Mainstream Renewable Power Limited (AKER) Earnings Call Transcript & Summary

Good morning, and welcome to this investor presentation of Aker Horizons' acquisition of Mainstream Renewable Power. My name is Christina Glenn, and I am the Investor Relations manager for Aker ASA. This morning's presentation will be a short version of a full investor presentation, which is available on the Aker ASA website and will be followed by a Q&A. With us today is Aker's President and CEO and Chairman of Aker Horizons, Øyvind Eriksen; Aker Horizons' CEO, Kristian Røkke; and the CEO of Mainstream Renewable Power, Mary Quaney, who is joining us from Dublin, Ireland. We also have Aker Horizons' Investment Director, Erik Otto Nyborg on the line as well as CFO of Aker ASA, Svein Oskar Stoknes. You can submit your questions on the -- for the Q&A session in the webcast chat function, and we'll address those after the conclusion of this presentation. Without further ado, it is my pleasure to introduce Aker's President and CEO and the Chairman of Aker Horizons, Øyvind Eriksen.

Thank you, Christina, and good morning, everyone. We're just about 2 weeks into the new year and in true Aker spirit, we're hitting the ground running with an announcement of 1 of the largest transactions in our company's history. It's a momentous day where we are joining forces with Mainstream Renewable Power or Mainstream for short, a pioneer in renewable energy markets for onshore and offshore wind and solar and a company that emulates the same kind of entrepreneurial spirit that has brought Aker to where Aker is today. The ability to continuously adapt is in Aker's DNA, coupled with our portfolio company's ability to leverage the deep domain expertise across the Aker ecosystem. We are now looking at the most solid foundation in our industrial history. Just 6 months ago, we made a step change in our portfolio, diversifying and claiming a position in renewable energy and green technology, digitalization and other global megatrends that have seen an accelerated flow of resources and capital. The diversification of our portfolio has not been a race but an execution of our long-term strategy to position ourselves in additional industries where we believe we can create strong shareholder value over time. You have probably heard us say that we build on the shoulders of existing capabilities. We transition when the time is right. The establishment of Aker Horizons exemplifies this strategy. Capabilities and opportunities identified in Aker Solutions form the first 2 building blocks with Aker Carbon Capture and Aker Offshore Wind, companies that have seen a significant value increase since their listing. Today, we add the next building blocks with the addition of a competent organization with presence in 11 countries and a significant portfolio of renewable projects. I can hardly think of a more capable shoulders than Mainstream's to support our next step as we carve out the path forward in the energy transition and position Aker for a significant and sustainable future growth. This year marks Aker's 180th year of building industrial frontrunners. Through the years, we have secured an industrial edge through alliances on technology, products and project management. We have identified operational and technical synergies from the Aker's quiver to create a strong and capable ecosystem. I'm immensely pleased to have Mainstream as part of this continued journey. The numbers speak for themselves. Aker has delivered over 25% annual return to shareholders since its listing in 2004. Behind these results are decades of dedicated organizations, strong management teams, and a relentless drive to improve. Aker Horizons will be no different. It will draw on the collective capabilities of the group, securing an industrial edge for its entire portfolio of renewables and green technology players. One way this is happening is by leveraging the well-proven track record in both developing and deploying software for industrial digitalization. Cognite's main product, Cognite Data Fusion, will be a differentiator for project execution and operational efficiency as it is already for other Aker companies and third-party customers. Aker Horizons is also differentiated with its portfolio composition, a combination of different growth platforms within both offshore wind and carbon capture. The partnership with Mainstream further accelerates Aker Horizons' ambition to position itself within the growing market for hybrid projects with different renewable technologies like wind, solar, hydro power and hydrogen are combined. Such hybrid projects are becoming increasingly commercialized as there is a growing need to stabilize the grid for reliable and continuous electricity supply around the world. The appeal is that compared to stand-alone renewable projects, hybrid solutions offer better use of transmission, more flexibility, improved demand matching and reduced costs. Together, Aker Horizons and Mainstream will explore this opportunity by capitalizing on Mainstream's unique advantage of being a global player in both wind and the solar space. To sum it up, in the midst of an energy transition, where the world is moving towards more sustainable energy production, Aker is continuing its commitment to create shareholder value by being well positioned for its companies to take part in a prosperous journey towards a better future for our people and for the planet. I now hand the word over to Kristian to share more about the transaction and Aker Horizons' ambitions.

Thank you, Øyvind. Today is certainly a milestone for Aker Horizons. We're very excited about the transaction and very excited about the partnership with Mainstream. Mary will provide an overview of the company, but a few words from me on what attracted us to Mainstream. First, Mainstream has an extensive track record as a wind and solar developer. 6.4 gigawatts brought to financial close, including 22% of all offshore wind capacity developed in the U.K. Second, Mainstream has an attractive portfolio, 1.4 gigawatts in operation and under construction and 10 gigawatts of active projects across early and late stage developments. Third point is the organization and culture of Mainstream personified by the Founder and Chairman, Dr. Eddie O’Connor; and Mary Quaney, the CEO. We have had the pleasure of interacting with the management team over the last several months, and we are impressed. We found alignment between our organizations with an intense focus on technology, entrepreneurial drive and a strong desire to make a positive impact. In terms of the transaction, it is now signed with anticipated closing in the second quarter. The total consideration is EUR 900 million on a 100% basis with a EUR 100 million earnout based on reaching certain milestones. Post close, Aker Horizons will own 75% of Mainstream with existing shareholders led by Dr. Eddie O’Connor retaining 25% ownership of the company. In addition to the wind and solar business of Mainstream, Aker Horizons will acquire 50% of the superconducting technology company SuperNode, which you'll hear more about shortly. As for the financing of the transaction, it is fully financed between a EUR 510 million financing facility and Aker's own equity commitment for the balance of the consideration, which amounts to approximately EUR 250 million including equity injection upon closing of the transaction. Now I'll expand on Aker Horizons later in the presentation, but we are currently pursuing what we consider to be highly attractive investment opportunities and in this context, have initiated preparations for a private placement of Aker Horizons and a listing on Euronext Growth with a subsequent transfer to the Oslo Stock Exchange. So with that, I'll hand it over to Mary to present an overview of Mainstream Renewable Power.

Good morning, and many thanks Øyvind and Kristian. And I'm really truly delighted to be joining this call today. Today is a momentous day for Mainstream and just the start of a very, very exciting phase in our growth now as part of the Aker Group. We started our equity process over a year ago, and our ambition was to find a new partner who shares our vision of the energy transition, and who shared our values, particularly sustainability and innovation. We have really ambitious plans to continue to build Mainstream across all of our platforms and across all our technologies. We aim to continue to grow our development pipeline to strengthen our position as a global renewable energy major. We aim to bring 5.5 gigawatts of projects to financial close in the next 3 years. And the plan is to bring the business to IPO in that time frame. We are already the largest renewable energy company in Chile. We are the second largest renewable energy company in South Africa. And we have developed nearly 1/4 of the U.K.'s offshore wind farms. When our Chilean portfolio of wind, solar projects are fully operational in 2022, it will be generating firm power each year matching the 24/7 demand of more than 1 in 6 Chilean households and eliminating more than 1.6 million tons of CO2. And this is a very clear example of how large-scale wind and solar can support an increasing electrified world, while helping governments achieve their carbon emissions targets and, of course, dramatically reducing the cost of electricity to the consumer. And it's also a clear example of our ambition to deliver similar outcomes across our other markets. Together with Aker, we can now very much accelerate those ambitions. Next slide, please. So over the last 12 years, in Mainstream, we have built a company that spans 4 global platforms. More than 300 of us work across 13 offices with our headquarters in Dublin, and our projects really span the world from Chile's Atacama Desert through to South Africa's Northern Cape and all the way to the Mekong River Delta in Vietnam. And over the last decade, we have grown to become 1 of the world's largest independent renewable energy companies, providing cheap, reliable and resilient electricity where it is most needed and delivering significant value to our shareholders. Today, we have a portfolio of over 11 gigawatts of projects with 1.4 gigawatts currently under construction or in operation. Next slide. Next slide again. And that 11 gigawatts is spread across the world, and represents a combination of renewable technologies. So when we set up Mainstream back in 2008, we had a really clear goal to develop onshore projects in growth markets and to be at the forefront in the development of offshore wind. Today, we have 3 growth market platforms in Latin America, in Africa and Asia Pacific, and our offshore business, having already successfully developed over 4 gigawatts of projects in the North Sea, is now actively pursuing opportunities in several markets, including Vietnam, where we're developing Southeast Asia's largest offshore wind farm. Next slide. And next slide again. Our real strength is our people. Our Chairman and founder, as Kristian mentioned, is Dr. Eddie O’Connor, who set up Mainstream with a very clear vision of a world electrified by renewable energy. We have 1 of the most experienced management teams in the renewables industry. If you could just move the slides along, I think we're well behind? And several of us on the management team have worked with Eddie either since electricity or since the early days of Mainstream. Along the journey, we've partnered with some of the leading players in the global energy sector, including Ørsted, EDF, BlackRock, [indiscernible] as well as helping to bring new investors into the sector like IKEA and the Rockefeller Brothers Fund. And next slide. We have extensive in-house capabilities. Our teams cover every aspect of project execution from greenfield development, bringing our projects right through the development cycle, right through construction and into operations. And we are particularly proud of our approach to sustainable development, that's very much at our core. Our Global Development Standard, which is based on the IFC Sustainability Framework and the Equator Principles really underpins our community facing approach to development. And on to the next slide. Our social license is how we approach our community facing approach to development. We feel that our social license to operate is crucially important to us, and we aim to live our values in all that we do. And you can see from the external certification of our sustainable development, from our industry leadership, from our championing of the principle of a great workplace that we're very proud of what we do and of who we are. And you'll also understand that similar to the words that Kristian and Øyvind have spoken, we saw a very similar picture when we looked at Aker and started to get to know each other. And this very much reinforces what I said earlier about how we believe that we have found the right partner to help accelerate our growth and the speed of the global transition to renewable energy. And our next slide. Spoke earlier about our 4 platforms, and here, you can see some more detail about each of them. We have been in Chile and South Africa since the early days of Mainstream. And in each country, we have developed a portfolio of solar and wind assets. And this has allowed us to bring well cited, well-developed projects into each country's competitive procurement processes. And in addition, as those markets mature, we're very well placed to find additional route for value creation, including the growing corporate offtake sector. Our offshore wind team is 1 of the best-in-class, having won and developed the largest offshore wind zone in the world, the U.K.'s Hornsea site. We have taken all that learning and now apply it to new markets, particularly in Vietnam. We're very much poised for a rapid growth trajectory across all of our markets, and all of us at Mainstream are delighted and hugely excited that Aker has committed to deliver this investment in Mainstream that will allow us to grow further and faster to deliver value and to help deliver a world electrified by renewable energy. And now I will just finish, and you will see a short video about Mainstream. Thank you. [Presentation]

Okay. Thank you for that excellent overview, Mary. It's been a busy first 6 months for Aker Horizons. We're very pleased with the progress across the portfolio and thankful for the overwhelmingly positive reception. We now have a team of 18 people in place, solely focused on what we call planet-positive investing. With the announcement today, we have 3 established platforms, Aker Carbon Capture, Aker Offshore Wind and now Mainstream Renewable Power. From an impact perspective, growth and diversification are key. And we have designed our portfolio along these lines. Individually, each company with high-growth prospects. And together, the companies provide Aker Horizons with a holistic view of how to develop green value chains. Now a few words about each platform, starting with Mainstream. You've heard about the business from Mary. We are fully aligned on the direction. For us at Aker Horizons, it is about accelerating the journey towards becoming a renewable energy major, developing the pipeline, diversifying the business and driving synergies with the rest of the Aker Group. Our plan is to IPO Mainstream within a 2 to 3-year period. We see the public markets as an attractive avenue for growth capital and see a lot of investor interest for a company such as Mainstream. Aker Offshore Wind is a separate platform listed on Euronext Growth, primarily focused on deepwater wind and floating wind in particular. Since mid-last year, the company has taken big steps to mature key projects and strengthen its organization. The project portfolio ranges from California to South Korea, where it's part of a consortium that plans to build a major floating wind park off the coast of Ulsan. The company is also in the process of preparing for upcoming rounds in Norway and Scotland. The company will remain separate from Mainstream, each with its own distinct strategy, but will seek areas of collaboration where mutually beneficial. The third platform is Aker Carbon Capture, which has a proven technology and great potential to remove millions of tons of CO2 from several industries, including hard to abate sectors like the cement industry and waste to energy. Aker Carbon Capture is well positioned in this market with a patented solution that has been developed over several years. Since August last year, the company has rapidly expanded its organization and developed a strategy with Aker Horizons to harness its full potential. In the first 6 months, the company has entered into 4 strategic MOUs with potential partners and customers in addition to securing the breakthrough contract, the Brevik CCS project, where Aker Carbon Capture will deliver a complete capture plant for the Brevik cement factory in a NOK 1.7 billion EPC contract. Now in addition to the 3 mentioned platforms, we also have what we have deemed a Sunrise Portfolio, companies, financial investments and initiatives that are early stage with very large potential. We have highlighted 1 such company, Aker Clean Hydrogen, which is similar to our first 2 platform, which were built off decades of Aker experience and now have huge market potential. Hydrogen is a particularly promising part of the future emissions-free energy landscape, both through hydrogen and ammonia. With Aker's position in energy production and engineering capabilities, Aker Horizons' ambition is to become a leading player in developing and operating cost-effective and reliable hydrogen production facilities. The company will be presented on February 17 in connection with Aker's fourth quarter presentation. In addition, under the Sunrise Portfolio, we have a number of ongoing early stage initiatives ranging from battery technology to plastics, and we'll be sharing more information as they mature. The key message is that incubation of ideas from the Aker Group related to planet-positive initiatives will play an important role for Aker Horizons in addition to M&A. So summing up for Aker Horizons, we are very pleased with today's announcement. I am convinced that by combining Mainstream's expertise and premium renewable assets with Aker's financial and industrial capabilities will create a uniquely attractive company with a significant positive environmental impact. We have set ambitious goals, have many ongoing initiatives, and I very much look forward to sharing more with you over the coming months.

So thank you, Mary and Kristian. Before we open up for questions, I want to take a moment to summarize. The steps taken by Aker last year with the establishment of an investment platform within renewable and green tech has not only been well received by the market but has proven to be a timely execution of our long-term strategy to take part in the energy transition, building on our 180-year history of developing successful industrial companies. As always, we seize opportunities when the time is right. In just 6 months, Aker Horizons has been seeing significant value growth in its first 2 building blocks in Aker Offshore Wind and Aker Carbon Capture. The acquisition of Mainstream gives Aker Horizons its next solid building block. Through a highly skilled organization, global footprint and a sizable 11 gigawatts in total potential capacity within wind and solar, Mainstream will unlock opportunities within Aker Horizons' already differentiated portfolio that is set up to leverage on the growth of hybrid projects. With unique access to the deep domain expertise within the Aker ecosystem, including within digitalization and software, the plan is to accelerate the development of Mainstream, bringing it to an IPO within 3 years. This is in line with Aker Horizons' strategy and operating model for developing companies with an unwavering drive to improve, grow and maximize values for shareholders in a sustainable manner. Aker Horizons have hit the ground running with an active M&A agenda, with no shortage of incoming calls for investment opportunities. It's next step in value accretive activities includes the launch of an Aker Clean Hydrogen, as Kristian just explained. In order to fund all these investment opportunities, Aker Horizons has started preparing for a near-term IPO and listing on Euronext Growth with a subsequent transfer of listing to the Oslo Stock Exchange within 12 months. In other words, we are all full speed ahead as we embark on a new year and a new chapter in our industrial history.

Great. Thank you, Øyvind, and Kristian and Mary. We will now open up for a few questions that we received over the web. The first one, Øyvind, you just touched on hydrogen. Could you give a little bit more flavor on what the plans are within that space?

We're making good progress in the preparation for a new company under the Aker Horizons umbrella called Aker Clean Hydrogen. And as Kristian just said, we will provide the market with more specific information in the Aker quarterly presentation on February 7 in the Teams. But overall, we are making good progress in identifying projects, potential partnerships and recruiting top talent. And I think this will be yet another exciting investment to be made by Aker Horizons and a building block in our portfolio strategy going forward.

Okay. The next question is, where REC fits into the plans considering Aker Horizons' 24% stake?

Yes. So the REC Silicon stake is in the Sunrise Portfolio under Aker Horizons, and it's a stand-alone financial investment. What I would say, it's particularly interesting in the silane capacity that REC has in Moses Lake in the state of Washington, which is in an increasing degree being recognized as interesting and can -- on the battery side. So that's something that we're following very closely.

The next question is, what is your perspectives on a develop and hold strategy versus develop and recycle/exit model for MRP or Mainstream? Should we expect to see full exits from assets when you find it accretive or is farm-downs equally likely?

Well, I would say Mary can answer this, but I would just say, I mean, historically, Mainstream has been mostly a developer, I mean, having brought 6.4 gigawatts to the financial close. But part of this journey, as we see in partnership with Mainstream, is going mostly from developer over to renewable energy major, which includes full capital recycling. But Mary, it'd be interesting to hear your perspectives?

Thanks, Kristian, yes, and you've very well described Mainstream's journey and its evolving business model as a result. And today, we have 1.3 gigawatts of projects that are in construction that are wholly owned by Mainstream. So we're very well positioned for a business model that then will bring us very well to an IPO within the time frame that's been outlined. So we expect that the strategy may vary across markets depending on where we see optimal value and where we see the appropriate levels of capital recycling combined with the appropriate level of retention of assets.

The next question is, in terms of ownership structure, what type of investment Horizons should expect for the 25% share held by Dr. Eddie O’Connor and other shareholders?

So we're deeply impressed by Eddie O’Connor as the founding father and the results he has achieved together with the management team, and we're pleased by the fact that this is not only an acquisition but also a long-term partnership with the same individuals. As far as an alignment is concerned, it's true that Mr. O’Connor has together with the existing shareholders, they will reinvest and become 25% shareholder in Mainstream. And as part of the agreement, a lock-up has been agreed for the next 3 years or up to the Mainstream IPO, if that occurs earlier than 3 years.

Okay. The next question is back to Aker Horizons and any view on desired dividend approach, lumpy payoffs based on exits or as a percentage of net asset value per year like Aker?

So we have a discretionary dividend policy in Aker Horizons and from Aker ASA's perspective, we'd rather see reinvestment in the Aker Horizons portfolio than a cash dividend shorter term. So discretionary dividend policy should be expected for the years to come.

Thank you. Anything to add there, Kristian?

Yes. I would just say, I mean, the next phase, in particular for Mainstream Renewable is about growing the pipeline, developing the business further. But clearly, dividends will be a very important story of this investment case over time, which we are very focused on.

Okay. The next question is whether shareholders of Aker ASA will see any shares of Aker Horizons given to them in the relation of the IPO of Aker Horizons.

Aker ASA has no plan to distribute shares in Aker Horizons as part of the IPO. So it will be an investment opportunity directly in Aker Horizons, but no distribution from Aker ASA.

All right. That concludes today's call. Thank you all for listening in. Like I mentioned in the beginning, the full investor presentation is available on the Aker ASA website, and was also published on our ticker this morning. And again, thank you for tuning in.