Magnora ASA (MGN) Earnings Call Transcript & Summary

Good morning, and welcome to Magnora's Q2 2024 presentation. I'm Erik Sneve, the company's CEO. We're a pure asset-light renewable developer, and we focus on greenfield origination. And we take land, help landowners build renewable projects on their properties. We secure grid connections, governmental permits and procurement management, technical management when the projects are in operations. We started this business in 2020 after we sold our oil technology in 2018. We have 0 debt. We have solid cash, and we have 7,300 shareholders, and we listed on the main Board of Oslo Stock Exchange. Some highlights from the quarter. We spun off Hermana, our legacy business. 70% of the shares in the company were assigned to the shareholders of Magnora as an extraordinary dividend. On May 29, we announced the cooperation and the sale of Helios to French -- an infrastructure company, Vinci. Magnora is about to receive NOK 335 million in upfront payments from Vinci, and we expect to receive a significant earn-out over the next 5 years as well. Upon closing of transaction, management and the Board will do our best to pay out this as soon as possible. So this will happen later in the quarter, and you'll receive NOK 4 per share in addition to the ordinary dividend. So NOK 4 per share as extraordinary dividend. On May 23, we received our first milestone payment from the sale of Evolar AB in 2023 to market leader, First Solar, in the U.S. The reach of the first milestone improves the odds for future payouts, and those can be worth up to $18.7 million for Magnora shareholders. So we'd like to congratulate the Evolar team for the success in reaching the first milestone. In South Africa, we have a breakthrough last summer. As you remember, we sold a project to Globeleq, a 153-megawatt standalone battery energy storage project in the Northern province in South Africa, Northern provinces. And this project, it triggered further milestone payments in Q2 with Globeleq as the preferred supplier for that project. Globeleq will build a battery storage project of $360 million in South Africa that will provide stable electricity to the grid. In June, Red Sands bought another project from Magnora. So then we have 2 different clients in South Africa, and we have sold more than 350 megawatts over the last 11 months in South Africa alone. So this market is red hot, and it's firing really well for Magnora. We also canceled some shares, treasury shares in June, 1,070,000, and our cash and cash equivalents before we receive the proceeds from Helios sale is NOK 311 million at the end of the quarter. Some short highlights about Vinci. It's truly a great company that [indiscernible] airports, railway tracks, highways, toll roads, multiple businesses, 4,000 businesses across the world, and they're one of the biggest companies in Europe. They listed on the French Stock Exchange. It's Vinci Concessions that have acquired the Helios business. And we look forward to cooperate with them over the next 5 years and secure the earn-out. That will be a benefit for Magnora shareholders and the Helios shareholders. It's a truly impressive company, and we've had very good discussions with them after signing of the agreement. Some highlights in Q2 and subsequent events. We have received incoming cash of more than NOK 400 million since the end of March until the presentation being held these days, NOK 400 million. We had NOK 311 million at the end of the quarter. So our cash pile by the end of the week should be above NOK 700 million. We have returned NOK 586 million prior to the Hermana Holding spin-off. And we are set to return NOK 275 million this quarter. So that's NOK 4 extraordinary dividend, and it's the ordinary dividend of NOK 18.70 per share. We have 0 debt, and we also have a credit facility of NOK 150 million. So we're growing profitably, and we have earn-outs that feed the growth in capital distribution program in the years to come. So technically, we have a dividend of NOK 398 million, 65 million shares to our shareholders at NOK 6 per share, which was the independent audit. And that value, NOK 6, has an effect on the tax loss carryforward and the paid in capital that will transfer -- that was transferred to Hermana, and also the cost price for your shares. So you can reach out and read the announcement to learn more about that. Upon receiving the upfront payment from Helios transaction, we will hand out, as I mentioned, NOK 275 million. And by the late summer of 2024, Torstein Sanness and I and our team have returned more than NOK 1 billion to older shareholders since 2018. The Board will consider to increase the return of capital every quarter. And as we receive more payments from the sales in South Africa and elsewhere, we will increase the dividend potentially. A little bit about our revenue streams that are secured through milestone payments or earn-outs or other mechanisms. So the potential milestone payments are in the mid column, as you can see, and all the counterparties are really, really great companies, Vinci, First Solar, NEO Energy, Shell, Globeleq, Red Rocket, and look very much forward and we think these are a strong foundation for earnings all the way to 2030. This comes in addition to our strong operating [indiscernible] that I'll get over to in the next few slides. So you see our portfolio is diversified across technologies and regions. And with technologies, we mean projects based on solar PV, offshore wind, onshore wind and battery storage. All in all, we have above 9,000 megawatts before the Helios transaction. So a little bit about 2024 and outwards. We've mentioned that we would separate the legacy business from the renewable. We've done that successfully. This allows us to do more intense marketing towards mutual funds and green funds across Europe and the world that are interested in renewable stocks. We see that we recognize more and more revenues from our previous sales as we reach new milestones. Watch out for South Africa. We have very strong growth in that country. We are very positive after the election now as well with the broad unity government. We have strong organic growth, as mentioned, and we have milestone payments from multiple sales: Helios, South [ Africa ] and Evolar, and we also receive indirectly through Hermana. We are working hard always on farm downs and alliances, and it remains a very real prospect short to midterm even after the sale of Helios. So we think we're entering a very exciting next 12-month period based on the activities we have today. We believe strongly in capital allocation. We focus on early-stage greenfield businesses, so we don't have to spend a lot of money for our growth. And we've been able to do this successfully for many, many years now. So a little bit about our business model. We initially from NOK 2 million to NOK 20 million in new countries, new projects, new teams. So for the time being, we are looking at 2 very interesting new countries, and I think we would probably do 1 or 2 new ventures within the short to midterm, meaning Q3 and Q4. This will be exciting growth platforms for Magnora. Going forward, our criteria is, as always, minimum 5x return. And we work really well with the founders, managing directors in these new countries to find a good business plan in how we can capture some of the potential land and grid connections in those areas. We see some exciting stuff coming out in various countries as we go forward. A little bit about our business model. We sell prior to ready to build, at least from a balance sheet point of view. So it's our clients that own the project that finance the construction and own the assets. We have technical management, and we can offer also construction management services. What we are really good in is the preconstruction period. We also have people who worked with construction operating assets, and that helps us in this early phase of the business. But it's really working as true partners with the landowners, with the grid companies, with the law authorities. We have people with high energy, high environmental understanding, who really understand what the local governments are looking for regarding the permitting process. We know a lot of stuff about wind turbines and solar cell panels, and we use all this to help our clients in their procurement management. And we also offer construction management services. So the risk is high prior to ready to build, but the money we have at stake is very low. So the absolute risk for Magnora from a cash point of view is quite low. It takes time, typically from 12 months to up to 5, 6 years, depending on the project and the risk factors in those areas we are. So onshore wind in Europe is the longest time it takes, and we have very few or nonproject in Europe. Most of those are in South Africa, where the permitting period is more like 3, 4 years for onshore wind or less. And in solar, we see development timelines from -- and battery from 9 to 8 in 24 months. So we're in the short end of the market with most of our portfolio, where we have short lead times, and this leads to strong cash conversion for our development portfolio. So a little bit about the market. We've spoken about this slide before, but we see a strong demand for green projects. So a new factor that have come in the last few years and especially the last year is artificial intelligence that really drives demand for energy. And it's also CO2 neutrality that really drives demand for green projects. And the constraints are always the same. It's constrained for land, for grid connection, it's competition, regulatory constraint. So these are barriers to entry. And these barriers, we understand quite well in most of our markets. And if we don't understand those, we have strong teams in those markets that can help us sort those out. So we're really very research-oriented, then we try to find a good team that match our competence to monetize these opportunities. So the global energy market, it has growth potential for multiple decades. We see that FPSO is still strong, and it's going to be that for a long, long time, globally. And we think that this renewable project development will be in a bull market for the next [ 20 ] years, and we are just in the early stages of delivering projects in this market. A little bit about South Africa. It's a really beautiful, well-developed country from a legal standpoint. They have a good election now with the Unity government formed with President Ramaphosa. They're very aggressive on renewables going forward, and you've seen a lot of news about that lately. South Africa has a very power-intensive economy. They have theoretical capacity on their coal turbines, so up to 300 terawatt hours. And currently, just 200 terawatt hours is being produced until the end of Q1. They have improved the blackout situation, but they really need much, much more new green energy. So very interesting market. Under Ramaphosa, they have introduced new deregulation. They put up proposals for new laws regarding spot market. They removed the ceiling for corporate PPAs. And all these triggers are growth potential to project owners that like to own our projects so we could sell to. So this really looks like the deregulation in Norway, Sweden in end of the '80s, early '90s. And we think it's going to be a very, very interesting market for developer as we go forward. We invested in 2021. Very few are non-investor in this market, and we saw some European players like Copenhagen Infrastructure Partners invest 18 months ago in South Africa. And you have a lot of European utilities and super majors that are also present in the market. So it's a very, very interesting market. And we think you'll see a lot of news coming out of that market over the next 12 to 36 months. So it's the right market. We have the right team. Remember, we did a small acquisition there, the only acquisition we ever did, around $1 million in 2021. We built that team from 5 to 15 people. I think it will be 25 people by the end of the year. We have close to 1 gigawatt or 1,000 megawatts ready to accelerate the bid in 2024. We think we can convert a lot of those opportunities to signing and sale in 2024 as well. We've sold 3 projects already the last 12 months. So more than 350 megawatts to very satisfied customers like Globeleq and Red Rocket. And so we have the right business model for that market, and we know it's the right timing. We have sold now for almost triple the amount of what we have invested already, and we've just, really just scratched the surface of our land bank in that market. So very, very happy we have this business. A little bit about our organization. We have appointed the Stein Bjørnstad as Chief Operating Officer. We hired him January last year. And it's been a very big successful organization, and he's helping me out executing things at much faster pace than we did until before he came. So that's very good news for Magnora and for Magnora shareholders. Emilie Brackman is appointed as CEO in Magnora Offshore Wind. She's worked under Haakon Alfstad for many years now. And she's a very brilliant young woman, taking that job very seriously, working on farm down and development of Magnora Offshore Wind together with Haakon, who will join the Board. The Board is led by Torstein Sanness. We've also had a pleasure working with Peter Nygren in Helios, where he was a part owner. And he's also a part owner in South Africa, where he owns 3%. So we mix these experienced people with the younger staff like Erling Magnus, Emilie, Espen and Trond, and can really work well with our expert Advisory Board and our portfolio companies. So very happy with the team we have now, and we're looking for a few more people as we go forward in group controller and business development to assist in all our growth opportunities. So Board and management have exposure, skin in the game. Torstein Sanness and I, we own above 3% of the company. And I think that's important for the success of the business, and we encourage also employees to own shares. We have a very nice shareholder base, who are very supportive of most of the stuff we do. They regularly come with a good feedback to our development and our priorities. And most of them have been, at least the top 20 here, have been with us since we took helm in 2018. A little bit about financials. So EBITDA improved a lot during the quarter because of the milestone from Evolar. So that's under other income. Operating expenses, excluding the noncash items, like bonus accruals, stock options, fell a little bit during the quarter. Hermana was out of the P&L and quarter, so the expenses for the listing process is there. We have a line called profit and loss from associated companies, 37.9. And that's the share of the -- of our annual gain recognized in the financial results of '23, 2024 annual report of Helios. So the operating profit was NOK 68.7 million, and the total result was higher due to the Hermana spin-off. After the spin-off, the tax loss carryforward is around NOK 3 billion, and our paid in capital, NOK 6.9 million billion. So that's down from NOK 3.5 billion and NOK 8.4 billion prior to the Hermana listing. So cash flow. So investment activities, NOK 27.6 million. Finance activities, minus NOK 1.1 million. Payment of the overdraft facility. And the cash and available credit facilities at the end of the quarter, excluding the payments from Helios, is NOK 461 million. The outlook, we will update this due to the sale of Helios, and we'll come back with that after our Q3 report. We have seen strong growth the last year. We have been very successful in the farm down of Helios. We received a milestone payment from Globeleq, from Evolar, and we see many of those going forward. So we need to realign and readjust our guiding a little bit going forward and take out the Helios numbers. So we'll get back to you on that. So the outlook 2023 was about going to market for a lot of companies. 2024, we said would be all about cash and profits. And we've really been able to show that we're able to grow profits in 2024 from even a good level in 2023. And we remain committed to paying out as much as possible. And we have a pretty solid cash base even after our NOK 4 per share dividend, and we'll keep that cash 'til we have farmed down some or more expensive projects and such like Magnora Offshore Wind. So you all know about that. It makes our leverage in negotiations much better. And we don't have to do a deal right now. We can wait a month or 2 or half year and do the right deal for all our shareholders. So that's important for us to not run short of cash. I think it's silly to keep cash below NOK 100 million, but around maybe NOK 200 million is a sensible level going forward as soon as we've done more farm downs. So that's it. We're very happy with the growth we've had and the deliveries we've had and the cash conversion we've had over the last 15 months with Evolar and with Helios. This has secured a lot of return of capital to our shareholders. We have very good strong operating businesses doing really well. We expect them to make new sales and also make new earn-outs. We have earn-outs from all the companies I've mentioned before in the presentation, and we remain committed to doing profitable growth also in new markets. And we think we're heading in a very interesting next 12-month period for Magnora. And with that, I would like to thank you for your patience. Feel free to send me an e-mail, and we'll be happy to set up one-on-one meetings in August in Oslo. And I wish everyone a great summer. Thank you very much, and have a nice day.