DOF Group ASA (DOFG) Earnings Call Transcript & Summary

Good morning. Good morning, moving over [indiscernible] us for those on webcast. So good morning, and welcome to the quarter 4 presentation for DOF. And operationally, it's been a good quarter. We delivered -- we said in quarter 3 that we delivered best quarter since quarter 2 '16, and quarter 4 is a few million better than quarter 3. So the best quarter in the year and the best quarter now since quarter 2 '16. So very happy with that performing at that level in today's market. [Foreign Language] And that, of course, fleet utilization of 83% in quarter 4, I think that's -- we're very happy with that as well. So we saw improved earnings more or less in all segments. And the PSV segment in the anchor handling market, it was decent market in quarter 4 until second half in December. And also the subsea project fleet delivered better numbers than in a long time in quarter 4. So all in all, operationally, a decent quarter in. And we -- I guess, most of you are waiting for an update on the refinancing discussions and we have some slides on that later on that Hilde will take you through. I guess the main message is that there is no -- it's not concluded yet. We are still discussing, but of course, we see some progress and hope by end of the quarter that we will be able to come to an agreement with all stakeholders. We also bought the remaining shares in DOF Subsea. So now we own DOF Subsea 100% and we, of course, are very happy with that and we hope that's going to be a good investment for us. And on the -- we see DOF Subsea also performing quite okay in quarter 4 and also in the second half. Altogether, it has been a good quarter for -- a good half year for DOF Subsea. On the contract side, we have won a few contracts. I think I start with the bottom here. It's showing we have 83% backlog in quarter 1 and I guess that also tells us that quarter 1 may not be a disaster quarter when you have more than 80% backlog, the quarter is probably going to be okay. The total numbers. The backlog in 2020 is close to NOK 5.7 billion. And I did some calcs based on the turnover in 2019, that's around 74% of the -- so the backlog is around 74% of the turnover we had in '19. So some more wins around the globe. One, on top here, the Vitoria had been in lay-up in Brazil for 18 months, so I was very, very happy to see her going back to operations on a 2-year contract. So of course, that will show some improvements in the earnings. Also, very happy with the 5-year contract on Geosea, an old lady built in 2001. So of course, very happy to see her now fixed on a 5-year contract at -- so of course, that also will give some positive contribution to the earnings going forward. So we don't mention all of them, but a decent quarter and a good backlog for the winter. And of course, we expect to pick up quite a bit of contract going forward for the summer season. So we think it's going to be -- we'll continue to build backlog through the year. The next one you have seen a lot of times before. It's showing where the boats are. I don't think it's much new on this one. What we have done here is we have also introduced -- showing where we have offices. So the blue ones are where we have offices around the globe. So it shows that we have a global presence and the sales force around the globe. I think that is part of the reason why we see the backlog and the utilization is so much higher and often in the average in the industry. So all around the globe. Next one is we mentioned it last time as well. We have a research project together with Kongsberg and SINTEF and a few others and the total budget for the project is around USD 10 million. And the whole -- the plan here is that we will develop a decision support system on the boats and that will optimize the operations. And we expect, depending on vessel type, between 10% and 30% reduction in fuel consumption if we succeed with this. And the investment on this is, when you are done with development, is rather limited in equipment. So it's mainly a computer. So we think we have a high hopes for this one. And of course, we also started to talk with our clients on then, of course, fuel reductions and it's very important these days. So we think it's going to be a good sale for us globally, and of course, also a good contribution to reduce our own emission. So I think this is where the industry is going. We have to do more and more of this to be on top in this industry. DOF Subsea, as we said, we have -- we own now 100% of. And just to repeat, in quarter 4, we had NOK 1.3 billion in revenues in DOF Subsea, NOK 13 billion in backlog. It's a bit down. Of course, it fluctuates with exchange rate, especially NOK to U.S. dollar. So I suppose if you measure today when the dollar is back again, of course, the backlog is higher than NOK 12.8 billion. Global presence, and of course, around 1,200 employees around the globe, mainly engineers, survey people, ROV people and project people so doing subsea projects around the globe. So then Hilde will take you through the financial numbers.

Thank you. All the numbers shown here are based on management reporting. So main highlights for this quarter and year-to-date is that there are good performance in all segments: PSV, Equinor and Subsea. So fourth quarter, NOK 805 million compared to NOK 546 million; and our year-to-date EBITDA of NOK 2.86 billion compared to NOK 2.225 billion. By end of the quarter, we had 5 vessels in lay-up. The impairments done this quarter is close to NOK 330 million compared to more or less the same number last year; and year-to-date, it's NOK 1.5 billion -- and close to NOK 1.5 billion and the big chunk was taken in third quarter. We have also impaired the tax assets of close to NOK 170 million this quarter; and year-to-date, it's NOK 930 million. So the remaining intangible assets in the balance is actually less than NOK 100 million. It's a small portion of goodwill and a small portion of deferred tax assets. Unrealized currency loss is NOK 880 million. That's partly impacted by a weaker Brazilian real and Norwegian kroner to U.S. dollar but also moving hedge from other comprehensive income to the finance results. The hedge accounting -- change in hedge accounting reclassification has no impact in cash or in equity. And that also means that going forward, meaning from first quarter '20, we will not report hedge accounting. That's removed from our EBITDA. So if we split the average utilization in fourth quarter of 83%: it's 94% for the PSV segment, 77% for the anchor handler and 80% for the Subsea segment, of which the project fleet is 79%. If we split in DOF Subsea you see here, and here is DOF Supply for fourth quarter, you see that the DOF Subsea portion is higher than the same quarter last year and still above 60% and expecting to be that going forward. And if we split that, the EBITDA for DOF Subsea was NOK 543 million this quarter and NOK 261 million for the DOF Supply, mainly anchor handler and PSVs. If we split the utilization for the 2 segments or the 2 groups, it's 78% on average in DOF Subsea and 85% for DOF Supply. It's an improved performance, especially in the Asia Pacific and North America, pretty weak in the North Atlantic and stable in Brazil. That's for the regions. We have had non-PSVs in the spot market this quarter or been on firm contracts and none in lay-up. If you look at the anchor handler, we have seen improved utilization especially from the spot market in North Sea the first half of fourth quarter. And for the vessel on long-term contract, especially the PLSVs, the utilization has been close to 100% this quarter. If you look to profit and loss. The EBITDA before hedge is NOK 793 million compared to NOK 545 million last year. And if we remove the hedge, it's NOK 749 million compared to NOK 493 million. The changes there is impact from the joint ventures from the NOK 805 million. If you look at impairment, already mentioned NOK 328 million. And on currency, no big events. So main event is actually, year-to-date, and that is this one, sorry, and that is the unrealized loss and a move -- reclassification of hedge accounting. The comment here is already taken and commented. If you look at segments, you can see the PSV is NOK 39 million compared to NOK 23 million; anchor handlers, NOK 129 million compared to NOK 119 million; and on the Subsea, NOK 581 million compared to NOK 351 million. So this quarter is better than last year in all segments. And here, you see the split in impairment and the largest portion is taken from the Subsea segment. If we split in the EBITDA, it's 78%, which is representing Subsea. We have some subsea vessels in the DOF, excluding DOF Subsea as well. And we have 5% in PSV and 17% on anchor handler. And you can see that it was slightly different -- slightly bigger in -- on the anchor handler side. But bear in mind that, here, you have impact on all the PLSV, the 4 PLSVs, in full operation the entire quarter. Here, you see the DOF Subsea segments and here is the project activity, and here, you have the long-term chartering. This margin is more or less stable. It has been close to 80% the entire quarter for all the vessels in operation and it represents 9 vessels. If you look at the project segment there, it's represented 18 vessel and it's a smaller margin. But this 19% is actually quite interesting because this is the best margin we have received so far this year. So we hope that this will continue. And of course, here, we, of course, have a risk, but we also have an upside. Looking at historical performance. Already mentioned by Mons that this is the best EBITDA since fourth quarter 2016. We have NOK 890 million in fourth quarter 2015 and between NOK 500 million to NOK 646 million in this period. And here, we have NOK 805 million, and good margin for this quarter. Looking at the equity, which I will come back to, it's, of course, highly impacted by a big loss this year of close to NOK 3 billion, mainly impacted by impairment and unrealized impact on currency losses. Interest-bearing debt by end of fourth quarter 2015, it was NOK 23.7 million, and today, it's NOK 21.5 million. Main change from fourth quarter to -- fourth quarter this year and last year, that is delivery of 1 vessel in January this year. And looking at the margin. It's pretty stable and we hope it is continue that -- in that direction going forward. Looking at the balance sheet, no major changes on the tangible assets. It's basically impairments and depreciation this quarter. Year-to-date, goodwill has been impaired with NOK 209 million. So the remaining value is NOK 85 million. And you see on the deferred tax assets, it's -- if I see correct there, it's NOK 200 million remaining out of NOK 1 billion by end of last year. So here, you see the big impairments that's done on deferred tax assets, it's done on goodwill and it's done on tangible assets. If you see the cash flow for the group year-to-date, the operating cash flow was NOK 1.5 billion compared to NOK 1.259 billion last year. Total investments, NOK 1.3 billion compared to NOK 1.4 billion. This is mainly the PLSVs delivered in 2018 and 2019. And from financing, the net cash flow is NOK 722 million minus compared to NOK 26 million in 2018. On the equity, of course, impacted by poor results, but you see here some movement from minority to equity, and that's due to our acquisition of 35% in DOF Subsea, so now we own 100% of that company. Year-to-date, the amortization is NOK 1.8 billion so far this year -- or year-to-date. New loans of NOK 1 billion. And the IFRS 16 has increased our debt of NOK 525 million. I guess you are familiar with this new regulation that was implemented from 1st of January 2019 and some reclassification due to -- of loan and FX effects. If you see the short portion of that, that includes a bond loan, it includes normal amortization and it includes balloons of NOK 1.7 billion and other credit facilities and other items. This is, of course, very positive that the revenue has increased, that the EBITDA has increased. So this is year-on-year, so a high improvement compared to 2018. It's a decline in backlog. The current backlog today is SEK 18 billion. It's declining, but it's still high. If you look at the existing current maturity profile So here, you see DOF excluding DOF Subsea. So we have -- here, you see the amortization and the balloons for 2020. And here is a big balloon in DOF Rederi. If you do the same in DOF Subsea, this is normal amortization. And here, you have balloons and the bond loans. The current situation is that all short-term balloons has been waived until February 2020 due to that the refinance process has taken longer time than we have assumed. We have applied for a waiver until end of April. DOF Subsea has an addition agreed deferral of bank and bond installments until end of February, they have applied for the same until end of April. And DOF Rederi has waived its financial covenants until end of February, also applied until end of April. And we have an approval in place from BNDES for a 4-year refinancing, including soft terms that excludes the DOFCON JV. So if we go to the next one, and this is what we are working on and where we believe -- where the Board and management believe it's achievable to have in place by end of March. However, we cannot guarantee anything, but this is what we are working on. But I would also like to emphasize that it takes time to get this in place. And our goal is, of course, to get a sustainable solution for the company and its shareholders. And it's the same structure. This is DOF, excluding DOF Subsea, and here you have DOF Subsea. So here, we have moved the big maturity until end 2023 and lower installments in this period. And DOF Subsea has, in fact, done the same or planning the same. We have called for a bondholders' meeting, which will be held the 27th of February. And what, among others, will be decided there is extension of maturity of 3 bond loans. So here, you have DOF Subsea until end of April 2024, you have DOFSUB07 until May 2025 and you have to DOFSUB09 until October 2025. This was more or less decided in a bondholder meeting on the 20th of December. However, based on the fact that the decision was not in line on what was stated in the summons, we need to have a new bondholder meeting. An agreement with the bondholder meeting is subject to an agreement with all the banks in DOF Subsea. DOF Subsea has, since September, worked on a common term sheet for all bank facility, excluding DOFCON, and that is a 4-year duration on all facilities and amended financial covenants. And they have 1 BNDES facility, which is already approved. It's also important to emphasize that to have a longer horizon on all the balloons is extremely important because what we experienced in May this year, already published in the second quarter, was that banks were reluctant to renew balloons. And that is a big risk for the group and that's why we need this duration. If you look at the DOF excluding DOF Subsea, there we have our subsidiary, Norskan, a fully Brazilian company. Here, BNDES has approved a refinancing of the facility until end 2023. The bank balloons are assumed or planned to be refinanced with maturity until 2023. That is mainly the DOF Rederi, NOK 3.8 billion facility, to be -- to continue with soft term and today that is 25% amortization and has been that since 2016. Our main shareholders has committed to participate in a rights issue of NOK 200 million. That money will be used as increased equity in DOF Subsea payers. However, an equity issue is subject to satisfactory solutions, both in DOF Subsea and for -- and the rest of the DOF Group. So again, our target is, of course, to get a sustainable solution for the company and its shareholders. So that was it on finance.

Yes. On markets, of course, we have experienced in second half that utilization is up and the earnings are up. And of course, we also see -- you know that, that trend is -- looking at the backlog for quarter 1, we hope to see the trend will continue. And on this slide, the offshore show, of course, the spending is going up and that some of the places where we are very well established are the most interesting places to be. So of course, we -- I said before, that we have -- in the longer term, we have -- we are very optimistic on Brazil. And also, we have 700 people in our office in Australia. And of course, we see also that's going to be busy going forward. So we see -- I think we have seen the start of improved utilization on the subsea fleet and more activity, more and more bids out. And of course, we hope that trend will continue. On the PSV and anchor handling market, I think we see the PSV market for large PSVs that we mainly operate has improved. Rate levels are up, and we believe that trend will continue. So North Sea has been okay, and of course, we see increased demand around the globe as well. Anchor handling market, of course, it's very difficult to say where that is going. In a way, we had a good ride in quarter 4 helped by bad weather. And then we have had an extremely bad ride in the spot market in -- so far in quarter 1 and that is -- the wind has worked opposite. It's been so bad weather that we have seen rigs waiting a month at least to get the weather window to start on a new well. So that has led to low activity. So the optimistic side always tells us that quite a few of the North Sea fleet is leaving the North Sea for work from March onwards. And of course, that means that supply side in the North Sea will be lower than we have seen in years, and of course, always see more rigs in activity. So we are optimistic, but of course, it's -- we have never -- it's extremely difficult to predict the anchor handling market. Globally, we see still too little demand for the global fleet and so we need more activity globally before we can say that the anchor handling market is really moving in the right direction. But we think we're going to have some good periods in the North Sea port. But overall, we think it's going to be -- we don't have a lot of fear for the anchor handling fleet globally. But a small positive trend, I would say. On the outlook. I guess, last year, we guided on the same guidance that '19 would be slightly better than '18. And I guess, we were a bit too optimistic, but we do the same this year. We say 2020 is going to be in line or slightly better than '19. Where we see -- we believe the international PSV and anchor handling fleet will have increased earnings. We believe DOF Subsea perhaps also in line or slightly better. But the big challenge here is the renewal of anchor handling fleet in Brazil where quite a few vessels are up for renewal. So that's where the -- let's say, that's -- we are certain of that. And of course, that's part of the reason why we are not more optimistic on the guidance than we are here today. So let's see, we will know that, I think, during the next few months, what we achieve and -- but it's -- that's where, I would say, the highest uncertainty is the next few months on the earnings in the group. Backlog, 61%. So I think that's more or less on the same level as we had last year. But the good here is, of course, that the backlog for the start of the year is high and higher than last year. And often, if you have a good quarter of first quarter, the year will be good as well. So -- and of course, we expect to increase that backlog going forward and -- so I think we will see utilization at least on the same level as we saw in last year and perhaps a bit higher. And as we said, on the markets, we see -- we saw, especially, second half '19, increased activity in APAC, in U.S. and also in West Africa. Brazil, flat; and North Sea, of course, in quarter 4 and so far in quarter 1, low activity as normal. But all in all, some signs of improved market and we see, of course, that reflecting in utilization and the earnings. Then Hilde took you through the financial. And as she is saying, we will not conclude with this before we have a very satisfactory, long-term solution that give us at least until end 2023. And that is what we are working on. It's -- of course, there are a lot of stakeholders involved, but we are optimistic that we will conclude within first quarter. But of course, the most important here is to get the best possible solution for us. So we can't guarantee that we get that by end of this quarter, but that's where we see it moving now. And I say on the side, we have agreed with -- in Brazil. So it's moving slowly in the right direction. So then we say thank you. And any questions, we can do English, Norwegian, I guess, we're limited to that.