Magnora ASA (MGN) Earnings Call Transcript

Welcome to Magnora's Q1 Presentation 2023. Good morning to everyone. Q1 2023 status and highlights. On May 12, last week, we sold all our shareholdings in Evolar AB for $29 million. We exchanged the currency at close on Friday and received NOK 310 million for all our shares in the company. We still expect milestones of USD 24 million. And at the current exchange rates, the total realization would then be NOK 565 million. Our invested capital in the company is SEK 55 million. And we've lent the company at SEK 35 million. And all loans are made up at transaction date. Magnora is now a streamlined project developer after the sale of our non-core technology company, Evolar AB to First Solar. The sale also removes Magnora monthly cash injection to Evolar, which has been currently running at NOK 5 million per month. So we're very pleased with this transaction. And it marks the largest transaction we've done so far after the new strategy. We've had another rapid quarter of capacity growth. Our net share of the development portfolio grew to above 5,000 megawatts, 2 years ahead of our previous guiding. New guiding expected to be significantly above 5,000 megawatts, and we are planning to announce that quite soon. Evolar -- Helios expects to deliver solid dividend short term. The current cash holding in Helios is around SEK 145 million as this report is announced. It was the first quarter with solid earnings from our associated companies, the companies we own less than 50% in. And the profit was NOK 26.6 million. We also received significant payment from our legacy design business in Q1. That was revenue recurred recognized in Q4 of USD 7.5 million. We expect further payments related to this contract of $4.3 million plus $4.3 million, in total, $8.6 million by the end of the year, early next year. We have ongoing sales and farm-down processes in multiple companies, basically in most of our companies. Based on the significant cash injection we have on Friday from the sale of Evolar, the Board is now currently reviewing our dividend policy, share buybacks against our profitable growth opportunities. Current cash holding is above NOK 400 million and we have 0 debt. As you know, we are a pure asset-light developer of renewable projects and solar technology business we just exited. We have a highly experienced renewable energy investment and project development team. And we've reached our ambition to develop 5,000 megawatts 2 years ahead of time. We financed this business so far from our legacy business and now also from Evolar and dividends from our portfolio companies. We're listed on the main board of Oslo Stock Exchange with over 8,400 shareholders. We invest in renewable and clean energy built in a sustainable way. That's very important for us. We started in 2018 with NOK 100 million in cash and repaid dividends. And at the start of 2020, we had NOK 50 million in starting capital for our renewable business. We returned NOK 517 million to shareholders in dividends in 2018/2019 combined. And we're now in the process of reviewing our dividend policy again after the sale of and delivery of 126 megawatts in Q1 net and also our exit from Evolar. And we're accelerating our growth in our development pipeline. Our largest shareholders are, among others, Hafslund, who came into the company in Q3 last year. And we've had very good support from some of the largest names around our renewable strategy. And we're very thankful for the support we've had over the last few years. And without them, it wouldn't be possible to do what we're doing today. In 2020, when we initiated our strategy, we said that we will have 30 to 50 projects in our document called The Future is Electric, which is available at NewsWeb. Today, we have 139 projects. And that gives us a very good diversification across technologies and across countries. And this is much higher than we previously anticipated, and we're very happy for that. And we'll continue to develop our project pipeline. As you see from last year, we have a much larger portfolio in the Nordpool area with Helios as the prime driver, close to 2,000 megawatts of solar. We also have a very interesting fast-growing portfolio of storage technology as well as our offshore wind project in Sweden. In Scotland, we have 400 megawatts net in the ScotWind license round. And we've seen quite a few transactions in that license round in the secondary market as we speak. We also entered in Norway, together with Hafslund, in a JV. And South Africa is about to grow further. We're also working on a business plan for U.K., England on solar PV and battery storage. And we have three projects as we speak. And it will be a very exciting year for the English portfolio and also projects potentially we'll be selling in England and South Africa. And we're working in South Africa as we speak. Regarding our strategy, and we are an asset-light developer of renewable projects. We take the projects to the ready-to-build phase, where we hand them over to industrial investors, like Hafslund or Commerz Real, OX2 or Solgrid and many other names. But typically, we go in an early phase with our very competent team. And we have a strategy that we allocate around NOK 2 million to NOK 20 million per company and projects. So like the first investment in Evolar was NOK 2.5 million, when we bought that company from the Stockholm District Court R&D Center in Uppsala. And when we derisk, we put in more money. And we have a good veto catalog and control of the companies we go into. Typically, we have the Chairman role. And in Evolar, we were also the Chairman. Our return goal is to have a minimum 5x return. And we think we achieved this well above with the Evolar deal. For project development portfolio, we have much higher expectations regarding return because of the relatively lower DevEx expenses. So in Helios, we've invested around NOK 22 million to date. So the sale from Helios is way, way above our invested capital and the profits already. Regarding the role we play in the market. We have higher risk, of course, than a project that have been -- have all the concessions and permits in place. But the absolute money we put on risk -- at risk is quite low. So typically NOK 2 million to NOK 20 million. In Evolar, we had NOK 50 million. And that's a very low number compared with what you put at risk in a wind park or a solar park. A 5-megawatt wind turbine costs more than NOK 50 million alone. So there, you have much more money at risk. So what we do is, see left corner below here, we do the landowner agreement, the grid connection, the environmental assessment/concession, technical management and project management. So those are services we deliver also after the customer have acquired a project. So quite complex group of deliverables we need to have in place. And we need a competent team to do that. We'll get into the team a little further out in the presentation. We also have three important partnerships. First of all, it's with our portfolio of companies. But we have a JV with Hafslund. And we cooperate and try to find new areas with them as we speak. We have a JV with TechnipFMC in the ScotWind license, Magnora Offshore Wind. And DNV is also a partner in ScotWind, not on the equity side but as a deliverable partner. And we work with DNV in several other areas. So this gives us huge operating leverage with very competent people. So we are different from our competitors, if you see on the right side on the bottom, who take the project cost CapEx risk. So we have a handpicked team executing on large renewable opportunities with a strong entrepreneurial background, like Peter started with Arise Windpower. Haakon was the first -- was the Head of Onshore & Offshore Wind in Statkraft for a couple of decades. Bjørn Drangsholt was the Country Manager in Statkraft U.K. He's leading our Norwegian PV venture with Hafslund. And Torstein, who's our Executive Chairman, he started the Lundin Petroleum Norway, which was sold last year for an astronomic amount to Aker BP. I, myself, have worked with Hafslund and Statkraft before as well as the DNB, EY. And I was also the Chairman in Evolar and led that company from start to the finish line. So here, you see some tombstones for the project, Helios, just giving you an example of our blue-chip customers, Commerz Real, a subsidiary of Commerzbank. Solgrid is a company owned by Østfold Energi and Akershus Energi, two of the largest regional utilities in Norway. And Nordic Solar is a Danish, very successful IPP, focusing purely on solar in many countries across Europe. So Helios in brief, just to give you an example, what's going on there, 118 ongoing projects. They've sold about 600 megawatts of capacity. They have 900 megawatts in sales process as we speak. So this looks to be another very fruitful year for Helios. They have around 25 employees. And they've sold almost 20 projects now and have finished its first project in Västerås for Commerz Real, 21 megawatts, beautiful project just outside Västerås. So in Sweden, the industry trade organization expects the market to be 30,000 megawatts of solar in Sweden. We currently have around 5,000 megawatts of solar. So of that, we have approximately 15%, 16% market share potential of that full market. We think we can grow over the next few years and hope to take a very large portion of that 30,000 megawatts. So it's a huge opportunity as onshore wind has stalled completely in Sweden as in many other countries. And we're combining that with batteries. So it should be a very good source of clean, renewable energy for Swedes in the years to come. Little bit more about the Evolar story. We invested in Evolar in 2020. The team came to us in June and asked us if we knew about investors for Evolar. I was part of Evolar and its predecessor in 2003 to 2007, Solibro. And during the summer of 2020, there were very few people interested in venture capital within the solar space. We have a discussion with our biggest shareholders and our Board. And we were willing to take this risk as we know the technology business within the solar space from our previous experiences. We did a management buyout of this insolvent research facility in the Stockholm District Court. And we provided it to venture funding and led the development together with the founders. They have multiple world records within the thin-film space. So that was a no-brainer for us. And we have been working a few years with a couple of joint development agreements. And then we had First Solar showing interest just before Christmas and been working on this deal for over the last few months, last 5 months actually. And we ended up with a transaction value up to USD 80 million, NOK 838 million. And we own about 2/3 of the company. So potentially, we can receive NOK 565 million in payments at the current exchange rate if all milestones are met. Magnora will no longer be required to fund the operating expense of Evolar, which is currently running, after staff increases late last year, of SEK 5 million per month. So this has another very positive impact on Magnora and our cash base. The non-core divestment of Evolar leaves Magnore to focus on its proven model within the project development space with an ample amount of growth opportunities. We have sold 231 megawatts net last year. We guided earlier this year on 200 to 325 megawatts of projects to be sold in 2023. We will get back to that number later. We have very good discussions in multiple portfolio of companies and think this is a target we can meet. And we will also be revising upwards the number of megawatts we will be able to develop over the next few years. The market looks to have a very strong appetite for these type of projects. So we feel we're absolutely in the right space. Over to financials. So I think the key item on the finance side is that the M&A and development expense will be reduced as a result of Evolar going out of the portfolio. And we have a good operating profit of close to NOK 20 million. And we have a positive profit from our associated companies of NOK 26.6 million. This was, in previous quarter as comparison, negative NOK 4.5 million. So this is attributable basically to Helios. And you have to take away their costs and also the cost in Kustvind. So that's how we end up with this figure. We also have a deferred tax asset of NOK 3.5 billion from our legacy business, which is interesting for all shareholders in Magnora. And we have paid-in capital of NOK 8.4 billion, meaning that return on capital at least to some type of investors, like Norwegian private shareholders, is tax-free. Next slide regarding cash flow. The key item here was the Penguins cash payment in February. And at the exchange rate we used at the time, we received NOK 77 million. The revenue was recognized in Q4. The small loss on the last slide in the profit and loss statement of NOK 7 million relates to currency adjustments from year-end 2022 to end of March for the Penguins cash hedge. So it has no physical effect. So we received that money and then there's probably not much more currency risk on that line. So the last two payments from Penguins is expected short to mid-term. So that will be another cash flow event going forward as well as Helios. But that's for the future. So regarding the outlook, we have very good development portfolio growth. We have guided on farm-down of 200 to 325 megawatts this year. And we hope to receive more than NOK 1.5 million per megawatt in some of our projects going forward. We expect further payments from our legacy contracts and dividends from portfolio of companies. And we're very proud to have these names on the bottom here, such as Magnora South Africa, Kustvind, Magnora Offshore Wind, strong franchises within their regions. We don't like too much competition. So for instance, ScotWind is about to get secured maybe a grid connection to -- from Western Isles to Beauly, close to Inverness in Scotland second half of this year. So these are companies with very good prospects going forward. So on the last item here, it's about share buyback, capital reduction and dividends. We have very profitable growth opportunities before us. We will not change our business model but stick to the model, where we spend NOK 2 million to NOK 20 million in initial investments, at least in our new projects where we go in. We have too much cash for running that business basically. And we expect to receive a lot of cash going forward. The Board has been authorized to initiate a share buyback and this -- several times, and this was renewed at the Annual General Meeting on April 25. For the last couple of years, we have quarterly dividends. But they were halted after the strategy for making The Future is Electric, which we are currently endeavoring. And the Board initiated last night a review of share buybacks and return of capital, dividend against our profitable growth opportunities. So we'll be interested in receiving feedback from our shareholders. We received some from analysts and some of our largest shareholders already. And we'll be working first thing in the morning on this going forward and come back and announce this soon as practically possible. We will not have a Q&A session today. But we welcome anyone to send us an e-mail. If you're in the Skøyen area, feel free to invite yourself for a coffee, maybe we have time. We're always interested in feedback from our shareholders. And we just want to continue growing the number of portfolio of companies and projects in this portfolio in the same way to where we got today. And we see very profitable growth opportunities going forward. We are extremely thankful for the support we have on our portfolio of companies so far. And we think with the sale of Evolar that we have shown that we can create the returns we've been explaining we could expect over the last few years. So we feel very pleased and happy to work on this journey and making The Future is Electric as possible. So with that, we will finish this presentation. And we wish all, our investors, analysts and listeners, a good day. Hope to hear from you soon. Thank you.