Cambi ASA (CAMBI) Earnings Call Transcript & Summary

Our pipeline and tender activity continues to grow. We had an increase in formal quotations year-on-year, and we recently announced the acquisition of the Veolia's thermal hydrolysis process technologies, which may open new market segments with Martin will touch on more in a moment. I have recently talked about some of the near-term challenges facing our business. The war in Ukraine, which is a real strategy on a humanitarian level has also had an impact on our business. The project in Lviv remains under force majeure and the execution of other projects are impacted by the disruption in global supply chain and the impact of inflationary pricing. Despite the challenges, we reached several milestones in the quarter with the start-up in Coventry and Valada and installations in Raleigh, at Piscataway and West Sussex. We have also announced that Veas has selected Cambi as part of a best-value procurement process. We are now in a collaboration phase, and it is progressing as planned. I'll touch on the order intake a bit later. But as we've communicated before, this is not yet a firm contract reflected in backlog. We see more people that's being serviced now by our solutions as the plants are put in operation. And I'm very proud to say that Cambi entered a new market in April with our first project in Morocco, which is also our first contract in North Africa. We also secured a contract for the remaining half of the biological sludge at the Psyttalia wastewater treatment plant in Athens from a repeat customer that has had the first THP in operations since 2015. Taking a step back, I want to share some thoughts on our business trajectory. The conditions in sludge management markets are highly favorable as high energy prices and race to become next hero, ensure water utilities are incentivized to maximize biogas production which is driving the demand for our solution. Given the uncertainty mentioned in the project in Lviv and the continued challenges in supply chain, our 2022 guidance that we issued on 30th November last year, has now been withdrawn. As you can see, we remain confident in our strong growth in the medium term, and we expect to deliver an order intake of new equipment contracts of NOK 1 billion from the start of the second quarter this year until the end of 2023. We also expect the total order intake in the same period, but leading up until the end of 2024 to be NOK 1.7 billion. And to mention, 1/3 of the NOK 1 billion mentioned is secured by awards in April and also a letter of intent signed, which we believe will move forward within this time period. With that, I'll hand it over to you, Martin.

Yes. Over a week ago, we announced the acquisition of the Veolia's thermal hydrolysis technologies. And we did this acquisition to increase our existing patent portfolio with 2 complementing and ready developed products. And we're talking about 2 different types of thermal hydrolysis. It's a batch system, which is very much like the system that Cambi has already with some extra features, the Bio Thelys and we're also talking about an Exelys system, which is a continuous system. And the difference here is that the continued system doesn't treat the sludge in batches, but it flows through the reactor. And therefore, it's a slightly simpler solution, it has a smaller footprint, it uses less fuel, but it is also a highly standardized product, and it is a plug-and-play solution. In contrast to a batch solution, the continuous system doesn't give a complete pathogen kill and requires slightly higher energy consumption, but it is very suitable for applications on smaller plants and possibly also for non-sludge substrates. So that's a very valuable addition, especially towards customers that are more CapEx-sensitive where the criteria for selection are very much factored towards the CapEx. If we go to the next slide, I'll give you an update on the DBO development so far. At the end of the quarter, we delivered a complete proposal in response to a request for proposal. This we developed together with a partner and we have very good indications and hopes that this is a -- this will be evaluated with great interest from the customer and we're actually anticipating that we will be invited here for negotiations, which should then lead to a DBFO contract in the near future. In addition, in the quarter, we have also delivered several other more indicative proposals following on the feasibility studies that we did at the end of last year, and we've continued to have dialogues and customer engagement to convince them of these proposals and also to sort of understand how we can get to a contract with them, how can -- what kind of procurement, can we have the direct negotiation with them or is there some kind of public procurement required to get distillation in place, very promising discussions and huge responses from customers in general. And therefore, we are also actively positioning ourselves to respond to upcoming DBO tenders. And we know that these are being prepared because we have been involved in the early phase of discussions. And we know that the customers expect to run these processes and award contracts during 2023. In addition, we also see new projects popping up in the first quarter, so it has also grown our backlog. [indiscernible] can go back to you.

Yes. Now let's take a look at the first quarter financials. As you can see, revenue ended at NOK 69 million or 36% lower than last year. This is due to the force majeure event in Lviv and the challenging conditions with a long lead time in supply chain affecting projects in execution. And due to the lower revenue, the difference in revenue mix and increased cost levels, the reported EBITDA ended at a negative NOK 21.1 million compared to NOK 5.5 million last year before nonrecurring items. We do confirm that we will keep increasing our prices to pass the inflation of cost to our customers. And we're already starting to do this in bid submissions and in contract negotiations. But we also expect the lead time, the delivery time to be extended in new contracts by an average of 6 months compared to what we saw last year. But we also confirmed that we expect to deliver on our customers' project schedules and on the ones in execution. Turning to Cambi Group segment. The impact on the mentioned environment lowered the revenue by 53% in equipment. Services, on the other hand, continued with a strong growth and delivered an 11% increase year-on-year. SG&A level is in line with last year. Next, the top line is slightly below our expectations and the EBITDA is affected by higher transportation costs that has not been passed on to the customer on long-term contracts. They are as in Cambi Group working to increase prices in order to pass on the inflationary pricing affecting their business. In line with our expectations, there were no equipment contracts signed in the first quarter. But as a reminder, Veas is not reflected until an execution contract is signed following a collaboration phase that we are in process. That is the end of the presentation, and I propose to take your questions. Yes, some that's come in already.

Okay. There is one question that we received. Can you give us an update on the design build operate segments? In December, you said that one tender that was dropped at CMD in August is set to be re-tendered this year, any news here? Martin?

Yes, that's something I haven't commented on now, but what we explained last year, there was a tender that was thought last year, and we are still expecting it to be re-tendered later this year and the process hasn't started yet. So that will come in addition to the projects and the processes that I commented on just now. And so that would be something that we still expect it to come back as an opportunity for us to bid on later this year.

There's another question. Can you comment on how the continued high inflationary pressure is impacting ongoing and new projects? We do see an impact of the price increase on ongoing projects hitting our margin in contracts where we don't have a price adjustment mechanism in place once execution has started. For new projects, we see some tenders that are either close to reaching their overall budgets or are above that needs to circulate back and get additional funding in order to proceed with the projects. So far, these have been exceptions. The projects that we have in our pipeline and our expectations, these are funded already and they are within budget. But we do see some risk in delays in some projects due to that. But this is for overall projects where the Cambi scope can be anywhere between 5% and 10% of the overall budgets. Yes, let me see if there's more questions. No. There's no other questions. Okay, then we'll close the presentation. And thank you all for joining. Have a great day.

Thank you.