Release Date: July 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Akastor ASA (AKKVF, Financial) reported a strong quarter with a significant cash inflow of USD 176 million from the final settlement of the DRU case.
- HMH demonstrated a 23% year-over-year growth in EBITDA, driven by increased aftermarket activity and stronger margins.
- The company extended its corporate revolving credit facility to the second quarter of 2026, ensuring financial flexibility.
- All three DDW Offshore vessels are now in operation, positioning the company well in an attractive market.
- The book equity value per share increased significantly from NOK 7.2 in Q1 to NOK 20.2 in Q2, driven by the DRU settlement.
Negative Points
- HMH's order intake fell below one times sales in Q2, indicating potential market selectivity or volatility.
- Free cash flow in the quarter was negative NOK 12 million, driven by working capital build and timing of key milestone collections.
- The company faced some operational challenges, including missteps related to past dues and timing of product milestones.
- There were significant cash outflows related to CapEx from previous periods, affecting Q3 net cash flow.
- The company has not recommended a dividend distribution for the second quarter, prioritizing financial flexibility and debt avoidance.
Q & A Highlights
Q: You reported margins that are higher than we have seen previously in Q2. Could you please elaborate a bit on the drivers there? And is this a level that you expect to see also going forward?
A: (Tom McGee, CFO of HMH) There are a couple of drivers. We have a large cost base, and as the business grows, you should expect to see incrementals. There's also a mix in product categories. We've done a lot of work optimizing the business post-merger, including cost reductions and improving utilization. While there could be fluctuations, we are happy with the margins and believe they represent the business well.
Q: HMH order intake fell below one times sales in Q2. Is this a signal of a more selective market? How do you see this developing going forward?
A: (Tom McGee, CFO of HMH) Last Q2 had $50 million in product orders that didn't happen this Q2, which is just choppy. The underlying business trends are as expected.
Q: What kinds of structures are you considering for the HMH IPO? Will there be a primary offering?
A: (Tom McGee, CFO of HMH) We are not allowed to discuss specifics about the IPO structure at this point.
Q: Could you potentially distribute shares directly to Akastor shareholders as part of an IPO in HMH?
A: (Karl Kjelstad, CEO) If it were done in Oslo, it might be possible, but with a US IPO, it's more complicated and not very likely.
Q: Are there any ambitions to pay out dividends during 2024? Does the new credit facility include restrictions on dividends?
A: (Karl Kjelstad, CEO) Potential distributions are up to the Board. For Q2, the Board did not recommend a distribution to ensure financial flexibility and avoid corporate-level debt. We aim to distribute proceeds from future realizations to shareholders. The current financing situation does not restrict dividends if we cancel the facility after realizations.
Q: Can you provide more details on the strategic inventory build and its impact on cash flow?
A: (Tom McGee, CFO of HMH) The inventory build is related to specific rig reactivations and Middle East opportunities. We expect this inventory to be released by the second half of the year, improving cash flow.
Q: How is the integration of HMH progressing, and what are the future plans?
A: (Tom McGee, CFO of HMH) Integration is progressing well. We are focusing on becoming one HMH, optimizing operations, and targeting growth in onshore business globally, particularly in the Middle East and North America.
Q: What are the key priorities for Akastor going forward?
A: (Karl Kjelstad, CEO) Our key priorities are enabling liquidity for HMH and NES Fircroft, optimizing exits for listed holdings and DDW Offshore, and developing and divesting AKOFS Offshore and FON Energy Services. Our overall target remains to strengthen our balance sheet, develop portfolio companies, and distribute proceeds to shareholders.
Q: Can you elaborate on the financial performance and outlook for AKOFS Offshore?
A: (Karl Kjelstad, CEO) All AKOFS Offshore vessels were on contract in Q2. Despite some downtime, revenue utilization improved. We expect continued improvement in performance and are assessing options for our investment in AKOFS Offshore, targeting value enhancement.
Q: What is the current status and future outlook for DDW Offshore?
A: (Karl Kjelstad, CEO) All DDW Offshore vessels are now in operation, delivering growth in revenue and EBITDA. We aim to capitalize on strong market momentum and are monitoring the second-hand market for potential asset sales to optimize value.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
