Bhagwan Marine Limited (BWN) Earnings Call Transcript & Summary

Welcome, everyone, to Bhagwan's 2024 Full Year Results Presentation. I'm delighted to be joined by Andrew Wackett, our Director of Finance. Throughout this call, we'll be referring to the investor presentation slides that have been released on the ASX this morning. Bhagwan is a leading marine solutions provider. And since listing on the ASX in July, we have become the largest listed Australian marine services provider. As highlighted on Slide 3, we operate across diverse sectors, including oil and gas, resources, civil construction, marine logistics, offshore wind and defense. Today's presentation agenda is set out on Slide 4, and we will focus on 3 key areas: our financial and operational highlights, a deeper dive into our financial performance, which Andrew will provide; and finally, the market outlook and how Bhagwan is positioned for growth. Following the presentation, Andrew and I will be happy to take any questions. Before moving to our financial highlights, I would like to provide a little more detail about our company for listeners who may be new to Bhagwan. We were established in 2000 in Geraldton by the Kannikoski family and my family, principally servicing the oil and gas industry. We have, over time, diversified our core services, which now can largely be grouped into the following 4 categories: offshore, nearshore, subsea and port services, to name a few. We have established facilities that strategically located ports around Australia, placing us where the demand is and enabling us to leverage opportunities as they arise. Our diverse fleet comprises about 100 vessels to service our customer base, including government organizations, large mining and oil and gas companies, port authorities, civil construction companies. Now moving to Slide 7. In July, we successfully raised $80 million by the way of an IPO. The funds have enabled us to deleverage our balance sheet and provide us with greater flexibility to pursue compelling growth opportunities, particularly in the decommissioning offshore wind and defense sectors. We commenced trading on the ASX on the 29th of July. This was a very proud day for our family with the Kannikoski family with my mother and my wife ringing the bell, I wasn't allowed to and the team at Bhagwan. Moving now to our financial highlights. During FY '24, we generated record revenue of $303 million, up 79% on FY '23 and ahead of the forecast in the prospectus by 4%. This strong performance was largely driven by increasing demand across our core businesses and our entry into the decommissioning sector, a large project in the Northwest. Earnings were up 14% on the prior corresponding period and up 6% on forecast in the prospectus. Our net cash from operations of $29 million was in line with FY '23. And finally, pro forma net debt as of 30th of June '24 was $12.4 million. As I mentioned earlier, Andrew will provide more detail on our financial performance shortly. Looking now at our operational highlights on Slide 10. Firstly, I'm very proud of the team for remaining focused on safety and service delivery while undertaking a large decommissioning project and the IPO process, which was named [indiscernible]. Everyone's commitment and dedication during a very busy year was outstanding. Importantly, we maintained our positive safety culture, which was reflected in the improved total recordable injury frequency rate and lost time injury frequency rate performance. Having said this, when it comes to safety, we are never satisfied and always looking for a continued improvement. Looking now at governance towards the latter part of '24 or FY '24, we were pleased to welcome Andrew as Director of Finance, Tracey Horton as a Non-Executive Director and as a listed company, we will continue to mature this aspect of our business. Turning now to operations. We experienced strong demand across all of our sectors and services nationally, offshore, oil and gas, subsea, port and civil construction. A highlight was successfully transitioning Bhagwan's first oil and gas decommissioning project, the largest undertaken by an Australian-owned service provider to the demobilization phase. Importantly, more than 800,000 hours of work offshore were completed without a lost time injury, which was a massive achievement. This important project enhances our capability and proven delivery within decommissioning, a high-growth area for Bhagwan. This will mean that Bhagwan will be included in all most upcoming Australian decommissioning projects, which should take [indiscernible] the future. I'll now hand over to Andrew to cover our financial performance in more detail. Thank you.

Thanks, Loui. I'm commencing on Slide 12. Our net revenue, that's net of pass-through revenue was up 59% on FY '23 and up 1% on the prospectus forecast. Our pro forma EBITDA was up 14% on FY '23 and 6% above the prospectus forecast. The 2 pro forma adjustments to EBITDA are $1.2 million in ongoing listed company costs, which are deducted from statutory EBITDA and $2.7 million in noncontingent transaction costs, which were incurred in FY '24 and added back to statutory EBITDA. There are reconciliations of pro forma to statutory numbers in the appendices of the presentation and in the prospectus. The chart on the right-hand side of Page 13 compares the pro forma prospectus profit loss breakdown to the actual FY '24 pro forma performance. The orange bars and dotted lines highlight the performance of the large decommissioning contract where FY '24 revenue of $65.4 million compared favorably to the prospectus forecast of $60.7 million. And the EBITDA was $6 million compared to the forecast of $3.2 million, giving an EBITDA margin to date on this project of 9.1% compared to the prospectus forecast of 5.3%. The favorable performance to forecast was due mostly to client approval of some of our early change orders. The project was completed successfully and safely in August and is currently in the demobilization phase. Our core revenue of $203.2 million and EBITDA of $35.3 million were both in line with prospectus forecast. The core EBITDA margin of 17.4% was in line with the prospectus forecast, but was lower than the FY '23 EBITDA margin of 21.5% due to the investment in corporate overheads as detailed in the prospectus. We expect to be able to leverage this investment in FY '25 and beyond to support future growth in the business. Looking now at Slide 14. Our operating cash flow of $29.0 million was 5% ahead of the prospectus forecast and our free cash flow of $17.0 million was 1% ahead of the prospectus forecast. Working capital was impacted by some large customers deferring payments to us until early July and net CapEx was higher than the prospectus forecast, primarily due to cost inflation and project timing. We expect FY '25 CapEx to increase due to the dry docking of a major asset and general cost inflation in the shipbuilding and repair industry. We still retain nearly $39 million in tax losses, which is expected to provide a cash flow shield for the next several years. And finally, on this slide, our operating lease payments were in line with forecast. Turning now to our balance sheet on Slide 15. FY '23 total net debt, including leases of $88.7 million, reduced by $7.3 million over the course of FY '24 to $81.4 million. And post year-end, debt was substantially repaid with $69.0 million of IPO proceeds. Pro forma December 2023 net debt of $19.7 million now stands at $12.4 million pro forma in June 2024. Before leaving the financial section, I would like to mention that we have included additional slides in the appendices starting on Page 22, providing further detail regarding the statutory to pro forma reconciliation. I'll now skip forward to Slide 17 on the global offshore vessel market. The graphs on Slide 17 developed by a global shipbroker, Clarksons, provide some industry context. The middle chart highlights that the utilization of the global offshore support vessel or OSV fleet. This is both anchor handlers and platform supply vessels has been steadily improving post COVID. This has in turn driven global day rates back to similar levels to those experienced in the mid- to late 2000s. This is depicted in the left-hand chart. The chart on the right-hand side highlights the low day rates and associated industry returns experienced from 2015 to '21 has led to a limited newbuild response despite recently improved day rates. Current industry indications are that newbuild orders remain limited globally due to high newbuild pricing, access to finance and uncertainty surrounding vessel technology and design. These factors indicate that supply is likely to remain constrained for some time despite improving demand from the oil and gas and renewable sectors. Bhagwan has the largest fleet in Australia and is in a strong position to capitalize on increasing demand for marine services in a tight global vessel market. I'll now hand you back to Loui.

Thanks, Andrew. As supported by the previous slide, the industry supply-demand fundamentals are strong as prospects for decommissioning offshore wind and defense projects are also compelling. There is a strong pipeline of decommissioning projects. Bhagwan now has a proven experience and capability in this area. The government is committed to offshore wind projects that Bhagwan is currently supporting the initial survey phase of these projects, especially in the [indiscernible] and there has been 12 licenses issued around the country. So we expect that demand to get to grow steadily in the next few years. Similarly, the government is also increasing investment in marine defense projects. Again, Bhagwan has proven experience in the sector with ongoing contracts with border force and the Navy. With a deleveraged balance sheet, Bhagwan is in a stronger position to capitalize on these growth opportunities. FY '25 focus areas. Without the distraction of the IPO, we are firmly focused on strengthening our core business and expansion into growth sectors. More specifically, we'll look to build on our long-term contracts and higher utilization rates and recurring revenue. Maintaining our leading fleet is also a focus. We have some exciting projects relating to greener energy and hybrid options together with automotive vessels that reduce crew requirements and enhance safety. In conclusion, moving now to Slide 20 and some points we would like to leave you with. We delivered a strong FY '24 results. Bhagwan has a successful 25-year history with a strong reputation for service delivery. As founders, we remain shareholders and committed to the long-term success of Bhagwan. There remains strong demand for our core businesses and compelling growth opportunities within decommissioning offshore wind and defense. We're in the strongest position in the company's history to accelerate growth for shareholders. I will now hand you back to the moderator for any questions.

[Operator Instructions] Your first question is from Tony Mitchell from Shaw and Partners.

Congratulations, excellent result, very well explained. I'd just like to ask you, why haven't you included a forecast for EBITDA or NPAT for '25?

Tony, thank you for the question. We're not proposing to provide detailed guidance on a going forward listing. We think industry conditions are strong. We think conditions for improving rates and utilization is strong. Demand is strong, and we think the supply response from the market is limited. So we think we're in a good position, but we're not -- we'll give an update at our AGM on our first quarter trading performance and obviously, at the half year. But I don't think we'll be providing formal guidance or forecast on a go-forward basis.

Okay. Given what is the current level of utilization amongst the fleet at the moment? I know there are different categories, but what is the average level of utilization?

Tony, we're at about 55% to 60%. But what we do with utilization, we include times when the vessels are in docking and maintenance periods and [indiscernible]. So whilst we sort of -- if you look at the percentage range of, say, 55%, you're working it out of 100%, it's probably not quite correct. And we are trying to -- we're looking at rectifying that. But in reality, we probably get to about 90% utilization and then 10% of the year is taken up by maintenance and these sorts of things best. There's still a lot of -- we consider that there's a lot of room for growth as far as the utilization goes, and we're happy with the way it's looking for next year or '25, I should say.

Okay. So just with the decommissioning project you've done, you've obviously shut the lights out on that. Is it likely that in the future, we can do any further decommissioning in oil and gas? Or you've alluded to decommissioning in wind? Which is going to be bigger? And would the wind margins be anything similar to the oil and gas margins that you've just experienced?

The decommissioning, I think, well, it's going to go on for the future. We'll see some stops and starts. What we're seeing at the moment, we've just completed what we said is Australia's biggest decommissioning project currently. There's another part of that we expect to start in the next 6 to 12 months. So there's some ebbs and flows, if you like. But I think that will change going forward when more of these projects come on and we will be involved. So it will be a major part of the business. But that will go on for years to come. I mean, while there's infrastructure in the water, it's got to come out. So it's going to go on for a lot longer than I'll be around, Tony, anyway, but -- which for a long time to come, by the way. Anyway, but -- and then with the wind farms, look, I think wind farms for us with what's proposed at the moment is the same. It's 20- to 30-year look-ahead stuff. It's going to be a major part of our business. It's a very small part at the moment. But I think the beauty of it and while we mentioned there's a lot of growth opportunities for the company and one of the main reasons -- or one of the big reasons we did the IPO was to take advantage of these things in the future. So I see a great deal of strength in both wind farms and decommissioning.

Your next question is from Gavin Allen from Euroz Hartleys.

So just Tony asked a couple that I was thinking about. But perhaps I don't know if you can do this or not, but is there a prospect of any flavor around sort of the near-term opportunities that you're seeing kind of at the moment and whether they've changed over the last number of months, just how maybe to think of what's ahead for the next 6 months perhaps?

Sorry, Gavin, I just missed that. Could you repeat that?

I guess I'm just asking or wondering over the process of the listing, we did talk from time to time about some of the things that you're thinking about over the next number of months in terms of a possible prospect. I'm just wondering if that environment has changed at all for you. Are you still seeing things that can land in the next 6 months as contracts?

Yes. Look, absolutely. I think what we mentioned was our commercial department with tendering and those sorts of things were as busy as they've ever been, and that hasn't changed. But yes, we do expect a few things that -- a few of the larger tenders that we're bidding on to be awarded within the next 6 months, so to speak. So no, that hasn't changed, Gavin. I think if anything, I mean, the amount of work that's getting done at the moment through tendering and that has got stronger, if anything. So that's -- as far as that's going, we're very pleased with that.

Yes. Terrific. And then just another quick one. So you've spoken on this before, but just in the interest of clarity, you are seeing some evidence of rates rising as you redeploy boat subcontracts on the new work?

Yes. Look, we're getting impacted a lot from international. The world is busy at the moment, which is good. So what it means is a lot of the big players in the international sector have actually moved out of the country because they're getting better rates elsewhere, which is obviously impacting us. So with the shortage of supply, which we sort of expect to go on for the next few years, there is going to be an increase in rates. But I'm sort of -- I'm not certainly not sure on what that's going to be, but I see it going a little bit silly at some point in the not-too-distant future, but then it will come back to reality.

I'll now hand back to Mr. Kannikoski for closing remarks. Thanks very much.

Thanks, Jody. Well, thanks to everybody for your interest in Bhagwan. Looking forward to the balance of FY '25 with great enthusiasm, very excited about the growth and prospects. And we'll aim to provide updates to the market at conferences and investor events throughout the year. I'm becoming very interested in these road shows and things. So I'm starting to enjoy them, which is a bit of a worry. But thanks, everybody, for the attendance.