Fjord Defence Group ASA (DFENS) Earnings Call Transcript & Summary

Hello, everybody, and welcome to the presentation of the Carbon Transition Second Quarter '21 results. My name is Ronny Bohn. I'm the CEO of the company. And with me is also Nils Haugestad, and Nils is our CFO. Our standard disclaimer on Slide 2, and then moving on to Slide 3. We'll have a quick look at the agenda. We'll start with a summary of the quarterly highlights and subsequent events. And then we'll provide an update on the business and the new strategic direction of the company before Nils takes you through the second quarter financial review. So this quarter marked the completion of the restructuring and really a new chapter in the transformation of the company. Events during the quarter included approval of the reconstruction proposal. There was an issue of USD 17.4 million in an equity private placement. Divestment of the vessel Neptune Naiad and associated equipment that was in line with our asset-light strategy. We mobilized for the North Sea project, which was announced back in late 2020. The project was completed successfully in late June, and I'll get back to some more details on this later. Company also got a new Board of Directors. They were elected in the EGM in June. So some of the subsequent events, and we'll touch on more on the details later. Firstly, we announced our new strategic direction. And this transformed company, now called Carbon Transition ASA. We will have a focus on investing in businesses and technologies, which will contribute to reduction of carbon emissions. We think there's a unique opportunity to invest in companies, which have the potential to become long-term winners in the energy transition space. We'll elaborate more on that strategy later in the presentation. Then we made our first investment in the carbon transition space in early July when we invested NOK 30 million into a convertible loan in Arbaflame AS. I'll also get back to this later in the presentation. Finally, we issued a NOK 20 million repair offering, which was substantially oversubscribed. So moving on to Slide 5 and on Slide 6, we'll have a look at the new strategy of the company. So the overall strategic aim of the new company is to be a listed investment company with focus on investing in technologies and companies, which contribute to significant reduction of carbon emissions. We see a unique opportunity now to take part from an early stage in the ongoing energy transition. Multiple sectors are going through massive changes. There are big opportunities to invest in long-term winners, and we think there will be many of them. Looking at the investments, we'll take an opportunistic approach. But typically, some of the common denominators in this process would be companies with a unique and proven technology. a scalable business model, higher barriers to entry and a truly global potential. We may also invest more broadly in the energy transition space on a more ad hoc basis. Moving on to Slide 7. Let's take a closer look at our value proposition. We will typically focus on companies that are in the pre-IPO and IPO phases, meaning companies which are through its seed and venture phase potentially, currently looking for growth capital in the pre-IPO phase. We're targeting an IPO in the short-to-medium term. Those are the typical phases that we would look at. We believe carbon transition represents a unique investor for such companies. We can provide a combination of a sizable investment, active involvement, attention for the company through our stock listing and a strong shareholder base in the company. We believe that this was -- will put us in an excellent position to screen the market makes more of an attractive investments. Now on Slide 8, we'll have a look at the key driver of the market shift that we are seeing and looking into. That's the price of CO2, the price of carbon cultures. So in just 4 years' time, you can see from the graph on the right, the price of European emission rights have increased tenfold. It's currently trading at EUR 55 per ton. Now the EU Green Deal target is for Europe to be the first region in the world to be carbon neutral by 2050. And then China has stated the same commitment for 2060. And overall, it's a global momentum through the Paris climate agreement. Now these numbers will, of course, weren't massive investments, which will be needed to meet these targets. We see estimated levels of more than EUR 250 billion per year, and that's for EU alone. And at the same time, we see funds exiting fossil fuels and the fossil energy space. So -- sorry, here's Slide 9. We'll also have a quick recap of our legacy business from Axxis Multi-Client, which holds a significant ownership of high-resolution seismic data libraries in Norway and in Egypt and the ocean bottom node entity, Axxis Geo Solutions, which is a global experience multivessel ocean bottom node operations company. There has a project organization capable of performing very complex OBN operations, both, node on a rope and ROV based. I'll provide an update on these businesses later in the presentation, but the essence here is that both these legacy segments, they have the potential to generate revenues and cash flow to support the carbon transition investments. So the company is currently evaluating several other investment opportunities. and we're also evaluating strategic alternatives for the legacy data acquisition business. Now moving on to Slide 10. Summary of our first investment, which was Arbaflame AS. We see this as a highly promising company. It has a proven technology, substantial backlog for bio waste based coal replacement fuel solution, coupled with a truly global potential, strong shareholder base, a strong management, strong board, we believe and we are confident that Arbaflame will be able to execute on its substantial growth plans. So in July, we invested NOK 30 million in the company as part of a total of NOK 156 million convertible loan. We've seen NOK 550 million invested to date in the company. This includes several ESG-focused entities as well as the main sponsor, which is Pemco. Now ArbaCore, their solution can fully replace coal in coal-fired power plants worldwide, has the potential to reduce CO2 emissions by approximately 90% compared to coal. With the current production capacity at the Arbaflame's facility. They're looking at 70,000 tonnes per year of ArbaCore, which is our black pellets, the goal being more than 850,000 tonnes per year in 2026. Now this number, 850,000 tonnes equals only, well, 0.2% of the total coal consumption in the EU, so the market is -- market potential is, obviously, enormous. Current backlog for delivery of these ArbaCore pellets correspond to a value of up to EUR 65 million. And the company recently told us that there are ongoing discussions with several new potential clients wanting to supply of ArbaCore pellets. The first truck of the pellets that they were delivered to Port in early July. In addition to the ArbaCore pellets, the company has verified extraction process of several high-value green chemicals, which represent an attractive business area in itself. Also the planning and engineering of the next production plants have been initiated already. So I would say in summary on this slide, Arbaflame, very exciting investment for us, and we look forward to following the company closely going forward. Now just quickly back to the legacy multi-client business. As previously mentioned, we part on 2 high-quality multiclient OBN data sets in Norway and in Egypt, which were acquired back in 2018, '19 and '20 and in cooperation with TGS for Norway and with WesternGeco for Egypt. So for Utsira data set in Norway, we have -- we are engaged in good discussions with potential clients for late sales. And we have a positive outlook for these late sales in the second half of '21. For Egypt, the data processing will complete in Q3. And that is what we hear from WesternGeco and we will go ahead and do some joint sales and marketing efforts for the data following the completion of the processing. On the OBN operations segment of the business. As previously mentioned, we completed the project in the North Sea through July. And part of our asset-light business model. As mentioned also previously, we divested the source vessel Neptune Naiad and her seismic equipment. For the project itself, we basically started from scratch, standing start and mobilized cruise vessels, equipment in late June. The crew managed to perform without incidents, any injuries, any corporate-related incidents and completed on schedule in late July. This was also the first ROV-based project for the crew. Upon completion, we quickly reverted to the low-cost mode that we depend upon in between projects. On the seismic market side, we still see a challenging market as the effects of the pandemic persist. We don't see a lot of remaining OBN contracts for this year, but we do see increased demand for seismic projects to be undertaken in '22, and we are working on several tenders for that already. But as a consequence, we revert to low-cost mode at the moment, and we maintain tendering and project planning capabilities for 2022. So with that, I'll leave with for Nils to do an update on the financials.

Thank you, Ronny. Turning to Slide 14. We want to give you an update on the various movements resulting from the reconstruction that we just completed. So starting with the balance sheet on 31st of March 2021, the first column, the unrelated period movements. This is, in large part, the loss on the sale of Neptune Naiad and depreciation, amortization and then other items that would have taken place regardless of the reconstruction. We had $5 million in cash payments to creditors, which resulted in debt forgiveness of $18.2 million for the people who elected to receive shares, we had an equity conversion coming in of $25.5 million, which is down adjusted by $6.5 million to reflect the difference between the price shareholders came in at and the fair market value at the time. Then lastly, we had the equity private placement, which had a net capital increase of $15.5 million which results in a total equity amount of $35.2 million at the end of Q2 and also a gain in the income statement of $24.6 million, which you'll see in subsequent slides. Also we had the maturity on the TGS payable extended to 31 March, 2023. Moving to Slide 15. As Ronny mentioned, we started mobilizing for the North Sea project and the revenues for this project will then fall into the next quarter. So for this quarter, revenues is USD 0.4 million, which is primarily related to COVID-19 compensation. We had cost of sales of $0.7 million, which is impacted approximately $0.4 million related to asset sales and also derigging. We have personnel and other operating expenses of $2.2 million, which has approximately $0.7 million related to the reconstruction costs, so advisory costs associated with that activity. And then we have approximately also $700,000 related to both severance expenses and a board payment. D&A, $6.4 million. This includes $3.5 million loss from the sale of Neptune Naiad, $1.8 million amortization and $1 million depreciation, taking us to an EBIT of negative $8.9 million, net financial items of minus $1.4 million. And then you see the restructuring gain that we spoke of $24.6 million, taking us to an earnings before taxes of $14.4 million. Moving to Slide 16 on the balance sheet. So that looks substantially different now, of course. The multi-client library $32.5 million property, plant and equipment, which is now the node handling system of $4.6 million. We have other current assets of $4.7 million, and that is, in large part, $3.3 million of prepayments related to the North Sea job. And then we also have $0.7 million related to a seller credit in there. Cash of $8.6 million. And what we wanted to point out here in the bullet points on top, this is, of course, $8.6 million, but it does not incorporate the equity offering that was concluded subsequent to the quarter period on top of the repair ratio of NOK 20 million that was done in July. And also, it's important to note that we have put in approximately $2.3 million in prepayment for the North Sea project. And then lastly, the seller credit of the $0.7 million that will come back to us in the form of cash in subsequent periods. On the equity and liability side, we now have an equity of $35.2 million, as we saw on the previous slide. Accounts payable of $1.6 million and other current liabilities of $13.6 million. And we wanted to point out here on the other current liabilities, that is $6.1 million related to the TGS payable and then $5.9 million related to Egyptian taxes. Lastly, we wanted to highlight the significant tax loss carryforwards that the company has, and they're estimated at approximately $44 million. Turning on to Slide 17. We want to give an overview of what the share count looks after all these transactions. So as you may recall, we started out in the beginning of January with 58.8 million shares. The private placement we completed in June issued 1.445 billion new shares. And as a part of the restructuring, we issued 424.4 million new shares, leaving a total at the end of June of 1.9 billion shares. The subsequent offering was for 200 million shares, and we did a minor offering of 24 shares to create a round number for the reversement that we subsequently did in August, and that will then take us to 2.1 billion shares. And after the reverse split on August 9, we then get to the current share count, which is 212,822,050 shares. I think the other point which we wanted to put forth here is that as a part of the restructuring, not only is the balance sheet significantly different and sound, but we also have a strong shareholder base with the company. With that, I'll turn it back to Ronny.

Thank you, Nils. Almost there. We just have a summary slide here at the end to try and sort of recap what we've been through in this presentation. So primarily, most importantly, the company has a new strategic direction. We are focused on investing in a sustainable future and focused on reducing carbon emissions through our investments. We changed our company name to Carbon Transition. And the ticker symbol is now CARBN without the O. We made the first investment under the new strategy in Arbaflame AS. We offered a NOK 20 million repair offering, which was substantially oversubscribed. We mobilized from scratch for the North Sea project with ROV-based operations and completed on time, on budget without incident. We see potential for multi-client sales this year to contribute to further growth for the company. And we are continuously evaluating opportunities, and we expect to announce new investments within a relatively short time frame. So stay tuned. So, with that, I thank you for listening. Stay safe.