 hours alone of negative prices. And on a yearly basis, that will be 2,000 hours and due to multiple factors. if you see in Germany, the increase in negative hours provide great opportunity for BESS projects, which are trading at really, really high multiples as we see. So, this is based on high average prices and battery costs falling dramatically. So, index, you see that battery prices has fallen 86% from 2013 to 2024.

Other interesting aspect is that wholesale prices in the Nordics are the lowest in Europe. This is contrary to what's written in Norwegian media, but they're back to levels seen in 2020. This is due to a lot of rain, warmer climate last year at least, and a little softer demand due to less hydrogen, battery factors and other expected factors that would drive demand.

At the same time, we see that the data center sector is growing really, really fast in the Nordics and also Norway. And there have been some interesting factors in Finland, in particular.

And we also see this in Sweden with the growth of electrical boiler used for peak effects for especially district heating and others that would mitigate demand maybe for some BESS in the Nordics but would drive up demand.

So over the last 2 years, Finland is close now to 2 gigawatts of electrical boiler capacity, which will absorb a lot of electricity when in use.

On the European level, you see multiple targets and initiatives together with the initiatives in Germany and other places, EUR 100 support from EU for clean energy projects, the same amount in Germany. So, we see very strong regulatory backing and support for renewable energy. And the timing for BESS in particular, is now and also combination with some solar and onshore wind and offshore wind in Europe.

Our business model, we remain asset-light, diversified, no construction or balance sheet risk. Our goal is always to have 5x return on our projects and project portfolios. And we have 0 debt, low cash burn and a solid cash position. Combined with our credit line, we have NOK 373 million in available cash at quarter end Q2 last month.

Our return since 2020 is 22% return on equity on average and return over NOK 1 billion in cash and equity shares in Hermana to our shareholders. So average annual shareholder return has been 34%.

We have a capital distribution program that continues with dividend and buyback. The Board will be more likely to buy back shares with lower share price and increase dividend at higher share price basically. So, we increased our share buyback program last quarter as well. So, we're going to use that when we have available cash.

And next slide, our summary of Q2. We see 10 to 20x return on BESS projects trading above EUR 200,000 per megawatt for projects available this year to go on grid. We project portfolio above 8 gigawatts. I mentioned the growth rate in our land bank. We have strong growth opportunities in Italy and Germany and are in discussion with multiple infrastructure companies and energy companies, strong cash position, 0 debt.

Portfolio growth quarter-over-quarter since 2023. We expect to sign a lot of new projects in particular in Italy and Germany, but also in South Africa going forward for the rest of the year. Our portfolio is divided across BESS, where we have the highest focus now, together with Onshore Wind in South Africa, but also then solar PV, and we're currently assessing data center opportunities in combination with the assets we have, but also maybe for certain new assets, and I'll get back to that.

Onshore wind, we have a pragmatic approach. We're not evaluating any new projects on offshore wind, neither in bottom fixed, or floating wind. And the goal now is just to mature and farm-down the ScotWind project, and we've been in discussion for quite some time, and it's a very interesting project in our portfolio.

Our business model, I've gone over this before, small investments and then add cash as we see that the team is able to secure land and sell or sign up with customers early on. This culture nurtures commercial culture and result-oriented culture.

Our business model more in detail. Market intelligence, new markets, we're currently looking at other new markets as well. In Europe, project development, this is our core competence, landowner agreement, grid connection, market contact, engagement, environmental assessment, permits and over executive design of wind parks or solar parks and then we partner or sell our projects.

We might be able to help with stuff also in the construction phase if that's needed from the client, but typically, they have their own organization. So, our strategy has simple rules. We always insist on early sales. We will try to keep a strong war chest when we have big projects in our portfolio and want to have a good negotiating hand with potential clients. We see the business as cyclical.

As I mentioned, the factors the negative prices, electrical boilers in Finland, the market changes quickly. And we're always trying to forecast where we have growth over the next 2 to 3 years because there's always something new that's very exciting. And we have a team that survey and analyze and try to find people to capture these opportunities.

Next slide. We have high risk in our portfolio, but we spend very little money compared to the CapEx in these projects. So together with the farm-down projects to in Helios and all of our portfolio, we have around 200 projects. So, this provides a great diversification, and we mitigate that risk by always having something available for the market.

Our clients typically buy the projects at ready-to-build. But in BESS, we now see that they want to buy before ready-to-build and even at grid deposit phase. So, the markets go cyclical. Sometimes they want to buy very early and sometimes they want a PPA when market is softer. And this is different from market to market from Sweden to South Africa to Germany and Italy constantly.

We have a good client base, and we see that a lot of our clients want to buy more stuff from us. When we've sold once, we also are in discussion with many of these names regarding new opportunities in new markets.

So here, you see a box ticked off on which product and technology we focus on in each market. Onshore wind is a great technology. It's very profitable if you find the right project, but it's really hard to find markets that really want to embrace that technology in our core markets. But we're always watching out for new growth opportunities.

But now we have a very high focus in South Africa on that. I'm very excited about the sales process we're currently in.

So, some business update, portfolio update. Strong market interest in Germany. We've signed the first letter of intent with a very interesting client who we know well. We've expanded the team to accelerate the project development. We've secured the first land on municipal-owned land in Germany, and we have a grid application in as we speak.

In Italy, we're working closely with a co-developer in the southern part of Italy, and we've engaged more people now. So, we're also growing our portfolio in Northern Italy for the trading market. We're well positioned, we believe, for the upcoming auctions in '26 and '27.

In the U.K., we're advancing the grid agreement dialogues. There's an upcoming reform. We have good projects. We have 150 megawatts of solar PV and BESS projects, which we really hope now that could be ready for sale, and clients buying in the second half of 2025. We waited for this quite some time now.

In South Africa, we have continued portfolio growth. We expect to sign a lot of new land in the second half. It was a little slower in Q2 than Q1. We have a fully permitted 250-megawatt onshore wind and solar project, which also could include BESS. And we're working on smaller packages to other customer segments. We see a growing market, sort of hybrid spot market there developing with a lot of exciting capital flowing in and very aggressive buyers, especially on the onshore wind side.

And on the onshore wind, we've had a very high focus from day 1. It takes time, high entry barriers for onshore wind. We entered South Africa 2021. It takes 4, 5 years to have a good portfolio. Now we have that portfolio. We have the first project to sell. And we have projects to sell every year to 2030 based on what we see now in our pipe. So, we're very excited about this.

In Scotland, we're positioned for grid in 2030, as mentioned, one of the first ScotWind projects. They have very attractive CfDs. They were the news out earlier this week, about longer duration CfDs. We're working on a farm-down plan. We see improved supply chain. We see ease in cost, as I mentioned, and we also see that Chinese vendors are entering the market, also easing the supply chain more, which we think is beneficial for multiple of the parties and customers we speak with.

In Norway, we have a solid pipeline, growing to over 2,000 megawatts. We have 30 megawatts ready for sale, and we also sold the shares in Hermana, NOK 40 million.

In Sweden, we see really slow progress on our offshore wind project. You probably have to wait for a new election. And then we have the earnouts from Helios and Evolar, where we don't control neither news flow or anything else. We just sit there and wait and collect the earn-outs when we, when the milestones are reached.

The next thing I would like to mention, so you are a little better educated on what's happening in the data center space and how it could be interesting for the Magnora platform.

So data center is a high-growth market due to artificial intelligence and a lot of U.S. and European players think the Nordic market is a good market, but we also see interest in Germany and Italy and in South Africa. So strong value proposition for data center. It has a good strategic fit, balancing the power consumption supply in Europe, and it has a strategic fit with our existing portfolio, not in all projects, but in some.

A little bit about the data center power demand. So Rystad, they have forecasted that the data center market in the Nordics alone will consume 62 terawatt hour by 2050. And looking at the numbers in 2030, it's up by, up threefold from 11 terawatt hours to 28. And in Denmark alone today, the supply of electricity is around 60 terawatt hours.

So by 2030, half of Denmark's supply will be used in Nordic context on data centers. So even though the markets have been a little soft the last 2 years in the Nordics, you see very strong pent-up demand and very little increase in supply. So we think solar could have a really good fit in the mix in the Nordics going forward as offshore wind is moving very, very slow, in particular, in Norway and Sweden and Finland.

Next slide. So what's the difference between data centers and a battery project, onshore wind projects and solar PV. So mainly, it's the fiber connection. The other things you need to fix is power connection, site identification, building, environmental permits, technical management, project execution.

So this could be similar ready-to-build market, and it could fit many of our projects. The regulation for data center, it has to be on an industrial property, and that could be a little different for wind and solar. But very, very similar to what we do. And we think some of our projects in our global portfolio could fit really well with the demand for data centers.

We have one person in Magnora who worked with a Google data center in Changhua for 6 years. So we have good knowledge about this market. A little bit about the German market. There, it's a little different from how we worked in Sweden or South Africa.

The municipalities need to approve due to multiple reasons. So we work very closely with the municipalities before we sign land. But we know where we want to get the land, but we're in dialogue with the municipalities. And then with the land and with the municipality backing, we then apply for grid.

If not, our portfolio could grow much faster. So the team in Germany, just to showcase how we work and what we do, we have people with experience from BESS and solar and wind previously, then they have experience from commercial real estate development. There is a person with a PhD in electrical engineering for the same layout and technical planning and people have worked with multiple transactions before. So, it's going to be a very exciting market because CapEx is falling, negative prices have increased a lot or low prices and the average price for electricity in Germany is very high.

So that created a great trading market. So very few projects available. We've spoken to the biggest clients in the world. We're interested in Germany and Europe, and they're very excited about any project we have potentially. So, this is some of the best thing we've seen since the start, BESS in Germany.

A little bit about South Africa. We've closed in then on the first BESS project. There was a commercial close in June by Global Equity Ministry and a financial close in July. Then we're working on our flagship onshore wind project, 250 megawatts in combination with 250-megawatt solar. They might be sold separately or together.

We've had dialogues for quite some time and multiple customers are interested and the South African market is short of onshore wind projects. Our team in South Africa has a background from onshore wind. So, this is our, really our core strength.

Prices obtained for onshore wind projects could be 3 to 4x higher than the typical return for PV and BESS, which is also good for the business in itself. So strong growth in South Africa, and we expect the land bank to pick up in Q3 and Q4.

In Italy, the main consumption is in North and also renewable is in South. And that creates capacity market issues. So, the government are launching 3 separate auctions for BESS in Italy. And these are bankable contracts, which BESS asset owners think are very interesting.

So, as I mentioned the merchant interest in Northern Italy, also as an interesting opportunity that we're working on. We're scaling the team, hedging the portfolio. We have a mixed portfolio with different maturities. So, we work very, very similar. Very experienced Managing Director in our Italian business. We worked with Solar and BESS before.

Regarding financials, EBITDA negative NOK 24.4 million, primarily due to lower operating revenue following the one-off legacy business milestone in Q1 of Hermana Penguin's revenues. Operating loss, negative NOK 27.8 million. And most of the costs first half have been to Magnora Offshore Wind for the Met Ocean Boy and the environmental study, and those costs stop in Q1, Q2 next year.

So, these are costs related to the maturing of the project. Then we also have ramping up costs in Italy and Germany. So, as we phase down or phase out costs in offshore wind, we will increase that in particularly Germany and Italy going forward, but this is going to be backed by farm-down in ScotWind and sale of BESS projects in Italy and Germany.

Profit and loss, negative NOK 22 million for Q2. Operating activities, negative NOK 28.2 million in investment activities proceeds from the sale of Hermana shares and then finance activities related to buyback and dividend. So, the cash balance ended the same at the end of Q3 as Q1.

Together with our credit facility, we have NOK 375 million approximately available. A little bit about the consolidation of how we drive cost, allocate for cost in our P&L. Management own shares in the company outlook. So, what's going to happen forward, very strong focus on farm-down on sales.

We'd like to go into new markets, but we're always careful before we have sales in new markets we recently entered. And then we're looking very closely on data centers in combination with what we have already. And we are well on track for 10 gigawatts by end of 2025. And we believe we have a sustainable recurring project development business for many, many years ahead.

Quarterly dividend, NOK 18.7 per share, NOK 0.187. So, the financial position and cash flow, we will buy more shares depending on the share price and the cash coming into the business. We have a strong focus on the cost we in-sourced last year our accounting, and we closely track every cost item on a continuous basis. But we see now that we received some improved supply chain ease of costs due to lower activity in many countries in Western Europe. The guiding 10-gigawatt portfolio by end of 2025. We still believe in the 600 to 725 megawatts in 2025.

We see the average price in each market we're on between NOK 0.5 million and NOK 1.5 million per megawatt. I mentioned higher number for Germany for BESS. And you know that there is lower premium for BESS and solar in South Africa. So, there are deviations in some products in some markets, depending on the timing and the maturity of those projects.

With that, I would like to thank you for your attention to our message. We believe there are very interesting opportunities going forward as we've seen many distressed IPPs in Europe over the last 12 to 18 months. And we believe that the negative prices will continue to increase as data center demand will take some time to pick up.

And this will position our portfolio really, really well with a focus on onshore wind in South Africa and BESS in Europe and also the farm-down and the earn-outs from our previous sales. So, with that, I would like to thank you for your attention and wish you a great summer going forward. Thank you.