Welcome to Vow's first half 2023 financial presentation, our trading update. This presentation will be in 2 sections. First, Tina and myself will go through the financial updates, and we will also have a section with a deep dive into our technology applications, our industrial industry scale-ups, and new interesting developments on the market side. That part of the presentation, we will be joined by our Chief Development Officer, Per Carlsson, and our Vice President Innovation, Pål Jahre Nilsen. First and foremost, the update for the first half year. This picture shows the rendering of our new projects in U.S., where we have been waiting for an order to proceed, a contract that we signed last year, and that order to proceed came in July. Great news! This will be a large project in land-based U.S.
It has received a lot of attention, we truly believe it will be basically snowballing opportunities in the coming years in the United States. Let's look at the key takeaways for the first half-year. We continue our growth in revenues with a 12% increase year-on-year to NOK 449 million. Our EBITDA, at NOK 29.6 million, reflects good performance in Cruise and Heat Treatment Solutions in our well-established part of our business, but also the cost of building up pipeline towards industrial solutions, towards our land-based opportunities. Aftersales delivered record high revenue and profits, well above the pre-pandemic levels, and it continues to perform well. Order backlog at NOK 1,145 million remains solid, providing good visibility into revenues and cash generations on the medium-term. We do have high tender activity.
We have intensified our tender activities in this period. Also, very important, new long-term financing agreement in place. We have been working on this through the summer. Tina, our new CFO, has been instrumental in leading that, and we successfully obtained new financing with DNB that provides financial support in continued growth. Looking at the development of the last five half years, you see the revenue development, a steady, sustained growth increase through the pandemic period is actually a fantastic development. Now, also, the development in aftersales. Last year was dominated by our major delivery of equipment to Vow Green Metals' first factory in Norway. We had high revenues. This year, we are developing new projects, and the revenue stream is impacted from that. You see the development of the EBITDA, and it's going down, but I will explain why it's going down temporarily.
You see the development of the order backlog. Looking at 12 months rolling the trend each half year, we're now at a trend of 832 because of lower revenues in the first half this year. Also the EBITDA development in that trend. Looking at the business segments and what to say before we dive more deeply into them. Industrial, the pipeline we see to deliver on the opportunity, it's according to a strategic plan we have set, and we're staying firm on that. It's one, it's one third of our, it's 33% of our revenue, and in the period, we're break even. Maritime, continued high activity and good performance. 48% of our revenues at 20.4% EBITDA. Aftersales, nicely recovered, 19% of our revenues, 50% EBIT.
Looking at the Industrial Solutions, our land-based activities, revenues are down to NOK 147.7 in the period. We're break even on the EBITDA level. Backlog, NOK 509 million. As I said in the introduction, we got the order to proceed in July. We're actually expecting, according to our plan, to obtain that order to proceed in the end of the first quarter, beginning of the second. It came in July. C.H. Evensen is performing very well. They have good growth and strong margins. They have good demand for their technology to many different industries. They are signing up orders. We have intensified our tendering activity. We're increasing our capacity and our capability within this segment. Why are we doing this? This is why.
We see huge opportunities, when we presented our numbers in the first quarter this year, we had at the time identified around 80 projects, industrial scale of projects, for a total potential order volume of NOK 25 billion in the period until 2029. Already, already now, when we leave the first half year this year, we are working on 33 projects. Developed them, some of them we have already tendered. We see several new industry majors are evaluating our technologies. Some customers are considering multiple projects. We now the project we now are working on in the pipeline, well, we truly believe there will be an investment decision on this project in order to proceed within the next 3-4 years. The average of these are EUR 40 million. It's a change in the dynamics.
Again, we're building capacity, we're increasing our capabilities. We need speed. We're staying firm on our plan to grow. Temporarily, it hits our margin. Going back to the well-established part of our business, Cruise. Continue high revenues, driven by high activity. This first half year, we are delivering main equipment to 14 cruise newbuilds, 2 retrofits. We have our backlog now at NOK 636 million, our revenue at NOK 214. As I said in the introduction, 48% of our revenue stream. This is the picture we see. We already have 30 confirmed contracts for ship that will be entering service until 2029. On top of that, we have 16 optional contracts following these contracts. We are tendering for a volume of 47 new cruise ships. The cruise industry have recovered from pandemic.
They are coming back into black numbers, and we truly believe it, with the intensified activities at the yards and the discussions we have with the ship owners, that they are now ready to continue their growth plan, building more ships. Already 47 ships we are working on the tender for. Also, they have seen they're really interested in our new technologies, pyrolysis, pyrolysis on board cruise ships. Most of our cruise ships are equipped with waste handling based on incineration. Moving into pyrolysis, we will be able to recover energy and help them offset CO2 emissions and finally end the waste. The industry is very keen on that.
Already now, in the latest months, we have had the large major cruise owners in Norway looking at our test facilities, and we had very interesting meetings, and 10 projects were out of these 47, is very likely now to be equipped with this type of new technology that we are bringing to market. We see more interest now as the cruise industry is back in black, that they will continue with retrofits, so we're working now on 3 AWP potential projects that are considered. After sales, as I said, NOK 86.9 million of revenues in the first half-year, record high. Full year was NOK 119 million in 2022, impacted by COVID. You can do the math, where we are now heading this year, and a 50% EBITDA margin. This is driven by the installed base.
More and more ships are entering service, and this will drive this business area going forward. Tina, why don't you give us some input to the balance sheet, the P&L balance sheets and the cash flow?
Yes.
Take over. Thank you.
Thank you, Henrik. Now over to some figures for the group. Sorry. A little mistake there. We deliver all-time high revenues for the first half of 2023, coming in at NOK 449 million, and representing a 12.2% growth. This is mainly driven, as said, by the maritime solutions and our after-sales business, and also offset by the reduced activity that we see in the industrial solution space. Our EBITDA came in at NOK 29.6 million, representing a margin of 6.6%. This is impacted by the investments that we've done in the organization and preparing ourself for the growth in the industrial space. We recorded non-recurring costs of approximately NOK 3.3 million for the first half of 2023.
This is mainly related to IT costs for the new ERP system. EBIT came in at NOK 5.5 million, and net financial items consist mostly of interest and gain on the convertible loan that we settled related to the acquisition of C.H. Evensen in May, and also our share of the net profit from our associated company, Vow Green Metals. Result before tax was NOK 9.1 million. Moving over to the balance sheet, the increase that we see in our asset side, compared to year-end 2022, is mainly related to the investments that we've done in R&D and technology to grow industrial solutions. We also have some increase in working capital due to our high activity level.
It's important to note that the balance sheet does not include the effect of the refinancing that we did during the summer. This gives us good flexibility and ample room to grow. Our equity ratio came in at 35.4% at the end of Q2, compared with 36.5% at the end of 2022. Moving over to the cash flow, we recorded a negative operating cash flow of NOK 15 million for the first half of 2023. This is mainly driven by working capital due to our high activity level. Investments came in at NOK 46 million, and this is also mainly related to, again, the investments that we do in industrial solution space, within R&D and technology. Net cash from financing, ended at NOK 35.8 million, and consists of debt, leasing, and interest payments.
Also, included in this is also the repayment of the convertible loan to C.H. Evensen in May, which was settled in cash. Our cash ended at NOK 17 million for the period. Again, important to note that this does not include the refinancing that we did during the summer. Another important aspect is that we received a large incoming payment, related to the contract we received this summer, which is also not included here. As of today, we have a solid available liquidity position of above NOK 100 million, that will provide us with ample room to grow.
Thank you. Thank you, Tina. Now we're moving over to the, to the next section. We have. I'm very proud of that, we have a strong team with a lot of experience in this company. Highly qualified people that comes from many different industries. We have also a team of PhDs, and two of them are here today. They don't like that I say PhD, but it's a strong asset for us. Per Carlsson, our Chief Development Officer, why don't you give us some-
Yes
insight.
Thank you, Henrik.
Followed by Pål, and I will, I will return with some summary.
Thank you, Henrik. I would like to give you a small technical insight how we work with our technology developments. What I consider our four main industry verticals, covering primarily metallurgical end-of-life tires with insights to energy, and Pål will give you a deep dive into the waste valorization. Let's jump into ELT, our developments that we have been doing together with Mark Murfitt at Murfitts Industries for some three years now. We are now moving into scale-up of that business together with Mark and his team. It's important to know what do we do when we go from a smaller scale development, like we have at Mark Murfitt's at Lakenheath in England, and how do we grow that into an industrial production site?
Key takeaways that are important for us when we work with this is the modularity, scalability, and standardization. That we get repeat developments and repeat implementations, that we don't develop one-offs, that we can replicate in different parts of Europe, primarily. This is the example where we have a modularized units. You are seeing three modules here that will cover some four tons an hour, roughly, of granulate producing TPO and recovered carbon black. One important aspect here is that this is a two-stage process where we've used one BioGreen reactor to do the main conversion, and we have a polishing step at the end. This is something that we also transfer to our work when we work with biomass for metallurgical purposes primarily.
It's a two-step process, which lets us have better process control, and increased capacity of each production line. This is line seven, which will be mechanically completed in the coming weeks, and there is no change of plans for the Q3 start this year. Talking about repeatability, modularity, and standardization, this is green development concept, solid solutions, production line, and you see the same type of configuration here as line seven. Here we have using three, four machines, four parallel production lines, but the same technology as we are building at Follum line seven, same technology as will be used at Follum, the main phase one factory. That's the repeatability, the standardization program that we've been working on to get to this point. That's at capacity of roughly 10,000 tons a year of production capacity of biocarbon.
What happens when we move beyond that, is now we are start to impact the logistics surrounding the factory. Now, the energy offtake becomes much more important. This is a production line with roughly twice the capacity that we see as Follum, and now we see impact in the surroundings. The energy offtake becomes much more important, that the logistics for the biomass becomes much more important. That is something to keep in mind. Why do we choose this production, why do we have 5 tons for the C.H. Evensen machine? Why not 10? Why not 20? Is the impact that each of these machines will have on a site becomes much more important.
We, the selection here is that this size of a producer's reactor will have many more areas where it works in a good envelope, in a good frameworks, compared to a bigger solution. Instead, we choose to have parallel lines. There are exceptions. On some sites, the framework in which the technology operates brings us an opportunity to have many parallel lines, and this is an example that was announced in February 2022. We engaged in a letter of intent with a global world-leading provider of non-ferrous metals. Since then, we have worked closely with them to find a production concept that works with a product quality that they can work with, and a byproduct management that is feasible for them.
We have finally, at the beginning of August, reached agreement in the scope of supply and have submitted a firm bid for 6 parallel lines with a production capacity of 50,000 tons annually. This is a major change in capacity. It's 5 times larger than the Follum factory, and this is a significant impact on our business if this realized. This is a very interesting development for us. On that note, I will give the word to Pål, which will show our 4th vertical, sewage sludge, primarily, and how we deal with the forever chemicals. Thank you.
Thank you, Per. Good to be here. I will talk about Vow, Valorization of Organic Waste, that is. In our circular economy with recirculation of materials and stuff, we often face unwanted compounds that needs to get out of the circulation. One of them is PFAS, one of the strongest molecular bonds in, in chemistry, carbon and fluoride. Some of you in Norway may know some of it under your skis when you try to reduce your friction to 0 to win competitions in cross country. There are these very toxic materials are called forever chemicals for a reason. They don't degrade biologically, they accumulate in the nature, unfortunately.
We have been working very hard lately with research partners in Norwegian Geotechnical Institute, among others, to prove that we could eliminate these materials in our pyrolysis processes, to the extent that we could benefit from the valuable parts of the waste, in particular, carbon and fluoride... I'm sorry, phosphorus, which is another fossil resource we need to take care of. We could treat waste streams that are polluted in a way that we can benefit from the valuable parts but destroy the poisonous part. These chemicals are costly. The expense in U.S. now, late-... paper came out last year, estimate the annual cost of diseases related to these pollutants could be as high as $60 billion a year.
Finally, the, the authorities come to terms with the fact that we need to clean up, and that is a strong pull to, tidy up. If you have some spare time, rather than going looking at Oppenheimer movie, which is, of course, a, a serious issue with atomic bombs, but this is a sort of a slow-moving atomic bomb. These chemicals could really harm us big time. I don't think you should see Barbie either, because Barbie dolls, they provide maybe this type of PFAS to the, to the environment. Like here, this is an example from Europe of exposed areas where you really have these type of chemicals big time. If you look at any other place in the world, you will find it. You'll find it in the Antarctica.
It's not only necessary to avoid these type of materials to come into the nature. Unfortunately, it's so polluted already, so we need also to remediate the polluted areas. With that black part of the presentation, I would say there are some good news, and that is, we could take sewage sludge, for instance, which is one of the, in the circular economy, sewage sludge is collected, treated, and then used on land again to use the nutrients like phosphorus, beneficially. Unfortunately, now, this sludge is polluted with PFAS. What to do? We can pyrolyze the sewage sludge, make biochar from the sewage sludge, thereby taking the carbon. 50% of the carbon we can convert to geological stable carbon. That is a cheap way of doing carbon capture and storage. We remove carbon from the atmosphere.
At the same time, we eliminate these pollutants, so that we could still apply the nutrients in that sludge for benefits of the agriculture, well aware of the fact that we eliminate the pollutants. Secondly, that's sort of even better, we could modify the surface properties of that biochar to the extent that they have a big affinity to the same pollutants. We have shown that we could use biochar from sewage sludge as a sorbent to clean up the mess from the past. This is a valuable proposition for the current systems. This is the sort of the, the business as usual. We have a circular economy. As an example, we have paper recirculation. We take paper, use it, throw it away, then we recover the fibers, use it all over, like single-use paper cups coated with PFAS.
They, they are collected, recirculated. We don't circulate into toilet paper. We have a higher concentration of PFAS in the toilet paper, accumulated from the single-use paper cups, and then we wipe that toilet paper on the most sensible part of our body, to the extent that we again put it to the sewage and then out in the nature. This, this is sort of the negative part of the circular economy. As you can see, if we could take out some of these systems or components without compromising the good part, this is, this is what we have to do. We are so happy now that we have the academic evidence that this is a good thing, and then we are part of the European Biochar Industry Consortium.
I am in the board there. We push the European authorities now to implement pyrolysis and biochar as a part of the solution for a sustainable treatment of sewage sludge. Last, in U.S., they have these incentives. They have really now understood the problems. Also, thanks to this film on Dark Waters, DuPont get big lawsuits against it due to pollutant of its PFAS. Now they are to tidy up. In many states in U.S. now, it's not any more allowed to spread sewage sludge on agricultural land due to this. Then what is the alternative? Pyrolysis is the best alternative. Now we work with good clients in U.S. to develop these big projects.
Here you could see a facility or a project we are developing now, where we have two parallel feed streams that is sewage sludge, 6 tons an hour of dried sewage sludge, and then garden waste and wood residues in the other parallels. Here is a super optimal commingling of different waste streams, could be treated with some different parameters and optimize and valorize the organic waste again. Thanks.
Per and Pål, thank you so much for the deep dive. I hope it was interesting. Sure is for me.
To sum up, we continue our growth, 12% increase. EBITDA, lower for the period temporarily, but it's sort of good performance in our well-established part of our business, but we're building pipeline, increasing our capacity and our capabilities, and that hits us in the short- term. Order backlog remains solid, providing good visibility in the medium- term. High tender activity, very intensified tender activities, as you see that Per and Pål is actually showing these, these projects. We have a continued high activity, developing many new industry applications that we truly believe will materialize in the coming, coming years. We are staying, you know, firm on the strategic plan as previously informed. Thank you so much. We will open up for some Q&A.
Thank you, Thomas from SpareBank 1 Markets. I thought I would start off, or first of all, congratulations with a nice first half year. With regards to the balance sheet, given the performance you had in the first half year, are you comfortable with having 10x net interest-bearing debt to EBITDA?
We are comfortable with the levels we see with the level of debt we have now to service that debt. We believe that leverage level will decrease when EBITDA starts to improve.
Can you give us some more insight on the-- you have NOK 500 million now in backlog in land-based, it's very difficult for us to kind of foresee when this revenue is, is, is coming. Could you tell us a bit about the development you expect in the second half year?
As we said, we are developing now 33 projects. We cannot control entirely the timeframe of when we will enter into new contract, but it's, it's very promising. We, we, we stay firm on, on our plans, and we are, we're confident that, that some of these will materialize.
The bid you placed now early August, do you have any idea when that might conclude?
We don't, we don't know exactly, but it's a high momentum. We actually these days have the team from that client in Norway. We had them in Fredrikstad yesterday, and we have meetings with them in Tønsberg today. That's all I can say.
Okay, and what magnitude would that be? 6 lines C.H. Evensen, would that be in the magnitude of NOK 750 million-NOK 1 billion?
I wouldn't go specifically into the sort of the, the price on it, but, as said, the average contract value on the pipeline is around NOK 40 million. This is higher.
Yeah. Also, we saw some details on the, on the Murfitts Industries solution. How is that progressing?
We entered into the LOI in December. We have been now, in the first half year, developing the system, the application, and we have been looking at sites in France and in U.K. It's not finalized yet. Let's see how this will progress during the fall, but it's a high momentum.
Thank you.
Martine Kverne from Nordea. In terms of your U.S. project, is it fair to assume that you will start to record revenues here during H2, or how should we think about that contract?
Yes, we, we, we definitely will. We will, we are working now actively, actively with, with it, and, and we will build up cost, and that will drive the revenues as well.
Thank you. Also, like, in terms of the margins, do we see a similar development in H2, like in H2 2022, in terms of the margins? How should we think about that now, going from these levels?
The margins, I would say, in that business area will be very dependent on the top of the revenue, of the revenue, in that segment. As we said, we see now in the first half, the cost is highest to develop the pipeline, but the more revenue will come in, will improve the EBITDA. It will be actually a very strong improvement when you get revenue on top. It means that it would not much revenue we missed out, actually, in the first half to move the EBITDA for the group upwards from NOK 6.6.
Great. Thank you.
Hi, Daniel from Clarksons. I was just wondering if you could tell us a little bit about the status at Follum with the startup that's obviously planned for later this year, but also how the work with your off-takers, with Alcoa and so on, is progressing, and how much testing you've done and how much you think is still needed or, yeah, what, what the status of that is? Thank you.
We can say what we have done. We have had the major equipment delivery last year. That reflects sort of the revenue in land-based or industrial solutions. We are now starting up in these weeks, finalizing, as Per said, the line seven, that will be very important. That will now be up and running in the third quarter. I think, Vow Green Metals have a presentation tomorrow. They will give more insight into where they are. They are the ones that are working with off-takers and the overall development of the project. We have done our part.
Thank you. Just one more question on the balance sheet. It's written in the report that the term loan with DNB was fully drawn up on August 4th, and also that you received the payment of NOK 70 million. How should we read t his? Is it a repayment of the overdraft facilities or?
The NOK 380 million, term loan?
Yeah.
The payment from the large.
Yeah, just considering, it says in the report that is fully drawn up on August 4th.
Yes.
I wonder why it's fully drawn when you received the NOK 70 million payment in July. Is that due to repayment of the overdraft facilities, et cetera, or?
Yes, and also the revolving credit that we previously had was refinanced during the summer. Yes. It's also due to the nature of the term loan that is fully drawn.
With that payment, would you expect a positive info from working capital, or cash effect?
Yes, we, expect a positive effect from that.
Yeah. Thank you.
Hello, Joakim from Clarksons. Just to kind of understand a bit more of the competitive situation. You are bidding, developing 33 project. Is that mainly project you are developing, or is it project that you are bidding against competitors? Just to kind of understand.
The majority is something that we are developing with clients. Before that, we have come to that stage, they have been evaluating other technologies, and they have decided to, to work with us, developing that.
So, so-
Of course, there are, there are, there are, I guess, there's competition out there, but.
it's not-
They have done some, some pre-selections when, when we are at that stage.
Yeah. In most of those 33 projects, it's not that you're not competitive on price, it's, it's more that either the project makes sense or...
Yeah
it doesn't make sense.
You see some, some renderings of some of these projects, you know, you see it's a substantial. You have actually passed some, some qualification when you, when you're, you know, developing the renderings and you, you know, developing that detail set of. Of course, it will be always, we don't control whether when the contract will come. In this process, you know, the client is very fully aware, because we're building the business case basically with the client, making sure that, that, that investment becomes attractive for them.
Thank you.
One question on the U.S. project. Does that project or the economics of that project, the business case, as you, as you referenced, do they receive IRA benefits? Is there a carbon capture element to that?
They have a business model on the offset of biochar, as far as I understand. It's the first project, the way I have understood it, is fully financed, financed by themselves. This is a company that has been building within renewable for many years, building solar and wind parks, and have been sort of selling that down. They have a strong balance sheet and are capable of building the first plants on their own, on their own book.
Sure. I guess the, the, the essence of the question is, whether biochar, for example, in this project, qualifies for IRA benefits. I mean, is this a sort of a one-off project, or could we see this business case be replicated in other projects in the U.S.?
When it comes to. For sure, we, we see this, and this client is considering building multiple, multiple plants. When it comes to the business case and the revenue opportunities, there are several revenue streams from such a plant. You have Pål, you might add,
The carbon capture, carbon credit part of it, relates to the stability or the permanence of the carbon in the biochar. In this project, we will have some 85%, maybe 90% of geological stable carbon in the biochar. So, we should be entitled a very high carbon credit for that in this. That, I mean, when you look at the carbon credits, and see who have delivered carbon removal by this, and biochar is now sort of the big.
Provider at now. other technologies maybe in the future, but, I think biochar. And this is well-documented and part of the equation here. Okay, thank you.
Any more questions in the room? I think that's it.
We have some, some questions that come in from the web, from, sorry, from Gard Aarvik. What is the main drivers for the revenue decline in maritime and industrial in Q2 versus Q1?
The main driver for the revenue-
Decline in maritime and industrial.
There's no decline in, in maritime, but there's a decline in the new business area, Industrial solution, compared to last year. Last year was this large delivery to the VGM. We are now building new pipeline. The first half-year, we have revenues from the line seven, but we didn't record any revenue or major revenue from the concept or the green development in U.S. That's, that explains, in a way, lower revenue first half compared to last year.
One more from Gard. You list several verticals for growth within industrial. Which do you see as most promising for our short- term and long- term?
I would like to say all. Honestly, those 33 projects we are now developing with clients is a mix from, you know, the metallurgic applications, the end-of-life tires and biomass. Obviously, incentives are in place. The willingness to invest and to, you know, really develop these projects are large within all these applications.
Then there's one final question from Gard. With so promising prospects within land-based opportunities, the competitive landscape must become more crowded. From where do you see most competition? In-house solutions from customers, other pyrolysis providers, other competing technologies? Can you elaborate on that?
We, there are. What I think that we have, in a way, positioned ourselves good now because we have been working on scaling up technology. We see that we are, we are perhaps in a sweet spot of production capacity, where we see that we could we have unique technology. If we would look at small projects, where you would convert some few thousands of tons into, you know, 2,000-3,000 tons of biocarbon, I guess that space is crowded. When we're looking at now industrial capacity, industrial-sized projects, where we are producing or to be producing tens of thousands of tons, we, we don't see that's not a crowded space, for sure.
Okay, thank you. There are no further questions from, from the online audience, so back to you.
Thank you so much.