Magnora ASA (MGN) Earnings Call Transcript & Summary

Good morning, and welcome to Magnora ASA's First Half Report and quarterly second quarter report. It's been an astonishing quarter. We have done so many things over the last year. We introduced the data center business last year, and we successfully listed it on Euro Market Growth in June, raising NOK 650 million in cash. Magnora retained 52.7% of the company. As a part of Magnora Group, and we consolidate the numbers. The company has already entered into couple of Letter of Intents with customers and potential partners. We have increased our operating leverage quite considerably during the quarter as we've adjusted our cost structure and development activities. Previously, we've had NOK 25 million to NOK 35 million in OpEx and development costs. But after the adjustment through the spring, they're going to be around NOK 10 million to NOK 15 million per quarter for the renewable business as it enters a more of a harvesting phase and the marginal cost for new megawatt is quite low because of the team's productivity. New sales and earn-out will impact the bottom line directly as will Magnora Data Center. South Africa is entering a harvest phase. We entered the market in January, I think, 2021, and we have multiple clusters for sale, so close to 1 gigawatt, perhaps more towards 2030. South Africa is one of the fastest-growing renewable markets globally. We're very proud that our subsidiary, Magnora Data Center was able to secure land, the building permit and a grid connection agreement for the Hameenlinna project close to Helsinki in less than 8 months. It's one of our records, I think. But we're standing on the shoulders of all the experience we have in Magnora. It's been an easy task when we find the right project. Very happy with my team, and I'd like to congratulate them. The cash position in the group is NOK 814 million together with the credit line, it's close to NOK 1 billion, and we have a quite low cost base, as you see. We've added new Board of Directors with experience from both technical and the commercial side in the data center industry and they're thought leaders, and we gain a lot of traction from having them on board in Magnora as well as Magnora Data Center. Looking a little back at our history for the new spectator, we've returned NOK 1 billion to shareholders over the last 7 years. We have close to 28% annual average return for the shareholders. We've created a new business from scratch in early 2025 into a listed data center company listed on Oslo Stock Exchange in less than 18 months. Let's go over the Magnora Group. The net portfolio is around 10 gigawatts. We have a very attractive data center portfolio as well in those numbers. We are in 4 European markets. We've raised NOK 650 million for data center business. If we break down the share price at the end of Q2, which was at NOK 24, you see that there was NOK 2.4 per share in cash and the data center business valued at around NOK 9. The renewable business in Magnora is priced at around NOK 900 million. That's NOK 12.4 per share, and that's the lowest number since, I think, 2019. Market update. Increased geopolitical uncertainty drives electricity prices and request for energy security. We think it's a perfect storm for a second green wave. It's been slow predominantly because of interest rates previously and inflation, but inflation has cooled down and grid connections and access to transformers are a bottleneck now. But if you see -- look to market like the U.S., you see that over 90% of new energy equipment installed is from solar, BESS and Onshore Wind. That's quite opposite of what you think when you read the newspapers or Internet. Renewable has come for here to stay. It's very affordable, flexible power together with battery storage. Of course, it creates problems in some markets, but this can be mitigated by battery to a large extent. Looking at the South African market, it's growing considerably renewable share from 19% to 33% by 2030. Very fast growing, a little bit lumpy, difficult to time the exact timing of sales. But here, you see the market in total. Today, it's 242 terawatt hours, so just shy of Norway and Sweden combined. Then with Denmark, we have 350 terawatt hours consumption in the Nordics currently. But South Africa is moving towards 395 terawatt hour by 2050. Nordic may be dwarfed by the South African market. It's a very, very fast-growing and large energy markets and particular renewables since you're replacing all the coal with renewable BESS, solar and wind. One of the largest renewable build-outs of any growth market. Business update. Here, you see the portfolio across the group. It is done a net to Magnora based on the ownership share in Magnora Data Center and the Onshore Wind portfolio has grown quite a bit, which we're happy with in South Africa. Then we have the earn-outs from VINCI and First Solar on the route there. In the Renewable segment, we see a shift from growth to more harvest. We have a target of 12 gigawatts. We think we're going to reach that across the technologies, but we're not going to grow as fast as we've done previously, and we will be more in the harvest phase. But selectively, if we come across new very interesting opportunities, we'll, of course, look at them. A little bit about the Board. Very proud to have a very good Board who knows a lot about data center. We're very pleased by the work Torstein Sanness have done over the last decade for Magnora and for Magnora shareholders. As he retired, it made sense to look for experienced, seasoned data center people. Hilde and John has been here for a long time, but all 3 people, Hilde Hukkelberg worked a lot with AI establishments in the Nordics and in Norway in particular. And Lars Schedin founded and built EcoDataCenter, very successful Swedish data center business and Jean-Francois Berche, one of the key first employees in Amazon Web Services and OpenAI and Microsoft. So an excellent team who knows how to develop this business and powered land and even more. Take a look at our cost base. It has been hovering around NOK 30 million per quarter, operating cost and development costs historically. We've been able to scale that down from last year. In Q4, we had some legacy payments from the Talisk project. But as they moved out and we have done adjustments in the Norwegian, Italian and German teams, we see that we -- our new cost base is around NOK 10 million to NOK 15 million per quarter, operating the business as you see it today. To provide more examples from South Africa, we have 5 clusters there. We think it will be for sale or be sold by 2030. Predominantly wind, solar and that's spread quite evenly. Wind is the highest paying. Together, they provide baseload in most South African projects. Quite interesting combination, and it's been part of our origination strategy and development strategy since the start. We entered the market in 2021, as I've said before, and it takes 3 to 5 years to mature a good wind project, a little shorter for solar and much less for BESS since it's less footprint. The structural demand is exceptional. The grid is being built out at a quite high pace. They have a national plan for 14,500 kilometers of new lines. It takes 3 to 5 years to secure a project, as I said. The entry barriers are really, really high. We have around 19 employees in this team, and we're very proud of the results they have achieved so far. The data center business went from 0, start of 2025 to NOK 1.3 billion, a little over since early 2025 until today. We've done multiple transactions, signed land in various markets, 4 different countries with local teams supporting the project. We received our first firm grid connection yesterday in Finland, very proud of the team's achievements. As I said, established a joint venture with Blix Group here in Oslo, also co-ownner on Storespeed. We have a lot of origination activity now. I think the fall will be very exciting for the data center business for Magnora as customers are also interested in many of these sites. Give you an example, data center project in Finland. We met the team end of 2025. Zoning was completed, with concept design, building permit, grid connection agreements acquired and from 70% to 100%, signed up Letter of Intent with the heating company with the utility, backup power additional electricity, all in 8 months. You see the land on the picture. It's in an area are recycling business. No neighbors are going to be offended by this facility. The municipalities, just adorable. They would like to create a lot of new business in Hameenlinna and data center is one part of the businesses they're interested in looking at. We initially planned the site to be 120-megawatt site, but because servers have become more dense, we see that it's an opportunity to develop this site much further, and we're in discussions with local partners on how we're going to do that and develop this as a campus over time and potentially a Phase 3 as well. Other markets, sales processes have been protracted over the last few years because of high inflation and high interest rates and also ability to access transformers and new transmission lines. We think all these metrics are improving. We have noticed sustained and renewed interest for solar projects even in Norway. We're working on a transaction in the U.K. with the solar and BESS there. In Germany, we have sales dialogues on a few projects. Italian BESS auction is coming up, and we hope to have our projects ready by that. Also supply chain clarifications are required for the Talisk project. But all in all, we see that there will be more transformers available over the next few years and substations. We think the market will improve as interest rates have stabilized and inflation have come down quite considerably. Regarding the value chain, we've spoken about this many times, so I won't spend too much time. But we are a matrix organization, and we staff teams according to the underlying mega processes. We have a good capital base. We're able to mature and develop projects, and we sell them before they're built or before they're ready to build stage for the new bidder. We have active project portfolio and execution. We know that in data center, we need more capital. You need capital for the grid connection fees and the deposits, large projects. You need to do geotechnical surveys, you need to do -- get the building permit. Per project, it's a little more expensive than solar and BESS. We need a solid balance sheet, and you need speed and execution, and that's what we've shown we can do many, many times, and you need flexibility in the value chain. We have the Edge portfolio on the data center side when we see good small opportunities, try to build a network of development projects in the Oslo region. Then with the balance sheet, we have flexibility on the approach to monetize each project. When we see a project is dead, we're not afraid to shut it down. Magnora Data Center shortened time lines in a similar fashion. But here, we sell on a specific date. People want to go in the market, let's say, first half '28, second half, '28 or second half '29. That's really important, and we align all business processes. We spend money, and we derisk the project. We have a very good relationship with a few EPC vendors who are helpful when we discuss the project opportunity, the land and the permit, and strong control over long lead critical items, that's what create integrity and trust in a sales process. As we've done many times before, we probably want to make early sales. I cannot promise when. In the data center side, we have a big war chest. We have flexibility. We look for local people with integrity. We don't have any expensive stuff on our balance sheet, and we diversify. We're in 4 markets, and I think we're going to be in another market in data center within maybe the end of the quarter. So exciting times ahead, but we follow strategy of simple rules in our day-to-day business. Regarding the financials, here, you need to remember that the data center business is consolidated on a 100% basis in these numbers. Operating profit and loss was negative NOK 36.4 million in quarter and net profit approximately the same paid in capital, NOK 6.9 billion, most of the costs allocated to the data center business in the group. Cash flow, you see the net financing, net investment and the cash from the start of the quarter. We're now above NOK [ 800 ] million in the group with the credit facilities, we're at NOK 964 million. We're really, really proud of that. Here, you see our total portfolio distribution outlook at the end of Q2. We have several projects in all categories. We're working actively and very hard in all categories, and we hope to be able to make 1 or 2 transactions by the end of the quarter. In total, our portfolio stands above 10,000 megawatts, and we have a goal of 12,000 megawatts by the end of the year, which we think is achievable. The focus ahead, 12 gigawatt portfolio by end of 2026, continue as an active shareholder of Magnora Data Center. We get a lot of unsolicited interest for the company. We're discussing JVs. We're discussing project sales. We're discussing new origination. We have a very strict project development and cost discipline in Magnora historically. We say no to 9 out of 10 opportunities, probably more. We execute on our project development. We have dedicated portfolio managers who follow up each project and group company, and we try to sell the projects in the range we've guided previously. We think the renewable market, in particular, will be much healthier going forward. The exact timing of it is hard to say. But when you see to the U.S. market where 92% of all new energy is renewable, we think we have a very attractive portfolio in many markets, and we have money to develop and mature our early-stage and mid-stage projects. We're going to continue selling and developing value for our shareholders through also new initiatives we haven't discussed today, but we have many, many interesting projects going on. With that, I would like to thank for the support and the interest for Magnora. Wish you all a good day, and thank you very much.