Aqualis ASA (ABL) Earnings Call Transcript & Summary

Hi. Good morning, and welcome to the ABL Q4 presentation. My name is Reuben Segal. I'm the Group CEO, and I'm delighted today to be joined by our new CFO, Stuart Jackson, who will be presenting the financial figures during the later part of the presentation. For people that are joining us online, good morning. [Operator Instructions] So as always, the company disclaimer, draw your attention to the disclaimer, and feel free to read this in your own time. So I'm going to jump straight into our operational performance and a summary of our figures for 2022. 2022 was a transformational year for ABL Group. It was an excellent year, both in terms of revenues, in EBIT, in performance, in cash and every other aspect of the organization in the business. We concluded the year with a record $168 million of revenues with an EBIT of $15.5 million. This EBIT margin and the revenues were generated through -- predominantly through our Longitude engineering business and our OWC consulting business, predominantly in the renewables industry. This was an excellent performance for the whole operation. It showed an 11% growth year-on-year, which is in line with our expectations moving forward. We also had a record-breaking EBIT margin for the year as well, just over 9%, which is a huge increase over previous years. A lot of hard work went in to achieve that performance. In particular, we bring our attention later on in the presentation to the operational excellence that the company achieved and the performance that we achieved to withdraw these numbers. And later on, you will see our cash position as well. During the course of the year, we paid out a semiannual dividend of NOK 0.6, and we will come back to that later on in the presentation for our intentions for 2023. In addition to that, we sold our loss adjusting business across the Steege Kingston. And we also concluded the acquisition of Add Energy into the organization in the back end of -- or the start of Q3. So it was an excellent transformational year. I would like to take this opportunity to thank our staff for the hard work that they did and all the time that they put into achieving these fantastic results. It was a really excellent year for the ABL Group in all respects. And I think all the people within the organization should be very proud of what they achieved during 2022. So talking about Q4. Again, this was the best performing Q4 in the history of the organization. We achieved revenues of $42.8 million, which is an increase of 13% year-on-year, again, an excellent performance throughout the organization. We also had a record-breaking EBIT of $3.5 million, which is 40% increase year-on-year over 2022 and an EBIT of $2.5 million, which again is an increase of over 30% year-on-year. So again, an excellent performance overall for the organization. The revenues were predominantly driven by OWC. Again, our consulting renewables arm of the organization and our first-party engineering through Longitude, both performed extremely well, not only during Q4, but for the whole of 2022. The rest of the organization obviously also contributed to those revenues and EBIT margin. We also had an excellent, excellent cash position. Driving this business is not only about achieving revenues and EBIT margin, but it's also about getting the cash into the bank. We ended the year with $17.6 million of free cash -- sorry, of net cash and record operational cash of $6.7 million. This was a lot of hard work that was done to produce this at the end of the year, and it left us in an excellent standing for the end of the year. That also includes the payout of the NOK 0.3 semiannual dividend, which we did at the back end of Q4. So excellent quarter all in all. In addition to that, the Board through discussions, I've agreed that we will look at a further semiannual dividend for 2023 of NOK 0.35, an increase of NOK 0.05 over 2022. So overall, Q4 was yet another excellent quarter for this organization. I message -- I suggested during our last presentation that would I be standing here again talking about record after record after record. And yet again, I'm able to do that. It was a truly excellent year and a truly excellent quarter for ABL Group, and we should be very proud of those results. So taking you through the organization for people that don't know the organization yet, we predominantly work in 3 locations -- or 3 business segments or sectors. It is Renewables, Oil and Gas and Maritime. And I'm going to take you through some of the business lines that we do in each of those sectors. So if you take first our consulting engineering arm, there's many different activities. I'm not going to go through all the activities, but a lot of focus is given particularly on our engineering and our first-party consultancy business and also owners engineering. We try to go after some of the sectors that are better in terms of margin and better growth opportunities for the organization. We're able to drive more into these areas during 2022, and that focus will continue going into 2023. On the loss prevention side, we continue to be the market leader in Marine Warranty. The Marine Warranty is the backbone of this organization, and we continue to drive Marine Warranty in both Renewables and Oil and Gas. We are a market leader in that sector, and we continue to maintain that position. If you go to the loss management side, again, we are a market leader. We have maintained our position as the #1 in the Holland machinery sector for survey type of work. We also continue now with well control with the addition of Add Energy, and that allows us to expand our portfolio of services across the ABL organization. So in all 3 sectors of this business, we continue to drive all these various business lines throughout the whole of the organization. So where does this work take place? You've seen this map before. We're sitting just shy of 1,100 employees. This is a little bit down over the quarter, but that was purely due to seasonal variation that we have in the winter months in the North Sea. We continue to operate in 38 different countries, in 62 different offices. That footprint is always being reviewed, always being expanded, and we maintain our position in all those countries and all those offices. In terms of the business, the largest sector of our organization is in Oil and Gas. We maintain our position of just over 50%, whilst our Renewables business continues to be stable at 29%. In addition to this, we also have energy transition-related projects, which take place in all Maritime, Oil and Gas and the Renewable sector. That is continuing towards our ambition of 50% of revenues to become from Renewables and energy transition-related projects. So we continue that drive across the whole organization, and that is our ambition. In terms of separating where our revenues take place, as I mentioned previously, it is important for us to be not dependent on one business line or in one location or in one country. Now you can see not one part of the organization is more than 22% of our revenues, predominantly out of Europe. The even spread of our revenues across the organization means these humps and troughs and peaks are smoothed out. And again, that can be seen in our revenues and our EBIT during the course of 2022. So this is a very stable, nice position to be in. In addition, you will see Add Energy. This is the new acquisition we did in Q3. It now accounts for 6%, but that is on the basis of early 6 months of revenues. So just keep that in mind as we go into the rest of 2023. So it's a very nice, stable position for the organization to be in and gives us a good foundation for going forward into 2023. So just a few examples of some of the projects we've won and in particular, the highlights of 2022. So in the Renewable sector, this is a nice contract that we won with Iberdrola. This is not only a nice contract, but it's with a client that is a repeat client. It's always good to have repeat clients. It means that they value the quality of work that we do. So this is a 2 contracts out of Germany for 2 offshore wind farms, one is a 2 plus 2 -- sorry, 3 plus 1, and the second one is a 3-plus 2-year framework agreement. In particular, though, I draw your attention to the right-hand side. During the course of 2022, we operated in more than 131 different wind farms across the globe, 131. There's an increase of over 30% on 2022 numbers that we presented last year. We also operate in over 26 different countries. That in itself is a remarkable achievement over the course of 2022. We have started to grow into areas such as Costa Rica, Colombia, Brazil, Romania, new areas for us to focus on, and I'll get back to the outlook later on. Another sample project in our Renewables division is the Greenlink interconnector. This is a 190-kilometer long interconnector between the great Britain and Ireland. And in particular, this is also going to carry green energy from the U.K. across to Europe. This fits in very well with our ambition to go into more renewables, clean energy and energy transition-related projects. So it's an excellent project. We'll be handling all the Marine Warranty services for the installation of these interconnectors. But of course, our Oil and Gas business accounts for 53% of our revenues. So I would like to focus your attention in a moment to the right-hand side, which is one of our strong, strong, strong positions of this organization. Before I do that, though, I'll talk very briefly about the Dos Bocas Marine Warranty. This was 12 heavy lift operations, which were completed successfully. And this is for a plant over in Mexico. We completed all the marine warranty operations for this particular project successfully from across Europe and other parts of the globe. In particular, though, like as I said, I would draw your attention to the right-hand side. We completed over 1,100 rig moves. So on average, close to 100 rig moves a month. We are, by far, the market leader for rig move operations across the globe. And as you've seen with the Oil and Gas recently with the strong growth in OpEx, this is an excellent position for us to be in. We completed over 500 Marine Warranty Projects across the organization with over 1,200 different clients. That is a remarkable achievement for this organization and shows you the amount of clients that keep coming back and back and back as repeat customers. So it's a fantastic position to be in across our Oil and Gas operation. But of course, we also have the Maritime sector, which is one of the most stable parts of our organization. We continue to drive across the marine industry and in particular, the insurance industry. This particular project is a nice project, the USS Texas. It is the last remaining vessel that was used in the first and second world war. Here, we use Longitude Engineering for engineering works, and we also used ABL for the Marine Warranty. But again, I draw your attention to the right-hand side. Over 2,900 appointments last year for our Maritime division, with over 1,200 different unique clients. Again, it just shows you that our clients come back for repeat business over and over again. So like I said at the beginning of this presentation, it is commendable to our staff for the hard work that they put in. So last slide before I hand across to Stuart is just to show you the position of our headcount. We've made it very clear, we want to continue to grow through organic growth. We want to continue to grow through acquisition. As you can see, our permanent headcount staff continues to increase again quarter after quarter after quarter. This quarter, we increased our head count by 4%. The total amount of freelances was down slightly from 29% to 26%, that is purely due to seasonal variation in the North Sea and other parts and Christmas and New Year and all the other things that take place. But it's a very healthy position to be in. The freelancer mix allows us to upscale and downscale as of when needed and gives us a very flexible model. But going forward, we continue to drive the increase in head count. We will continue to recruit technical staff, nontechnical staff, shared services staff across the entire organization, and that is happening as we speak right now. So on that point, I'm going to hand you across to Stuart, and he will take you through the financials.

Thank you, Reuben, and good morning, everybody. I thought before I dive into the financials, I'm your incoming CFO. So been here a couple of weeks, maybe I just give a bit of a flavor in terms of what I found in the organization. So you see my assessment. Clearly, my role as CFO, the support Reuben and the team in terms of delivery of the strategy. I guess underlying that, I see that part of my role is to make sure that we have the right infrastructure in place to continue the growth of the business we have at present, be that in terms of change in the business through energy transition or indeed further M&A acquisition as we go forward. In terms of the business self from a control environment, I think the right investments have been made in the right places. So we have systems and processes in place, which are used across the organization. And as businesses come in, we introduce those systems and processes to them. So there's a consistency across the business, you see from a control perspective. And I think also, we have good management information coming out of the business. So the right information is available for the management and the Board making the decisions, which is critical for a business that's growing as quickly as we've been growing recently. Overall, in terms of control environment, I think for a listed business and for a company that's grown in the way we have, we have a reasonable control environment in place. There are areas where we need to improve, particularly when we have spread of geographic activities like we do. But I think more learning and more training distributed across the globe rather than being a centralized finance organization. So we need to make sure that continue contact and coordination amongst the finance group. But overall, I think I'm very excited to join us as CFO and go on the next journey that APL is going to have in terms of its development. If I turn then to the financial numbers. First, dealing with the revenue and the EBIT as Reuben has already highlighted. Revenue growth over the quarter compared to the fourth quarter of 2021, up 13%. So driven by, I guess, over the year, record billable hours as we've gone through 2022, slight decrease Q4 to Q3, as you see on the graph on the left-hand side, and that's really the impact of holidays on billable hours as we came into the last part of the year. On the right-hand side, the adjusted EBIT, adjusted is for share-based compensation, our intangible amortization, our M&A transaction costs and extraordinary noncash items. So we measure on an adjusted basis. In terms of comparison to the previous quarter in '21, a growth from $2.5 million up to $3.5 million. So good solid performance. I would note, though, as we took on Add Energy, we took on a loss-making business for the second half of 2022. As a consequence of that, there is an impact on our business in Q4. The important aspect is that we've been turning around that business through the last few months, and our expectation is that Add Energy will be contributing as we go through 2023. Turning then to the segmental analysis. Revenue growth, I guess, as Reuben mentioned, the driver really here has been our Renewables consultancy business, AWC, which is up 15% year-on-year. And then the Longitude business, which is up 18%. But also from a revenue perspective, you're starting to see some contribution from Add Energy. In terms of the EBIT, very strong performance, as Reuben mentioned, the highlights are around APAC, Middle East, Europe, which are all in the mid-teens now in terms of their adjusted EBIT. But as I mentioned, Add Energy had an impact on the business. So in overall terms, there was an 11% loss on Add Energy in the quarter. If you took out Add Energy in terms of our overall performance, our 8.2% adjusted EBITDA margin would be over 10%. So I think once we start to turn around that business, you'll see a better contribution overall across the group. Then on the income statement, a couple of items I'd like to highlight here. Firstly, overall terms our largest cost base is our staff, obviously, we finished the year with our staff costs being 52% of our revenue across the year compared to 54% in previous years. So continued progression, even though we're integrating new business as we go on. In terms of additional items to highlight the gain on bargain purchase, this is in relation to Add Energy, but a positive in that respect. We made provisions for bad debts in the PPA, and we've actually been able to collect on those bad debts. You're seeing a contribution of $1.1 million through the quarter and $1.9 billion over the full year. And then in terms of the effective tax rate at the bottom, there are a number of different elements making up our tax rate. I wouldn't look at quarterly numbers, I'd look more at the annual numbers. We're probably running in the region of 40% in terms of our effective tax rate across the group. A number of different elements make that up. We do have a relatively high level of withholding tax because of the way in which we undertake our work across borders. And therefore, we got caught by withholding tax occasionally. We operate in jurisdictions where our profitable businesses are generally in the region of 20% to 25% in terms of marginal tax. So we're paying that tax as we go through. But also on the businesses where we've been loss making in the past, we don't take the benefit of deferred tax assets for those particular regions at this present time. So you're not seeing the benefit of that coming through. So there might be some latent benefit later on. And turning to the cash position. As Reuben said, we finished at $17.6 million, a record position, made up of $31 million of cash in the business and $13.3 million of bank debt that we had. In overall terms, from a cash perspective, $6.7 million of cash generated from the business. So the drive in terms of improvement on working capital, you can see in the graph in terms of progressive improvement throughout the quarter, going down to 62% of our working capital over the last 2 months -- 2 quarters of fair revenue. So a good strong position. Working capital went down from $32.6 million to $26.9 million at the end of the year. And then finally, turning to utilization of some of that cash. So we're continuing the policy of progressively returning cash to shareholders when we have cash available. For 2022, we paid a total of NOK 0.6 per share in dividends made up of 2 installments. As we're coming into 2023, the recommendation going to the AGM in May will be for an increase of the dividend for that half year to NOK 0.35 for the half year, and we expect that we will ask for approval for the payment to -- we expect the payment to be made in the second half of 2023 as well. Just to make a note in terms of how that will be treated, this will be a repayment of paid-in capital rather than distribution for tax purposes. And with that, I'll hand back to Reuben, who will take us through the outlook.

Great. Stuart, thank you. So we're going to end just slightly different than we've done in the past rather than we just give you a straight overview of what happened. I'm going to give you an outlook of where we see the business going forward during 2023. So let's start on the Renewable side of the organization. We have an ambition to be 50% of revenues from Renewables and energy transition-related projects. If you look on the graphs, you can see that the Renewables for the offshore wind sector, in particular, is expected to grow by 22% year-on-year. Right now, ABL Group is ahead of that curve. Being ahead of that curve, means that we're able to maintain our position and also take more of the market share. That is exactly where we want to be. In addition to that, if you see from the graphs, we expect offshore wind to progress more and more outside of Europe. ABL Group is very strong within Europe, but we're also very strong in Taiwan, in Japan, in Brazil and other regions. As I mentioned earlier, Costa Rica and even Romania, Poland. So as offshore wind starts to grow further a field away from Europe, we're in an excellent position to take more market share and keep driving our renewables related operations. But Oil and Gas has had a major recovery and resurgence over the last couple of years. For us, we believe the best is still to come. In the brownfield and the CapEx-related projects, we're starting to see an increase during '22 and '23, and we would expect that to continue into '24, '25 and '26 as these projects take off and start to gain traction. In particular, as well, we see offshore spending in wells also increasing. ABL is very, very strong in the rig moving sector. So more offshore wells spending, more operations for ABL Group. And as you can see, in particular, Middle East, where we have the highest profitability, very, very strong operations, you can see that spending significant increase going forward into 2023. The way we see Oil and Gas at the moment, both in brownfield and greenfield is moving OpEx and CapEx, and we play very nicely in both sides of that operation going throughout the year. So we expect ABL to be well positioned going into 2023 in the Oil and Gas side of the operation. So a quick summary. As Stuart mentioned and I mentioned earlier, Q4 and the whole of 2022 were record-breaking, record-breaking quarters, record breaking year, revenues, EBIT, EBIT margin. It was a very, very strong quarter for the whole operation, a very strong year for the whole operation. We see no difference why that shouldn't continue as well. We're very well placed going into 2023, and we hope to continue the good work that we've done during 2022. We have an excellent cash flow position. As Stuart mentioned, its record-breaking cash flow during Q4, and that will continue as well. That allows us to free up the cash, return to our investors and also allow us to do M&A transactions, which I will mention at the very end. In addition, as I just mentioned, the Oil and Gas business, the Renewables business, brownfield, greenfield, we are moving in all parts of that business. We're well placed across the globe with our various business lines and our various sectors to take full advantage of that. And also in our Maritime business, we maintained a very strong foothold in the Maritime business across the globe. So nicely positioned going into 2023. We also intend to continue that cash efficiency. There was a huge drive. As I mentioned earlier, it's not always about EBITDA and margin and revenue. You have to generate that EBITDA and transfer it to cash. We've done an excellent job over the last 12 months to generate that cash, and we will continue that cash efficiency going forward into 2023. And as Stuart mentioned, that allows us to pay out the proposed NOK 0.35 dividend to be paid out in the second half of Q2. So a strong overall performance. And again, as I mentioned earlier, our ambition is to continue our path down Renewables and energy transition-related projects. We're making very good progress right now, and that is still our ambition for 2025. And finally, using this cash, we continue our M&A history as well. We continue to look for companies that fit with our organization, fit with the strategic fit of where we want to be and what we want to do in our growth. We will grow organically, and we'll grow through M&A if the right transaction comes along, but it has to be the right transaction for this organization. We've been very successful doing it. As Stuart mentioned, Add Energy, it's not our first rodeo with the likes of Add Energies, and we will turn that and get the best out of it during 2023. So on that note, I will end. Thank you again for everyone and also our staff for their very hard work during 2022. And at that point, we will take any questions from the audience or online, please. Nobody in the audience. Anybody online?

We have no questions online either.

No questions. It must have been perfect, perfect presentation. So on that point, we will end the presentation. Once again, thank you. Thank you, Stuart, as well. And we look forward to seeing you for the Q1 presentation in a few months' time. Thank you.