In the recent earnings call for the first quarter of 2024, Vow ASA (VOW), a leading provider of waste management solutions, reported a solid performance with the highest ever revenues in the cruise industry segment and a positive EBITDA margin. The company's CEO, Henrik Badin, shared insights into the company's financials, operational progress, and future outlook.
Despite challenges in the Industrial Solutions segment, Vow ASA has seen an improved gross margin and a backlog of orders that remains robust. The company is actively pursuing new contracts, with a focus on operational efficiency and cost-saving measures.
Key Takeaways
- Vow ASA's cruise industry segment delivered record revenues with strong EBITDA margins.
- The Industrial Solutions segment faced challenges, but the company is implementing cost-saving initiatives.
- Vow ASA concluded several R&D projects, enhancing market position and operational efficiency.
- The company's circular solution business is gaining traction, with large projects approaching investment decisions.
- Financials show revenues consistent with the previous year, improved gross margin, and a positive EBITDA margin.
- A solid order backlog includes 34 confirmed projects, with aftersales revenues nearing NOK200 million.
- Vow ASA is engaged in significant projects and partnerships, with potential contracts valued at EUR120 million.
- The company targets a normalized leverage level and an EBITDA margin of 15% from 2025.
Company Outlook
- Vow ASA aims for an EBITDA margin of around 15% by next year.
- The company is actively bidding for contracts worth up to EUR200 million.
- A cost reduction program is in place, with expectations of increased depreciation.
Bearish Highlights
- The Industrial Solutions segment incurred costs due to capacity buildup and order intake delays.
- Operating profit and net financial items were reported as negative.
Bullish Highlights
- Cruise operators are renewing fleets with orders that benefit Vow ASA's advanced systems.
- The circular solution business has received positive customer feedback and is close to securing large industry projects.
Misses
- Despite the positive outlook, the company acknowledged challenges in the Industrial Solutions segment, which has impacted overall cost.
Q&A Highlights
- Vow ASA addressed concerns about financial accuracy, affirming their confidence in the reported numbers.
- The company discussed partnerships with Envigas, Philip Morris (NYSE:PM), and Repsol (OTC:REPYY), highlighting their collaborative efforts in the industry.
Vow ASA's first-quarter performance reflects a company that is navigating industry challenges while capitalizing on growth opportunities within the cruise and circular solution segments. With a clear focus on improving financial performance and securing new contracts, Vow ASA is positioning itself for a more profitable future. The company's commitment to operational efficiency and cost-saving measures, along with its strong order backlog, points to a strategy aimed at long-term sustainability and shareholder value.
InvestingPro Insights
In light of Vow ASA's recent earnings call, it's important to consider additional insights that may impact investor perception and decision-making. InvestingPro provides real-time data and analysis that can offer a deeper understanding of a company's financial health and market position. Here are some relevant insights for Vow ASA from InvestingPro:
InvestingPro Data:
- Market Cap (Adjusted): 65.74M USD
- P/E Ratio (Adjusted) last twelve months as of Q4 2023: -6.9
- Revenue Growth last twelve months as of Q4 2023: 17.34%
InvestingPro Tips:
- Vow ASA's stock has experienced significant volatility, with price fluctuations that investors should be aware of. The stock has taken a notable hit over the last six months, with a 6-month price total return of -38.96%.
- Analysts are optimistic about the company's future profitability, predicting that Vow ASA will be profitable this year. This aligns with the company's target of achieving an EBITDA margin of around 15% by next year.
These insights suggest that while Vow ASA has faced challenges, there is a positive outlook on its revenue growth and future profitability. Investors interested in a comprehensive analysis can find additional InvestingPro Tips for Vow ASA, which could further inform their investment decisions. For those looking to delve deeper, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are currently 12 additional InvestingPro Tips listed for Vow ASA, providing a more nuanced view of the company's financial and market status.
Full transcript - Scanship (SSHPF) Q1 2024:
Henrik Badin: Welcome to Vow's Trading Update for the First Quarter 2024. This presentation will be held by Tina Tonnessen, our CFO and myself. Tina, this really marks a little anniversary actually. We have been listed 10 years on the Oslo Stock Exchange, and this is the 40th quarterly presentation I'm holding, and I'm enjoying holding it together with you. Moving to our first slide. To support the main statement of this quarter on steady course, I have some key points I would like to mention. Revenues are in line with first quarter last year, but it is actually the highest revenues we've ever had within the cruise industry segment, combining Aftersales and projects within cruise. Maritime Solutions and Aftersales delivered double-digit EBITDA margins. Industrial Solutions, still, I would say, still impacted by costs related to capacity buildup and some delays in the order intake. Comprehensive cost savings are initiated and more are underway. Also important to make notice of several R&D business development and improvement projects have successfully concluded. And this has strengthened Vow's market position, and it will also allow for leaner operations going forward. We will elaborate more around that in the coming slides. Another shift we see is cruise operators are renewing their fleets and preparing to place new orders at yards for ships with bigger capacity and more advanced systems. This is in our favor, and it also replaces options with lower margins that have now expired. I will also talk more about that in the coming slides. And we have encouraging feedback from customers within the circular solution business segment. And I want to highlight three large industry projects that are nearing financial investment decisions. And we have earlier talked about this large portfolio of prospects and that the market remains unchanged for us. The potentials going forward are large. But of course, we need to sign up new contracts within that space to demonstrate the growth. Key financials. On the left side, you have the revenue and the revenue split between Maritime and Aftersales. Those are the business segments within the cruise industry and Industrial. Industrials are separated between heat treatment, surplus solutions and food safety, the cruise activity, but the Industrial side is lower. It's not -- still not having the revenues to support the cost structure we have in that business segment. We're guiding -- and we're saying actually the note we're making in the first quarter is that we have a soft start when it comes to the profits. But I will say that we have a strong recovery leaving behind us 2023. We're back with the black numbers on the EBITDA level. That's good. Our backlog of orders are solid. And here, we see the shift that we are experiencing within the cruise industry space, where shipowners are renewing their newbuilding programs with new ships and shipyards wants to exit older options because those have been having a negative development with higher cost. That's really -- the effect of that is that options are coming down, coming off, but this is actually good news for us. And I will elaborate more on that on coming slides. It's good news for us that these options are coming off. Looking at the business segments, 13.2% EBITDA margin within the Cruise Maritime side, back to double-digit, 46% of the total revenues of the group. Aftersales, we are now approaching NOK200 million of recurring revenues in the business, 12.3% EBITDA margin, 20% of the business. Industrial, ongoing measures to increase efficiency and we are awaiting future contracts. Costs will be coming off that business segment. Costs will be coming off that business segment to improve. Today, that's 34% of the revenues. That's also an area where we foresee large growth going forward. Looking at the Maritime cruise industry space. So numerous of options, as I said earlier, has been expired, and it frees up new slots for new ship designs, larger ships that we are now tendering in Scanship. And these tenders are being negotiated indicating sort of updated cost levels and enhanced margins. And that's good for us, that we expect that the margins within the cruise industry project side will increase. And industry is transitioning towards larger ships. We announced in February, our biggest contract to date within the cruise industry space. And it's because of more sophisticated clean ship systems onboard. And we have, over the years, developed new technology within waste valorization, reinforcing our position in the cruise industry space as a technology leader. And we will see that this is leading to significantly larger contracts going forward. Going into the details, NOK107 million of revenues, EBITDA of [NOK14.2 million], double digit EBITDA, and the backlog is at NOK641 million. As I said, we entered into contracts of nearly EUR20 million in the first quarter in the cruise industry space, the biggest contracts to date for these two projects. And it contains a full system from Scanship, not only within wastewater purification, food-based processing and conventional garbage handling, but also advanced systems for solid handling to prevent discharge overboard. That includes dewatering, thermal hydrolysis, dewatering and pyrolysis, the most advanced systems being installed on ships today. And this is also a project that we signed up in February, and we have deliveries already this year. So the projects are speeding up that will sort of -- these orders that we are entering into this year will also provide revenues within the year. And it's a busy year for us within the cruise industry space. We are delivering main equipment to 16 cruise ships. And we are handling over -- we're doing handling or commissioning start-up and handling over of nine ships, in total, 25 ships this year. And you see the map here where we have the Meyer Werft both in Germany and in Finland, five ships in total. We're working with 12 ships for the Fincantieri Group that have operations in Monfalcone, Marghera, Ancona and Sestri. And we're working in France for Chantiers de l'Atlantique, in total, 25 -- 23 ships. And those 23 ships are ships for Royal Caribbean (NYSE:RCL). Eight of those ships are for Royal Caribbean Group. Four ships are for Viking. Viking did a very successful IPO last week, listing in -- on the stock exchange. This is the fourth cruise operator that are now listed in New York. It was a very successful one. And it's -- the biggest shareholder is Norwegian Torstein Hagen, and it's doing fantastic. We are doing four ships with them. Norwegian Cruise Line (NYSE:NCLH), we are doing four ships this year. MSC, we are doing four ships. NYK Lines at [Technical Difficulty], we are doing one ships, and we are doing for a new shipowner, Ritz-Carlton Yacht Collection at -- in France, we're doing two ships. And then we are doing two retrofit projects for Carnival (NYSE:CCL). So we are busy in cruise. That also reflects the revenues are coming up. And this backlog, we have today 34 confirmed projects in our backlog of ships that will enter operations this year and onwards towards 2028, eight this year, 10 next year, et cetera. On top of that, we have now seven remaining options. And we are tendering for 29 newbuilds. And just looking at that graph, you see the potential for Scanship and Vow to grow within the newbuilding space. The addressable market is getting bigger. Already signed project for EUR20 million this year, and we expect to sign more. Aftersales, on an annual basis, we are now approaching NOK200 million. We believe we will pass that number. It's a stable, steady business built on service and technology leadership. It's very important that we are -- have a strong offering within Aftersales because it gives us more also newbuilds. And one thing is the technology leadership, but just being there, working with shipowners is important to be preferred on new projects that will be signed up. And it's growing with the installed base. As I said, this year, nine ship will enter service, one from the retrofit side and eight from the shipyards. This is growing the backlog for us. But we're not -- we want to improve the margins in that business areas. They're working on ways to improve the margin. We have double digits, but we will do better than 12.3% going forward. That's the ambitions. Industrial Solutions, that contains heat treatment, that contains food safety and circular solution, still impacted by costs related to capacity, cost of building, I would say, market position. We have to realize the fact that we have developed technology for more than NOK300 million in recent years, and we are developing the business along several new industry verticals. It has come at a cost. And new -- we now have a large potential of new contracts, but of course, the timing of it is something that we cannot control. Heat treatment, by the way, is doing very good. The C.H. Evensen business unit, South in Norway are performing well with good margins and a strong order intake. As I said, costs will come off in this business segment. And we have a comprehensive cost-saving program and programs for operational efficiency in -- being implemented. We want to bring that business area into profits as well along with what we are already seeing now in cruise. And we're faced with several large projects nearing final investment decisions. So it looks promising. One important client for Vow where we have been working with projects of -- in size of around NOK400 million has been Vow Green Metals. Lately, they have secured financing, and this is good news for us. They have secured financing on the early production line that we have delivered to Vow Green Metals. The lease agreement gives us direct payment on that first plant. And they have also an indicative financing announced for Phase 1 and for Phase 2 of the large project at Honefoss. And they initiated some weeks back the strategic process to raise capital for building more projects. And all these things are very positive for the industry vertical methodology, where we have a strong offering of technology. Another important project we are working on is the Rhode Island project in US. One of the biggest land-based contract to date, we're working on $27 million, where we delivered technology for biochar and renewable energy production in Rhode Island. It's progressing. Detailed engineering including process equipment, piping and electrical is wrapping up as written. And major deliveries will now take place during the second half of this year during the fall. That means more revenue will be recognized from this project. And this project will be started up early 2026.But this project signals our capability to deliver larger scale projects and especially in US. It's a very important signal along with these projects that we have been working on. Not to forget, just as a reminder, we have been working with Envigas for some years, delivering technology in the metallurgic industry space that gave us the ambition to support the establishment of Vow Green Metals. We're working in Japan with sewage sludge. We're working in Sweden with NSR for green waste. We're working with Philip Morris on the decarbonization of their operations, using our technology, and we have been for some years working with Murfitts Industries within the end-of-life tires. And lately, Repsol as a large energy company in Spain is using our technology in their quest to convert plastic waste into olefins in the petrochemical industries. So we have been relevant for many players, and those projects are actually opening doors to new opportunities for us. And I would highlight three focused concrete opportunities that we are working on these days, that has a combined contract value of potentially EUR120 million for the first phases of these projects, first stages. One is the end-of-life tire together with Itochu ETEL Murfitts. There's a project we're developing in UK, the first factory to produce recovered carbon black from end-of-life tires. Our partners in UK, where we will be the technology provider are the biggest collector of end-of-life tires in UK. It means that more than 60% of all tires coming off the roads in UK are handled by our partners. We're continuing to work on the FEED study for sewage sludge. This is a paid assignment. We're getting paid to making sure that we are offering a total solution to the customers. And it's a very interesting project. It's a large project. And the third one is what we announced in the third quarter, the Caribbean Carbon refinery for Circon Energy, that would, for us, be more where we are more an equipment supplier to Circon. So these three projects alone have the potential in the short term to give us an order intake of -- accumulated of NOK127 million. So we are working on things that can move the needle for us within this year, both on the order intake side and on the revenue side. With those words, Tina, could you give us some more insights to the financials? And I will be back with some concluding remarks.
Tina Tonnessen: So we delivered revenues for the group, amounting to NOK232 million for the first quarter, which is in line with the same period last year. The gross margin ended at 31.5%, which is up from 25.3% during last year. 2023 was highly influenced by the reassessments that we did in our project portfolio, leading to a temporarily reduced margin. We see that the margin is now back at a more stable level and also in line with the current backlog that we have. EBITDA ended at NOK5.6 million corresponding to a margin of 2.4%, which is up from negative 6% for last year. We are continuing to execute on our cost reduction program, and we aim to give you more details on this during -- or in the next presentation. And we also expect that there will be some one-off costs related to this during the second quarter of this year. Moving over to depreciation. We do expect an increase going forward as several of our R&D and development projects are now successfully completed, and we will start to depreciate with the depreciation cost of NOK10.3 million for the quarter, operating profit ended at negative NOK4.7 million. Net financial items came in at negative NOK12.3 million, which consists of net interest payments and our share of the net profit from our associated company, Vow Green Metals. Result before tax ended at negative NOK17 million. Moving over to the balance sheet. We see an increase in intangible assets and goodwill related to the investments that we've done during the quarter and also some currency effects. We experienced a buildup of net working capital during the quarter. We are focusing on working capital for the group and continuously monitoring it, but we will experience fluctuations also going forward due to milestone payments in our contracts and also that we will experience timing effects from quarter-to-quarter related to this. Our leverage is still high, and we expect it to remain high for some time, but we do aim for a more normalized leverage level from year-end and going into 2025. Equity ratio came in at 26.1% at the end of the quarter, which is slightly up from year-end due to a neutral total comprehensive income and a reduction of the total balance sheet. And as of Q1, we were in compliance with our bank covenants. Our operating cash flow came in at negative NOK8.8 million, mainly driven by the buildup in working capital. Our investments amounted to negative NOK11.2 million and has come down compared to historic levels, and we expect it also to come down going forward compared to previously. Net cash flow from financing activities amounted to negative NOK19.2 million and consist of debt repayment, interest and leasing. Our total net cash flow for the period amounted to negative NOK19 million, and we are proactively managing our liquidity situation. And our available liquidity being cash on balance sheet and undrawn credit lines as of the end of the quarter amounted to NOK44 million. Note also, as we said earlier, that we are expecting a payment from VGM during the second quarter in excess of NOK40 million. As we have been communicating earlier, we are executing on a comprehensive cost improvement program to improve our financial performance. This is a combination of both improving our cost and securing new contracts. When it comes to cost savings and cash discipline, we are improving our margins in our existing contracts. We have, during the fall and also continue to do that going forward, increased our project reviews, both with focus on margins but also to improve our payment terms with our suppliers and customers and reducing working capital. In addition to this, we are also executing on a comprehensive cost reduction program to reduce the operating expenses in the group. During Q4 -- or in the Q4 presentation, we announced that we have introduced temporary layoffs in Scanship. This has an effect or had an effect from March this year and will continue to give an effect for some time. In addition to this, we are also working on other initiatives that we will give you more information on in the next presentation. And as we also have proven during Q1 is that we have a disciplined approach towards investment. We expect this to come down as we have successfully concluded several of our projects, and we're also reallocating resources towards project execution. Along with these initiatives and also securing new contracts, we aim towards an EBITDA margin of 15% from 2025. We have a solid remaining order book above NOK1 billion. And we are also actively supporting and bidding for contracts with an amount of up to EUR200 million. We are -- our goal and our target is to secure these contracts.
Henrik Badin: Thank you, Tina. We could -- we can have a last slide to conclude, so concluding report on a steady course, stable revenues, double-digit EBITDA in two of three business segments, further cost saving underway, and we are, as you said, Tina, improving our financial performance by a combination of securing new contracts. That's important, for sure, improved margins and increased efficiency. Cruise operators are renewing their fleets ordering new and bigger ships and asking for more advanced systems and solutions for Scanship. And these days, we are actively supporting and bidding for projects with around EUR200 million in the shorter run of potential order intake for the business. And looking at our backlog of orders, looking at the orders that we expect to sign and looking at the cost saving measures we are working on, we believe that we can reach an EBITDA of around 15% next year. It's an ambitious target, but taking these three things into consideration, we expect to be going in that direction. And with this, we conclude our presentation, and we will open up for some Q&As.
A - Unidentified Company Representative: We have some questions from the online audience, but maybe we should start here in the room. If there are any questions? Apparently not. Then we'll go straight to our online audience. [Anders Rosenlund] has three questions actually. He says, do I understand you correctly on the following. You aim to deliver 15% EBITDA margin before unallocated costs. Second, the NOK100 million of annualized -- annual capitalized development spend will continue. And third, revenues will grow year-on-year in the coming years. So maybe I should repeat the first question. You aim to deliver 15% EBITDA margin before unallocated cost.
Henrik Badin: We have elaborated on that for the next year.
Tina Tonnessen: We are executing on the cost program that we have communicated now, and we expect this to deliver an increasing margin going forward. We will have some one-off costs related to this, this year, but from 2025 and onwards, that is our goal, yes.
Unidentified Company Representative: And the annualized -- the annual capitalized development spend will continue around the NOK100 million level.
Tina Tonnessen: No. As we said, we are slowing down our investment level. So we do expect a lower investment going forward.
Unidentified Company Representative: And revenues going forward?
Henrik Badin: Revenues going forward, we are working with growth. We had significant growth last year, and we are working to continue that pattern, but of course, now with much more focus on cash flow and profits.
Unidentified Company Representative: Then there is a question from [Eric Gubla]. What has happened to the allegations of incorrect numbers since 2019? It is difficult to understand that resulting in a massive price drop is enough with a simple justification from Vow, especially since there was no real price recovery afterwards. Can you comment on this?
Tina Tonnessen: Well, our opinion is that the numbers are correct. We have been rewarded each year, and we have no reason to believe that it's not correct. We experienced a reassessment during 2023, leading to a temporarily reduced margin. We are now recovering. So that's what I would like to comment on that.
Unidentified Company Representative: And that concludes the questions from the audience. Thank you so much.
Henrik Badin: Thank you. Thank you so much.
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