HAV Group ASA (HAV) Earnings Call Transcript & Summary

[Presentation] Good morning, everybody, and welcome to HAV Group's presentation of the Q4 and Interim 2024 Results. We have the same agenda as we have had the last presentations. We start with some highlights from Q4 and some information about the HAV Group in general. We give you a business update on each of the technology segments. Our CFO, Pal Aurvag, will present the financials. And then we sum up and tell you about how we look for the prospects for the future. Q4 highlights. Key developments. We still have a very solid order backlog, NOK 1.2 billion at the end of last year, and that is up 103% from the same quarter in 2023. And that is reflecting the very strong order intake in the recent quarters. We got NOK 200 million on new orders in Q4. And we will see the effect of the new orders coming more strongly into 2025 as the new orders normally have a little bit of lead time. So both for turnover and for profit, you will see more effects during this year. The Q4 revenue was also quite high, NOK 310 million compared to NOK 113 in Q3 -- Q4 in 2023. And the EBITDA was positive, NOK 7.9 million, which is a strong upturn from last year, minus NOK 26.1 million, and also very strong compared to the last quarters that we have reported. And that is especially driven by a significantly improved financial performance in the energy design and smart control technical segment. Also after the quarter, we have had some good results. We have got contracts in a new market for the energy design and smart control segment, 8 tankers, bulk carriers for Wilson. We have a breakthrough contract in agricultural land based, and we have got total orders up to now for more than NOK 100 million after the quarter. As you see, we also have a very strong cash balance, NOK 250 million at the end of the year. Here is the order book per quarter, order intake per quarter, and also the accumulated book at the end of Q4. As you see, there is a small drop from Q3, that is mainly that we have -- we are still waiting for the big orders for the design -- ship design segment, but both in the energy design and smart control segment and also in the water cleaning segment, the order book has grown in the quarter. So we promised our customers to improve their performance, to improve their competitiveness through helping them with advice and optimized solutions throughout the life cycle of the vessel. So we want to be very -- in close contact with our shipowners and customers. We want to know what their pain points are, and we want to offer our competence and knowledge in order to improve their -- also their competitiveness and bottom line. We are approximately 172 people in the company, mainly in Norway, and some people also in Poland and abroad, which is on the ship design department. We are 4 technology segments: ship design, energy design and smart control systems, hydrogen-based energy systems and water treatment systems. And we can also deliver total packages where we combine the resources, competence and technology from all of these segments, also giving us a competitive edge compared to those who don't have this broad spectrum of technology and knowledge. These are the main segments that we are operating in. Offshore wind, we are very strong, especially within SOVs, offshore wind support vessels. We have traditionally been very strong in oil and gas, and we also now see that we can contribute to making the oil and gas support vessels industry greener by offering our solutions. Ferries and ropax, both smaller cruise vessels, and also totally electrified car ferries are strong field in our portfolio. And we are also, within aquaculture, fishery and short sea cargo. For the ship design business, we are still waiting for the new big orders. We have a very positive pipeline, sales pipeline, but we see that the projects that we are working on has been postponed. Hopefully, we can give you some good news there in the near future. The result in the quarter is not what we have -- what we want it to be. The turnover is quite high, but that is due to a large extent of trading of equipment in the period. And we also -- the result was negatively impacted by loss provisions in one particular project that we're working on. We see -- when we have a life cycle attitude towards our customers, that they also come back and buy conversion assistance from our design. And as I said, we have a very positive sales pipeline, both within offshore wind, aquaculture and also towards the oil and gas industry. The energy design and smart control segment is what we have said for quite a long time is maybe the segment with the strongest growth potential. And that has been now evidenced also in the very good order book that they have achieved. We are now more than NOK 1 billion in order book in that segment. We got a lot of very nice contracts in the period. At Green Yard Kleven, we got this wind assisting vessel, a newbuild support vessel. We have now got orders also for the onshore charging stations for the Lavik-Oppedal, the autonomous crossing on the Sognefjord. And we have some conversions also in the quarter. And after the quarter, we got these Wilson bulk carriers in addition. So this is still the segment that we see have now starting to produce good results. We have also a very strong financial result in the period in Q4, and where we also see the strongest growth potential for HAV Group onwards. Also very positive for the water treatment segment. We have built this company, and they have a passion for clean water. And the main product up till now has been ballast water treatment systems, which was based on that most vessels needed to have a ballast water treatment system according to IMO regulations. So there was a large retrofit boom, which we also had good results from. That retrofit boom has slowed off, we are now focusing the ballast water system for new builds, but we see that we need to add on more markets and more products. And then it's very positive to see that the aquaculture market, both for live fish carriers and on land-based installations, as you see here, has finally paid off the investments that we have made in the market and in products there, and we are now starting to get very good contracts. And also these contracts are significantly higher per contract than when you sell one ballast treatment system. So they got one contract, a large contract for live fish carrier in Q3. They got also a contract for a land-based system And also for subsequent events this year, we are signing more contracts both for live fish carriers and also for land-based aquaculture. The hydrogen-based energy systems, we are still working on the technology. As you know, we have got funding for developing prototype. We are still in a process towards Maris Fiducia regarding the 5 bulk carriers that they have got and all the funding for installing hydrogen. And we are still, depending and waiting on the final contract between Maris Fiducia, the owner and the shipyard, where we will then enter into contract negotiations with the shipyard. Here is the order backlog breakdown. As you see, ship design has lower order backlog than Q4 in the last year, in 2023. And you see energy design and smart control system significantly increased, from NOK 250 million to more than NOK 1 billion in order backlog. And water treatment systems has approximately the same backlog as last year. But the last contracts that we have got this year is not included, of course, in the backlog. This is per Q4. So the backlog also for the water treatment system is higher than now than is shown here. So the total development in order backlog and what we are going to make money on in the future is very positive. And with that, Pal Aurvag, our CFO, he will give you more details about the financials. And afterwards, we will make a summary and outlook and take questions, that is coming. So Pal?

Thank you. It's quite a pleasure today to present the figures, and I will go a bit more into the details that Gunnar has shown. If we look at the revenue and the EBITDA in the quarter, it's quite good. And especially if we compare with the previous quarters, we see that we have NOK 310 million in revenue. That is quite high if you compared to the previous one. And also, it's good now to deliver a positive EBITDA in the quarter. If you look at the details, NOK 310 million, with an EBITDA of NOK 7.9 million and EBIT of NOK 3.6 million, net finance of NOK 6.9 million with a net provision -- profit, sorry, of NOK 10.4 million and an EBITDA margin of 1.2%. The revenue increase in Q4 last year is mainly driven by higher level of trading, higher service activity and sales income. And as Gunnar said, the recent contract wins are not in the books yet, and will be both turnover-wise and profit-wise, shown in 2025. Yes, and I think if we compare especially with the last quarters, but also if we look at the whole year, we see now quite improvement in our figures. If we look at the details on the different segments, we can start with ship design, quite a high turnover in the period, NOK 180 million and an EBITDA of NOK 2.8 million, quite low margins in total, and this is reflected in very high trading with quite low margins, loss provisions on one specific project and low capacity utilization. If you look at the water treatment systems, turnover of NOK 17 million and EBITDA of NOK 1.4 million minus, quite low activity in the quarter, and it's related to transition from -- sales from the retrofit in ballast water treatment systems into more service income and also into aquaculture. And then if you look at the energy design and smart control system, they are the motor in Q4, quite high operating income of NOK 122 million, EBITDA of 14.2 million and a profit before tax of NOK 17.2 million. And this is the result of high activity and healthy product portfolio and high activity in general in the quarter. And as we know, the order book on 1 billion for the coming years is a very good foundation for having good figures in 2025. If you look at the hydrogen-based systems this -- the figures indicate, as we said, it's more R&D and a product development company. Still not running on normal sales activity. If we look at the balance sheet, the major changes is on the current asset side, both on receivables and cash, and especially the cash level to NOK 250 million at the end of the year, quite good. And also total receivables has increased quite a lot during the year. And this is result of high activity on the new sale with a lot of new orders and payment from our customers. If you look at the equity, the changes during the year is not that high. But from Q3 to Q4, we have increased from NOK 40 million to NOK 80 million. And this is related to sales of our own shares, approximately NOK 30 million in Q4. And yes, the covenant, we still have a waiver on the covenants for both, for Q4 until Q1, and we are working together with the bank to get a new covenant structure. And yes, and we see also there on the liability side, it's an increase and the total current liabilities is related to prepayments from our customers. So it's a normal higher level when you have higher activity in the business. If you look at the cash flow, we see that you have -- we have a positive cash flow from operations, NOK 96.5 million, if we compare to the same period in last year, it was minus NOK 78 million. Net cash from investment is NOK 4.1 million, and this is related to investments in R&D mainly. And then we have cash flow from financing activity, positive NOK 9.3 million, and this is related to sales of our own shares in the fourth quarter and also a repayment of the noncurrent debt to the bank related to NOK 20 million. So in sum, we have a positive cash flow of NOK 101.6 million in the quarter. And we can also see, if you see on a full year, it's more or less the same as Q4. So it's a very strong quarter cash-wise. Yes, then I will five back to Gunnar.

Thank you very much, Pal. So to sum up what me and Pal has told you. In Q3, we said that we are going to have quite much higher turnover top line in '24 than in '23, that we have delivered on. We are very happy that we can show you a positive EBITDA. It's a significant improvement, both from the last year and also from the latest quarters. We have got new orders for more than NOK 200 million signed in Q4, and that results in a very strong order book for NOK 1.2 billion. So what do we think about the future? If you have been following us, you will see that we still say that the global megatrends support our business. You need to reduce emissions. You need to have more efficient vessels. You need to reduce energy consumption. We have the technology that supports the owner in the business model to achieve this. Analysis tells us that the global shipbuilding market is still positive, and we think it will remain stable also for the coming years. As predicting is difficult in these times, but that at least what we think. And with regards to the international turmoil that we have had since the election in U.S.A., we see that our main business and the majority or what we deliver is either to Norwegian customers or to European customers. And that means that we will not -- at least not in the foreseeable future, will be that much affected about this transcontinental tariff regimes, for instance. And as we said at the last quarter, we expect revenue growth, significant revenue growth also in 2025 compared to 2024. And that is on the back of a solid order book with margin improvements compared to what we have seen previously. So it's -- as Pal said, it's quite good for us also to finally present more positive results. We have presented very strong order books so far. And now it's the time to deliver also on the order books and continue to build more order books in order to achieve the growth expectations and growth targets that we have. So then we can go to the Q&A. We have, as usual, got a lot of questions. We will try to answer as many as possible of them. So Pal, you have noted what has come in?

Yes. We can start with a question here. 4 years on the stock exchange how will HAV Group reverse negative trend?

Yes. It has been up and down since we came on the stock market in 2021, and for different reasons that I have been addressing also in previous presentations, we see now at least that we have turned this in Q4. And also as what we have said, strong order book with sound margins for the future will be -- what we will be. We have as a foundation for continuing to deliver more positive results that we have had at least the last year. We see also the market still, even though things are uncertain, looks very positive for us. So our ambitions are still high, and we hope to also deliver more in accordance what you expect onwards.

Yes. Then there's a question about HAV hydrogen. HAV Hydrogen's integrated system was world-leading. What is the time line for getting it installed on more ships?

And that is, of course, depending on what project that will be the first. The most closest that we have now been working on for a while is, of course, this Maris Fiducia 5 container vessel project. And to build a vessel takes quite a long time. So we will maybe see that installation when it comes to a contract in -- onboard a vessel in 2026, 2027. And in general, we see that there is a lead time always when you're putting these type of systems onboard of vessel. So the orders can come before, of course, earlier, but the first installations will not, I think, be until 2026, 2027.

Can you tell anything about the R&D project, LNG game changer?

Yes, as some of you have noticed, the [ Forschningsdrade ] in Norway have awarded a group of companies, with us in lead, funding to have a predevelopment of a new technology, which we find quite interesting and promising. We will be telling more about that not in the far future. So if you follow us, you will see that we will come up with what this means for HAV Group and also what it can be as a potential for our customers. I urge you to follow that presentation when we come out with that, hopefully this month.

Yes. There is a question about why has the company choose not to communicate financial guidance or specific targets? And will HAV Group consider introducing guidance to give investors better sight into expected performance?

We have done what we call soft guiding with some long-term goals. As you noticed, we stopped doing that in the last quarter. And the reason is that, as for what you see from our turnover, from our cash balance and everything, we are in a quite fluctuating business because we have quite large projects. And that also makes it difficult to give very detailed prognosis on the future. But we have given you quite good indications now on what we expect for 2025, and that will be also followed up through the coming presentations.

Yes. Then there is a question about, is India and Asia exciting markets?

India and China, Vietnam, they are large shipbuilding nations. So our main philosophy is to follow our customers, follow our shipowners. So some of our shipowners, they will be building in these countries. For instance, the Wilson project is built in India. And also, we are looking for business opportunities if they present themselves with customers, other customers in those markets. But as we said, the main customer base that we have today is in Norway and in Europe. And our main philosophy is to follow our customers wherever they want to go around the world.

Then what is the feedback from customers? And how does it affect HAV's future strategies?

Yes, that's quite generic question, but we strive to get and we also try to be in dialogue with the customers to get as much feedback as possible. Of course, one feedback that we are getting a lot and we are using continuously is feedback on our solutions when they are in operation onboard a vessel. And that is extremely valuable feedback with regards to developing our technology further, to deliver even better solutions to our customers. And of course, we are also in close contact with our customers to see how their business model is developing, how their market is developing. And that is also what we are using in order to plan our strategies. We have a strategy onwards. We have a good strategy based on this market information and the customer information. And of course, we are also now following very closely what will be the effects of the new political situation that we have with tariffs and everything. And we are a very agile company also, light-footed, so we can also turn around very quickly, as we are also very asset light. So we are adapting our strategy to whatever needs we see and whatever development that we see in the global and in the local framework.

Then what -- with today's international trade conflicts in mind, what risk do you see as the most significant for the company?

As I said, it's difficult to say what risk. We are analyzing the risk. We are talking about experts that can know more about this than us. But everybody, I think now they are a little bit waiting also to see what happens the next day and also what the effects are. We are not so affected in the foreseeable future, but we'll have to continue to monitor this situation also. Also with regards to our plans to go into other markets that might be more affected by the world situation as we see today.

Yes. Then there is some more financial questions. What is the current status of the refinancing process with DNB? it's not a refinancing process, it's changing of the covenants requirements. So as we said, we have a waiver and we are working together with DNB with new common structure. Then what does the new covenant structure entail? And how will it impact HAV Group's financial flexibility for 2025? Yes, as I said, we are a good dialogue with DNB. And we are setting a covenant structure that is supporting our growth strategy. So it will -- we have flexibility in 2025 to have new orders. And then why did you have to sell your shares? What's the gambling with shareholders' values? The sale of the shares was a part of strengthening the equity and a foundation for discussions with the bank with -- for a new covenant structure. And then why does HAV design only delivered 3% margins on NOK 330 million revenue? What cost so much money? The majority of the turnover to HAV design is related to trading of equipment with low margins. And with that, in combination with low capacity utilization in 2024 and also loss provision related to one specific project, we see the result of it. So yes, we agree. It should be higher, and we are working to have more work. And as Gunnar said, hopefully, we'll be signing up new contracts that will result in better performance for 2024 -- sorry, '25. Then I'm looking into the PC coming on in new questions. Yes, margins. We are not guiding on specifics. So there's a question about specific project margins next year. There was a question here, it was why should we believe you now with the history? Why should the investors believe that 2025 will be better?

I think you have to follow us. We have strong beliefs in ourselves. I think I've said previously also, we can only convince you by evidence. Providing -- when you see our results, that is, of course, the belief, the evidence. We have delivered on order book. We have now started delivering also on turnover and on margins. We have an order book that gives us quite visibility into -- good visibility into 2025 and also in the beginning of 2026. But the only thing that we can promise or we can do is work hard, smart and then show you by delivering. So hopefully, we can gain back your confidence when we report our results for the coming quarters.

Yes. And I think that was -- I think the new question here, we have covered, it's related to margins and yes.

Good. Thank you very much for following us again. Thank you very much for sending us good questions. I hope that we have answered most of your questions. And I also hope you will continue following us. And after the presentation, of course, we will go back, work hard, work smart, and developing the company and developing your value that as shareholders in our group. Thank you very much.