Climbing up the stock market rankings

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No other company has moved up the stock markets in France as fast as Theolia, a wind power asset manager and project developer with global ambitions to be the largest independent quoted wind company by the end of the year. But for all the growth it owns little more than 300 MW of operating wind capacity

From an obscure renewable energy producer founded in the southern French town of Aix-en-Provence in 1999, Theolia is today one of Europe's fastest growing independent players in the wind power market. Consolidated sales increased from just EUR 1.3 million in 2002-2003 to EUR 71 million in 2005-2006, the latest financial year for which figures are available. Theolia is now a pure wind player with a portfolio of over 3300 MW (table); it has teamed up with one of the world's leading energy conglomerates; its 190 employees work in wind markets as diverse as France, Germany, India, Brazil and Morocco; and it boasts one of the fastest growing stocks on Paris' Euronext market.

As yet, however, it owns no more than 333 MW of operational capacity and ranks in a low 17th place in the global wind farm ownership rankings. But by the end of 2011 it is aiming to own 1000 MW, have 1000 MW under management and achieve annual wind plant sales of 175 MW.

Much of Theolia's dramatic rise to date has taken place under the steady hand of co-founder Jean-Marie Santander, who took over as CEO in 2004. His first priority was to set the young company on a firm financial footing. This meant Theolia "lost two years when it could have been building capacity, but ensured it now has the strength to continue," Santander says.

In 2004 and 2005, the company raised EUR 33.6 million in a three-stage share placement, way over the EUR 23 million originally envisaged. Next step on the ladder was buying the French developer Ventura in May 2005 from Germany's Plambeck Neue Energien AG. The deal brought Theolia an experienced development team and boosted its wind portfolio from just 19 MW under construction plus 200 MW under development to 26.8 MW operating or building and a development pipeline of nearly 600 MW. Theolia commissioned its first wind plant, a 10 MW installation at Fonds de Fresne in northern France, in January 2006.

First steps abroad

Having established a position in the French market, Theolia then started looking abroad. Its acquisition of Natenco, an independent German wind power developer specialising in turnkey construction and operation for third parties, in 2006 "transformed Theolia into a leading European wind farm operator," says the Arne Lorenzen, who heads up company operations. Theolia's installed wind capacity jumped from 47 MW to 72 MW, wind plant under management for third parties reached 140 MW, and its portfolio of projects at the site permit stage grew to 342 MW, mostly in Germany and France. In addition, it now had access to over 1500 MW under development worldwide, including in Greece, the Czech Republic, Croatia, India and Brazil.

Natenco also gave Theolia a broader foundation, both geographically and strategically. Some observers questioned Theolia's move at the time, arguing that the mature German market offered slim pickings. The fact that such a young, dynamic French company was taking over a traditionally run German enterprise also raised eyebrows; historically, it was the other way round.

But Santander says the strategy has been vindicated. Theolia wanted to expand its European coverage and develop its business model to include a traditional independent power producer combined with sales of production capacity. Natenco offered an important strategic fit. Theolia's performance since then, says Lorenzen, proves that "if you have the right company and the right business model, [Germany] can still be a lucrative market." Although the figures have not yet been released, Santander asserts that the 2007 accounts show the strategy has been "very profitable indeed."

In part this is a reflection of the amount of management time and energy Theolia invested last year in integrating the two companies, putting procedures in place, strengthening management and reinforcing Natenco's working capital. The fact that they have pulled it off and increased their presence "significantly" in the German market, argues Lorenzen, is testimony to Theolia's "maturity and its strategic acumen."

In fact, 2007 proved to be a tremendously busy year for Theolia. Things kicked off in February with the announcement of a strategic tie up with GE Energy Financial Services (GEEFS), the energy investing unit of GE Group. In terms of installed capacity, Theolia gained an additional 165 MW in Germany in an assets-for-equity swap which, together with a direct investment in the company of EUR 20 million, gave GEEFS a 17% stake in Theolia plus warrants which, if exercised, could take its holding up to 23%. GEEFS also granted Theolia the right of first refusal on projects under development in Europe. In return, GEEFS gained investment exposure to Theolia's expanding portfolio and access to its specialist knowledge of the European market.

Heavyweight partner

The partnership was certainly something of a coup for Theolia. Indeed, GE is a partner "which it is difficult to trump," affirms Lorenzen. The capital injection meant Theolia could continue to fund its strategy -- combining organic growth with acquisition. The alliance signalled the start of a change of pace and outlook for Theolia. In June 2007, the company floated off its non-wind assets, now grouped under its Belgium-based subsidiary Thenergo, on the Alternext exchange and reduced its holding from 91% to around 35%. Theolia's holding now stands at roughly 30%.

At that point Theolia was once again ready to spread its wings. Following the logic of a diversified portfolio and the pull of an attractive market, its next strategic target was Italy, where in November Theolia finalised the purchase of Maestrale Green Energy, a developer with a 500 MW project portfolio (Windpower Monthly, December 2007). As with Natenco, Theolia made its decision based on two main criteria: the quality of both Maestrale's pipeline of projects and it management, and the "fit between the philosophy and the way of working of the two companies, a willingness to make decisions and to grow," explains Lorenzen.

Also in November, Theolia set up a Spanish entity, Theolia Iberica. Its first project will be a three-phase installation totalling 57.5 MW at Almeria in the east of the huge southern region of Andalucia, of which 40 MW is due on line mid-2009. The project includes building a feeder line into the grid, which Theolia Iberica is undertaking as a joint-venture on behalf of Endesa.

Emerging markets

Having established "a strong position" in western Europe, Theolia set its sights on the emerging markets of central and eastern Europe, and beyond. While Theolia still believes there is plenty of potential in western Europe, "over time there will be strong opportunities in the emerging markets," Lorenzen argues, and Theolia wants to be ready to take full advantage.

So in September last year it launched a dedicated structure, Theolia Emerging Markets (TEM), based in Casablanca, to build renewables portfolios in Morocco, India, South America and emerging European markets. Each of these four subsidiaries will cover the full range of activities, from developing and buying assets to construction and operation. TEM has already accumulated a development portfolio of 983 MW (table) and is targeting 600 MW installed capacity in 2011. Overseeing the growth of TEM will be a key focus for Theolia in 2008, according to Lorenzen.

TEM's only operating plant so far, however, is the 50.4 MW Al Koudia Al Baida installation, Morocco's second biggest wind plant, which TEM acquired at the beginning of January for EUR 42.5 million. With the weight of GEEFS behind it, TEM is also part of a consortium, along with GEEFS and local company Tourelec, bidding to develop, install and operate a 200-300 MW plant at Tarfaya, on Morocco's Atlantic coast.

Other deals on the horizon are possible acquisitions in India and central Europe for 25 MW and 168 MW, respectively (table). Theolia South America is also quietly developing a portfolio originally inherited from Natenco and forging local contacts, though Lorenzen says a sufficiently robust regulatory and legal framework is not yet in place. "There is a huge potential, but we are also realistic and these markets are at an early stage."

Another IPO

As part of its emerging markets strategy, Santander decided early on that the sale of emission reduction certificates (CERs) would play a key role in ensuring profitability. In November, TEM paid EUR 25 million for a 35% stake in Ecolutions KgaA, a German company specialising in the validation, generation and trading of CERs. The certificates will be sold exclusively through Ecolutions. All being well, there are plans to list Ecolutions this spring. A public offering is also in the air for TEM over the coming months.

Investors have apparently been impressed: Theolia's share price has followed the company's rapidly rising growth curve. On the whole, Theolia shares rose steadily from their initial listing on Euronext's Marché Libre exchange in 2002 through 2006. In July of that year, Theolia shares were transferred to Eurolist B, with the effect of raising the profile of the company and enabling it to build stronger relationships with international banks and target further external growth opportunities.

But the share price only really took off in 2007, climbing from EUR 12.90 on January 1 to finish the year at EUR 20.17, an increase of 56%. In March and April, it even hovered around EUR 30, probably based on the "strong Theolia story," according to Lorenzen. Theolia had put in place its integrated business model, was increasing its geographic coverage and had joined up with GEEFS, so "there was huge interest."

As the fallout from the US subprime mortgage crisis began to hit Europe's share indices, Theolia's shares fell to around EUR 18 in late September, before spiking sharply on rumours of an unidentified takeover bid. At one point GE was mentioned, which both Santander and GE denied. Around this time, Theolia's shares were transferred to Euronext's SBF 120 index, which is based on the 120 most actively traded stocks listed in Paris, going from the Marché Libre to SBF 120 in just 14 months. For Santander, this is one of the key indicators of how far the company has come.

"No other company in France has achieved this so quickly," he says. "It shows there is a strong appetite for Theolia shares" and confirms the market's confidence in the company. Having listed early, Santander believes that for many investors in France, Theolia is synonymous with wind power.

In early November, more good news came along with Theolia's third-quarter results showing consolidated sales up 850% to EUR 83.5 million in the nine months to September 30, compared with EUR 8.8 million the previous year. The 2007 figures will be released in April and are likely to be keenly studied by investors waiting to see if Theolia has made it into profit.

Not that lack of a profit has been a hindrance to investment so far. Theolia ended 2007 with a four times oversubscribed issue of convertible bonds, allowing it to raise EUR 240 million. The company announced the money will be used to "strengthen its organic growth, secure the provision of turbines, speed up the roll-out of wind farms and refinance the working capital requirements of its subsidiary Natenco," as well as "seizing further external growth opportunities" and supporting TEM.

An integrated strategy

One criticism that has been levelled against Theolia is that the company is not developing sufficient projects of its own, but is growing mainly by acquisitions, a policy which does not generate such high value. In reply, Lorenzen points out that if Theolia had stuck to just developing its own projects, it would probably never have moved outside France. While ideally it would like to do more development, Theolia's strategy is to mix the two, ensuring that any acquisitions give it a project portfolio which will generate the returns Theolia expects. Building a broadly based portfolio is also key to diversifying risk. The increase in value due to the "strategic position of the company, the size of its portfolio and the spread of markets, largely compensates for the downside of making acquisitions," Lorenzen believes. At the same time, he points out that Theolia has now established a very strong pipeline, which will provide the organic growth.

Another key element to its strategy is selling plant to fund future growth. Originally Theolia aimed at selling roughly half the plant it built, but now, with the recent addition of EUR 240 million swelling its coffers, it can perhaps afford to retain a higher percentage. While on the whole, the plant it keeps tend to be in the more secure western European markets with support mechanisms offering long term security, it is not a given. Theolia sold some projects in France because of previous regulations regarding proximity of projects, while in Germany it has access to a customer segment which is willing to pay high prices for operating wind farms.

The benefit of the strategy is that Theolia can arbitrage between the risks and returns in each case and decide at any moment whether to sell or hold a project. This gives a high degree of flexibility and the ability to fine-manage revenue streams. Even when it does sell, Theolia retains an interest by operating the plant for the buyer, charging a 5% management fee. Most buyers are apparently happy with this arrangement thanks to Theolia's record of achieving plant availability above the market average, according to the company.

Across the Atlantic

Theolia is keeping a close eye on the North American market. Although the company sees huge potential across the Atlantic, it is waiting for the elements to fall into place, including finding the right developer with a pipeline of sufficient size and quality and a team able to take it to the grid. "It will be a big step and we will only go when everything is right," states Lorenzen.

But Theolia has high ambitions. A point Santander underlines when describing where he sees the company five years ahead. He expects Theolia to be ranked fifth in the world in terms of installed megawatts, up from 17th today. "Everything is in place to achieve this," Santander asserts. Meantime, he foresees Theolia becoming the world's biggest independent quoted wind power company by the end of this year in terms of installed capacity. Big ambitions, but apparently with its feet firmly planted in reality.

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