Okay, it is 9:00 A.M. Welcome, everyone, to this second quarter, first half year presentation for Vow. Today I have Cecilie Hekneby, our CFO, with me to help present on the numbers. My name is Gunnar Pedersen. I'm the CEO of the company. Let me start with the headlines. Like we indicated in our first quarter presentation, we have started a structured assessment of the business. During this analysis of the Q2 numbers, we did find a couple of issues, and we will get back to the details of those in the presentation. The underlying operation in the maritime business is showing good progress. We have a solid backlog. We have a 9% growth on the top line, and also we have improved margins. Also, the Aftersales segment has continued its positive development, delivering top-line growth and also improved margins.
Our Industrial segment is facing challenges in its financial performance, and the backlog is getting thinner, and we will get back to that. For the company overall, we see that improvements in the financial performance are needed, and we have launched a program addressing this. The profit improvement program will strengthen cost control, and also we will be addressing things like our products, how we deliver them, how we transport them, but also other costs like in-house consultants and so on in this program. The whole disclaimer for you, you can read that on your own. Some highlights. Continued high activity in Maritime Solutions. There are 10 vessels to be commissioned this year, while we deliver equipment to 18. Solid growth and margin improvements have continued in Aftersales. On the Industrial Solutions side, we have now started the commissioning phase at Follum.
In heat treatment, we see a temporary slowdown in the investment activities due to tariffs. The long-term potential, however, remains positive. We have a strong order backlog, NOK 1.4 billion. There is NOK 259 million in options, and specifically in the maritime segment, we do have very good visibility into the future. At the end of June, the 30th of June, we received the payments for the VGM shares, and the net proceeds of NOK 35 million were used as an additional installment on debt. Since Q2, not in the report, but since Q2, we have also seen better effect in our debt collection. Overdue receivables have been worked on, and that has helped us improve our liquidity. We will take you through the numbers now, and Cecilie, please.
Good morning. I will give you an update on the financial figures for the period, but first, I would like to address the issues in the notification published in July regarding the error in the Q1 reporting and expected one-offs for the second quarter, leading to a breach in covenants. My team and I have, since I started in May, worked to increase the quality of our reporting and to improve internal processes. As part of this work, we identified two separate issues in connection with the closing process for the second quarter. The Q1 error relates to the elimination of internal margins for projects. Internal margins in projects between group companies are eliminated until project completion, and upon completion, the margins are reversed. This elimination has a timing effect to avoid internal margins contributing to project progress recognition.
For full year 2024, the elimination was correct, but for the first quarter, a technical accounting error made in the consolidation file was done. The impact of this error was NOK 16 million, mainly impacting the Industrial Solutions segment. The error has been corrected and Q1 restated in the results presented today. At the same time, we had a thorough review of all our projects, about 50, 60 projects. Since revenue in projects is recognized in the P&L according to the percentage of completion method, cost updates and technical progress in the project impact on booked revenue. In the review, we found several items that were considered necessary to adjust. The catch-up effect in the second quarter impacts gross profit in the Maritime segment with NOK 32 million and in the Industrial Solutions segment NOK 3 million, a total of NOK 35 million.
The overstatement of EBITDA in the first quarter and the expected one-off charge in Q2 was considered to be information that must be disclosed immediately. In the notification, it was also published that Vow , as a consequence, was in breach of its financial covenants but had a close and constructive dialogue with DNB to secure a covenant waiver. During the summer, we worked closely with DNB, and on the 20th of August, the waiver was obtained and published. There is still a risk that we will be in breach of covenant for the third quarter and fourth quarter due to the impact the first quarter and second quarter has on rolling 12 months EBITDA. We are in constructive dialogue with DNB, and we meet regularly.
Internal processes and controls have been reinforced to ensure consistency and compliance with policies and procedures, and we have started planning for consolidation in a system instead of Excel as today. Let's look at the development on key financials in the period. The reporting currency is NOK. On the graph to the left, you can see that the reported revenue of NOK 228 million in the quarter is down NOK 25 million from Q2 last year. The catch-up effect impacts the Maritime Solutions segment negatively with NOK 25 million. Hence, the underlying revenue development for the group, excluding the catch-up effect, is flat, with positive development in the Maritime Solutions and Aftersales segments offset by revenue development in the Industrial Solutions segment.
Moving on to the graph in the middle, we see that EBITDA adjusted for non-recurring cost of NOK 3 million in the quarter related to change of management is NOK -33 million. Excluding the catch-up effect of NOK 35 million, adjusted EBITDA is NOK 2 million. Positive underlying development in the Maritime Solutions and Aftersales segments are offset by lower profitability within Industrial and some increased operational cost. The order backlog on the right-hand side of NOK 1.4 billion remains strong and gives good visibility. The catch-up effect impacts this presentation quite a lot, but we have tried to show the underlying development in the group as well. The catch-up effect impacts revenue by NOK 25 million in the quarter and COGS with NOK 10 million, total NOK 35 million.
Excluding the catch-up effect, we see positive development in the Maritime Solutions segment and Aftersales, both in gross profit and gross margin. We can see that the Maritime Solutions segment is up 8%, 9%, and the Aftersales is up 9% in the quarter, while Industrial Solutions is down 5%. Underlying growth is 3% for the first half year with the same development. We see the same pattern in gross profit with positive development in Maritime Solutions and Aftersales offset by the development in Industrial Solutions. The reason for the negative development in Industrial Solutions is increased commissioning cost and changes needed late in some projects. You can also see the margin development on the bottom of the left-hand side that the margins for the Industrial Solutions segment were higher in the second quarter last year. The total margin for the quarter is 27%.
The operational key figures are heavily impacted by the catch-up effect on gross profit and performance in the Industrial Solutions segment. We also see that employee expenses are up NOK 10 million compared to the second quarter last year following increased number of employees and in-house consultants, annual salary adjustment, and changes in allocation of holiday payment with full salary in June and lower in July when personnel is on vacation. Non-recurring costs in the period are related to costs mainly associated with changes in executive management. Adjusted EBITDA of NOK -33 million is NOK 54 million lower than in the second quarter last year. NOK 35 million attributed to the catch-up adjustment, while NOK 20 million is related to increased COGS and operating costs compared to the last period.
We have, as Gunnar said, started a profit improvement program to strengthen cost control, improve profitability, and increase operational efficiency. The program will cover areas such as product cost down, reduced use of in-house consultants, more efficient use of transportation, and so on. The whole organization will be involved in this work. Let's look into the development of the segments. We have three segments. Reported revenue in the Maritime Solutions segment was NOK 97 million, as you can see in the column to the left. Excluding the catch-up effect, revenue is NOK 122 million, as you can see in the next column, which is up 9% for the quarter and with improved profitability as the share of legacy contracts is decreasing. Underlying adjusted EBITDA in the quarter was NOK 17 million, up from NOK 11 million with 14% margin, up from 10% one year earlier.
The growth is primarily driven by increased delivery volumes to shipyards and progress on new, larger new building contracts. The backlog is firm with long visibility and revised terms and conditions in the new contracts. Aftersales continue to grow with an increasing number of ships in operation equipped with Vow systems. Revenue of NOK 59 million in the quarter is up 8% from NOK 55 million last year. Measures taken to improve profitability are starting to show results. The adjusted EBITDA margin of 17% is up from 8% in the second quarter last year, giving an adjusted EBITDA of NOK 10 million in the quarter, up from NOK 5 million in the second quarter of 2024. The Industrial Solutions segment continued to deliver on large ongoing contracts during the quarter. The decline in profitability is mainly due to increased costs at the end of some larger projects.
There is good progress on FEED studies, but it takes time to convert into firm orders. Administration consists of expenses not allocated to the business segments. These are costs related to general administration, owner costs, and costs associated with being a listed company. In the second quarter, administration costs total NOK 12 million, of which NOK 3 million were non-recurring and related to changes in management. Let's move on to the financial performance in the quarter. As already presented, EBITDA is heavily impacted by the catch-up effects, as well as higher COGS and personnel expenses than in the last period, but financial costs are reduced. Depreciation and amortization are on the same level as in the second quarter last year.
Following the sale of Vow shares in Vow Green Metals in June, the share of loss is zero compared to a loss of NOK 3 million one year earlier, and a gain of NOK 1.4 million is recognized in the period. Interest costs are down NOK 2.5 million, and financial items of NOK- 17 million are NOK 3 million lower than one year earlier. There is a net foreign exchange loss of NOK 5 million in the quarter. Vow reports in Norwegian kroner, but a majority of the contracts are in euro. About 60% of the project costs are in the contract currency and is a natural hedge. Fluctuations in foreign exchange rates will impact key financial figures, and we are looking into alternatives to mitigate and control the risk. Over to the balance sheet.
Since I started in May, improving processes for collection of debt and payment to vendors have been a priority, and there has been significant improvement. Other assets have been reduced following reduced prepayments to vendors, and trade creditors reduced due to payment of vendor debt. Net working capital was reduced by NOK 2.5 million at the end of the quarter. Subsequent to the quarter, improved processes for debt collection have reduced overdue by more than 50% since I started, improving liquidity. Interest-bearing debt increased from December to March, but is down NOK 16 million in the quarter. Let's turn to the cash flow. Looking at the cash flow development, we started 2025 with NOK 47 million in cash and had NOK 34 million in cash plus NOK 56 million in undrawn credit lines at the end of June.
The main reason for the low operational cash flow in that period is related to significantly lower cash inflow from ongoing projects in the first half of 2025 compared to the same period in 2024. There has been significant outflow to prepaid trade payables in the period. However, this cash outflow has largely been compensated for by significant reductions in prepayment to vendors. In general, the business working capital is heavily influenced by the timing of milestone payments and contract terms on ongoing projects, especially in the Industrial s egment. Cash flow from the sale of the shares in Vow Green Metals in June was NOK 35 million. This was used for an additional repayment on the term loan, and the shares were pledged, so that was part of the agreement with the bank.
Subsequent to the quarter, initiatives to improve processes for debt collection have some results impacting the cash balance positively, which leads me to my financial priorities. Managing working capital to optimize cash flow remains a key priority to enhance our financial position. The improved processes for debt collection are starting to show effect, and I see a change in how my colleagues across different teams now address this. Secondly, I will follow up closely on the profit improvement program and look forward to working together with my colleagues to increase the operational performance and our competitiveness. Thirdly, I will continue to evaluate, improve, and standardize accounting policies and processes across the group to secure consistent and precise reporting. During the second half of 2025, we will revisit the strategy, and we may consider impairment testing of certain balance sheet items. Lastly, I will continue to work on capital structure improvement.
Now, Gunnar will give you a market and business update.
Thank you, Cecilie. A market and business update. We are going to start with Maritime Solutions. The cruise market continues its positive development. It's high occupancy on board the vessels. The cruise lines have improved profitability, and this results in new orders for new builds of vessels. The order books at the yards are filling up. If you order a cruise vessel today, you'll probably have the delivery of the vessel in 2033, 2034. This means, of course, a lot of good opportunities for us. There are two contracts mentioned here that were closed in the second quarter. Looking at the numbers, I will refer to the column with the Q2 2025 X catch-up. That's the underlying operation, which I believe represents how we truly perform. Looking at that, we had a second quarter order intake in the Maritime Solutions segment of NOK 77 million.
The first half of the year, NOK 802 million. As you will see later on, there are a lot of bids active in the market. We expect a lot of these contracts to be closed, or the yards to close contracts for these vessels through the second half of the year. We are very eager to close some of those contracts ourselves. Underlying operation, as I said, improving, top line growing by 9%, and also strong improvement on the margins. This is partly a result of legacy projects fading, but also effects of other activities that have been initiated. The backlog for the Maritime segment is strong. It's NOK 1.25 billion. We will take a closer look at the backlog and the pipeline in the next slide. I forgot to mention, but you can see it on the slide, it's 42% of our revenue, which is in this segment.
The backlog and the pipeline increase. On the right-hand side and on the graphics, you can see the color indicating if it's in the backlog, if it is an option, or if it is currently being bid. Currently, we have 35 vessels under contract, and there are options for two more. It's a strong pipeline where we are currently tendering 49 new builds and three retrofits. This gives us very good visibility into the market several years ahead. Typically, our equipment deliveries happen about 18- 24 months before the vessels are delivered. What you see on the graphics here is when the vessels are being delivered. Talking about equipment deliveries, this year we have to date delivered equipment to 12 vessels. There are many deliveries to every vessel. It's like a continuous ongoing delivery if you wish. Total deliveries this year are for 18 new builds.
We believe we hold a leading position within new build of vessels, specifically in our core market, which is cruise vessels from 1,000 passengers and up. A cruise vessel of 1,000 passengers is, when you're on board, it feels like a quite big vessel anyway. It's not a small one. The biggest one has close to 10,000 people on board. We have contracts with all the major yards that build cruise vessels. Most of the cruise vessels are built in Europe. There is activity in Asia as well. We have delivered equipment for two vessels being built in China, the Shanghai Waigaoqiao shipyard. One is in operation. The second one is delivered, but entering commissioning early next year. There are activities for new builds going forward as well, which we, of course, follow closely. What they build in China is typically vessels ranging from 1,000- 1,500 passengers.
That takes us into commissioning. Commissioning is all the activities we do just before the vessels are handed over. It's testing the installation, testing the equipment, starting up the equipment, verifying that it actually works the way it's supposed to. It's a short period of time. It's quite labor-intensive. A lot of hours go into that part of the project. In 2025, we're commissioning 10 vessels. I know I said 12 in the Q1 presentation, and that was correct at the time. Two of the vessels have been shifted into 2026, and that is the yard who has shifted them and controls that. Ten vessels this year, very high activity level for us. Five have been completed by Q2. I believe by today, about eight have been completed, and there are two more to go.
The picture you see on the right-hand side is far right, Icon of the Seas, and the second one, Star of the Seas, closest to us. These are vessels built at Turku. Star of the Seas left Turku in July this summer, and it's about to enter operation these days in the Caribbean. Feel free to book tickets. These vessels have close to 10,000 people on board. These are really, really large vessels. These are, of course, vessels entering, when they leave the yard, they enter into our Aftersales activity, which leads us to Aftersales. Positive development in Aftersales. Aftersales is about 25% of our revenues. Increasing the number of vessels means an increasing number of systems in operation. These systems need to work. It is important for the operation of the vessels.
It means spare parts, various consumables, chemicals, and things that you use to clean water, etc., services, and so on. It's a good business for us. Looking at the numbers at the bottom, you can see that there is growth both on the top line and also on the margins. This is a good trend that has continued since Q1. We still think that we can do more to develop the aftermarket, and we are working on that. Industrial Solutions, about 33% of the revenue first half of this year. The backlog is getting thinner, specifically in a part of this segment, circular solutions, where you find, for example, the Follum project, the Rhode Island project, end-of-life tires, all of these projects, and the studies that have been presented here earlier. That part is a new market. It's a market which is under development.
Clearly, developing this market takes a lot more time than anyone has expected. We will revisit our strategies to see how we can focus our efforts and reduce the risk exposure. There are some very exciting opportunities as more professional industrial players with very high ambitions enter this market. A good example, I think, is Hitec Vision acquiring the shares in Vow Green Metals. This segment represents a strong potential for growth in the, I would say, mid to long term. Several of the opportunities are being or have been addressed through FEED studies. Equipment deliveries are mainly completed for the big projects of Follum Phase 1, Rhode Island. For these projects, the profit margins are impacted by increased cost. The project model that we're now applying for this type of project has changed. We're no longer doing projects in the same way.
Today, we do FEED studies or pre-FEED studies, which enable us to get more accurate estimates of the cost in the projects. We expect to see good results of that going forward and less surprises. Within heat treatment, the customer investment activity has slowed temporarily down due to tariff uncertainties. An example would be heat treatment for the auto industry, the automotive industry. They are still uncertain how the tariffs are going to impact the export of cars to the U.S. They hold back on their investments. The long-term potential, however, remains very attractive. What we do see on a positive note is, of course, an uptick in the defense industry, and their investments are growing, and that brings us new opportunities in the heat treatment segment. We have been working quite some time together with very forward-leaning cruise lines to establish pyrolysis solutions suitable for the maritime market.
It's good for the space it takes on board. It's good for the financial performance of the cruise line. It's good for the environment. A lot of good things about it. The first solutions have been installed, and there is a lot of interest around this in the market. Now, to support the introduction of this new system, we have established a full-scale certification lab, and it's about to go operational in September. We will use it for characterization of various feedstocks to support certification, as well as for training our own personnel, operators, and for demonstrations. We will, of course, capture and analyze data from this test site and analyze them in terms of validating reliability, demonstrate performance, and also drive continuous improvements of the technology and the surrounding products. Hitec Vision successfully acquired the shares in VGM in June.
Commissioning of the Follum project has been initiated, and we are working closely with VGM , preparing for phase 2 . We have built a large reactor, which is suitable for Follum Phase 2, and the delivery timeline for this reactor is part of the ongoing discussions with VGM . I think that in Hitec Vision, VGM now has an owner with financial strength to complete the Follum project. It also has an owner with very high ambitions. We are truly excited about the opportunities that these ambitions bring us going forward. Summary and outlook. The underlying operation in the Maritime Solutions segment is good. There's a solid backlog. There's improvement. There's growth in the top line and improvement in the margins. The Aftersales has continued its positive development, both in top line and margins. We believe we can develop the Aftersales market further.
Our industry segment is facing challenges. We are addressing those in the coming period. For the company overall, improvements in financial performance are still needed. We have shared with you something about the performance and the profit improvement program. We will continue our structured assessment of the business. We will be revisiting the strategies to align to changes in the market. The picture you see on the right-hand side is actually, that's the hands of Hamid, our sales guy in cruise. It's from a visit we had two weeks ago on board Viking Vela here in Oslo, where we were taken all through the lower decks where we have a lot of equipment. It's fascinating to see all the equipment that works and talk to the crew about how it works, how it is to operate, what improvements they see we could do to the equipment. Very interesting tour.
What you see here is actually from the advanced water processing plant . This is the water that is ready to be sort of offloaded into the ocean from the ship. I also put my hands under it. It is crystal clear. There is no smell to it. We are monitoring the PPM content of stuff in it, and it is way, way, way below any limits. It's impressive. It's a very strong technology. I think this is kind of the product that gives us the really, really strong position in the cruise market. Thank you, everyone. We're open for questions.
Thank you, Gunnar and Cecilie. We are now opening for questions. We have a few questions already from the online audience, but we want to hear from the auditorium first. Any questions?
Thank you for all the clarity given in today's presentation. In terms of land-based, you mentioned Hitec Vision, the Follum, you say there are maybe some possibilities within defense. Still, I mean, the cost base today versus the current backlog versus the balance sheet is kind of a bit mismatched. Could you take us from how you think you're going to move from today until kind of a more aligned strategy on that segment? As I guess both the Maritime business and the Aftersales is kind of with the catch-up effects taken today, moving into profitable territory here on out.
As I said, we are revisiting the strategies towards the end of the year now. We have a close dialogue with our customers, taking input, looking at different scenarios, their ambitions, and potential timelines for their ambitions. Looking at how can we support them? What is needed to be able to do that? That's part of the analysis that we do. It is a lot depending on the market and what we end up believing is the right sort of speed in the market. What is the right development in the market? How we are going to do this? We still have a lot of activities going in the ongoing big projects. We've mentioned the two largest ones, which are Follum and Rhode Island. For that, the coming period is quite labor-intensive. It is a lot of activity related to commissioning.
Labor will be busy in projects in existing contracts for a long time.
In terms of the projects now or the contract discussions within Maritime Solutions, I mean, obviously, we've had a very large market share recently. When you see it now from the outside, did you have that market share because you were writing very, very kind contracts with very beneficial terms for the buyers of your product? Is that impacting potentially the market share going forward?
I've been in meetings, negotiations with, I can't say which yard, but with yards this summer. Meeting with the sales organization, no, the purchasing organization, of course, they tell you that you're too expensive, your competition is lower in price. Still, they are ready to sign a contract with you. What we do is we enter into a dialogue to try to both find out what is the right price level. As I said, if you hurt over time, and if you start losing contracts, you're not competitive and you lose contracts, then you need to do something. Every time you win a contract, you know your competitor, they go home. You go open the champagne, but your competitor, they go home to the office to figure out how can we beat the scent ship the next time.
You need to continuously work on your products, improve your products, look at how you build it, how you do engineering. Can we be more efficient in how we do that? Can we be more efficient in how we transport and so on? We started early June, actually, a campaign looking into that. Yes, we do have a list of activities that we are kicking off or have kicked off that will help improve us on this. It would improve our profitability. It would improve our competitiveness. The balance is difficult to understand. How much do you need to give of your improvement to win the contracts? I'm very confident that we will be very competitive in the future as well. We are today, obviously, we are winning contracts. I think this is looking really good going forward.
We have a lot of potential for improvement in our operation and so on. To me, the cruise is on the right path for us.
The reactor that you have, that's sitting on your balance sheet, right? If you were prepaid for that reactor phase 2 for Follum, that would be liquidity quite fast.
Yes, that's right. The cost of the reactor is in the balance sheet. It will give us additional liquidity when we ship it off to Follum.
Thank you. Seems to be no further questions from the audience here. There are a few from our online audience. A couple of questions concerning cash flow, cash burn, and liquidity going forward. Question, how do you assess the company's current cash flow and cash burn, and what are you doing to ensure sufficient liquidity going forward?
Yes, as I already also presented, the management of working capital has been my priority since I started in May. Vow has, as you all know, been in a challenging position for quite some time. We have a good overview and have, during the last month, improved our internal reports and forecasts to get control. I feel quite comfortable with the balance sheet as it is today, with also the ongoing initiatives that we have. The improvement of debt collection, we had quite significant overdue debt to collect, which has really improved, especially since after, actually, the 30th of June. We also have the cost improvements program. Of course, we monitor it very closely. It's been an important part of my workday so far, but we do see that the initiatives that we have implemented are really starting to show effects, so we can also work on other matters.
Thank you. You mentioned also briefly in your presentation the covenants and loan agreements. Is there a risk that Vow may be in breach of existing agreements going forward, and what can you do to manage this?
As I said, there is a risk that we are in breach also for the third quarter and perhaps also the fourth quarter, since the results of the first quarter and second quarter impact the rolling 12. That is part of the covenant structure. We are in close dialogue with DNB. We have been working closely with them all summer, and we are meeting regularly to discuss this. We have also, in this period, as I said, gone through our reports, our forecasting to really have a good insight in what we expect over the next months. Of course, the covenants are measured at the quarter end. We are working closely on this.
There is a very direct question when it comes to industrial s. Are you trying to sell industrial s?
No, there is no ongoing activity like that. As I said, we are entering into a strategic review. Any company probably does this every year. You run a strategy process. For us, it is natural to do this at this time of the year. Maybe typically you do it in the first half of the year. Given the timing when we started, it's natural for us to do it now. We'll just have to look at what will be the outcome of that strategy. I'm quite sure that what the strategy will show is a result of both where we are, but also what's going on in the market and what we believe is the sort of the right speed in the market, the right tempo. It's interesting. We'll see when we get there.
There's one final question. You mentioned that you're launching a profit improvement program. When do you expect these cost effects to materialize into the P&L, and what will be the annual run rate of net savings, you think?
Yes, we have already started to cut some costs. We have identified quite a few areas where we see that there is potential. We will now involve the whole organization in this profit improvement plan. It's too early to say a number. We will come back to that, but it definitely is a potential. Some of it could be seen in the P&L this year. Some of it will take longer. That is depending on the agreements, but definitely a potential.
If I may add, I think this is something that any business really needs to be doing continuously. You need to continuously work at all these things. When you do that, you build a culture for it. It will just go on and go on and go on. That's how you stay competitive, and that's how you stay profitable.
Thank you. There are no further questions, I think, from either the audience here in the room or online. We hand back to the presenters to round off. Thank you.
Thank you, everyone, for being here or watching online. I think by this we can end this second quarter, first half year presentation. Thank you. Have a good day.