Hav Group ASA

OSE:HAV

Earnings Call Transcript 2023-Q1

[Gunnar Larsen, executive]

Good morning, and welcome to HAV Group ASA's first quarter presentation. My name is Gunnar Larsen. I'm the CEO of HAV Group. Together with me today have Marius Koksvik, Vice President, Business Development, which will be presenting the financial details.

We will give you an insight in the highlights of Q1 and for HAV Group in general. We will speak about the mega trends and strategies that affects HAV Group. We will give a little bit more detailed business update on each of the segments and product areas in HAV Group. More insight on the financials.

We have a summary and outlook session before we stop with the Q&A session at the end. So there is still possibility to click in on link and ask questions during the presentation, and we will [Audio Gap] after the presentation.

HAV Group ASA is an enabler of the green transition at sea. We are an international provider of green technology, and we consist of 4 product segments or companies which have decades of experience in delivering maritime technology, especially with regards to energy optimization and emission reduction. Our vision is to contribute to a sustainable future at sea. And we are specialists in guiding the maritime industry into the green transition and towards zero emissions.

Q1, the figures, we had an operating income of NOK 110 million. We had an EBIT of minus NOK 15.7 million. The profit before tax was minus NOK 13.2 million. The cash balance is NOK 240 million. And we have an external backlog of NOK 614 million. That means a book-to-bill of 2.2.

Of the key developments and -- with regards to Q1, the revenue is quite affected of the lack of sales and low order intake in 2022. As we have spoken in previous presentations also, we have been affected by the COVID and also the Ukrainian Russia war. So that also affects the first quarter of 2023.

The weak EBIT is partly because we have maintained our capacity based on the future opportunities, the market possibilities and the trends that we see. So we maintain high capacity working towards getting new orders and developing new technology. The quarter is not quite representative to what we expect for the whole year as we see that the good order book and also very good sales pipeline is prospecting higher activity for the remaining year than the first quarter.

On a very positive side, we had a very good order intake in Q1 and -- of NOK 240 million, a book-to-bill of 2.2. And these contracts includes the ship design area, where we had the breakthrough in the U.S. on the offshore wind sector, the signing a vessel for CREST in the U.S. And in the energy design and smart control area, we had contracts for 2 SOVs with electric propulsion, battery, automation and navigation and communication systems. And we also had an upgrade of superyacht.

Another important milestone was also the Approval In Principle for the hydrogen-based energy systems with an energy Zero Emission Pod, which is a containerized plug-and-play energy systems that can be used both in boards new buildings and for retrofits of vessels.

Also following the quarter end, we announced an acquisition of Undheim Systems, which is important in our further digital strategy for the company. And we also published our first ESG report in this quarter.

So we are very well positioned towards what we see are the mega trends in the shipping industry and in the maritime industry. Here represented by 2 graphs. We see that the prospects or the projections for installing new wind turbines worldwide, it's very big and also gives a huge demand for new service vessels for this sector. So we have extracted what we have projected the need for service vessels for only Northwestern Europe and North America. And you see from this graph that in the coming years, there shall be built a lot of vessels, and we are very well positioned as we have a quite leading position in designing ships for the offshore wind sector and also equipping with systems.

On the right side is a projection of the age of the world fleet. And we see from that, that one, there is a big need for new vessels because of the aging of the fleet, the low order of newbuilds the last -- latest years and also the scrapping, but we also see that the new vessels that will be coming out will need new technology in order to reduce emissions and also reduce energy consumption.

And also some of the vessels that are newer might be retrofitted and we have also systems for retrofitting new technology into existing vessels. So we are very well positioned to leverage the green tech maritime mega trends.

We want to take a role as an adviser. We want to be in discussions with ship owner and the cargo owner at a very early stage to advise them on what kind of technology they should use, what kind of vessel parameters they should apply in order to satisfy their requirements with regards to efficient operations and also environmentally friendly operations.

We are pioneers in designing zero-emission and low-emission vessels. And we also deliver energy systems and automation systems that support zero emission. We also take care of the cleaning of the water and the emissions to water by our water cleaning technology in one of our product segments.

So what makes us unique or competitive is that we have all these different type of technology and knowledge in-house and combining them and this complementary technology and the competence, we are able to provide higher value to our customers. Then if you should do this separately with companies having separate technology.

So our group is aimed to enable the green transition at sea. We have 4 product areas or subsidiaries with leading positions within their respective segments, being ship design, energy design and smart control systems, hydrogen-based energy systems or water treatment systems.

Combining these, we are able to provide optimal solutions for shipowners and cargo owners, optimizing efficiency, safety and environmental issues.

Within ship design, as previously mentioned, one of the highlights from, Q1 was the breakthrough contract for the first European designer designing service vessel for the American offshore wind industry. We feel that this is a breakthrough that is important for HAV also because it is a big potential following together with our very good customer and partner, Esvagt into this market. And we have high hopes that there will be more. And that Esvagt will take together with us, a large part of the coming new building orders for the U.S. market. And there is a big need for SOVs as the new wind turbines are being installed in U.S. waters.

In general, the ability for HAV design -- to design and optimize low and zero emission vessels is also very much in line with the demands that will be in general for different type of ships worldwide. So we are leading within offshore wind, electric ferries and aquaculture vessels, but we see that we can utilize the same technology also in different markets.

For the energy design and smart control systems, the order intake was also very good in Q1. 2 SOVs, the Cemre Shipyard in Turkey for GC Rieber Shipping, a large order. And also one of the other good orders was to do a system integration and upgrade and a super yacht.

The acquisition plan -- the acquisition of Undheim Systems is very much in line with the strategy that we have to develop and deliver functionality -- digital functionality with regards to decision support and autonomous functions on the vessel. So the DP is a very important factor with regards to establish a semiautonomous and autonomous function to keep the vessel positioned, for instance, when docking, a key.

So the acquisition of Undheim will enhance and also speed up the process that we have with regards to delivering -- being able to delivering this type of technology. A very big milestone for the hydrogen-based energy system sector was that we had the Approval In Principle for the Zero Emission Pod, which, as I said earlier, is a containerized plug-and-play hydrogen energy system that can be placed outside on the vessel. And it's very easy to incorporate because all of the systems are already installed in the container and the approval of the system is taken care of. And the production also is in a very controlled environment.

In addition to the containerized version, we also have special knowledge in advising and also designing and improving hydrogen-based energy systems integrated into the vessels. We see that there is a huge potential market only for the Zero Emission Pod also. Up to maybe more than 10,000 vessels can be a potential market. And we are also in this segment, advising customers which type of vessels sailing, in which type of operations can be optimized with regards to using hydrogen as an energy-based -- energy carrier.

For the water treatment systems, we see a steady business continuously more of the water -- the ballast water treatment systems is coming out, also generating a continuously larger and recurring business with regards to the aftermarket services. There was a solid order intake in the quarter, and we see a growing order backlog for the third quarter in a row.

In addition to the main business today, which is ballast water treatment systems, we are already delivering to aquaculture vessels sailing water treatment, but also now aiming and we see a big potential in aquaculture and land-based fish farming.

So the projected growth also within these markets makes a good market opportunity for the water treatment systems segment within HAV Group.

So then I'll give the stage to Marius Koksvik, which will give you some more details with regards to the financials for the quarter.

[Marius Koksvik, executive]

Thank you, Gunnar. All right. Let's go through the financials. In Q1, the operating income, as Gunnar has already said, was at NOK 110 million. This is quite a bit lower than Q1 '22, but as mentioned, it is largely because of the low order intake during 2022. Also, the EBIT of negative NOK 15.7 million is weaker than last year's corresponding quarter. This is also, as Gunnar said, related to the decision to keep capacity and take advantage of the future growth opportunities.

So when you break down the numbers through the group, it's been a soft quarter on earnings for all companies. And we see that this is -- this should be a one-off. We expect the earnings to improve throughout the year.

So going through the balance sheet, there are no major changes. I would like to point out the cash holdings of NOK 240 million still. Since the year-end, this has increased by NOK 16 million due to -- mainly due to client advances. Also, the equity -- the decrease in equity is largely because of our share buyback program, also the negative result.

So when going through the cash flow statement here, positive cash flow from operations, again, driven mostly by advance in customer payments, the investments are related to IT infrastructure and R&D where we keep investing for the long term. And for financing, this is mainly from our purchase of own shares, as mentioned, and installments and interest payments from our debt.

So a positive order intake in Q1 with a book-to-bill of 2.2. This gives us a strong order backlog, which is at a high for the last 5 quarters, above NOK 600 million. And if we break that down, we see that NOK 230 million approximately is in ship design, above NOK 300 million in energy design and smart control and NOK 84 million in water treatment systems, not counting the fleet agreements. So a positive order backlog development for all business segments. All right. Thank you.

[Gunnar Larsen, executive]

Thank you, Marius. So for the further outsight, the strong fundamentals and mega trends for maritime green tech, they consist. They are there. We see that to be able to reach the goals for 2050 with a maximum temperature rise, becomes more and more challenging, but that means also that you need to do more in a shorter time with regards to developing and renewing technology.

So that puts us in a very good position still to help to leverage the needs from the maritime industry. And we have a track record of profitable operations. As you see, we have a very robust balance sheet. So we are able and in a position to invest further in the future market opportunities. And we mean that this gives us and our shareholders a solid position for further value creation.

The outlook is very good. We see that the order intake in the first quarter was very good. The sales pipeline in the company is also looking positive. We feel that we are just behind the wave that will come with regards to the need for even more environmentally friendly technology. And we are positioned with our technology and also the strategic development that we are doing to take advantage of this wave that will be coming.

We see that the global maritime market is, for us also, it's more positive in the start of 2023 and we hope to show that we will capitalize throughout the year of these market possibilities. So we reiterate our 2025 revenue target of NOK 1.3 billion. And we ask you to remember also that there can be fluctuations because, as you have seen, we have big orders and we have also big deliveries in some quarters that will mean that we'll have fluctuations in both the top line and the bottom line in the company from quarter-to-quarter with regards to this project-driven business.

So that finalizes the presentation. Thank you very much for watching. We now go to a Q&A session where we will try to answer the questions that has been put forward from the listeners in advance. So Marius, do you have any interesting questions for us?

[Marius Koksvik, executive]

Yes, we do. I can read them up here from the screen. We have a question about the Zero Pod. People are interested in knowing more about production times and potential for sale date.

[Gunnar Larsen, executive]

Yes. HAV Hydrogen has been working very good and for a long time now in establishing both the design, the approval and also the supply chain and production line with regards to producing the Zero Emission Pod when we get the first orders. When we get the first orders? Is still we cannot say that for sure. We see that from the hard launch that we have had after the Approval In Principle, we got a lot more, let's say, serious interest from serious leads, made more projects that we see will be realized. We are in a good position on many of them. So we hope to present something there, maybe within this year.

[Marius Koksvik, executive]

Okay. Good. We also have a question about changes in the Board. Do you have any comment on that?

[Gunnar Larsen, executive]

I'm not electing the Board. So that is actually the investors and the owners that have elected. I know that we had a very competent Board member, Tore Hopen, that now has resigned, and we have got a very competent Board member Monica Sperre that has come to the Board. So we are very happy with the Board that we have and they are also a very good sparring partner and have good components and also in order to advise the management in the company.

[Marius Koksvik, executive]

Okay. Good. And then we have a question about ship designs. Are we working actively to develop any new ship designs?

[Gunnar Larsen, executive]

Yes. We are constantly working on developing new ship designs on actual leads or projects towards shipowners. That can be both different versions of ship types that we have and also new ship types. And we are also looking into new segments. And we will be presenting also some new segments that we will be entering into with regards to ship design.

[Marius Koksvik, executive]

Okay. Good. Then we have a question about our announced term sheet of acquisition of Undheim. There's interest in both how it will benefit HAV and also more technically on how the transaction will look like with shares and cash settlement. Do you want to add some color to the first again, how it will fit into HAV group?

[Gunnar Larsen, executive]

Maybe I'll let you answer. Marius is the business development director in the company and is working also closely with this project. So I'll give this to you.

[Marius Koksvik, executive]

Yes. Yes. No, I can definitely answer on -- briefly on that. It's a strong product that exists. Undheim Systems has built a good company within its technology. We see it's going to fit very well into our product portfolio and also hopefully creating strong integrated systems going forward.

Regarding the valuation or the settlement structure, we're not communicating anything yet. We will communicate more regarding that when the deal closes. And it's expected to close in the summer around June, July.

So we have another question here about paying dividends. Do we have any immediate plans about paying dividends from our cash holdings?

[Gunnar Larsen, executive]

There is no immediate plans. As I've said previously also, we want to have a sound dividend policy and giving dividend to our shareholders. We are buying back own shares, that is one way of increasing shareholder value. And we see also now that we are working with so many exciting things with regard to business development that at least for now, we feel that it's more valuable also for the share to invest in business development.

[Marius Koksvik, executive]

Absolutely. And then we have a question here regarding the sales and the market. We have the technology in HAV, but why did we have the troubles we had in 2022 with a low order intake. Is it hard to sell our technology?

[Gunnar Larsen, executive]

Yes, it's hard to sell our technology and not anybody can do it because it's quite advanced also. But it's not hard because our technology is very competitive. I think if you look at the maritime industry in general, in 2021 and 2022, and look at our competitors, most of them have had the same issues.

Some of our competitors have quite large recurring revenue from aftermarket, for instance, which will drive the top line and also the profit. But most of our competitors have experienced the same. So I think also, the market in total is becoming bigger. It will be easier and more for all the different actors in the market. And the main reason is that there was not so many orders in 2022 to compete for. And we see that some of that may have been postponed also because of the uncertainty.

So we expect that the market potential will be bigger for both us and the competitors now onwards.

[Marius Koksvik, executive]

Good. Okay. And then I think I'll bring up a last question that we've had about our share repurchases. How are we moving forward there? That's a question, actually, yes, I can answer if you don't mind.

Right now, we are above 9% holdings of our treasury shares. So that means we are nearing the limit of 10%. So we have -- through the -- yes, the last period, we have bought in the market, and now we are nearing the limit of what we are allowed to buy. So that program is still going and it's going to go until the threshold of 10%.

[Gunnar Larsen, executive]

And of course, if we use shares for some reason, for instance, in M&A transaction, then we have the amount that we use can also then be repurchased within the same permission that we have from the General Assembly.

[Marius Koksvik, executive]

All right. Thank you. I think that concludes the Q&A.

[Gunnar Larsen, executive]

Very good. I once again thank very much everybody that has watched our presentation. I hope that you will continue to follow the company. And I hope that we can prove that we are a valuable company to follow. And looking forward to meeting you again at least, if not before, on the second quarter presentation this autumn. Thank you very much.