HAV Group ASA (HAV) Earnings Call Transcript & Summary

All right. Next up is HAV Group and CEO, Gunnar Larsen, all the way from Norway. Welcome.

Thank you very much for the opportunity to present at Redeye Cleantech seminar. My goal for this presentation is that you will know more about HAV Group's offerings, how we generate value for our stakeholders and how we take the shipping into the green transition and how we enable the green transition. HAV Group is listed on Euronext Growth. Our headquarters is in Fosnavåg in Norway in the center of the maritime cluster in Norway. And we are an international provider of maritime cleantech energy. Our subsidiaries, they have decades of industrial experience, delivering ship design, energy design, smart control systems, water treatment systems and also hydrogen-based energy systems. We have 160 employees, mainly in Norway, some in Poland, some in Croatia. The revenue in 2022 was NOK 620 million. We had an order backlog at Q3 of NOK 607 million. And our market cap last Thursday was NOK 321 million. Some of the main sustainability topics in shipping include emission reduction, increased energy efficiency and sustainable building and recycling. New and stricter regulations, for example, IMO regulations and the EU taxonomy, is arguably important drivers, followed by private initiatives and financing, for instance, green bonds. Today, this mainly centers around the climate, but we also expect formalized initiatives relating to nature and biodiversity. For HAV Group, we see a growing stakeholder demand coming from customers and their customers again. And we also see a demand from our employees demanding to work in a sustainable company. This puts a lot of responsibility to our company but, at the same time, gives us a lot of opportunities. Although there's rising stakeholder demands, we also see that the bottom line is very important, both for the companies and for the investors. So we believe that political decisions and not at least regulations will be the main drivers onwards for the green transition. One example showing here is the new IMO greenhouse gas strategy that was introduced or renewed now in July this year, where we can see that there is a very stringent increase in how much you need to reduce the emissions towards 2050. And that means that the development of emission-reducing technology and fuels and the implementation of these in the shipping industry will have to accelerate to meet the stringent requirements. Fortunately, the shipping industry has a large toolbox for reducing emissions. And they are already using this in the sailing fleet, for instance, speed reduction, hull cleaning, vessel utilization and more. But these measures are not enough to reach the ambitious goals. Therefore, new technology must be implemented either as retrofits or when you're building new ships. And HAV Group, we have tools to implement new technology. We aim to and have a clear strategy on how to generate value for our stakeholders. We believe that being a competent adviser and delivering integrated solutions to ships and cargo owners can enhance their competitiveness through improved efficiency, safety and environmental performance. This value creation gives HAV Group competitiveness to generate added value to the customers and, at the same time, generate sound profits for the company and for our investors. Within our 4 subsidiaries, we have already developed competence, products and solutions. And these solutions are aiming at reducing environmental impact, enhancing the performance of the maritime sector. Stand-alone, these subsidiaries are already delivering and competing in the market with their products. But by combining competence and technology from all the subsidiaries, the group can offer an integrated total solution that give a unique value to our customers, strengthening their competitiveness and profitability. We have a large toolbox within the group for optimizing vessel performance and on the pathway to zero emissions. We collaborate with shipowners looking to retrofit the existing vessel or to build new vessels and can deliver anything from separate ship equipment to complete integrated solution with a ship design and also other critical systems onboard a vessel. In addition to the basic design, HAV Group develops and delivers design optimization of the total energy system onboard a vessel, smart control systems, fully electric hybrid and fully electric propulsion systems, integrated navigation and vessel control systems, ballast water treatment systems and also hydrogen-based energy systems. We are already a leader in delivering zero-emission technology for ships and have already delivered ship designs and solutions to several fully electric zero-emission vessels, either in operation today or under construction. The illustration you see in the slide is from Havila Kystruten, which is 4 coastal vessels operating on the west coast of Norway. They are the first cruise vessels being able to sail in the Norwegian world heritage fjord Geirangerfjord, fully emission-free. And this will be a requirement for all cruise vessels from 2026. So the combined knowledge of the subsidiaries in HAV Group enables us to utilize all existing and new technology available for optimizing vessels. When starting discussion with the shipowner, we seek insight in the purpose of the vessel, the operating profile and the business case for the owner. And based on this information, we can offer the best solutions for the specific needs and goals of the owner. We have developed in-house an extensive toolbox enabling us to efficiently evaluate alternative solutions and technology and documenting real-life performance even before the vessel is built. And that is very important for the customer when he's going to have control of his OpEx and CapEx. We aim to be a partner and an adviser for our customers, and our main customers are the shipowners. So we like to follow the shipowner from his planning, his investment through the construction phase of the vessel and operation until he's planning to scrap or recycle the vessel. Following the customer through the lifetime gives us an opportunity to take extremely good care of him and make sure that he comes back. And in addition, we are gathering information and getting feedback using to develop new technology for the future. HAV Group is a financially robust company with a solid foundation for further growth. We have a strong cash situation. We are asset-light, and we have very little debt. We have a proven track record of positive margins, even though because of low activity in 2023, the margins are not as they were for the past years, but we increased our order book in the third quarter. And we also see a very positive pipeline for 10 new tenders onwards for several of our business areas. So based on this, we still guide for a revenue in 2025 of NOK 1.3 billion. There is a project, a special project I would like to mention a little bit today also, and that is the -- we announced it in October. Norway's largest ferry company, Fjord1, they chose HAV Group as the technology partner for developing the new autonomous fully zero-emission electric ferries that is going to operate our ferry crossing in Norway for the Norwegian government. This project will be one of the largest contracts for HAV Group, and they will elevate us and our market position and competitive edge within vessel autonomy and automation. So we are very proud to be a partner with Fjord1 and the Norwegian government for these contracts and contributing for a smarter and more efficient and greener ferry industry in Norway. So to sum up my presentation, there is a growing market for low and zero-emission maritime technologies. HAV Group, we possess the competence and technology to leverage market trends and enable our customers to be more profitable and more sustainable. And we have a very strong financial platform. We have a growing order backlog, and we are perfectly positioned to capitalize on the rapidly growing green transition at sea. So that was within 2 seconds, I think, and now I can answer some questions.

Thank you very much for that, Gunnar. Very well on time, I must say. If we just start a little bit by you. Could you tell us a bit about your background and when you entered the HAV Group?

Yes. My background is engineer within ship design actually. I've been working in the maritime industry since 1987 within shipbuilding and ship equipment and ship design. And HAV Group came from the Havyard Group that was also -- had shipbuilding. I entered there in 2006. In 2021, we split the parties in our restructuring of the companies. And then I continued with the HAV, which is all the activity in the old Havyard but without the shipyard.

All right. I looked at your Q3 report here previously. And you're right that you have -- or you foresee that there are several tender processes here to be awarded during the end of the year here. Can you tell us a bit more about that?

Yes. We are working -- we are a project-based company. And the orders and tenders that we are working on for most of the companies, they are in this region of NOK 20 million to NOK 200 million. And also, the lead time is 12 to 24 months so that we don't get orders too often. But when we get these orders, then they tend to be quite big. So the order intake from quarter-to-quarter can be quite varying. But what we see now is that we have gone from a period where the shipowners, they are postponing their decisions because maybe all the turmoil in the world in general and the financial situation. And now they're starting more investing again. So the project that has been pushed forward, they are now coming to a decision. And that we see from the tender pipeline that is much more positive than it was only half a year ago.

All right. And is there -- on top of that, any sort of seasonality pattern in their process on how to order new ships?

Not in most of our businesses, no. It's not so much season-based.

And can you elaborate a little bit on how a typical process looks from sort of contact to -- or from tender process to delivery very briefly?

Yes. Very briefly, we came -- as I said, we are taking part of the investment decision of the shipowner. So we work very closely with him designing the vessel and outfitting the vessel in order to him to achieve his goals and his objectives. So we can work maybe half a year to 1 year before he takes his decision. And then a shipyard is chosen, and then it can take another 1.5 to 2 years until the vessel is delivered. And our -- the main deliveries are from the ship at contract until in the middle of the building process approximately.

All right. That's briefly good. And in terms of competition in the tender process, on what terms do you say you compete? And by that, I mean like you provide the best quality or the price, or sort of what's the metrics there?

I think for most of our competitors, it's great quality. So when we are offering from each of our business segments, then we have, of course, some unique selling points that we have. But we are a few players, let's say, 2, 3 players in each of the segments that are competing about the same orders. But what is unique with HAV is that when we combine the knowledge and the technology of all these subsidiaries into an integrated solution, then there's very fewer competitors. And we can add more value and generate more profit when we have integrated solutions. So that is also something that we will have more focus on onwards in HAV Group.

And over time, how would you describe that the sort of competition has changed? Or has it been rather stable?

No, it's depending on the market. We come from the offshore boom in Norway where everybody made money and there was undercapacity for suppliers. And then we just went -- the whole industry crashed, and everybody tried to get into new markets. And then the competition has been very, very severe. Now we see that the market, at least, and the demand becomes better. And it's quite high barriers in some of the segments that we are in to enter in for new actors. So we believe that the competition will be not so tough as it has been at least, let's say, the last 5 to 10 years.

All right. And as you mentioned here, you're quite project-driven. And I think the stock market has a challenge to evaluate you as a company, understanding the cycles. And so could you sort of give us some clues here? How should one think upon you as a company or look upon your financials to get the whole picture?

No, it is difficult because we can have large deliveries in one quarter and not-so-large deliveries in another quarter. And also, in some quarters, we deliver, let's say, more knowledge and in the other quarter, we deliver more equipment. And the margins are -- they differ. So to look at us from quarter-to-quarter is quite difficult for an investor, I think. You have to look more long term. Maybe the best indicator is order book building and also that we have been operating now with a little bit too low capacity utilization. We have invested in keeping the knowledge and the competence because HAV Group is only people. We are very asset-light. And we see that now that investment will pay off. We expect to fill up the order book. We expect to be higher in utilization of capacity. So I think you have to look a little bit long term on our company in order to try to analyze us. So I know it's difficult, and we have been asked this question many times both from analysts and from investors.

Yes. And in terms of profitabilities, you say the margin or utilization of the capacity, should one expect that to go up then going forward here as you sign more or hopefully sign more sort of tender deals?

Yes. We are not guiding on the margins. But capacity utilization is maybe the best driver. And in general, I would say if you can give a guidance in the industry for delivering equipment and systems, maybe the normal operating margin is around 10%. For the design part, it can be between 10% and 30%. So we expect in a good or a normal year that the margins are quite much better than they have been at least the last year.

All right. Yes. Unfortunately, our time is up, but thank you very much for participating.

Thank you for having me.