DOF Group ASA (DOFG) Earnings Call Transcript & Summary

Good morning, and welcome to the quarter 4 presentation in DOF ASA. I'm Mons Aase, and together with me is Hilde Drønen. We'll start on the next page with some highlights in the fourth quarter for the group. First, financial highlights. We had an income of close to NOK 1.7 billion in quarter 4, EBITDA of NOK 606 million and then we have an EBIT of minus NOK 335 million, of course, due to high impairments on the fleet that Hilde will talk more about later on. Then we saw a strengthening of the NOK towards U.S. dollars and ending up in a positive NOK 730 million financial result. And the profit before tax, down NOK 238 million. As you also can see on the net interest-bearing debt, it's been reduced due to the dollar drop in the quarter. If you look at the next page, we have some operational highlights. It's, of course, very challenging operations and markets due to COVID. I think if we look at full year, we have COVID -- direct COVID cost of more than NOK 100 million in the group, and of course, it's a challenge. We see improved performance on subsea projects in APAC and in Atlantic in the quarter. We have seen increased activity in Brazil. But you also saw from the new work we won in the quarter, quite a bit of it is in Brazil and we see probably that it's a trend that will continue. Continued very weak North Sea markets, spot markets, during the winter and into January. For the fleet, we had an average utilization of 68%, 56% on the PSV fleet. And of course, that is more or less split into where we have the older part of the fleet in lay-up and close to 100% utilization in the operating fleet. On the anchor-handling side, we have 59%. We do believe that will improve as we are mobilizing now a couple of boats in Brazil for new contracts. I'll talk more about that later on. And on the services side, 77%, and that's almost at the same level as we had in quarter 4 last year. Contracts won in quarter 4 is around NOK 1.6 billion and the last 12 months down NOK 6.2 billion. So it's been -- especially second half '20 was a good second half for new -- winning new business. We had 8 vessels in lay-up by year-end, so 1 less than the previous quarter and that will gradually reduce going forward. We have sold a boat. We are mobilizing 2 boats in Brazil. So it's the lay-up fleet will reduce a bit during the next few months. Then on the next slide, we -- so won in quarter 4 main highlights, new contract in quarter 4 is the Skandi Salvador won 3 contracts in Brazil on the Libra field, starting then in around April time this year. So that is something we really look forward to. And then we won a 3-year contract on the Skandi Rio with Petrobras starting in this quarter. And of course, she is coming out of lay-up so that's very good. And then while we've got Skandi Rio, we have -- we won earlier in the year what we call a PIF (sic) [ PIDF ] contract, inspection contract, in Brazil where we plan to use the Rio, but no, we will use the Botafogo instead. So meaning both of these boats out of lay-up and into working in quarter 1. In APAC, we won a few projects, Beach Energy, for instance, which will secure utilization on the work for the boats and also, of course, for the land engineering side on project people, which is good. In Atlantic region, we won a 1-year contract on the Kvitsøy. We extended the Africa big subsea boat with Technip 2 years, keep them busy until late in '22. The Skandi Vega, that has been working for Equinor since he was new in 2010. We had a 6-month contract, that contract about to run to a 2-year contract with Equinor, so she is now busy until May '22. So very happy with that. And then we won quite decent amount of smaller survey -- or construction contracts in the region in Atlantic, utilizing Skandi Skansen, Neptune and Seven for -- especially in quarter 4 and somewhat, I mean, in quarter 1. So all in all, NOK 1.6 billion. And then so far in quarter 1, NOK 1.5 billion in new backlog. And then in 2021 -- backlog secured, not I guess that is not in -- yes, the backlog we have secured for 2021 is NOK 5.8 billion. And if you compare that to the turnover for the group in 2020, you are talking 75%, 77% of the turnover in 2020. So let's say, it gives a good foundation for 2021 the backlog we have at the start of the year. So if you look at the next page, we have -- it's a new -- old slide, but with some new information on it. So being a global player. So our main office here in Norway, operating from 6 continents, 20 offices, 62 vessels whereof 9 we don't own, but our management. Probably ended the year 3,126 employees. That, of course, varies a bit, higher in the seasons. And then we also have a fleet of 70 ROVs and 2 AUVS. So a pretty large ROV fleet in the group. If we look at each region where we are split in, so we are split in 4 regions. We have the North America region where we have around 250 employees. Today, we operate 2 boats. Of course, that varies a bit -- the turnover then in 2020 in that region was NOK 0.7 billion. So that is mainly done from Canada and the U.S., but also then we -- from time to time new projects in Guyana, Trinidad and Mexico and so on. So as we speak now, we have a vessel coming from North Sea mobilizing for a project in Trinidad. So we will spend a few months in Trinidad then from more or less today and the next few months. So of course, it's an important region for us also to win business for the North Sea fleet in Trinidad and Guyana and so on. The Atlantic region, we have close to 1,000 employees. We operate 30 boats, and the turnover then in 2020 from that region was NOK 2.3 billion. So that region is Norway, U.K., Med. and West Africa. So the main offices in that region is in Norway, in Berlin and then in Angola in West Africa. In the APAC region, we have offices in Australia -- main office in Australia then in the Philippines and Singapore. Close to 600 employees, 8 vessels and the turnover in 2020 of NOK 1.1 billion. Then we have the South America region, which is mainly Brazil. We have 1 boat down in Argentina, long-term contract with Total, but mainly in Brazil. And so about 1,300 employees, 22 boats and the largest turnover in the group at NOK 3.5 billion. So it's a very important region for us. And of course, it's done good when we, on the previous page, I said that we see increased activity in Brazil lately and also going forward. So a few very interesting tenders we are working on in Brazil as we speak. Let me turn to the next page. We are, behalf of many years, been striving to be our industry's leader in ESG and we work strategically and hard on that. And we -- a few highlights. We have received A score in the Carbon Disclosure Project in 2019, an improvement from previous years, and the next highest available achievement score. I think the average for our industry is C. So pretty proud of that. By Amnesty, we have been ranked as top 5 within the Nordic countries in 2020 from human rights and responsible business conduct. Our sustainability report maintained scoring as a leading product by The Governance Group. So of course, we had good -- had a sustainability report over many years, started earlier and we see the results by having a high score. Then we have imagined it before perhaps, but we have what we call Intelligent Efficiency project together with some of the smartest brain in Norway, in SINTEF, in NORCE, in the Kongsberg group where we -- and that is supposed to -- planned to run by November this year. And the short version is that with some smart digitalization, we expect to be able to reduce the fuel consumption on boats with around 10% with very, very limited CapEx attached to it. So we look forward to see the end result of that, and of course, it's very interesting for us if we succeed on that. So that's the -- what we wanted to mention on the ESG side. And then I leave the word to Hilde who will take you through more details on the financials for the quarter.

Thank you. So you can go to next slide. So main highlights for fourth quarter is an operational EBITDA of approximately NOK 600 million. And the main contributor is DOF Subsea with an EBITDA of NOK 458 million. And then you have DOF Supply and Norskan with an EBITDA of NOK 148 million. As you saw on the first slide that the EBITDA is lower, and main reason for that is the utilization rate, which is from 83% same quarter last year to 68%. And the big drop is in the PSV segment from 56% to 94%, and 59% from 77% on the anchor handler. But on the Subsea segment, it's more or less in line on what we achieved last year. And as you can see, the earnings from DOF Subsea is the main contributor also this quarter. On the PSV side, we have had 5 vessels in lay-up the entire quarter, and 1 vessel is agreed sold but will be delivered in January -- was delivered in January this year. On the anchor handler side, we had 1 vessel that we own ourselves that has been in cold lay-up, but that is now prepared for recycling in Norway. The utilization for the anchor handlers was also highly impacted by vessels in lay-up Brazil, but now reactivated to be mobilized on new contract with start of first quarter. Also worth mentioning that the utilization rate for the PLSV fleet has been 98%, which is quite impressive due to very challenging COVID-19 issues in that regions. Out of our own fleet, 8 vessels were in lay-up by end of December. So if you look at the P&L and if you compare the EBITDA of NOK 606 million to NOK 805 million, main reason is the drop in earnings compared to same quarter last year is actually from the anchor handler segment, which was approximately NOK 100 million higher. From the Subsea segment, the same. That also is seen on the gross revenue for the group. The net profit from the associated company, that's 1 PSV and 1 anchor handler where we own a minority share. All the PSV fleet has been -- all the PSV vessels in operation are working on term contracts. We didn't have any PSVs in the spot market. And 1 vessel is, as already mentioned, sold, and that is Skandi Buchan. The 2 vessels reactivated from lay-up didn't have -- we don't see any positive impact from that, mainly negative in this quarter. That's Skandi Rio and Botafogo. And it is the Skandi Admiral that is prepared for recycling. The DOF Deepwater fleet, as we reported on the third quarter presentation, has not -- was sold by 1st of October and is not included in these numbers. What we have seen and also mentioned by Mons is that we have seen improved performance, especially from the Atlantic and the Asia Pacific region this quarter. If you go down to EBIT, that's negative with NOK 335 million versus NOK 98 million positive in 2019. And you can see that there has been high impairments, close to NOK 700 million also this quarter and that's due to drop in fair market values of the fleet and also updated value in use calculations. Also worth mentioning that the U.S. dollar -- the movement in U.S. dollar has an impact on our value in use calculation because the majority of the earnings are in U.S. dollar. And then we have a profit on the financial cost, and that's due to also movements in the dollar. Main reason is that the Norwegian kroner has strengthened towards U.S. dollar. Just a few words on the numbers year-to-date. We achieved an EBITDA of close to NOK 3 billion compared to NOK 2.9 billion previous year. The 2020 has been impacted by an improved U.S. dollar, especially first half, and some one-offs, but also improved performance from the JVs and mainly the DOFCON JV and improved performance from the regions. And if you can see the impairments, it's close to NOK 3.7 billion in 2020, where the main impairments, as reported previously, is from the Subsea segment. That's around NOK 2.4 billion, NOK 2.5 billion and NOK 700 million on the anchor handler and NOK 500 million on the PSV fleet. And you can also see that even though we had a positive impact on the FX this quarter, it's still a loss for the full year of more than NOK 1 billion. Financial cost, the interest paid is NOK 1.3 billion versus NOK 1.2 billion. So that gives a net result of close to minus NOK 5 billion compared to close to NOK 3 billion previous year. I think that was it on the result. So if we go to the segment reporting, you can see that on the PSV segment, it's NOK 27 million compared to NOK 39 million and reason for that is more vessels in lay-up this year compared to last year. On the anchor handler side, it's NOK 84 million compared to NOK 129 million. However, if we compare with the hedge accounting, which we did until fourth quarter last year, then the difference is actually NOK 100 million for the anchor handler fleet and that's basically more vessels in operation and better rate, especially in Brazil. If we look at the Subsea, it's NOK 500 million compared to NOK 581 million and that's due to better earnings in some regions. Here, you can see the impairment this quarter and how that has impacted the result. And the main impairment also this quarter is from the Subsea segment. And then we can move to next. DOF Subsea also report their separate segments, and that's -- they have defined it in long-term chartering and subsea IMR projects. The majority of the vessels are within the IMR projects. And as you can see, this is a mix of project earnings and time charter earnings. And the gross revenue is NOK 756 million this quarter and an EBITDA of NOK 136 million gives a margin of 18%. And that's a better performance than the previous quarter in 2020. They have a backlog close to NOK 4 billion. And as you can see, the majority of the employees in DOF Subsea are employed in this segment and also the majority of the vessels. If you go to the long-term chartering, where the PLSVs are the main contributors, they achieved a revenue of NOK 458 million, an EBITDA of NOK 322 million and that gives a margin of 70%. That's more or less in line on the previous quarter. And also, as previous mentioned, a high utilization of close to 100% and a firm backlog of 7.6% (sic) [ NOK 7.6 billion ]. So if we move on to next. The cash flow, if we compare the 2 quarters, it's from operations. It's NOK 451 million compared to NOK 523 million. If you look on investments activities, the net negative cash flow is NOK 159 million compared to NOK 77 million. The main investments also in 2019 and 2020 are basically class dockings and vessel upgrades to new contracts. Repayments of borrowings this quarter and also the last quarter, that's mainly amortization from the DOFCON JV, its lease payments and short-term credit facilities not included in the standstill agreements. And that ends up with a cash and cash equivalent of NOK 2.3 billion. And as you can see, this quarter, the exchange gain or loss this quarter has impacted the cash with NOK 81 million. Just a few words on the year-to-date number. It's no doubt that the cash flow has been impacted by a strong U.S. dollar to both BRL and Norwegian kroner, and of course, the reduced interest payments due to standstill agreements. And if you accumulate the capitalized interest payments, that is NOK 309 million year-to-date 2020. But if you go -- and if you go to payment and borrowings for the full year 2020, these payments represent the group already mentioned, but it also includes amortization for some companies during first half 2020. So the gross amortization for the group was NOK 1 billion compared to NOK 1.8 billion in 2019. We'd also like to emphasize that the FX has had a negative impact on our cash full year of NOK 560 million. So all in all, even though the FX has had a positive impact on our operational cash flow and EBITDA, it has had a very negative cash -- impact on our cash, but also impact on our gross debt, which has increased with about NOK 1 billion due to FX. So then we go to next. If you look at the historical performance of the group and if we see the EBITDA, it has been moved from NOK 805 million to approximately NOK 600 million in Q4. This is EBITDA without any gain from sale of assets. Already explained the difference from '19 to '20, but we have managed to have a pretty stable margin through this period, but exceptionally high in 2019. If you look at the noncurrent assets, that has changed. And as you can see, it has changed from NOK 25 million to NOK 19 million this quarter. If you look at the current assets, you can see it has increased and that's mainly due to increased cash. On the noncurrent debt, it's -- noncurrent assets, sorry, is, of course, highly impacted by impairments due to what we did in 2019 and also in 2020. You can see that the equity is negative. That's due to negative P&L through 2020. And of course, the main portion of the current debt is short term due to the standstill agreements. Then we move to next. If we -- here you see the movements from end of last year and also end of previous quarter. And if I focus on the changes on the last quarter, you can see that there is a drop in vessel value, already mentioned the impact on the impairments. So in this quarter, it was NOK 700 million. For the full year, it was NOK 3.7 billion. Deferred tax assets, that mainly comes from the DOFCON JV, meaning that all previous tax assets they were impaired in 2019. If you go to the current assets, you can see that the cash has developed positively compared to year-end last year. But a slight drop the last quarter. Asset held for sale, that is the Skandi Buchan, the book value of Skandi Buchan, that was delivered early January to the new owner. And the negative equity, of course, impacts the going concern. But this report has been prepared on the assumption of a going concern due to the existing standstill agreement that we have with the banks. The current long-term debt, that's basically the DOFCON JV and the lease debt. And the short term debt, that is all secured debt and bond loans that are classified as short term due to that restructuring of the group. So approximately NOK 80 million of the current portion of debt that is under restructuring. So if you go to next. Here you see the key financial, the revenue since 2014 and the EBITDA on the same and the firm backlog. Just worth mentioning that the FX, of course, has a big impact here as well. Last quarter, we reported a backlog of NOK 17 billion, but that was at a much stronger U.S. dollar rate than we had by year-end. So the value in Norwegian kroner on the firm backlog by year-end was NOK 15.3 billion. So if you go to next, just a quick update on the current restructuring we are working with. As already mentioned, approximately NOK 18 billion of the secured and unsecured debt is under restructuring. And what we have achieved so far is that we have signed standstill agreement with 91% of the secured lender within the DOF Group. And we have signed 88 -- with 88% of the secured lender in DOF Subsea for a standstill until end of April. And then we have signed standstill agreement with the bondholders until end of March. But here, there is an option for the bondholders to extend until end of June. As part of our governmental package in Brazil, we have achieved standstill agreement with the Norskan BNDES facility and 1 facility in DOF Subsea. And that started end of June and a new standstill was achieved until the 10th of June this year. As mentioned in the financial report, we have an agreement with BNDES for soft term amortization -- on the amortization until end of 2023. But that has nothing to do with this standstill agreement because that is, as mentioned, as part of a governmental package. In fourth quarter, the company or the group presented restructuring proposals to the banks, and we have received a response on our proposal. That means that there are currently discussions with the secured lenders and the bondholders. The proposals that we are currently discussing will have a comprehensive impact on the group's balance sheet. And that means -- that includes a conversion of debt to equity. I think that was it for me. So then I give the word to Mons.

Thank you, Hilde. A few words on the market. This is a slide we have got from Rystad, and of course, it shows that the COVID had a negative impact, of course, on the market. But we also now expect that from 2022 we will see investments in the sector increase. And that's pretty much aligned with our view that '21 will be slower and then we expect a rebound of activity in '22 and '23. So of course, the recent oil price development, of course, also gives some reason to be a bit more optimistic compared to when the oil price was low. So oil price now at $65, $66 helps normally helps on the activity level in our industry. So looking at the next slide, we -- as said, we see '21 more or less stable compared to 2020 and then we expect an up cycle then in '22. Tie-backs is expected to be the preferred development solution. And also higher OpEx activity we expect to grow within subsea. But still, of course, significant off-balance between supply and demand in the industry. And then long term, of course, that remains to be seen, but Bloomberg and Rystad here in this expect then that the renewables side will surpass oil and gas in CapEx from 2025. So course, it's -- we, as a lot of oil companies, of course, spend quite a bit of time now on how to position ourselves and build a strategy for our renewables side. So it's next year will be very interesting for us with -- then we will go offshore with Hywind Tampen, of course, the world's largest floating wind park so that we will do the TOT installation of the -- of it and so we look forward to do that project. Of course, of course, that also is a project that will -- it's a good reference from the -- and when we expect the floating part of the wind business to gradually develop and grow through the years to come. But on the next page, on the outlook, what we saw -- we have seen January this year very weak with low activity. But we see also some signs of increased activity in certain regions, Brazil as mentioned. I think also Norway, you can say, it's stable or perhaps increasing a bit. But then we see places like the U.K. where we're badly hit by the COVID and oil price drop and we see still very low activity in U.K. And like West Africa where it was almost a complete stop for our activity in West Africa in the second half last year due to COVID, but also slow in [ all regions ] now, but still from very low level. So all in all, we expect challenging markets in '21, but we expect some higher activity, of course, through the seas than what we have seen in Jan. So spot markets in the North Sea have been very weak end of quarter 4 and into quarter 1. But we see some signs of more -- some weeks, we have seen some -- almost balance in these markets both on PSV side and lately, also, we saw -- especially on Norwegian side, some good rates, [indiscernible] but how that will develop, it's very difficult to say. So all in all, we expect more or less the market to be in line with 2020. On the backlog, as we mentioned, we have NOK 1.5 billion in the backlog for quarter 1 and then we have NOK 5.8 billion for the full year. And as mentioned, that is around 75%, 77% of the turnover we had in 2020. So it's, as mentioned, a good foundation for '21. All in all, we expect EBITDA in first quarter to be weaker than quarter 4 in 2020. On the financial side, Hilde took you through that. We have continued discussions with our creditors on the long-term refinancing solution, and of course, we are dependent of continuous standstill agreements with the creditors until the long-term finance solution is agreed to maintain the going concern. So we will update, of course, the market when there are news on that process. So that was what we had in the presentation today. We have not any Q&A session today, but you can give Hilde or me a call if you have any questions so on our mobile phones or -- so please do that if you have any questions. So thank you very much to all of you. And have a nice day, and thank you.