Nekkar ASA (NKR) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this second quarter presentation for Nekkar. I'm Ole Falk Hansen. I'm the CEO of Nekkar. And today, I will give you a short presentation of the highlights from our second quarter and our first half of 2024. Afterwards, we will do some Q&As. And I would also like to refer you to the financial report for the first half of 2024, which has been published today. So Nekkar, we are an industrial technology company. We focus on efficiency and sustainable solutions for ocean-based industries. We have world-class expertise within engineering, within software and within complex project execution. And Nekkar acts as an engaged long-term active owner of our companies. We have a long-term view, no exit horizon and we focus on building profitable growth in our companies. And finally, Nekkar is also flexible in terms of ownership and operating model for our companies in order to maximize success. As an introduction, let me give you a short recap of our current business portfolio, which are now expanding. Syncrolift has always been and will always be the long-term global leading provider of shipyard solutions for safe and efficient shift docking. Intellilift is our industrial software company. And Techano provides intelligent load handling solutions such as cranes and gangways in combination with Intellilift for both renewable subsea and aquaculture vessels. And now from the third quarter this year, Globetech is also part of Nekkar. And Globetech is a maritime Internet communication provider which I will explain you more about afterwards. Furthermore, we have FiiZK, the leading provider of closed cage solutions for the aquaculture industry and also SkyWalker, our innovation project towards a new disruptive wind turbine service machine, which we are developing. We have seen a significant expansion of Nekkar business activities over the last year from being primarily a Syncrolift-only company in the first quarter of 2023 to today's situation where both the Techano Oceanlift, FiiZK and now also Globetech has been added to the portfolio. And in addition, Syncrolift continues to grow organically in the same period. In Nekkar, we believe in a structural approach to both organic and inorganic growth as well as portfolio optimization. And this has led to approximately a doubling of the revenue of Nekkar in the period from about NOK 100 million in the first quarter of 2023 to now over NOK 200 million in the second quarter if you include both FiiZK and the Globetech revenue. And on top of this, we also continue to grow this Syncrolift with double-digit figures. The Nekkar portfolio is focused on ocean-based industries and more specifically, targeting 4 business segments, as you can see illustrated here. Syncrolift, primarily a shipyard business operator. Techano Oceanlift, both for renewables, aquaculture and the offshore energy industry. Intellilift, delivering to all Nekkar companies in addition to the offshore energy segment, and also now Globetech as a service provider of connectivity and software solutions for the maritime industry. FiiZK is a pure-play aquaculture player and SkyWalker targeting the offshore wind turbine service market. So let's move to the highlights for the second quarter. In the second quarter of 2024, revenue grew with about 14% year-over-year to NOK 250 million, and the EBITDA came in at NOK 20 million, which represents a 13% margin. The margin in the quarter was somewhat weaker than previous quarters due to project mix in Syncrolift as well as higher share of revenue from Techano with lower margins. Our strong financial position continues with NOK 227 million in cash, 0 interest-bearing debt and favorable loan facilities. The backlog is solid at NOK 725 million going out of the quarter. And finally, the earnings per share is slightly up from last year's second quarter, mainly due to positive results from FiiZK in the second quarter, which is now a profitable company. Let's move to some operational highlights. Syncrolift continues with good project execution and reports continued high tender activity even though no major orders were signed in the quarter. Intellilift continues to finalize the installation at the supermajor oil and gas customer for the InteliWell solution. And additionally, we are glad to say that we have teamed up with Salunda for safety application integrations for the drilling and offshore industry. Techano Oceanlift is progressing well with its 2 cranes under production, and the commercial team is also experiencing high market and tender activity. For SkyWalker, which is an innovation project, we are working on establishing a partnership to both validate and finance and commercialize SkyWalker for the coming years to come. And in FiiZK, we have conducted and finalized the strategic review, which has resulted in the divestment of FiiZK Digital and FiiZK Protection, which I will explain to you more about later on in the presentation. In the second quarter, we have seen solid sales of NOK 150 million, which is an increase of 14% year-over-year. The EBITDA of NOK 20 million represents a 13.4% margin, which is slightly lower than the average we have seen in the recent quarters, reflecting both the project mix in Syncrolift an Intellilift, some currency effects and also increased contribution from Techano Oceanlift with softer margins. Looking at the first half figures for 2024, we see that revenues ended at just above NOK 300 million, an increase of 29% year-over-year. The EBITDA was NOK 50 million, which is up from NOK 48 million in the first half last year, which is a margin of about 17%, which is more in line with historical averages for Nekkar. The order intake in the second quarter was NOK 15 million and mainly coming from Syncrolift services. And the order backlog is at NOK 725 million, which provides good visibility for the coming quarters. So let's move to our portfolio companies and a business update for each of them. So with Syncrolift, on the market and sales side, there has been no new large contracts won in the second quarter. The tender activity remains high, driven by geopolitical uncertainty. There has been 1 lost project in Q2 and 1 in Q3, and we believe strategic and political reasons is the main factor. We do not see the competitiveness of Syncrolift solutions and the price competitiveness being changed from previous quarters and years. On the financial side, we have a 5% revenue growth versus the same quarter last year. And the EBITDA margin remains healthy but are somewhat affected by project mix and phasing of projects, which is the nature of a project-driven business and organization. On the operational side, we have good progress on all projects. In August, we have now hand over the shiplift project in Cochin, India. And we are now finalizing the commissioning in Dubai for transfer systems, which will be completed later on this year. Going forward, we still see a good outlook for the activity level for Syncrolift. As you can see on the backlog side, there is a total backlog of NOK 662 million for Syncrolift, and about NOK 460 million of these are to be executed in the remaining of 2024 and in 2025. The tender activity is still very hot and still a good and strong tender pipeline. And we estimate, as you can see, that there still will be contracts of NOK 2 billion to NOK 3 billion, which are to be awarded over the coming 2 years. And we are confident that Syncrolift will secure a significant portion of these awards. For Techano Oceanlift, which is our offshore lifting and handling provider, we have high tendering activity. And we hope that we can, in the future, sign new contracts for the portfolio of Techano. The financial growth in terms of revenue continues as project execution now is progressing on the 2 projects, which are being executed in Techano. The margins are positive but somewhat soft due to market entry projects, which are needed in order to establish Techano as a trustful and competitive supplier in the business. And on the operational side, it's the 2 projects, which are now progressing well in terms of delivery to the Sefine Shipyard and the end customers with Subsea and Eidesvik. Moving on to Intellilift, our industrial software and automation provider. On the market and sales side, the tendering is ongoing for several drilling controls and automation projects. And in addition, we have signed a cooperation agreement, the U.K.-based technology company, Salunda, which will combine Intellilift's automation technology with Salunda's safety applications, which will open up new markets for both Intellilift and Salunda. The financials for Intellilift in the quarter is primarily driven by external drilling projects with decent EBITDA margins. And on the operational side, we are now close to finalizing the new rig installation, which we have reported on before on behalf of InteliWell. And the customer has purchased the system, and we hope that, that will progress well in the coming months to come. Moving on to FiiZK. The turnaround is progressing well and actually today is marking 1 year of Nekkar ownership in FiiZK together with BEWI Invest as our partner. And I must say that the business case has significantly improved compared to the time of entry 1 year ago based on our initiatives and execution, which have been taken. And we are glad to say that FiiZK had a profitable second quarter of 2024, which is in line with what we have communicated earlier on. As reported, we have now sharpened the strategy to focus on closed and semi-closed sea-based systems to tackle the key challenges facing the industry. And we have launched new and improved designs for these markets. And we are tendering with high activity and are positive on the growth outlook for these products. Also with this refocusing, we have now divested the non-core business units to strengthen balance sheet and ensure strategic focus. And in, with FiiZK Digital, we sold to Bluefront Equity in -- at the end, which was announced at the end of the second quarter, and the transaction has now been completed. On FiiZK protection for the lice skirts, we announced in the start of August that we have sold that to the Icelandic company, Hampiðjan, and the transaction is expected to be completed now within this third quarter. As these, both the complete and closing of these transactions are in the third quarter, all the financial effects of these transactions are not included in the second quarter, but of course will be included in the third quarter. And on top of this, we continue to build the organization, streamline the organization in order to be a profitable and good execution company in the future with Jan Erik Kvingedal as the new CEO. On top of this, I would just add and share some recent media and events supporting the new FiiZK focused strategy. Some examples here only. We see Canada [ West ] banning open cage farming in a few years to come. In Norway, we will, this year, have the presentation and the launch of the miljøfleks zoning which will be centered to Stortinget within 2024. And we also see farmers starting to invest more heavily in new, more sustainable solutions. And of course, this is also due to the fact that we see that consumer and population view on the way the industry is operating today is declining, meaning there has to be changes and actions taken. All in all, these and many others are, I would say, positive examples of that solutions in terms of more sustainable fish and [ fueled ] welfare cages will be part of the aquaculture industry. And as an example, on the left, you see an illustration of 6 closed cage Protectus solutions being in the water. And on top of this, FiiZK is also now marketing a semi-closed solution called FlexiCage with lower CapEx and improved operations compared to fully open cages, meaning you will have a variety of solutions in order of -- taking it more sustainable but also with various CapEx investment levels. So let's move to Globetech. Before going into the summer holiday, we announced the acquisition of Globetech. Globetech is a full-service maritime IT solution provider that serves both vessel owners and ship management companies across the globe. And the company offers a complete solutions for onboard IT infrastructure, connectivity, communication and system integration for satellite communication. And they're also a provider of software and security solutions to ensure efficient and secure operations on board. Like Nekkar, the company is located in Kristiansand in Norway and employs about 30 people. And I would say we are exacted to include Globetech as part of the Nekkar Group and we have worked upon this for the last 0.5 year or so. Globetech has demonstrated profitable growth since it was established in 2011. And now with more than 150 vessels under management, the company is expected to deliver around NOK 75 million in revenues and with a 20% EBITDA margin. And also, even though the figures are not part of Nekkar as of the first half, Globetech are on track to deliver these estimates this year. And with Globetech, the team has been able to develop a niche market position with focus on maritime IT solutions and long-lasting customer relations which translates both into recurring revenue models, solid margins and low churns. And all of these are positive and valuable factors that Nekkar has perceived as high value in our acquisition of Globetech. Globetech will represent a new digital platform for Nekkar and is well positioned to meet, develop and solve the digitalization megatrends that will transform the shipping industry in the coming years. These being both satellite build-out, it will be IoT sensors and connection of equipment on board and of course, also cybersecurity, which are now part of the daily operations for a shipowner. So in sum, Globetech's both proven operational performance, the strong growth and its current position will -- it means it will be a good valuable adder to the Nekkar portfolio. In terms of the deal structure, as a first step, Nekkar has now acquired 67% of Globetech, and the transaction was completed last week. The company is valued at an enterprise value of NOK 120 million on 100% basis which translates to a multiple of 7.7x last 12 months EBITDA. The transaction was settled with NOK 66 million in cash funded from our balance sheet and 15 million shares, funded from our treasury shares, which we acquired through the buy program over the last year or so. And in 2027, Nekkar will acquire the remaining 33% of the outstanding shares based on a multiple of achieved EBITDA in 2027, meaning we have aligned incentives over the years to come with the key management team. So let's finalize with financial updates. Firstly, on the revenue side. As I mentioned, the revenue for the quarter ended at solid NOK 150 million, which is up 14% on the same period last year. And the first half sales is just above NOK 300 million, which is up 29% year-over-year. Syncrolift lift, as you can see, continues to be the main contributor, but of course, with large or overall contribution from both Intellilift and Techano compared to last year. Please also note that the FiiZK figures are reported on the net financial items are not included in our revenues and EBITDA figures. On the profitability side, the EBITDA closed at NOK 20 million, which is a decrease of NOK 5 million compared to second quarter last year. However, the first half EBITDA is up versus last year. As already mentioned, EBITDA margin in the quarter are affected by both project mix in Syncrolift and Intellilift, some currency effects and also higher revenue contribution from Techano Oceanlift. The second quarter net financial items are, as I said, driven by Nekkar share of its quarterly profit and at NOK 5 million. Please note that the divestment of the 2 companies in FiiZK will be reflected in the third quarter of Nekkar. And based on this, the net profit for the third -- for the second quarter this year is also in line with last year's figures. And as you can see, the earnings per share slightly up from last year's second quarter. In terms of CapEx, the net capitalized development costs amounted to NOK 8 million in the second quarter with an NOK 11 million for the first half. And so far, we have not received any soft funding this year. At the end of the half, I would also like to share some key highlight figures for each of our portfolio companies, which we present on a half year basis. As you can see, Syncrolift delivered a solid first half with NOK 250 million in revenue, which is an 18% year-over-year growth and a strong EBITDA margin of 25%. So Syncrolift continues to show good project execution and has a strong continuation in terms of aftermarket service and business growth. Intellilift first half revenues were NOK 19 million, which is in line with the same period last year. And the EBITDA margin of 17% and reflects a strong first half but also some different projects compared to the same period last year. And finally, the Techano Oceanlift, despite being newly established, Techano generated revenues NOK 41 million in the first half with positive EBITDA margin of 6.5%. And as mentioned, the lower margins reflects the position as a newcomer, and we expect that to improve and develop as a delivery and track record are increasing. Moving on to balance sheet. We see that the financial assets, about NOK 47 million, are linked to the investment in FiiZK from about a year ago. And in terms of working capital, at the end of the second quarter, we had just over NOK 100 million in working capital, which is a reduction of NOK 17 million compared with year-end 2023. The working capital is mainly related to project in Syncrolift and accrued invoice production will convert to cash over the coming ones as the project with invoicing milestones and furthermore, invoices reach payment date. The equity and the debt situation continues to remain unchanged, no interest-bearing debt and a solid equity of NOK 446 million representing a 69% equity ratio. Turning on to the cash flow. As you can see, the cash from the business side is positive at a strong NOK 46 million in the first half of 2024, driven by a solid EBITDA and also a somewhat reduced working capital. The net cash effect from the share program is negative at NOK 13 million in the first half, driven by the purchases of treasury shares of about NOK 16 million. So in summary, total cash inflow in the first half was NOK 33 million, and our financial position remains robust. The available cash reserve of NOK 227 million together with the credit facilities gives good operational stability and strategic flexibility. And finally, I will give a couple of comments on our capital allocation strategy. And of course, as we also now are showing signs of -- we still see several opportunities to grow our business, both on organical investments and also M&A for new business within our defined segments. Since we launched our buyback program in late August last year, we have acquired almost 3 million shares at an average price of close to NOK 9 per share. And the total cash spending related to the program has been NOK 27 million in the period. And now roughly half of these shares are utilized as part of the Globetech acquisition deal structure, as I mentioned to you earlier. As you also have noticed, we continue with the buyback program, which was renewed now in Q2, and the program is managed and outsourced to Pareto, which takes independent decisions on the execution of the program within the MAR regulation. So before we round off and move to some Q&A, I will make some conclusion remarks. We see a strong revenue in the quarter, and we maintained a healthy backlog, and we also see high tendering activity in, I would say, in all our businesses and portfolio companies. The financial position of Nekkar continues to be strong. And also finally, the investment in FiiZK is positioning Nekkar towards more sustainable solutions for the aquaculture industry. So with this, I will round off the second quarter presentation. And I will also just remind you that we have also our financial report for the first half published today. So thank you, and then we will move to some questions.

Thank you, Ole. We've received a few questions. The first one, in your presentation, you showed a slide that showed an expansion of Nekkar's portfolio of companies as well as revenue during the past 12 to 18 months. Will M&A continue a part of Nekkar's growth plan?

I think the answer to that is, yes, we are still active and trying to kind of use that as an active tool. And of course, first and foremost, it's of course, to develop the companies we have in our portfolio today, growing them organically as you have seen with both Syncrolift and also Techano Oceanlift after they come in but also to kind of expand the Nekkar portfolio and see where we can acquire new companies, which can also have synergies to the existing portfolio, like FiiZK acquisition was a good match with what we have started on with Starfish. And we also see for now for Globetech that there are key synergies and opportunities by having a more -- having a stronger ownership and services to the ship owners in the daily operations, which is kind of exactly what Globetech is providing.

A couple of questions about Syncrolift. And I think these two questions are connected. The question is did Syncrolift participate in the tender from Airwing shipbuilding that Bardex recently won? And as a continuation of that question, can you speak a little bit more about the political and geographical reasons you mentioned for Syncrolift closing the 2 tenders?

Yes. So Syncrolift Lift has been part of the Airwing tender and has also -- that has also been a project which has previously been part of the tender portfolio, which is now updated to reflect that loss. Unfortunately, Syncrolift was not awarded the project. And we were quite surprised that Bardex, which has not had many all installed installations in the industry in the last years. It was awarded that project. And when we say we kind of, we believe it's strategy political reasons, of course, we see rumors and some feedback that such a project, which is a Navy project in Canada are heavily linked kind of with the protection of Canadian borders, is -- might be associated with political influences from its neighboring countries. And of course, we believe that's been a key in factor in this project. However, I must say that, of course, we don't have any direct feedback due to that, but that's what we see based on, of course, how we believe our tender was submitted and also the feedback we have received. And as I mentioned, we are very confident that our solution, both technically and also price competitively is a well-received package on the tenders we are working with.

Thank you, Ole. A couple of questions about FiiZK. Could you elaborate on FiiZK's financial position following the recent divestments?

Yes. As these 2 transactions are now completed in the third quarter, we plan to share some more information later on when we published the third quarter figures. Of course, both these companies are sold to -- in -- kind of in a competitive process, and they have resulted in both a reduced debt level in FiiZK and also cash and flexibility in terms of being able to grow the FiiZK portfolio coming as years to come. And in all with these effects, in addition with kind of the focus and streamlining that we believe the FiiZK organization will benefit from, we think this is a good platform now to kind of really stay sharp and really be focused and be a kind of a solid long-term player in more sustainable farming solutions for sea-based sort of -- yes, salmon industry.

Another question about FiiZK, and this is I think this is clarifying an accounting question. Is the quarterly profit of NOK 5.2 million reflecting Nekkar's 39% ownership share? Or is the result NOK 5.2 million, the total net profit for the company?

Nekkar only includes our share of the profit, meaning our 38% ownership share is what's being included in the Nekkar financial items.

A couple of questions about the order backlog and order intake, Ole. Are there any major reasons for the weak order intake during Q2?

Of course, the main reason being we have not signed any new contracts in Syncrolift in the second quarter. And then, of course, as you've seen, we have had 2 relatively good quarters, which we now have put behind us in both first quarter this year and the last quarter last year. So I would say, of course, we would have been very satisfied with the win on, as mentioned, the Airwing project or the Darwin project, but we are still -- we are still confident that we will be winning projects in the future. Also, as you know, we have a large option to the ASMAR Chile project, which is now kind of moving soon into the final purchasing point of time. And of course, that's also a project in sizes of these other 2 projects, which we hope to convert in 6 to 8 months.

A couple of question about the Techano Oceanlifts. Is the Eidesvik Offshore crane contract for Techano the same new building order which is included with an option to build 4 extra vessels? If so, will you deliver cranes for these vessels if the options are exercised? That's the question. And just to clarify, the contract Techano Oceanlift contract is with Sefine Shipyard. And the owner of the 2 vessels are -- is Agalas...

Correct. And they have, Agalas have teamed up with Eidesvik, kind of co-ownership on this vessel. And it's correct to say that there are -- the shipowner, Agalas and Eidesvik has options as you have referred to towards the shipyard. And if they will be executed, of course, we believe Techano is very competitive in terms of delivering unit #2 and hopefully, furthermore, if they will be executed.

Another question about Techano. Are you done with entry price contracts for Techano?

I would say these 2 ones which we are now in execution has been kind of somewhat special. It's always so that the first, and you could say, the first and the second, is -- has kind of -- we need to be very sharp. So of course, as we now will deliver these and they will go into operations, we are kind of confident that we can also, both in terms of execution, sourcing, of course -- reducing also number of hours when we hopefully can copy projects into the next sales. We believe that all of these together with kind of the strengthening of Techano as a company with both backlog execution and personnel will make us gain higher margins on future contracts.

Question about Globetech, Ole. What synergies do you see with the other portfolio companies for Globetech?

So if you take it on a high level, of course, Globetech is a connectivity, communication and maritime service provider to ships, and a lot of the being renewable offshore subsea vessels. And they are kind of a day-to-day partner to the shipowner, the captain, the crew in terms of maintaining, servicing and operating these ships. And of course, having that knowledge and competence and involvement on a day-to-day basis, we believe, is a key strength. As an example, you could say Techano will deliver cranes to ship owners. The cranes should be connected to Internet and communication in terms of doing maintenance, in terms of doing remote operations and such things. Of course, having the domain knowledge in terms of how the ship communicates, how it interacts and of course, how we make that a cybersecure solution, I will say will definitely be an advantage when we provide our solutions to ship on us. And of course, also, there are some cross-synergies on the sales side. Of course, meeting, you mentioned Agalas and Eidesvik, of course, they would be a perfect customer opportunity for Globetech as they also need those type of services in the future.

Thank you. A question on the financials on the margins. Could you elaborate on the difference between gross margin in previous periods?

On the gross margin side, I have not presented the figures today. So I would refer to this first half report in terms of the details of those developments.

We also have a couple of questions about expectations with regards to profit margins in the coming quarters. I know, Ole, you don't guide specifically on that, but maybe you can provide a sort of a big picture overview of your expectations going forward.

Yes. So general, of course, it's also somewhat hard to kind of to predict quarter-by-quarter revenues and margins. As you know, they are still heavily project execution based. And as we all know, project execution tends to have fluctuations in terms of progress, in terms of different margins realizes in different quarters. I would say that kind of if you look on our first half figures for this year and the first half margins, they are more in line with the historical figures of Nekkar, and it's also what we more look to. And of course, also, we will now have Globetech coming into the portfolio, which will positively influence the mix of revenues. So all in all, we are kind of -- we still see Nekkar as a good profitable company in the coming quarters, but we still will see some quarterly fluctuations.

Thank you. I think that covers all the questions that have come in today.

Thank you. Then we will round off. So thank you, everyone, for listening and see you next time in a couple of months.