Magnora ASA (MGN) Earnings Call Transcript & Summary

Good morning, and welcome to Magnora's Q4 and combined annual report for 2024. Highlights of the year and the quarter. Magnora returned net profits of NOK 579 million to our shareholders, including the effect of demerging Hermana with the IPO in June last year. The continuing operation generated NOK 282 million in 2024. Magnora sold its shares in Helios and received 16x return on investments, not counting for future earn-outs. We also received the first milestone payment for Evolar, which increases the chances for the second and last payment. Magnora grew its land bank net for Helios to 6.3 gigawatt in 2024, all based on organic growth. We've had a good start of the year. And the last month, we've signed more land, and it's now close to 7.5 gigawatt. Based on the high origination activity, we raised our guiding to 10 gigawatt. Magnora entered the Italian and German markets in Q4 2024, and we've rapidly built operating businesses in those countries. For the first time, Magnora has midsized and large projects that offer substantial revenue potential in almost all markets for 2025. The year witnessed a lot of sales activities and breakthrough in South Africa, where the demand for BESS projects was particularly high, but we're very excited about the wind projects getting ready to sale as well. We see rapid derisking in our Talisk spin project, no red flags related to birds or mammals. Ongoing studies of wind and wave conditions has commenced, an extensive supply chain studies, good discussions around grid and partnership dialogues. Emphasis is on quality and maturing paid off in 2024. And the land bank looks set to offer marketable projects every year towards 2030. In 2024, we returned a record NOK 300 million in dividends and NOK 398 million in gift shares in Hermana IPO, and we also acquired NOK 42.7 million in share buybacks. Despite the extensive return of capital, Magnora's cash and cash equivalents stood at NOK 254 million. And including the credit line, we have over NOK 400 million available. We have low-operating costs in the group, providing great flexibility to direct capital where returns are the highest. I'll quickly go through this slide, which is familiar to most of you. We have an asset-light strategy, strict capital discipline. The land bank is growing 0 debt, low cash burn, listed on Oslo Stock Exchange on the main board. Here you see the activities of month-over-month, and I've gone through most of them already through the highlights. Subsequent events. Very happy to inform you that the legacy payments of NOK 4.3 million from Shell will be arriving shortly, and Magnora owns 30% of Hermana, so that will also benefit Magnora shareholders. In February, we signed additionally 916 megawatt in South Africa. And we're very happy and pleased with the South African team going up to 20 people. Yesterday, we signed the first deal in Italy with a local coal developer, and we've secured land in 3 sites, combined 250 megawatt. This resembles the auction Globeleq in South Africa, enabling us to sell to clients similar to Globeleq in Italy. So this is really a breakthrough. We're very happy with the Managing Director and our co-development partner locally. So very, very pleased with the breakthrough in Italy. We also announced our regular quarterly dividend of NOK 0.187 per share. The best market is developing rapidly, and Magnora has entered 2 new markets. I've already mentioned the Italian breakthrough yesterday. And we also have a strong team in Germany, 5 people combined. And we see massive deployment in -- PV in Germany as well as onshore wind as they phased out coal and nuclear. We've also seen many, many hours of negative prices in 2024, motivating the market to implement more battery storage projects. We're working on 16 leads and some with very high potential. We returned above NOK 1 billion to our shareholders since 2018. I've gone through the dividends of last year, NOK 300 million. And we returned NOK 398 million to our shareholders in dividend shares in our legacy business, and we'll continue to pay dividend when we receive extraordinary cash or buybacks. Quickly through the Hermana spin-off. It's our original business, Sevan Marine, and it's now part of Hermana Holding, which is a separately listed company on Oslo Stock Exchange. We hope that Hermana will receive an FID decision from its clients in the U.K., short to midterm. Magnora's kept 30% as ownership in Hermana as financial asset. This can be paid as dividend shares or we receive dividends from Hermana in the meantime. Solid figures, 16x return on our platform in Sweden, Helios, our portfolio size, 6.3 gigawatt at the end of the year. Our return for our shareholders have been 42% on average in the last 4 years. Combined cash stands at NOK 404 million, including the credit facility. We have 0 bank debt. Net profit of the year, the value creation for our shareholders have been NOK 579 million. Our land bank has grown steadily since 2021. And you now see that it has gone beyond 6.3 at the end of the year. And with an additional 1,000 megawatt in South Africa, we are close to 7.5 gigawatt. Here, you see our portfolio separated across technologies. Solar PV is still the largest. We have a very high focus on onshore wind, and I'll get back to that when you see the South African slide. Business model stays the same. We grow organically. It's a cheap way to build our business. We have vintages projects to sell every quarter, every year, next 5 years. So we stick to our original business idea, but we still -- we see -- we continue to see new opportunities for distressed assets that could provide bolt-on opportunities, but we're going to be very careful. Our strategy as simple rules. Diversify, we insist on early sales in markets, especially the ones where we haven't sold anything before to prove the business case and motivate the team. We keep a war chest. So we're able to have good negotiating power with very large clients. When things look perfect, we might sell and sell all. We look for entrepreneurs with high integrity, very important for us. We try to remain agile and adaptable, and we try to look into new areas. So data centers could provide some value to some projects, and we have a good team analyzing that market for various projects as we speak. We have no expensive stuff on the balance sheet. So we can't compete with large companies. And as we've proved before, we exited the green ammonia market because we didn't see it as a scalable opportunity for Magnora. Business model sell at ready-to-build or prior to ready-to-build. It's important for our clients that we have a firm grid connection date and a clear tariff agreement. We have good clients on our list and partners, and that's the beauty of this market that we have very large bankable clients or clients with all equity. Here is our portfolio across countries. Helios is also represented in Finland through Vinci. So we are not that exposed to single country risk. And in Norway, you've seen that in onshore wind and they haven't been given a concession in 5 years. So we try to have a diversified portfolio. It enables us to sell projects every quarter, every year for the foreseeable future, and we expect to go enter into new markets, short to midterm as well with our same business model. We have a diversified revenue stack, different milestone payments, earn-out payments and revenues from project sales or from companies. And this is how we're going to create value. And our goal is to increase profits every year. Business update. Resilient and lean business allows us to seize opportunities even during times of market uncertainty, we can direct capital where we see the highest return and the lowest risk. We also see new movements in the market like negative pricing hours in Europe, and we position ourselves for battery storage in markets and use the competence we have in South Africa, in the European markets. We also see falling costs for battery storage and solar, and we also see that Chinese vendors provide the same equipment at 40% to 50% discount from European vendors. So this increases pricing power for IPPs in South Africa, but also Europe. We think a country like South Africa will be more open to Chinese products. And we see that solar PV is still dropping, and battery storage is falling quite fast. We've never seen short to midterm more revenue potential for more sources ever. So Norway, good chance. Scotland, offshore wind. England, our BESS and PV projects. In South Africa, we have a growing portfolio across all technologies, also onshore wind, and we're very excited about that. In Germany, a fast-moving team with maturing projects, and then we have Finland and Sweden with Helios. And in Italy, we, as I mentioned, secured our first land and have good indications on grid and permitting. So we believe potential clients in Italy will be able to bid for the auctions similar to what Globeleq did in South Africa. So those are like 15 years contracts where the client get fixed revenue every year, and these are very attractive for potential clients. First auctions expected in 2025, and it's combined of up to 18 gigawatt over the next 3 years. So very, very big infrastructure happening in Italy on battery storage. We think also that markets like Germany and others in Europe will follow suit. So this will be an exciting opportunity. South Africa, high-quality projects nearing maturity and commercialization. Up on the left corner, you see our portfolio combined now close to 5,000 megawatt but we expect soon to sign more WEF, that's wind and another 240 megawatt there and another 1,000 megawatt, 1,100 on solar PV, another 100 in BESS. So the portfolio is growing according to our plans and even faster and increasing the team last year and at the end of 2023 has given good results. On the right side, you see example of potential projects for sale short to midterm. And these are large onshore wind projects. And in South Africa, we expect them to be able to fetch from ZAR 1.6 million to ZAR 2 million. So that's going to be around ZAR 1 million to ZAR 1.2 million per megawatt if the client approve of the features and the yield production. Good wind speeds in South Africa in combination with solar PV like one of the projects there. The client gets very high energy production and adding battery as well. You have very, very interesting load factors. So South Africa is growing very, very fast and is completely decoupled from the European market, which is good for us and Magnora shareholders. Germany. And just to give you some update on example sites there. We have different sites, larger and smaller sites across Germany. And we're very excited to work with the team there. And we -- based on the amounts of negative prices and the high proportion of renewable energy in the German market, grid battery storage projects are very, very hot in Germany for the time being and for the next foreseeable future and into the 2030s. As you know, they have cut out coal and nuclear power. So renewable is going to fix everything in Germany together with import cables. We strengthened the organization in 2024. We've experienced -- we have recruited experienced teams in both Italy and Germany and expanded our team in South Africa with great success. We have also in-sourced more of the accounting and group controlling into Magnora headquarters and have been able to recruit an analyst and a Director of ownership assisting me with M&A and business development opportunities and very happy with the team, both locally and in Oslo and in other markets. Financials for the quarter, so we have some adjustments, other income, NOK 27.5 million, those are IFRS, see note 4 in the report. And then operating expenses NOK 14.4 million. Those are the noncash development and M&A expenses. Most of that money is for a start-up of the metocean studies in Scotland that will fall as we're in 2025 and be around NOK 1 million per month. So it was around NOK 80 million in the start-up phase in Q4. So we're going to fall substantially. Other items here, net financials are also currency and interest rate calculations for our Penguins receivable and also for the loans and Technip's part of the loan in Magnora Offshore Wind, so they're noncash. So negative results, NOK 25.3 million for the quarter. When you look at the cash flow, most of the net financing was NOK 44 million is share buyback and from operating activities, NOK 33.3 million. And if you exclude the startup of Magnora Offshore Wind, metocean study at NOK 18 million, you see that operating costs are quite low. The year ended with NOK 254 million in cash. And together with the credit line, we have NOK 400 million available. I would jump past this slide. Management owns shares in the company. We're going to continue to do that. We have loyal shareholders. We are constantly doing Investor Relations, have into Stockholm, Zurich, London, Cape Town over the last quarter, and we'll continue to do so going forward. Outlook. We're rigging for scale. We're developing this platform structure, and we receive incoming interest for our platform from various type of companies. Good discussions around bolt-on opportunities and partnerships. We see a lot of M&A activity in the market last year, private equity buying, medium- to large-size developers. We see distressed IPPs, and we see that some of them might have development assets that could fit Magnora. We received some incoming interest around industry consolidation. So we are open to all type of discussions to increase the value for Magnora's shareholders and increase our earnings in the short to midterm. We also continue to see bolt-on opportunities for what we do with grid connections in the new markets and data centers and battery storage are new opportunities for developers like us that have secured good land and are in grid line cues for grid in various markets. So I think this will be an interesting opportunity to at least investigate. We have upped our guiding, excluding Helios to 10 gigawatt by year-end 2025. Our sales targets were still early in the year. As I mentioned, we have large projects like ScotWind onshore wind projects in South Africa, solar projects in South Africa, projects in the U.K., and also potentially projects in Italy for the auction and maybe earn-out projects from Helios and others as well. Half of the Magnora is sold in Norway, so plenty of sales opportunities. So over to the price target range, NOK 0.5 million to NOK 1.5 million on average in South Africa. Prices for solar and battery storage is lower than NOK 500,000, but for onshore wind is NOK 1 million to NOK 1.2 million. So the combination should be within that range. So next slide. So concluding remarks. We see exceptional short- and medium-term sales opportunities for the first time, backed by great local teams across our group. We have upgraded guiding to 10 gigawatt by 2025 compared to 8.5, if you exclude Helios with the old guiding, due to strong progress. Robust land bank activities, secured 900 megawatt in South Africa and 250 megawatt in Italy in February alone. We have solid progress on the development portfolio, anticipating grid connections short term, allowing sale and farm down on both onshore and offshore wind projects. We see enhanced underlying fundamentals, significant CapEx reductions last years, which improves our customers' economics, especially saw our PV modules and best CapEx has fallen 60% since 2022. And you also see that the price curve is far higher than pre-COVID, which should enable IPPs to have good returns on their projects. I think and hope that we will benefit from the market shakeout. Consolidation, it will give us good opportunities, and it will also lower the competition intensity in certain markets. So these might be good restructuring opportunities for Magnora. Further substantial value expected from earn-outs, milestones, Helios and Evolar as well as Hermana, where we still own 30%. With that, I would like to thank you for your time, and wish you a great day. If you have any questions, feel free to e-mail me.