Hav Group ASA

OSE:HAV

Earnings Call Analysis

HAV Group targets growth amid challenges

HAV Group delivered a stable performance with revenue of NOK 113.5 million, though down 10.3% year-on-year in Q4. Order intake mirrored previous quarter at NOK 110 million, with expectations of backlog growth thanks to a project signed in January. Operating income for 2023 stood at NOK 617 million. Earnings were impacted by lower activity, contributing to a negative EBIT margin of 20.4%. The company is poised for future growth, envisioning increased revenues in 2024, with a target of NOK 1.3 billion by 2026, despite delays in the tender pipeline. Advances include state-funded hydrogen energy systems for ships, and HAV Group maintains optimism for its technology's role in creating efficient, environmentally friendly maritime solutions.

A Promising Venture into Green Maritime Technology

At the heart of HAV Group ASA lies the ambition to pave a sustainable future for maritime operations. As a company headquartered in Norway, they have successfully positioned themselves as a leading solution provider with a strong focus on green technology, including segments like Ship Design, Energy Design & Smart Control, Hydrogen-based Energy Systems, and Water Treatment Systems. With a clear vision, they endeavor to guide ship owners towards environmentally conscious operations by leveraging advanced technologies to reduce emissions and energy consumption. At the close of 2023, while the order intake saw a slight dip to NOK 110 million due to project mix variations and capacity utilization challenges, the company stood resilient with a stable market capitalization and an order backlog promising stability for future quarters.

Advancing Autonomy and Zero-Emission Ferry Operations

A remarkable highlight for HAV Group was securing a partnership with Fjord1 for the ambitious Lavik-Oppedal ferry project. Tasked with delivering fully electric, autonomously operated ferries, HAV Group is at the brink of revolutionizing the ferry industry not just in Norway but potentially worldwide. These ferries, equipped with autocrossing and autodocking capabilities, will commence operations in 2026 and are expected to operate fully autonomously by 2028. This project not only underscores HAV Group's technological prowess in zero-emission vessels but also marks their foray into the burgeoning market of autonomy in maritime transport—poised to become one of their largest contracts to date.

A Sustainable Drive: Investment in Hydrogen and R&D

Recognizing the shifting tides towards alternative energy sources, HAV Group has also invested extensively in hydrogen-based energy systems, ready to roll out stand-alone systems aptly named ZEPODs. With the Norwegian government's endorsement via funding, the company is strategically positioned to harness projects funded both domestically and by the EU. This foresight not only validates their R&D efforts but also demonstrates commitment to sustainability and innovation, which is essential for staying ahead in an increasingly eco-conscious market.

Financial Soundness Amidst Low Activity

Despite experiencing a quieter Q4 with revenues at NOK 113.5 million and an EBIT of negative NOK 23.2 million, HAV Group's financial discipline has maintained a robust equity ratio of 22.7%, a slight reduction from the previous year's 23.5%. The quarter saw a net cash decrease primarily driven by operational activities and certain increases in receivables and decreases in payables and advances from customers. Steady investments in R&D reflect the company's continual commitment to fostering innovation despite the current financial ebb.

Outlook: Revenue Growth and Expanded Capacity

HAV Group plans to surge ahead with an expected revenue increase in 2024 over 2023 and further growth anticipated in 2025, though the revenue target of NOK 1.3 billion has been shifted to 2026. The company's proactive approach to scaling their operations and tapping into global drives for emission reduction places them in a favorable spot for future business. Their increased tender pipeline and upcoming contracts also point towards enhanced capacity utilization, readying them for the upswing in demand and ensuring they are equipped to attract the right talent for their growth journey. They remain open to strategic acquisitions that align with their technology and market objectives.

Earnings Call Transcript 2023-Q4

[Gunnar Larsen, executive]

Good morning. Welcome to a HAV Group ASA's Fourth Quarter Presentation. Today, we have the standard agenda. We'll say a little bit about the highlights of the quarter. We say something about the company in brief. We give you updates on the business segments. Our CFO, Paul Aurvag, will present the financials in detail. And I'll end up with a summary and also the outlook for the company. And you have always had possibility to send questions. So we will answer the questions that it's come in through our web page at the end of the presentation. And you still have possibility also to send questions.

Q4 was as expected. We had an order intake of approximately NOK 110 million. We had a revenue of NOK 113.5 million that was down 10.3% from last year. As we guided already from the Q2 presentation, we expected a lower activity and also lower EBIT for the second half of 2023. And that is mainly because difference in the project mix of the type of projects that we had and also low capacity utilization. And very important event from the Q4 was that we received -- we're chosen as the technology partner to Fjord1 for the very advanced Fjord1 contracts for the government in Norway, the ferry crossing Lavik-Oppedal where we are going to be a technology partner for delivering fully electric and fully autonomous ferries. I will give you a more update on those projects also later.

Norwegian Electric Systems also got land-based charging system for Scandlines. After the quarter, we also had contract for design and equipment package for an offshore service vessel for wind -- offshore windmill to ESVAGT. And we also got the design contract, the ship design contract for the Lavik-Oppedal ferries. We also got a very important funding from the Norwegian government to further develop our hydrogen energy systems for ships. So I hope many of you watching today are already familiar with the company, but just to repeat, we are very well situated with technology to help ship owners, enabling them for the green transition at sea. We are doing that both with our technology, both for reducing emission for making the operations more efficient and also for reducing energy consumption.

Our vision is to contribute to a sustainable future at sea. And we consider us a special -- having special expertise and being advisers to our customers in guiding them through the journey to lower emissions, zero emissions and more environmentally friendly operations. We are headquartered in Fosnavag in Norway. We have approximately 160 employees in Norway and abroad. We had the operating income in 2023 of NOK 617 million. The order backlog was NOK 604 million at the end of the quarter. And last -- yesterday, the market cap was NOK 378 million.

So we are a maritime technology solutions provider, and we have 4 technology segments, which is Ship Design, Energy Design & Smart Control, Hydrogen-based Energy Systems and Water Treatment Systems. We deliver separate solutions and subsystems from each of these technology segments. And we also have the possibility to combine the technology and the knowledge to give even further value adds to our customers through combining this technology and also delivering complete packages with ship design and all the different ship system technology.

Our main segments, where we are aiming our market efforts today is offshore wind, where we are a leading supplier of SOV for the offshore wind mills and both design and technology. We have a large portfolio towards oil and gas industry. We deliver to ferries and ropax, and we are the leading supplier of electric ferries in the world. We have a portfolio of products for the aquaculture industry and the fishing industry. And we are also now aiming a lot of our efforts into the short sea cargo segment where we see there is a need for renewing of technology, both becoming more efficient and more environmentally friendly.

So then I will give you some updates on the different technology segments. Within Ship Design, we are leading ship designer delivering basic design and also detailed design, for several segments and especially with regards to offshore wind, aquaculture and ferries. Highlights in Q2 was that we saw that it was a good pickup in the sales pipeline and the tendering activity for this segment throughout all Q4. We were selected by customers for highly innovative projects that underlines our position as being able to realize new technology to further improve the compatibility of our customers. One was, of course, Lavik-Oppedal project, fully electric, fully autonomous, which might possibly change the whole ferry industry, first in Norway and hopefully afterwards also rest of the world.

We were also chosen as a technology partner for developing now a pre-project for ammonia-fuelled live fish carrier. And that is also a huge step forward when we are realizing this technology to making that business also more environmentally friendly. So on the activity on back of the contract and the activity that we had last year and the beginning of this year, we see that there is a rise in the activity on the Ship Design segment. We have the Lavik-Oppedal ferries, 4 ferries for Fjord1. I will say more about them later. We have the ammonia-fuelled wellboat project. And we also got this large package design and equipment package for SOV for ESVAGT, which is going to be built in Turkey. And all this improves our activity and also our utilization of our capacity in that segment.

For the Energy Design and Smart Control Systems segment, we supply zero emission and low-emission energy propulsion and control systems for the global maritime market. Highlights. We were prequalified for tenders in international markets that we are aiming. And that is showing that there is an increased interest also for electric ferries not only in Norway, but around the world. We have been working, utilizing our spare capacity last year, developing new systems for the short sea cargo segment. And we see that also the pipeline in that segment is becoming stronger, and we have good beliefs that, that will also be a very valuable investment of that capacity last year.

We got contracts for the second charging system for the Puttgarden ferry crossing. We have already had Rodby site. And now in Q4, [indiscernible] also got the order for Puttgarden site. And as a subsequent event in 2024, we also got the -- an energy design package for the SOV for ESVAGT. Hydrogen-based energy systems, we have developed and are ready to deliver hydrogen-based energy systems, both for integrated systems and also for stand-alone plug-and-play separate systems. The focus there now is mainly on the stand-alone system, the Zero Emission Pod, we call it ZEPOD where we have -- we see that it's attractive for several projects started by customers with funding from Norway and EU, so the pipeline also for hydrogen-based energy systems, especially with regards to funded projects is now becoming stronger.

And we also see that then it was a very good decision to start investing in the prototype building to realizing the technology and when we also get support from the Norwegian government, that is a very well good strategic decision towards what we see now is coming in the market. We see the commercial market will still be a little bit longer ahead, but we see a lot of projects that we have interest now where we have funded projects, which can also drive the development of this segment for the half.

The water treatment systems consist of ballast water treatment systems and process water treatment systems for the aquaculture industry. We saw from -- in Q4, we have pulled out some of the highlights from the orders. There was a large contract for Wilson for 6 vessels, ballast water treatment systems with an option for another 8 vessels. We got a contract from Ulstein in Norway for 2 ballast water treatment systems to 2 CSOVs. And we see now that our efforts towards the land-based aquaculture market also pays off where we get continuously more inquiries and a better pipeline and we are hopeful that we will secure the orders there, not far in the future.

And after Q4, we also got an order from [indiscernible] owner for 2 ballast water treatment systems to 2 eco-friendly hybrid bulk carriers.

A little update and the status of the Fjord1 contracts. About vessels again, it's 4 autonomous zero emission vessels that are going to be put in operation in 2026. We will implement automatic -- automation functions and automation -- autonomous systems, including autocrossing and autodocking from 2027 and they're going to operate fully autonomous navigation from 2028. And this has, of course, been developed in very close cooperation with a major ferry operator in Norway, Fjord1. And this -- for HAV Group, this was a fantastic opportunity. It also gives a good foundation or signal or evidence on our competence to deliver zero emission ferries.

In addition, it will elevate us into the autonomy market and elevate our position for a HAV Group as one of the leading suppliers within autonomous vessels. And it has also, of course, potential to become the -- one of the biggest contracts ever for HAV Group. The status of the project is that the contract has been signed between Norwegian government and Fjord1. Fjord1 has signed contract with the Turkey shipyard Tersan and we have signed a contract for the ship design package. And now we are in negotiations with Fjord1 about the rest of the package, autonomy, the onboard vessels equipment, they're charging and everything. And we will give you more update on that as soon as things are realized.

Also, as I have said previously, the total contract value will not be given -- or the contract value will not be given for the separate contracts, but we will give an indication on the total value when all the contracts has been signed.

A quick recap of the order intake. The order intake in the quarter was NOK 110 million. And we have a book-to-bill of 0.97. So the order book is approximately the same as it was in Q3. Important to mention is that none of the Lavik-Oppedal contracts is included in this order backlog, not the one that has been on design and also none of the ESVAGT orders since they were concluded in -- after Q4.

So that was my presentation so far. Now Pal Aurvag, our CFO. He will give you some more details and insight on the financials from the quarter.

[Pal Aurvag, executive]

Yes. If we look into the details for the quarter, we see that we have a turnover of NOK 113.5 million quite low compared to the previous quarters. But as Gunnar mentioned, it was some -- that something we're looking into and expected to have a lower activity level at the end of the year. The corresponding EBITDA is NOK 18 million, and this is, of course, caused by the low turnover and also as a result of low activity and under recovery of the business.

Then we can look into the details. For the fourth quarter, there is a turnover of NOK 113.5 million, EBITDA of NOK 18.9 million, EBIT of minus NOK 23.2 million, net finance of [ minus ] NOK 2.5 million and the net profit before tax, NOK 25.7 million in minus. So the EBIT margin for the period is 20.4% with negative figures. So if you compare to the quarter from last year, it's more or less on the same level. It's a bit weaker results. 20.4% versus 16.4%. And to sum up, we need higher activity level to improve the results for the coming years.

If we look into the segments. Ship Design and turnover of almost NOK 24 million and an EBITDA of NOK 0.8 million and a profit before tax related NOK 1.1 million. The EBITDA is 3.3%, and it's corresponding more or less to the same EBITDA percentage as the same period last year. If you look into the Water Treatment Systems, operating income, NOK 22.2 million, EBITDA of minus NOK 1.2 million and a profit before tax related minus NOK 3.3 million. And EBITDA percentage of minus 5.4%. So it's quite a weak turnover and result for the Water Treatment Systems in the last quarter. .

If we look into Energy Design & Smart Control Systems, we had an operating income of NOK 68 million, a negative EBITDA of NOK 9.7 million and a negative profit before tax NOK 13.3 million corresponding to 14.2% negative EBITDA percentage. It's a bit weaker than -- no, sorry, it's an improvement for comparing to the same quarter last year and -- but on an annual level, it's more or less the same level, and it's negative. .

If we look into the Hydrogen-based Energy Systems, this is a start-up and let's say, the figures are according to plan. If we look into the balance sheet, all changes are related to normal operating business. Main changes, and this is a full year comparison. Main change is related to cash. We see there's a quite a drop in cash level. And this is related to, let's say, operational activities, and we can also see the details in the cash balance or cash flow statement. We see that the equity is reduced by NOK 15.6 million during the year and this is mainly caused by the effect of purchase of own shares. But the equity ratio is still on a quite high level. It's a 22.7% compared to 23.5% last year.

If we look Into the cash flow statement. We see that in total, we had a net change in cash equivalents of minus NOK 80 million in the fourth quarter. This is mainly related to the operating activities. And as we can see, this is no dramatic behind it. It's natural consequences of the result in the quarter. It's in a small increase in other current receivables, a decrease in account payables and a decrease in advance from customers. .

If we look into the investments, it's mainly related to investments in R&D. And financing activities is NOK 2.5 million related to purchase of own shares and installment and interest payments of NOK 5.7 million. We can also inform that purchase program of own shares is now closed. We have got a target of 10%, the maximum level of ownership. So that was completed last week for now.

If we look into the breakdown of the order backlog as Gunnar said, we are more or less on the same level as last quarter, and it's a small decrease in Ship Design. Energy Design & Smart Control is 5 plus and Water Treatment System is more or less on the same level. So flat development through the last quarter, but we expect a growth in the backlog related to the project that has been signed in January and the ongoing activities for the further months. Thanks.

[Gunnar Larsen, executive]

Thank you, Pal. Then I'm going to sum up and give you some outlook, how we pursue the market outlook for the future. Again, you have seen this slide, most of you have seen this slide before. We feel -- still feel that this is a very interesting company. We see great prospects for our technology and competence with regards to helping the ship owners becoming more efficient and more environmentally friendly. Our technology positions us perfectly for the growth that is expected. We have a track record of profitability -- profitable operations, even though we had a downturn last year and also have a robust balance sheet, enabling us to do the necessary actions and investments for the future. So we feel that we have a solid position to create value for our stakeholders.

Again, the need for technology to reduce emissions to stop climate changes and also, in general, to reduce energy consumption, making operations for the shipping more efficient is a high global driver, which also benefits the potential for our technology. .

The capacity utilization will improve in 2024 compared to the second quarter of 2023, and that is based on the contracts that we have got, the contracts that we see that we will enter into and also the healthy tender pipeline and sales pipeline that we see in most of the technology segments that we have today. We expect our revenue growth in 2024 compared to 2023. We expect that to further grow in 2025. But as we have seen that projects as in the tender pipeline has been postponed from what we expected earlier or when we reported in Q3, we have now postponed our target for revenue for NOK 1.3 billion until 2026. As we are an industry or a company driven by large projects and we are project driven, you will see fluctuations in our quarterly turnover. But we are very optimistic for both this year and also for the next years and for -- to reaching the target that we now set for 2026.

So that completes our presentation. I have seen that there is a lot of questions coming in that is very good. We hope to answer as most of them, most of them as good as possible, but it also shows that the interest for our company is still good. So Pal will join me now and we have also Marius Koksvik, our Business Development Officer that will ask the questions, and we will try to answer as good as possible.

[Marius Koksvik, executive]

Yes. Thank you. So the first question is, how is HAV Group [ rig ] to meet a potential increase in demand?

[Gunnar Larsen, executive]

Sorry, could you repeat the question? There was a small technical error.

[Marius Koksvik, executive]

Yes. Yes, I repeat. How is HAV Group [ rigged ] to meet a potential increase in demand going forward?

[Gunnar Larsen, executive]

Yes. First of all, we have communicated a lot about that we have a low capacity utilization. We have used that capacity utilization to develop the company, to develop projects, to develop markets. So we all have a good buffer in increasing the capacity. In many of our businesses, also the potential for scalability is quite high without doing a lot of actions. But we see now with the contracts that we have in the pipeline that we will need also more people. So we will actively go out and seek the necessary competence. And we honestly think that we will be quite attractive because our involvement in the Lavik-Oppedal contract with the next generation and next step of autonomous vessel will be very attractive also to attract the right competence to both -- working for that project, but in general, to attract people that want to come on the journey on our growth for the future.

[Marius Koksvik, executive]

Is HAV Group still looking for acquisition targets?

[Gunnar Larsen, executive]

Yes. As we have communicated earlier, we want to find, and we have also identified possible targets with regards to technology businesses that are complementary to what we are doing before. We have no news, unfortunately, for you today, but hopefully, some of them can be realized in the future.

[Marius Koksvik, executive]

Then there are some questions regarding the profitability on the Lavik-Oppedal contracts for [indiscernible].

[Gunnar Larsen, executive]

And the question was?

[Marius Koksvik, executive]

What is the profitability on the Lavik-Oppedal contracts?

[Gunnar Larsen, executive]

Okay. We cannot comment on profitability on particular projects but what I can say is that activity level will strengthen the profitability in HAV Group in general. And also, we will not enter into new contracts without having sound profitability. So I think that is what I can tell you about that today.

[Marius Koksvik, executive]

Do you have any more information regarding the contract signing of Lavik-Oppedal?

[Gunnar Larsen, executive]

Yes, we have signed the ship design contract. We have the development for the autonomous systems that we are working towards Fjord1. We have the ship design -- sorry, the equipment for the vessels, the ferries that we are in negotiating with the shipyard and also the charging stations. But we cannot say more about that, unfortunately, until those negotiations are finished. Then we will come with more information. And I ask for your patience. I understand that this has taken a long time, but at the same time, it has been a necessary process going through both the technology and the contracts before everything will be signed.

[Marius Koksvik, executive]

How are the market conditions looking HAV hydrogen?

[Gunnar Larsen, executive]

So a little bit when I talked about the segment, we see that it's a little bit difficult to predict when the commercial market will really hit in. But fortunately, we see that our efforts in marketing and communicating the knowledge that we have within the hydrogen-based energy systems, our system and integrating competence, our approval competence has led a lot of interesting leads to us. So we think that we are in a good position to secure contracts that are governmentally funded either by the EU or by other national governments. And that will be the activity and the hottest pipeline for hydrogen for the foreseeable future, at least.

[Marius Koksvik, executive]

Will HAV offer other fuels than electricity and hydrogen?

[Gunnar Larsen, executive]

Yes. The big question for the ship owners, especially is what kind of low and zero emission fuels will they -- and what kind of technology should I utilize for the future. And we have a lot of knowledge, and we constantly seek knowledge about how -- which fuels can be used in addition to hydrogen and electricity. We are already -- have already developed an SOV and sold SOV for methanol. We are now going in and developing a live fish carrier with ammonia. And we are constantly monitoring both technology, also the availability of different fuels, the price -- future price for different fuels. So we can offer anything the customer wants. And in dialogue with the customer, we find out what kind of fuel is best fitted for purpose, what he is going to use the vessel for.

[Marius Koksvik, executive]

Then we have some questions for the CFO. Do you have any plans of increasing liquidity in the share by uplisting?

[Pal Aurvag, executive]

As previously mentioned, an uplisting is long-term target. And we don't see it as, let's say, it will help us in getting the transaction volume up on the stock today. We think we are too small today. But as we have said, a long-term target.

[Marius Koksvik, executive]

How do you plan to use the treasury shares after the repurchase program has ended?

[Pal Aurvag, executive]

Yes. We got the power of attorney from the general assembly, and that is to be used for payments for acquisitions or for the employment stock purchase program. So that's our boundaries today. .

[Marius Koksvik, executive]

Does HAV have an ambition to become a dividend-paying company?

[Pal Aurvag, executive]

Long term, yes, it's to be a profitable company being able to pay a dividend, but the focus now is investment in technology and in growth to get the company up on a higher level of activity. .

[Marius Koksvik, executive]

How many times a year do employees have the opportunity to buy shares through the employee purchase program?

[Pal Aurvag, executive]

The employee purchase program has been annually performed in August. So by now. .

[Marius Koksvik, executive]

Okay. Then we have some final questions for Gunnar here. How is the order backlog expected to develop during the next couple of years?

[Gunnar Larsen, executive]

What we have communicated is that we expect growth in '24, '25 and '26 compared to '23. And of course, the order backlog has to grow also in order to grow the activity. The order backlog will, in any case, again, because of our fluctuations in the project activity, we can deliver have a high turnover in one quarter and lower turnover in another quarter. And also the backlog can go up and down. But in general, it will increase for the coming years.

[Marius Koksvik, executive]

Will HAV Group expand globally to new geographies such as India?

[Gunnar Larsen, executive]

Yes. We have targeted more international markets, both in general for all the companies and some special markets for some of the technology segments. India is coming up as a very interesting ship builder market again. And we're also looking at other markets, both with regards to where you can find capacity build to build ships where they can build our designs and install our technology but also where we find owners that find our technology attractive.

[Marius Koksvik, executive]

HAV is very focused within ferries, offshore and seafood. Will other types of ship be designed?

[Gunnar Larsen, executive]

The ship design business, you might say, has the largest references and also orders lately for that those segments. But as I said earlier, also short sea segment is very interesting. And some of the technology segments they can deliver to any segment so we are constantly looking at where our technology is adoptable and where we can have competitive edge, both for the ship design and for the other ship technology that we supply.

[Marius Koksvik, executive]

Okay. And then the final question is, is HAV starting to benefit from synergy effects between the [ daughter ] companies?

[Gunnar Larsen, executive]

Yes. I think we have always had synergies because we are quite complementary between the different technology segments. But we are working together both in concrete projects for customers, but also we have R&D projects that we are working together with. We have strategic projects that we are working together between the technology segments. So we see a constant improve of the cooperation, and that gives synergies with regards to cost and competitiveness, but it also gives synergies with regards to adding even more added value to our customers when they are buying the complete deliveries from HAV.

Okay. Marius. Thank you. If that was the last question, then we will also round up the presentation. I thank you very much for following. I hope you will continue to follow the company onwards. I hope that we will give you some good communication through [ stock ] Announcements onwards and for a good development. So I thank you very much for attending and looking forward to see you again for the next presentation of the Q1 results.