Good Investing Talks - Why is ABO Wind becoming a KGaA, CEO Karsten Schlageter?

Episode Date: February 18, 2024

Why is ABO Wind becoming a KGaA, CEO Karsten Schlageter?

We have a huge growth momentum at this company in this sector. The energy transition is accelerating. A lot has been accelerated by the over aching, unfortunately, crisis. We have seen the Ukraine war accelerated even further. Before that, there was broad consensus of the energy transition to combat climate change. So all fundamental drivers are really positive for Abouin. Give viewers of good investing talks.

It's great to have you back and it's also great to have Kasten Schlageta of Abu Windbag. He's currently the CEO of one of the most controversial German compounder stocks, so it will be an interesting talk. And for the beginning I want to go into the more controversial side and then we switch to the growthier side of the business. Mr. Schlageta, there has been critique about the KGRA move that you made. You want to change the governance of the company to KGRR. Why have you started this process and what is the goal of it? This is a question of course that has been posed to us now for quite a while. We hope that soon we come over that and we focus again on our growth story of our

profitable growth of our net profit again. I think that's important. important that we talk about the energy transitions, so I look really forward to that. But to your question, it's really an integral part of our strategy. We were founded by Anne and Bockhold families. They are major shareholders and still own more than 50% of the company, so they of course have an very important and positive influence. This has been acknowledged by many shareholders.

It has been acknowledged by our employees. It has been acknowledged by banks, by landowners. It's a strong advantage, competitive advantage of Abo Wind to have that route in really people that know the company. And at the same time we have, and hopefully we can talk about that later, Later, we have a huge growth momentum at this company in the sector. The energy transition is accelerating. A lot has been accelerated by the over aching, unfortunately, crisis.

We have seen the Ukraine war accelerated even further before that. There was broad consensus of the energy transition to combat climate change. So all fundamental drivers are really positive for Abouin. So we put up a new strategic plan to be part of that growth, to reap the benefits. And this requires also sooner or later some additional capital. But we were, so to say, blog-tempered by the families not wanting to get diluted. So we came up as the board with the strategy that combined both worlds. we keep entrepreneurial spirit and also allow that some shareholders can conserve a

third say in the company and at the other hand enable a path to get sooner or later to capital increases it's a bit of a tricky question that I'm asking now because you're still in this process but maybe what you could have done better and learned in this process Well, I think maybe at the very beginning we had some contradictions in the communication to the market. Definitely you always can do better. But in the end, yeah, we have several interests in the company that might not agree with this way forward.

I can accept that, but that's always when you have a fundamental change in the company. change in your strategy. Then, of course, there is opposition. We have also seen very superficial critique. We have seen, unfortunately, also not very well-grounded critique. We have seen many polemic discussions. We have seen very personal attacks against some of our board members or some of our shareholders who it was also, other than what financial market should not always rational. It was a game also about reputation and I felt that some even yeah I'm not sure in Germany we say I'm Beren-Dien Stuyvesen to critique the company but in the end not for its benefit so I think many have for a certain

time loss to focus on what is the base what is the strong growth agenda what is the big big success story also for all investors and especially for investors. Only short-term, I hope only short-term there was a share price dip, but if you talk about long-term investing and not short-term profit-making, then we hope. And of course we have seen the outrageous returns for shareholders that have invested early on and of course we hope that share price go up again and we have hopefully seen the dip and left that behind us it's also thank you for this coming to the studio and this interview it's not normal that people in such a conflict speak about it and one thing I

had to think about is the history you had when going to this Kagea topic because some shareholders fear that you can now rule through and that you can ignore minority interest if you're a KGA. But the way I got to know you was the Berger Vint Actia Abo Invest. It's not like part of your universe anymore. You might do business with them. It's a separate entity to clear vice. But it was this idea and where I got to know you in Mr. Kovka at some fairs here in Germany where you were trying to get people to the stock market to invest in renewables you had this idea of making the stock for everyone who's interested in renewables investing and how does this fit together with this

idea of you having controlling shareholder and working against minority interest like maybe you can help me make sense of this yeah I think it's simply not true that we work against minority interests it's not that I mean first of all the controlling general partners, it's the technical term for complementaire, they will, of course, hold shares and they are obliged to hold shares more than 25%, so there is no interest to work against, how can I say, a positive share price development. We will of course not work against minority interests as we have not done in the past.

I mean, if that is the general sentiment, why do you invest in a company where the company owners own 51%, which is today the case? So we do not need to compare Apple with peers and vice versa. We need to compare what are the alternatives. And today the owners own 51, sorry, the founding owners, they own 51%. So if we want to dilute that, that was the only way, that was the conclusion and the best way that we have shown to our investors. And that's the way we want to proceed.

We cannot compare another structure with this one because this might not be feasible. So we felt it's still in the best interest of all investors to go that way. We will return and compound, as you say, a much more. cash flows than we could do without that move. So it's in the best interest of minority investors. We will still have a supervisory board, so they still control. If we believe that 27 years of successful history of Abo Wind is a quality differentiator, then everyone can also really be happy and positive.

that we keep these anchor investors and also with their way of, in a positive way of influencing the corporate culture and its long-term view. How far are you from the finish line with this process? We are very confident that this will be over soon and then I hope that next time when we do an interview, we talk about the positive things of the future, not of the past,

of the critique we have seen in some of the newspaper articles, of course. We hope that this will be then in April the last General Assembly as ABO Wind AG. This is quite sure that we will still do this as ABO Wind AG, and then in May we are confident in May that we will then do the structural shift also formally. So after the finish line, you already mentioned a bit, but what will be the role of minority shareholders then be in the view for them? They will again be present at the General Assembly. I mean, what do you mean with this question? Where is it today? What do it mean what's its role today?

Then we need to compare what's today and what's in the future. Would you like to understand? Will there be any difference is the question for how you treat them? We look at all shareholders and we want to deliver as forestand, as board members, the best return. So there is no difference from this shareholder perspective. Of course the structure as KGAA is then as it is. So of course there are differences from where we are today. I personally, I'm a minority investor in Abo Wind, and I think it's a bright future for all minority investors without any substantial fundamental change.

We always say the ones that wanted to invest short term only because they expect high returns of someone buying us, absorbing us with a high premium. this is not long a part of the short-term fantasy in the market accepted, but we are very bold as the whole forestand unanimously that we can drive earnings per share much faster than in this current structure. And thank you very much for this clear answer and I hope this comes true to drive the earnings per share. Yeah, we work hard to make it happen. I'm putting you a bit in the hot seat right now.

Another point of critique I heard when I talked to other shareholders about AboVint and other peers is like the ratio of employees to revenue. And for instance, if you look at P&E and the project business, it's like the ratio is lower for AboVint, which means that you are less productive per employee in this view of many shareholders and why do we have this kind of different structure yeah I think I wouldn't tackle that topic from a negative perspective and I see it really positive we have in a world where you have shortage of skilled labor in any area I mean not only the core renewable stuff in the engineering but

also in controlling. I mean, everywhere you have difficulties to find motivated and skilled people. So I would first of all say, Abo Wind is very proud of having a strong base. We have now 1,000, more than 1,200 employees, all experts in the field, all highly motivated. So this is the base for our growth. It corresponds very much to our business model. We We want to shape and drive the energy transition. We are not there standing by passively and subcontracting, outsourcing to others wherever we can. We want to have the in-house expertise. This brings us new innovation.

This enables us to invest in sector coupling, in bringing together all kinds of different technologies. Today we are in wind, as a matter of fact, but also since two years. In solar, we have now a very strong and successful battery team. We have built several batteries around the world in Ireland, a big one in Germany. We are among the leaders in the hybridization projects, in the innovation tenders. So we really know how to bring things together and also we expand on hydrogen. And it's not just a matter of putting output and divided by employees. I mean, it's really a matter of philosophy.

So our in-house competencies are much bigger, others outsource much more. Also, we are in a growth trajectory that hopefully has a broader base that many of our competitors. We are in 16 markets, where more and more become really profitable. We have now sold a huge project in South Africa. We are building two projects in Colombia, and we think we are one of these very successful, mid-sized German companies that really knows how to internationalize and has a much stronger

and faster pipeline that we can then hopefully get profits back. But we invest maybe more than others. So it's our perspective on this huge growth opportunity. We don't see that we have too many employees quite the opposite. Of this 1,000 employees you said some are not profitable. Do you have a rough share where you think this ratio is at the moment of the thousand where this might be in a few years? Of the countries, you mean?

No, we have most of the countries already. put positive results to our balance sheet but of course being making them really cash cash positive some of them will take more time we are a company that has a mid-long-term view on things and we will talk about the market hopefully later and you will see that we have I mean in wind and solar in batteries in hydrogen huge growth in front of us on the one end the energy energy need of the world is increasing in electricity a lot we we see huge growth on the demand side and we will have a substitution effect from renewables to

substitute the coal and later on also gas fire power plants and of course oil et cetera needs also to be replaced so we have a huge huge market in front of us and of course you need people to tackle that to manage the complexities and I think we are very well based and positioned to reap the benefits of such a market and yes and we are proud of all the people that work with with us. How would you describe or characterize the culture you try to build or to nurture at Abouvent? Our culture is very integrative.

We want people to have as much decision autonomy as possible in a capital-intensive world. Of course there need to be checks and balances, but we work strongly in groups. We bring all the functions in project groups, that's the lowest level. So we run project in project groups where they have a lot of decision autonomy. Then we have country groups where also again all functions look into a market and take the decision and only very strategic or critical decisions should then come to the board where again we have many functions in place and maybe also we have a broader board than some other companies but with a lot of expertise and this keeps people motivated so

indirectly you answered already the question I had are you having too many employees with a no yeah definitely no we have many open positions of course we are not naive you know we are not we are manage management that runs a company very thoughtful and every Friday we have our board of course this is a discussion how fast can we grow yeah and do not over ache us culturally I mean you need to integrate people you need to incorporate them train them today we all do not get people that are already experts in let's say renewables this is quite a closed world and there's a lot of growth especially in Germany every

company asks for these skilled labor so we need to bring in people also from a Jackson to industries And we need to retrain them. They are very motivated, of course, if they're commerce, but we need to retrain. And, yeah, so you always need to ask you the question, hey, how fast can we go? Where's the limit? And coming back to the capital story, of course, we also need the capital to underline this fundamental growth. So it goes, all items need to go step by step.

Can you maybe tell us a bit more how you train employees in the Abouvent structure? Yeah, first of all we have welcome days where all people in today's world get emerged in our key cultural elements, in our key processes. There's always a board member present so they can also get direct feedback from top leaders. this is essential because we do things in many ways different than let's say very classical or hierarchical companies then we have in between now a lot of online trainings trainings on the job we have of course you we send people to foreign seminars if they especially if foreign outside seminars

So of course people can take seminars in leading business schools or in engineering topics. We have a lot of especially younger people that also like to take online trainings from external providers. But we have more and more resources in-house in our ABO window in the future ABO energy school. school platform. So you have a lot of archived specific trainings and how you calculate wind yields, stuff like that. So it's very broad. Of course we also learn that we need to even go further.

Now we develop and design a program on how to train even further more consistently our project management capabilities. So we see that indeed with growth, the growth we talked about, we also need to have more common tools and faster training because people come from different backgrounds and then you have in some project groups different understanding. So with growth, with the success, you also have some new complications. We need to always refine our processes. When I think back when I joined ABO Wind, 10 years ago, we had very few formerly established processes.

Now, of course, we need to have many more. We need to manage cash much more carefully. In the past, we had some projects per year that were also relatively small. Now we have around our 16 markets, suddenly many projects. So we need to have much more a view on the whole process. on the whole program of execution and not just on isolated projects. The faster company grows, the more professional tools, processes and trainings you need. And that's what ABO is really good at.

Again, it's because of our great people that join and that develop then these programs and processes to move to the next maturity level. You already mentioned it a bit, but maybe let me follow up on this. How does this larger employee number give you a competitive advantage to other players in the market? Yeah, very specifically, for example, I mean in Spain or in markets that really get hot, you don't even get external expertise. Maybe your consults because you have long-term relationships, they sign a contract, but then they cannot deliver. So the more actually in such a growth sector, the more you can do in-house, the better for

you. Because these are the resources definitely that are fully dedicated only to you and that deliver in the best interest of your company and not have different buyers, so to say, to serve. And when resources get scarce, it's an advantage to have them in-house. In the other way around, it does not mean that we do not suffer from scarce resources. For example, environmental consultants in South Africa had the discussion recently. It's the same thing. In Germany or in Greece, it's getting the right grid connection companies that physically

deliver you the grid infrastructure. But to manage all of this, the scarcity of the outside consultants, you need at least have good engineers and managing capabilities in-house to be successful. That's what we notice everywhere. We are also in a demographic change scenario where labor is missing. How is it affecting you and also like maybe are there chances in Stens, for instance, for instance, from TIC from Argentina, people and integrate them in process in Germany? Absolutely, that's why I think we can be happy that we have so many

good people in our head office, but also we have them in the different subsidiaries. And yeah, I can say simply, yes, we bring people from time to time from other markets. We have now some Argentinian colleagues that work in Germany. We have from Tunisia colleagues, from Colombia, even from Canada. So this is very important that we have this network. and bring people. It's not only to, let's say, fill the gap, that would be a bit sorry,

just if it would be about resources, it's rather also, I mean, it's enriching for people. Again, they can have a great career at ABO Wint. They can start somewhere in a subsidiary, then they can come to the headquarter and maybe later on go back or go to another subsidiary. This is a different of the past

when you're a small company, With some hundred people, this is much more difficult. Now we can manage these things. It brings us to the next level again. Hey, Timon here. It's great that you have made it that far into the video, and I think it shows a certain passion for investing you are having. If you want to dive deeper and go further down the rapid hole,

you're invited to apply to my community Good Investing Plus. It's a place that's very helpful to people who are ambitious about investing. It's helpful to investment talent as well as Experian fund managers. So if you are interested, please click on the link below. And now, without further ado, enjoy the conversation. What is important for you is labor on the one side, but also dimensioned capital. So let's talk a bit about capital allocation. Like your model was to go to the capital markets to grow.

What are other sources that you can get capital? from instead of the labor market to fuel your growth? You mean instead? Yeah, sorry, capital market, not labor market. No, of course, you mean equity markets? We can go and that's what we do. Our CFO, Alexander Reinege is doing great job there. We have of course a consortium of banks

that gives us standard debt structures. We also explore more creative options. I mean, we have many of them, we have Messanine financing, we have bond issues, Nakhang, Dahlene, and now of course we explore also to grow this side, that side. And subordinated loan structures, things like that. I'm sure you will see more about that.

Is maybe also private equity or infrastructure funds calling you from time to time and asking if they can buy parts of your pipeline? Yes, we of course, we see that many of them, I mean, they approach us and would like to buy larger shares or even the company. That's no secret. All companies are approached regularly of our size in the renewable sector because of its attractiveness. We are also brought to buy pipelines or to buy some subsidiaries or part of that. And of course we always carefully listen and evaluate these options. The

limitations of all of this is always to combine it with our culture, with our flexibility, with high speed. We have learned whenever we do joint venture somewhere where of course it slows down decision-making, other companies have much more than, let's say, typical budgetary processes, much more hurdles in taking fast entrepreneurial decisions because also of lack of understanding sometimes. So it's difficult to find structural new ways of structuring subsidiaries or so that's difficult. But yes, what we do, we have already, and this has been announced in our recent strategy, we have now a different approach towards how we realize projects.

In the past, it was king for us, so to say, a supremacy model to turnkey build projects. Now we are much more ready to sell some of our projects or even pipelines at a ready-to-be-built stage. this is of course reducing the capital requirements and allows us to grow as fast as we grow currently without immediately doing capital increases. Is that answering a question or was too much talk? No no it was it was it was a good answer so the minority stake topic is rather a small opportunity compared to other opportunities you're looking for because because it's hard to really find the cultural fit. Yeah, this is difficult and it's governance complexities.

We think about that from time to time. Of course, and we have some joint ventures on a very local level in the country, so of course we do that. But bigger partnerships would rather slow us down, would maybe impact corporate culture. So we want to keep control, but that's why I said we changed the business model, no? More selling project rights, and indeed we did, and very successfully we have sold 250 megawatt in the Spanish market, 150 of that wind, 100 in solar, and it will be a very interesting business. It's still ongoing.

We are paid in milestones. It's one of the most profitable projects, hopefully, in our history. So these things work for us and reduce the requirement of capital in the same way. But one thing you might want to have back is the chance to do capital raises where the capital market. At the moment the share price is depressed. We had the topic of the KGAR already mentioned. Some shareholders ask me, or potential shareholders ask me at what share prices are you prepared

to do capital raises again? Yeah, of course we don't communicate a number, but you're right now it has gone down. So fortunately we are very solid, very strong. I'm very positive that now we are close to announcing last year's results. We hope that this will be positive and definitely in line with our forecasts. That's what we expect and confirmed several times. So we are not in a hurry also, so to say. It's what I said, what we need to do with employees, what we need to do with countries,

what we need to do with debt capital. We can increase with new business model. I mean, we need to have sustainable growth. And of course we can play with so many variables that we are not in a hurry. So we will wait and see how the market absolutely. now our new forecast, our fundamental development. Also, of course, we hope that the market will see and understand that this change instructed to KGAA has rather, in the long-term, very positive aspects.

And actually, we have seen a lot of change in sentiment already. The questions you ask are very much also already a month ago, where they have been extensively discussed now we see other statements now we see some statements where analysts and investors say and now it's time to go back into an undervalued company so I think the I hope and I can only encourage that as continuous we see that there is a turn in sentiment for our our wind our energy shares and we have not discussed that this was not so unusual as many have claimed I think there were many special interests in the market that also influenced the discussion.

We have seen that Tysengrub, Nusera went with this structure to the IPO. We have seen that Shot Pharma went with KGA to the IPO and both very successful. So it's our wind is not the outcast. We are in a good family. We have good companies that have gone. this way. We have Merck, one of the most successful pharma and chemical companies in Germany that has that structure. So the market, we understand the criticism. We understand orthodox finance does not appreciate that, but we see a lot of interest from other investors

and hopefully also we will convince and we will work hard on that to convince all other investors that this change is positive. You have this growth target of doubling net profit till 2027. If you don't have capital raises as an instrument until then, will this effect this target? Let's say it might. We always said, and I said that in the General Assembly very clearly, we think we can reach it when we do capital increases. we were very confident now of course we need to evade to more debt financing we need

maybe in some of the other project to go to construction and bridge finance which is more expensive as I said we have the way to sell more project rights but still very very profitable so we will see I mean we of course do our best to get as close to that and hopefully also soon we have better share prices and then we might increase capital still it's to 2027 it's a bit to go so I'm still personally very positive that we can do it with all elements we outlined and discussed in parallel it's not the one element that brings us to 50 million net profit why do you still pay dividend with this kind of structure because like as I

would be if I would be a shareholder I would be very happy if you keep this capital and reinvested into growth projects yeah this is this very interesting again orthodox finance would say either you grow or you pay dividends I mean are you are very strong growth company or you or you grow moderately but pay dividends. I think maybe coming back to one of your questions, why, what do we do with minority shareholders? And I think minority shareholders, we have some of them that are with us since many, many years. I mean, we're institutional investors. We're not even thinking about Abowind and it's nice to pay some dividends to these shareholders. They

want now also some returns after a long time. Of course you can say they can also sell some shares, but emotionally this is harder. Yeah, I think also, yeah, I think it makes sense to provide a bit of cashback to our long-term, all long-term shareholders that have long been with us. Then thank you very much for this insights and thank you very much for the first part of our interview. I really hoped you enjoyed this conversation. If you did, please leave a like and a comment and for sure subscribe to my channel. Traditionally, I want to close this conversation with the disclaimer. So here you can find the disclaimer.

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