HAV Group ASA (HAV) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to HAV Group's first quarter presentation. As normal, we will say a little bit about the highlights in the quarter, tell you more about the company, give you an update on the business in each of the segments. We'll talk about the financials. Together with me, I have Pal Aurvag, our CFO. As usual, we will give you more details about the financials. And we will also let you know on what we think about the future and the outlook for the industry and for HAV Group. Yes. Then we have the highlights for the quarter. We had a solid order intake, resulting in a very solid order backlog still, close to NOK 1.3 billion at the end of the quarter, which was up 25% from the last quarter or the quarter -- same quarter in 2024. We had new orders for more than NOK 180 million in the quarter. And the revenue was approximately NOK 150 million in Q1, which is also up from the same quarter in 2024. And we expect also -- this is as expected, and the revenue will grow in the coming quarters also for 2025. The EBITDA was NOK 0.4 million, which is also up from the same quarter in 2024. And again, it's a significant improvement from the latest quarters, especially in early in 2024. We see a very positive continuous financial trend in the energy design and smart control system segment. Another very important milestone or event in the quarter was that we launched the LNGameChanger project, which is a possibility study to have LNG-operated fuel cells with almost 0 carbon. We have carbon capture from LNG fuel cells, which can be used on very many different types of vessels, and we are very optimistic for that project for the future. Also after the quarter, we signed more contracts within the energy design and smart control systems segment. And we have a very positive pipeline. The order intake you see in more details here. We see the order intake, as I said, was NOK 189 million in the quarter and a total order backlog of NOK 1.3 billion, close to NOK 1.3 billion. Many of you have followed the presentations earlier, so you know about the company, but we are expertise in optimizing vessels and delivering equipment to reducing energy consumption, increasing safety and also emissions. So we help our customers becoming competitive by providing advice and optimize solutions and also throughout the life cycle of the ship. We are approximately 170 employees in Norway and in sub-branches international, and our vision is a sustainable future at sea. We are divided into 4 technology segments: ship design, energy design and smart control, hydrogen-based energy systems and water treatment systems. These technologies can be used in many different segments, and these are the segments that we have targeted, mainly marine segments within offshore wind, oil and gas, ferries and ropax, fishery and short sea cargo. But within aquaculture, we are also targeting the land-based aquaculture in addition to live fish carriers, for instance, in the maritime business. So then I will let you know a little bit more about each of the segments. The ship design segment is still, if you look at the results, affected that we have too low capacity utilization at the moment. And as I think many of you have noticed, it's a while since we got the last contract. We have implemented cost reduction measures in this segment temporarily because we have still very high beliefs in the segment. And we see also that from the positive pipeline that we have within the targeted segments for the design business. So for the future, we will continue targeting the different segments. We have made a little bit different approach on how we are targeting segments. So I am very positive and very optimistic to seeing good orders for this segment and a higher activity utilization for the future. The energy design and smart control systems is the segment that is -- has the highest activity and has had very good order income now over many quarters. And now we also see that results in better financial results. They also got a lot of new contracts, good contracts in the quarter and secured also good contracts after the quarter and have a very positive pipeline. This segment is focused on very many different ship types. We see that more and more ship types is utilizing the technology within both energy design, electric propulsion and not at least smart control systems. So we see that this in the near future and also in a more longer basis to be the growth machine in HAV Group. Water treatment systems was built upon the ballast water management systems, where very -- many vessels, most vessels sailing in the world needed to retrofit their vessels with having a water treatment ballast system. The retrofit boom, as we call it, has come close to an end. Now the market is new builds. That market is smaller. And we also see that we have implemented new strategies to enter -- not enter into, but to compete in that market. And it will be a foundation for the business in water treatment onwards also, not at least the installed base that will give aftermarket revenue. But we have, for a while also, as you have seen, been working with other segments using the same type of technology within water treatment and have now seen very good results, both within land-based and sea-based aquaculture, and that will also be shown in the future. From the backlog, you see that they have doubled their backlog. They had a very good order intake in the first quarter. And we also see that the lead time for orders in the aquaculture sector is longer than for the ballast water treatment systems. And that means also that the revenue that we sell now will have effect in the accounts later, late this year and in 2026. The hydrogen-based energy systems segment is a segment that we have had high beliefs in. We have done very much correctly with regards to developing technology, with regards to developing the market. But as I think most people have seen, the market for zero emission and alternative fuels has not become easier. We see the need, and I fully believe that there will be a need for this technology, but the slow development of the market has resulted that we have taken a conclusion that we will slow down the activity. We'll take down the cost in this segment and then be prepared to ramp it up again when the market picks up. But in order to be in position, we maintain the technology, we maintain the IPR rights and we maintain the competence. And we use this also in other segments in the meantime. And then we are in position to ramp up again at a later stage. But for a period now, we will slow down the activity and also the cost expenditure in that segment. Here, you see the breakdown of the order backlog. Ship design, unfortunately, has not got the orders in this quarter. We hope that we will show you more positive order development in the future. Energy design and smart control systems has a very, very good order backlog. And also, as I will say later, a very sound order backlog with high expectations with regards to margins in the future. And the water treatment systems also have had a very good development on the backlog. So that was briefly on the HAV Group, the highlights of Q1 and more in details of each of the segments. And then Pal Aurvag, the CFO, he will tell you more about the financials.

Yes. Good morning. If you look at the turnover and the EBITDA for the quarter, it's NOK 148 million in turnover and with a corresponding EBITDA of NOK 0.4 million. And as we can see, the revenues are up and down, and this is based on -- or the reason is that we have a project-based business, and it will then be -- changes from quarter-to-quarter. If we look at the financial figures, we have an operating income of NOK 148 million, EBITDA of NOK 0.4 million and an EBIT of minus NOK 4.2 million, net finance positive NOK 1.7 million, and then we have a net profit of minus NOK 2.5 million and a positive EBITDA margin of 0.3%. And based on order backlog, the turnover will increase in the coming quarters, 2025. And as we can see, and if we compare with the same quarter last year, you see we have a very good profit improvement. If we look at the different segments, we see that the ship design segment has an operating income of NOK 30.7 million, but with a negative EBITDA of NOK 4.3 million. And this is mainly related to low capacity utilization and low activity level in general. If you look at the water treatment systems, for the first quarter, had a turnover of NOK 14.2 million with a minus NOK 4.3 million of the EBITDA level. And this is also -- it's low sale and low capacity utilization for those first segments. Then if we look at the energy design and smart control system segment, we see that we have a turnover of NOK 103 million and with a positive EBITDA of NOK 15.3 million. So this is the segment that is more or less running the business for this quarter. If you look at the hydrogen-based energy system, we have more or less 0 turnover and an EBITDA of minus NOK 2.2 million. And this is -- as we have said before, this is a development company. If you look at the balance sheet, we see on a total level that total assets has increased from NOK 601 million to NOK 695 million. The main changes is in the total current assets. This is mainly -- it's project-driven activity that is doing the increase in the balance sheet. And if you look at the -- on the current liability side, the major increase is prepayments from customers. So it's -- in this quarter, it's more or less project driven. There is no activities in the balance caused by other activities. If you look at the cash flow, there's -- in total, there is a negative cash flow of NOK 3.5 million in the quarter. There is small figures in the quarter. The operating activities is contributing by NOK 2 million. Negative investment, NOK 2.5 million. It's more or less small R&D and investment in equipment. And in -- for the financing, it's related to down payments and of the noncurrent debt. So then back to Gunnar and have a summary -- we'll have a summary and a market outlook, and then we will be back for the Q&A session.

Thank you very much, Pal. So to sum up what we have said. We have a positive EBITDA in the quarter with growth and solid results, especially in the energy design and smart control systems segment. We have new orders for NOK 188 million signed in the quarter. And we have a very, very solid backlog of close to NOK 1.3 billion at the end of the quarter. And as I said, we will make strategic adjustments in the hydrogen initiative to align with the market that is slower than -- and not so mature as we have expected, but preserving core expertise and positioning us for the future opportunities within that segment. The global megatrends are still in our favor because we are delivering competitiveness to our customers through reducing energy consumption, which will always be relevant with regards to delivering optimal vessels, reducing emissions. And we see also that the global trends for shipbuilding is a high need for vessels that are in the segments that we are aiming against. There is a lot of turmoil in the political scene in the world, especially with regards to taxes. And unfortunately, there, we -- at least what we see now is that we will not be very effective due to the markets that we are operating in today. And as we said the last quarter, we have a very good order book and filled up most of the capacity in -- especially the energy design and smart control system segment this year, gives us a visibility for a higher turnover this year than last year. And also, there's a very solid result margins in the order book that we have. So we expect a good development also of the margins in 2025. And with that, Pal, you have the questions that has come in from the viewers and our followers. So then we will try to answer as best as we can to what you are wondering about, about the company and our development.

Then there has been -- we have received some questions. Yes, we can start with a question related to HAV Design. There has been published information about North Salmon Services and ammonia. Is this project still up and running?

Yes. The ammonia project was a pre-project investigating the possibilities to build a live fish carrier with ammonia as fuel. That project has been finalized. It has not been realized in an order with an ammonia-fueled live fish carrier, but it has strengthened the relations we have with that customer and that segment. So it will give a positive effect on the possibility to get new orders for HAV Design in the future.

Then there's a question about the -- is Havila and HAV Group's integrated carbon capture system already outcompeted by Wärtsilä System?

We talk about LNGameChanger. That is a project run by a consortium, which is led by HAV Group. In the consortium, we also have Havila Kystruten, and we have SINTEF and we have Molgas. That project is different to the technology that Wärtsilä. Wärtsilä is focusing on capturing carbon from a combustion engine, while we are using a fuel cell. And the big difference is that the concentration of CO2 from a fuel cell is much higher. That means that it's much easier to catch the carbon. You can catch much more, meaning that you have much less emissions of carbon and the efficiency of the system, according to our theories, will also be higher. What we see and what we are going to prove is that the efficiency of a fuel cell powered by LNG for running a ship, capturing almost or close or more than 90% carbon will be as efficient as a combustion engine running on LNG without capturing any carbon. So in my opinion, we are not -- we are still very much hopeful for that technology, and it's a different technology than Wärtsilä has. So we think we can be very much in position to compete if our theories will be proven through this analyst and the project that we are going into.

And, of course, some questions about hydrogen. I think we answered some of them in the presentation. But there's a question, is the prototype of the ZEPOD fully developed and tested? Or is it still on the drawing board?

Yes. The prototype of the ZEPOD, we have taken that project as far as we can with regards to designing and developing ready for building. And as you understand, we have been evaluating the market. Now we are in the process of evaluating the further strategy, but we have decided to take down the activity in the short run to take down costs. And then also we have put the prototype building on hold. But everything is very ready to push the button and start again when we see the market is coming.

Then there's a question about several segments, but it's clear that energy design and control smart segment carries the entire financial performance for the first quarter. What is your plan to make ship design and water treatment systems segments profitable?

Yes. We use a little bit same. When you're in a group, you have also the advantage of using best practice. And of course, we have put measures into the energy design and smart control systems. We have started implementing the same in the other segments also, for instance, with regards to how to approach the market, how to approach sales. For the water treatment systems, they are very much in position to start harvesting on their investments. But as I told you, the orders that we are now getting for the aquaculture segments, they are longer lead times. So the results in the books will be shown as they have been showing also for the investments previously in the smart design and energy control systems, a little bit further ahead. And for the ship design business, we have very, very good products. We have, I would say, the best knowledge within the company, and it's a matter of also twisting a little bit about the sales strategy, how to approach, which markets, which segments to approach. And we are now also seeing results there by already doing that, the lead pipeline is becoming even better. So we will also see results there. I hope -- I hope not in a very far future.

Yes. And then there is -- capacity utilization has been used as an explanation for several quarters for the missing margins. Are you planning to reduce capacity?

What -- we will always be looking at what happens both in the near future and in the longer run. And as I said in the presentation also, we have implemented cost measures in the HAV Design, which is temporary measures because we expect that we will be able to fill the capacity. And also, if you look at the water treatment systems segments, the capacity utilization is low in some areas now, but we use also these resources in order to develop the markets, and we are prepared also for taking the capacity that will be needed when the orders, for instance, for the aquaculture segment is going to be in production. So we are looking very closely at cost. We are looking very closely on how to succeed also in the future. And it's a balance. But as you see, we are taking cost measures now both in HAV Design. We are reducing also the cost and activity in HAV hydrogen. And we will be monitoring the situation, but we are very optimistic that the order book will give us, again, possibilities to utilize the capacities in also the segments that has low utilization today.

There are several questions related to concern about the order book for the design. And yes, are we doing any special activity to try to sum up here? Are we doing any -- or let's say, what are we doing to improve our order book in HAV Design?

As I said, we have already implemented and we are in process of -- we are also seeing the results in working a little bit different way, especially with regards to sales. We have been quite successful targeting some markets, some owners in the future, giving a lot of orders. We see that also we are a little bit vulnerable with a few but very good customers. So we have now for a while, also looked at a broader perspective within the customer segments, but also looking into other segments. So there is a lot of measures that has been put in action in HAV Design. And that, I believe you will see results in more orders in the time to come.

Yes. Then there is some more detailed questions related to financials. And I would say it's more in the guiding area, and we don't guide on quarters or in margins. So I think that we have just to, let's say, stick to the overall figures for 2026 turnover, NOK 1.3 million targets.

Yes. And as we have said earlier and as Pal mentioned here also with regards to our type of business, it's project related. There is several quite large projects. We see also that the execution of the projects may be shifted between quarters and also end of years. So it's difficult to predict. But what we have said and strongly believe in is that the activity will go up in 2026 and 2025. And that the margin levels that we see in the contracts that we have entered into last year and also this year is much sounder than previously. And that gives us expectation also that we will have good margin development compared to previously this year. Some of the questions has come in now also during the presentation. So bear with us. We will see if there's any new questions that we have not already answered either in the Q&A or already in our presentation.

There's a question about the order backlog of NOK 1.2 billion. And how much revenue can realistically be converted into 2025? And as we said, we see, let's say, the strong order book and the margins that we see in it -- we will have a higher activity in the second half of 2025 than the first half year. So I think we could -- but we stick to the overall that we will have an increase in turnover in 2025 compared to 2024. There's a question about how does the market in Europe look like? We have...

What is the question? How does the market look in Europe?

Yes.

Yes. I would say our main market, if you look at the shipowners is Europe and Norway. And we also see that the shipbuilding markets, then you have to look a little bit broader. A lot of vessels are built in China, for instance. We also look at the U.S.A. market and American market in general. But the main market for shipowners, which is our main target is Europe. And it's looking good from the prospects that we have. If there is not any more questions, Pal -- there is?

Yes, the same question as we have in every quarter, and that's the question related to when we are going to start to pay a dividend? And yes, there is -- when we are in a financial position to pay dividend that it will be paid, dividend. I think that's the...

We have a policy that, of course, we will have an attractive dividend to our shareholders. And what we have said previously is that there is an evaluation or consideration that you have to do is, when you are in a position to give dividend or should you use it for further business development, enhancing the values of the shareholders that way or pay dividend. But of course, we will, as Pal say, when we are in position, we will pay dividend, and we want also to be an attractive company with regards to our dividend policy.

I think that has covered it. No more questions.

Okay. Once again, sorry for the small technical problems. We hope still that you have got a good impression both from our presentation on what we are, where we stand now, what we have delivered and our beliefs for the future and also through the Q&A. I hope you will continue following us. I look forward to meeting you again next quarter in August. And then we thank you very much for your attention.