ABL Group ASA (26Q.F) Q2 FY2025 Earnings Call Transcript & Summary

Good morning, everybody, and welcome. My name is Reuben Segal. I'm the Group CEO of ABL Group, and I'm joined this morning by Stuart Jackson, the Group CFO. First of all, I'd like to welcome everybody back after the summer vacations, and we look forward today to presenting our Q2 results. I will kick off with a quick highlight and overview of the results for Q2. Stuart will then take you through more details of the financials, and then I will wrap up with an operational outlook and overview of how we see things going forward throughout the rest of the year. As always, we draw your attention to the disclaimer, which you're free to read in your own time. So we'll take you through the results. First of all, we ended the quarter with revenues just a touch over $96 million. This is actually the highest revenues we've had within the organization, which is an increase of 40% year-on-year. These revenues are generally increased as a consequence of the acquisition of Techconsult, Proper Marine and Ross Offshore year-on-year, but we're also seeing some organic growth across all segments of the group in line with inflation. So overall, a strong quarter for the revenues. In terms of the EBIT, we ended the quarter with $3.5 million, up from $2.8 million of the previous year. Again, this is driven with the additional revenues and the profitability coming in from the new acquisitions. But as a margin, this is slightly down from Q2 last year. This being down primarily driven with a slightly reduced EBIT margin within ABL segment, but also with the new business in Techconsult and Ross Offshore, which is a marginally structurally different EBIT margin as compared to ABL. In terms of OWC, we also continue to see improvement of the EBIT margin and the revenues across OWC, and we will show you more of that later on in the presentation. We're also going to announce today an operational efficiency program, which we've been on for the last 12 months, and we've been doing this predominantly within OWC, but we've now rolled this out more across the rest of ABL Group, and Stuart will take you through that in more detail later on. In terms of net cash, we closed the quarter with just $1 million of net cash. This is down from Q2, but this is predominantly driven by the payment of dividend for the first half of 2025. In terms of acquisitions, we also concluded Techconsult, and we're starting to integrate Techconsult into the rest of ABL Group and in particular, within AGR. So it was a busy second quarter. These were okay results. We still need to do more. We still need to get more efficiency out of the organization. We still say that there's more for us to do. But overall, we're going in the right direction. So I'm going to hand you across to Stuart, and he'll give you more detail on the financials.

Thank you, Reuben. Before I get into the detailed financials, just a snapshot of where the business stands at the end of the second quarter of 2025. You'll see here, I guess, AGR consolidating its position as the largest segment we have within the business. So we have the inclusion of Techconsult in the second quarter of 2025 for the first time. So that's 45% of the overall revenue that we have within the business now. As Reuben mentioned, the ABL business is marginally down if you look year-on-year in terms of its margin, although as we'll get into the detail on the quarterly progression, we're seeing both increases in revenue and increases in margin through the ABL business as well. On the OWC perspective, I guess that the margin is the area to look at. As Reuben mentioned, we've had a cost and efficiency plan within OWC for some quarters now. We're starting to see the benefit of that come through. And I'll come back to that cost and efficiency plan at the end of the presentation as we go through what the detail of that will be in the broader group. And finally, from the Longitude perspective, a reasonable margin in terms of where they are on project completions. But as you're aware, this is very much driven by where those projects are in terms of finalization. Turning then a little to more of the details. Reuben mentioned, we're 40% up in terms of revenue year-on-year, but that's driven by the 3 acquisitions that we have, which were there in Q2 of 2024. So Ross Offshore, Proper Marine and then Techconsult. I think the other things to highlight in terms of the quarterly progression on the revenue side, ABL is up from Q1 to Q2. So we're seeing higher activity around NWS and rig move activity within that segment. And as you see within the AGR segment, the inclusion of Techconsult has a tick up in terms of revenues in Q2 of 2025. From an EBIT perspective, in absolute numbers, we're at $3.5 million, so progression over these quarters, although obviously, we're also including new businesses as we go through these quarters. And then from a margin perspective, I think in all sectors, we're seeing an improvement in terms of margins. Longitude is lumpy, as I said, in terms of quarterly progression, depending on where they are on completions, but ABL is showing progression over the last 3 quarters. We're seeing the impact of the cost and efficiency plan in OWC, as you can see from Q3 of last year through to where we are in terms of Q2 of 2025. And I think AGR in terms of our largest segment, obviously now is a structurally different business and predominantly it's resourcing activity, but relatively consistent margins throughout the piece on AGR. Turning then to the financial statements and just highlighting some of the aspects in there. As we mentioned, revenue up 40%, operating costs are up 41%. So not much change in terms of the mix there. And obviously, this is including the 3 acquisitions I've mentioned earlier compared to Q2 of 2024. So we delivered EBIT of $2.5 million in the quarter compared to $2.2 million a year ago. There's a large change in terms of the net FX losses during the quarter, $4.4 million in terms of impact at the P&L level. As we've had in the past, this is a revaluation of instruments denominated in nonfunctional currencies across the group. And you'll see that reverse as we look at the cash flow as well. The other aspect probably to highlight is we've got tax payments to make, our tax liabilities noted here against losses for the overall group. Obviously, that's reflecting the fact that we have profitable businesses where we're paying tax, and we have loss-making businesses in some jurisdictions where we're not taking the benefit of the deferred tax assets, and that may well change in the future going forward. We made the usual adjustments in terms of EBIT to get down to $3.5 million of adjusted EBIT. So the M&A transaction costs, the intangibles being amortized, et cetera, as we've done in the past. From a cash flow perspective, cash flow from operations is $4.2 million in the quarter. There's a number of different aspects to this after changing for -- adjusting for the noncash items. You see working capital at $1.1 million. I'd highlight on one particular contract, we've got a very significant upfront payment in terms of cash coming into the business. So we're being paid the cash by the client in advance of executing the work, and you'll see the other side of that will be in the liabilities on the balance sheet as we deliver that work over the coming months. In terms of the FX position, you'll see that gets reversed out when we look at the cash flow. So again, this is the noncash element of those revaluations that we have. From an investing perspective, the major investment was Techconsult during the quarter. You see there's only $0.3 million in terms of outflow of cash for that acquisition. There is some deferred consideration in next year to be paid, but we had a lockbox mechanism with Techconsult. So they had a very strong first half of the year, and we were able to collect the cash associated with that. So very limited outflow of cash for the revenues and the profits that we're bringing in from Techconsult. So we expect pretty high return on capital employed in terms of that investment. And then finally, in terms of the cash flow, I guess, the outflow of cash is the most significant part is the dividend payment we made in the first half of 2025. We expect to make the same dividend payment as we come through to the end of the year in November. Net position in relation to our cash is therefore $18.8 million after we've adjusted for any FX changes. And on the balance sheet side, we have a net cash position of $1 million, so a $2.4 million reduction through the quarter, mainly driven by the outflow on Techconsult and the dividend payment we made. You'll see on the working capital graph down at the bottom right, a step down in terms of the working capital ratio. This is simply reflecting the prepayments we've got in terms of cash coming in on the contract I mentioned earlier. And then from a borrowing and liquidity perspective, we have the facility in place with HSBC. We've increased the committed facilities from $30 million to $40 million. We still have a further $10 million on the accordion with HSBC that we could take up. That increase is there to make sure that we have committed facilities available to be more reactive in terms of M&A activities as we go forward, and we've also taken from HSBC a $5 million overdraft facility to bring cash into the group so we can start to clear up some of the legacy balances we have around the group from acquisitions in the past. Turning then to -- finally to the operational and cost efficiency plan that we mentioned. We've obviously had a plan in place as we've been looking at the OWC business over the last 12 months or so when the market has been down. We see a continued delay in recovery and volatility in the renewables markets generally, but also we see uncertainty around the commodity prices. So the oil and gas sector has a degree of uncertainty attached to it. So we think the best thing for us to do is make sure that we are aligning the business activities we have to the markets that we're servicing. So the plan will be to introduce some cost reductions in the group. Our costs are predominantly people. So there will be some headcount reductions where we've got lower utilization of people because of market conditions. We will be looking at rationalizing offices we have across the group. And also, we are, I guess, pushing a very much cost consciousness and cost focus within the group in terms of managing our position day-to-day. And then there'll be operational improvements. We've introduced a formalized business recovery plan. So if we have businesses which are showing underperformance relative to our expectations, then there's a formalized plan for getting back to recovery for those businesses within a couple of months. And we'll have, I guess, a degree more flexibility in the cost base as we look to have more freelancers rather than permanent staff in parts of the business. In overall terms, I don't expect there to be too much impact in 2025. We've only got a few months of the year left now anyway, but also we've got costs associated with implementing some of these plans, but the benefit will really start to come through as we look at 2026 moving forward. And with that, I'll hand back to Reuben to take us through some of the operational and market outlook.

Stuart, thank you. So as we continue to go forward, we've always said we want to continue growing the organization. With the acquisitions that we've had, we've now taken our headcount to close to 2,100 full-time equivalent employees. A lot of this increase came with Techconsult and also with the other acquisitions that we've had. But we've also seen some organic headcount growth as well across all segments with the exception of OWC. As Stuart mentioned, with our cost efficiency, we want to try and get the most out of utilization, get the most out of our employees and just try and be more efficient as an organization. We've increased the use of freelancers. We're now running at about 33% of total headcount through freelancers, again, predominantly driven through AGR and the tech consultant and the AGR business with the resourcing, but it's also across the rest of the group. This flexibility allows us to go up and down with the market and again, continue that efficiency drive that we have across all segments of the company. But as we continue to grow, we continue to look at this. We continue to look at how best to use our people, how best to move people backwards and forwards to see where to grow our headcount and also, if necessary, where to reduce our headcount in line with the market, again, as part of our efficiency drive. Because how do we see things going forward? I mean, as you've seen from the results, we've had revenue increase and we've had EBIT increase across all parts of the organization and in particular, within OWC, where some of the efficiency measures that we've put into place have started to kick in. The market is still very volatile, as Stuart mentioned. We still see the long-term vision of offshore wind and the renewable sector is very strong. We still see a lot of potential activity going forward, offshore and onshore, and we continue to diversify our business. Today, our revenues are double what they were this time last year in onshore-related activity. But it's important we continue to diversify, we continue to be efficient, and we continue to get the best out of the present market status and be ready for the future. The renewables industry is still very, very rocky globally. You're seeing a lot of activity in Asia Pacific, yet you're seeing reduced activity in the likes of the Americas and Europe. So the market is still very volatile. But OWC's improvement is there. You can see the results are improving, but we've got to continue to be efficient and continue to get the best out of the organization while we go through this rocky period in the renewable space. As Stuart also mentioned, oil and gas prices are also very volatile at the moment. We're seeing a lot of volatility in the jack-up market where jack-ups are coming out of the Middle East, but they're moving into, say, Brazil for the first time in a number of years. They're moving back into Mexico, and they're also moving across to Asia Pacific. So the activity levels for ABL Group are still there. It's just the volatility is also there, and it's important that we continue to manage that. We're still seeing a lot of new projects coming online. We're still seeing a lot of projects in the pipeline for oil and gas, for the activity for new build construction, for operational-related activity as well. There are still a lot of projects in the pipeline to be delivered. They've not yet started. And you can see with the E&P spending, we're expecting that to reduce over the coming years, particularly into '26 and '27. But the activity is still there, but it's volatile. And it's important during this period, we continue to tighten our belts and continue to remain efficient as we go through this cycle. So how do we see things overall? We're still not happy with our performance. There is still more for ABL Group to do. This time last year, we reported poor results. We've gone on this efficiency drive to try and get more out of the organization to try and get our EBIT margin up. and we're starting to see fruit of that. We've done it already in OWC, but it's important that we do that across the whole of the organization. The oil and gas industry as well as the renewable industry is volatile. So I'm happy to see that our results are going in the right direction. With the acquisitions of Proper Marine, Ross Offshore, Hidromod and Techconsult bringing into the organization, we've been able to grow our revenues. We've been able to grow our EBIT, but there's still more to be done. And it's important that with this operational drive that we're on that we get more out of the organization as we go into the back end of 2025 and particularly into 2026 when we see the benefits of these programs going into place. I said oil and gas, the business is still strong. It is still there. It's just volatile. From one region to another region, it's very localized, whether or not the business be in Malaysia or in Brazil or in the Middle East across to Australia. The activity is still there. And as I said, we still see improvement in the revenues across ABL Group, but it is just volatile and that efficiency needs to stay in place. Again, for the renewables industry, the long-term outlook remains positive for both offshore and onshore, including battery storage, solar and other related renewable activity. But again, as I mentioned, it's important that we stay efficient, that we get more out of the organization and we get better at what we're doing. And I think you've seen that in the results we're having. Still not happy but going in the right direction. And finally, the Board intend to declare a further semiannual dividend of NOK 0.45 in Q3, subject to Board approval later on in the year. And finally, we've continued to merge Techconsult. It's our latest acquisition. In the back end of the year, we had Ross, we had Hidromod, Proper Marine in early part of this year, and we're still actively seeking new M&A activity. As Stuart mentioned, we have a good position financially to be able to do more acquisitions. We're in a good position to react if the right acquisition comes along. But during this period, it's important that we get the right activity, we get the right M&A that's good for the business and drives us in the right direction. But we remain active in this area. Sorry, I forgot to mention as well earlier. If anybody has any questions, it's a bit late, but please feel free to put them into the chat room. So that's it. Like I said, we are -- we're happy we're going in the right direction. What we're not happy yet is with the overall performance. We still need to do more. As a management of ABL Group, as a leadership team of ABL Group, we know we're going in the right direction. The programs we're putting into place, the efficiency measures we're doing are all the right things to do. We've seen the fruit bearing in OWC, but it's important that across the rest of ABL Group, we do the same. And I hope we'll continue to improve our results. We'll continue to see the improvement in both revenues and EBIT as we go through the rest of 2025 and into 2026. So at that point, we'll stop and happy to take any questions either from the room or from online.

I think we can start with some questions online. Will ABL increase its focus on profitability rather than growth going forward? Can you elaborate on how you aim to reduce costs and for how long the program will last? Will you report each quarter on the progress?

Okay. Lots of bits there. Let's start with the revenue versus EBIT. We still want to grow the company. There's no -- we've never said we don't want to grow. We want to grow organically. We want to grow through M&A. A lot of our growth has come through M&A. As you can see, our organic growth is really more in line with inflation, but we want to do both. But I think over the last 12 months, there's been much more focus on EBIT. I said this time last year, we reported very poor numbers for EBIT. Q2 '24 was very poor. And we need to get more out of that EBIT. I think we've said before and we'll continue to say, and that's the purpose of this efficiency drive. We need to get more out of the organization. We need to get back to where we were. The market is still there. We're still able to generate the revenues. But our margins, we're not happy with the margin. This time last year, I think we were down at 17%, 18% in ABL segment. But what you're seeing is we're starting to increase that quarter-on-quarter, we're starting to see. OWC, we had negative EBIT. We're back now into positive territory, and there was a big drive on the EBIT side and the margin side of the organization. In terms of that program, but this is not something new. It's not something we've decided to say overnight, let's snap our fingers and let's start being efficient. It's something that's always been there, but we're just accelerating it. We put that particularly in place in OWC because we dropped off from being reasonably good at EBIT to loss-making, and that cannot happen again. So the efficiency drive will continue. It's not a program we've just put in for today. It won't finish next week. It won't finish next year. It's something we want to keep in place. But right now, we're going to accelerate it across all segments of the organization, but it will be there going forward infinitum. It's not something that will just stop. In terms of -- will we report on it. The plan is not to report on an absolute number because, like I said, some of the things we're doing today have a cost associated with it. redundancies have costs. So you'll see during 2025, there won't be a massive impact, although you're seeing it in OWC. The impact will come through in 2026. But we will give an overall update on how we're doing and if we're making progress. And hopefully, you'll see it through the numbers as well, particularly in 2026. Did I answer all parts?

Yes, I think so. We can take the next one here. Can you elaborate on the competitive situation in the main markets you're in and if you expect any changes going forward?

Yes. So the competitive landscape has not really changed. We have global competitors, and we have local competitors. I've not seen a lot of change in that. It's hard to see what some of our competitors do. We announce our results, not all our competition does. But I don't see necessarily a change in the landscape. What we're seeing is a hardening of the market. What we're seeing is a lot of people are fighting for the same jobs. A lot of people are fighting for the same revenue. We would like to stay where we are. I don't think we want to go into a rat race as such either on the revenue side or on the EBIT side. So I think we're in a good space. We understand where our competitors are. We understand the competitive landscape. We're not seeing any new people coming out of the woodwork. And I don't think the market is there yet for that either. It's quite volatile. So for new competitors to come online during this volatility would be surprising. But we always have to keep an eye on our competition, keep an eye on what they're doing, stay competitive ourselves, but at the same time, keep our position strong. We don't want to go into a rat race. That's not the intent.

And the next one, you are currently producing small figures. Going forward, which areas can we see the big lift in numbers?

Small figures. I'm assuming you mean in EBIT, the small figures, I would assume. Look, the -- if you take AGL's business, you've seen it's been quite stable, running at 4.5% approximately EBIT margin as we continue to grow. It's hard to see that margin increasing in AGR, whether or not we can go from 4.5% to 5%, 5.5%, 6% because of the nature of the business, it's resourcing. ABL, we're a market leader. I would like to see our margin get back to where we were. I think we are now around about 18%, 19%, but we need to get back to where we were '22, '23, even better if we can. Longitude, though, has a lot of opportunity. As you can see, it's quite lumpy business, but it's a very profitable business. There's a lot more opportunity there. We can grow. I think the acquisition of Proper Marine showed that it was an excellent acquisition in the right market, right time, right space. So we can see more growth there. And in the renewable space, it's a difficult one at the moment to see would you go off and buying renewable companies and growing renewables when it's this rocky right now. So I think what I would say is we can still do more across the company. We can still do more in terms of the EBIT. We can still get more efficiency out of that EBIT. That's not about necessarily creating more revenue. That's about creating better cost. But I think all segments have opportunity, whether it be oil and gas or renewables or even maritime and shipping. I don't think there's one specific area we can say we will focus there. But definitely, Longitude and engineering has a lot of opportunity going forward.

Then I think we can open up for questions from the audience.

I know that Longitude tends to be lumpy, but can you talk a bit about what drove the difference between Q1 and Q2 in terms of the margin because it dropped from 30-ish percent down to 14%?

Correct. Yes. So the nature of their projects are lump sum projects. So when a project comes to an end, they can take the value out of those projects. So a lot of projects came to an end in Q1. And whatever is rest in the pot, they can take that into their accounts. They accrue their revenues as they go on because they lump sum. And they get to the end of the project and they can take the balance of it. So in Q1, they had a lot of projects come to the end. Q2, they didn't have as many projects come to the end. The other thing to note in Longitude is that Proper Marine are not yet fully integrated into our finance system. And the way they report their revenue is different than the way Longitude reports its revenue. So that is happening as we speak. They are -- I think Stuart can correct me, I think in Q3, they'll be coming into our system.

Yes, so we obviously have them consolidated in the numbers for Q2. But in terms of integration within the financial systems, they're not there yet. They're a relatively small company in a Brazilian environment. So they've had a history of cash accounting effectively. So we're now integrating it more into an accruals accounting basis.

Yes. So hopefully, it will be more steady once we go forward with them. But it will still be the same. When projects come to an end, there's usually more revenue generated. As we run through, you'll be seeing more this 17%, 18%, 20% position. So you'll see -- still see this lumpy effect. What I would say for Longitude is look at it over a longer period than a shorter period like in, say, ABL, where projects run for 10 days, you accrue the revenues, you make your invoice and so on and so forth. But quite happy with the way Longitude is going, I have to say.

It's also a business where we see opportunity for M&A as well going forward.

And then for OWC in terms of kind of further improvement, do you see that mainly from margin improvement? Or do you see potential for revenue growth as well?

So there has some revenue growth. It's not that they haven't. I don't think the market has changed at all, I have to say. If I look at the renewables market overall globally, it doesn't look like there's much change. Asia Pacific is very strong at the moment. Actually, Asia is actually doing quite well in the renewable space, where Europe and the Americas is much more depressed. So I don't think you've seen a lot of change. It's just the way we are operating is better. I think our operational efficiency within OWC can still and will still increase. I think there could be some more revenue coming out of OWC going forward. I would like to see more margin coming out of OWC at the moment. I think it's great to get more revenue. We'd like to see more margin. At the end of the day, we pay dividend. We're a dividend company as well. We need more margin, and that's the purpose of the efficient -- accelerating our efficiency program. So I think you'll see more of both, but particularly, it's the margin that we're going to try and seek and go after as we go forward. Any more questions from anybody?

We have one here online. How much cost savings do you aim to achieve and what time frame?

We haven't quantified what the amount will be. So we've put in a plan in the last 3 months for the broader business. We've obviously had something running for some time in relation to the OWC business, but we're not putting a hard number out there that we're trying to achieve. But we expect to see a progression in the margin for the overall business as a result of the cost reductions coming in, but also the efficiencies we're trying to achieve. So there are two aspects to it in that respect. Some is cost reduction, some is more efficient use of the resources we have within the business.

I mean I think you've seen the margin where we've been in the past, and we're not happy with our margin as we are today. We've got to get more out of this organization. We need to get back to where we are. Our revenues are still very strong. Our revenues are feel still very stable. We just got to get more efficient and get back to where we used to be, and that's what the management is working very hard on at the moment.

We do specifically call it a market alignment plan because there are some markets we're active in, which are very strong, and we should be putting more resources into those markets, not pulling back on them. So if you look at China, Indonesia, some of the Americas products we've got, those are strong markets at the moment. So it's making sure that we have the right size of business relative to the market we're accessing.

I think that's very important. I mean if you look at the volatility, you see the offshore wind space, for instance, in North America, it is quite weak. But you see the offshore wind space across Asia in Taiwan and Korea, very, very strong. So it's important for us to stay very nimble in each of the places we are. And in some of that plan, as Stuart said, the alignment is to get more out of the company. And in some places, it's to just pull back and be more efficient, a bit of both.

Good. I think we have covered the questions.

Great. Okay. Then that's that. Thank you very much. We look forward to seeing you again in a few months for our Q3 results.