Magnora ASA

OSE:MGN

Earnings Call Transcript

[Erik Sneve, Chief Executive Officer]

Good morning, and welcome to this fourth quarter presentation. This represents the end of 2021 and a year of great progress for us in Magnora and, it is fair to say, also in all our portfolio companies. Before I get into the details, I just want to take a moment to briefly go through our history leading up to this eventful year. But this morning, we announced the acquisition of African Green Ventures, and we're very pleased that Peter Nygren will join that team as an active owner. After 2 decades in the oil and gas industry, we sold off all our assets and intellectual property rights and restarted as a renewable company late in 2019, and we launched a strategy early in 2020. What we brought along from 20 years in the oil and gas industries are extensive knowledge from project development and management in general and also floating installations. And it continued to be a driving force in the energy project development space. We have successfully managed to expand our team and capabilities with highly skilled people with the ability to get things done. Together, we develop our projects with a high focus on capital discipline and competence. Ending in 2021, we have a handful of development companies plus a few early-stage collaboration agreements under our umbrella supported by our balance sheet. In short, we're investing in companies and projects to be part of the development of the renewable energy solutions that will deliver clean energy to the industries and consumers for the future. We aim to be an international developer of renewable energy with 5 gigawatt under development by 2025. We're well on our way to reach those goals and acknowledge that there is significant work that lies ahead of us. We are growing an asset-light wind and solar development portfolio. After the recent announcement with ScotWind and African Green Ventures this morning, we have approximately 4 gigawatt of development projects within wind and solar. Our equity share of this is around 2.8 gigawatt, which corresponds to weighted ownership of approximately 70%. We have progressed rapidly in expanding the portfolio since our initial investment in Swede Kustvind in first quarter of 2020. In addition to the development of megawatts, we believe our investment in Evolar is adding substantial value to our portfolio. The continued development is currently supported by royalty income, which I'll get back to more in detail in this presentation. We continuously monitor new projects with an ambition to invest early stage, cooperate with strong partners, derisk and mature the projects all the way through farm-downs and sale. At the ready-to-build phase, we seek to optimize ownership of the assets to suitable owners for long-term ownership and operations. Our portfolio companies are all progressing towards new milestones in 2022. After succeeding in the ScotWind licensing round, Magnora Offshore Wind is now progressing towards applications in Norway and in Wales. Further Kustvind development is now pending finalization of impact assessments. In Magnora South Africa, we have placed the right people with Peter Nygren and competencies in the market with large opportunities, where some 20 to 30 gigawatt of renewables is expected to be developed within the next decade. Our current portfolio in South Africa is now close to 1,700 megawatt after the transaction with African Green Ventures. Helios have truly shown proof of concept with the recent sale of 45 megawatt and are about to sell now 68 megawatts. By the end of 2022, we expect to sell 200 megawatt in 2022 alone and another 600 megawatt in 2023. By the end of 2023, we hope to have a portfolio of around 3 gigawatt, up from the previous guiding of 2 gigawatt. Evolar has matured its technology as well to the point where there is now potential for further cooperations, being the 2 joint development agreements we have today and also commercial testing and scale-up. We have high hopes for the year to come with also a potential IPO. Adding to this, we're in early stages in our cooperations with Troms Kraft and Prime Capital for a development of a green maritime fuel hub in the Tromsø area in a project backed by Enova, a Norwegian state government-owned fund. We're continuously looking for new attractive opportunities, and we'll be happy to share those ideas with you going forward. There are ongoing efforts in Magnora and its portfolio companies to expand the opportunity space. Our new employees brings a lot of value into the screening with their deal flow and their network as, for example, with our new team in South Africa. It's very important to have people on the ground in local communities with strong competencies and the can-do attitude. You've seen that with Helios, and we've seen it with ScotWind. The overall macro also looks very favorable for our development. And what hits closest to home might be the recent rally in the electricity prices in the Nordpool area. This once again states the pressing need to develop assets for an electric future in Norway, Scotland and Africa. If we look at the wind market, we've already established a strong position in the offshore wind markets in the Nordics, and we're developing close to 1 gigawatt of capacity in South Africa. We also were awarded 500 megawatt in the ScotWind lease round in January. Looking at floating wind, it looks like the market for floating wind, also on a good track to be below EUR 50 per megawatt hour by the end of this decade. This will happen through matureness of the industry, scale, size of projects, good size and larger turbines. New projects within floating wind will be close to densely populated areas but out of sight for local communities, which is very important in Europe and in many other markets. Floating wind is an important tool for EU to reach carbon neutrality. Currently, there is installed 700 gigawatt of wind globally. To reach net zero, the world needs to install 300 new gigawatt per year towards 2050. OEMs and infrastructure funds are looking into taking development risk in emerging and new markets, and we have very interesting conversation with companies within the space. We also have experience from the North Sea, harsh environment within oil and gas, offshore wind from the 1970s through our team with our Executive Chairman, Torstein Sanness; and colleagues of ours from Aker, from DNV, from Statkraft and from Lundin. These people have great insights into concepts, development, fatigue, motion characteristics, construction risk, finance and operations. We believe these assets and skills are very important for our customers, infrastructure funds, pension funds and energy companies. We are continuing to develop utility-scale solar PV. And at the same time, we've taken position in a very promising company in the solar enhancing technology space, Evolar AB. And it has a very disruptive technology. If you look at the polysilicon suppliers in the world, they're about to triple their supply of polysilicon from 2021 to 2023. This is in a market which is already around $160 billion per annum per year. Solar is the fastest-growing renewable electricity source, and it's definitely a black swan in the renewable market. Together with battery, we think it's a very important asset to have for Magnora and for renewable companies going forward. Conventional solar cells have stalled after 60 years of development at approximately 20% cell efficiency. Disruptive tandem technology enabled by Evolar through perovskite layers on top of conventional solar cells can bring performance up to 35% by the 2030s. There are large addressable markets within solar, which fits Magnora's portfolio and where we focus on new teams currently. After we divested our oil and gas activities in 2018, we retained financial benefits from 2 licensing agreements from design activities in the period 2013 to 2018. Firstly, the royalty income of USD 0.5 per barrel produced from the Western Isles FPSO generated NOK 14 million in 2021. The royalty income is expected to support us for years to come, and we have an everlasting agreement with that FPSO. Secondly, license income from the Shell's Penguins FPSO is expected to reach USD 16 million in 2022 or approximately NOK 140 million at current rates. The income will occur at 3 stages, with the first expected in the middle of the first half of 2022. Key Financials. Revenues for the quarter mainly reflected license income from the agreement with Dana Petroleum, with the decrease reflecting by less offloading than normal. This will -- we have to start again. Key financials. Revenues mainly reflect less offloading than normal in the quarter. We also know that Dana has -- will start new drilling activities in April, and we assume production will increase going into 2023, which will be very beneficial for Magnora. We also had higher operating costs from business development activities, the annual audit with EY, a onetime bonus and IFRS option costs. Cash flow was affected by increased ownership in Evolar AB, investments in Magnora Offshore Wind and Magnora South Africa and also the reversal of the establishment of Vindr Group, replaced by the acquisition of African Green Venture. We're maintaining a high equity ratio with a still NOK 50 million undrawn credit facility with a Tier 1 Nordic bank. Starting in second quarter of 2022, we will be reporting as an investment company, which will reduce the P&L from associated subsidiaries. We have not decided on that yet and get back to it. But we see several advantages as noncash items were approximately 50% of the cost for the quarter. What we believe sets us apart from our peers is our keen focus on capital discipline. If you look at 2020 as a whole, we gained NOK 14 million from the contract with Dana and used approximately NOK 38 million in operations, with a net cash flow from operations of NOK 24 million. We sold off marketable securities during the first half of 2021, leaving us with NOK 19 million, and further invested in associated companies for NOK 59 million. We've increased our capital by NOK 115 million net through a successful private placement in early February last year. And we ended the year with a cash balance of NOK 97 million, which we expect to be further strengthened in 2022 based on projected FPSO license income. With the cash flow supporting our development activities, a robust balance sheet with low leverage, we're in a position to invest and reinvest in new opportunities and ongoing projects. We have a history as a shareholder-friendly company, prioritizing distribution. However, currently, we are focusing our resources towards development of our portfolio companies and an electric future. Later in the year, we'll consider the IPO of Evolar, as we discussed before, and Helios will also be considering an IPO early next year. We have high ambitions, and we strongly believe that we managed to gather a team capable of achieving our goals. We currently have 2.8 gigawatt of -- in our development portfolio, with additional projects within solar technology and early stage in sustainable maritime fuels. We see our 5-gigawatt goal within reach and already have 2.8 gigawatt of projects in an early non-disclosed stage. Thank you for listening in, and we're now open for questions.

[Erik Sneve, Chief Executive Officer]

First of all, I'd like to give an excuse on behalf of Magnora for the recording last night of the presentation. We had technical problems with the broadband. So some glitches and some that should have been deleted, but I hope you managed to listen through that. So the first question is from [ Johan ]. Can you elaborate in energy storage which techniques are interesting for different areas in the future? And are there any possibilities for you in this area yet? Regarding technology, we're not that focused around technology within energy storage. We have the project with Prime Capital and Troms Kraft utility in the county of Finnmark Troms in the city of Tromsø. That's a project close to several wind parks owned by Prime Capital and Siemens. And we see that green ammonia project we have there up as an extension to those wind parks. And with Helios, we have space available for storage in most of their projects for battery storage. So we're not -- it's not our decision which technology the customer will acquire, but we will cooperate with the customer, the pension fund or the infrastructure fund and accommodate their needs and what they desire regarding which type of solar panels and batteries. They take the risk, but we help them with the EPCI contract for them to acquire. That's what we're doing with the OX2 project, and it's also what we're in the final negotiations on with another 68 megawatt. Next question is from [ Svein Garberg ]. Could you shed some more light on the impressive development of Helios, such as when you expect this expansion to new countries will happen? And will business model remain the same going forward? Well, we have an option agreement in another country in the Nordpool area. And we have people on the ground in another market. Early days to investigate the Helios model in Sweden and see how we can copy that to new markets. So I'm quite convinced, we will have some agreements going forward beyond the option agreement we have by the summer. So we're having good progress on that. We're also experiencing interest from wind developers, larger companies and funds who would like to acquire part of Helios. And we've had proposals, if Helios would go the IPP road, become a producer of solar panels through a transaction. And we've said that it's the pure developer model that we're going to pursue. And we think by the end of 2023, they will have close to 3 gigawatt in Sweden. And if we can sell these projects at around NOK 750,000 per megawatt, it should be quite healthy profits and cash flow going forward for Helios. We anticipate selling 600 megawatts next year, and we have interest for options to buy 200 megawatt in another deal and 500 megawatt in a fourth deal. So it seems to be quite a lot of interest around that. And I think that's because of onshore wind is really sold out in the Nordpool area except from Finland. It's very hard to find areas where local resistance is low. So I think we're going to continue with the Helios -- offshore wind is sort of an end of 2020 event. And Helios really have the projects to grow supply in the Nordic area and Nordpool area. So we're going to continue with this business model, and we see that's very, very successful. So next question is from [ Glen Oriel Grimsby ]. It's, did you lose money on the Vindr investment? No. We -- in the cash flow, you see we reversed the transaction with the Vindr Group, so we had a net positive cash effect from Vindr. The Norwegian government is moving very slowly along with the new regulation for onshore wind. And we also see some local resistance onshore in Sweden in SC3 and SC4. So it was a good deal for us to make the transaction with the Vindr team. We want to accelerate with South Africa where we have big impact opportunities. So we doubled the portfolio from 800 megawatt to close to 1,700 megawatt. And that's the market where they're opening up the PPA, power purchasing agreements, with mines and industrial companies from 1 megawatt to potentially 100 megawatt. So this is a very good market for us, and we think we acquired these assets at a very low price, around NOK 13,000 per megawatt in origination. And that's quite low compared with the multiples, you can get 7 to 10 down in South Africa on ready-to-build type of projects. Next question from [ Harry Mashon ]. What are the plans about Evolar? Will shares be given to shareholders in Magnora? We've always said that it should be an advantage to be a shareholder in Magnora, and we're working closely on the IPO opportunity of Evolar and considering market conditions, discussing with advisers. We've had interest from global solar manufacturers that like to invest in Evolar as well and larger companies that want to procure the equipment. So I think 2022 will be an eventful year. So we will manage our assets and values well and properly. And currently, there's a little turmoil in the market, so I don't think it's going to happen this week. But we'll -- we're watching closely these opportunities and are in discussions with investors and also financial advisers. So I think it's very, very good interest around Evolar. And you also see the supply of polysilicon coming out the next 2, 3 years, triple from what we have today. So solar is the fastest-growing renewable today, and it's going to be definitely a black swan in the renewable market and conquer wind in many markets. So very interesting for us to follow Evolar, and the shareholders in Magnora will be preferred. Next question is from Arvid Nordskog. There are 4 companies registered under Helios Nordic AB. I won't list them up -- all up here, but they are SPVs, and those are the companies that are sold to the buyers, the pension funds, infrastructure funds and OX2. It's -- we sell shares in the SPVs basically. So that's why they create a lot of subsidiaries under Helios. Kathrin Theelen -- another question from Arvid, had a presentation at the Sting Demo Day. That's something -- yes, that's something they've done annually, and she marketed that Evolar was planning an IPO, and there might be a small capital raise as well when we raise -- when we do the IPO. I think Evolar has an asset-light model, so it will be small, around 50 to 70 million. That's what they need from the starting point. So we'll see the interest for the company and their plans with the customers going forward. So the portfolio in Vindr Group was around 120 megawatt, I believe, around next year. I have to look at -- look up that yet again. We had a release in fall of 2020 where we said the market opportunities for onshore wind in SC4, SC3 was around 1,200 megawatt, and the challenge in SC3 and SC4 with the agreements we have is that it's been a lot of local resistance. So things are moving slower there as well as in Norway. So the net effect of the deal with AGV was basically moving up from around 100 to 800 megawatt at a very low cost. We have a good relationship with the Vindr team. And if regulation comes in place in Norway for onshore wind, we will definitely take a new look at it. But currently, we don't think it's worthwhile for the investors of Magnora and Magnora's management to spend time on political processes that are constantly delayed. Magnus Solheim has a question about tax. So we have a tax effect in the quarter where that's a noncash effect since we have revenues from Dana. So we have the deferred tax assets. And remember, we have NOK 3.6 billion in total deferred tax assets. And our balance sheet, there, we have the short-term deferred tax assets as EY and our CFO calculated. And then we make a calculation and reduce that deferred tax asset on the balance sheet. So this is a total noncash effect from IFRS, and no cash goes out from Magnora. It's a question from Turner Holm in Clarksons. How do you see potential for Magnora's participation in the Norwegian offshore round following the win in Scotland but also following the new plant 1from Norwegian government? Well, we're in concrete discussions with the industry players to set up a Norwegian consortium based on our experience from ScotWind. We have been approached by majors and super majors and infrastructure funds and private equity funds who'd like to bring us into the consortium or are interested in participating as an owner in Magnora Offshore Wind. So I think we were one of the few -- 1 of 2 Norwegian companies that were awarded acreage in ScotWind. I think we have a quite amazing team with Torstein Sanness as our Executive Chairman; Bjørn Sund, Kristin Gjertsen, Haakon Alfstad, Bjørn Drangsholt in leading projects -- and Trond Gartner such as Sheringham Shoal, Dudgeon, Johan Sverdrup, Troll, Ekofisk. And we have deep knowledge of the North Sea and what it takes to win licenses both in offshore wind, in onshore wind but also within oil and gas. And I think the relationship we have in that market, also with the team in TechnipFMC made us understand what it takes to win in ScotWind. I think the creativity and the research-oriented mindset of our people will be a benefit for any consortium we participate in. We were expecting maybe -- fearing 2 areas are only for -- up for grabs in the floating wind part, but now it's potentially 4 areas. And we think that's an advantage for us, definitely. And we have noticed the interest around our competence and knowledge around floating structures and offshore wind. So I think we can play a part in one of the consortium in the Norwegian realm, and we have ideas on how we can differentiate. Next question is from Jørgen Lande. How would you characterize the market for solar and wind at the moment, increasing interest or declining interest for new projects? What are potential challenges and bottlenecks? And what are positive surprises? I think in the Northern European area, it's definitely solar on the back of the increased electricity prices and the slowness in political processes. There came out a proposal today in Sweden about offshore wind from the government. They're more supportive, which is very encouraging for our Kustvind project. Regarding challenges, it's, of course, grid from Northern Sweden to Southern Sweden but also from Northern Norway to Southern Norway. We have unstable political climate in Norway around renewables and grid and hybrid cables. But I think solar, that's a bet we made late 2020 based on analysis of CapEx and OpEx for solar parks, and we see huge interest for Helios' projects. We had a structure process where EY sent a teaser to 71 companies, and 35 responded and signed the NDA to receive the full information memorandum. And I think around 10 companies may bid for the final project. So I think it's huge interest for solar because that's the only new supply you see in the Nordpool area and in many, many European countries. Of course, you have the licensing rounds in offshore wind, which are very supportive for us since we won ScotWind. But I think solar, a great tailwind, very popular among wind developers, pension fund, infrastructure funds. The bottleneck has been, of course, COVID last year with some increased prices. But I think with the supply graph you saw on polysilicon, prices will move back again further in 2022. We see clients concerned about -- we don't want to take risk on construction or procurement. It's not that we try to assemble an EPCI contract for them. And we see some clients are hesitant to buy products from certain regions in the world due to human rights issues. So that -- we see that for real. We see huge interest for Helios as a company. So solar is definitely positive and also for offshore wind in our license business. Onshore wind will come back. And I think the key both in Norway and Sweden probably is that you incentivize the local municipality where they get the kickback through a production tax. I think when that hits [ to earth ], they will be very, very supportive. And then they want to listen to their constituents regarding all their complaints. So I think that will make a huge difference for many municipalities in Norway. But I don't think you're going to see the big wind parks in Norway onshore. Another question from Magnus Solheim. Can you give some details into the Helios portfolio and opportunities you see there? We're now targeting 200 megawatt and 600 megawatt in portfolio sales in 2022 and 2023. Can you give some more details into demand for these projects and potential buyers? Can you also give an update on pipeline target for Helios? So as we've said, the 3 gigawatt pipeline in Sweden by the end of 2023. We think we can add significant volumes from the option agreements we have in one country, and we're looking into another market where we think it's reasonable to have 500 megawatt to 1 gigawatt over the next few years. I don't think I'll provide further guiding than the Swedish guiding now. So we'd like to be updating that after we've made the official start in those 2 markets. So what we see, as I mentioned, several companies have asked to invest in Helios at holdco level. And we've also had interest to merge Helios into a wind developer, and we've had interest for Helios to become an IPP. So if I told you this 1 year ago when we made the investment, I would think we would be extremely unrealistic. But I think the price movement in the market, electricity prices, the local resistance towards onshore wind has really made a perfect backdrop for Helios' success. And as Jørgen was into -- the solar space is really incredible in Denmark. It's like 4 terawatt hours already, I think. And Sweden reached the 1-terawatt point last year. So this is definitely very, very interesting. You will see some neighbors complaining about solar installations, so that might delay projects 3 to 6 months, but very few clouds on the horizon for Helios' business currently. Next question is from Nikolai Ødegaard. Congratulations on the -- from Clarksons, on the African Green Venture, bringing your portfolio in South Africa to 1.7 gigawatt. Can you provide some color on how much of the portfolio is wind projects and how much is solar projects, also when we expect to see the first project sales in South Africa? I'll get back to the split later, Nikolai, because I need to look through the details there to be perfect. But we have a lot more available area in all these agreements than the actual megawatts. The megawatt is sized towards the potential grid. And we'll start the sales process of the first project in Q2. We set up the wind mass in September last year, so they need sort of like 12 months of constant wind measurements. And we've spent a lot of time in Q4 with one of the employees in AGV and one of the consultants visiting mines in South Africa. So we have some very high-level letter of intents for doing PPAs. On the exact timing, I'm not sure, but we start the sales process now. And we're very pleased that Peter Nygren was motivated and asked to join AGV. He has been instrumental in the success of Helios with packaging the projects with grid companies, and getting the construction management contracts and EPCI contracts therefore declines. And the total packaging is very important for the success on how you run the structure process when you're going to sell. So Nikolai, I hope by the end of the year. We've had a few discussions with the industrial companies and OEMs that would like to cooperate with developers locally. So a lot of European and Asian and U.S. companies don't have teams down in the market. It's more mainstream and [ Scottic ] that have that. So we see opportunities to do maybe industrial joint venture deals, but the entry strategy is to do ready to sale for REIT process or PPA projects in South Africa. So we hope to close something by the end of the year there. And Peter was instrumental and started the raise. And next was Helios. Helios is up and running now, 11, 12 employees. We'll probably have around 15 to 20 by the end of the year. So he will move on and help African Green Ventures with their success. So he gets very well along with the local team there. They're around 7 people. On Helios, can you expect the 45 megawatt plus an additional 68 megawatt portfolio to be financially closed in 2022? Yes, I think at least -- those are 4, 3 projects altogether. And at least 2 of them will be closed in 2022, most likely all 3. So this depends a little bit about the grid operator and the availability for capacity, and there might be some last-minute complaint from someone that might cause a delay 3 to 6 months. But we anticipate that both the sale of the 68-megawatt portfolio and OX2 will close this year. And we expect to close more projects this year. So total volume, new volume excluding the OX2 will be most likely 200 megawatt. As I mentioned, we have offers to make option agreements for 200 and 500 megawatts in Helios this year. So this number might be much higher. The structure of these option agreements might be a little different from the others. So it's subject often to acceptance from Länsstyrelsen and grid availability. New question from Arvid Nordskog. What -- will Helios Nordic cooperate with Evolar on some pilot projects? So we have -- they have had site visits, the Helios team at Evolar. It's not unlikely. Evolar will -- are in the process of setting up around 1 megawatt of prototype capacity in Uppsala, and it might be interesting for both companies to have a cooperation regarding [ Sunder ] solar parks. It's nothing I really control and get too involved in. But Evolar have a huge interest in getting their products out in different areas and environments. And it might be something that creates some edge for Helios as well. So that's it. This question from [ Sebastian Falkmo ]. What is the asset value -- net asset value in the company? We are in the process now of changing the accounting from Q2 where we actually will be not flowing profit and loss from our portfolio companies through our P&L and changing value in the portfolio instead. So we're in discussions with EY and PwC regarding how we can run that process. And then it will be very clear what the value is. If you look at the balance sheet last year and the year before, the cash flow, you can see what we've invested. And the value of the company on the earnings multiple for Helios or if you look at what the companies paid for around 4 licenses in the U.K., you can try to make your own assessments. But we'll get back to that, [ Sebastian ], in the Q2 report, I think. One question from [ Harry Mashon ]. Evolar can have huge value globally. Why is it no more focus in the finance press about Evolar? Well, we're working on increasing the visibility. They have a LinkedIn page. We sent out the press releases to the international press. They've not yet hired a communication company. They're in the process of doing that. And I'm certain and convinced that they will have more coverage from the leading global financial institutions. What is the most important for us is that module manufacturers and glass manufacturers of global scale have interest for the company and perovskite as a product. I think the press quickly will learn about Evolar and perovskite. We've seen some companies get some press, and we are trying to increase that. In the solar magazines, they have coverage. And we also have coverage in the Swedish and Norwegian press, but we're definitely going to push them to do more of that. So good point, [ Harry ], and it's not gone unnoticed. So that was the last question. I would just like to add that we are very pleased by the deal with African Green Venture. It brings our net gigawatt up to 2.9. We have originated this at an extremely competitive cost if you look at competitors who more take the IPP or wholesale routes. So this little more early-stage model is in the formal model, and we're very happy with that. We've spent less than around NOK 20 million on the application for ScotWind. We know our competitors have spent much, much more money since many of these companies are listed. We think we have a team that's able to generate very good projects at a very good price for Evolar's -- sorry, for Magnora's shareholders. And we will continue doing that, and we're going to monetize projects for Helios and our other portfolio companies going forward. And we're very happy to see that our business model works with our OpEx of around NOK 25 million to NOK 30 million of last year. So we're very happy with all the support we have from our shareholders. And please feel free to contact your sales agents in Fearnley, Clarksons or Danske Bank [ Nunaat ] or anywhere else you trade or send questions for a coffee if you're in Oslo if we have time or send us an e-mail. So we try to be better in investor relations. We've updated our presentation. And I'm quite convinced that 2022 will be a very exciting year. And the ScotWind award really differentiates us from a lot of other developers because a lot of big companies lost out, and that's not gone unnoticed. So I think 2022 will be very exciting for Magnora and our portfolio companies. With that, I'd like to thank you for your patience and time today. And sorry for the glitches during the webcast. We try to improve. So have a good day, and talk to you soon.