Norbit ASA

OSE:NORBT

Earnings Call Transcript

[Per Weisethaunet, executive]

Welcome to Norbit's Fourth Quarter and Full-Year 2024 Presentation. Today, it's exactly 1 day before we can celebrate Norbit 30th birthday.

So on February 14, 1995, NOK 154,000, was deposited on a bank account in [ Sparebanken ] as share capital. It's been a very interesting journey. It's a lot of revealing stuff to think about. But we cannot dwell on the past, having so much exciting and opportunities in front of us. So in addition to presenting the results for last year, we will also give you insight today on our ambitions for 2025.

The end of last year was a very good end. So it was a new record. And being a company with ambitions of consistent growth, we need to have records in many quarters. But a 40% increase from the Q4 in '23 is satisfying, and it's good to see that this comes from strong underlying growth in all business segments. We also saw a good margin improvement. So having a 26% EBIT margin, giving us then a record high EBIT on NOK 145 million is satisfying.

So for the full year -- so we have shown all years since we were listed in 2019 here. So coming -- concluding 2024 with NOK 1,751 million, with an EBIT margin of 20%, giving a consolidated EBIT of NOK 342 million. The earnings per share is close to NOK 4, exactly NOK 3.93. That's a 27% increase from last year.

In the Board meeting yesterday, our Board declared that it will propose to the General Meeting to pay a dividend according to the dividend policy. The policy says that 30% to 50% of the net profit should be paid out, and also it says that we have an intention of paying out the excess capital as extraordinary dividend. So it's, for the 2024 closing, proposed ordinary dividend of NOK 2 and an extraordinary dividend of NOK 1, yielding in total then NOK 3 per share.

Going into the segments, Oceans had a very strong -- so we saw a very good traction in Q4. It's impressive to see the organization's ability to deliver more and more and even more. So nearly NOK 270 million in revenues with close to -- I've been complaining a bit it was lacking NOK 1 million. Should have been NOK 100 million. So it's NOK 99 million in EBIT, a 37% margin.

And as you know, we did for us a very good acquisition last year, Innomar. So if we adjust for that acquisition, we still see a growth of 36% quarter-over-quarter.

Also worth mentioning we have a big project we announced last year in the security part of the Oceans, yielding NOK 75 million in revenues. It was announced in September. In these numbers, there is no revenue recognition on that due to some postponement of the project.

Yes, for the full year, Oceans made NOK 745 million in revenues, which is an increase of 24%, and the annual EBIT margin ended at 29%.

Showing the split for the last 3 years on the different product lines. So as you see, the strong growth is mainly from what we call other sonars. So it's the iVBMS (sic) [ iWBMS ] sonar family, where we continue to tailor for specific user applications, and by that, opening up market so we can continue to grow. The WINGHEAD is more or less the same level as it was in 2023. And you see that we have sub-bottom profilers on top of this, which was not part of 2023, and this comes from the acquisition of Innomar.

As I mentioned, we continue to tailor -- to broaden the product offering and growing through that. Some examples. So this is -- it's just a few -- this is only 2 out of a range of examples what we've invested R&D funds into, but we've launched a new WBMS X. This is a new platform based on the WBMS we had in the past.

The new thing in this is that we on this platform have the ability to allow clients to pick what kind of features they'd like. So it opens up for us to do a different business model. You can buy then WBMS X with base functionality and you can choose to upgrade as you need additional functionality. So it opens up for more business development and a wider range of business models.

In addition, one example, more long-range version of the i80S. With this long-range i80S, we allows clients to have a wider swath angle so that they could do a more efficient survey when mapping the sea floor.

In Connectivity, it was also a good quarter. So it's the second best in the history for Connectivity. When I say it's good, it's because we was expecting this to be a new record. NOK 20 million in revenues on enforcement modules was pushed into Q1 due to some constraints on supply chain issues. But revenues of NOK 153 million and EBIT of NOK 44 million, representing a 29% margin.

And total of the year for Connectivity ended at NOK 516 million. You see a small decline from 2023. This is mainly, as you see, explained by lower activity on On-Board Units. That's the standard tolling tags we're supplying, where we had a very, very strong first half year 2023. But it's satisfying to see that we have good growth on all our product lines. So all-in-all, we find 2023 to be a good year also for Connectivity.

So in the R&D, as we said that for Oceans, we're tailoring new functionality, new features and broadening the product offering. As we've announced in the past, we're doing for Norbit a big step, making a new product. It's a satellite-based tolling On-Board Unit for use in commercial vehicles. And the first deliveries is under a contract of NOK 160 million announced July -- no, announced last year to start in July this year with our client Toll4Europe. And the development on this continues with full force. It's a lot of activity going on.

Sourcing of components, preparation for high-volume production is well underway. A new robotic line will be installed in our Roros factory during April.

So final segment, Product Innovation & Realization. For those that has followed us for a while, you know that in Oceans and Connectivity we are doing Norbit branding technology out to a global market. It's our own technology. And of course, the margins are then good.

60% approximately of our manufacturing capacity is used to make own products. Remaining capacity is sold on contract manufacturing terms to selected industrial clients.

We've seen a good quarter in Q4 also in this contract manufacturing. That's driven by increased demand in the defense and security sector. So nearly NOK 150 million in revenues in the quarter, with NOK 20 million in EBIT, yielding 14%. And I think in a contract manufacturing term, that's a very strong EBIT margin.

For the full year, we saw revenues of NOK 543 million. That's 32% up from 2023, and it's a good margin improvement for the full year. It's 10% compared to 8%. Yes. So as you see, out of the NOK 543 million, NOK 460 million nearly comes from contract manufacturing. And on top of that, it's some R&D services and some products that we have been supplying to some industrial clients under some private branding for them since many, many years.

So with that, I leave the floor to Per Kristian to go through some financial figures.

[Per Reppe, executive]

Thank you, Per Jorgen. I will spend some minutes walking you through the financial highlights of the quarter and the full year results. Financial performance in the last 3 months of 2024 was strong across the board.

Revenues in the fourth quarter amounted to NOK 556.1 million, an increase of 40% from the corresponding quarter of 2023. Adjusted for Innomar, which we acquired 1st of July last year, the growth rate was still an acceptable 33%.

For the full year, revenues ended at NOK 1.751 billion, up 15% from 2023, with growth driven by segments Oceans and PIR, while Connectivity saw a 5 percentage point decline on rescheduling of On-Board Units. EBITDA for the quarter ended at NOK 182.4 million, representing a margin of 33%, and this compares to NOK 92.1 million and a 23% margin reported in fourth quarter of 2023.

For the full year, EBITDA ended at NOK 474 million, up 21% from that of 2023, representing a margin of 27%. Operating profit was NOK 145 million in the quarter, translating to a margin of 26%. And the quarter was impacted by our divestment of underwater lighting products to the aquaculture market. In total, this reduced operating profit by NOK 7 million through obsolescences of inventory and NOK 3.4 million in impairment.

For the full year, operating profit was NOK 341.7 million, up 20% from '23 and representing a margin of 20%. Net finance expenses were negative NOK 9.4 million, primarily explained by net interest expenses of NOK 9.9 million. Tax expenses was NOK 29.6 million, while net income for the period was NOK 105.9 million and NOK 243.3 million for the full year.

In the fourth quarter, Oceans delivered strong growth of 52% year-over-year and 36% adjusted for Innomar. Organic growth was primarily driven by strong sonar sales, in particular for WINGHEAD sonars, supported by the introduction of 2 new sonars, which was mentioned by Per Jorgen. The gross margin was largely flat, while payroll expenses increased NOK 11.3 million, of which Innomar explained NOK 7.3 million.

Depreciation, amortization and impairment expenses increased to NOK 8.5 million following amortization of R&D and the mentioned impairment of NOK 3.4 million. The EBIT ended at NOK 98.7 million, giving a margin of 37%. And adjusted for the divestment of lighting products, the EBIT margin was 40%.

Connectivity saw a 31% revenue increase year-over-year on higher sales of On-Board Units. Gross margin was 63%, flat from that of fourth quarter 2023. Operating expenses rose as fourth quarter in '23 saw a reversal of provisions made for credit losses of NOK 3 million. The EBIT for the quarter was NOK 43.9 million with a margin of 29%.

PIR reported a solid quarter with revenues increasing 33% on strong demand from industrial clients within contract manufacturing, in particular from the defense and security sectors.

Gross margin in the fourth quarter was 44%, in line with the margin reported over the last 6 months, reflecting a normalization following a weak first quarter of '24 and a weak fourth quarter of '23. Both quarters were impacted by sale of inventory and delivery on a low-margin project. As a result, EBIT for the quarter ended at NOK 20.4 million, giving a margin of 14%.

Next, balance sheet and our financial position. Property, plant and equipment, including right-of-use assets increased NOK 5.5 million in the quarter following investments in machinery, equipment and lease additions of new production equipment net of depreciations.

Intangible assets rose NOK 16.1 million explained by R&D investments, with high activity on the GNSS OBU project in the quarter. Trade receivables were up NOK 79.6 million in the quarter explained by Ocean's quarterly revenue growth and intra-quarter effects as sales in Oceans were back-end loaded.

Inventories increased NOK 38.2 million in the quarter, while trade payables increased NOK 31.5 million. Net interest-bearing debt stood at NOK 254 million at the end of December, a decrease from NOK 352.4 million at the end of September. Our equity ratio was 53%. That's up from 51% at the end of third quarter.

Our working capital efficiency continued to improve in the fourth quarter to 23% based on last 12 months revenues or 18% fourth quarter annualized. The reduction in inventory has been the main driver behind the improvement in 2024.

In '24, we have reduced inventory with more than NOK 130 million in a period of growth, which is a result of improved inventory management and adapting purchasing strategies to a more normalized component market. We have previously highlighted that inventory turnover has been high on the strategic agenda, and I'm pleased to see that we have delivered results in '24.

Heading into '25, we expect that the working capital will show large fluctuations from quarter-to-quarter, particularly concerning our inventory, which is expected to show a buildup in the first half of the year ahead of the GNSS OBU deliveries, as well as preparing for large volume deliveries in the PIR segment.

Our long-term ambition, however, remains clear, to maintain high working capital efficiency in order to make the business more capital light without compromising Norbit's core value #1, we deliver.

In the fourth quarter, net interest-bearing debt to EBITDA stood at 0.7x, and our liquidity position was NOK 743 million at the end of the quarter. Our balance sheet continues to remain rock solid and provides for a strong financial platform to deliver on our capital allocation framework and the ambition plans that we have set out.

As for the recommended dividend by the Board of Directors, you will see that we are currently below our long-term target range of the financial policy, and thus, an extraordinary dividend is proposed by the Board to adjust our leverage position to the lower end of the range.

Lastly, cash flow for the quarter. Cash flow from operations was NOK 143.7 million, explained by an EBITDA of NOK 182.4 million, a net decrease in working capital of NOK 18 million, taxes paid of NOK 47.4 million and NOK 9.4 million in net interest expenses. We invested NOK 50.4 million in the quarter, explained by NOK 36.8 million in R&D investments and NOK 13.6 million in investments in machinery and equipment.

For '25, we expect our R&D investments to end up around NOK 100 million with high activity in the first half to complete the GNSS OBU. Investments in fixed assets are expected to NOK 110 million in '25 to support continued growth.

Cash outflow from financing activities was NOK 16.1 million in the quarter, mostly explained by NOK 28.1 million in debt repayments and for leases, partly offset by the share issuance to our employees participating in the annual incentive program.

And with that, my part of the presentation is completed. So I'll give the floor back to Per Jorgen, who will give you the outlook section and some additional information regarding our investment program for '25.

[Per Weisethaunet, executive]

Thank you, Per Kristian. So looking into the future is always more exciting than explaining the past. And I'm happy to lay out our ambition for 2025. So our revenue target for 2025 is in a range between NOK 2,200 million and NOK 2,300 million, which marks a next step for us towards our 2027 ambition. We target to improve our EBIT margin compared to the 20% reported in 2024. In addition to this, we continue to explore value-accretive acquisitions to add on to the organic growth.

The more short-term outlook. So as you know, first quarter is normally a weak quarter in Oceans. Oceans is the segment that historically have had the highest seasonality in our business. The quarter has started with high activity, and we are happy to announce that we expect a strong growth in revenues in first quarter 2024 compared to what we had last year. So we expect revenues in the first quarter to be in excess of NOK 200 million. In this, we have not included any recognition of the previous mentioned security project for the NOK 75 million.

First quarter in Connectivity, we expect in the range of NOK 140 million to NOK 150 million. And in the PIR segment, we expect to take a step upwards to NOK 170 million -- between NOK 170 million and NOK 180 million, driven by increased demand and continued increased demand in the defense and security sector.

Per Kristian mentioned the investments. So approximately NOK 100 million in R&D and NOK 100 million in property, plant and equipment. So behind this, as Per Kristian also mentioned, in the R&D, a good portion of the budget is on the GNSS On-Board Unit. There is a lot of things also in the Oceans part that takes a good piece of that budget.

In the property, plant and equipment, we have a new robotic assembly line for the GNSS On-Board Unit. As I mentioned, that will be installed in April. We have invested in some new specialized prototype SMT lines for making more rapid prototypes, speeding up R&D, but also freeing capacity for the volume production at the Selbu factory. And we take a big step in the Roros factory and nearly doubling the capacity of that factory by both upgrading existing lines and installing new lines.

In April, we will start a line that currently is on the boat from Japan to Norway. This line is, as we experience, going to be Europe's fastest SMT line. And for those not being fully into the terminology, surface-mounted technology, that's components that is assembled on a printed circuit board, very highly robotized in this regard.

In addition to this, we're very happy to see that we are able to expand the Selbu factory. We will increase the floor capacity by 70%. This is done through a lease from the municipality. They have decided that they will build a new expansion of our factory to us, and we will lease that on for us, good terms.

Reminding you of the 2027 ambition, where we plan to do more than NOK 2,750 million in revenues. And as mentioned, our 2025 ambition is a good next step towards that. The EBIT margin, we said that for 2025 the ambition is to have it higher than 20%. So a good way on the journey for the long-term ambition. And also the return on capital employed, as Per Kristian showed you, we have a very active relation to our balance sheet and our working capital, so we want to have good return on the capital.

And with that, we're open for questions, if there should be any.

[Per Reppe, executive]

Okay. First question is from [ Yeta] at [ Arctic ]. Does the '25 revenue target include the NOK 75 million GuardPoint project?

[Per Weisethaunet, executive]

As we have talked about that, it's been some postponement now in the -- and no revenue recognition so far. So we don't rely on doing revenue recognition on that to reach our target.

[Per Reppe, executive]

Could you provide a segment breakdown of your full year revenue targets?

We haven't provided any split for that. But as a general remark and what we have stated in the report is that we expect a solid growth in all of the 3 business units, and that will be supportive towards the target in '25.

You mentioned a strong start to the year within Oceans. What products are driving the year-over-year growth?

[Per Weisethaunet, executive]

We haven't given any split on that either. And I think I would like to remind that in the Oceans segment, we are continuously broadening the product offering, but still the products inside -- this is low volumes, but all product lines have a good contribution margin. So I'm not going to give any accurate split on that today. So what I can mention is that the mentioned WBMS X which we introduced lately has had a very good start, better than expected.

[Per Reppe, executive]

What's your expectations for enforcement modules for tachographs in '25?

[Per Weisethaunet, executive]

Yes. Maybe you would comment on that.

[Per Reppe, executive]

No. I mean, so based on what we're currently seeing, we do expect that modules for enforcement will increase in '25 compared to '24. The primary effect of that is due to the fact that the regulatives of the EU has either been implemented to replace all the tachographs or is in a transition period to be replaced.

So what we're currently seeing in the market is a very strong growth, at least for the first half of this year. And that should be supportive for also the full year target that we are announcing for the group, given the prospects that we see on that product line itself.

[Per Weisethaunet, executive]

And probably also it's fair to say that we did expect higher revenues on that last year. It was some postponements. But as we experienced, these postponements was for all the big players in the market. So it's not -- so we expect that our prime client still remains the same market share. So then it's postponements and not that we're losing market share.

[Per Reppe, executive]

And a final question, how scalable is the Ocean segment?

[Per Weisethaunet, executive]

The scalability is good. And so I mean, for -- and I mean that's proven in the numbers. You've seen that the revenues has increased more than the salary expenses relatively. And I think we have good scalability in operations. We will need to continue to staff the organization, but we have a very good setup now that is capable of absorbing more people. And it's been amazing to see when we've been out to recruit people into this part of the business also that it's a lot of good qualified people that want to work with us and work on these products.

[Per Reppe, executive]

A question regarding Ping DSP, which we acquired in October '23. How has this integration into Norbit's organization impacted Ping DSP's sales and opportunities so far?

[Per Weisethaunet, executive]

I'm glad to get that question because that's a very satisfying story. What we've seen is that bringing Ping into the Norbit family has helped to get traction on the product in the market. So Ping being a fairly small company had limited market resources being stand-alone. Now being plugged into our global sales and distribution network, we see that it's been satisfying and with a good growth.

[Per Reppe, executive]

Yes. And just to comment on that as well. I think this is a very good example of how we can utilize our own market and distribution network to accelerate and create synergies within the company that we acquire. And I think Ping DSP has outperformed well above expectations since the acquisition was made. So I think the growth story is definitely there.

[Per Weisethaunet, executive]

Yes. And it's good to see that after a while, we do need to support on the operational part. And I think that's how we want to do integration also. It should be when the company we acquire sees a need for support. If we can generate the momentum in the market and then they need support on other parts, we should be ready. And it's a good way of integrating.

[Per Reppe, executive]

What insights have you gained from partnership with companies such as Bedrock and Cellula who's developing these autonomous underwater vehicles?

[Per Weisethaunet, executive]

I think for Norbit, it's very important to work closely with players in the underwater vehicle domain. We strongly believe that for many applications, we will see an increase in autonomous mapping. So both underwater and surface unmanned vessels will need a lot of instrumentation.

And for Norbit, we want to be the technology partner. To be able to be a relevant technology partner, we need to work closely with them to understand their needs and then going back to our laboratory to tailor functionality that fits into those needs.

[Per Reppe, executive]

Can you elaborate on the software services Norbit offers? How big percentage of your customers end up using your software, revenue potential?

[Per Weisethaunet, executive]

I think as of today, it's -- in the Connectivity part, we have some subscription-based revenues. Apart from that, most of our revenues when it relates to software is in the way where software is a sales enabler rather than being the product.

But with this WBMS X, as we recently introduced, we will then have a price tag on different software function so that you could choose to upgrade your sonar prior to doing a new survey. But still mainly software as a sales enabler.

[Per Reppe, executive]

What is your production capacity for your sonars?

[Per Weisethaunet, executive]

The production capacity for sonars is good and it's -- the scalability is also good. So the number of sonars is not that many. I mean the high volumes is in the other 2 segments. There is some manual processes that requires clever hands in the manufacturing.

But as I mentioned earlier, we've been able to staff up and expand. And we're not cautious or we're not afraid that there should be any limitation in that regard.

[Per Reppe, executive]

Also another question relating to Oceans. Are you seeing further increased interest in the ocean security sector? Is there an opportunity in pipeline monitoring?

[Per Weisethaunet, executive]

So it's a lot of interest. I think the world has realized that we do need to take more care of what's going on under water. It's a lot of critical infrastructure under water that has been without any kind of surveillance.

That being said, pipeline monitoring, that's challenging because it's very, very, very long pipes. But we do expect that some of these suppliers of unmanned autonomous underwater vehicles will succeed in making applications for underwater pipeline surveying. But it will be -- you need to do it quite differently than it's been done until today.

[Per Reppe, executive]

Okay. Same topic, do you see long-term growth in the defense manufacturing divisions? Are the good results in this area new products from customers or a general lack of capacity in the sector across Europe creating an opportunity for Norbit?

[Per Weisethaunet, executive]

I think generally when it comes to security and defense-related technology, the demand -- or generally also any kind of technology that is needed, that Europe needs, it's a strong demand to have made in Europe. I think we've talked about it before that made in Europe, made in Norway, the demand is increasing for that.

Yes. So I'm not going to comment any on what kind of products and what kind of clients we have in that domain, but we see a good demand in long term for that also.

[Per Reppe, executive]

A question from Marcus at Pareto. Could you provide some color on how you think about around 20% EBIT margin target for '27 now that you have done and will likely continue to do margin accretive M&A?

So I think with respect to the margin, I think what we have stated is that we have an organic plan. So we are building the margin target out of the business that came out of '24 -- sorry, '23, and Innomar is an addition to that.

So obviously, the margin -- what we will end up in '27 is a combination of what we will deliver on the organic part, but also a contribution from M&A, which we will continue to also look for into this year and also moving forward.

Okay. A question with regards to GuardPoint, so security and oceans. How does the sales process for GuardPoint differ from that of your other sonar products?

[Per Weisethaunet, executive]

It differs in the way that it's completely different. So the other sonar products are mainly sold as stand-alone systems, where underwater surveillance system where we deliver GuardPoint is more a system solution or a more complete solution offering. And the sales process is very different. In some occasions, it's more like a typical tendering process. And it's some portion of engineering linked to it.

[Per Reppe, executive]

Then a question with regards to, again, Innomar. Are you taking any initiatives to position Innomar towards the unmanned vehicle market?

[Per Weisethaunet, executive]

So we explore more in all of our product lines and tailoring technology to fit into and fit in line with the trends we see.

[Per Reppe, executive]

How do you see the long-term growth potential for Connectivity?

[Per Weisethaunet, executive]

So for Connectivity, it was an important milestone to get this contract on the GNSS On-Board Unit to broaden. And going forward, I think it's important in the Connectivity to continue to broaden the product offering and also continue to broadening the customer base.

In Connectivity, we're very strong in microwave communication, secure communication. And when broadening the product offering, we really are open to explore more, without giving any comment to what that could mean. But it's in our DNA to see how can we broaden this even more. I think the name Connectivity could have a wider meaning.

[Per Reppe, executive]

Okay. There are some questions regarding pricing of the sonars. I don't think we will be very detailed on that. So I think with that, there's no further questions.

[Per Weisethaunet, executive]

Okay. So then thank you for taking the time and following this presentation. And I hope you will continue to follow us also on the next 30 years of our journey. Thank you.