Magnora ASA

OSE:MGN

Earnings Call Transcript

[Erik Sneve, executive]

Welcome to another great quarter, Q3 2024, in Magnora. I'm Erik Sneve, the company's CEO. We had another great quarter. It's all about dividends, growth and diversification. We received NOK 330 million upfront for our 40% share in Helios in July after closing the transaction. That was 16x the invested capital of NOK 20 million prior to revenue sharing earn-out for the unsold land bank with future payouts from Helios' deliveries over the next 5 years.

On August 16, we delivered NOK 4.187 in dividend. And we've passed NOK 1 billion in capital return since the new management took helm in 2018. On September 5, we resumed our share buyback program of NOK 50 million. On September 11, we announced greenfield entries into Germany and Italy and hiring of local and experience management. Our portfolio in South Africa add another 800 megawatts and reached a portfolio of 4.3 gigawatts, including sold projects. We also have seen nice growth in Hafslund Magnora Sol. Magnora Offshore Wind started real-time collection of data on weather and waves on the Talisk wave site -- wind site, key inputs for designing consenting activities. In South Africa, Magnora closed 1 sale in September and agreed to sell another small portfolio in October, subject to closing. Project sales in South Africa in the past 15 months account for more than 600 megawatts.

Net cash from investment activities accounted for approximately NOK 330 million in Q3. At the end of Q3, the group held NOK 335 million of cash and cash equivalents and 400,000 treasury shares.

Subsequent events. On October 14, Magnora Board resolved to return NOK 0.187 per share. We're also pleased to up the guiding to almost 12.5 gigawatts, including sold projects, and sales of another 600 to 725 megawatts in 2025. We're a pure asset-light and profitable renewable developer with a high focus on greenfield origination. We have strict capital discipline. We have a very experienced team with great operating leverage. Our land bank reached almost 6,000 gigawatts, excluding the Helios sales.

We have 0 debt, low burn rate, solid cash position, and near-term cash flow from new sales and legacy business and dividends. We're listed on the main board of Oslo Stock Exchange. Here, you see our portfolio across various geographies and technologies. These numbers are excluded for the Helios sale. And remember, we still have earn-out and revenue sharing in Helios the next 5 years. We've seen solid growth over the quarter, even though it was summer months.

Our business model is simple. We develop new teams in new markets and new technologies with initial investments of around $200,000, up to $2 million within the business plan. We find partners with very high integrity, and we have a goal of selling projects short to midterm in order to establish a good culture and good speed in the companies.

A little bit about our business model further. We sell at ready to build and often prior to that. Sometimes we also sell to projects that go into auctions, like in South Africa. And we have license in Scotland from a license round, so that can also be a model. Our key business model is to secure land, develop land with local landowners, farmers, forest owners, or commercial property. In addition, we apply for grid connection. This is a big hurdle, and this makes it very hard for small developers to succeed. It takes years to secure these grid connections in many markets.

Then a very important aspect is the environmental assessment to get the concession. Here you need to be aware of all biological risk. With red flags, there is no possibility for a good renewable project. And after our sales, we can offer technical management, procurement management and general project management during the construction phase and in the operating phase. Our model develops projects with little money compared with the project costs related to the CapEx part. This makes it easy for us to grow at a very high pace in many markets.

We have a very experienced team. Our Executive Chairman is Torstein Sanness, the founder of what's Lundin Petroleum in Norway and sold to Aker a couple of years ago. We also have key people like Peter Nygren and Haakon Alfstad, who are both central in development of Statkraft onshore and offshore wind, Statkraft renewable business, and Peter was also the founder of Arise Windpower, listed company in Sweden. Then we have a team with very experienced due diligence project managers from DNV, Statkraft, Aker and other companies.

We have done multiple transactions over the last few years. I'd like to highlight a few. So we invested in Helios early 2021, initial investment of NOK 22 million. And over the next few years, we sold multiple projects to blue-chip companies across Europe. And in end of May, we announced that Vinci had bid for Helios 100% of the shares, providing us with a 16x return on our initial investment. Vinci is a great company. I'll get back to that. We'll have a cooperation with them over the next 5 years.

Then last year, we sold the company, Evolar to First Solar, premier solar manufacturer in the world. We had a 7x return on our initial investment. And if we receive the last milestone payment, we will have a 10x return on our investments. Net cash from investing in operating activities in 2023 was above NOK 300 million. Total return capital since 2018 is above NOK 1 billion. And in June, we spun off our legacy business, a company called Hermana Holding, listed on the main board of Oslo Stock Exchange. Magnora still holds 30% of those shares.

A little bit about Vinci. Vinci has Sweden as a strategic market. They own 6 businesses in Sweden, have over 2,500 employees. It was very attractive for the Helios owners to sell to Vinci since they have a long-term view on that market. It's a strategic important market for them. They're one of the biggest companies in Europe, part of the Euro STOXX 50 Index. We're very proud to have sold the company to Vinci, and we look forward to future cooperation in maybe other markets with them as well.

Cash is always returned to our shareholders if we have excess, or to our businesses that grow. We have a high focus on regular dividend, extraordinary dividend, share buyback, and we cancel shares. Currently, we're scaling up in South Africa. And we're also happy to have received NOK 10 million grant from the Norwegian government agency, which will halve our costs next 12 months in South Africa.

We try to exploit political momentum like in the U.K. now, labor manifesto is very strong around renewable. It will be a very exciting period for renewables in the U.K. over the next coming years. And we also focus on new greenfield markets. Our key focus is to build the land bank organically and also share buybacks.

This is a new slide. We try to explain our strategy in simple rules. So one focus is diversify. Geographical expansion, also technology vary between wind, onshore wind, solar PV or battery storage. We always insist on early sales. It's difficult to develop a good culture if you just develop year-over-year. So we always try to have an early sale. And we're willing to do that at a discount in order to establish a market culture in the business. We always try to keep a war chest. It provides great strategic negotiating power dealing with large energy companies. When things look perfect, we might consider exit. So examples of that is Evolar and also Helios.

We always look for entrepreneurs and people in our Magnora business with high integrity. People with high integrity work well with other people and makes us sleep well. And we try to take early bets, like in Sweden with Evolar and Helios, and also South Africa. And now we're positioning ourselves for new market opportunities where we see new triggers. And we have no expensive stuff on the balance sheet. So we're not a one-trick pony, with a very capital-intensive project. At the time we sold Helios, we had close to 200 projects in our portfolio. We had, for instance, a green ammonia project in Norway a couple of years back, which we sold due to lack of potential for grid connection. We've also exited other projects we don't believe in.

A little bit about the solar market. The solar market has gone through an incredible growth since 2000. If you see the gray lines going out on the chart on the right side, you see the expectation at that year for further growth in the years to come. And you see that for every year, the market has consistently outpaced the wildest estimates for the solar market. And if you look at the left-hand side, polysilicon prices are today at USD 4 per kilo. It's down 90% since 2022 at the peak, and down 99% since 2008. I've never seen a bigger drop in the most important ingredient for a cost factor in a product in my career. This price drop provides great pricing power for developers and end users of solar cells.

South of Sahara, there are 600 million people today without electricity. So it will be a very exciting decade to come for solar markets in markets where they don't have electricity today, but also in Europe and other OECD areas, where solar PV outcompetes nuclear, fossil, natural gas, any type of technology really. Together with battery, it provides a very strong foundation for the supply of energy. If you look at battery storage, it grows even faster than solar PV. In California now, you have -- the biggest supplier of electricity after the sunsets is battery. Texas has also become a very large battery market. And we see that more and more battery markets are opening. Due to the fact that density keeps rising, battery costs keep falling, and this drives exceptional growth for battery demand. So better and cheaper batteries provide also greater pricing power for developers and also a more stable electricity network throughout the world.

A little bit about South Africa. We have expanded our land bank considerably, and we've done 4 deals to date. Our initial investment was in 2021, as you know, and we've sold over 600 megawatts in the last 15 months to market leaders. Our first project sold to Globelec, we were able to win the auction, and we're expecting financial close soon to midterm. That will trigger new milestone payments.

Sales, if we have 100% hit ratio, has tripled or 4-double or 5 -- doubled our investment so far. We're very excited about South Africa. Sales are way ahead of our original sales plans from 2021. We have 15 people in South Africa today. We expect to have 20 people by year-end. The reason the market grows faster than anticipated is that the government has started the debundling of Eskom, and coal-fired power plants are not able to keep up to provide stable electricity to the consumers. So you have a privatization of the electrical network and production in South Africa through renewables. We're positioned really well with our team and the opportunities in the years to come. South Africa today is a 50 gigawatt capacity market, meaning that it's 5x bigger than Denmark, for instance. It's a very exciting market.

A little bit about our customers. Many of them are market leaders. They are all equity basically, and they're repeat customers. This provides a solid foundation for our revenues on our customer side and also for the probability of us receiving the milestones in the future, all good names. We're looking at further growth in Europe, and we have entered Italy and Germany recently. We've now also hired a team in Germany, and we announced earlier that we had hired a team in Italy. We are looking to add new markets short to midterm, and we have a greenfield approach. We hired experienced and brilliant local managers. The opportunities there, new CfDs feed-in tariffs due to battery or due to solar power or wind power taking a new role in these markets. So we are very excited about the future in some of these markets. And we think that a lot of the markets will copy what's happening in South Africa with capacity contracts for battery and providing stable electricity beyond when the wind blows or when the sun is up.

Our basic rules, we retain full control. We offer equity-like incentives, and we commit funds gradually. What we've seen over the last 6 months is a sign of distressed developers across Europe and many new markets. So we see that it's hard to raise money for new development companies, and we think we can be able to tap into some of these opportunities down the road. Our pipeline is above 10 gigawatts when sold projects are included. So we're very happy about this growth and the position. Remember, we started up in 2020.

New guiding. Sales of 600 to 725 megawatts in 2025, and our total portfolio of 12.5 gigawatts. We keep the same range, NOK 500,000 to NOK 1.5 million per megawatt. We know that we might be able to sell at higher prices than this, but also lower prices in South Africa for solar PV and battery storage in anticipation of a spot market in the future where we think that both solar and battery will have increased prices. Onshore wind have very attractive prices in South Africa, and we're very excited about our onshore wind projects ready to be sold in the near to short-term future.

So our journey. We returned capital. We started building business in 2020. We paid our first dividend from our portfolio companies in 2022, less than 2 years after we started our business. We exited Evolar at a multiple up to 10x last year. We sold projects in new markets, South Africa. We have had focus on growth in new markets. We've spun off Hermana. We've closed new transactions with Vinci and Red Rocket, among others. And Helios, 16x return, as I mentioned before. So we're all about organic growth, capital discipline, return of capital. We now have a multi-country platform with potential dividend from Hermana, milestone from Evolar, milestone payments from South Africa, and not least, our arrangement with Vinci Concessions over the next 5 years for our portfolio we built in Sweden. So we'll have very exciting years towards 2030.

Outlook. New sales and milestones short to midterm. Remember, we have Magnora Offshore Wind with very exciting asset in ScotWind, and we're working very hard with that project, maturing it, developing it, speaking with potential partners, farm-down partners. We also have a focus on sales in Norway and also in Finland through the Helios transaction. And we have a hope to sell projects in the midterm also in Italy and Germany. So we might be able to sell from 8 different markets and have earn-outs from Hermana and others. So we have a multi-platform, multi-technology, providing diversification and lower risk around our revenue streams in the future.

A little bit about the numbers. EBITDA of NOK 232 million. It's less than the cash flow, as you know, from the sale. The adjustments are related to the book value of the investments and previous revenues from Helios, which are accounted for in the balance sheet. We have operating profit of NOK 227 million, up from NOK 68.7 million in Q2, where we had the Evolar milestone. Taxes are not payable due to our accumulated tax loss of over NOK 3 billion after the Hermana spin-off. Hermana has around NOK 417 million, I believe, in deferred tax asset. The paid-in capital is around NOK 6.9 billion in Magnora after the spin-off of Hermana. So total result for the quarter, NOK 235 million.

Cash flow from operating activities, negative NOK 26 million, investment, NOK 333 million. Finance activities, negative NOK 283 million due to dividend paid out around NOK 270 million in August, and we've repurchased shares as well, around NOK 11 million. Our ending cash balance at the end of Q3 was NOK 335 million. Together with our credit facilities, we have close to NOK 500 million in cash and credit facilities available for the company, 0 debt.

Board and Management has exposure in the business. We have skin in the game. We own shares. We think that's important for making good decisions. The CFO and I authorize all payments and invoices. We think that's a good thing to do. We have a very good and loyal shareholder side, ownership structure as of October 9. We've seen a few new mutual funds entering our stock, and we're increasingly spending time on Investor Relations, especially me. Stein Bjornstad was appointed Chief Operating Officer in June, and that provides me with a lot of extra time to go on investor roadshows. I'm going to Continental Europe over the next few months and also South Africa to meet local investors there. And I think we are going to the U.K. and other markets for Investor Relations. So it will be a very exciting time for me, meeting new investors, which I haven't had time for before Stein was appointed to become Chief Operating Officer.

A little bit about the consolidation. For companies, we own 50% or less, it's the equity method. The percentage of what we own is put on the P&L. And if we own more than 50.1%, we have the consolidation method, and we need to account for 100% of all the numbers.

With that, I'd like to summarize. We're very proud to have grown this company from nothing in 2020, into a multi-platform, multi-country company with multi-technologies, battery, wind, solar. We have very exciting customers and partners we can grow with, and we have a very healthy business model. And we're very excited about the revenue opportunities for the rest of the year and 2025. And we're happy to have upped the guiding for new sales. And we believe we will be a very interesting speaking partner for many companies in the near to short-term future due to distressed companies and other companies looking for new strategies to grow. So we have a lot of interesting discussion these days.

If you have any questions regarding our quarterly report, please submit them to us by e-mail, and we'll get back to you. Thank you very much for your support, and have a great day.