Magnora ASA

OSE:MGN

Earnings Call Transcript

[Erik Sneve, Chief Executive Officer]

Welcome to Magnora's Q3 2021 presentation. On this slide, you see the disclaimer. We ask you to read this when you have time available. Today's presenters will be the CEO, Erik Sneve, that's me; and our Executive Chairman, Torstein Sanness.

[Torstein Sanness, Executive Chairman]

And that's me.

[Erik Sneve, Chief Executive Officer]

There, we're getting into what the company is really about. And it's a portfolio approach, and here, we're developing solar and wind projects. And we're supported by our legacy income from royalty in respect to FPSO, also the U.K. sector. So it's organic growth, meaning that you put the portfolio together from scratch, so to speak, and then bring it forward and you take out the risk. And you -- to do this and to be competitive, you will have to have a very experienced renewable energy investment and project team. And of course, as we had said earlier, we have that. And of course, the ambition to the company is to develop about the 5 gigawatt by '25. And we are, in the near term, well-financed in respect to the tune of $20 million from the legacy FPSO assets. And we're listed on the Oslo Stock Exchange, the main list, and we have about 9,300 shareholders. And to the right there, you can see the 6 different companies that we're invested in. And these are the ones that we're going to go over in more detail with you today. You can see there that, yes, we have done this a couple of years now. So we're well known out there. So we have a pretty good flow of different things coming our way. And we're -- as we said earlier, we're in the early stage, where there is not a very expensive part of it. And we're moving it forward with the partners and up to what we call a ready-to-build. And then we make our decision, are we going to monetize all of it or part of it? Or how are we going to be able to, at least in the end, stay at some certain working interests? And I think we're also as well known in the business now that we have interesting partners, as we'll show you later, coming our way and want to do business with us. So over the last year, the electricity prices have been soaring in Europe on the back of downsizing of coal, nuclear power, less rain, less wind, but also rising carbon prices. We see that electricity prices as of last week has risen by 11x from the same period last year. On the right side, you see the forecast from Statnett, the Norwegian transmission company, state-owned, about the electricity prices going forward. And we see that the electricity prices already -- as we explained last year, how much higher already. It's a couple of years before we, ourselves, anticipated rising prices. This is also partly because of the Green Deal and a rising interest for green energy in Europe. So over the quarter, we have high activity and good progress in our portfolio companies. Magnora Offshore Wind participated in the ScotWind licensing round in July. And we submitted 2 applications, together with TechnipFMC, in Scotland. We started wind measurement campaign and built access roads in South Africa to our sites in -- for solar PV and wind. We also announced that Helios doubled its PV portfolio from May in Q2 this year to 1 gigawatt. We also had commercial breakthrough ahead of time for Evolar AB, with a joint development agreement with a global leading player within their ecosystem. Furthermore, Magnora increased its ownership in Helios to 40%, and we also increased our ownership in Kustvind to 30%. Later in the quarter, Magnora, together with Prime Capital and Troms Kraft, a Norwegian state-owned community on the utility, have established a project to develop green maritime fuel for a production facility in Tromsø, in one of the most northern parts of Norway, in a feasibility study. So Helios, as we announced on the last -- 7th last slide, have increased its pipeline to 1 gigawatt, achieved 6 months ahead of its original schedule. We announced earlier this year that they have a plan to have 2 gigawatts of projects available in Sweden by the end of next year. They're experiencing good interest from European developers and infrastructure funds on the back of higher electricity price and stalling onshore wind potential in Northern Europe. Many of these companies have historically been focusing purely on wind. We think that's an interesting data point. We expect a sales process of 2 of the projects totaling 68 megawatts to close in the short term. These projects are sold and led by EY. We're also in final discussions for other projects ready to be sold short term in bilateral agreements. Most projects have identified potential for battery and energy storage in the project development. We think that battery storage will be instrumental and crucial for solar PV projects going forward as battery prices are falling. Helios is also considering expansion into 2 other countries in the Nordpool area, and we will maybe announce this short term about these opportunities. Evolar, our perovskite technology company out of Uppsala, Sweden. They reached team business plan milestones ahead of schedule several times. They announced the commercial development agreement in August. They've increased market activities across all segments where they focus at. They've signed multiple NDAs with potential partners and customers during the quarter, both in the glass industry as well as in the cell and module industry. We also see that larger players are increasingly focusing on perovskite and announcing research work in the area. We see growing interest for perovskite technology from financial advisers and larger investors. We are intensifying the work around maximizing value for Magnora Evolar shareholders and potentially looking at an IPO short to mid-term. We have initiated a process of increasing Magnora's next ownership option, and we think we can announce this by the end of the year. Thank you, Torstein. During the quarter, revenues increased from last quarter. We also had some interesting news regarding the operators on the Western Isles field, that they've secured another rig, which we think can increase revenues for 2022. We had some higher operating costs due to business development activity and bonus payments and increased activity in Magnora Offshore Wind and our South African SPV. We also established a credit facility of NOK 50 million with a top-tier, 1 leading Nordic bank during the quarter. We've not used any of these funds, but it's good to have in case we come across interesting opportunities. According to newspaper, Upstream, it's expected sail away for the Penguins FPSO in March 2022. The payments from the Penguins FPSO will be according to the schedule below, approximately $8 million of sail away from yard, $4 million at first production and $4 million up to 4 million barrels have been produced. For the Western Isles unit, we received $0.50 flat per barrel produced over the lifetime of the asset. As I mentioned, a rig has been secured for more production for development drilling at the Western Isles and Dana Petroleum own field. Financial strategy, capital priorities and our outlook. We're working constantly on finding new interesting projects and companies for Magnora's shareholders. But we're also working on realizing projects, which we currently own or our portfolio companies own. And as we mentioned in the previous slides, Helios and Magnora Offshore Wind are working on ways of securing partnerships and downsizing and selling down in projects. We think this can improve or show the value we have in the company. We also have a very strong interest for Evolar. And as we mentioned, we're looking at ways of maximizing the value for Magnora's shareholders in the short- to medium-term future. We have a strong track record of returning cash to our shareholders from the last 3 years, and we'll continue to do so.

[Torstein Sanness, Executive Chairman]

Then we're down to the Q&A session. So please ask any questions, and Erik and I will answer them. Ready, go. Thank you.

[Erik Sneve, Chief Executive Officer]

Magnus Solheim from Fearnley, I have the first question. So can you give some more color on the 68-megawatt potential Helios transaction? How far is this assets in the development process? And how important is the high electricity prices we see today for deciding on the valuation of these assets?These assets have received the County Board approval, Länsstyrelsen's approval, and they're in the final inning of the grid connection. So it has a grid connection and County Administrative approval. We see that over 30 companies signed an NDA to receive the information memorandum from EY, the Helios advisor in the transaction. And we see a lot of wind developers being interested in the area. And we think the stalling market for onshore wind in Northern Europe influence the interest for this combined with lower CapEx for solar. In addition, of course, to the rising electricity prices in Europe for the time being. It's hard to exactly pinpoint what's the most important factor at Magnora's. Next question is from Jørgen Lande in Danske Bank. Can you talk a bit about what stage the 68-megawatt projects from Helios are? So I think I answered that in my last question. And I think the return potential, it seems now like it's in 10 to 12x range for the first transaction. These are projects we started a little earlier, but it might be higher. So we have not received final bids for this transaction yet. But I wouldn't be surprised if it's below 10x what Helios have spent on the development. Next question is from Jørgen again. Of the NOK 16.4 million CapEx in Q3, can you elaborate on how much this amount related to Helios and Kustvind, respectively? I think, basically, it's 100%. So around 75% for Helios and the remaining 25% for Kustvind. Next question is from Magnus Solheim. When do you expect to update on the Magnora Offshore Wind segment? How do you consider your chances to win the lease area in ScotWind and Norway? I think, in the short term, we expect to announce something around Magnora Offshore Wind, the structure and what companies we're cooperating with. Regarding ScotWind and Norway, I think our chances currently are higher in ScotWind as opposed to Norway since the process and the consortiums are not really clear in Norway yet. In ScotWind, we have a very good cooperation with the local community. We've spent a lot of time there locally, both TechnipFMC and Magnora. And we have some competitive advantages in the area. So we've spent a lot of time in that area, and there are 15 sites. So more sites than in Norway. So I think chances are higher in ScotWind than in Norway. The Crown Estate in Scotland we'll announce an award early next year. Next question from Jørgen in Danske Bank. If you declare your next option in Evolar, what's your ownership in Evolar by year-end? I think the ownership then will be around 53%, 54%. I don't have the exact figure here, but that's based on what I can recall right now so around mid-50s. You can contact me, Jørgen, after the conference call, and I will check it out. How do you think about the operating cost going forward? We've guided that operating costs will be in the area around NOK 6 million to NOK 7 million per quarter. And we still have a cost for Q3, even though we had some one-offs and bonus payments in the quarter. We have a note in the report that we're considering reporting more as an investment company than as an operating company, as we've done historically. And what's confusing the numbers a little bit is that the P&L, profit and loss, from Evolar, Kustvind, as we increased our ownership, it has a noncash effect on Magnora's cost base today. So it's hard to analyze for external investors and analysts. So we're working with EY to see how we can report this. And the difference then will be that we need to evaluate the portfolio each quarter. And we're in discussion with another Big Four company on how we do this in a cheap way. Next question is from Arvid Nordskog. Any solar sales in South Africa soon? We have planned that we have projects ready to be sold or in ready-to-bid phase second half next year in South Africa. And our team are planning a visit to South Africa by year-end, and we cooperate really well with the team in South Africa. Next question from Nikolai Ødegaard Clarkson (sic) [ Clarksons ]. Looking at your growth plans towards 2025, do you expect you will need additional external funding? Or do you have enough liquidity available on your cash balance, RCF and project company portfolio? So we have around NOK 100 million in the bank now. We have a credit facility of NOK 50 million, and we received another $16 million from the Penguins FPSO over the next 12 months, if Upstream is right about the sail away in March. And I think that's ample cash, enough cash for growing a development portfolio, take it to the ready-to-bid, already-to-build stage. So we don't see any funding. If we decided to construct or do something else, that would be another matter. But we have an asset-light strategy, and we don't plan to construct or build solar parks or wind parks. We're also working on ways of monetizing our portfolio and raising cash through our portfolio companies, and there might be transactions in our portfolio companies that can lead to some farm down our portfolio, so we can raise cash through those means as well if it was needed. But currently, we just want to develop our companies, take Evolar public; Helios, see what we can do there. They're currently looking to expanding into 2 other countries and get more of a platform value of that company. And we also see very interesting opportunities with Magnora Offshore Wind on the licensing round in Scotland. So let's see if we received any more questions. I don't see any more questions for the time being. In case you want to chat, so you can make an appointment for a phone call or a coffee when needed or if needed. And we really appreciate you participating in this conference call this morning. And Torstein and I wish you a wonderful day.

[Torstein Sanness, Executive Chairman]

Thank you, Erik.