M Vest Water AS (7YA.MU) Q2 FY2025 Earnings Call Transcript & Summary

Welcome, everyone, and thank you for joining us today for M Vest Water's presentation of our second quarter results for 2025. I am Mr. Tor Olav Gabrielsen, Executive Chairman of M Vest Water; and I'm also joined by our CFO, Morten Hilton Thomassen, who will take you through the financials later in the presentation. Please note that this meeting is being recorded, and a replay will be available on our website later today. Please keep in mind that this presentation contains forward-looking information based on management assumptions and analysis. This is the agenda for today. We start with our recent highlights, followed by a brief presentation of our company before we walk you through the latest and the most important business and financial updates. If you have any questions, use the chat function, and we will answer as fast as we can during the Q&A session at the end of the presentation. Our financial highlights of the quarter is that our chemical sales have grown by 167% year-over-year compared to the second quarter of 2024, also an improvement in EBITDA, driven by the increase in chemical sales and recurring revenues with higher gross margin. In Germany, we successfully completed an important qualification step for our green chemicals at METHA. METHA is a flagship in the dredging industry, and we are now preparing for the final step of paid long-term trial. Upon successful completion, we proceed with commercial negotiations for our long-term contracts. In the aquaculture segment, we focus on further developing and tailoring our technical solutions. As a result, we secured an order in April to upgrade a salmon slaughterhouse customers' water treatment system. After more than 2 years of successful operations, we have received follow-up orders from our Norwegian oil and gas customers. Our retrofit, NORWAPOL, has been installed at an oil terminal, and a further optimization project of the water treatment process has been ordered from SAR, both a strong validation of our technology. In the Middle East oil and gas market, we have 3 ongoing projects. Two of these are running as planned. Due to the geopolitical tension in the region earlier this year, the announced 2-week pilot in Saudi Arabia has been moved to the next time slot at the site. M Vest Water is a developer of green technologies for water and wastewater treatment, supporting industries in solving water pollution challenges. Our 2 main products are NORWAFLOC, a green and biodegradable chemical; and NORWAPOL, a high-performance filtration technology. In addition to these products, M Vest Water provides equipment and solutions offering both chemical and technical expertise to our clients. We have established facilities in Norway and Germany, and we also operate in the U.S. and the Middle East through partnerships and agent agreements. More than 80% of the world's wastewater flows back into the environment without any water treatment, and about 1 million to 3 million tonnes of nano and micro plastics are released into nature annually. M Vest Water's mission and contribution is to offer eco-friendly water treatment solutions, replacing microplastic-based chemicals and enabling the sustainable reuse of valuable sludge. The world is facing a water crisis where climate change, urbanization and increasing competition for water sources are worsening year-by-year. In large and emerging markets, such as oil and gas and dredging, action is needed both from our regulatory bodies and individual industry players. The global water treatment chemical market is expected to reach USD 50 billion by the end of 2028. In this market, the shift towards natural products has officially begun. In '24, the market for natural chemicals reached almost $50 million, and is expected to grow at an annual rate of 13.8% over the next 5 years. According to a newly published market analysis report, M Vest Water is listed as one of only 10 producers of natural chemicals worldwide. Now let's move on to the business updates. One of our highlights this quarter is that our chemical sales increased by 167% year-over-year, more than doubling of our recurring revenues compared to the same period last year. Currently, our chemicals are produced at our Bergen facility, where we have already produced 185,000 liters of NORWAFLOC this year compared to 72,000 liters in the same period of 2024. Our current production capacity in Bergen is sufficient to cover the expected long-term demand for our products in the aquaculture and oil and gas segments in the Nordic region. It also allows us to support initial international expansion. As of today, aquaculture has been our primary growth driver. An increase in chemical sales and recurring revenues have made it a profitable stand-alone business for M Vest Water. For more than a year, we have supplied 3 salmon slaughterhouses with our NORWAFLOC and water purification solutions to comply with the new environmental discharge regulations. So far this year, no new slaughterhouses in Norway have been mandated to meet the new regulations, keeping us in the position as the market leader. Our primary focus in Q2 has been dedicating time and resources to understanding the operational processes at our customer sites. This insight allows us to recommend treatment solutions, specifically tailored to each facility. With our new sensor technology, we can continuously monitor water quality and purification systems in real time. The resulting 24-hour data provides a detailed operational profile, highlighting daily impacts on water quality and identifying opportunities for proactive performance optimization. In April, we received an order from a global industry leader to upgrade their water treatment system with our sensor technology, further strengthening our position in this market segment. In the Norwegian market, 45 factories in total are currently awaiting the government's response to the individual discharge exemption applications. Our ambitions are high, and we aim for a 70% market share. Based on current information, the majority of these factories are expected to implement water treatment solutions between 2026 and 2030, supporting steady growth in our aquaculture segment over the next 5 years. The latest and most important news from our business in Germany is the successful qualification of METHA. In August, we completed the third of 4 qualification steps for our NORWAFLOC product in collaboration with the dredging company, METHA. We are now preparing for the final step, a paid long-term trial scheduled to begin in Q4. Upon successful completion of this trial and provided both METHA's and the Hamburg Port Authorities expectations are met, M Vest Water will be technically qualified for further commercial negotiations regarding long-term contracts with METHA. The exact same solutions developed by M Vest Water for 100% replacement of synthetic chemicals in German dredging operations are also relevant for the mining industry and municipal wastewater sector. We have resumed dialogue with municipal effluent treatment plants with which we have collaborated since 2023, and we'll provide further updates in the near future. As of today, we have signed framework agreements with the German companies with VEBIRO and Verde Vision. Both agreements are planned for implementation of our 2-year horizon. Chemical sales from seasonal dredging are expected to begin in 2026, at the same time as the ice melts in lakes and rivers. Back in April 2024, we announced our first contract in the Middle East oil and gas produced water markets. Implementation of this project is scheduled to start at the end of the year, and we have now received the first set of orders associated with this contract. In 2025, we engaged in 2 additional assignments aimed at qualifying our technology for 2 major oil producers. The first project aimed at qualifying our technology at the Saudi Arabian treatment facility has, due to the geopolitical tension in the region earlier this year, been moved to the next time slot at the site. The second assignment is a green de-oiler technology trial agreement with an oil and gas producer in Oman, scheduled to start in Q4 this year. In Norway, we have secured 2 additional orders from existing customers, both following 2 years of successful operations. In July, our large Norwegian oil terminal placed an order for a second NORWAPOL retrofit, our patented polishing process tailored to the use of our natural chemicals. In August, M Vest Water received a project assignment from SAR to support optimization of the water treatment process at its Mongstad facility. This follows 2 years of continuous supply of our NORWAFLOC products to SAR. The optimization program is scheduled to commence in the second half of 2025. We view these orders as a strong validation of our technology. I will now hand it over to Morten, who will provide an update on the financial, and wrap up the presentation with a few key takeaways. Thank you.

Thank you, Tor Olav. Revenues in the second quarter amounted to NOK 8 million, bringing year-to-date revenues to NOK 12.3 million, in line with last year. I would like to highlight that despite a flat top line, recurring revenues have increased significantly compared to 2024. To illustrate, 75% of revenues year-to-date in 2024 consisted of equipment sales to the aquaculture industry, with the remaining 25% from chemical sales and recurring revenues. In 2025, chemical sales now account for 65% of year-to-date revenues, leading to higher margins and a stronger foundation for future cash flow. To support our working capital needs, we secured a NOK 12 million credit facility from our major owners earlier this year. And in July, our credit facility with DNB was increased by NOK 3 million. The conversion of our tenders into firm orders will determine the necessary working capital moving forward. As mentioned, our recurring revenues grew by 167% year-over-year compared to the second quarter of 2024, providing a strong foundation for future revenues and margins. We are positive about the trend we are seeing. Our forecast indicate continued growth into recurring revenues also for the third quarter. More specifically, we expect chemical sales of about NOK 5 million, representing an additional 25% increase compared to second quarter 2025. Closing of today's presentation, I would like to summarize the key takeaways. In aquaculture, we continuously work to strengthen our position as the preferred water treatment solution for salmon slaughterhouses. An order from a key customer to upgrade their water treatment system this quarter demonstrates the industry's confidence in M Vest Water as a solution provider and trusted partner. In dredging, we are only one step away from advancing to further commercial negotiations regarding long-term contracts with METHA. METHA, as a flagship in the dredging industry due to both its size and role in sustainable dredging management, represents a significant growth opportunity for our German business moving forward. In the Middle East oil and gas market, we have made significant progress, although securing long-term contracts is a time-consuming process. So far, we have secured 3 pilot assignments, demonstrating both the market and region's interest in our technology. Another strong validation of our technology comes from 2 follow-up orders from existing customers in Norway. The first is a second NORWAPOL retrofit at a Norwegian oil terminal; and the second is a project to optimize the water treatment process at SAR Mongstad, both orders following 2 years of successful operations. Last but not least, aquaculture remains our strongest growth contributor today, providing a solid foundation of recurring revenues for the future. Looking ahead, we expect large markets such as dredging and oil and gas to play an increasingly significant role in our growth. And now we are ready for the Q&A session.

All right. Good morning, all. As we have reached the end of the quarterly presentation, we will now move over to the Q&A part of this session. [Operator Instructions] So starting off, there's a question from Petter Slyngstadli, which is your cash balance is negative at quarter end. How much remains available from the NOK 12 million loans from owners and from DNB? How will you address funding needs in third and fourth quarter? And when do you expect to be cash positive on your operations?

Thank you very much for your question. Well, we have -- at the end of the quarter, we had -- I will not provide exact numbers, but we had sufficient capacity in our credit facilities, both from the credit facility from our owners and the bank facilities. Going forward, we expect, like Morten was talking about in the presentation, we expect an increase in order intake and a further conversion from tenders into firm orders. So we are quite positive and quite comfortable with our position in that regard. We also have a strong forecast for the next quarters when it comes to the NORWAFLOC sales. And the second question was, when do you expect to be cash positive. Like we said in the presentation and also in the report, our stand-alone business areas are now quite -- we are -- or not quite, but we are profitable and we have a positive cash flow in that. The other parts of the business are expansion globally and expansion within dredging and the Middle East and oil and gas and are more related to building up and sales organization and also mobilizing costs for the projects, the large-scale projects we are involved in. And so that will depend to when we are -- how do you define it. But we could be cash positive by the end of the year if you only focus on our profitable areas as of now. I don't know, Morten, if you want to elaborate a little bit more on that?

No, nothing to add.

All right. So for the next question. You mentioned ongoing pilot and qualification projects with oil and gas companies in the Middle East. Can you elaborate on the timeline, revenue potential, and whether these trials generate any revenue before potential commercial rollout?

Yes. Morten, feel free to elaborate more, but I can answer on those. The timeline first. One of the projects or 2 of the projects are going as planned. As we said in the presentation, we had our first purchase order for the first firm contract that we mentioned I think a little bit over a year ago. The second project is going as planned and we actually had the deliveries of our chemicals at the sites in the country as of now. The third one is a little bit because of the logistics chain was disrupted during the incident in June and July, the geopolitical. So that's a little bit pushed back into the second or into the third -- second half of 2025. When it comes to revenue from these projects, obviously, for the first one, we have some revenue, the first from contracts, which we received a purchase order from. That's some revenue on that one. The second one, which is ongoing or starting now, which is going as planned, we also have some revenue on. And the third one, that depends on when we will actually see in the second half when it will come online. When you're talking about numbers and the potential in it, of course, some of these projects are quite big so there is a large commercial potential in it. And that is -- I don't want to go in too much specifics, but that one field like this one could amount to recurring revenues up to between USD 2 million to USD 3 million a year.

All right. Perfect. But do these sort of trials, do they generate any revenue before the potential full-scale rollout?

The one who is -- that will receive the chemicals down in the Middle East right now, that will generate some revenue, yes.

All right. So your -- you state that within the aquaculture segment, your recurring revenues are up 167% year-over-year. Can you please provide some color on the gross margin differences between the recurring and the nonrecurring revenue streams?

I think we should be careful sharing our margins. It could be, I don't know, might not be too tactical to share too much. But of course, it's a different -- when we sell our own patented technology, we have margins in the high end. But when we sell equipment, dewatering or any kind of equipment to the facilities, that is -- we sort of have a resale and a lower margin on these products. So we don't want to go too much into details in public. But yes, I can also mention that we achieved the margins for our chemical sales, we are able to achieve the margins that we have been targeting from the start.

All right. Perfect. Morten, that is understandable. So for the next question, are you considering partners on sales, marketing and financing?

Yes. To take the first one first on sales. In the aquaculture industry, we are working very closely with our partner, DSM, Downstream Marine, which I think we mentioned it in the report as well. They have about 70% market share of their market and delivering equipment to the slaughterhouses. And their technology are integrated with our technology. Of course, our technology works very well with other technologies as well, but they are a very close partner and good kind of distribution channel for us in that respect. We also have -- it depends on how you define sales, but then in the Middle East, we are working very closely with agents. We are -- you need to have an agent in order to operate in these areas, and we have a very close relationship with them. On oil and gas as well, we have a very -- working very closely with ETS, Enviro-Tech Systems in the U.S., which delivers a lot of water treatment equipment to the oil and gas industry, and they are a global provider. So we have partners when it comes to sales and marketing. The last question here when it comes to financing. I'm not sure how you should define or view that in what context. But we obviously have a lot of banks we are talking to. We have our main bank, which has provided us the necessary credit lines. We are considering all options. We're quite opportunistic. But -- so I don't exactly know which context you are referring to when you're talking about financing. But in general, we seek to find the best solutions.

All right. A follow-up on that is that he means industrial partner as investor to enhance the rollout performance, industrial partner as investor.

Well, we are a listed company. So every investor is welcome to us. So they are free to buy our shares in the market. Of course, we have a lot of interest from the major players and chemical suppliers in the market because we have something, we have an IP. We have something that is quite unique, and they know that. So I think all of the major companies in this space are aware of us and at some point in time, they have been in contact with us to look at the commercial potentials and also other kind of partnerships. Right now, we are penetrating or focusing on niche markets like the aquaculture and also the dredging market in Germany. And we are actually able to go directly to them without any middleman or partners in that respect. So we are chosen to do that. Obviously, in the near or medium-term future, if again, if you have a large-scale contracts for delivery, we can't supply everything from our Norwegian plant. So we have industrial partners in the regions that can produce our chemicals on a license basis as a first step before we set up our own production locally.

All right. Perfect. So back over to the aquaculture segment. What kind of visibility do you have on new aquaculture installations over the next 12 to 24 months, would you say?

I would say we have a pretty good visibility of the aquaculture market. Like Morten said, there are about -- today, there are 45 salmon slaughterhouses that are awaiting feedback from the authorities. Obviously, we don't know, they do not share with us the exact status of where they are in this process. But overall, we know when the exemptions run out, and we pretty much know every slaughterhouse and we know them quite good. So I would say that for the aquaculture market, we have a very good visibility. And like Morten pointed out for the next 2 to 4 years, that market will convert from interest into what we expect to firm orders.

All right. So you mentioned that the pilot conversion will determine working capital requirements. Can you help us understand the size of working capital needs if just 1 or 2 larger contracts materialize?

Well, for us, it's -- in absolute numbers, it's not very much. But for us, relatively, let's say, if you need to mobilize our production, you need to buy in some raw materials and you might have to prove that you can supply these sites or locations for a year of supplies. So we are talking about maybe a couple of up to NOK 3 million or NOK 4 million for one project of it. That is mainly raw materials that we are buying in and need to stack up in order to be able to produce it and supply for, let's say, a quarter or a year or something like that. That depends on the projects. We are quite comfortable with the timeline and the timing of these projects we have in our order book or in our tender book. But obviously, if -- I guess that's kind of a luxury problem if all of these tenders that we have out, they convert at the same time, that would be -- I think that would not be a very big challenge to fund the working capital for that.

All right. Perfect. And then I have a final question here. You might actually have mentioned it in the presentation, but I'll ask it anyway. So you completed the third step in the METHA qualification. When should we expect the final trial to begin? And what would the full commercial contract look like in terms of scope and economics?

We expect the final trial to begin within 2025. And regarding that will be paid long-term test. When it comes to the full commercial potential, we are in a process right now with the client where we are negotiating and we are looking into the numbers. So I really don't want to go into details of that. But I can say that it's -- for us, it's a huge potential client. It will represent a significant revenue increase potentially for us. And it's -- I think it's one of the -- if not the largest, it's one of the largest dredging facilities in Europe and they have several production lines where they are actually dewatering the sludge. So it's a huge potential for us. But I don't want to go into details right now because we are in a position where we are working with them, so.

I see. Thank you. So I think we have reached the end of the questions for now. So thank you all for contributing and for joining this quarterly presentation. And with that, I'll leave the word back over to you, Tor Olav and Morten, for some concluding remarks. Thank you.

Thanks. Thanks to you for hosting this event, and thank you all for believing in the company, and you are welcome any time to contact us. And for those of you who have the chance, you can also visit us and visit our production facilities here in Bergen. So thank you very much.

All right. Thank you. Bye-bye.