Eqva ASA (EQVA) Earnings Call Transcript & Summary

Welcome to the presentation of the second quarter for Eqva ASA. My name is Olav Koloy. I am the CEO of EQVA, together with my CFO, Daniel Molvik, who will take you through this presentation. This is EQVA today, a company that has transformed from a regional player into a national industrial platform over the last 4 years. Year-to-date through the second quarter of 2026, the Group delivered NOK 735 million in revenue and maintains a strong order backlog of NOK 1.1 billion for the next 12 months. This provides good visibility going forward. Including recent acquisitions, pro forma revenue is approximately NOK 1.6 billion, with a pro forma EBITDA of 6.8%, demonstrating the scalability of our business model. Our balance sheet remains solid with a book equity of NOK 413 million, net interest-bearing debt of NOK 360 million and a pro forma net leverage ratio of 3.4x. The key takeaway is that EQVA has built a diversified industrial platform with a strong market position and a healthy order backlog and a proven strategy for continued growth through both organic development and acquisitions. EQVA is made of 2 main business segments: EQVA Industrial Solutions, our industrial service group, and Fossberg Kraft, our hydropower developer and operator. EQVA Industrial Solutions, or short as EIS, is a full-service industrial service group built through the development and long-term ownership of strong complementary companies. Through EIS, we serve customers along the entire coastline and offer a broad range of services, including engineering, piping, steel structures, tank systems, power automation, ventilation and mechanical solutions. Our business is well diversified across attractive end markets, led by smelters, land-based industry, land-based aquaculture, offshore, maritime, defense and other industrial segments. On a pro forma basis, EQVA Industrial Solutions generates approximately NOK 1.5 billion in revenue and NOK 170 million in EBITDA, supported by more than 750 employees and an order backlog exceeding NOK 1 billion. Through Fossberg Kraft, we have developed a proven and repeatable small-scale hydropower model. Fossberg Kraft is present in the entire value chain from contracting waterfall rights through establishing and development of projects and finally, construction and operation of the hydropower plants afterwards. We have successfully built and sold 7 power plants, operate 10 for third parties and hold a development pipeline exceeding 85 gigawatts. The recently sold Gjosa project is expected to contribute between NOK 62 million and NOK 67 million in revenue. The key message is that EQVA combines industrial services, renewable energy, development and a long-term value creation in a scalable platform with strong growth opportunities. Now a closer look at our Industrial Solutions segment. EQVA Industrial Solutions brings together strong specialist companies on one common industrial platform with a shared toolbox. While each company operates successfully in its own market, they also can combine their capabilities to deliver integrated multidisciplinary solution. This positions EIS to meet customers' growing demands for fewer suppliers, broader expertise and a long-term strategic partnership. The EIS toolbox is able to deliver to customers in a wide range of sizes and segments with a strong set of solid industrial companies currently in our customer base. A recent and perfect example of this is the newly awarded contract in the Data Center segment, where several of EQVA's companies together deliver on a complementary set of services. This slide shows that EQVA is positioned on both sides of one of the strongest industrial megatrends, the growth of data centers and the increasing demand for power. As data centers are built, they require power, piping, ventilation and mechanical services. This is exactly where EQVA Industrial Solutions creates value by combining capacity and specialist expertise from several group companies. A recent example is our announced data center contract worth more than NOK 100 million, where multiple EQVA companies are working together to deliver piping, prefabrication, mechanical installation and electrical services. At the same time, the rapid expansion of data centers is driving the growing power deficit in Norway. Through Fossberg Kraft, EQVA is also positioned to help meet the demand with renewable hydropower projects. The sustainable part of Fossberg Kraft signed waterfall rights and near-term development projects are located in the region of Norway where power demand is expected to be strongest. The key message is simple. EQVA benefits from both the construction of new data centers and the increasing need for power that follows. This is the realization of the structural value we have built in EQVA [indiscernible] continuously work to improve also through growth and strategic acquisitions. EQVA Industrial Solutions is focused on building long-term shareholder value. Our strategy is to acquire complementary companies with a strong market position and a proven track record, strengthening our position as a full-service provider. Each acquisition creates structural value by expanding our regional presence, broadening our customer base, improving purchasing power and increasing capacity utilization across the Group. A key success factor is our organizational model, local management teams retaining a high degree of autonomy with the decision-making remaining close to the customers while benefiting from the Group resources and governance. The result speaks for itself. In just 4 years, EQVA has grown from a regional company into a national industrial platform. And with a strong balance sheet and available financing capacity, we are well positioned for continued growth. EQVA has a proven track record of acquiring complementary businesses that strengthen our platform, expand our geographic footprint and create commercial synergies. Over the last few years, we have successfully integrated IMTAS in Northern Norway, Austevoll Rørteknikk in land-based aquaculture and most recently, Einar Øgrey Farsund, strengthening our position in Southern Norway. These acquisitions have made scale capabilities and market access while maintaining a disciplined approach to the valuation, typically acquiring businesses at 4x to 5x EBITDA. With NOK 245 million in cash, low leverage and a strong pipeline of opportunities, we remain well positioned to continue executing our targeted M&A strategy. Our objective is simple: acquiring high-quality industrial businesses, unlock synergies across the Group and accelerate profitable growth for shareholders. To summarize, EQVA is built on 4 complementary platforms that create diversified value and financial resilience. Our core business, EQVA Industrial Solutions generates approx NOK 1.6 billion in revenue and NOK 170 million in EBITDA, providing a strong foundation for growth. Through Fossberg Kraft, we will develop and monetize hydropower assets with the recently sold Gjosa project expected to generate NOK 62 million to NOK 67 million in revenue and a strong pipeline for further development. We also own strategic industrial real estate with an estimated value of NOK 120 million, while holding our structure provides efficient governance and capital allocation. With NOK 245 million in cash and a solid balance sheet and multiple value drivers across the industry, new renewables and real estate, EQVA is well positioned for continued profitable growth. Before Daniel takes you through the financial report, I will now sum up the recent events and key highlights for the second quarter. Integration of Einar Øgrey Farsund. The acquisition of Einar Øgrey Farsund was formally completed in June, and we are highly satisfied with how the integration has progressed. Thanks to the positive attitude and the strong commitment demonstrated by both the employees of Einar Øgrey and our existing companies, the business has quickly become a natural part of the EQVA family. We are already seeing tangible results from this collaboration. Einar Øgrey has begun working alongside its sister companies on joint projects, clearly demonstrating the value of our decentralized yet highly integrated business model. By combining expertise, capacity and experience across the Group, we are able to pursue large and more complex projects than any individual company could deliver on its own. In the Data Center segment, the DCI, data center project in Tydal is clearly an example of its strength in action. Three of our companies are working together to deliver the comprehensive solution to the customer. This project highlights the value of combined capabilities and reinforces our belief that similar opportunities will emerge in the future. The Data Center segment represents an attractive growth market, and we expect it to become increasingly more significant for the Group in the years ahead. Regarding the market, market activity has also improved during the period. Following the relatively cautious first quarter, we are now seeing a growing number of projects that were previously postponed being reactivated. While global uncertainties continue to influence the investment decisions across several industries, the overall trend is positive with activity levels gradually improving. New contracts in strategically important markets. Across our operations from North to South, our companies have delivered a solid performance, supported by the signing of several important contracts. This includes the DCI Tydal project and IMTAS' recently awarded contract within the defense sector. Together, these contracts strengthen both our order backlog and our position in strategically important growth markets. When it comes to the Renewable Energy business, Fossberg Kraft has secured a contract for the construction and the sale of the Gjosa hydropower plant. We remain highly positive about the long-term opportunities within the hydropower and renewable energy, driven by growing demands for reliable and sustainable power generation and significant potential for future projects and long-term value creation. Overall, we are pleased with the positive development across the Group. Our strategy of building strong specialized companies while fostering collaboration across the organization is delivering results. It strengthens our position, opens new market opportunities and provides us with a solid foundation for continued profitable growth. Together, we are stronger, one team, and we have one goal. And now I hand it over to Daniel to take you through the financial part.

Thanks, Olav. Before we go into the details of the second quarter, I would like to give you an overall picture of how EQVA has developed financially over time. Revenue in the second quarter came in at NOK 365 million. This is a continuation of a clear trend of growth in the Group's top line, up from NOK 224 million in the first quarter of 2024. The growth over this period is naturally influenced by acquisitions. The chart shows financially reported revenue and not pro forma. So companies are included from the date they were acquired. Kvinnherad Elektro came in at the end of Q3 2024 and has since contributed on average NOK 12 million of revenue per quarter. IMTAS came in from Q2 2025 with an average of NOK 96 million per quarter. Austevoll Rørteknikk from Q4 2025 with NOK 43 million and Einar Øgrey Farsund lastly was completed in June 2026 and is therefore included with only 1 month of revenue in the Q2 figures. So while revenue is holding at a stable high level, the revenue in the first half has been carried on a weaker project mix. After the macroeconomic uncertainty in the first quarter, where several of our larger industrial customers put investment decisions on pause, we filled that capacity with lower margin work. And this naturally shows in the operational earnings for the period. The second quarter showed an improvement in this picture. And as revenue moves back into more normal projects at more normal margins, we expect a clear improvement in the margin level. Now at the same time, the Group remains focused on revenue growth, but with an increased emphasis on ensuring that growth is delivered at improved margins. We will continue to steer revenue towards projects and segments with higher margins, and we work closely with the companies to optimize margins on existing projects and customers. A key part of that is flexibility, continuously moving capacity into the segments where we see a good market condition and an attractive margin picture. The contract we recently won in the Data Center segment demonstrates this in practice. And it shows the strength of the EIS toolbox, the ability to move quickly into the segments where the margins are. Now turning to EBITDA over time. We see the result of the development I just described. The macroeconomic conditions and the project mix that follow had a direct impact on EBITDA in the quarter. At the same time, the market is showing improvements and the gradual strengthening of the project mix is starting to show in the pictures. This is a development we expect to continue in the coming quarters. EBITDA in the second quarter was NOK 19 million, up from NOK 11 million in the first quarter. And the earnings for the period is naturally affected by the lower EBITDA and by higher financial costs following increased external financing. Now going forward, our focus is on combining revenue growth with improved margins. And consequently, we expect to see a positive development in the EBITDA margin. This, in turn, gives us increased earnings leverage as revenue grows and we win new contracts in our priority segments. And it's also worth noting the underlying picture. Pro forma EBITDA margin over the last 12 months is 6.8%, which is up from 6.3% as per the first quarter, which shows the underlying business. Now alongside this, we continue to see a strong order backlog. What you see here is the backlog for the next 12 months at any given time on a reported basis historically. The backlog stood at just over NOK 1.1 billion at the end of the second quarter, which is a similar level to the end of the first quarter. And this reflects the shift in the backlog noted in the first quarter report. But there is a lot happening inside that backlog. The backlog itself and the tenders and leads to that combination show a buildup of contracts and customers at higher margins and within the segments we are prioritizing. It also shows a steadily increasing diversification at customer level with our top 10 customers making up a smaller and smaller share of total revenue and of the backlog over time. The same breakdown further back in time would have shown a far more concentrated picture. That diversification comes from several strong and solid customers from exposure across more segments and from the effect of acquiring companies that bring their own customers and segments into the mix. Now on the structure, the backlog rests on 3 main contracting models, the semi-fixed price contracts, the time and material and the framework agreements. Now the framework agreements give us an exclusive right within a defined scope and a repetitive baseline volume. And this positions EIS as a preferred provider for maintenance and all the [indiscernible] work. So to the details for the quarter and the first half in isolation. As mentioned, the second quarter showed operating income of NOK 365 million and an EBITDA of NOK 19 million and a loss before tax of NOK 8 million. The corresponding figures for the first half are operating income of NOK 735 million, and EBITDA of NOK 30 million and a loss before tax of NOK 16 million. The EBITDA margin for the second quarter is on the same level as the same quarter last year at 5.2%. The revenue growth compared with both the second quarter and year-to-date 2025 is significant and is driven by growth through acquisitions. At the same time, Fossberg Kraft has now started the construction of Gjosa Kraftverk during the second quarter with the corresponding prioritization of margins, which I will come back to on the segment overview. And in addition to ordinary operations in EIS and Fossberg Kraft, the costs in the Group in the first half are affected by larger extraordinary costs for audit and related sustainability reporting work, which we do not expect to remain at this level going forward in addition to costs in connection with acquisitions and transactions. Now looking at the segments for the first half. Revenue is still, to a large extent, generated by our industrial services group, EIS. EIS delivered revenues of NOK 728 million and an EBITDA of NOK 40 million in the first half, which is a 5.5% margin, still clearly affected by a weak first quarter. But we are now also beginning to see meaningful effects from our hydropower development, Fossberg Kraft. And Fossberg Kraft recognizes the expected margins on the Gjosa project in line with the degree of completion. Now around 1/6 of the project was completed at the end of the second quarter, and we expect to see increasingly -- increasing effects on earnings as the work progresses through to when we expect delivery of the power plant in the second quarter of 2027. Now in the first half of '26, Fossberg Kraft delivered an EBITDA of just over NOK 2 million on an EBITDA margin of about 30%. The Real Estate is the result of internal leasing and operation of the operational properties used in the business and the other shows the results of the parent company and the group holding companies, which shows a negative of NOK 17 million. Now the pro forma statement shown here shows the pro forma is under the bond agreement as the basis for the covenant calculation. The starting point is the financially reported results. We then add the acquired entities as if they have been part of the Group for the whole period. We then deduct minority interest in the result, which is BKS VVS and Marine Support. In the BKS structure, we made an adjustment for extraordinary costs and for costs related to transactions and refinancing. And in addition, we exclude EQVA Renewables' result and is excluded from the calculation. In total, the pro forma statement shows LTM operating income of just under NOK 1.6 billion and an LTM EBITDA of NOK 106 million. And this corresponds to an EBITDA margin of 6.8%, which is also the figure that best reflects the underlying earnings capacity of this platform that we have built. Turning to the balance sheet. We see that the balance sheet and equity position of the Group remain solid and strong. At the end of the second quarter, we have total assets of almost NOK 1.4 billion, an equity ratio of 30% and net working capital of above NOK 370 million. The higher activity level in the second quarter, combined with the lower activity in the first quarter has resulted in a larger buildup of working capital in the second quarter. The trade receivables stood at approximately NOK 270 million at the end of the quarter. And this has naturally also had an effect on the cash balance. When a larger part of the working capital is tied up in receivables, it reduces the cash position and cash is also materially affected by the acquisition of Einar Øgrey, which is paid in June and by holiday pay disbursements in the operating entities. The cash position at the end of the quarter was NOK 245 million. The debt level on isolation is stable with no material changes from the previous quarter. Interest-bearing debt of NOK 609 million consists of the bond loan of NOK 500 million, a revolving credit facility for EIS and one for Fossberg Kraft, which is combined NOK 6 million, a loan on the Real Estate of NOK 38 million and financial lease liabilities of NOK 66 million. When we adjust for the cash position and for the Fossberg Kraft debt, net interest-bearing debt as defined in the bond agreement ends at NOK 360 million. And this gives a leverage ratio at the end of the quarter of 3.4x LTM EBITDA. Now this concludes our presentation of the second quarter and the first half figures of 2026. We would like to thank you for your attention and for joining the webcast. As always, we have a Q&A session immediately following the presentation, and we encourage all of you to ask questions in the chat function in the web player. And those of you that have questions after the webcast, we encourage you to send questions through our investor portal at ir.eqva.no. With that, we move on to the Q&A.

We will give it some time, I think, to see if any questions come in. None at this part. I guess for now, there are no further questions from the audience. So I guess we will say thank you again for today's presentation and for attending this webcast. And again, it's always just to post questions on our IR page, ir.eqva.no or send us an e-mail, and we will try to, of course, answer as soon as we can on those questions. So thank you for today.

Thank you.