Hav Group ASA

OSE:HAV

Earnings Call Transcript 2022-Q3

[Gunnar Larsen, executive]

Good morning, and welcome to HAV Group ASA's Presentation of Third Quarter Results. We are going to speak about the highlights of the quarter. I'll go through the briefs for the group and for the subsidiaries. Together with me, I have Pal Aurvag, CFO in HAV Group. He will present the financials. And we close up with the market outlook, and we have a Q&A session at the end.

So for Q3, we had a revenue of NOK 137 million and EBIT of NOK 1 million. Cash from operations was negative by NOK 52 million, and the cash balance today, or by third quarter was NOK 258 million. External backlog was NOK 481 million, and the market cap as per reporting date was NOK 386 million.

So the key developments of Q3, some of the developments. We had -- approval documentation for the deck-based containerized hydrogen energy systems was filed to -- submitted to DNV for approval in principle, which is a process that takes us to the final approval of this product.

We announced earlier this year that we were in negotiations with Hoglund to acquire the company. That process was stopped also in Q3 when we did not reach final settlement with the owners for the purchase. We have also hired a head of R&D that started working in third quarter, which has then focused on the development of R&D within the companies in the group.

Pal will say more about the financials in -- later in the presentation.

So HAV Group ASA, we are an international provider of sustainable marine and maritime technology and services. Our vision is a sustainable future at sea. And we comprise of 4 subsidiaries, all with several decades of combined industry experience. And we consider ourselves to be a special -- have special expertise in guiding the marine and maritime industry towards 0 emissions. As a company, we have focused on exploiting synergies and developing complementary technology and value through developing complementary technology. We stimulate the intercompany business development and R&D processes, and we are pursuing value accretive growth through organic and through consolidation.

The management team consists of our Group Management Team and the Managing Directors of each of the subsidiaries. We also have a very experienced Board of Directors. Going into the details of the subsidiaries, HAV Design is the ship designer in the group. They have developed a very advanced design philosophy based on simulation-based ship design. The numbers or the figures in the quarter is NOK 61.8 million in operating income with EBIT of NOK 2.1 million and the profit before tax of NOK 1.9 million -- negative NOK 1.9 million. The income and the result in the quarter reflects also a fairly low, or lower-than-expected activity level due to less new -- few new orders in the previous quarters.

Still, the outlook for this subsidiary is positive. We'll -- except for maybe aquaculture, which has got a small setback from the new tax proposals from the Norwegian government. The main drivers for the other segments that we are operating in is very positive due to still the need of new technology in order to reduce energy consumption and emissions. And especially within offshore wind and ferries -- electric ferries internationally and also short sea cargo transport, we still see a lot of positive development within the markets for HAV Design.

Norwegian Greentech. They are the experts in Ballast Water Treatment Systems and also other water treatment technology. They are the company with the biggest growth in the group as per today. The operating income in the quarter was NOK 40 million with an EBIT of NOK 4.1 million and a profit before tax of NOK 5.4 million. It's a little bit lower than the previous quarters of this year. But still, we are far ahead of last year when you look at year-to-date Q3. So we still see a very good development in the ballast water treatment market for retrofits, for existing vessels. There is also the new building markets and the aftermarket for Ballast Water Treatment Systems.

In addition, we have a market within aquaculture, both for live fish carriers with treatment systems on board vessels, and also an emerging market for the land-based aquaculture sector. So the focus is market development and product development for new products within those markets, in addition to exploiting the existing ballast water treatment market.

Norwegian Electric Systems. They are a supplier of low and 0 emission energy, propulsion and control systems for a wide range of vessels. Also, within this company, the revenue and operating income and EBIT is characterized by low capacity utilization. We have a lot of projects in the pipeline, but we have seen postponement in the market as we have seen now for most of this year due to the uncertain situation worldwide. But we expect that the postponement will stop and that the pipeline will materialize in more orders in the near future.

And the main drivers still for the services and technology of this company are the same as they also deliver technology within complete power systems, smart control systems, integrated navigation and vessel control systems that will help ship owners when either retrofitting old vessels or investing in new vessels, to make the ships more energy efficient and reduce emissions. And also, the Norwegian Electric Systems have technology for a wide range of vessels so they can operate in most markets.

Norwegian hydrogen -- sorry, HAV Hydrogen is -- their main activity has been -- up to now is product development and market development. And they had a soft launch of their hydrogen energy container in the quarter, which is now under approval for -- approval in principle with the launch of that early next year. And we have seen a very good response with the launch of this technology, getting a larger pipeline on new project, and we are very hopeful to see orders within this company during next year.

So they are very well situated with regards to delivering complete energy -- hydrogen energy systems on board vessels, larger vessels, both fully integrated systems and also containerized systems, which will make it easier also to retrofit vessels with hydrogen energy systems, and also doing a faster installation on newbuilds because the modules that are put on board will be ready containerized and ready approved. So we expect a good development of this company next year. They still have a focus on building markets, building the products, and we are excited to see what happens onwards.

So then, Pal, I'll let you say something about the financials.

[Pal Aurvag, executive]

Yes. If we look into the quarter, sum for the group, there's an operating income of NOK 137 million for this quarter, EBITDA of NOK 5 million and EBIT, NOK 1 million and net finance of 0. So the net profit for the quarter is NOK 1 million, representing 0.6% EBIT margin. So if we compare to the previous quarters, this is lower. And as Gunnar said, this is mainly due to the lower capacity utilization due to lower order intake and postponed projects that, hopefully, will come into the order book within the coming months.

If we look into the cash -- sorry, into the balance sheet, we see quite stable balance sheet related to the intangible assets. We have some R&D projects, and we are booking costs into it. And -- but we also have a quite high depreciation related to previous investments.

If we look at the fixed assets, it's smaller changes. Current assets, we see a reduction in the -- sorry, we see an increase in total receivables, but we see a reduction in cash deposits if we look and compare to the start of the year. So the total balance is reduced from NOK 588 million to NOK 493 million. If we look at the equity side, we see also a reduction. But year-to-date, we have a positive margin, and should be an increased equity, but this is due to the purchase of our own shares and also that we have acquired 100% of Norwegian Greentech during this year.

And on -- looking at the long-term liabilities, we see a reduction month-by-month, and we have a total debt of NOK 57 million per third quarter. So the current liabilities or total liabilities is also quite reduced from the start of the year. If we look at the cash balance, we see there's quite a negative figures from year-to-date on the operational side, and this is due to increased stock level, a reduction in account receivables, reduce in account payables, but also we see an increase in advance payments to suppliers, a reduction in advance payments from customers and also an increase in accrued revenue. And all of this is related to projects, and we see that we have a lower activity and a lower order book, and then we see also the figures coming through the balance.

If we look at the cash from the investments, this is related to the R&D and also a purchase of the shares in Greentech. And net cash from finance activities are the payment of debts and mainly also our -- purchase of our own shares this year. So we see that the cash is NOK 258 million per end of third quarter. And I'd say that's a reduction related to all these activities that is in some. But of course, we see that the lack of new projects with pre-payments and in general lower activity is -- I'd say, we are -- then have a lower level of cash. If we look at the order backlog, we see a reduction this quarter. We have a reduction from NOK 557 million to NOK 481 million.

Norwegian Greentech is more or less on the same level, but the order book for Design and Norwegian Electrics has been reduced this quarter. So this is one of the main issues or highlights in the period. And this is one of the main concerns that we have, to be able to build a stronger order book for the future. Yes.

[Gunnar Larsen, executive]

Thank you, Pal. And then that, I think, is a good introduction to the market outlook. And as a summary of the financials also, even though the cash balance is lower, the free capital and the working capital in the company is positive or on the same level, and we have the same, let's say, financial muscle still to do the business development and the development of the group further.

We have said from the early beginning that the strongest drivers for the technology and for the development of our group is the general need for new technology with regards to reducing emissions and reducing energy consumptions, and those drivers are at least as strong today as they have been before.

The focus has maybe shifted a little bit from the environmental side to the energy side, but they are very closely related, and we need to solve both issues in order to have sufficient energy and also a sustainable future on the sea. We are established with companies that deliver technology already to this market, to supply these needs. And we are constantly also developing new products and new markets towards 0 emission and low emission, and low energy consumption technology. We are profitable and we have good financial situation to finance our further plans.

And we see that several of the markets that we are in, there is -- as I've said earlier, there is some, let's say, disturbance because of the world situation. We had the pandemic, and then we now have the energy crisis and the crisis in Ukraine, the war in Ukraine. But we see that from, let's say, the last 2 quarters where there was more hesitance in the market, the customers are now coming back with more inquiries and the pipeline is filling up. So we expect that -- and have good expectations that the order book will fill up now onwards for most of the companies.

And for the longer picture, we see that these drivers -- and we have not changed our, let's say, medium-term goal. We continue to say that we have a target to have a NOK 1.3 billion turnover in 2025, and the growth will come in all of the companies or all the subsidiaries in the group.

So that's the summary or the wrap-up of the presentation. Now we also have Marius Koksvik from HAV Group here together with us, and he has collected questions that has come in through the link that was sent out before the presentation. So now, me and Pal, we will try to answer to the best of our knowledge to the questions that you have.

[Marius Koksvik;VicePresidentBusinessDevelopment, executive]

Yes. The first question is regarding a possible uplisting from Euronext Growth to Oslo Bors or the main list. Do we see this as an option for HAV Group going forward?

[Gunnar Larsen, executive]

I think we have addressed these questions previously also. And we are considering that. We see Euronext Growth as a good place to be for HAV Group at the moment. And if certain things -- development is driving it, we will also consider the main list. But at the moment, we are comfortable being on Euronext Growth.

[Marius Koksvik;VicePresidentBusinessDevelopment, executive]

So in this presentation, you have described the postponements as a short-term problem. Are these postponements for HAV Group only? Or is this a general trend in the market?

[Gunnar Larsen, executive]

From our people that are out in the market and talking also to competitors, we have seen very much the same situation for the last half year, at least, that customers, they are postponing their investment decisions, not canceling them. And we also see that -- and that's the same impression we get from other in the industry also that now things are picking up. And we expect, I think, together with everybody that the market will pick up. And we also see the main drivers are still there. And we are -- we have the same challenges with too little energy and too high emissions. So we expect, and I think also the market expects that this will pick up now onwards.

[Marius Koksvik;VicePresidentBusinessDevelopment, executive]

For the last couple of months, it seems like we have slowed down the buyback process of shares. Is this a change in strategy?

[Pal Aurvag, executive]

No. The strategy for the repurchase is the same level. And we are restricted by safe harbor rules. And let's say, we see that the total turnover of the trading in the stock is lower than it has been the month before, and that also naturally will be a reduction in our own purchase. So -- and this is done by external brokers according to their rules.

[Marius Koksvik;VicePresidentBusinessDevelopment, executive]

Can you elaborate some more on why the acquisition of Hoglund Marine Solutions did not go through?

[Gunnar Larsen, executive]

We cannot go into details of what was the reason, but we did not come to a final agreement with the owner on the final terms of the eventual acquisition. So that is what we can say, and unfortunately, not more about that.

[Marius Koksvik;VicePresidentBusinessDevelopment, executive]

What is the reason that HAV Group delivers its quarterly results so late? Have you considered moving the reporting date?

[Pal Aurvag, executive]

Dates, they are, let's say, planned in a financial calendar 1 year ahead. And yes, we are -- has been this year reporting at the end of -- let's say, very close to the due dates. But this is -- the financial calendar for 2023 is going to be a part of the plan and will be launched during December. So we will take this -- let's say, this will be taken into discussion and they have to be approved by the Board.

[Marius Koksvik;VicePresidentBusinessDevelopment, executive]

Can you expand a little bit on your general outlook for 2023?

[Gunnar Larsen, executive]

We do not guide for 2023. We have a medium-term guidance for 2025. We expect, as I said, more activity on the sales side, a more -- even more positive pipeline and expect a good order income. And what we can say, of course, is that for some of the companies, the lead time from order until delivery is fairly long. So the effects of new orders will mainly be at the end of 2023 and onwards. But the general outlook and expectations for the market is positive.

[Marius Koksvik;VicePresidentBusinessDevelopment, executive]

How is the market for attaining labor? Is it challenging?

[Gunnar Larsen, executive]

Yes. It's challenging. Maybe we will see a development in that now. But for the really good people with the special knowledge, the special competence, it's always a competition. We have an advantage. Even though being a small company, we are located in several places. So we have the possibility to hire people, for instance, in Bergen, even though they would be working in Alesund, and the opposite around. So up till now, it has not been a big issue and maybe also the general development will make it not -- at least not more difficult onwards.

[Marius Koksvik;VicePresidentBusinessDevelopment, executive]

Yes. And this also ties into the next question. NES has opened an office in Turkey over the last year. Is it relevant or strategic with any other new sites geographically for HAV Group in the future?

[Gunnar Larsen, executive]

That is constantly under evaluation and in planning with regards to our market plans. For instance, for NES, it is very good to have, let's say, bridgeheads or spearheads in important markets. We have already expanded to Turkey, and we have plans to expand to also further markets. But that will not be, let's say, published until the plans are ready, and we are ready to go ahead.

[Marius Koksvik;VicePresidentBusinessDevelopment, executive]

HAV Group has not completed any M&A transactions this year so far. Is this still part of your strategy? Or is it not relevant anymore?

[Gunnar Larsen, executive]

Growth through M&A is still very much a part of our growth strategy. Unfortunately, we didn't succeed with what has been published this year. We are looking at several options still, and we are also looking at new options. So acquiring companies that will add value and synergies to the group is still very much a strategy onwards.

[Marius Koksvik;VicePresidentBusinessDevelopment, executive]

Could you elaborate a bit more on HAV Hydrogen's interest in the market? How is their concept faring?

[Gunnar Larsen, executive]

The interest for HAV Hydrogen is growing and has been very positive, I would say, this last -- at least this last year -- last 6 months. And after the launch of the hydrogen energy container, it has picked up even more. We see that there is demand for the product that they have developed. It's part of the value chain with regards to hydrogen energy systems on board. That is not covered by so many. So we are very excited about the development of the company and see very positive prospects also onwards. A little bit difficult to exactly pinpoint when things are going to take off, depending on several factors, but we are hopeful and -- that during next year, you will see a lot of development within HAV Hydrogen.

[Marius Koksvik;VicePresidentBusinessDevelopment, executive]

How does HAV Group look at long-term dividend policy?

[Gunnar Larsen, executive]

The dividend -- the policy is to have a sound dividend to the shareholders. And we still are looking at prospects with regards to M&A, for instance, and business development that we feel is the best investment for our investors also to spend the money that we have. And of course, from quarter-to-quarter, an actual dividend will always be evaluated. But as long as we feel that the return on investment is better to put into developing the company, that we feel is the best dividend policy also for the investors.

[Marius Koksvik;VicePresidentBusinessDevelopment, executive]

Okay. And then the last question that we have time for today is about the lower capacity utilization that we mentioned. What is this capacity internally used for when it's not used on projects?

[Gunnar Larsen, executive]

The capacity is, of course, evaluated all the time. And what we are using it mainly for is 2 things: it's development of new products and also development of new markets. So the capacity -- much of this capacity can be spent, for instance, assisting the sales force in order to reach out to more markets and secure the hit rate with regards to achieving a bigger order book.

Yes. Okay. Thank you very much again for following our presentation. We hope you will follow us also for the future. And we are looking back -- and we're looking forward to coming out with news about the company when relevant, and also hope to see you at the next presentation, which is the Q4 presentation that will be next year. Thank you very much.