HAV Group ASA (HAV) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to HAV Group's presentation of our second quarter and first half year results. Presenting today together with me is our CFO, Pal Aurvag. For those who have been following us for a while, the agenda will be quite familiar. We start with a presentation where we start with the highlights of the quarter. Then for new viewers, we also give a brief presentation of HAV Group. We will dive deeper into the business segments and Pal will take us through the financials before we sum up and give our perspective of the outlook. I'm pleased to share that we delivered a strong second quarter, both versus the previous quarters and compared to the same quarter last year. Compared to the second quarter last year, revenue up is up 38%. The quarterly EBITDA result is more than 4x higher this year compared to the same quarter last year, and the EBITDA margin improved more than 4 percentage points to 6.5% in Q2 last year. Like the previous quarters, it is our business segment for Energy design and smart control system that drives the positive results. This segment benefits from the growing maritime electrification trend and our team has clearly demonstrated its ability to both win new projects and profitably execute them in this market. We had a low order intake in the second quarter, but we are, at the same time, experiencing healthy tender activity. I Will get back to this later in the next slide. Finally, on April 30, we announced a strategic review to explore various strategic opportunities HAV Group. I will provide an update on this later in the presentation. As mentioned, the order intake in the second quarter was slow at NOK 35 million. We still have a solid order backlog of NOK 826 million, which provides good visibility for 2026. It is also important to remember that our order backlog does not include service and aftermarket revenue, which are often subject to ad hoc call-offs with short lead times and hence, short turnaround time to revenue generation. Winning more work is always a priority. I will provide additional insight into this topic when I get into the business segment slides. In general, I can say that we are expecting healthy tender activity for all business segments. The first half comparison with last year shows that the same positive trends as the quarterly comparison. We delivered significantly higher revenue than the first half of last year and considerably improved EBITDA with associated higher margins. So far, we are delivering financial results in 2026 that support our full year 2026 guidance. of revenue growth and improved margins versus 2025. Then I will give you a brief presentation of HAV Group. HAV Group is enabling a sustainable future at sea. We are enabling optimized vessel performance, safety and operating costs. We do this through integrated design and technology solutions. In short, we help our customers operate smarter, more safe and reduce operating costs. The group consists of 3 maritime solution providers. HAV Design delivered future-ready ship designs focus on what creates value for the ship owner in the lifetime of the vessel. Norwegian Electric Systems delivered integrated power systems, electric propulsion, navigation, automation and autonomous systems for the next generation of vessels. And Norwegian Greentech deliver innovative water treatment systems for the maritime and aquaculture market. Here you see the main industry segments that our segments are operating in. HAV Design is mainly operating within offshore energy vessels, aquaculture vessels and ferries, but are also looking into new segments to explore possibilities. HAV Norwegian electric systems operate in most types of vessels that are already asking for electrification and we see also a great potential in going into new segments where they can use electrification and autonomy and automation in order to reduce energy consumption and also emissions. For Norwegian Electric Systems, we see still a good sound business for ballast water treatment systems, both for retrofits and you also see that ballast water treatment systems for new buildings is picking up. And we experienced also a healthy and good interest for their products within land-based aquaculture, which is based on regulatory-driven requirements and strictly requirements for cleaning water. So then I will give you more details about each of the business segments. First let's look at ship design which is typically involved at the earlier stage of vessel projects. The revenue increased to NOK 30 million in the second quarter. This is above previous quarter's but below the same quarter last year. EBITDA is on the same level as Q2 last year. The positive message is that the current project portfolio is progressing as scheduled. However, as you know, more work is required to bring this business segment backing numbers. In the meantime, we are investing our available critical competence in technology development, operational improvements and future readiness, ensuring that we are well positioned to secure new projects and execute them efficiently. Here, I would like to draw the parallel to where our Energy Design and Smart Control business was a couple of years ago. The segment was not profitable, but we invested in available capacity to be able to fully capitalize on future growth opportunities. This investment is currently yielding excellent returns. And the ship design team is also working very hard to secure more work. As mentioned, tender activity is healthy. The team is awaiting decisions on several projects within their core segments, this autumn. If awarded, these projects could start relatively quickly, meaning that work can be initiated this year and into 2027. The ship design team is also pursuing opportunities in new vessel segments. They are, in other words, trying to make the total addressable market even bigger. Finally, Ship Design is also seeing increased interest in aftermarket services, which is a targeted growth area that we mentioned also at the beginning of the year. For Water Treatment Systems, the revenue in Q2 was negatively affected by scheduled shifts on certain projects, but this is deferred, not lost revenue. The situation with our Water Treatment System business is similar to that of ship design. Higher volumes of work are required to deliver positive results. Winning new work is top of the priority list for this team, too. They are experiencing a stable tender activity for retrofit of ballast water treatment systems, and they are also seeing signs of improvement on the newbuilding market for vessels as exemplified by the 10 contracts we announced in the quarter. The aquaculture industry also represents growth opportunities for this segment. We are currently pursuing several opportunities within both land-based aquaculture and in the wellboat segment, but the exact timing awards remain somewhat uncertain. On the positive side, recurring revenue from service and aftermarket continues to grow with healthy margins. Finally, the Energy Design and Smart Control Systems segment, the top performer in our portfolio. This business segment delivered another quarter of rock solid financial performance. Revenue and EBITDA increased by 58% and 154%, respectively, compared with the same quarter last year. The EBITDA margin of 15% is very strong, driven by continued high activity levels and strong capacity utilization. We are also seeing some project delays, but these have not had a significant impact on our operations. The order backlog of NOK 638 million provides good visibility for the rest of the year, but winning contract is a key priority here, too. The segment is experiencing high tender activity. The Energy Design and Smart Control Systems business has not lost any major projects during the second. However, we are also seeing that geopolitical uncertainty causes some geopolitical uncertainty causes some investment decisions to be pushed to the right. That said, the business segment is still benefiting from a very strong maritime electrification trend, and we are awaiting decisions on several tenders in the second half of the year. The team has repeatedly demonstrated its competitiveness in recent years, and we will therefore remain confident that they can win more exciting projects going forward. As some of you may remember, we announced on April 30 that we had initiated a strategic review of our group. The purpose of this review is to assess a number of different opportunities to create shareholder value. The review process is still going on as planned, and there is nothing concrete to share with you at this point. However, we will, of course, update the market with any relevant information in due course. I would also like to reiterate that this is an open-ended process with no guarantee that it will result in a specific strategic outcome. And then I give the floor to Pal, which will give you more details about the financials for the quarter.

Good morning. I will guide you through the financial figures. If you look at the quarterly figures, the operating income was NOK 267.3 million, EBITDA of NOK 17.3 million. EBIT of NOK 11.6 million. Net finance of minus NOK 2.9 million, concluding with a net profit loss of NOK 8.7 million. And this has given an EBITDA margin of 6.5%. If we look at the year-to-date figures, we see we have a NOK 500 million turnover. EBITDA of NOK 29.1 million, EBIT of NOK 17.6 million. Net finance NOK 4.5 million and a net profit of NOK 13.2 million, corresponding to an EBITDA margin of 5.8%. So a solid revenue generation in the quarter and first half year. And as Gunnar said, driven by especially by the Energy Design and Smart Control Systems. And we also see that the corresponding figures for improved figures from corresponding to the last quarter last year and also the first half year. If we look at the balance sheet, the main changes in the balance sheet driven by the operational activities, small changes in current assets but there is a reallocation but an increase in cash, NOK 38 million and a reduction in receivables by NOK 30 million. And we have a NOK 100 million increase in cash from first quarter, and that was indicated in the last presentation, when we saw that the receivables have increased a lot since the start of the year. On the liability side, the current liabilities increased by approximately NOK 50 million year-to-date, and the main driver is a decrease in account payables. If we look at the cash flow, it was NOK 104.2 million positive cash flow from operations in the quarter, and this is compared to first quarter. The net payable receivable changed by NOK 130 million and a reduction of NOK 47.3 million in advance from customers. Negative cash flow of NOK 1.8 million related to investment activities, and this is related to investing activities in R&D. So it's engineering [ hours, ] but is more or less that is activated. And this sum up in a net cash flow in total by NOK 102.4 million. Then I send the word back to Gunnar that sums up the quarter.

I will give a sum up of the presentation and our outlook. In summary, we delivered a solid second quarter and our second quarter and half year results support our guidance for 2026. Energy Design and Smart Control Systems remain the key driver behind our solid performance. Order intake was lower in the quarter, but solid order backlog provides good visibility for 2026. We are seeing high tender activity across all our business segments, and we are awaiting decisions on a number of tenders in the second half of 2026. Winning new projects remain a key priority across all our business segments and the team continue to work actively to strengthen their sales pipeline and secure new business. To the outlook, which is more or less unchanged from the previous quarter. The global shipbuilding market is expected to remain strong in the coming years and decarbonization and alternative fuels are also likely to drive fleet renewal. This creates opportunities for HAV group going forward. We delivered a strong and solid second quarter with considerably improved revenue and EBITDA results compared to the same quarter last year. Hence, we reiterate our guiding for 2026 as seen on the screen. We also expect the fourth quarter to be the stronger quarter of the 2 last quarters of this year. As mentioned several times already in this presentation, we are awaiting several decisions about potential new contracts during the third and fourth quarter. Consequently, the visibility for 2027 will be clearer when we present our Q3 financial results in November. So that concludes our presentation, and we will go over to our standard Q&A session. And Pal, have we got any questions today?

Yes. I'll see here there are some questions. Let's say, can you give an update on the strategic process? Can we expect the conclusion to this can we expect the conclusion of this by the end of Q3, year-end? Or do you think the process will go into 2027?

Yes. I understand many people are interested in the strategic process. As I mentioned also earlier in the presentation, the process is going as planned. We are, together with [ Sparbanken ] markets, assessing a lot of possibilities. And we also said there is no specific time line. And there is also no specific results. It can be a lot of different things. And we have had very good progress in the review so far. And we will let you know when there is something concrete to report to the market.

Yes, that is the question in the same category. It is most likely that only a part of the company will be sold or has the initial dialogue proven that the sale of the whole company is more likely if a transaction does happen.

As we said, when we enter into this strategic review, and I repeat now also is that it's an open-ended process. And we're looking at all kinds of possibilities, opportunities being from cooperating, being mergers and acquisitions, sell a part or whole of the company and to doing nothing at all. not so much. The process so far has given a lot of opportunities. We are still evaluating. And when we have some more detail to give you, then we will market publicly in the same time. But the process has been very good so far, and we are optimistic that it will be a good outcome for the company and for creating shareholder value.

Yes. Your financial expenses are relatively high despite what the company having no debt. What are the main drivers behind the cost? The main drivers behind the cost are [indiscernible] loss or profit despite changes in the market. We trade a lot of currency through our contracts and we have temporary positive and negative results related to this. And most of it is want call it -- yes, not fixed or they are temporary. So over a period of time, it will more or less even out. Can you please elaborate on expectations in order intake for NES in second half of 2026 and the big orders that you -- that could come?

Of course, I cannot be specific about that. We inform the market when we have a specific contracts that the market should know about. But as I said earlier, pipeline is very good, and NES is expecting decisions on several projects now in the next 2, 3, 4 months. And we will be, as I said, have quite better visibility of this in November when we report that. And we will also inform the market subsequently when we get this -- when we get bigger orders.

You mentioned [indiscernible] was strong. What was -- has prevented contract awards from being made so far this year.

I would say it's a little bit different from each of the segments. For NES, as I said earlier, it's mainly that the project has pushed to the right, the decision of the project. We have not lost any major contracts for NES. For HAV Design, it's a process of getting back into the market we have not either lost specific projects in the markets that we are -- or the projects they have been handling since the last presentation. And we are also seeing more projects coming into the pipeline and also HAV Design, they are expecting decisions on several new projects in the coming months. And for Norwegian electric -- sorry Norwegian Greentech. They have a lot of many more tenders, especially for the ballast treatment system, which is a bigger market. and they win and they lose some. But we see that the tender activity, the pipelines also there are becoming stronger, and we expect that they will fulfill that their objectives also for the sales for the rest of the year for Norwegian Greentech.

NES backlog fell in the second quarter. To what extent can service and aftermarket offset lower new sales given that these revenues not included in the backlog.