Bhagwan Marine Limited (BWN) Earnings Call Transcript & Summary

Welcome to the Bhagwan Marine Half Year 2026 Results Announcement. Following the formal presentation, there will be a Q&A session for investors and analysts. [Operator Instructions] I will now hand over to the Managing Director and CEO, Loui Kannikoski.

Welcome everyone to Bhagwan Marine's half year results presentation. I'm pleased to be joined by Andrew Wackett, our Executive Director of Finance; and Cheryl Williams, our Chief Financial Officer. Through today's session, we'll refer to the investor deck released on the ASX this morning. For those new to Bhagwan, we are the largest listed marine solutions provider in Australia. We operate across offshore energy, subsea, ports and inshore and the emerging defense sector. We have a strong 25-year track record working with major energy, mining and construction companies as well as government organizations. More recently, we entered into an agreement to acquire Riverside Marine Holdings. And we will cover this acquisition in more detail shortly. Today's agenda is outlined on Slide 4. We will focus on 5 key areas: Our financial and operational highlights for the half; a detailed review of financial performance, which Cheryl will cover; an operational overview, including the Riverside acquisition; and our market outlook and our growth positioning. Following the presentation, there will be time for Q&A. Turning now to the highlights on Slide 5. Overall, we delivered a solid performance for the half. Revenue was $116.9 million, down 8.5% on first half '25, largely due to the timing of major contract awards. Importantly, underlying demand remains strong across all sectors, particularly offshore energy, ports and inshore. EBITDA margins improved to 19%, reflecting disciplined execution across the business. Cash generation was a standout. Operating cash flow reached $25.4 million, up 21%, and free cash flow was significantly higher at $8.6 million. Reflecting our results and confidence in the outlook, we are pleased to declare an interim dividend while continuing to invest in long-term growth and innovation. Operationally, we made good progress in our core business. We secured a 5-year contract with Jadestone Energy for the Coral Knight. In our new growth sectors, we delivered additional decommissioning projects and continued to see demand building. Safety remains fundamental to how we operate. Our LTIFR improved to zero and our TRIFR improved to 8.32. Finally, we embedded the COO role and further strengthened our business development and financial governance processes. Mark Annand, Cheryl and their teams are doing an excellent job in this space. In summary, this was a period of strong performance, disciplined cost and capital management and robust cash generation with a de-geared balance sheet. This strong performance enables us to pursue immediately accretive acquisitions such as Riverside, enhancing diversification, strengthening repeatable revenue and expanding our pipeline of opportunities. Turning to Slide 6. The acquisition of Riverside is a major highlight, which we announced to the market on the 9th of February. This transaction represents a genuine step change for Bhagwan. Strategically and culturally, Riverside is a strong fit. Operationally, Riverside broadens our service offering, geographic reach and commodity exposure, while creating meaningful growth opportunities. From a financial perspective, the acquisition materially improves in earnings quality. Around 88% of Riverside's revenue is supported by long-term contracts with Tier 1 customers. This lifts Bhagwan's repeatable revenue from approximately 40% to 50%. In FY '26, the transaction is expected to be highly accretive, including EPS accretion of approximately 14%, return on equity accretion of greater than 20% and group EBITDA margins expanding from 18% to 24%. We are very excited about the opportunity ahead. I'll now hand over to Cheryl to cover Bhagwan's half year financials in more detail.

Thanks, Loui. Moving now to Slide 8. As highlighted, core revenue for the half was $116.9 million, down 8.5% on H1 2025, reflecting the expected phasing of major contract awards across the period. Importantly, fundamental demand remains strong with robust tendering activity supporting a healthy forward pipeline. The pie charts on the left highlight our highly diversified revenue base, with strong contributions across offshore energy and ports and inshore. The orange segment represents the TVI decommissioning project, a high-quality milestone contract that contributed $26.4 million in the first half of FY '25 and successfully positioned the group as a proven operator in the fast-growing decommissioning segment. I'll turn to earnings on Slide 9. We delivered pro forma EBITDA of $22.4 million, down 4.3% on H1 2025, excluding the $3.9 million contributed from the TVI project. Core EBITDA margins improved from 18% to 19%, supported by high-performing contracts in the first half, including the Coral Knight contract, together with the continued focus on margin expansion initiatives. The pro forma adjustment of $0.4 million relates to non-recurring transaction costs associated with the Riverside acquisition. For the full reconciliations between pro forma and statutory numbers, please refer to the appendices. Turning to Slide 10. We've already covered the headline numbers, so I'll focus on 4 key points. Over FY '24 and H1 2025, the TVI project contributed $91.9 million in revenue and $9.9 million in EBITDA at an 11% margin. Importantly, this project has positioned us strongly in the high-growth decommissioning segment. Building on our proven experience and successful delivery, we are now seeing additional projects and opportunities. Bhagwan continues to work across the WA offshore decommissioning market through our offshore energy and subsea operations. In 2025 and the first half '26, we successfully completed a scope of work on the Northern Endeavour for Petrofac, supporting Australia's largest offshore decommissioning program and contributing approximately $26 million of revenue across the project. Core EBITDA margins increased to 19%, highlighting strong cost discipline and operating leverage even in a lower revenue period. With these initiatives embedded, we are focused on further margin expansion in our core business through FY '26 toward our 20% medium-term target. Turning now to Slide 11 and our cash flow. As Loui mentioned, our cash generation was strong. Operating cash flow increased 21% to $25.4 million, reflecting strong margins, high-quality earnings and disciplined cost and capital management. As a result, this translated into free cash flow of $8.6 million, a material uplift from $1 million in the first half 2025, demonstrating the business ability to convert earnings into cash. I will now move to CapEx. To recap, we categorize capital expenditure into 3 areas: growth, sustaining and discretionary. Starting with growth CapEx. Our approach remains highly selective and returns-driven. During the period, we acquired the Seawind landing craft, strengthening our inshore capability and delivering an expected cash flow payback of approximately 3 years. We also continued investing in remote operations and hybrid vessel technology to improve efficiency, safety and emissions performance. A key milestone was the launch of the Narrah, our electric hybrid vessel for the Port of Melbourne, an important step in modernizing the fleet. As highlighted earlier, our investment in the Coral Knight is performing well and delivering strong returns. Looking ahead, second half FY '26 growth CapEx is expected to include the planned acquisition of the Keller Ocean multi-cat vessel for approximately $6 million, further enhancing capability and supporting earnings growth. Turning to sustaining and discretionary CapEx. This spend is focused on targeted fleet enhancements that underpin quality, reliability and operational efficiency. Sustaining CapEx remains elevated, reflecting ongoing inflationary pressures and extended maintenance lead times across the industry, factors we continue to actively manage. Overall, our capital allocation remains disciplined, flexible and firmly focused on value creation. Looking briefly at the balance sheet on Slide 13. We've maintained disciplined working capital management, with debtors now back to normal levels after the peak in June 2025. Property, plant and equipment increased in line with our growth CapEx program and extended lease tenure. Our balance sheet remains conservative, with net debt to equity at just 1%, excluding operating leases. Net financial debt is minimal, around $1 million, again, excluding operating leases. Net tangible assets per share were maintained at $0.61 per share. As a result, the group enters the second half with a conservative and flexible balance sheet, well-positioned to fund growth and dividends. More detail regarding our debt and leases are set out on Slide 14. Our assets include a loan to a related fleet management company, which is recorded on the balance sheet. We have maintained a clear focus on amortizing financial debt, ensuring our funding structure remains disciplined and conservative. Lease liabilities increased by $8.1 million, reflecting deliberate long-term investment, mainly driven by 2 factors: a $6 million rise in property leases, reflecting our new long-term head office lease, along with the renewal of our Dampier facility lease, and a $1.9 million increase in vessel leases, reflecting longer tenure. Collectively, these movements support infrastructure resilience and fleet capability, while net financial debt remains minimal and the overall funding position remains balanced. That concludes the financial section, and I'll now hand back to Loui.

Thanks, Cheryl. A quick recap of our business structure on Slide 16 before moving to activity. Across our 4 sectors, we deliver a mix of long-term contracts and shorter-term, higher margin work. To summarize our key strengths, we have operations at all major Australian marine hubs, operate the country's largest multi-cat fleet and manage a substantial in-house marine crew. We also continue to invest in innovation to reduce operating costs, improve safety and enhance efficiency across our fleet. Slide 19 highlights the key activity during the half. Offshore energy remains busy. We continued our 5-year standby contract in the Pilbara, secured 2-year extensions with Jadestone and Vermilion and added a new 5-year Coral Knight contract. Tendering activity is strong and interest in our decommissioning services are growing. In subsea, we completed a WA decommissioning dive project, delivered the ROV debris cap replacement and provided ongoing OMR support and completed platform inspections. For ports and inshore, significant work included our 6-year maintenance contract with the Port of Melbourne and the Groote Eylandt wharf repair project. We were also awarded the Alkimos Desalination marine works project. In defense, opportunities remain promising. Our AFMR and border protection contracts continue and our engagement with defense industry support is expanding. The next few slides will cover Riverside, its subsidiaries and how its capital-light model complements Bhagwan. Riverside Marine was founded in Brisbane in 1926 by the Campbell family. Over a century, it has built a strong reputation for quality, reliability and operational excellence. Today, Riverside manages and operates a fleet of around 30 quality vessels across 5 established brands. Backed by deep industry expertise, Riverside serves a long-standing quality customer base in markets with high barriers to entry and attractive growth opportunities. For FY '26, Riverside is forecasting revenue of $63.3 million and an EBITDA of $26.2 million, representing an EBITDA margin of 41.3%. Looking now at Riverside subsidiaries on Slide 20. Rivtow and AIMS Vessel Management focused on vessel operation and management rather than ownership. Rivtow provides essential harbor and towage services for large resource companies in the Pilbara and Mackay. AIMS Vessel Management operates dedicated research vessels under long-term government contracts. Together, these 2 businesses contribute about 30% of Riverside's earnings. The remaining 3 businesses operate vessels owned by Riverside. Riverside Industrial Sands, the largest provider of construction sand in Brisbane, operating in a market with high barriers to entry. The Magnetic Island Ferries, the sole provider of commercial ferry services linking Townsville and Magnetic Island. And Riverside Oceanic, supplying high-quality charter vessels across a range of end markets, providing flexibility and growth potential. Each of these 5 businesses have compelling growth opportunities, which I'll cover shortly. Moving now to Slide 21. As mentioned, Riverside provides further diversification. From a service perspective, it expands our capabilities into third-party vessel operations, harbor tugs, sand dredging and commercial ferries. Geographically, it broadens our footprint across North Queensland, Mackay and Port Hedland. And in terms of commodity exposure, it increases our participation in iron ore, met coal and broader industrial sectors. Turning to Riverside's capital-light business model on Slide 22. At its core, Riverside generates strong free cash flow by focusing on vessel operation and management rather than heavy asset ownership. Today, the business has more than 20 vessels under management, all supported by long-term contracts that provide strong revenue visibility. In addition, Riverside owns 9 vessels with a total value of approximately $35.7 million. And as mentioned earlier, Riverside is forecasting an EBITDA of $26.2 million. The business carries no vessel lease payments. And annual maintenance CapEx is expected to remain modest at around $7 million to $8 million. Overall, this capital-light structure supports high margins and strong free cash flow. Slide 24 highlights where we want to take the business and why we're confident in that path. First, we operate in a substantial addressable market. There's plenty of opportunity for growth. Second, the outlook for our industry and for vessel rates is positive, which supports stronger returns. And finally, we're in a strong position to keep improving efficiency and lift margins even further. Taken together, these 3 factors give us confidence that our return on assets will continue to improve. Looking at growth drivers and how we're positioned to benefit on Slide 25. We've included this slide in the pack a number of times, so I'll just highlight a few key points. Starting with decommissioning, the offshore pipeline remains substantial at around $60 billion. With our experience, particularly on the TVI project, we believe we are well-placed to capture this opportunity. In offshore wind, Bhagwan is already supporting early survey works in Victoria, positioning us at the front end of these developments. Looking at larger vessels, demand continues to build across major offshore energy projects, including Santos Barossa, Shell Crux, Woodside Scarborough, Bass Strait and Chevron Gorgon. Our fleet is well positioned to meet this demand. In subsea, aging infrastructure and tighter regulation are driving increased inspection, repair and maintenance activity. For ports and inshore, investment remains strong across WA, Victoria and Darwin, with further activity expected in the lead up to the 2032 Brisbane Olympics. And finally, in defense, government spending on port upgrades and infrastructure continues to increase. Turning now to Riverside, where we see clear opportunities to drive growth across the group over time. Starting with Rivtow Marine, the opportunity here is on managing additional commodity volumes and securing new contract wins. There is also a clear upside from leveraging the combined vessel management expertise and industry knowledge across the group. Moving to AIMS Vessel Management, we are seeing increasing demand for marine research capability, which positions this business well for steady long-term growth. At Riverside Industrial Sands, there are several attractive opportunities. These include the potential to move to 24-hour dredging and a transition towards trans-shipping. Together, these enable volume for growth over time. For Magnetic Island Ferries, the outlook is supported by continued tourism growth. Additional accommodation planned for Magnetic Island, along with the lead up to the 2032 Brisbane Olympics is expected to drive higher passenger demand. Finally, Riverside Oceanic. Following the recent acquisition of 2 vessels, the priority is to lift utilization in what remains a tight market. There is also an opportunity to deploy these vessels across Bhagwan operations, creating further flexibility and value. Overall, Riverside provides multiple ways to increase volume and vessel utilization. Looking at the recent Clarkson chart on Slide 27. The chart on the left shows offshore vessel utilization. Over the past 5 years, utilization has steadily improved, supporting stronger day rates for both anchor handlers and platform supply vessels. The chart in the center highlights global day rates. These have now returned to levels last seen in the mid-2000s, reflecting both the recovery and utilization and the tightening supply across the global fleet. Finally, the chart on the right shows new build orders. Orders remain limited due to high construction costs and constrained financing, which should continue to support day rates over time. For additional context, since 2014, anchor handler rates are up 20% and PSV rates are up 5%, while new build prices have increased by 89% and 98%, respectively. With the largest fleet in Australia, further strengthened by the additional Riverside vessels, Bhagwan is well positioned to capture demand in what remains a tight global market. For the balance of FY '26, our focus is clear: steady growth, improving returns and maintaining safe, efficient operations. Bhagwan remains committed to 4 core themes: market penetration, market development, market expansion and operational excellence. Concurrently, the company will commence integration of Riverside. The initial priority will be maintaining the business as usual, preserving strong customer relationships and retaining the underlying value of the business. I'm proud of what our teams have delivered in the first half. The result reflects a more resilient core business with expanding EBITDA margins, strong cash generation and disciplined cost and capital management. Our solid financial platform provides the flexibility to execute on growth opportunities. Activity remains steady and our opportunity pipeline is strong as we move into the second half. We remain confident in our trajectory through to FY '26 and beyond. Thank you all for joining us today. Andrew, Cheryl and I are now happy to take questions.

[Operator Instructions] Our first question today comes from Larry Gandler from Shaw and Partners.

Well done, Loui and team, on the great results. Just a question about Bhagwan and Riverside and Rivtow. Just wondering what sort of cross-selling opportunities there are? I know you kind of intimated some of that in the presentation pack, but maybe you can get a bit more specific as to what cross-selling opportunities there are with Riverside?

Thanks, Larry. Look, I think what's important to know about Riverside and Bhagwan, I suppose, and one of the attractive things for us with the acquisition was that the business was very complementary. Led us into further areas from our already diverse service offering, if you like. So it just expands on that. So we're seeing the Riverside operations throughout the business as very, very complementary and add growth to what we already do. The acquisition with Bhagwan, we'll be able to expand on those opportunities around the country as far as other towage contracts. We'll be very aggressive as far as those things are concerned. So it's more of a -- we've always looked at it as -- we've never really been in competition a great deal with Riverside, so it's a really good add-on to our already quite large service offering. So that was mainly the attraction, Larry, and I'm hoping that I've answered that question as well as I could.

Maybe just to add to that, too, Larry. It's got that small -- Riverside has a small fleet of charter vessels in the Oceanic business, and we're hoping to join that together with some of our existing vessels and to market that for things like the hydrographical surveys that are going on around Australia. And probably the other area where there's immediate cross-selling synergy is in the sand business. There's a number of sand opportunities around Australia that Bhagwan has been looking at, and obviously, we've stepped up in expertise and qualification front on that now. So I think that's a real positive. And with the Olympics coming up in Brisbane as well, we see opportunities to expand volumes there. And some of our fleet, especially our tugs and barges, are potentially useful in helping expand the volumes in that part of the business as well.

Okay, great. That's really useful. And the AIMS, the 2 boats that were purchased for I think the Oceanic segment, do you have work for those under Bhagwan in the east or would those boats be able to move west?

Well, currently, the boats are in the Northern Territory, and we're bidding work with those vessels combined with Riverside right now, some international work. The option with Bhagwan being with our geographical spread, we can basically send those boats anywhere. So they're capable of working around the country and also internationally. So the attraction for those particular boats within Oceanic are very complimentary to what we already do. So that was probably the only part of the transaction, if you like, that was in any shape or form similar to what we do. And we could see with the quality of the fleet that we could integrate those very, very easily, and we're currently doing that. So it was a good thing.

The next question is a text question from Michael Youlden from MST Financial. Michael asks, can you comment further on the timing of contract awards expected post 31 December?

Look, the only thing -- I mean, we can never be 100% certain on contracts. They can move, but the ones that we are pretty excited about at the moment are the ones that have already moved. So we're pretty confident that we will see an award for those. I mean, I can't really comment on the actual dates. It's too hard to do that. I'm not willing to bet my body parts on those sorts of things, so I'll leave that out. But no, we've certainly seen things happening before the 31st of December.

And a follow-up question from Michael. He asks, do you expect a rebound in core in the second half?

Yes, we do.

And that's really driven by 2 things, Michael. The first one is the margin improvement that we spoke about. I think Loui made a comment in his commentary that the second quarter margins were substantially better than the first quarter margins, and that's reflective of all the work that's been done internally on improving margins within contracts and all the stuff we've been talking to everybody about around as the business has got busier around recovering everything we're entitled to recover. So I think that's the first point. And the second point is, obviously, we're expecting higher activity levels in the second half for some of the substantial piece we've got out there. So across -- like Loui alluded to, across decommissioning, across ports and inshore and the like. So we're definitely expecting, in the base business, a higher activity levels in the second half.

There are no further questions. I'll now hand back to Loui for closing remarks.

Look, I'd just like to thank everybody for their time and being able to join in and listen to us today, and hopefully, we haven't bored you too much. Look forward to catching up with everybody as time goes forward. I'd like to reiterate that the future is looking very bright, so we're very happy about it.

That concludes today's call. Thank you for joining us. You may now log out.