Nekkar ASA (NKR) Earnings Call Transcript

Good morning, everyone. I'm Ole Falk Hansen, the CEO of Nekkar, and welcome to this third quarter presentation for Nekkar live from Syncrolift's offices. As normal, we will round off with a Q&A after the presentation. First, I would like to remind everyone that we shortly after this webcast, we will hold our first ever Capital Markets Day here at Syncrolift headquarters in Vestby. This is a physical attendance-only event, but the slides will be available online as we start the actual presentation. As part of developing our communication with the financial markets and investors, we have now launched a new web page recently and with it, a new quarterly slide format launched today. Last quarter, we started providing more granularity on the financials for Nekkar and our operating companies. Now we are also including certain additional KPI metrics with regards to our operating companies, as you will see in the later slides today to increase operational insights further for you. As a reminder, Nekkar is a long-term industrial company builder focused on ocean-based technology companies. The Nekkar Group consists of 5 operating companies. There has been no changes to the portfolio so far this year, but we are having several processes ongoing at the moment to both broaden our portfolio and deepen our existing investments. The Nekkar operating companies are exposed to 4 main end markets with defense and maritime being the largest. The target market revenue mix is also fairly balanced across these 4 end markets, providing a good diversification. Let's look at some of the highlights from the third quarter and subsequent events to the quarter. It was a pleasure yesterday to announce that FiiZK was awarded a delivery from an undisclosed leading Norwegian fish farmer for 4 Protectus closed containment systems. At the same time, we are now finalizing delivery of 2 systems to Mowi announced a year ago. For Syncrolift, we signed a USD 5 million contract with DMC back in July. And in addition, there has been signed a service contract with Vizag after quarter end for 2 years of total NOK 40 million, and this is the largest service scope per year ever experienced in Syncrolift. Intellilift's JV InteliWell secured deployment of rig #3 for the InteliWell Automation platform in the quarter. And on top of this, additional 2 rigs has been signed with the same automation platform after quarter end, which includes both the fixed lump sum project and a Software-as-a-Service fee throughout the contract period. For the financials, revenue for Nekkar came in at NOK 124 million in the quarter, which is down from NOK 140 million same quarter last year. And the EBITDA ended at positive NOK 3 million for the group, which is behind last year's figures, but an improvement from previous reported quarters this year. Net profit of minus NOK 5 million was negatively impacted by FiiZK, who are impacted by market and good projects and investments into product developments. Nekkar continues to enjoy a strong balance sheet with solid cash of NOK 170 million, NOK 80 million in treasury shares and no debt. The order intake was NOK 117 million in the quarter, driven by the announced orders in Syncrolift and Intellilift. And cash flow from business was negative of NOK 32 million related to working capital. Our third quarter revenue is similar to recent levels throughout this year and still low due to the order backlog situation in Syncrolift as the other companies are experiencing steady growth. The EBITDA is still below our historical track record and what should be our true cycle level, but is expected to continue improving as legacy projects in Techano now ramps up. The volume contribution from Syncrolift continues to be low as we wait for further awards in the market space. And in general, we continue to see a positive underlying development in the operating companies for the coming quarters and years ahead. The order intake were NOK 117 million in the third quarter, which was driven primarily by the announced DMC award in Syncrolift as well as the mentioned Intellilift awards. The order backlog at end of third quarter was NOK 740 million, which provides decent visibility for the coming quarters. Majority of the backlog is still related to Syncrolift, but more than NOK 100 million is from other companies. And please note that FiiZK is not consolidated in Nekkar's order intake and backlog and neither is, of course, also the recent awards in Intellilift subsequent to the quarter. So let's take a look at Syncrolift. For the market and sales side, the Indian Navy with the Vizag delivery that we commissioned a year ago and have now signed a service contract, which was signed subsequent to the quarter. And as mentioned, this is the largest service contract per year ever experienced with NOK 40 million over 2 years. The tendering activity remains high and continues to be driven by the growing demand in the defense market, representing a substantial share of tendering activity. Exact timing of these awards remains linked to factors outside of Syncrolift's control, such as government planning and major infrastructure decisions. As such, no larger contracts have been awarded nor lost in the quarter and also in this year as reported on the new KPI, as you can see bottom right. For the financials, third quarter revenues continues to be at a lower level than previously, driven by the lower order intake during the last 12 to 18 months. And this also impacts profitability with lower pass-through of revenues to gross margins. The EBITDA of 9% is, however, somewhat up from last quarter as we observe a favorable development in the project mix. For operational status, ongoing projects, we see good execution and cash generation in all projects. Syncrolift has a flexible operating model with outsourced production, which enables scale up in activity level going forward. Service business has decent activity levels with upgrade work driving favorable development. And what you can see also now on the right-hand side with the last 12 months service activities. And we will continue to include these operational KPIs for Syncrolift in the coming quarters to come. We continue to see a good outlook for Syncrolift, where the backlog remains of around NOK 577 million. And we see high tendering activity in the new build and larger upgrade market. For the tender pipeline, the key change versus last quarter is that we have combined '25 and '26 in this presentation. We did that also in the third quarter last year, and it's a reflection of the sensitivity in terms of timing with regards to calendar year. The total tender pipeline of around NOK 7 billion are fairly unchanged and represents a solid outlook. It's been a challenge throughout this year to estimate the award timing, but we have constantly updated for what we see and present the views we believe are fair. Although 2025 did not materialize so far for us on the market side, as we expected when we started the year, we still expect a good market outlook for Syncrolift in the coming couple of years with NOK 7 billion of tenders to be awarded in the marketplace. Turning to FiiZK, our aquaculture company. We are proud to announce the order of 4 Protectus closed system to an undisclosed leading Norwegian fish farmer, and this confirms trust in FiiZK and the Protectus containment system. The Miljøfleksordningen went into effect in October, enabling farmers localized in red zones to recover withdrawn biomass by converting to closed containment system. I will get back to this on the next slide, but this is a positive trigger point for FiiZK in the short term. Financially, third quarter revenues came in at NOK 78 million, up from NOK 40 million a year earlier. And FiiZK profitability is still impacted by costs for marketing projects and product development for the new Protectus design now being finalized and delivered. Operationally, our 2 Protectus system order end of last year by Mowi are now being installed at location. And also here on the bottom right side, we have included a new operational KPI for FiiZK installed systems and no other suppliers are able to demonstrate this track record as FiiZK is demonstrating here. And as mentioned, we are proud to say that FiiZK was awarded a new contract to deliver Protectus closed containment system to a leading Norwegian fish farmer. The design is similar to the award a year ago for the 2 units currently being delivered. And we believe this is a company game changer in terms of continuing the development of FiiZK and marking its position as the leading closed containment provider. Additionally, we are proud to say that the 2 orders a year ago to an undisclosed leading Norwegian fish farmer are now being installed and delivered to Mowi. The 2 Protectus systems are being installed at the moment at Mowi's fish farm at Slåttenes and all major components are finalized and transported to the site. The floating color arrival of the vessel at the picture are now floating in the sea and Mowi plans for fish in the new system by year-end this year. Slåttenes is already equipped with 2 FiiZK Ecomerden systems and will now be accompanied by 2 new sister installations. Let's move to Intellilift, our industrial software and automation provider. And we are pleased to see a solid market interest internationally for the new products for automation services from Intellilift. And we are very glad to say that we have now received 3 awards since we last time presented our financial figures in the second quarter. First, during the third quarter, InteliWell went live with a new rig with Transocean for the deepwater Conqueror. And following quarter's end, 2 additional awards were secured by InteliWell and Intellilift. Financially, growth in external orders is driving positive activity development as third quarter revenues are up 40% year-on-year. Operationally, Intellilift now has a strong focus on automation as the game-changing automation platform is demonstrating its potential. On Intellilift, we have also included a new KPI to our reporting package. As you will see on the bottom right side, we have included an overview of installed rig automation systems. It was very pleasing to see InteliWell, the joint venture between Intellilift and Transocean and InteliWell secured 2 orders with Transocean. First, there was an award for providing automation services to the Transocean Deepwater Conqueror and ultra-deepwater drillship. The InteliWell platform was installed and commissioned over a 4-day period in September. Initially, automation services will concentrate on automated tripping and drilling connection. For Intellilift, this contract compromise (sic) [ comprise ] a fixed sum project plus a Software as a Service fee throughout the contract period. And this is the third deployment of the InteliWell automation platform. And followingly, Transocean Deepwater Titan, also an ultra-deepwater drillship will be installed in the coming quarter with the same delivery and pricing model as the previous rig. Let's move to Globetech, which we acquired about a year ago. We continue to observe high customer activity on the market side with sales driven by new vessels deliveries to existing clients. Subsequent to the quarter, Globetech successfully acquired Firstpoint, a maritime IT provider in Poland. The strategic bolt-on acquisition adds 23 vessels to the fleet and was done at accretive multiples. Revenues for the quarter were NOK 23 million, up 10% year-on-year with continued solid profitability of around 20% in the quarter. As you will observe on the right-hand side, we have included a new KPI to increase operational transparency. For Globetech, we have included repeat business as a percentage of last 12 months' revenue to highlight reoccurring revenues and also at the bottom right, contracted vessels. Rounding off with Techano Oceanlift, our offshore lifting and handling technology provider. The company continues to tender for a handful of solid leads across various subsegments. Focus is on repeat product deliveries with known cost and risk. For the EBITDA, we see improved results, however, still challenging with minus NOK 5 million in the quarter. Progress on the newly signed projects this year is now generating larger share of revenues, and we continue to expect favorable development through the coming quarters as these market projects mature and are being delivered and recent award advances. On the operational side, we have improved cost control and follow-up in all phases with new people strengthening the team. Let's take a closer look at some of the key financial details. Revenue for the quarter came in at NOK 124 million, representing a 12% decrease compared to same period last year, and the decline is primarily due to lower activity in Syncrolift. On a positive note, the other operating companies Intellilift, Techano and Globetech delivered solid revenue contributions. On profitability, EBITDA ended at the quarter at NOK 3 million compared to NOK 14 million last year, and the same effect is here related to Syncrolift and Techano. And Q3 net financial items was minus NOK 4 million, driven by Nekkar's share of FiiZK's quarterly loss. And as a result, the net profit for the quarter was minus NOK 5 million. On this slide, you will find the key financial metrics for Nekkar operating companies. Further information is as per last quarter available at 7:00 in Nekkar's web page and is updated on a quarterly basis. Let's take a look at our balance sheet. Starting with the assets. Our financial assets are primarily tied to our ownership in FiiZK, which at the end of the quarter was valued at NOK 70 million, reflecting Nekkar's share of FiiZK's equity and goodwill. Working capital ended at a positive NOK 18 million at the quarter end, which is an increase of NOK 28 million compared with last quarter. This reflects natural fluctuations driven by project phasing and still the working capital is at a very good and low levels. Nekkar's total balance sheet amounted to NOK 751 million, and we remain debt-free and have a robust equity of almost NOK 400 million. Turning to cash flow. Cash flow from business was negative with NOK 32 million in the third quarter, and this was driven by the mentioned increase in working capital. And we also have a cash outflow of NOK 17 million in the quarter related to the share buyback program. In total, net cash outflow in the third quarter was NOK 55 million. Nekkar has a strong financial foundation, which for the end of the quarter was at NOK 170 million in cash, 8 million treasury shares of NOK 80 million and an untapped credit facility of NOK 200 million. So let's summarize. We believe Nekkar continue to develop its operating company towards the 2027 ambition and is well equipped with a solid balance sheet to also navigate inorganic opportunities. Key highlight this quarter is the recent FiiZK award of 4 Protectus closed containment system and outlook remains favorable in terms of aquaculture, both short term and long term. Furthermore, Intellilift with its rig automation system have seen a breakthrough in the last months with 3 new rigs signed up to SaaS contracts. And also Syncrolift is well positioned to capitalize on growing defense spending in the coming horizon. Thank you for listening and hope to see many of you at our Capital Markets Day about an hour from now on here in Vestby today. Before we move on, let's round off with some Q&A.

Question number one here on Syncrolift. Is the tender pipeline for 2025 merged with 2026 because it's unclear if the decision will come in 2025 or 2026?

Yes. We had the same approach when we presented the third quarter last year. And of course, having only 1 quarter left this year when the pipeline was made is very sensitive to year-end timing. And that's why we have combined '25 with '26.

And just a follow-up question. For the phasing of Techano Oceanlift projects, how should we think about activity going into Q4? Will it be less for the start-up projects than in Q3?

The 2 first projects will continue to kind of have a declining share of revenue trend as they are now moving into final delivery on the 2 crane awards. And in parallel, the 2 more recent awards will gradually increase its share of revenues as we are now into the production phase of both those 2 crane contracts.

There are no further questions.

And with that, thank you all for listening in, and we will come back to the Capital Markets Day for those of you which are here. Thank you.