In a recent earnings call, Vow ASA (VOW) CEO Henrik Badin and CFO Tina Tonnessen discussed the company’s financial health and strategic developments. They announced a new bank agreement that secures stability, reported improved margins, and confirmed a strong order backlog across three main business areas.
Vow ASA is also expanding its reach with large-scale projects in Norway and the United States and has a positive outlook in the cruise industry, delivering systems and environmental compliance services. The subsidiary Vow Green Metals has landed a $27 million contract, reinforcing the company’s growth trajectory.
Key Takeaways
- Vow ASA has entered a new bank agreement, enhancing business stability.
- Margins have improved and are expected to continue rising with better contract terms.
- The company has a solid backlog and is seeing growth in all business segments.
- Vow ASA is making strides in land-based industrial solutions and renewable energy projects.
- Vow Green Metals, a subsidiary, secured a $27 million contract with Quonset Soil Solution.
- The company is actively working to strengthen its balance sheet and reduce operating expenses.
Company Outlook
- Vow ASA is positioned for growth with a strong presence in the cruise industry and expansion into land-based industrial solutions.
- The company is investing in technology and acquisitions to bolster its market position.
- Vow ASA has a rich pipeline of potential projects, including waste-to-liquid fuels and carbon removal.
Bearish Highlights
- Specific details on expected working capital development or future CapEx spend were not provided.
- Inflation has impacted after-sales margins, particularly in chemical sales.
Bullish Highlights
- Vow ASA has secured new contracts with favorable payment terms and conditions.
- The company has demonstrated its capability to manage large-scale projects, indicating readiness for further growth.
- Vow Green Metals’ $27 million contract points to a strong expansion in renewable energy projects.
Misses
- The company did not offer granular details on working capital or CapEx forecasts.
Q&A Highlights
- Management addressed questions on margins, explaining that they are improving following a reassessment last year.
- New contracts are expected to have better margins, contributing to overall financial health.
- The company is working on recovering margins impacted by inflation through renegotiations with customers.
- Carnival (NYSE:) projects are included in the current backlog, with more contracts potentially moving from options to firm orders.
Vow ASA’s earnings call painted a picture of a company on the rise, with strategic investments and an expanding footprint in both marine and land-based industries. The management’s focus on improving margins and securing new contracts with better terms suggests a strong financial outlook. While the company refrained from detailing its capital expenditure plans, the overall message was one of robust growth and promising developments in the pipeline.
InvestingPro Insights
As Vow ASA continues to show potential for growth, it’s important to consider the financial health and market performance of companies within the same sector. SSHPF (SSH Communications Security Corporation), for instance, operates with a significant debt burden and may have trouble making interest payments on its debt, as indicated by the InvestingPro Tips. This is a critical factor for investors to consider, as it can impact the company’s financial stability and growth prospects.
On the positive side, SSHPF’s net income is expected to grow this year, providing a potential upside for investors. Moreover, analysts predict the company will become profitable within the year, which could signify a turning point for its financial performance.
InvestingPro Data metrics reveal that SSHPF has a market capitalization of $51.91 million and is trading near its 52-week low, with a price previously closing at $0.61. The company’s revenue growth over the last twelve months as of Q4 2023 stands at 17.34%, showcasing its ability to increase earnings. However, it’s worth noting that SSHPF does not pay a dividend, which might be a consideration for income-focused investors.
For investors interested in a more comprehensive analysis of SSHPF, there are additional InvestingPro Tips available at https://www.investing.com/pro/SSHPF. These insights could provide further context to Vow ASA’s performance and the broader market dynamics within the industry.
Full transcript – Vow ASA (SSHPF) Q2 2024:
Henrik Badin: Welcome to First Half Year presentation of Vow. Tina the CFO and myself, we’ll give you an update on the business. We’re going to show you how we are progressing well. How we developed the business now and also talk about we have in place now a new bank agreement that provides comfort for the business going forward. Moving on to basically the key points of today’s presentation, we have a robust business and Tina, margins are back on track. We are positioned to grow the business. And Tina we have done something to strengthen the…
Tina Tonnessen: Yes. We’re also executing on a very important remaining step. We are strengthening our balance sheets and also together with this, we are obtaining an improved covenant going forward. This will give us good headroom.
Henrik Badin: We have been through, I would say, a significant turnaround where we have taken out some cost from the business on the OpEx side and we have managed to get new contracts with better payment terms. We have, and that’s very important, we have three robust business areas that we are developing the business with and we have a solid backlog of orders to support it. So we have a positive financial outlook for the business. Positioned to grow the business, we have invested substantially and we have a slide covering that, but we have invested in technology. We have done acquisitions and have invested in market accessibility. And as I said, we have now been able to enter into new contracts with Tina, better payment terms, better conditions. And to prove that we can deliver on growth we have two projects, two large scale projects ongoing, one in Norway and one in the United States, that demonstrates actually our capability to move into large projects, large scale projects for sure. And we will, of course, give some more flavor to these two projects. And Tina, you might sort of talk a bit about sort of how we have, are going to strengthen our balance sheet and we’re getting back on track with the margins, and Tina, you could sort of explain shortly.
Tina Tonnessen: We are increasing our revenue and we also show that we are done with the reassessment that we did of our contract portfolio last year. Our margins are increasing and we have a solid, consistent backlog.
Henrik Badin: And you see we are growing, we are growing the top revenue line and see how the different business areas have a nice development. Status and outlook of the business, three robust expanding business areas that I will talk more about and rich pipeline opportunities with two successful scale of projects that, as I said, demonstrates our capabilities. Riding the third wave, this is an important slide, actually. It shows you the development in the cruise industry the last 24 years. The first wave we got was after 911. They started again contracting new ships. The next one was after the financial crisis in 2008-2009. Now, we’ve been through the pandemic already, the first six months this year, the industry has ordered 17 newbuilds, it’s expected more. And why is that expected? Today we are actually working with shipowners and shipyards for another 10 series of ships totaling more than 30 newbuilds. So we see from the work we have with shipowners and the yards that the new wave is coming and we believe that we will be part of that wave. And we are well positioned to be part of that wave because we have over the years become a preferred partner in the industry and actually a trusted partner. Today, in 2024, we are delivering technology to 16 ships. Eight ships will be handed over to operations from shipyards to shipowners with our technology on board. And the ninth is a retrofit we’re doing with Carnival that are now in operation. It’s a significant operation and it also shows in the order book, that’s why we’re — in our revenue that we are doing more within the cruise project side.
Nuevos: And to demonstrate that even further, during the first half we entered into large contracts with better payment conditions, better conditions, improve margins. Firstly, was the Icon (NASDAQ:) Class. We signed up one firm that was Icon #3 and an option for Icon #4. We did that in February and you saw the media, you saw the newspaper two days ago. Royal Caribbean (NYSE:) confirmed Icon #4 and they also said that they have options for 5 and 6. So it means that more orders on that series is expected to come from the shipyard.
Papenburg.: So in addition to more ships at Meyer Werft, they have ordered during the spring and into the summer ordered ships, large ships at Fincantieri. The Carnival Ace (ph) project is exciting and we should be in a good position to capture those contracts. We’re working on it. So we have a lot of exciting things ongoing in the cruise industry. And of course, the recurring part, what we had provision of lifecycle services after sales, as the installed base with our systems are growing, the revenues are, and now we’re about to hit the NOK 200 million of just recurring services that the shipowners are coming back and they’re sourcing spare parts, they’re sourcing chemicals and operational assistance. And having that type of position, I tell you, one of the reasons why we have this strong position in the cruise industry is that we are delivering on this side. We’re making sure that shipowners are capable of running our systems and making sure that the ships are in compliance with environmental regulations. We have a sweet spot here. And we have developed this illustration. This graph tells, I would say, the fantastic growth story we have in Vow from we did the IPO in 2014, out cruise business is four times larger, purely organic growth, by taking our technology leadership in cruise and by making sure that they can operate our systems with a good lifecycle service. This one is growing. Another thing we did, we acquired ETIA back in 2019. We followed up with acquisition of C.H. Evensen in 2022. That gives us some growth. But I will talk about two projects here that actually is driving this part of the business and today is equal sized with what we do in the cruise industry with cruise projects. So yes, we are growing average 21% in this period, even through periods where you have slowdown from the pandemic. We are actually very proud of this growth story and I think it’s recognized. So, these large scale projects that is driving growth for us within land based industrial solutions, that also demonstrates our capability and we have a huge demand now for similar projects and have a rich pipeline I will also talk about it. Just talk about this project. You’ve heard me talk about this project many times. It’s progressing.
Lars: So in addition to more ships at Meyer Werft, they have ordered during the spring and into the summer ordered ships, large ships at Fincantieri. The Carnival Ace (ph) project is exciting and we should be in a good position to capture those contracts. We’re working on it. So we have a lot of exciting things ongoing in the cruise industry. And of course, the recurring part, what we had provision of lifecycle services after sales, as the installed base with our systems are growing, the revenues are, and now we’re about to hit the NOK 200 million of just recurring services that the shipowners are coming back and they’re sourcing spare parts, they’re sourcing chemicals and operational assistance. And having that type of position, I tell you, one of the reasons why we have this strong position in the cruise industry is that we are delivering on this side. We’re making sure that shipowners are capable of running our systems and making sure that the ships are in compliance with environmental regulations. We have a sweet spot here. And we have developed this illustration. This graph tells, I would say, the fantastic growth story we have in Vow from we did the IPO in 2014, out cruise business is four times larger, purely organic growth, by taking our technology leadership in cruise and by making sure that they can operate our systems with a good lifecycle service. This one is growing. Another thing we did, we acquired ETIA back in 2019. We followed up with acquisition of C.H. Evensen in 2022. That gives us some growth. But I will talk about two projects here that actually is driving this part of the business and today is equal sized with what we do in the cruise industry with cruise projects. So yes, we are growing average 21% in this period, even through periods where you have slowdown from the pandemic. We are actually very proud of this growth story and I think it’s recognized. So, these large scale projects that is driving growth for us within land based industrial solutions, that also demonstrates our capability and we have a huge demand now for similar projects and have a rich pipeline I will also talk about it. Just talk about this project. You’ve heard me talk about this project many times. It’s progressing.
Vow Green Metals:
Vow Green Metals: In U.S. USD 27 million U.S. contract with Quonset Soil Solution owned by Green Development, that is a leader in large scale renewable energy projects in the Northern East of U.S. with ambitions. We have advanced now with all the necessary engineering and during the fall now we are delivering equipment that gives us revenue and cash flow. So to conclude on, let’s say, the rich pipeline we see outside cruise, and we talked about that in the introduction, we have invested substantially in the business to take a position, nearly NOK 950 million over the last five years and I would say well spent because we have now technology available. We have of course we funded Vow Green Metals in the demerger in 2021. That was important, but we created a substantial client of us. We did the acquisition of ETIA and C. H. Evensen to get hold of more technology, larger capacity technology and more competence that we now are delivering on. And our technology is relevant for several new applications that I’ve been talking about many times, end-of-life tires, this one is coming up. Sewage, the removal of PFAS from sewage, waste-to-liquid fuels, Boichar carbon removal is one of the ways to really mitigate climate change. And the project now in Rhode Island is such a project. And then the metallurgical biocarbon that today, if you look at the tender activity, Tina, of the bid pipeline, if we draw that line until end 2027, it’s a pipeline of NOK12.5 million projects that can come our way. If we draw that line until 2029, we double it to NOK25 billion. I think people will remember the NOK25 billion, but I’m just saying in the shorter run it’s still half of it and these are not sort of happy go luckies. I would say that 14% of that bid pipeline is startups. The remaining part are companies with strong balance sheets. That’s a very important point. So yes, we have these two projects to demonstrate our capability. We have done the investments, we are ready and we are positioned to grow the business. So with those words, Tina, perhaps we should — of course we can talk about, I’ll give you a short update before I give you the scene on the numbers. But of course, end-of-life tires is progressing well. We are now with ITOCHU ETEL Murfitts. It’s the same company, basically. ITOCHU is one of the global leaders in distribution of natural rubber to the tire industry. Their subsidiary in UK controls more than 60% of all the tires coming off the roads, handling 20 million tires a year. We’re working on their first advanced studies now on their first factory to be built in the UK. Progress as well. The sewage plant feed, the front end engineering design contract. A customer paying us to do all the engineering on this factory you see here with four of these large Evensen reactors we have. It’s progressing well and this area is really coming. We definitely see that. And then the partner we are not delivering that feed to, they have ambitions to roll out multiple parts because they have a very strong business model, because they are getting paid, they are into the feedstock, or let’s say they get to all these factories is creating a very good business model to attract capital. So there is a company that has themselves a strong balance sheet. And we also got our latest update on the project we talked about last year in our third quarter presentation, Circon Energy. They have secured significant equity funding and governmental support. So exciting days for us, exciting days. Tina, sorry for taking so long time.
Tina Tonnessen: No, that’s fine. So I’ll take you through the numbers. So let’s first have a look at the segments. We’re delivering growth in all segments and margins are back in back. So let’s start with the industrial resolutions where we are well positioned for growth as we went through and we have revenues of NOK164 million, up from 11% from the same period last year. The margin has improved and we have a backlog of NOK365 million at the end of this period. For Maritime Solutions, we are delivering revenues in line and the margins have increased compared to 2023, we have a solid backlog here of NOK696 million and in addition also options of NOK316 million. For After Sales, as we said, we’re approaching the NOK200 million recurring revenue mark. We delivered a margin of 10% for this segment. This is a bit lower than what we prefer to see. So we have implemented concrete initiatives to improve this going forward. Moving over to the Group, we have revenues of NOK485, up 8% compared to the same period last year. Our gross margin ended at 30.9%. We have during the period, as we said, delivered on our cost improvement program. If we compare with the same period last year, we have decreased our operating expenses by NOK20 million and we have also set a target to decrease our operating expenses by NOK40 million to NOK50 million in 2024 compared to 2023. Some of the initiatives that we do in the cost improvement program also is related to the non-recurring costs that we have for this period, which is the restructuring mainly related to restructuring of our French subsidiary ETIA. Our EBITDA ended at NOK20.6 million. Moving over to our balance sheet, I think it’s fair to say that we’ve spent a considerable amount of time here the last couple of months, so we are now strengthening our balance sheet and we’re looking to strengthen it by NOK150 million. Together with this, we are also securing an amended bank agreement with improved covenants. So most importantly, we’re amending the leverage covenant and increasing it to 5.75 times, together with a strengthening of the balance sheet of a minimum of NOK125 million. We expect this to give us a really good financial runway going forward and liquidity headroom. Other important developments during the period is that we decreased our net working capital. We have equity ratio of 24% and an ending cash balance of NOK42 million. For more information on the amended covenants, please see our financial report in the note 4. And then moving over to our cash flow, which actually shows the things that we’ve already done to strengthen our balance sheet, so our operating cash flow came in at almost NOK70 million. We are focusing very much on our working capital situation. As we said, we are also, we’ve invested substantial amounts and are well positioned for growth going forward. We are therefore reducing our investment level and our investments came in at NOK30 million for the first half year, significantly down compared to historical levels. We are also deleveraging our balance sheet, so we have repaid debt during the period and interest cost. Our net cash flow for first half was negative NOK16 million. And I think I’ll leave it over to you to do some concluding remarks.
Henrik Badin: Okay, before we open up for some questions, just bring us back to the slide that we opened the presentation with. We are a robust business. Margins are now improving, definitely, and we have done things to enable the business to have to follow that growth pattern that we had since 2014 and the actions we are now taking to strengthen the company’s financial position. So with those head points, main points, we can open up for some Q&A.
Q – Unidentified Analyst: Thank you so much for the presentation from (indiscernible). So, firstly, is it possible to comment a bit more on the expected working capital development near term so that we know a bit more? Because of course on the top line and on margins, it’s easier to make assumptions. But obviously you have gone some rounds with the clients in your backlog. So some comments on the how you see the working capital development for H2 and maybe into H1 next year.
Tina Tonnessen: Well, we don’t comment on it, but we have fluctuations depending on when we receive milestone payments. What we can say is that we are improving our working capital situation on the new contracts that we have, which is more in favor of us in terms of payment terms. And we’re also delivering, as you said, on some substantial contracts this fall, which we expect to contribute positively.
Henrik Badin: The land based projects are better payment terms. But of course, as you said, the new cruise contracts with these down payment structures against guarantees is releasing cash earlier from the shipyards, and that’s positive.
Unidentified Analyst: Thank you. And also, one question on the gross margin. Previously, at least on your slides, you have stated that this 30% plus or 31% is more of a normalized level. I didn’t see that today. So what do you expect? If you look back, you had sort of mid to high 30s gross margin. So where approximately should we expect that the fair gross margin level going forward should be?
Tina Tonnessen: Yes, well, we did reassessment last year and that decreased the margin also in the backlog. So now we are delivering according to our backlog. But we do expect this to improve going forward as we secure new contracts. But we also have some older contracts in our backlog which also will contribute to an increase when we deliver on those.
Henrik Badin: So we expect them to — we need to improve that for sure. The gross margins in this business needs to come up.
Unidentified Analyst: Okay, thank you.
Henrik Badin: Some other questions in the room? No? Do we have some questions sent in?
Unidentified Company Representative: Yes, there are some questions that come in from online and a couple from Thomas Ness. First, if new equity is secured, the new and net interest paying debt over EBITDA common and stands at 5.75 times? Any thoughts on how comfortable you are on staying within this given equity? Given equity is raised at the minimum of NOK125, wouldn’t it be much better removing more debt?
Tina Tonnessen: We are comfortable in the amount that we’ve said. Now, based on the forecast that we’ve done, it gives us substantially or more comfortable headroom towards the covenant that we have.
Henrik Badin: So I would say the NOK150 is, well based on, I would say, a conservative projection going forward. And it gives us, together with this new amended bank agreement, comfort in the business to deliver on the backlog and the growth we see. And of course, we are in this period, capable of serving our debt facilities. But of course, our ambition is to reduce debt over time.
Unidentified Company Representative: There’s one more question from Thomas Ness. He asks, no equity was raised following the completed pre-sounding round. You state that you are considering other options to strengthen the financial position. What are those other options?
Henrik Badin: We couldn’t go into details on that, but we’re looking at several things. I would say that the pre-sounding that was done was very short because we have been working now extensively to land sort of a bank agreement. And the pre-sounding continues now as one alternative. The other alternatives we will give an update on when we feel that we can disclose those.
Unidentified Company Representative: Thank you. There’s a question from Helen Bernie, can you provide some more details around expected CapEx spend in the second half and into 2025?
Tina Tonnessen: Yes, we don’t guide on a specific number, but what we said that and also shown is that we are down compared to historical levels and we expect this to continue going forward.
Henrik Badin: Yes and we have said that several times and of course you have to see that we have done, we have been through large investment programs that has reached conclusions. And these contracts that we’re delivering on now is as a result of the investments we’ve done in the past and so that is coming down definitely.
Unidentified Company Representative: There are a couple of questions from (indiscernible). First is when do you plan to start releasing comprehensive Q1 and Q3 reports supplementing the full year and half year reports?
Tina Tonnessen: I think if you look at — we have increased the information that we give in both the trading updates and also now in the second half or a first half report. We always evaluate what we’re giving of information and don’t want to provide any more visibility on that now.
Unidentified Company Representative: Mr. (indiscernible) also asks about margins. He says, you said several times that margins are improving, but the reported margins have never been weaker except for second half last year, which presumably was significantly impacted by the cleanup. Why are margins down compared with the strip when revenues are higher and the progress reportedly so good?
Tina Tonnessen: That’s part of the reassessment that we did last year. So we corrected the margin that we’re delivering on in the backlog and that’s also why we see a lower level now. This will increase as we secure new contracts with improved margins.
Henrik Badin: And you see actually a very nice development now during the first and second quarter of this year that we are coming out of that adjusted level and the hit we had to take last year.
Tina Tonnessen: Yes.
Unidentified Company Representative: There are a couple of questions about cruise. I think it was Mr. (indiscernible) who talked about Icon #3, Icon #4 and possibly even more at Turku and also some from Carnival. How many of these are already in your backlog, either as concrete contracts or options?
Henrik Badin: When it comes to the Carnival project, those two, as shown on the Slide, Carnival Excel at Meyer, Papenburg, those are in our backlog and in our option backlog. The firm ones are in the firm backlog and the others in the option. What I said that now Royal Caribbean have ordered, have called on that option that we have as an option. So the likelihood of that is converted into a firm contract when the shipyard turns towards us is very large. It means that it’s a high likelihood of those coming, meaning that they’re calling on the #4 and that we’re getting option for #5 and #6. And the other thing I said is that Carnival Corporation has ordered new ships at Fincantieri, basically on a very similar platform as the project we have in Papenburg for the same owner. So it means that this is really an addressable market for us, and we’re working to be in position to get these orders. Can’t promise anything, but I think we are in a very good position.
Unidentified Company Representative: And then there is now one more question from our online audience, and that also is about margins, this time in after sales, where after sales is growing, but margins are still lagging compared to previous times. Can you elaborate on the margin potential you see and what you’re doing to achieve this?
Tina Tonnessen: We’re looking at this now, and we’re implementing and investigating it. I think for the first half, it was particularly chemical sales that had a lower margin, and we’re looking to improve that going forward.
Henrik Badin: There has been in that period an inflation on the chemical side, and we are now working to recover that by renegotiating with our customers, basically, because these chemicals are used to operate our advanced wastewater purification systems on all these ships. So it’s a significant part of our business, and we are very sort of — our ambition is to increase and we believe that we can increase. When you have the revenue, you can always increase the margins.
Unidentified Company Representative: Okay, that concludes the questions from the web audience. We’ll hand back to the presenters if there are no further questions in the audience. Thank you.
Henrik Badin: Thank you so much for stopping by and to your continuous interest in our business.
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