HAV Group ASA (HAV) Earnings Call Transcript

Good morning, everybody, and welcome to HAV Group's presentation of financial results for the second quarter and the first half year of 2025. My name is Gunnar Larsen, and I'm here today, as usual, with our CFO, Pal Aurvag. Today, we will talk about the highlights of the quarter, some information about HAV Group in general. We will go more into detail on the business segments. Pal will give you more details about the financials. We will sum up and give you our outlook for the future for HAV. And at the end, as usual, we will have a Q&A session where you have already sent in and can still send in questions that we will answer. The key developments in the quarter was that we had a very solid quarterly revenue of NOK 193.3 million. The EBITDA was NOK 4.1 million. That is the third consecutive quarter with positive EBITDA. And the Energy Design and Smart Control Systems segment continued to have very strong performance. The balance sheet was steadily strengthening. Cash balance was NOK 293 million, up from NOK 124 million at the same time last year. The order intake was NOK 215 million in the quarter, and that was including 3 charging stations for Norled ferries, EUR 8.5 million contract with Tersan Shipyard for power and automation systems and very gladly ship design project for North Salmon Service. And that resulted that we maintain a very strong order backlog of close to NOK 1.3 billion as of the end of the quarter. And also, we have formalized the collaboration with Havila Voyages for the next generation of coastal route ships. After the quarter, we have contracted to deliver 5 container-based water purification systems to Greenland. And we have been awarded 3 integrated navigation systems to Tersan Shipyard. Here you see the order intake compared to the last quarters. Both the order intake for the quarter is good. And also you see that we keep a steady order book -- steady high order book totally for the whole group. Then I will give you some more information again about HAV Group, what we are. So we are an international provider of maritime systems and solutions to ship owners and shipyards all around the world. Our value proposition is to improve vessels' cargo and owners' competitiveness by providing advice and optimize solutions throughout the ship's life cycle. We are headquartered in Fosnavåg. We are about 160 people in Norway, in Poland and in Turkey. And we consider us to be experts, guiding the marine and maritime industries towards low and zero emission shipping. We concentrate on 4 different technological segments. It's the ship design, and the design and smart control, hydrogen-based energy systems and water treatment systems. And I will give more insight in the development of these segments later in the presentation. Here you see the main industry segments that these segments are focusing on: offshore wind, oil and gas, ferries and ropax, aquaculture, fisheries and short sea cargo. And then I go over to more details about each of the technological segments. The Ship Design segment had a very important contract win as design provider for our new live fish carrier for a Norwegian agricultural logistics operator, North Salmon Service. The majority of this design and engineering work will be executed in 2025, but still, we have unutilized capacity in this business, and we are focusing very much on sales in the segments that we are focusing on. We also had the management change in the segment. Stig Magne, a longtime Managing Director for the company, has gone to a new role as Senior Vice President of Design in the company. I am appointed as an Interim Managing Director, and we are now in the process of hiring our new permanent Managing Director. The Energy Design and Smart Control Systems segment had another quarter with solid financial performance. Some of the important contract wins in the quarter was the EUR 8.5 million contract for energy design and smart control systems for 2 newbuild vessels. We have got a contract for delivery of 3 charging stations for Ferris. And as I mentioned earlier, we had a very important contract also for 3 integrated navigation systems to Tersan Shipyard, which was the first separate sale of our Raven Integrated Bridge and Navigation System. Also, the Water Treatment System had improved financial results compared to previous quarters. We had new contracts to supply 5 separate ballast water treatment systems to various shipyards in Norway. We see also that new regulations for land-based aquaculture and reopening of license applications announced in July give us -- creates market opportunities for the products that we have in the water treatment business. After the end of the quarter, we also contracted to deliver 5 container-based water purification systems to Greenland, which is also entering into a new potential market segment. As we have mentioned earlier, for the Hydrogen-based Energy System, we have taken down costs and activity levels due to the market situation in general for hydrogen energy for ships and also for some of the projects -- the progress in some of the projects that we are working on. But we keep the intellectual property rights and safeguard them to be positioned to capitalize on future market opportunities for the technology that we really believe are there. It's a matter of timing. The responsibility for the maintenance of the technology and expertise has been transferred to HAV Group's Ship Design business. When taking down this activity level, we expect an annual saving of approximately NOK 10 million for this segment until we ramp up the activity again according to the activity in the market. And here you see the order backlog. Total order backlog NOK 1.288 billion in total. The Ship Design in the quarter had NOK 160 million backlog. Energy Design and Smart Control System maintains order backlog of over NOK 1 billion. And the Water Treatment System has increased their order backlog from the same time last year to NOK 89 million. So it's a very good development of our order backlog. And then Pal will give you some more details about the financials for the quarter.

Good morning. I will guide you through the financial performance for the quarter. We deliver relatively high turnover on the back of a good activity level in the second quarter, which was at the same level as the second quarter of 2024, but significantly higher than previous quarter. This is the third quarter in a row with positive EBITDA, which is pleasing, but there is still room for improvement in some of our business segments. If we look at the key financials. High activity level in the quarter, improved EBITDA and net profit compared to the same quarter last year. First half year revenue 6.5% higher than first half 2024. Year-to-date improvement in all main financial KPIs versus the first half year 2024. And based on the order backlog, operating income is expected to increase in the second half of 2025 versus first half 2025. Then look at the segments. Ship Design performance is impacted by low capacity utilization. The recent contract win improves utilization for 2025, but the business needs to win more contracts in order to reach the profitability we expect. Energy Design and Smart Control Systems is the main contributor to both the turnover and the margin. In addition to winning new contracts, the segment has good progress on projects and delivered significantly improved financial results. Water Treatment segment is impacted by lower-than-expected sales in the Marine segment. However, it's pleasing to see that the business has returned to positive EBITDA figures in the second quarter. Then if we look at the balance sheet, the main changes in the balance sheet is driven by operational activities. On the asset side, the current assets increased by approximately NOK 140 million year-to-date, and this is caused mainly by increase in receivables by NOK 98 million, and an increase in cash by NOK 43 million. On the liability side, the current liability has increased by approximately NOK 140 million year-to-date, and this is caused by increase in advanced payments from customers by NOK 140 million. And as you can see, our cash balance has grown to a very healthy NOK 293 million, which is more than double the cash balance at the same time last year. Then if you sum up and look at the cash flow, strong positive cash flow with NOK 46 million increase from first quarter, summing up to NOK 293 million. And this is mainly driven by operating activities and especially reduction in net other current receivables. The negative cash flow from investing activities is investments in R&D and equipment. And the negative cash flow from financing activities is related to repayment of noncurrent debt. Then back to Gunnar to sum up the quarter.

Thank you very much, Pal. To sum up, we had a very positive EBITDA in 2025 -- Q2 2025, with growth and solid results in the Energy Design and Smart Controls segment. And totally also the EBITDA was positive for the third quarter in a row. We had strong and improved cash generation in the quarter. We had new orders for NOK 215 million signed in Q2, which gave a solid order backlog of NOK 1.288 billion at the end of the quarter. Very positively, we had an important contract win for the Ship Design business, and we have executed the necessary strategic alignment to downscaling of the hydrogen business, waiting for the market to come back. The outlook for HAV still looks very strong. The green transition, stricter regulations and increasing competition continued to shape the maritime industry. We are very well positioned to address these challenges with the technology that we have, that will enhance the vessel's operations, profitability and environmental performance. There's a lot of uncertainty in the geopolitical situation and tariff issues that create some turmoil and some headwinds. But we see that the global ship building market is still predicted to remain at a stable level in the coming years and also for the segments that we are focusing on. Our market presence is mainly in Europe and the Norwegian markets, and that reduces our exposure to intercontinental trade conflicts. So based on this and what we are presenting our results and what we see from our order book, we maintain our guidance, and we expect solid revenue growth, driven by recent contract awards and the active tendering that we are doing. And we also expect corresponding margin improvements. So that was the presentation. Now we will go over to the Q&A session, where I will be joined by Pal, and we will answer the questions that you have sent in. So Pal, have we got any exciting questions.

Yeah, we'll have to go through and see if there are some new questions that's coming up here. And yes, we can start with the first one. HAV Design competitors are delivering vessel designs to customers all over the world. Why doesn't HAV signed the leadership design to customers in Asia and America, for example?

If you look at the reference and what we have delivered in HAV Design over the years, since the start-up in 2005, we have delivered more than 130 vessels. And many of those has been delivered to Asia, to South America to America, different places in Europe. And also today, we are delivering to American shipyard, and we are delivering to Danish owners. And we are also focusing on both shipyards and shipowners, not only in Norway, but abroad. So I would not be surprised if we have more international customers also on the ship design segment in the future.

Yes. Maybe this one is the same. You've mentioned in your stock exchange announcement that HAV Design must win new projects. How are you working to win new projects and which market segments are you targeting?

The segments that we are targeting in general is the same as we presented in an earlier slide. What we are doing is that we are extending the number of potential clients that we are targeting in each market. We are focusing the marketing and we are also strengthening the sales activity towards these targeted markets. And we see the results from how we have been working in some of the markets lately that the lead portfolio or the pipeline of leads -- sales leads is becoming stronger, and that is increasing the further chance for getting new orders. And I would not be surprised if we have more than one new order also this year. But it remains to be seen.

And there is also one market question. What measures have HAV Group taken to attract new customers during 2025, including new customers from different international markets?

We are trying, of course, to get our message through. What we are focusing on is what kind of value that we can deliver to our customers, and becoming even more precise, becoming better to tell that market message to target both through social media, through other digital channels, targeted meeting with customers. We are using all the efforts that we can, and we see the results. I have seen the results, especially in the Energy Design and Smart Control segment. And I'm quite sure we would see the results also in the other segments. And we are constantly evaluating how we are working and adapting to the new and modern sales and marketing technologies in order to reach customers and generate leads.