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

Karsten Schlageter and ABO Wind are back! Two years after our first interview in 2021, I am pleased to welcome CEO Karsten Schlageter for a two-part follow-up interview (find part 2 here).

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We have discussed the following topics:

Intro

[00:00:00] Karsten Schlageter: We have a huge growth momentum at this company in this sector. The energy transition is accelerating a lot. It has been accelerated by the over-arching, unfortunately, the crisis. We have seen the Ukraine war accelerated even further. Before that, there was a broad consensus on the energy decision to combat climate change so all fundamental drivers are really positive for ABO Wind.

Introducing Karsten Schlageter

[00:00:27] Tilman Versch: Dear viewers of Good Investing Talks. It’s great to have you back and it’s also great to have Karsten Schlageter of ABO Wind. And he’s currently the CEO of one of the most controversial German compounder stocks. So we’re building an interesting talk. And for the beginning, I want to go into the more controversial side and then we switch to the growth year side of the business.

Transforming ABO Wind’s governance into a KGaA

[00:00:51] Tilman Versch: And Mr Schlageter, there has been critique about the KGaA move that you made, you want to change the governance of the company to the KGaA and why have you started this process and what is the goal of it?

[00:01:06] Karsten Schlageter: This is a question, of course, that has been posed to us now for quite a while. We hope that soon we will overcome that and we focus again on our growth story of our profitable growth of our net profit. Again, I think that’s 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 the Bockholt families. They are major shareholders and still own more than 50% of the company, so they, of course, have a 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 land owners and it’s a strong advantage, competitive advantage of ABO Wind to have that route in people that know their company.

And at the same time we have and hopefully, we can talk about that later. 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-arching, unfortunately, crisis. We have seen the Ukrainian war accelerated even further.

Before that, there was broad consensus on the energy transition to combat climate change. So all fundamental drivers are really positive. For ABO Wind, so we put out a new strategic plan to be part of that growth to the benefits and this requires also sooner or later some additional capital. But we were, so to say block-tempered, yeah, by families not wanting to get diluted.

So, we came up as the board with a strategy that combined both worlds as we keep entrepreneurial spirit and also that some shareholders can conserve a third say in the company and on the other hand, enable a path to get sooner and later to capital increases.

[00:03:41] Tilman Versch: 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.

[00:03:54] Karsten Schlageter: 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 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 managing markets should do not always rational.

It was gain also about reputation and I felt that some even, yeah, I’m not sure, in Germany we say, “einen Bärendienst erweisen” to critique the company, but in the end not for its benefit.

So I think many have for a certain time 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. I hope only short term there was a share price dip, but if you talked about long-term investing and not short-term profit making then we hope.

And then we, of course, we have seen your outrageous returns for shareholders that have invested early on and of course, we hope that the share price go up again and we have hopefully seen the dip and left that behind us.

[00:05:59] Tilman Versch: Thank you for coming to the studio and this interview. It’s not normal for people in such a conflict to speak about it. And one thing I had to think about is the history you had when going to this KGaA topic because some shareholders fear that you can now rule through and that you can ignore minority interests if you’re a KGaA.

But the way I got to know you was the Bürgerwindaktie, or Abo Invest. It is not part of your universe anymore. You do might do business with them. It’s a separate entity, clear-wise. But it was this idea and where I got to know you and Mr Koffka 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 this stock for everyone who’s interested in renewables investing. And how does this fit together with this idea of you having a controlling shareholder and working against minority interests? Like maybe you can help me make a sense of this.

[00:07:05] Karsten Schlageter: Yeah. I think it’s simply not true that we work against minority interests. I mean, first of all, the controlling general partners, it’s the technical term for complementary, they will, of course, hold shares and they are obliged to hold shares more than 25%, so there is no interest in working against.

Yeah, how can I say 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 your company owners own 51%, which is to be 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 founding owners own 51%. So if you want to dilute that that was the only way, that was the conclusion and the best way and 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, 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 there is still control. If you believe that 27 years, 27 years of the successful history of ABO Wind is a quality differentiator than anyone can also really be happy and positive that we keep these anchor investors and also in a positive way of influencing the corporate culture and its long-term view.

Karsten Schlageter on closing the KGaA transformation

[00:09:28] Tilman Versch: How far are you from the finish line with this process?

[00:09:32] Karsten Schlageter: 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 and 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, and this is quite true that we will still do this as ABO Wind AG and then in May we are confident that we will then do the structural shift also formally.

The role of minority shareholders

[00:10:13] Tilman Versch: So after you crossed the finish line, you already mentioned a bit, but what will be the role of minority shareholders then in the view for them?

[00:10:24] Karsten Schlageter: They will again be present at the General Assembly and what do you mean by this question? Where is it today and what’s its role today that we need to compare what’s today and what’s in the future? What exactly would you like to understand?

[00:10:42] Tilman Versch: Will there be any difference, is the question, for how you treat them?

[00:10:47] Karsten Schlageter: We look at all shareholders and we want to deliver as Vorstand and as board members the best return. So there is no difference from this shareholder perspective. Of course, the structure of KGaA is then as it is. So, of course, there are differences from where we are today, but I personally I’m a minority and Western ABO Wind and I think it’s a bright future for all minority investors without any substantial fundamental change and we always say the ones that wanted to invest short term only because they expect high returns of someone buying us, absorbing us with the high premium.

This is not our part of the short-term fantasy in the market accepted. But we are very bold as to the whole four strands unanimously that we can drive earnings per share much faster than in this current structure.

[00:11:53] Tilman Versch: Then thank you very much for this clear answer and I hope this comes true the earnings per share.

[00:11:59] Karsten Schlageter: We work hard to make it happen.

Are you overstuffed?

[00:12:04] Tilman Versch: I’m putting you a bit in the hot seat right now. And another point of critique I heard when I talked to other shareholders about ABO Wind and other peers is the ratio of employees to run. If for instance, you could P and E and the project business, it’s like the ratio is lower for ABO Wind, which means that you are less productive per employee in the view of many shareholders. And why do we have this kind of different structure?

[00:12:40] Karsten Schlageter: Yeah, I think I wouldn’t tackle that topic from a negative perspective and I see really positive. We have a world where you have a shortage of skilled labour in any area not only in the core renewables stuff and the engineering but also in controlling everywhere you have difficulties finding motivated and skilled people.

So I would, first of all, say ABO Wind is very proud of having a strong base. We have now more than 1200 employees, all experts in the field, and all highly motivated. So this is the base for our growth.

So I would, first of all, say ABO Wind is very proud of having a strong base. We have now more than 1200 employees, all experts in the field, and all highly motivated. So this is the base for our growth.

They correspond very much to our business model. 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 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 2017 in solar, we have now a very strong and successful battery team. We have built several batteries around the world. In Ireland, big one. In Germany, we are among the leaders in hybridization projects, in innovation. 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, our less outsource much more. Also, we are in a growth directory that hopefully has a broader base than 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 internationalise and has a much stronger and fast 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.

[00:15:36] Tilman Versch: Of these thousand employees, you said some are not profitable. Do you have a rough share of where you think this ratio is at the moment of the thousand where this might be in a few years?

[00:15:49] Karsten Schlageter: Of the countries you mean? No, we have most of the countries already put positive results to our balance sheet. But of course, it’s making them really cash-positive. Some of them will take more time. We are a company that has a mid-long-term view of things. We will talk about the market hopefully later and you will see that we have wind and solar, in batteries, in hydrogen, huge growth in front of us.

On the one hand, the energy needs of the world are increasing in electricity a lot. We see huge growth on the demand side and we will have a substitution effect and from renewables, substitute the coal and later on, as the gas-fired power plant and, of course, oil etcetera needs also to be replaced. So we have a huge, 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, we are proud of all the people that work with us.

The culture at ABO Wind

[00:17:22] Tilman Versch: How would you describe or characterize the culture you try to build or to nurture on ABO Wind?

[00:17:30] Karsten Schlageter: Our culture is very integrative and we want people to have as much decision autonomy as possible in a capital-intensive world.

Our culture is very integrative and 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 a group. We bring all the functions and project groups. That’s the lowest level. So we run projects in project groups where we have a lot of decision autonomy.

Then we have country groups where also again all functions look into a market and make the decision and only very strategic critical decisions should then come to the board, where again we have many functions in place and maybe also, we have a broader, more than some other companies, but with a lot of expertise and it just keeps people motivated.

[00:18:26] Tilman Versch: So indirectly you answered already the question I had. Are you having too many employees with no?

[00:18:32] Karsten Schlageter: Yeah, definitely no. We have many open positions. Of course, we are not naive. Yeah, we are not. We are management that runs a company very thoughtful and every Friday we have our board. Of course, there’s a discussion about how fast can we grow and to not over arch us culturally.

I mean, we need to integrate people. You need to incorporate and train them. Today, we do not get people who 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 this skilled labor, so we need to bring in people also from Jackson Industries and we need to retrain them.

They are very motivated, of course, if they come us, but we need to retrain, and yeah, so you always need to ask you the question, hey, how far can fast can we go? Where’s the limit? And coming back to the capital store, of course, we also need the capital to underline this fundamental growth. So it goes, all items need to go step by step.

Karsten Schlageter, how do you onboard new employees?

[00:19:46] Tilman Versch: Can you maybe tell us a bit more about how you train employees in the ABO Wind structure?

[00:19:53] Karsten Schlageter: First of all, we have welcome days where all people in today’s world get emerge in our key cultural elements, in our key processes and 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 training, training on the job. We have of course, yeah, we send people to foreign seminars if they’re especially for foreign and 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 who also like to take online training from external providers. But we have more and more resources in-house in our ABO Wind in the future or ABO energy school platform. Yeah. So you have a lot of archived specific training and how you calculate wind yields, stuff like that. So it’s very broad. Of course, we also know that we need to even go further.

Now we develop and design a programme 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 projects with different understanding.

So with growth, with success, you also have some new complications. We need to always refine our processes when I think back to when I joined ABO Wind 10 years ago, we had very few formally 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 16 markets and certainly many projects.

So we need to, we need to have much more view on the whole programme of execution. Not just on isolated projects, the faster company grows, the more professional tools, processes and training you need and that’s what ABOs are really good at. Again, it’s because of our great people who join and the development of these programmes and processes to move to the next maturity level.

Being competitive

[00:22:59] Tilman Versch: 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?

[00:23:10] Karsten Schlageter: Very, very specifically. For example, I mean in in Spain or in markets that really get hot. You don’t even get external expertise. Maybe your concerns are because you have long-term relationships. They sign a contract, but when 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 gets 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, and environmental consultants in South Africa had the discussion recently.

It’s the same thing. And in Germany or in Greece, it’s getting the right grid connection and companies that physically delivers with the grid infrastructure. But to manage all of this, the scarcity of outside consultants, you need at least have good engineers and managing capabilities in-house to be successful. That’s what we notice everywhere.

International knowledge exchange

[00:24:36] Tilman Versch: We are also in a demographic change scenario where labour is missing and how is this affecting you? And also like maybe other chances instance, for instance, from Argentina people and integrate them in process in Germany?

[00:24:52] Karsten Schlageter: Absolutely. That’s why I think, I mean 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 who work in Germany.

We have from Tunisia, colleagues from Colombia, and even from Canada. So this is very important that we have this, this network and bring people. It’s not only to, let’s say, fuel 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 in ABO wind, they can start somewhere in a subsidiary when they can come to the headquarter.

Maybe later on go back or go to another subsidiary. This is different from the past when we were a small company with some hundred people. This is much more difficult. Now we can manage these things and brings us to the next level again.

Check out GI Plus

[00:26:04] Tilman Versch: Hey, Tilman 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’re having. If you want to dive deeper and go further down the rabbit 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 experienced fund managers. So, if you’re interested, please click on the link below and now, without further ado, enjoy the conversation.

Karsten Schlageter Capital allocation

[00:26:39] Tilman Versch: What is important for you is labour on the one side, but also the mentioned 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 capital market to fuel your growth?

[00:27:06] Karsten Schlageter: No, we, of course, in equity markets, we can go and that’s what we do. Our CFO, like Sandra Reiniger is doing a great job there. We have, of course, consortium of banks that gives us a standard debt structure.

We also explore more creative options. I mean, we have many of them. We have no assembly in the financing, we have bond issues, Nachrangdarlehen. And now, of course, we explore also to grow that side. And subordinated loan structures, things like that. And I’m sure you will see soon more about that.

[00:27:51] Tilman Versch: Is maybe also private equity or infrastructure funds calling you from time to time and asking if they can buy parts of your pipeline?

[00:28:04] Karsten Schlageter: Yes, of course, we see that many of them, I mean, their process 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 also approach, yeah, to buy pipelines or to buy some subsidiaries or part of that.

Of course, we always carefully listen and evaluate these options, and the limitations of what one this is always to combine it with our culture with our flexibility, with high speed. We have learned whenever we do a joint venture somewhere, of course, it slows down decision-making. Other companies have much more than, let’s say, typical budgetary processes, much more hurdles and taking fast entrepreneurial decisions because also of lack of understanding sometimes.

So it’s difficult to find structure and new ways of structuring subsidiaries. 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 realise projects. In the past, it was king for us, so the supremacy model to turnkey build projects.

Now we are much more ready for some of our projects or even pipelines 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 your question or was it too much talk?

Looking for the right opportunities

[00:30:05] Tilman Versch: No. It was a good answer. So the minority stake topic is rather a small opportunity compared to other opportunities you’re looking for because it’s hard to really find the cultural fit.

[00:30:20] Karsten Schlageter: Yeah, this is difficult and it’s governance complexities. We think about it from time to time and, of course, 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.

And so we want to keep control. But that’s why I said we changed the business model. More selling project rights. And indeed we did it very successfully. We have sold 250 megawatts in the Spanish market, 150 of that wind, 100 on 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.

Capital raises

[00:31:21] Tilman Versch: But one thing you might want to have back is the chance to do capital raises by the capital market. At the moment the share price is depressed. We had the topic of the KGaA here already mentioned. And some shareholders ask me, your potential shareholders ask me at what share prices are you prepared to do capital raises again.

[00:31:43] Karsten Schlageter: Yeah, of course, we will communicate the number, but you’re right now it has gone down. So, unfortunately, very solid, very strong and 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 expected and confirmed several times. So we are not in a hurry as 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. The 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 here.

So we will wait and see how the market absorbs now our new forecasts or fundamental developments also of course, we hope that the market will see and understand that this change in structure 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 months 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 hope and I can only encourage that there’s continuous. We see that there’s a turn in sentiment for our wind and our energy shares. And we have not discussed that this was not so unusual, as many have claimed. I think many special interests in the market also influenced the discussion.

We have seen that Nucera went with this structure to the IPO. We have seen that Schott Pharma went with KGaA to the IPO and both were very successful. So it’s ABO Wind is not the outcast. We are in a good family. We have good, 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 to convince all other investors that this change is positive.

[00:34:44] Tilman Versch: You have this growth target of doubling net profit till 2027 and if you don’t have capital raises as an instrument till then, will this affect this target?

[00:34:57] Karsten Schlageter: Let’s say at night we always said and I said we’re in the General Assembly very clearly, we think we can reach it when we do capital increases. And we were very confident. Now, of course, we need to evade more debt financing. We need maybe in some of the other projects to go to construction and bridge finance, which is more expensive. As I said, we have a way to sell more projects right but still very profitable.

So we’ll 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 the elements we outlined and discussed in parallel. It’s not the one element that brings us to 50 million net profits.

Thoughts on dividends

[00:36:03] Tilman Versch: The last question to this complex is why do you still pay dividends with this kind of structure because like if I were a shareholder, I would be very happy if you keep this capital and reinvest it into growth projects.

[00:36:18] Karsten Schlageter: Yeah, this is very interesting. And again, orthodox finance would say either you grow or you pay dividends. I mean you are a very strong growth company or you grow moderately but pay dividends. I think, maybe coming back to one of your questions, what do we do with minority shareholders?

And I think minority shareholders, we have some of them that are with us for many, many years. I mean where institutional investors were not even thinking about ABO Wind. It’s nice to pay some dividends to their shareholders. They’re one now also some returns after a long time. Of course, you can say you can also sell some shares, but emotionally this is harder. Yeah, I think it makes sense to provide a bit of cash back to our long-term or long-term shareholders who have long been with us.

Check out part 2

[00:37:29] Tilman Versch: Then thank you very much for these insights and thank you very much for the first part of our interview. I really hope you enjoyed this conversation. If you did, please leave a like in the comment and for sure subscribe to my channel.

Disclaimer

[00:37:43] Tilman Versch: Traditionally, I want to close this conversation with the disclaimer, so here you can find the disclaimer. It says, and please do your own work. This is no recommendation what we are doing here is just a qualified talk that helps you, but it’s no recommendation. Please always do your own work. Thank you and hope to see you in the next episode. Bye-bye.

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Tilman is a very enthusiastic, long-term investor. Over the last years he has taught himself important investing concepts autodidactically. He tries to combine a positive climate and environmental impact with his investments.
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