ABL Group ASA (26Q.F) Q3 FY2025 Earnings Call Transcript & Summary

Good morning, everyone. My name is Hege Norheim, I'm the CEO of ABL Group, and I'm here to present our Q3 results together with our CFO, Stuart Jackson, we will be going through our results for Q3. I will give you some highlights in the beginning, the summary. I will add some comments from me as the new CEO as to how we will be approaching the next period. And then Stuart will take us through the financial review as well as me then summarizing at the end some comments on operations and outlook. I would like to also say for anybody who has questions in the room or online, please do add them to our chat so that we can address them at the end. We will have a Q&A session at the end. And also, let me start by drawing your attention to the disclaimer in the presentation, and feel free to read this afterwards. Okay. Our results for Q3. On the revenue side, we've seen growth year-on-year, 2% up to USD 87.8 million. We've had a nice contribution from our acquisitions, Proper Marine and Techconsult in this period of USD 8.9 million. And we've seen organic growth across all segments in our business, except from the AGR segment, which saw lower revenues coming out of their vessel and resourcing business during the last quarter. Our adjusted EBIT has reached USD 3.7 million this quarter. That's up from $3 million year-on-year, which gives us an EBIT margin this quarter of 4.2%, which we're quite proud of compared to the 3.4% a year ago. And particularly, we must -- we would like to draw attention to the ABL margin, ABL segment margin, which has grown year-on-year from 17.4% to 20.2% in this quarter. Our net debt position is moving into a $2.6 million negative this quarter compared to a $1 million net cash last quarter. And Stuart will be addressing the cash flow in his presentation in more detail. We are also declaring a semiannual dividend for this coming up, which will be paid in November of NOK 0.45 per share as well. Okay. Let me move to a few comments on my tenure coming up. So I was appointed 15th of September, two weeks left of the quarter we are actually currently reporting on. And I'm in my fifth or sixth week, but I have experience from the Board, more than 2 years on the Board of ABL Group and also, I would say, relevant experiences from the industry. I've been 13 years in oil and gas, Norsk Hydro and Equinor. I've also been in the renewable business in FREYR Battery as well as held positions almost a decade as an adviser to the Prime Minister's Office in Norway, the Finance Minister in Norway, and I've been consulting in Sopra Steria and a company called Spencer Stuart on the global space. Now I joined the company after an enormous growth period from -- we've ten-folded ABL Group since 2019 with 180 employees and 18 offices to what we see today of more than 2,000 employees and 77 offices across the globe. And that strategy of growth remains unchanged. That is a very important message from me today. And we are very happy to have our former CEO, Reuben Segal, to take on the lead to continue that growth. He has certainly proven his ability to do that over the last 6, 7 years, and we are looking forward to working together for him to drive that growth going forward. And we remain active in consolidating and believing in the business of consolidating energy consultant industry across the globe. So strengthening sales is a priority going forward. We will also be -- we also think that this is the time where we can improve our efficiency, improve our performances further by maybe tweaking on the way we are working together. So we will be focusing now on really driving decentralized accountability across the business, making sure that our country offices and our business lines out there, close to our markets, our clients, are able to capture the opportunities that arise and also adjust our offices as market potentially moves negatively through the periods going forward. So decentralized accountability and really sort of creating that or capturing our ability to be agile and diversified across the globe is going to be a big focus for us going forward. We also keep investing in efficiencies through using IT. But here, we will be very cost benefit focused and really make sure that we reap benefits for every investment we make. We also think that there's been a wonderful period of investing in group services in terms of creating systems and structures and processes and tools that can drive efficiency in the business, secure our cybersecurity, making -- giving the opportunity for businesses to -- our businesses to grow efficiently. And those group services now are maybe in a period where we will be rightsizing them for the future, where we will take -- reap those benefits, take a time out on some of the building of group services and focus on operating those great standards that we put in place as well. So we are -- we announced a market alignment plan, driving efficiency the last quarter. We've been working on that for more than 4, 5, 6 months already. We believe that we will be seeing the results of that going forward very much. And the job now is to make that a culture, not a plan that we are, as I said, able out there in the business to capture the swings in the market up and down and adjust in an agile way and making that a part of our culture. So that will be a focus going forward. We will be focusing on free cash flow, very important, obviously, and targeting importantly, as we have said before, a return on capital up towards 20% into and through 2027. So on that note, I think I will let you take us from there, Stuart.

Let me take you through some of the details attached to the financials for this quarter. Firstly, just in terms of the snapshot of where the business has been in the quarter. ABL has had a really strong quarter. We're back above 20% in terms of our EBIT margin, which is obviously important for the overall group because this is really the engine of the profitability of the group. Across the AGR and OWC sectors, no material change really from where we were in Q2 in terms of EBIT margin, but I'll comment a bit more detail in terms of the activity level in AGR, which has been slightly down during the quarter. And then Longitude, this is really driven, as we've said before, by the lumpiness of the business. So project completions, project commencements. And during Q3, we've had no project completions, which we've seen earlier in previous quarters. And we've got some commencements, which have been slightly delayed. So we're carrying the cost of the people as we wait for those projects to commence. From a corporate cost perspective, we're sitting at 7.4% of revenue. In absolute terms, dollar terms, this is the same as Q2, but it's up as a percentage of revenue because of revenue overall compared to Q2 is down. And that gives us the 4.2% EBIT margin which Hege has already mentioned. Turning then to a little more detail around the segments. From an ABL perspective, as I said, it's had a very quarter, above 20% in terms of EBIT margin. And so the areas where we've been, I guess, more familiar in the past. We've had very strong activity within the Middle East region, particularly on rig moves, which has been very positive impact. We've had some improvement in the Americas region in terms of profitability. You would also have heard that PEMEX is starting to make payments. Those haven't trickled down to us yet, but the activity within Mexico of cash moving through the system is happening, so we'll get our receipts shortly. From an OWC perspective, as I mentioned, not much change in the position from where we were in Q2. So maintaining the improvements we've had cost reductions earlier in the periods. We're winning work in this sector, which is good, but some of those commencements are a bit delayed. And also, we're diversifying away from our concentration on the offshore wind market into other areas of renewables within OWC. Longitude, as I mentioned, so a lumpy business. So we haven't had as many commencements in Q3 as we anticipated. And some of the projects been working on the next phase have been delayed. So we're carrying the cost of those people as we move forward to commence with the project in Q4. And then from an AGR perspective, as Hege mentioned, slightly tougher market in AGR during the Q3 from the resourcing side, which has been slightly down on where we've been previously and that may well wander into 2026 in terms of that market. And also on vessel operations side. So we've had a lower level of vessel operations in Q3 relative to Q2, and that's taken our revenue down. I guess the positive side of that is that whilst there's an impact on revenue levels, there's less of an impact on the EBIT levels, because particularly the vessel operations is a pass-through almost in terms of margin. So there's very limited impact in that respect. And finally, corporate costs, as I mentioned before, in absolute terms, the same as we had in Q2, although the percentage has gone up because the revenue in overall terms has gone down. On the abbreviated financials, the positive side, revenue up on ABL because of active quarter with Middle East rig moves. Longitude and AGR and a comparison back to this time last year. Obviously, we have Techconsult and Proper Marine, which have been consolidated in the Q3 of 2025, but weren't there 12 months ago. The other side of that, from a revenue perspective, the lower activity on the resourcing side in AGR and the lower active on the vessel operations in AGR. That gives us an EBIT of $3 million, a clean EBIT of $3 million. You see below some of the adjustments we have to EBIT, which are the traditional adjustments around M&A transaction costs and also acquisition costs, which are classified as operating costs for IFRS purposes and then the amortization of our PPA. And getting to the profit before tax, there's a positive impact in terms of FX, and that's the revaluation of instruments denominated in nonfunctional currencies, including the intercompany positions we have within the group. In overall terms, $3.7 million on the EBIT at 4.2% in terms of margin. Turning then to the cash flow. So in overall terms, a cash outflow of $3.3 million during the quarter. Many elements to that. So we start from our profit before tax of $6.9 million and the adjustments for noncash items. The largest driver in terms of the cash position is the changes in working capital that happened during the quarter with a net outflow of $4.7 million through the Q3 of 2025. Predominantly, that's driven by, I guess, AGR's activity around vessel operations. So you recall, if we went back to Q2, we had a significant inflow of prepayments attached to projects in the AGR sector. So that's cash we have on our balance sheet, which during Q3, we then executed the work. So we have the cash in the business already. So that execution has occurred as we went through Q3. And then at the end of Q3, the customer had a dry hole. So actually, the remainder of the contract is getting canceled. So we'll see as we go into Q4 an unwinding of the remaining cash that sits on the balance sheet. It would have gone into the activities associated with delivering the rest of the work, but that's not happening. So that will now go back to the client. So that leaves us with net $3.3 million in terms of overall movement on cash. Not much happening on the financing and investing activities through the quarter. Financing activities, we did have an inflow of $1.1 million, which was associated with employee share option exercises that happened in September. But that's countered by the lease payments and the debt service payments we have on a quarterly basis. So in overall terms, our cash balance after FX revaluation is sitting at $15.3 million. And then going to the balance sheet, a couple of items here. Firstly, dealing with the cash and the debt position. The $15.3 million of cash. We have on the balance sheet, $17.9 million in relation to our debt position, which gives us the net debt position of $2.6 million at the end of the quarter. Other items to note, working capital ratio. A couple of items to note here. So firstly, we reported the step down in Q2. This was the prepayments we received at that quarter -- during that quarter, which we reported in aggregate terms was $9.5 million. The largest element was the one contract I mentioned in AGR. What's happened as we've gone into Q3 is we've obviously utilized some of that cash in terms of executing the work, where the cash is sitting on the balance sheet, that has effect on our working capital position. But also as the overall revenue for the group is down in the quarter compared to Q2, it steps up the percentage of revenue when we measure the working capital position. And lastly, in terms of the balance sheet position, drawings under the $40 million RCF sitting at $18.4 million. We've also added 5 million overdraft facility to give us a bit more flexibility around the operational side of the business. So a lot of cash and available resources sitting within the group at present. And l'll just remind you the maturity of the RCF is January 2027, but we have two 1-year extensions attached to that. And finally, moving on to the dividend. As Hege mentioned, we're very focused around returns to shareholders, be that in terms of return on capital employed or as we're dealing with here, cash going back to shareholders. So we maintain the policy of looking to maximize returns to shareholders. We're confident in the markets we're in, long term, and we think we're well petitioned within those markets despite the fact they have some near-term weaknesses, but that's also why we've taken the actions in OWC a lot earlier, but also across the group now in terms of the market alignment plan to improve profitability and improve the cash generation from the operations. So in terms of dividend for this half year, we are declaring a dividend of NOK 0.45 share, correspond to a $6 million payment of cash to shareholders at the end of November. And with that, I'll pass back to Hege.

Let me just touch on our staff situation. I think this is a familiar slide for those who follow us. We have shown, and as I've alluded to earlier, a growth year-on-year and in this period over the last 2 years of our staff, but this is mainly through acquisitions, 18%. The share of freelancers in this -- in the last year has been unchanged. And then this last quarter, as we've already touched upon, the AGR business and resourcing business has also then meant that we see some downturn on the use of freelancers in our business. So I'll -- I think I'll leave it with that. We wanted to share with you some of our projects that we're very proud of. And these are some chosen ones, one for each segment. As you know, we work in oil and gas, we work in renewables, we work in maritime. We have four segments addressing these markets across the 77 offices, and there's a lot of projects and a lot of excellent work going on with our clients. We've chosen four to exemplify the kind of work that we actually do. So let me start with the ABL, an ABL project from this period or this quarter. Eastern Green Link 2, which is a contract of marine warranty survey that we will be doing on the interconnector between Scotland and England on transport and installation work in that very important project, a national project for Scotland and England. In AGR, we're very happy to announce that we -- so we were very happy to announce, it's already been announced that we were able to sell a license the Indonesian national oil company, PTTEP in Malaysia, and our software is a drilling and well management software that they will now be using to optimize and manage their risks. In OWC, we chose a project for a Portugal wind farm where they are doing geophysical and geotechnical surveys and our contract was to be the client rep, helping the client oversee those surveys being done, very exciting. And then a very cool project for Longitude where we won a project and have been doing engineering of a vertical injector conversion of a cable lay barge that now will be able to work according to the Jones Act, and it will be first-of-its-kind in the U.S. to do so. Good. Briefly on markets going forward. Oil and gas market, a lot of people work on this. We are -- we normally look quite carefully on the E&P upstream CapEx development, which drives our business, particularly the marine warranty surveys that we do. And I think we can say this year has been quite flat in terms of E&P CapEx development. And our view will be or our expectations is that this will also be quite flattish into 2026. There are developments that might indicate an increased in CapEx in the upstream industry, particularly concerns around reserve replacement ratios. We now see the IEA and other analysts talk about that. But on the other hand, we do see that offshore spending through the FIDs is not picking up as we would -- which would be important for us. So we will have to keep an eye, obviously, on the CapEx growth in the E&P, but we are directing our performance going forward towards a flat development here. Rig market is also very important for us, drives our rig move services. And here, we also -- we see a continuous, as you see in the last 2 years, a high level but quite flat to development or robust development, let's put it that way, with some regional volatilities, however, that we are looking at closely. On renewables, the curve has been moving to the right, as we say, over many -- over some time. But we do believe and we have had a slowdown over the last years. We are -- we believe that the long-term view here is still strong, and we are ready for that, but we will be approaching the next year cautiously also as to when this will pick up. Yes. And we will continue then to diversify in the renewable sector by growing and investing in our onshore renewable services, which currently constitutes around 17% year-to-date in 2025 of our total renewable business. So I think on that note, to summarize our performance in Q3, improved group profitability with an increase in the EBIT margin to 4.2%, up from 3.4% year-on-year. The ABL segment is delivering its best quarter since Q3 2 years ago, which is really well with an EBIT margin of 20.2%. Mixed AGR performance, strong performance in Australia, offset by lower vessel revenues and resourcing market headwinds in Norway. OWC on track for continued recovery. Decreased activity and profitability in Longitude as projects are moving to the right, but we will be following those up going forward. Semiannual dividend declared of NOK 0.45 per share to be paid in November. Our outlook, we are preparing for a flat 2026 in our oil and gas and renewable markets and maritime maintaining a strong position in a relatively stable market. And very important, our M&A activities will remain, and we will remain active in market, consolidating our industry globally. And I think that's our presentation.

Then we have some Q&A. The first question here. Can you say something about the expected development for the ABL segment going forward? And what do you see as a normalized level?

So we don't normally guide on segment level. But I think if you look at the trends for ABL, I think we should be seeing a good performance around where we are today and going forward.

And the next question is on Longitude. Can you give some more color on the projects, which has moved to the right and what kind of projects are this related to? And do you also expect this for Q4 and into 2026?

So we don't see any structural changes in Longitude business. So what we've seen this quarter and Longitude normally has a business that will fluctuate through the quarters. We've seen that before, but we think the long trend again on Longitude remains quite solid, and there's no structural changes in the market as far as we see it.

A lot of the activity in Longitude is lump sum work. So when we have completions of that work, if we've been successful in competing it with less hours than we anticipated, we get a big bump in profitability at the end of that. We haven't had some of those coming through in Q3 because we haven't had completion. So there's an aspect of no completions. And then there's an aspect of some of the projects were due to commence haven't commenced yet.

The next question. You say you expect a material impact from cost reductions in 2026. In which segments are these the most related to? And is it possible to quantify the impact?

So I think -- you can support me here, but I think we've already worked on this in the OW segment who had choppy markets for a while already. This is -- so that will continue. I think there are opportunities in most of the segments. Some of the segments have grown a lot over the last years and efficiency -- taking out efficiencies, there's opportunities for. So I think we will see a continuous improvement on the EBIT margin. That's our definite goal.

We definitely -- we called it a market alignment plan because while markets are weaker, we need to focus on the cost. But when markets get stronger, we need to focus on the right areas to invest as well. So we'll see those opportunities coming up. As Hege said, across the segments, all segments are going through this review at present, but also all of the corporate segments or corporate activities will go through this review as well. And so we'll see reductions in the corporate costs going forward.

And the next one. Will we see a rush of project completions in Longitude in Q4?

I don't think you should jump to that conclusion. We have a number of projects going on in Longitude. Some of those completed in the last couple of quarters we've had, where we've had strong results. I don't think there are many completions for Q4, but we will be commencing the projects that have been delayed somewhat.

The next one. Going forward, how will you fund your M&A growth, own cash flow, new shares, debt?

Well, I guess the strategy we adopted a couple of years ago was to move away from issuing shares to support M&A activities and to utilize our own cash. At that time, we had in the region of $30 million of cash sitting on the balance sheet, which is probably not a very efficient use of cash for an investment vehicle. So we've been investing that in the acquisitions over the last couple of years, which is why you've seen our cash balance come down over that period. We also augment that, obviously, with the revolving credit facility, which provides us capital to draw on cash quite quickly to complete transactions and therefore, put us in a strong position when we're doing M&A. So the combination of cash on the balance sheet, the additional cash we expect to generate in the business going forward as we improve profitability and then the availability of the RCF provides us with pretty strong firepower in terms of carrying on with M&A.

And then a question on AGR. What kind of measures are you taking in order to improve the profitability?

Maybe I can start. I think AGR is -- the resourcing business is one where we use a lot of freelancers. So there's -- that's an agility in built and the AGR has shown over the several business periods that they are very agile and able to adjust the cost base as the market goes up or down. So -- but I think particularly the fact that we are using a lot of freelancers in that business gives us that agility and an opportunity to adjust the cost base.

I think the volume attached to AGR is obviously the resourcing business, which is showing a bit of weakness, but the profitability we can drive through AGR also comes from the vessel operations activity. And so, yes, when we see vessels which are on hire, and we have added services to them, well, then we get the opportunity for higher profitability within AGR.

The next one. How will you implement the transition priorities, the likely scope of impact? And when can we expect these initiatives to have an impact?

So the market adjustment plan has been implemented over the last months. We think that the full effect of those will really come into play as of 1st of January. I think we will see in the fourth quarter some of those upfront costs that adjustments like that sometime will require. And then I think the rightsizing of group activities and how we will really start driving efficiency through the investments we have done in the past at group to put in place processes and structures and tools across the segments will all sort of really start playing out next year.

Good. And the next question. Can you give some more color on why you still are maintaining the focus on growth as profitability over the past years have -- over the past quarters have been weak? Would it not be more prudent to first focus on enhancing the current portfolio of businesses and improve cash flow and profitability?

I think the acquisition activity that we've had over the whole period, all in all has been quite successful. It has both given us revenue growth as well as profitability. I think the challenges over the last period with choppy markets in first renewables and then in oil and gas has given us an opportunity to now really focus -- sort of refocus not just on growth but on profitable growth and on efficiency and that those opportunities will be reaped now. So there's -- this is going to be a both -- we will do both going forward, I think, quite successfully.

Good. Then I think we can open up for questions from the audience. Well, I think we have covered all the questions. Yes.

Thank you.