Nekkar ASA (NKR) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this fourth quarter presentation for Nekkar. I'm Ole Falk Hansen, the CEO of Nekkar, and I will be joined by Marianne Ottosen, Head of Finance, today for the financial figures for the fourth quarter and for the full year of 2024. As normal, we will round off with some Q&As after the presentation. Let's start with a recap of our strategy and targets towards 2027, which we launched with our last quarter presentation. Our primary focus is ensuring solid underlying operations from our operating companies. This involves profitable results, disciplined capital allocation and strong cash flow generation from the businesses. Secondly, we are committed to continue growing our existing companies through continued development and organic growth initiatives, which strengthens our core operations and enhance overall values to the customers. And thirdly, we aim to create a balanced portfolio by strategically acquiring new companies through M&A. We aim to reach over NOK 2 billion in revenues by 2027 through a diversified and well-balanced portfolio, and we are progressing to meet the target. We plan to expand to 6 to 8 platform companies, creating a more diverse and balanced portfolio. The focus is still to deliver financially solid results from this larger and more diversified portfolio. To the right, you will see the current development. In 2023, we had NOK 575 million in revenues, where the majority or around 90% was from Syncrolift. In 2024, we have grown this revenue with about 45% to NOK 838 million and about 60% of the revenue is coming from Syncrolift. Towards 2027, we aim to grow organically to at least NOK 1.5 billion and adding a fair share of M&A on top to deliver the NOK 2 billion plus target. The Nekkar Group is now consisting of 5 companies in addition to the SkyWalker Venture project, as you can see on this page. So let's look at some of the highlights for the fourth quarter. We had strong cash flow from business in Q4 of NOK 68 million. FiiZK received a breakthrough contract, NOK 100 million for 2 closed cases to be delivered to a leading fish farmer in Norway. And Syncrolift signed a large contract for Haakonsvern and the Norwegian defense project. For the financials, revenue came in at NOK 181 million, which is in line with last year's quarter and the EBITDA ended at NOK 27 million. EBITDA for all companies besides Techano was strong in the quarter with an average of about 20% margin, excluding Techano Oceanlift. Net profit of NOK 15 million in the quarter, mainly impacted by negative FX effects and positive contribution from FiiZK. Nekkar still maintains a strong balance sheet with solid cash of over NOK 200 million and no debt. And the order intake was NOK 187 million in the quarter, driven by the Syncrolift business. And please note that the FiiZK order intake numbers is not included in those. Looking at the full year of 2024, we see that the reported revenue ended up at NOK 624 million. And please keep in mind that Globetech is only included with 4.5 monthly figures and FiiZK is not included. EBITDA was NOK 92 million, which is a reduction of 16% compared to last year, mainly impacted by the Techano Oceanlift results. The order intake were NOK 187 million in Q4, as I mentioned, primarily coming from Syncrolift and the backlog ended up at NOK 744 million. The majority of the backlog related to Syncrolift and a bit less than NOK 100 million is from the remaining companies. And again, FiiZK numbers are excluded. So let's move over to some business updates. We start as normal with Syncrolift, the leading shiplift and transfer system provider. And as you all know, the contract from the Norwegian Defense System was a key contract being awarded in the fourth quarter. We are still involved in several tenders. And as we have commented on earlier on, we see high tendering activity, driven by geopolitical uncertainty in many countries, impacting especially Navy. We expect new build contracts to be awarded in 2025. For the financials, 2024 revenue is in line with 2023 and the lack of growth is due to the loss of projects earlier on in 2024 as we have reported on. Service revenue is on a stable level, and we have a strong EBITDA margin of 24%, which underlines Syncrolift's market-leading position. For the operational part, we are progressing the execution of the new projects, especially with PT Pal in Indonesia, where fabrication has started and we have completed the Haakonsvern engineering. Furthermore, the concept studies for Asmar is also in the final phase of delivery. As already mentioned, we believe that the contract for the Norwegian Defense underlines our competitiveness in the naval sector. And especially also here, a key point where to deliver both a horizontal shiplift and a vertical transfer system. Syncrolift won this project on a pure price commercial reasons, and we are also happy that we have been awarded a project on what we believe are healthy margins. So let's recap again. Syncrolift is uniquely positioned to capitalize on the growing naval industry investments. And we believe as the #1 provide modern and failsafe shiplift technology, we are the only integrated provider of shiplift and different ship transfer system solution. And this combination is unique in order to meet customer preferences for both efficiency and safety. And as I mentioned on Haakonsvern, the package of both 2 systems, we believe is a key differentiator. Finally, we are the market leader in naval contracts and especially for submarine projects, we have a 90% market share and 15 installed systems. Going forward, the global defense market is expecting a continued momentum in the coming years, driven by the political instability. On this slide, you will see several data points supporting this growth. And looking at the right-hand side, you see a published McKinsey analysis on the coming growth in the global naval market. And we see that the spending is fairly distributed across the regions and that Asia Pacific shows above market growth followed by Europe. And we believe this is positive also for Syncrolift's position. And finally, I would like to say that we believe being a European supplier of shiplift is a good origination in today's global society and increased uncertainty. Moving on to the outlook for tenders and backlog. We believe we have a good outlook for the activity level, both supported by the backlog of over NOK 600 million and from the tendering activity in the new-build upgrade segment. And we estimate that around NOK 2 billion of tenders are to be awarded this year, and we are confident that we will receive a significant portion of these awards. Finally, with Syncrolift, we, on a yearly basis, also publish our service strategy figures. And as you can see, service strategy in Syncrolift continues to pay off, and we ended the revenue at NOK 92 million. Actually, the revenue expectations were somewhat higher, but some revenue slided into 2025, and we expect a very good momentum in service in 2025. Service revenue represents now 19% of total revenue, and we are well within our previous targets to go above 20% of revenue for the coming year. So let's move from Syncrolift to Techano Oceanlift, our offshore lifting and handling technology provider. We see that tendering processes are still dragging out in time, but we still see a handful of projects to take place, which we are heavily involved in. Revenue and margins in 2024 were impacted by lower order intake and one-off costs for new deliveries where we had market entry projects required to establish customer trust in the company solutions. Hence, our pricing were lower than market pricing. We still have positive gross margin from the business in 2024, but the overall volume and the fixed cost base contributes to a negative EBITDA margin of minus 12% in 2024. On the operations side, the execution of the existing contracts continue closing in on delivery, whereby the first crane project will be delivered within very short time. Moving on to Intellilift, our industrial software and automation provider. Intellilift, just recently, we have been awarded a NOK 10 million contract with an oil company to remotely drill through a digital twin by the use of Intellilift simulator and integration of third-party software. And this award took place now in 2025. The Hanwha project, which Intellilift worked a lot on during '24 is now successfully installed at the drillship in Korea, demonstrating Intellilift's capability as an integrator on a drilling rig for both control system and HMI system. And we are glad that actually this week, a new contract to now also do automation preparation for this rig has been awarded to Intellilift from Hanwha. Additionally, we still continue tendering for drilling automation, simulators and drilling controls to various group of customers around the world. For the financials, the revenue last year were primarily driven by external drilling projects. And as I mentioned, the Hanwha project was the key contribution. Especially this project, but also other projects has a large development scope, including in it, meaning impacting margins and the scale of business in 2024. Still, we are positive that 2024, delivering new developments, delivering projects to customers and having an EBITDA margin of 12% is a good year for Intellilift. Moving on to Globetech. And as you know, the transaction was closed in the mid of August last year, and the financial figures are consolidated from this date and onwards. We are very satisfied with the commercial and financial developments since that time and we are very proud of Globetech delivering 2024 revenues of NOK 93 million, which is a solid 30% year-over-year growth. The EBITDA came in also strong with 24% and both revenue and EBITDA is well above our expectations and our business case for Globetech from the date of entry. And also for the transaction, the final enterprise value EBITDA multiple is now firmed up at an attractive 5.5x, whereby we include also a price adjustment for achieved results in 2024. Now Globetech and supported by Nekkar focus on both organic and inorganic growth activities to grow the core business through 2025 and the coming years to come. So let's end off with FiiZK. As you all know, we had a breakthrough contract for delivery of 2x Protectus, which is the closed cage solution to FiiZK to Norwegian fish farmer in the fourth quarter. And we see also now a significant market interest in closed cage technologies, especially for the post-smolt production philosophy that several fish farmers are taking into use, and I will share some more about that afterwards. For 2024 financials, I think you should keep in mind that 2024 financial is a very special year as we both divested majority of the other businesses, Protection and Digital and also that we had not started up any of the new projects last year for closed cages. But the 2024 operational revenue came in at NOK 158 million and a net profit of NOK 85 million, primarily driven by the positive divestment transactions. From Q4 onwards, the primary business is related to the closed cage technology, which is kind of the core business for FiiZK. And no revenue on the new contracts were booked in Q4. They were started up now in January. So the effects of those will come from January onwards. Finally, we believe that the stability and the growth in FiiZK is now kind of in place. And we believe with start-up of new contracts, also interest of additional tenders, it's a positive outlook for the company. I think very short, these are kind of the key differentiators and key benefits of using closed cage solutions in sea. FiiZK has commercially ready solutions with good business cases for farmers to invest in. And we see many looking into these benefits in terms of evaluating the solution from FiiZK compared to other technologies and also more traditional technologies. And in December, the government proposed allowing fish farmers in the production zones to regain reduced production capacity if they use such zero emission technology. And we are glad that FiiZK meets all the requirements of the proposed new regulations. Hence, fish farmers could regain the lost capacity in these red regions by taking the solutions into use. And we have several dialogues ongoing with fish farmers in order to capitalize on this. I mentioned the post-smolt production strategy and several fish farmers are evaluating utilizing a targeted post-smolt production method. Traditionally, 100-gram smolt are brought from onshore facilities directly into open cages for the remaining rollout period. By leveraging post-smolt production in closed cages, the 100-gram smolt is brought up to around 1.3 kilo in closed cages, providing a superior and more robust post-smolt that can be put into the open cages. And this leads to shorter time in open sea and larger and more superior fish for harvest. And as reported by Mowi in this article, the post-smolt strategy is already getting traction and results. And key results includes no dealer housing, high superior share and a very low mortality. So with this, let's move over to some of the financial figures for the fourth quarter and 2024. Marianne, please.

Hi, everyone. I'm Marianne Ottosen, Director of Finance in Nekkar. [Audio Gap] look into our financial performance. And I will start off with some revenue highlights. We are happy to report a record high revenue of NOK 181 million in Q4, up 1% from the same period last year. While Syncrolift had slightly lower activity compared to Q4 2023, Globetech delivered a solid NOK 28 million in revenue. For the full year 2024, we also hit a new record with NOK 624 million in revenue, an 8% year-over-year growth. Syncrolift is still our main revenue driver, but we are pleased to see stronger contribution from other operating companies, totaling NOK 53 million this quarter. Moving on to profitability. Our EBITDA margin remained healthy at 15.1% in Q4 2024, though reduced from 18% in 2023. Syncrolift and Globetech delivered solid margins well above 20%. However, Q4 '24 margins are negatively impacted by the mentioned market entry pricing and cost overruns in Techano. Apologize for some technical issues. Now at year-end, I would also like to highlight some key financial figures for each of our operating companies. Syncrolift delivers a solid revenue of NOK 492 million in 2024, in line with 2023 levels. The EBITDA margins remained strong at 24% versus 26% last year. Syncrolift continues to show good project execution together with a continued strong contribution and margins in the aftermarket business. Intellilift had revenues of NOK 44 million in 2024, which represents a 29% increase from last year. The EBITDA margin of 12% versus 18% last year reflects somewhat lower margins on external drilling projects as these projects include technology development with long-term potential. Techano Oceanlift delivered revenue of NOK 64 million, representing a 109% increase compared to 2023. As mentioned, lower margins reflect Techano's position as a newcomer in an established industry with market entry pricing on its first 2 crane contracts. In the second half of 2024, Techano faced cost increases related to 2 new prototype cranes, further impacting margins. While gross margins remain positive, the combination of these cost increases, no new large contracts in '24 and a fixed cost base resulted in negative EBITDA in the second half of '24. However, we expect margin improvements over time as new orders come in, more repeat contracts are secured and our technology becomes more proven. And lastly, Globetech, which became a part of the Nekkar Group in the third quarter of '24. Including pre-acquisition figures, Globetech delivered revenues of NOK 93 million in '24, up from NOK 71 million in 2023, which represents a strong 30% year-over-year growth. EBITDA margin ended at solid 24% for last year, a significant improvement from 15% in 2023. Then let's look at our balance sheet and starting off with our assets. Nekkar has intangible assets at the end of 2024 of NOK 202 million, with NOK 160 million of this increase compared with 2023 related to the acquisition of Globetech, while the remaining relates to capitalized development costs. The financial assets are mainly related to the FiiZK. As of Q4, these investments accounts for NOK 81 million and equals Nekkar's share of FiiZK equity and some goodwill. Moving on to working capital. Working capital ended at NOK 57 million at year-end, a solid decrease of NOK 62 million compared to Q3, driven by prepayment in Syncrolift projects. Trade receivables are primarily also related to Syncrolift projects with a large portion already converted to cash. Derivative financial instruments also contributed to the working capital reduction. By the end of '24, our hedging contracts had a value of minus NOK 11 million compared to a positive value of NOK 4 million at the end of Q3, reflecting the depreciation of NOK against USD in Q4. Working capital fluctuations are expected also going forward due to project execution timing. Nekkar's total balance sheet amounted to NOK 819 million at the end of 2024. We still have no interest-bearing debt and a robust equity of NOK 497 million, representing a solid 60% equity ratio. Nekkar has made a long-term provision of NOK 34 million for the estimated cash payment required to acquire the remaining 33% stake in Globetech expected to be made in 2028. And lastly, looking at our cash flow. Net cash flow from business operations, which is cash flow excluding buybacks and M&A, came in strong at NOK 68 million for Q4 and NOK 111 million for the full year. This was driven by solid EBITDA in combination with a reduced working capital level in both Q4 and the full year. Cash flow related to CapEx and fixed assets was minus NOK 8 million in Q4 and minus NOK 25 million for the full year. The net cash flow from the buyback program amounted to NOK 22 million in Q4 and NOK 45 million for the full year. In summary, our financial position remains robust. The cash reserve has increased from NOK 194 million to NOK 205 million despite the Globetech acquisition and the purchase of treasury shares in 2024. Together with the available credit facility of NOK 200 million, this ensures continued operational stability and strategic flexibility. We are maintaining our strategic focus and priorities as presented earlier. We plan to grow and invest in existing operating companies as well as building a balanced portfolio through strategic M&A. Since launching our buyback program in late August '23, we have acquired more than 6 million shares with total cash spending of approximately NOK 60 million. Around 1/3 of these shares were used as part of the Globetech acquisition, resulting in a remaining holding of about 4 million shares, equivalent to 3.8% overall shares.

Okay. So let's summarize and before we move to the Q&A. We believe we had solid revenue and improved EBITDA in the fourth quarter despite the projected cost overruns and market pricing in Techano. There was strong cash flow as reported by Marianne and a healthy balance sheet remains. And we also had important contract wins with both Syncrolift and also FiiZK and also now also Intellilift for new project deliveries. And finally, Globetech business case is demonstrated with a strong financial results in 2024. And I would also just like to mention that in June, we will also have Nekkar Capital Markets Day in Vestby at Syncrolift facilities, which we also will invite for during the coming months. So with these final remarks, I think we move over to some Q&A.

Thank you, Ole, and thank you, Marianne. We have received a couple of questions from the webcast. One comment. First of all, congratulations on your outstanding M&A and capital allocation decisions. I have a few questions. There is -- and this question is probably to Ole. How predictable and recurring are Syncrolift's revenues? Slide 18 shows that service revenue as a percentage of total revenue has increased from 10% to approximately 18% to 19%. Do you see this as a new plateau? Or is there further room for improvement?

Yes. I think the service revenue in Syncrolift is probably the revenue, which is kind of most stable and most reoccurring in the business as the remaining business of Syncrolift is primarily related to large projects and new builds. And with the service business, we still believe there is a fair potential to grow the business, both in terms of absolute figures and in terms of percentage of sales. And for 2025, we are positive that we will deliver good growth and momentum in service revenue for Syncrolift. And it's a mix of kind of some long-term contracts, some upgrade projects, which are kind of classified as service business, spare parts inspection and training and other such type of businesses. We are also now building out our training academy in Vestby to attract more clients for training and demonstration in our facilities.

Thank you. We have a couple of other questions about Syncrolift. We will do them first. There is a question about, can you say anything about the option for Syncrolift in Chile? I guess that's probably ASMAR Chile he is referring to.

Yes. We -- of course, the option remains. And as I mentioned, we are in the final stages of delivering our concept study, which we have worked upon for about a year's time. And then what we believe that there will be kind of a -- the customer will take our findings in addition to other concept study findings into their kind of evaluation. And we hope that the project will be able to have a conclusion on start-up throughout this year sometime. Whether it's Q2 or Q4, it's hard to speculate on.

Question for you, Marianne, regarding share buybacks. You provided an update at the end of your presentation, but could you share your thoughts on share buybacks for the upcoming year? I assume he's referring to 2025, so this year?

Yes. So the program that's ongoing now will end in May 2025 at the general meeting. We will continue to buy back shares until then we have a frame of NOK 100 million. Whether the general meeting this year and then the Board will authorize a renewal of that program is up to them.

And you could also add that you would, of course, see that the volume has increased quite a bit in the fourth quarter compared to previous quarters due to the higher turnover of shares, which is also affecting the allowable volume that Nekkar is to purchase following the [ model ] regulation framework.

Question on Intellilift. I think it's for you, Ole. Could you elaborate a little bit on the financial impact of the newly signed contracts? What are your expectations on margins?

Yes. It's a good margin project, but what should I say, kind of not a large contract in size. It's around NOK 5 million, NOK 6 million, but it's -- basically, it's the platform for automation, which then hopefully could lead to day rate contracts of SaaS revenue for Intellilift for automation on the rig when the rig is starting up operation later on this year. And it's also -- it's a good contribution to putting Intellilift at the forefront of customers by both having control system and the HMI system on board the rig and now also doing the automation part on the same.

Thank you, Ole. We also have a couple of questions about margins. And just to mention, we don't guide specifically on margins on group or business level, but just if you can probably provide a general comment, Ole. There are some questions about expectations for margins for Nekkar in 2025 and what to expect in margins going forward, especially on Techano, Syncrolift and FiiZK.

Yes. I think if we take Syncrolift first, 2024 figures were kind of -- were good. And of course, there will be some yearly variations due to both project execution, also some due to U.S. dollar depreciation/appreciation. But we believe that Syncrolift will continue to perform good figures also in the coming years. It has kind of a sizable backlog. We have service revenues and we will hopefully sign new contracts, which will generate to delivering and continuing that trend. For Techano, we need new contracts in order to both increase the volume of business and also to get kind of contracts with more normal gross margins included. And we are pursuing a handful of opportunities and we hope that by landing some of these within the coming months and quarters, we will be able to kind of lift the margins back to, I would say, positive figures. It's still, I would say, some time until we will kind of see very decent figures for Techano, but we have a business case and a view that when we kind of get through these market entry, we will be able to also get Techano into a solid margin level. That will still not be on Syncrolift kind of level, which is due to a long legacy and a very long track record but into -- which we believe is representative within the portfolio.

Question about Globetech, ole. The growth we are seeing in Globetech, can you say something about if this is the type of growth we are also going to see in the future as well?

Yes. I think if we look on especially Q4, Q4 was also a very busy quarter for installation on board new ships or changing out equipment on existing ships. So there was a very high hardware component in Q4 as such. And I think that was probably extraordinary in that quarter on a stand-alone basis. Globetech will continue to grow also in 2025. And we believe there will be kind of a good growth case organically and hopefully also some inorganically with Globetech in both '25 and the coming years.

Thank you. Another question for you, Ole, about actions. It's 2 parts to the question. One, are you looking for new acquisitions outside of Norway? And secondly, what are you looking for in your next acquisition? Do you want to diversify more into geographical or industry basis? Or do you take into account anything that makes sense from industrial and financial perspective?

Yes. I think in terms of geography and kind of regions, I would say we are primarily looking within the Nordic or North European regions. And that's due to the fact that's where we have the largest network. That's also where we are the mostly known, and we also believe there are several interesting companies and technologies. But of course, that doesn't rule out other things, but that's the primary. In terms of M&A, you could say it's either as a complementary add-on to one of our existing operating companies or it is a new platform company like Globetech was the case for. In terms of new platform companies, of course, we are looking for ocean-based technologies. And within that space, we have also defined some teams where we are especially looking for companies due to the fact that we believe there are interesting megatrends and also we believe there are companies that kind of can deliver on those. So -- and in terms of companies, I would say we are looking at kind of companies with some track record, which are having revenue and positive EBITDA figures and where Nekkar could act as growth and strategic active owner for the long-term horizon.

Thank you. Another question about Syncrolift's tender pipeline. There is a comment here, approximately NOK 500 million have been moved from '24, '25 since the Q3 report. Is that lost contracts or have projects been pushed into 2026?

The latter. We don't have any known lost contracts in Q4, but there are fluctuations in timing. So that's the main reason. And there could also be some projects being moved ahead in time, some projects moved further out in time.

Thank you. There is another question regarding future growth opportunity. There seems to be significant upside potential in reaching the NOK 2 billion target for 2027. Could you provide some insight into which divisions that will drive that growth?

Yes. I think by kind of launching these targets, of course, we have done this based on our internal business cases, but then also giving some overall guidance on the figures. And of course, if you look on the portfolio today, Syncrolift, of course, will still be a dominating factor of the 2027 revenue, but the amount or the growth figures in percentage will be lower than the other businesses due to the fact that it's a more mature and stable market. But in terms of absolute figures, Syncrolift will deliver a fair share of the revenue growth. And then in addition, we have also included FiiZK in this number, as mentioned. So of course, FiiZK will be a key growth driver on this in addition to kind of continuing the growth of Globetech, scaling up Intellilift and getting Techano from kind of market entry into a more stable state position. But I don't want to kind of give the breakdown of the NOK 2 billion besides what we have said here, about NOK 1.5 billion organically and NOK 0.5 billion inorganically.

Thank you, Ole. A question about U.S. tariffs. Does U.S. tariffs or proposed tariffs affect you in any way and the shareholders, particularly then refer to Syncrolift?

Yes. It's, of course, the tariffs and the speculations on the tariffs is almost changing day by day or at least week by week. We feel, as I mentioned, it's a stronghold for us now being European. And also, we don't see a large market within the U.S. in terms of new projects. Hence, we should be less dependent on kind of whatever tariffs that will be imposed by U.S. towards us as a Norwegian or European member country. And that's -- and then we believe it's good to be independent of the U.S., whereby we can supply projects hopefully, without trade tariffs to most other countries. And we are seeing some kind of speculations and interest of customers, which are kind of wondering what the outlook will be for U.S. And of course, as many know, our main competitor person is a U.S. company.

Another question about tender backlog -- sorry, backlog tender pipeline for Syncrolift. I know, Ole, you don't normally want to go into specific project details, but the question is, can you say a little bit about where the NOK 2 billion pipeline in Syncrolift is coming from, which big projects are being tendered this year?

Yes. I think what I could say is that -- we believe that the kind of the 2 key regions are Middle East and Asia. I think that's where we see the most number of projects being kind of brought to place, including also one in South America as ASMAR is located there. So -- and that kind of goes with my other argument that kind of the North America region is not the place where we see many projects in the foreseeable future. And that we believe that kind of supports our position where our stronghold is today at the moment. In India, we have just finalized 2 major projects. In Dubai, we have several projects over the last year and 2. So we have many good reference cases to kind of show to in those regions.

Thank you and sorry, Marianne, there was very few questions for you today, which I can only assume that your part of the presentation was crystal clear. But yes, there are -- I think we have covered all the topics that we have received questions on. So with that, we will [Audio Gap].