Saga Pure ASA

OSE:SAGA

Earnings Call Transcript

[Bjorn Simonsen, executive]

Good afternoon, everyone. I hope you all had a great Thursday, so far. And welcome to our third quarter 2022 presentation.

My name is Bjørn Simonsen. I'm the CEO of Saga Pure. And with me today, I have Espen Lundaas, our CFO, which will join us for the Q&A session at the end.

Saga Pure is a green investment company listed on the Oslo Stock Exchange. We seek out and invest in the solutions that contribute to a greener future, supporting our mission, pure growth. We do that using leading industry and financial expertise. And although the deal flow over the course of 2022 has been significant, we have maintained a conservative investment approach. And I know that many of you out there want us to make additional investments. And rest assured we are certainly not against investing, but with the valuation deterioration we've seen in the green tech sector over the last 12 months, our conservative investment approach has at least proven to be correct, so far.

It's safe to say that the team we have in Saga, along with the Board members, certainly know very well both the sectors where we have our main focus as well as the financial markets. As we can see on this overview, there is a slight change to the team setup from our last quarterly presentation. As we mentioned, over the last 12 months, our focus has been geared even more towards early-stage companies, even more towards our own portfolio companies, so Florian Melcher, who had the role as investment manager, has as a result left Saga, to his previous employer Danske Bank, to follow up more on the listed markets as well. We're sad to see him leave but wish him very good luck in his new position and look forward to new inspiring conversations on future investment opportunities.

So this is what we're looking for. We're primarily interested in technologies, not asset-based. We look for the future green unicorns. And we want to get to them at an early stage where we can help them with our competence, with our network, with our capital and knowledge about the industry and capital markets. These companies obviously need to have a significant environmental impact along with growth potential. We also look for solutions addressing gaps in the value chain where the industry knowledge becomes even more relevant. And we also want our investments to have a relevance in a 100-year perspective, preferably also a match with our current investments.

So Q3. How did it go? Well, in terms of net profits from operations, we were down NOK 114 million, on the negative side. The main contributions to this number are primarily the share price development in our listed portfolio, with Bergen Carbon Solutions accounting for around NOK 70 million net, and also Horisont Energi with NOK 30 million down. Return on equity, so far, this year is 7.2%, which we are quite content with considering how the financial markets out there have developed. And our cash balance at the end of the quarter was NOK 675 million after paying out NOK 45 million in dividends in the quarter. And we will also talk more about the cash balance in a minute.

Q3 was a relatively quiet quarter for our portfolio companies. However, there are a few things worth mentioning with regards to our operations and movements in the quarter. Over the course of Q3, we sold 2 million shares in Bergen Carbon Solutions for NOK 74 million. And over the course of the remaining time from then until now, we sold the rest of our position. And if you look at the investment as a whole, we had a NOK 229 million gain on that, which we of course are very happy with. We also increased our position in Heimdall Power, buying shares for about NOK 18 million, becoming the biggest shareholder.

And also in the quarter, based on the performance of the first half year, the Board decided to issue dividends of NOK 0.1 per share, ending up at NOK 0.2 over the last 12 months.

Now since our inception in Q4 2020, we've -- we're quite happy with the results we've managed to accomplish and we've realized net gains of NOK 490 million since then. That added to the cash we already have. We had about NOK 780 million at the start of November just now.

So the Board of Directors, they consider us to be overcapitalized in terms of the current investments and also the attractiveness of the current investment, yes, opportunities for Saga Pure. With the deteriorating global economy and volatile capital markets we have seen over the last 12 months, which has as I mentioned had us have a very conservative investment approach, that has at the same time opened up new opportunities, but these new opportunities, they require both a broader mandate and a different strategy to capitalize on.

So in short, with today's markets, we see an opening to put our cash to good use to create good value for our shareholders, so therefore, as announced yesterday, the Board proposes to establish a new industrial investment company with a broader mandate and a new strategy. The company will invest across the capital structure, in good companies with distressed balance sheets. The company will have an active hands-on strategy and will be led by Håkon Fure.

The Board will summon an extraordinary general assembly with the proposal, including the intention to list the company on Euronext Growth early next year. Once listed, all the Saga shareholders will get a -- pro rata shares in the new company. And the new company will have NOK 500 million in cash to execute on the new strategy. That means that, with the current cash balance in Saga Pure, we will have NOK 280 million in Saga Pure to continue our current investment strategy, which will remain unchanged with this spin-off. And we will have a significant cash holding both to support our existing portfolio companies as well as looking out and investing in new opportunities that we find attractive enough, right.

There will be more information on this new initiative as we get closer to the listing, but obviously, first, we need to have the general assembly. And then more information will, of course, follow, but let's turn to some of the highlights from our portfolio companies during the quarter.

Starting off with Horisont Energi, who are developing clean ammonia as well as CO2 transport and storage value chains. During Q3, they had good progress on the clean ammonia project in Finnmark, the Barents Blue project. And we also got the good news that the EU gave their thumbs-up for the grant that they received from Enova almost 1 year earlier. So good things sometimes take some time, but now that it's approved in the EU, that's also the green light, the final green light, the company were waiting for in terms of that support.

On the CO2 side of things, they are also making a good progress with a CO2 terminal in Rotterdam but also related to their second and a relatively large CO2 storage project called Errai where they have a partnership agreement with Neptune Energy.

Turning to Heimdall Power. They have developed a solution that can increase the capacity of the existing power grids with 30% at less than 5% of building new capacity. And they can do this in days rather than months or years. On top of that, they also provide a grid -- real-time data about the grid health, enabling a more efficient and reliable operation of the grid; a no-brainer, if you ask us, and as far as we can see, completely necessary in the green transition that is happening and that will accelerate. They are continuing to sign pilot contracts. And of course with some of the early customers now also expanding from single-line monitoring to area-wide monitoring, wanting more neurons from the company, that is the best possible feedback you can get from a customer point of view.

So with the projects, prospects we are seeing for this company going forward, we were very happy to increase our position to now holding 22% of the shares. And we're, of course, excited for the company going forward.

Then we have IC Technology. They're developing innovative storage solutions for liquid hydrogen and other cryogenic fuels. Main focus, starting off, is the maritime market. During the quarter, they have made very good progress on the prototype tank. And the main elements of this tank were showcased to the industry, the maritime industry, not very long ago. And after finalizing this tank, it will undergo rigorous testing planned for the first half of 2023 to verify; and of course, modify, if needed, the design of the tank to make it ready for the market.

And then we have HYON last but not least. They are developing high-capacity fueling solutions for the maritime sector; and they are, as far as we can tell, the only company out there that has the technology solution for doing just that. There are many companies out there developing fueling stations for road transport, but to fuel a ferry is completely different thing from fueling a car or a truck. We are working very actively with this company. And our own maritime expert, Jørgen Kopperstad, has spent more than half his time with the HYON team over the last year to help them out develop the company. And although there hasn't been a lot of news flow from the company, that doesn't mean that they have lost any of the opportunities. Rather, on the contrary, we sees -- all these opportunities are still there. It takes time for these different players to conclude on what they want to go for, but we, of course, hope and work for that to be HYON. And we expect news to come at least within a 6-month period in at least a couple of these projects.

An interesting thing also we're seeing with regards to HYON is that compressed hydrogen is now being evaluated in a wider range of vessels than previously envisioned, so we see even bigger vessels going for or at least exploring the opportunities to use compressed hydrogen as a zero-emission fuel. And this also, of course, leads to higher incoming requests to HYON.

So summing up. Over the course of '22, we have certainly seen how sensitive the -- and fossil reliant our energy system is with the resulting price spikes we've seen both here in Norway, across Europe. With the efforts to gain energy independence, we have seen a lot of projects within renewable being accelerated. At the same time, we've seen the global markets going through tough times, with most sectors and, of course, also including green tech suffering from that, yes. And as we mentioned, we believe that our approach to this investment space has been correct. We've also seen stronger global policy measures being put into effect, and all of these will be positive for our portfolio companies.

Speaking of our portfolio companies. That will also be our main focus going forward, to help our portfolio companies succeed, but we will, of course, also continue to evaluate incoming investment opportunities, new investment opportunities, new opportunities to further develop our portfolio companies as time passes. And we will continue to maintain a strong cash position, and even after the demerger, we will have a strong cash balance. I can remind you that we have an even stronger cash balance after that than what we did in the start. And now we also have 3 really good and exciting portfolio companies to work with.

And we will, of course, continue to develop both Saga Pure as well as the companies we are invested in to ensure greatest chance of success and helping us on our mission of pure growth.

So with that, let's move on to our Q&A session. And as mentioned, we have Espen Lundaas, who will lead the session. And we will try to answer your questions to our best ability.

[Espen Lundaas, executive]

Thank you, Bjørn. We can start with a question regarding after the demerger. "Do you have sufficient capital to follow up on your present and future investments?"

[Bjorn Simonsen, executive]

Absolutely. As I just mentioned, we have more cash now than what we had at the start of Saga Pure. We can follow up on our current portfolio companies in a good manner. We can also invest in new early-stage companies. And of course, with the development we're seeing, we're also expecting the repricing to continue also, so we are very confident that we will be able to execute our strategy to its fullest extent with the cash holding that we have now.

[Espen Lundaas, executive]

Thank you. And then we can move further. We have a question regarding Heimdall. "When will you list Heimdall?"

[Bjorn Simonsen, executive]

Well, that's a question that we get a lot. I think, as mentioned last time, if and when to list Heimdall Power is a decision that the Board and the company will make, so I guess everyone here will be the -- will be first to know it if and when that happens.

[Espen Lundaas, executive]

Yes. And then we have some questions regarding the demerger. What does it mean that all shareholders in Saga will receive pro rata shares in the new-established company?

[Bjorn Simonsen, executive]

What that means, very simply put, is if you own a certain percentage of Saga Pure today -- let's say you own 1% of Saga Pure. That means you will own 1% of the new investment company after the listing.

[Espen Lundaas, executive]

Yes. And we get some questions regarding the new co. Which sectors will the new company be investing in?

[Bjorn Simonsen, executive]

As mentioned, the new company will have a broad mandate. And further details on what they will do specifically will come at a later point in time but also well before the listing early next year.

[Espen Lundaas, executive]

Yes. "And considering that the company is overcapitalized, why did you not decided to pay out more dividends?

[Bjorn Simonsen, executive]

Well, that's because we believe that we can generate more shareholder value through establishing the separate investment entity.

[Espen Lundaas, executive]

We have also a question regarding BCS. "Why did you decide to sell all the shares in BCS?"

[Bjorn Simonsen, executive]

All our ownership adjustments are based on overall market evaluations and our portfolio, and BCS is no exception to that. And of course, doing that lies at the core of being an investment company.

[Espen Lundaas, executive]

Thank you. And we have also further some questions regarding the new company, but -- it might be a bit premature to discuss it at this point, but, "Do you have any idea how big the management of the new-established company will be?"

[Bjorn Simonsen, executive]

Well, now we have announced the CEO for the new company. He, of course, need to have a team with him to execute on the new strategy. How many will be in that team is difficult to speculate about at this point in time. I think they will continue to work on the new strategy to see what team they need to have, but in general, I mean, we have -- we like to have lean operations in Saga, and also our owners do, so I'm sure it's not going to be a large number of people starting out, at least. So I think they're starting out with Håkon Fure as CEO. Then he will find a good team to start off with and then make adjustments as things progress.

[Espen Lundaas, executive]

Thank you. And we have -- [ a question here is ] regarding Saga. Have Saga given up on pure growth in green investments?

[Bjorn Simonsen, executive]

By no means. The Saga strategy and our belief in the opportunities out there remains the same. As mentioned, well, several times, we have seen all the markets out there, at least as the green tech ones, have undergone a correction. We believe that, that can and will continue for a period of time. And making a good investment is difficult; and making a good investment in the environment we're seeing now, even more so. And we are not after the good investments. We're after the great investments, and there is a range of things we need to evaluate when we look at a company. One thing is the technology. And then we have the team. Then we have the valuation, and all of this needs to match for us to make the investment. So we still see opportunities within the green sector [ both ] for our portfolio companies with the new technologies that are out there. And when we see a match of these different aspects that we use for our main evaluation purposes, we are more than happy to invest.

[Espen Lundaas, executive]

Thank you. We can go to the last question. "How do you see the market in the coming 3 to 6 months, especially within green tech?"

[Bjorn Simonsen, executive]

I think that relates to the last question also. I mean we think the markets can deteriorate even further than what they have today, and that's why we both -- maintain the conservative approach. That's why we have launched the new initiative, but that will certainly not stop us from evaluating the new opportunities that come our way; and also evaluating how we can best position our portfolio companies, how we can keep on developing them, so I don't see a major change in the coming 3 to 6 months, if you're looking in the mirror also to see what has happened. So I think we are staying the course, and if there are good opportunities, we'll surely be the ones to grab those.

[Espen Lundaas, executive]

Yes. And again a last question here, on something about the time line maybe, but then it's a question regarding when the EGM will be held.

[Bjorn Simonsen, executive]

Well -- so the EGM will be held in about 4 weeks time. Then there are other processes that will follow the EGM. And we expect, if things go as planned, that we will have the company listed during Q1 next year.

[Espen Lundaas, executive]

I think that's it.

[Bjorn Simonsen, executive]

Okay, so with that, we'll round up. I thank all of you for watching today. Thanks for the questions. And have a great day, everyone.