Nekkar Asa

OSE:NKR

Earnings Call Transcript 2022-Q4

[Ole Hansen, executive]

Good morning, everyone, and welcome to this Fourth Quarter Presentation for Nekkar and also our Full Year Results for 2022. I am Ole Falk Hansen, and I'm the CEO of Nekkar. Today's presentation will start with giving you a short recap of Nekkar company and value proposition. Then we will move into the key highlights from our fourth quarter. And finally, we will present you with the financial results for the quarter and the full year of 2022. And before we round off, we will take the time to answer questions that you may have during the session.So let's start to give a short summary and recap of the Nekkar company and value proposition. As you can see on this slide, Nekkar consists of 4 business areas. Shipyard Solution is still the main driver of our financial results and Shipyard Solution with its brand Syncrolift, is the global market leader when it comes to vertical and horizontal ship-lift systems.The foundation for Nekkar's new business areas is our background and competence from the offshore oil and gas industry. And based on that, we have formed new business areas within Aquaculture and Renewables. And finally, the Digital Solutions business area underpins everything we do in all our business areas and delivers services and software to the other 3 business areas in addition to being a stand-alone business and commercial offering on its own through our joint venture with our partners that we will come back to later on.So for the fourth quarter, we have seen yet another quarter with solid execution in the Shipyard Solutions business area, generating revenue of NOK125 million. And in the quarter, about 80% of the revenue were generated by new build projects in Shipyard Solutions. The operational EBITDA came in on NOK13.5 million, which was negatively impacted by U.S. dollar depreciation versus the NOK in the fourth quarter. However, the reported EBITDA became strong of NOK38 million.Nekkar has a strong balance sheet, and we have a solid cash position of about NOK180 million. We have no interest-bearing debt, and we have also an undrawn credit facility of NOK200 million. In the quarter, we saw strong order intake, which was the second quarter in a row where we have seen order intake of above NOK100 million. And we were glad to report in December that we signed a $10 million new build and upgrade contract for Dubai Maritime City. And furthermore, we are in multiple tender processes with further larger ship-lift projects. And based on that, we have an order backlog of NOK824 million, which creates a good visibility for the coming quarter.As previously announced, SkyWalker signed an innovation agreement with the installation company, BMS Heavy Cranes in the fourth quarter, which will give further insights and development of the SkyWalker lifting machine. And finally, today, we are excited to announce that InteliWell, our joint venture has secured a breakthrough 4-year contract with a major undisclosed drilling operator.So if we look further into the financials. As mentioned, we have seen solid revenue in Q4, reflecting high activity in both the new build and the aftermarket service projects in Shipyard Solutions. The operational EBITDA of NOK13 million represents a margin of about 10%. And as the majority of Nekkar's projects are invoiced in U.S. dollars, the operational EBITDA is negatively impacted by the depreciation of the U.S. dollar against the NOK in the fourth quarter. The EBITDA margin for the full year on an operational level ended at solid 18%, which shows good underlying operational and financial performance.So let's move into the first business area, Shipyard Solutions, which is represented by our Syncrolift company and brand. In December, we announced a USD10 million contract to perform a significant upgrade. Today, we can share that the client is Dubai Maritime City, and we are treating this as a newbuild project as we are retrofitting 2 third-party ship-lift systems with our own Syncrolift system in the Dubai [ port ] over the coming 2 years.This scope and the contract is about USD10 million, and it's on the level with other larger newbuild projects that we are having. And I think this shows our ability to deliver new build projects and winning larger upgrade contracts also for systems delivered by competitors and also it underpins the quality and the position of Syncrolift as the leading ship-lift brand.And finally, we see Dubai Maritime City and its owner, which is DP World, which is a global champion in the operations of port and logistics around the world as a very interesting customer and partner to work along with in the future. And of course, we hope that this gives us a position to also supply further projects and services to both Dubai Maritime City and its owner DP World.We saw high order intake for the second quarter in a row. And the second half of 2022 had order intake of about NOK222 million, which is more than 4x as high as the year before. And going out of the fourth quarter, we see a solid backlog of about NOK824 million. And I will revert a bit to the backlog on a couple of minutes later on.As presented earlier, the service strategy is a key part of Shipyard Solutions and Syncrolift. And during the last 3 years, we have focused a lot on getting a better understanding and also a better execution on our service platform. And we see now that with our installed base of more than 200 systems, we are building step by step a much larger and more competent service offering for our customers. And in the end, this will, of course, lead to also more steady revenue and long-term customer commitments.And if we look a bit into the financial situation on the service side, we see here that the service strategy in the Shipyard Solutions has continued to pay off in 2022. And we saw a strong order intake of service-related business of about NOK95 million, which is almost a 30% growth versus the last year. And with this order intake, this also gives a good outlook for 2022 revenues and further growth in the service business domain.In terms of the revenue, we ended at NOK68 million, which represents almost a 50% increase from the year before. And to the right, you can see now that service revenue for the last year represented about 17.5% of the total revenue in Shipyard Solutions, which is an increase from about 10% historically. And this also shows our direction towards our target of growing this to 20% and furthermore in the coming year. Finally, I would like to give you some more background of both our backlog situation and also some numbers on the tender portfolio.On the left side, you will see our backlog and our current expectations in terms of execution here. And you could see that roughly half of the backlog is expected to be executed in 2023, while the remaining is to be executed later on. And of course, this gives us a solid starting point for 2023 with the current backlog we already have in place. And then on top of this backlog situation, we experienced high tendering activity in the new build and upgrade segment. And we see a strong tender portfolio going forward.And as illustrated on the right-hand side, if we sum up the current tender portfolio, we see tenders around NOK2 billion, which is expected to be awarded in the coming 2 years. And we are confident that Shipyard Solutions will continue to secure a fair portion of these awards. Finally, I would just like to mention also that, of course, the tender award and the execution progress are items which also is impacted by external factors outside of Nekkar's control.So let's move from Shipyard Solutions into our impact technologies. Let's start today with digital solutions, which is our software control and services for both Nekkar business areas and also the external market. And as you have heard before, Intellilift, which is our company is a joint venture partner with Transocean and Viasat in terms of optimizing and automation of the drilling business area. And today, we are excited to share that InteliWell has entered the first 4-year contract with an undisclosed major rig operator.The rig will be equipped with InteliAutomate-solutions, which will automate and optimize both stand building and tripping sequences. The contract value will consist of a fixed project price for installation plus a recurring service fee throughout the period. The contract and the delivery is set to go into operations in 2023, and we are soon able to share more information about the contract and the customer. The project has already kicked off and entering this first contract for a joint venture and for Intellilift is a major milestone. And we also expect this to open new doors in the global rig market as we will soon have the first system in operation for a major drilling operator.Moving on to renewables. And within renewables, our focus is within the wind industry. We have developed SkyWalker, which is an innovation wind turbine installation machine. The design of the onshore version of SkyWalker has been completed and also tested in a downscale prototype. And we are now ready for a full-scale version. And through our announced partnership with BMS, which is a Danish installation company, we are pursuing relevant onshore wind projects to create proof of concept.That said, we are also seeing increasingly focus for the offshore wind market for our SkyWalker machine. And together with clients and customers, we are performing feasibility studies at the moment, exploring how SkyWalker can play a role in the offshore installation and operation. And particularly, there's a high focus of replacement of major components offshore during the operational phase.As you might know, the offshore wind supply chain is immature and less established than the onshore part. And this creates also opportunities for us to enter the market and also help the payers bring down the levelized cost of wind energy offshore. And to do so, new technologies needed both to install new capacity. And as industry numbers refers to, about 1,000 wind turbines are to be sold early in Europe going forward.And furthermore, when all this comes into operations, the equipment and the turbines needs maintenance. And as the global offshore wind turbine fleet ages, almost 10,000 units will require operations or major component replacement by 2030. Most of this takes place in Europe. On top of these feasibility studies, we are also discussing partnerships now in order to position SkyWalker for the upcoming auction in Norway for both [indiscernible] for floating and [ installation tool ] for fixed structures.Let's move to the final business area, Aquaculture, as illustrated here by our Starfish closed cage solution. In 2022, we completed a successful test of our downscale Starfish without biomass. And we are now planning a full-scale test with biomass together with a fish farmer. The fish farmer will operate Starfish at one of its existing locations, so we can collect data and compare it to traditional open cages. And the successful test period will provide a solid case for how Starfish improves fish welfare and also makes the solution more sustainable. And we believe by having a test pilot on a full-scale version together with the fish farmer will put us in a strong position to enter the commercial phase for further deliveries.So let's move into some financial highlights. As already mentioned, we experienced high activity in the fourth quarter with a solid revenue of NOK125 million, which represents a decrease of about 9% compared to last year, where we had a lot of projects being finalized. Full year revenues for 2022 were NOK388 million compared with NOK480 million in 2021. And the same reason for the decline versus last year is due to a number of projects were finalized in 2021.The fourth quarter operational EBITDA ended at NOK13 million in the quarter, which represents a margin of 10% on an operational level. And as already mentioned, the operational margin in the fourth quarter are negatively impacted by the U.S. dollar depreciation against the NOK in the quarter. However, the reported EBITDA was strong at about NOK38 million in the fourth quarter represented a strong margin of 30%. And also here, the reported EBITDA is positively impacted by gains on our hedging contracts, which are accounted for at fair value on the balance sheet date.As already highlighted, we saw strong order intake of NOK105 million in fourth quarter compared with NOK28 million in the same period last year. And the backlog is healthy going out of the quarter and the year with NOK824 million at the end of the quarter. In terms of development cost, our net development cost after our soft funding received is only NOK1 million in fourth quarter and NOK19 million for 2022 as a whole. And during 2022, we have received soft funding from Innovation Norway and other funding schemes of about NOK12.5 million.Looking at the balance sheet, we see total assets of just north of NOK0.5 billion compared to NOK451 million at the end of 2022. The group has a solid balance sheet with no interest-bearing debt and an equity ratio at the end of the quarter of about 68%. Bank deposits amounted to NOK181 million at the end of 2022. And as mentioned, we also have secured financing facilities of NOK200 million.So pointing out to one of the largest changes from 2021, I would just like to mention the accrued non-invoice production, which increased from NOK20 million in '21 to NOK160 million at the end of 2022. And this is related to projects in Syncrolift was close to reaching a larger invoice milestones at the year-end. And the majority of this balance sheet item has already been converted to receivable at the moment and is expected to be converted to cash during the first quarter of 2022.Moving on to the cash flow statement, we had operating cash flow positive with NOK38 million in 2022 compared with a negative cash flow of NOK55 million in 2021. Cash flow from investing activities was negative with NOK22 million in 2022 and this is related to our investments into our impact technologies primarily. Cash flow from financing activities are impacted by the currency volatility and is negative of about NOK10 million. Total cash flow for the year was positive with NOK7 million as a total. And we have a strong balance of NOK181 million of cash at the end of the year.So let's try to summarize the fourth quarter and look a bit further into the coming months and the year. I think we have seen a strong revenue in the fourth quarter and we have good order intake and good backlog compared with the high tender activity, which we also have showed you some more details on which creates good visibility going forward for the Shipyard Solutions business area. In -- subsequent to the quarter, we signed the first commercial contract for Inteliwell and Intellilift, and we believe this will open further doors for new contracts when the technology becomes proven and in operations on the first commercial rig. For the other impact technologies, we have promising customers discussions in both renewables and aqua for validating the technology and secure proof of concept for these 2 business areas as well. So summarized, going forward, we are positive to the fundamentals of our business area and also the internal execution within our businesses.So with this, I would like to round off the presentation of the fourth quarter and we will open up for some Q&As at the end.

[Unknown Executive]

Thank you, Ole. We received some questions, quite a few about impact technologies, so we'll start with those. Can you say anything about how close you are from seeing revenues from Starfish and SkyWalker?

[Ole Hansen, executive]

Yes, I think, as I mentioned, for Starfish and SkyWalker, we have several customer engagements and discussions which will lead to projects that will secure proof-of-concept and further validating the technology. And in terms of revenue, we believe revenue will not be very high in 2023 on these technologies. I think in terms of revenue, it's the digital solutions business area with its new contract now, which we'll see kind of somewhat of an uptick and some significant revenues compared to previous years.

[Unknown Executive]

That was a good key for the next Q for the next question. Could you say anything about the value of the Inteliwell contract?

[Ole Hansen, executive]

Yes. At the moment, we cannot disclose further information about the value. It's an upfront payment for installation and it's service software fee during operations over 4 years' time. And we are soon ready to share some more information about the customer and the setup as we have those aligned with our partners.

[Unknown Executive]

Also, a couple of questions about currency effects. Can you explain the difference between operational and reported EBITDA? And how currency fluctuations affect those metrics?

[Ole Hansen, executive]

I will try to do that in the most simplistic way as possible. But our -- as Nekkar has a cash flow hedging policy, that means that the cash flow on the overall group is hedged according to the exposure quarter by quarter, both on the revenue side and on the cost side. That means that on an operational level, the projects, both the revenue and the cost will have fluctuations in its remaining revenue and remaining cost depending on the currency at the end of the quarter, where the revenue and the remaining costs will be adjusted according to that. So that will impact the operational side.On the reported EBITDA side, you will also take into account the effects of the value of the FX portfolio, which is accounted for with a fair market value, which means the actual value of the hedging portfolio at the end of the quarter. So in a quarter like this, we have seen kind of a negative effect on the operational side, which is then more than compensated on the reported side through our hedging policy.

[Unknown Executive]

Question about Starfish. What's the time line for the Starfish full-scale testing? And have you secured a partner for the testing?

[Ole Hansen, executive]

We are in process of securing a partner on Starfish. That means we are in discussions, but we have not yet signed any contracts on it. Our target is to have a partner on board during short time and that we will during the next coming year have a full-scale Starfish in seawater.

[Unknown Executive]

Another question about the Inteliwell contract. Can you share what type of rig this is?

[Ole Hansen, executive]

At the moment, we cannot. But we will soon share more information both about the drilling contractor, the rig and, of course, also the operator oil company on this.

[Unknown Executive]

In addition, what are the next steps for rolling out this -- the Inteliwell solution in a broader scale?

[Ole Hansen, executive]

Yes. So what we -- of course, we are pursuing customer initiatives around the globe, together with our partners. That's one of the advantages with the partnership. You have Intellilift from our side, which is based in Norway and on the Norwegian continental shelf with this home ground. You have Transocean in U.S. and U.S. Gulf of Mexico and also Viasat through its subsidiary INTELIE has a strong position in Brazil. And what we are -- our target is, of course, to have a reference customers in all these 3 areas. So we are pursuing that now. We're the first one in place in one of these. And then, of course, we would like to add a reference contract also in the other 2 areas.

[Unknown Executive]

Okay. A question about service intake. Can the service revenue intake be considered as a recurring revenue?

[Ole Hansen, executive]

I think you can sort of look upon it as that. Of course, we have a mix of long-term service contracts where you actually have a recurring fixed revenue over 5 to 10 years. And of course, we are working to increase the share of long-term service contracts because then you are definitely at a fixed level. And then in addition, we know what ship-lift needs of services roughly year by year. And it's about putting focus, hard work and of course, having people out there on the relevant shipyards and ports in order to deliver what the customer needs when you need it. So we are quite confident that the service revenue will continue to see good results. And also, we still have an untapped potential with our existing installed base that we can tap into.

[Unknown Executive]

A question about tender pipeline and order intake. The tender pipeline is high for Syncrolift and do you expect to see any contracts of size being awarded in the sort of next couple of quarters?

[Ole Hansen, executive]

We are positive to have contracts awarded during 2023. And we have illustrated the magnitude of the portfolio. And I think people following Nekkar have also learned that kind of whether it's in 1 month or in the next month or in 1 quarter in the next quarter is kind of heavily dependent on the end customer. So I think we would like more to focus on kind of within the coming year, we expect contracts to be awarded based on the portfolio we are seeing at the moment.

[Unknown Executive]

Question about capital allocation. When it comes to capital allocation, are you looking at possible acquisition opportunities going forward?

[Ole Hansen, executive]

I think with the portfolio we have in place, we are represented in kind of high-growth promising business areas. And we would like to further strengthen those business areas and build more size and businesses within this. And that includes both internal developments with our team and also looking into acquisitions within these business areas. And I think with the current balance sheet we have in place, we are ready to execute on opportunities that may arise within this.

[Unknown Executive]

Another question about the contract with Syncrolift contract with Dubai Maritime City. Is there also a service component in this contract?

[Ole Hansen, executive]

Yes. So the kind of the way contracts are awarded at least today, is that you kind of separate both the kind of the new build, the installation project with the aftermarket service project. And so the contract we have now is for the installation and upgrade of new ship-lift. And having said that, of course, we see this as a very good opportunity to have a long-term service contract attached to it. And it's something we would focus on together with Dubai Maritime City going forward. And of course, we have established a couple of years back in office in Dubai. And of course, this is, of course, both to get newbuild contracts as we have announced now and also to perform service work in the region.

[Unknown Executive]

Thank you -- there are a couple of questions about whether Nekkar will start paying dividends and whether you will look at the opportunity of share buybacks. But I guess that's -- those are questions that should be addressed to the Board of Directors, right?

[Ole Hansen, executive]

Yes, please.

[Unknown Executive]

I think with those, that covers all the topics and the large majority of the questions we have received today. So thank you, Ole.

[Ole Hansen, executive]

Thank you all.