Good morning, everyone, and welcome to this third quarter presentation for Vow. For technical issues with the network in the auditorium, we had to do a last-minute move into this conference room. It is a bit packed in here, but we certainly hope everything is working out to your satisfaction and that everyone is receiving this webcast. Today I have Cecilie Hekneby with me, our CFO, to do the presentation of the financials. My name is Gunnar Pedersen. I am the CEO of Vow. I am going to share with you some highlights first. Cecilie will take you through the financials. I will come back with the market and business update before we go into summary and outlook and finally open up for questions. Starting off with the Q3. Q3 was a very busy quarter across the whole company, especially in Maritime Solutions, where we had record high revenues.
We also continued our structured assessment of the company. In Q3, specifically, we did some deep dive into the big industrial projects. What we found was that there were two big projects that had underestimated cost to completion, which has impacted the margins and also leading to reversal of revenue. Cecilie will take you through the details of that. It has been published in a notice earlier on in October. In the Maritime Solutions segment, we have had record high revenue and also very positive development on the margins, perhaps a bit on the very high side compared to what you normally should expect. This is due to reduced share of legacy contracts, but also the project mix. A lot of equipment deliveries, different types of equipment have different margins. This quarter has been very fortunate or favorable in terms of the mix.
The Aftersales segment continues its positive development, improving margins, whereas the volumes are about the same as the third quarter last year. Year to date, however, is a good growth on Aftersales. Our Industrial segment has been facing challenges in terms of underestimated cost of completion, as mentioned. On a high note, what we've formerly talked about as the large reactor from C. H. Evensen , that was finally delivered to Follum last week. We are very pleased with that. Some questions have come across on this. It does not have a big impact on the revenue, but it does have a very positive effect on the cash flow as it triggers some payment milestones. Liquidity has improved significantly with very good inflows. We have also been able to settle outstanding payments to our vendors. It is worth noticing that the covenants were waived for Q3.
Our total order backlog stands at NOK 1,449 million, with another NOK 134 million in options. This provides us with very good visibility into the future. Order intake as of end third quarter is NOK 1,082 million. I should perhaps mention that the delivery of the reactor was subsequent to the quarter. By that, I think I can leave you with Cecilie to do the financials, and I'll come back for the market update. Cecilie.
Good morning. I will give you an update on the financial numbers. This is just an executive summary that actually summarizes what Gunnar just said. Before I start with the walkthrough of the financial numbers, I would like to address the notification published in October and the specific events that led to the announcement. As explained in the stock market announcement, a review of the two major circular solution projects revealed that total cost to completion next year had been underestimated. The reduced project margins and technical reporting of progressive cost led to a reversal of revenue in the quarter. The two projects constitute a major part of the Industrial Solutions segment, and the preliminary consolidated numbers for the group indicated a lower than expected EBITDA for the quarter.
This was still at an early stage in our preparation for the third quarter reporting, but we considered this as inside information that could not be delayed and issued a trading update. Phase I of Follum and Rhode Island represents significant milestones for our pyrolysis technology. An SVP program director was appointed at the end of September to strengthen coordination, execution, and financial control for the projects, reporting directly to Gunnar. He and his team then performed a thorough review of the remaining scope, risks, and handover requirements and found that total cost to completion was underestimated. As a result of this reassessment, a one-time cost increase was recognized in the Q3. How does this impact revenue? Revenue from projects is recognized based on estimated total gross margin for the project according to technical reporting of progress.
The contracts for these two projects are predominantly fixed price with limited flexibility for price adjustments. The updated cost estimates therefore led to a reduction in total gross margin and hence a reversal of previously recognized revenues, but with no cash effect. Circular solution is a key area within the Industrial Solutions segment delivering to the industrial scale pyrolysis market, which is still maturing. With these two projects now entering the final stage, we expect increased cost visibility and tighter cost management going forward. We aim to be transparent in our reporting, but I understand that it may be challenging to follow the financial development for the last quarters. Vow has been in a challenging financial position. Since I started in May, my team and I have worked diligently to secure consistent and precise reporting to get control and provide insight.
This slide sums up what I just have explained, and I will now go through the numbers for the quarter, starting with the key financial for the group. The reporting currency is in NOK. Reported revenue for the quarter was NOK 214 million compared to NOK 267 million one year earlier. On the graph on the left-hand side, you can see -6 in revenue for the Industrial Solutions segment following the reversal of revenue and soft performance in the remainder of the segment, but high revenues in the Maritime Solutions segment and steady numbers in Aftersales. Moving on to the graph in the middle, we have adjusted EBITDA of NOK -29 million, heavily impacted by the financial performance in the Industrial Solutions segment. The order backlog of NOK 1.4 billion remains strong and gives good visibility.
Total revenue was NOK 214 million, down NOK 53 million from Q3 2024, heavily impacted by the Industrial Solutions segment. However, revenue in the Maritime Solutions segment of NOK 166 million is all-time high, following progress on large new building contracts and up NOK 73 million from last year. The year-to-date numbers for Maritime Solutions are impacted by the catch-up effect in Q2. Aftersales make a solid contribution with NOK 54 million in the quarter. This is up 3% from third quarter last year, but up 11% year-to-date. Revenue in the Industrial Solutions segment is down NOK 128 million from Q3 last year and NOK 136 million from year-to-date, following the cost updates and reduced margins for the two projects, in addition to the soft performance in the remainder of the segment.
Moving over to the operational key figures for the quarter, revenue is, as explained, heavily impacted by the updated cost to completion estimates that overshadow the strong performance in the Maritime Solutions and Aftersales segments. I would like to highlight the development of gross profit and employee expenses. Being a project organization, employee hours linked to specific projects are attributed to the cost of goods sold. The group has during the year improved its time tracking and hourly rate precision. With a more accurate attribution of employee hours to specific projects, a larger share of personnel cost is now currently classified under COGS as recovery hours. This, in turn, improves the alignment between project cost and actual resource usage, which provides better insight and basis for pricing of projects.
Reported employee expenses hence vary with project activity and hours allocated to projects and are down NOK 17 million from Q3 last year. Gross employee expenses, including the recovery hours, amounted to NOK 58 million in the quarter compared to NOK 64 million last year. Employee expenses are also impacted by change in the allocation of holiday payment compared to last year, with a higher cost in the second quarter this year and lower this quarter, following when employees actually were on holiday, impacting production. NOK 2.5 million of non-recurring items in the quarter are related to employee expenses. Other operating expenses amounted to NOK 21 million, up NOK 3 million from last year. EBITDA for the group was NOK -31 million, which is slightly higher than the preliminary EBITDA from the trading update in October. EBITDA adjusted for non-recurring expenses was NOK -29 million. Let's look into the development of the segments.
Vow has three business segments: Maritime Solutions, Aftersales, and Industrial Solutions, in addition to administrative, which consists of expenses not allocated to the business segments. There were no non-recurring items in the business segments. The non-recurring expense of NOK 2.8 million in the quarter is related to the admin segment. Adjusted EBITDA for the Maritime Solutions segment was NOK 29 million in Q3, up from NOK 7 million one year earlier, following strong revenue development stemming from high delivery volumes, in addition to increasing margins as the share of legacy contracts are decreasing and replaced with new contracts with revised terms and conditions. The backlog of NOK 1.2 billion is firm and provides long visibility. Gunnar will share some details on this in his part. Aftersales continued to grow with the increasing number of vessels in operation equipped with Vow systems.
Adjusted EBITDA amounted to NOK 10 million in the quarter, up from NOK 7 million last year, indicating an adjusted EBITDA margin of 17%, up from 13% one year earlier. The Industrial Solutions segment was impacted by the cost updates and reduced margins, in addition to soft performance in the quarter in the remaining parts of the segment, leading to a negative EBITDA of NOK 65 million in the quarter. Focus forward in this segment is on selected opportunities with reduced risk and exposure profiling. Moving over to the financial performance in the quarter, we see that financial costs have been reduced. Financial items in the quarter of NOK -13 million are NOK 1 million lower than last year. Interest costs amounted to NOK 12 million, which is down NOK 5 million from Q3 last year.
There was a net foreign exchange loss of NOK 1 million in the quarter, while there was a gain of NOK 3 million last year. Vow reports in Norwegian krone, but most of the contracts are in Euro. About 60% of the project costs are in the contract currency and is a natural hedge. Fluctuation in foreign exchange rates may, however, have an impact on key financial figures, and we have started to look into alternatives to mitigate the risk. Depreciation in the quarter of NOK 12 million is down NOK 2 million from third quarter last year. I also would like to highlight that following the sale of Vow shares in Vow Green Metals in June, the share of net loss of NOK 3 million and a gain of NOK 1 million is recognized in the year-to-date numbers.
Looking at the balance sheet, I would like to highlight the development of trade receivables and trade creditors. Since I started in May, managing working capital with improved processes for collection of debt and payment to vendors has been a key priority. Trade receivables have been reduced by NOK 75 million year-to-date, and the cash collected has been used for settlement of overdue supply debt and other liabilities. Trade creditors are reduced by NOK 102 million year-to-date. Prepayments to vendors are also significantly reduced. Having managed now to settle overdue debt, our working capital is steadily improving, and net working capital has been reduced by NOK 32 million year-to-date. Interest-bearing debt of NOK 557 million, including leasing, has increased by NOK 87 million year-to-date due to the increased utilization of the credit facilities partly offset by reduction in borrowings.
The DnB Term Lo an amounted to NOK 195 million at the end of September, down from NOK 262 million at year-end 2024. The group obtained a waiver for the 12-month rolling EBITDA ratio covenant, and we are in close and constructive dialogue with DnB. Looking at the cash flow development, we started 2024 with NOK 46 million in cash and had NOK 34 million in cash at the end of June. At the end of September, cash amounted to NOK 23 million, with an additional NOK 26 million in available liquidity. There has been high activity in the quarter, and the illustration highlights the main development in the quarter. During the quarter, there has been an inflow from trade receivables of NOK 80 million. In addition to milestone payments, we have succeeded in collecting overdue receivables.
The cash has been used to repay overdue trade payables and other current debt in line with management's focus, in addition to repayment of loans and interest. Having resolved the overdue payables, the overall financial position has improved. Liquidity is significantly improving in the fourth quarter, following large milestone payments both from the Maritime side and Industrial side, and I am satisfied to see that measures taken are starting to show results. At the Q2 presentation in August, we informed that we had initiated a profit improvement program. The target of the program is to strengthen cost control, improve profitability, and increase operational efficiency. We have identified concrete measures and defined several hypotheses. Examples of this are related to cost down, operational efficiency, service cost, and indirect spending. Sorry. The program is under implementation and is part of the budget process for next year.
It is implemented based on feasibility and expected effect, and several actions are already taken. This was a rather detailed walkthrough of the financial development in the quarter, and now Gunnar will give you a market and business update.
Thank you, Cecilie. We are going to start this market and business update with Maritime Solutions. As you can see on the bottom left-hand graphics, Maritime makes up about 53% of the revenue so far this year, with NOK 365 million. The main contract entered into in this period is EUR 11.5 million for advanced environmental systems. Additionally, there are several smaller contracts amounting to a total of EUR 3.9 million for various other deliveries. Order backlog stands at a very strong NOK 1.2 billion, which is 49% up from third quarter last year. Also, margins, as I mentioned, in the quarter at 17.7% EBITDA are very positive.
As I said, it's due to very high delivery volumes of equipment, also with a favorable mix of the deliveries. Looking into the Maritime contract development and a little bit more about the backlog, we have been talking about legacy projects in earlier presentations, and we have received questions about these legacy contracts. How much of the revenue is made from legacy contracts, and at what time are you going to be completed with those deliveries? On the lower right-hand graph, you can see how this plays out. The top dark blue one from the left is from new contracts, whereas the lower part is from legacy contracts. Looking at Q3, there is 35% of the revenue coming from new contracts, whereas the remaining 65% is coming from legacy contracts.
You can also see, and this is based on estimates of when deliveries are taking place and so on, we have made an estimate how this is going to play out through 2026 and into 2027. You can see that, for example, in fourth quarter, new contracts will be about 43% and so on. It can vary a bit up and down. That depends on the contracts and delivery time of these contracts. That is why you see a bit of fluctuation on the split between new and legacy contracts. It is also a fact that we may even enter into new contracts that are legacy contracts. That would be options that are binding to us in terms of price, but options that are valued from quite some years back. Currently, there is one remaining option that we would classify as a legacy contract.
Yeah, I think that's about as good an explanation as I can give here and now on the legacy contracts and that part. Looking at the backlog and the pipeline, this graph on the right-hand side shows when the vessels are scheduled for delivery from the yard to the cruise line. Typically, we deliver equipment 18 months-24 months before. Sometimes it can be as little as a year or even less than that, depending on the type of project, but this is typical. This year, there are 10 vessels. Next year, in 2026, another 10. In 2027, there are 7 vessels to be delivered that are under contract. There are 2 that we're bidding for. You can see going out in time how this grows. In 2028, bidding for seven, another three, no, seven under contract, another three that we are bidding for.
Twenty-nine, one under contract, one option, and 13 that we are bidding for. Currently, the backlog is 37 confirmed orders for cruise ships and one option. The tendering activity, currently, active tenders, 59 new bids, and four retrofits. It is a very active market, and it has very good visibility. We hold a leading position, and we are maintaining our market shares. Looking at where we have delivered equipment this year, in total, we are going to deliver to 18 vessels. Thirteen have been delivered. Another five systems remain to be delivered in Q4. Q4 is also going to be very active for us. On the lower left-hand side, you can see what cruise lines we have delivered to or are delivering to this year. It is all the major ones, basically. On your right-hand side, you can see Norwegian Aqua.
It's commissioned in February this year, so handed over to a customer in February this year. It can hold about 5,200 people, passengers and crew all in all. It was built at Fincantieri at their Marghera yard. We have delivered a full scope of traditional systems, both for advanced wastewater processing, but also for waste disposal on this vessel. This is number three in a series of six vessels that are built for NCL. This year, we have commissioned nine vessels. There's one more to go for the fourth quarter. You can also see here on the bottom which cruise lines they are being commissioned for or delivered to them. All the major ones on this as well. Of course, that's another 10 vessels entering into Aftersales. I've had the opportunity to meet with several of the big cruise lines in the third quarter.
It has been, of course, very interesting meetings and conversations. It is very obvious that well-functioning systems are critical to their operation. In some cases, if these systems do not work, they cannot operate the vessels. Actually, that is in quite many of the cases. Our customers generally express that they are very satisfied with our systems as well as with our Aftersales support. As always, there is room for improvement. To us, we see this as opportunities. We are working on these opportunities to make sure that our customers are even more satisfied in the future. As you can see, bottom left-hand side, Aftersales accounted for 25% of our revenue so far in 2025. We see a strong development over time on the right-hand side. Q3, 54 versus 53 in Q3 last year. That is not a big jump.
If you see the year so far, it's quite good growth on that as well. It varies a bit over time when they order spare parts, when they order services, and also in terms of chemicals for the systems. Strong development over time. Also, in the graph, the metrics, you can see very healthy margins now. We're very satisfied with that. Part of it comes from high volume over the year, giving an effect. This is a healthy level, I believe. For the Industrial Solutions segment, again, as you can see on the bottom left, it accounts for about 22% of our revenue as per third quarter, so NOK 150 million. It consists of the main sub-segment, Circular Solutions and Thermal Heat Treatment, with two major projects within Circular Solutions that make up the majority of the revenues.
We already touched on the deep dive and the effects on the margins on that. It is, of course, very unfortunate when we find such issues in the projects. Of course, we have taken a few steps to ensure that we learn from these. These are first-of-a-kind projects, both of them. It is really important that we spend our time wisely and learn as much as possible from them. The effects, I think we have talked about earlier in the presentation. Just to touch on Thermal Heat Treatment, we still see a soft market in Q3, not so much due to energy prices anymore, but other uncertainties. We do see positive indications related to both defense industry and aluminum. We'll probably get back to that on the next slide. Industrial contract development, again, Circular and Thermal Heat Treatment.
Order backlog stands at NOK 212 million, of which NOK 152 million is circular and NOK 60 million shared among the other sub-segments. We've been asked sometimes about some of these projects that have been talked about in earlier presentations, such as end-of-life tires. I chose that example just to give you an update on that specifically. We have completed feed studies, and we are waiting for final investment decisions from one of the major customers. They are, in turn, now waiting for the final piece of the puzzle, which is the permitting. The permitting for that is expected to be due by the end of the quarter. What we see in Thermal Heat Treatment, we see an improving pipeline with opportunities. Some of these opportunities have resulted in RFQs. Some of the RFQs have also resulted now in active bids in Thermal Heat Treatment.
The volume of active bids is actually quite high, and we are pleased to see that development. VGM, Vow Green Metals, have been mentioned earlier today. I must say they are gaining momentum now. Commissioning is ongoing at Follum for phase I. Engineering activities are ongoing with ourselves and VGM and others for phase II. The large reactor, which is actually part of phase II, was delivered last Thursday. That is what you see on the picture. The big is white plastic that it is wrapped in. It is 60 tons of equipment being lifted into the production facility. It is looking good. It is also worth mentioning, I think, that VGM was awarded EUR 26.2 million from the EU Innovation Fund to build a new large-scale biocarbon production facility in Norway. Of course, this is very interesting for us.
It is strengthening the positive development for the metallurgic market segment for biocarbon. I think we are well positioned to continue playing in that development. We also mentioned that we're revisiting our strategies in the second half of the year, even though they are not concluded yet. I think I can share a few glimpses of where we're headed with you here today. It will come as no surprise that within Maritime, the Maritime segment, we really want to strengthen our competitiveness, but also continue to introduce new technology, new and sustainable technology also into the waste disposal part of that market. We will continue developing our Aftersales services within industry, then supported by a more defined strategic direction, I would say. We will exercise a more selective approach with regards to the type of prospects we go after and also the contract formats within the Industry segment.
With a solid operational foundation, I think we are prepared for moving from analysis and into execution, delivering improvements, capturing opportunities, and also then creating long-term values. Also, we believe that it is important for us as well as for our investors that we can also deliver on an improved overview and predictability for the development and for the values that we are creating. It is very helpful internally, I can tell you, to understand the cost of the deliveries, allocating the cost to the right place and so on. That work will continue. I certainly hope that you will see the results of that as well as we move along. The strategy work is scheduled to be concluded by the end of Q4. We will get back with more info on that. Finally, summary and outlook.
Our customers confirmed a very strong market development in cruise. Yards are actually still expecting to conclude on several contracts that we are actively bidding for during the fourth quarter. We have maintained our strong market position. We also see a positive development of the margins. We will see that continue as the share of legacy contracts is going down, as we saw on the earlier slide. We have healthy margins in Aftersales, and a growing active fleet will continue to bring growth to that segment. The revisit of our strategy will be concluded in the fourth quarter. I think with a much better oversight and control of the financial situation, I'm confident we will also see a very positive development continue on our liquidity. Of course, we do this in very close collaboration with our bank. That concludes the presentation.
Now we open up for questions.
Thank you. There are quite a few questions already from the online audience. I just remind you that if you're watching this online, you can add your or send in your questions by typing it on your screen. First, let me see, are there any questions from the audience here in Oslo? Seems not. While you're thinking about that, let's turn to the online audience. First question is regarding the backlog and pipeline in Maritime Solutions. One observant viewer says he has compared the Q2 presentation with the current presentation, and it seems that some of the bidding, some of the contracts that you're bidding for 2026 and 2027, has been removed from the chart this time. Is that correct?
I'm actually not sure about the details, but if I understand the question correctly, for contracts that we do not win, I expect they will disappear from the charts, not ending up as contracts. External analysts tell us that within advanced wastewater processing, we have had indications of anything from 60%-80% market share. There are contracts we do not win. Within waste disposal, it's slightly lower.
Thank you. There is a question about liquidity. You say you have NOK 22.7 million in cash at the end of the quarter. Will you need to raise more money?
We see an improving situation regarding liquidity. I'm very satisfied with the development in the quarter that we have now settled overdue payments to vendors and that we have managed to collect receivables. That also was overdue.
Now with significant milestone payments coming in in the fourth quarter, we see a very positive development on liquidity.
Will there be more surprises in Industrials, or do you now have a better understanding of the underlying problems?
It would be quite stupid of me to guarantee anything. These are first-of-a-kind projects. What we've done with a thorough deep dive of them, I'm quite confident that we know what the remaining work is, and we know the cost of the remaining work. Not what we have seen here. I think everyone who deals with new technologies and new markets understand that there may be smaller hiccups along the way. We're well prepared for that. We're actually planning for some of these and to find them as early as possible.
In most cases, I think I can say we have also alternative solutions to that ready. I do not expect any big ones.
You also talked about a large customer in Industrials waiting for permitting. Do you have any signals that they will move forward with you if that permit is given?
Yes.
Y ou have mentioned in the past quite a few studies, going four or five years back, studies with names like Unipetrol, Repsol. What can you say about these studies and early projects? What is the status?
Yeah. They are very interesting, all these studies, because it is studies based on different types of feedstock and how you process and what you want to come out of the process. I think certainly our customers learn from those. In some cases, we actually do test runs for them.
We take tests of whatever comes out to certify quality, to look at types of emissions and so on. That is used as part of the permitting process. I would say that we've learned a lot about different types of applications of the technology. It is also very clear to me that our customers are learning along the way, learning what is going to be a business case for them or not. I think if you look across the industry and different studies that are made, it's kind of coming together what everyone thinks is going to be a very profitable one, at least to begin with, and what could potentially become very profitable later on.
There are two more questions from the online audience. We're, I guess, nearing the end of the Q&A session. Let's take the next one.
What is the installed base of Maritime Solutions in terms of number of vessels as well as number of systems?
Ooh. I've heard a number, but I cannot remember it. But it is quite a significant number of systems, in the hundreds.
And then there's a follow-up on the cash and liquidity situation. Can you be more specific in terms of what you expect in terms of cash inflow in Q4?
We do not guide on the cash position at year-end. But as I already presented, I'm satisfied with the development. It has been quite challenging for the company over time. But we see a significant improvement. So I'm looking forward to reporting the fourth quarter.
Then there is actually one more. You have previously talked about return to 15% EBITDA. Now you report 17%-18% for both cruise projects and Aftersales.
What do you expect in terms of margin expansion going forward?
I do not think we guide on that either. We are seeing healthier margins in some areas. We are definitely working to continuously improve. I think it is also important to say that when we are able to, for example, reduce cost on producing and delivering equipment, some of those improvements, we need to use those to improve our competitiveness, to ensure that we are still competitive. With high market shares, there is only one thing you can be really sure of, and it is that your competitors are hungry. They will do everything they can. You need to be forward-leaning and work on the cost. You need to be prepared to share some of your improvements.
There is one more.
With covenants based on 12-month rolling net interest bearing debt over EBITDA, you're likely to be in breach several quarters ahead. How will you address this problem?
We are in close and constructive dialogue with DnB. We are working on, we see an improved liquidity. We are working on the to build a more profitable company. I'm sure that we together will find a good path.
Thank you. There are no further questions. Back to you.
Thank you.
Okay. Thank you, everyone, for watching.