DOF Group ASA (DOFG) Earnings Call Transcript & Summary

Good morning, and welcome to the quarter 1 presentation for DOF. I'm Mons Aase; and our CFO, Hilde Drønen, will do the presentation with me. If you look at the highlights for the group in quarter 1, it's been a weak quarter, very slow start January and part of February, low activity in the North Sea and Australia, APAC. And so it's been a slow start. And if we compare the turnover and the EBITDA to last -- same period last year, of course, we see there is a big drop. So it's partly -- main explanation to that, of course, is the markets due to the big shift in markets. So we were on a good run in the same quarter last year, and we are pretty much down this year. Standstill agreements have been signed with majority of the secured lenders and the bondholders until end of May. And we are, of course, discussing with lenders and working hard on the restructuring of the group. Operational highlights. As indicated, of course, operations are still very much impacted by the weak markets and COVID-19. So we have had vessels in this quarter that had to go to port and change the entire crew. So we -- especially in Brazil, we may -- we are heavily impacted more of the virus. Markets were very slow in the early part of the quarter, and a lot of -- a few key assets, it's sitting idle and then gradually coming into work through the quarter. So in the Atlantic region, it was a weak January, but then we saw increased activity and picking up. And it looks like the somewhere around and, more and more, the rest of the year in the Atlantic will be quite good with no secured high backlog. In APAC, also very low activity in quarter 1 and likewise in North America. So slow start in most places. In Brazil, we have had high activity. Several vessels impacted by mobilization on new contract, 3, 4 vessels doing that. So also there, not very strong numbers in quarter 1 but then increasing through the quarter and into second quarter. On the anchor handling and supply side, likewise, low activity in the North Sea market in the start of the year. In March, on the anchor handling side, it was good. And -- but then after that, [ up and on us ], it's difficult to predict the direction of the anchor handling market in that. In the North Sea, we -- on the PSV side, its activity clearly is up, more vessels in operation. And the rate levels, especially on Norwegian side, is -- in the spot market is on levels we haven't seen for a while. Total for the fleet, 67% utilization. As we see, 57% for the PSVs, of course, they were the part of the fleet that was hardest hit by COVID, 70% on the anchor handlers and 71% of the Subsea fleet. Order intake in quarter 1, NOK 0.6 billion. And if you look at the last 12 months, NOK 6.2 billion, which is a good number that we are satisfied with. On the fleet, we have sold 3 boats, 2 PSVs delivered to new owners in the quarter and 1 vessel, an old anchor handler built in '99, recycled. In lay-up, we have 4 vessels we had by the end of the quarter compared with 8 end of quarter 4. And as we speak, 2 of these vessels are now back trading again. And so we -- and we have one more coming also. It means that, let's say, by the end of quarter 2, we expect to have one vessel left in lay-up. So it's a small sign that activity is picking a bit up. And the vessels here we are talking about, this is PSV. So the PSV market are getting a bit more higher activity. If you look at next slide, on the contract side, we mentioned NOK 0.6 billion. And the main contracts, Skandi Kvitsøy and Skandi Gamma on term contracts in U.K., 1- and 2-year contracts with large operators in U.K. Constructor, which is a Subsea asset, up to 160-day contract in the renewables market in Germany is commencing in April. And then DOF Subsea have won quite a few jobs in the North Sea in this quarter, securing, I would say, almost full utilization on the Skandi Acergy from March onwards; good -- few good projects on Skansen and Iceman and Hera, and in total, more than 340 vessel days, giving a good foundation for that region in the rest of the year. Part of that work, it's good to note that it's a big construction job for a major offshore wind project in the North Sea and expect approximately 150 days of that project. So it's an interesting project for us. In South America, we have landed 2 contracts in Guyana for pipehaul duties in '21 and also in '22. And then, we yesterday announced a contract with Shearwater for a node, will be on the seismic project in Brazil, which will utilize Skandi Neptune. She will leave in the North Sea this week, and we expect to stay in Brazil for approximately 1 year. So it's a good contract for us securing a year's utilization on the Neptune. If we look at the total backlog, we see we have secured backlog for quarter 2 of NOK 1.9 billion, so it's a good very good foundation for quarter 2. So most assets are more or less -- on the Subsea side are more or less booked in quarter 2, and so at least, it's a decent foundation for that quarter. We have -- for remainder of '21, we have NOK 4.7 billion in backlog secured. So it's a pretty high backlog secured for the rest of the year. And so that's what we expect our utilization of the fleet in the rest of the year compared to quarter 1. So the table, of course, shows what is secured the next few years going forward. So I think totally, we have a backlog of between NOK 14 billion and NOK 15 billion secured. If you look at the next slide, good mentioning is, of course, that we are in the forefront in our industry when it comes to ESG. So we have a very structured approach on that. And this year is the first year we have an integrated -- for 2020, it was the first year we have an integrated annual report, where we report both Carbon Disclosure, ESG and the financial numbers. So it's -- we are taking a look at. On the Carbon Disclosure Project, we have been ranked by CDP with an A-, which is within the top 30% in the -- not only in our industry but in all industries. Our ESG score are top -- between top 20 by the 100 largest Norwegian companies. And by Amnesty, we are ranked top 5 in the Nordics. So we are proud of this, and we're, of course, going to push out to become even better on these very important items. This is a new layer but not a new slide. It shows where we operate our fleet. It shows that we have 60 boats, 70 ROVs and AUVs, the large Subsea asset pool. It shows that we have 3,300 employees. It's a small increase from end of quarter 4 with 200 people, and it shows our main hubs where we operate globally. Then I will leave it to Hilde to do the financial numbers for quarter 1. Please, Hilde.

Thank you. All the numbers shown in this presentation are based on management reporting, meaning that we include the 50% share in the DOFCON JV, both on the balance and the P&L. So if we go on the highlights for Q1, the operational EBITDA of NOK 492 million. And of course, already mentioned by Mons, utilization is lower, so the comparable number for the group is 67% versus 81%. And you can also see further down that the utilization on all the segments and especially the PSV segment has dropped significantly from 94% to 57% on the PSV; from 81% to 70% on the anchor handlers; and from 76% to 71% on Subsea, whereof the project fleet have been utilized 56%. If you split the EBITDA into the Subsea activity, meaning DOF Subsea and DOF Supply, which is DOF Rederi and Norskan, the split in EBITDA is NOK 308 million versus NOK 184 million. And compared with Q1 2020, you still see that the EBITDA contribution from DOF Subsea is above 60% both quarters. By end of the quarter, we had 0 anchor handlers in lay-up. All were reutilized, but the operation heavily impacted by vessels mobilizing for contracts, especially in Brazil. We had 4 PSVs in lay-up by end of the quarter. And during this quarter, 3 are planned for reactivation and, already mentioned, too, ready for operation as we speak. So if you go to next. If you see the total P&L, just a few comments on the EBITDA this quarter versus last year quarter. In addition to the comments already mentioned by Mons related to activity in the various -- variable utilization in the different regions, the EBITDA is also impacted, but that we actually had less PSVs in operation this quarter. And we also had lower rates on the anchor handler fleet, especially in Brazil, mainly due to contract renewals at lower rates than the old contracts. And one vessel has been recycled this quarter, so we'll not have any impact on our EBITDA going forward; and 2 PSVs sold, which I will come back to. If you look at the impairments, it's a huge reduction, big reduction compared to previous quarter. It's NOK 131 million versus NOK 1.5 billion in first quarter. It's a minor impairment, but we still see that the broker estimates, the fair market value of the fleet has dropped by approximately 5% this quarter. If we look at the financial costs, it's NOK 826 million minus compared to minus NOK 3.2 billion last year, whereof the unrealized currency gain/loss has the biggest impact, very large in 2020 due to high volatility and a very weak NOK to U.S. dollar. And the unrealized loss this quarter is actually a weak Brazilian reals to U.S. dollar. The NOK/U.S. dollar has been stable this quarter. So that gives a net loss of NOK 801 million compared to minus NOK 4.1 billion last quarter. So if you move on to next, looking at the segment. And as you see on PSV, we have an EBITDA of NOK 41 million versus NOK 39 million. But an important contribution from -- on the PSVs is NOK 29 million, so the operational EBITDA is lower for the PSV this quarter. And the operating result is plus NOK 2 million compared to minus NOK 147 million, where the largest variance is impairment done last year. Looking at the anchor handler, you see that the operating revenue has dropped by 50%. That also is reflected in the EBITDA of NOK 112 million compared to NOK 231 million, a net result of NOK 50 million compared to NOK 325 million. And again, the impairment is making the largest difference. Looking at the Subsea segment, we have achieved a revenue of NOK 1.2 billion compared to NOK 1.5 billion and an EBITDA of NOK 339 million compared to NOK 534 million and a small minus on the EBIT compared to minus NOK 564 million last year. And again, it's the impairment that makes the biggest difference. So that gives an EBITDA before depreciation and impairment of NOK 592 million (sic) [ NOK 492 million ] compared to NOK 804 million. And you still see that the vast majority of the EBITDA comes from our Subsea activity. DOF Subsea reports in 2 business segments, meaning Subsea IMR projects and long-term chartering. So if you look at the Subsea projects first, where they have achieved a revenue of close to NOK 680 million and an EBITDA of NOK 46 million, which gives then a margin of 7%. The backlog for this part of the business is NOK 3 billion. And it's close to 1,300 employees and 17 vessels in operation, whereof 2 vessels are hired in from external parties. If you look at the long-term chartering, that mainly represent the PLSVs, which are 7 in total, of which the majority is owned by the DOFCON JV. Here, they have achieved a revenue of NOK 362 million and an EBITDA of NOK 275 million and gives a margin of 76%. It represents the activity from 8 vessels, and the firm backlog for this part of the group is NOK 7.6 billion So out of the total backlog for the group of NOK 14.2 billion, NOK 10.6 billion comes from the DOF Subsea or the DOF Subsea Group, whereof the largest backlog is from the PLSVs. So if you move on to next, looking at the cash flow. If you see net cash from operating activities, it's NOK 313 million compared to NOK 440 million. And the main difference is, already commented, lower EBITDA, which has impacted the cash from operating activity, obviously. And also less interest paid is NOK 94 million compared to NOK 341 million due to the fact it has been standstill for [ 80 ] -- the majority of the debt for the group during this quarter. If you look at the cash from investing activities, that's minus NOK 130 million compared to minus NOK 86 million. And NOK 97 million is sale of 2 vessels, that is Skandi Buchan, a PSV built in 2002; and Skandi Texel, built -- a PSV built in 2006. Purchase of tangible assets is mainly class dockings and purchase of ROVs. And other cost, mainly contract costs, that is contract cost and conversions, mobilization to new contracts. If we look at the net cash from finance activities, that's minus NOK 224 million compared to NOK 127 million. And the main portion of payment of borrowings, that debt service which is not part of the standstill agreements, namely DOFCON and lease agreements and repayment of debt after sale of 2 vessels. So that end up with a cash of NOK 2.2 billion this -- by end of this quarter, of which NOK 178 million are restricted cash. So if we look at the historical performance and if you look at the last 5 quarters, you see that the EBITDA in this quarter is a low point compared to the previous quarter. Bear in mind that the first quarter in 2020 was a very good quarter, already mentioned by Mons, and also impacted by a high U.S. dollar impact. The majority of the revenue for the groups is actually in U.S. dollar. But looking at the margin, it has been -- compared to the all the other quarters, it has been stable above 30%. Total assets of NOK 22.4 billion, and the current debt is NOK 20 billion due to the fact that the majority of the debt is under standstill agreement. The net interest bearing debt is NOK 19.7 billion compared to NOK 24.2 billion, of which the currency impacts is the main difference due to the -- for the reduction compared Q-on-Q, 2020 and 2021. If you look at the balance, and then we only commented the changes in first quarter. And as you will see, there are not big variances from year-end to end of March. The main difference is actually on the tangible assets, meaning vessels, and no major changes other than 2 vessels sold and depreciation and impairments. Deferred tax is basically linked to the DOFCON JV. Looking at the current assets of NOK 3.9 billion compared to NOK 4.0 billion, a minor reduction in cash and cash equivalent. The cash is positive impact by standstill agreement, but this quarter, it has been negative impact by several vessels mobilization and conversion to new contract and class dockings. And these vessels are on hire during second quarter. The equity is negative by NOK 1.5 billion compared to NOK 900 million by year-end. And of course, this impacts the going concerns assumptions. Looking at the interest bearing debt, and what you see here are noncurrent liabilities, that is long-term debt in DOFCON JV and lease debt. All other debt, and that includes secured debt and bond loan, are classified as short term due to the ongoing restructuring of the group. The U.S. dollar impact is already commented on the previous slide. So then we go to next, looking at the group key financials. And the last dark blue line shows the 12 months revenue, which is approximately NOK 7 billion. Looking at the EBITDA, the last 12 months is around NOK 2.6 billion. And looking at the backlog, the current backlog for the group is around NOK 14.2 billion. And on the restructuring, approximately NOK 18 billion of the secured and unsecured debt is under restructuring. As published earlier this quarter, we have agreed standstill agreement with the majority of the lenders both in DOF Group and DOF Subsea until the 31st of May. We have -- that also includes the bondholder debt, which is where the standstill agreements are applicable until end of May. We have standstill agreements signed with BNDES until the 10th of June for the majority of the facility in Norskan Offshore and one facility in DOF Subsea Brazil. There are, of course, ongoing discussions with the bondholders and the secured lenders. And the discussions are challenging but constructive. And the discussions that we discussed will result a comprehensive restructuring of the group's balance sheet, including conversion of debt to equity. So that was it for me. Thank you.

Thank you, Hilde. If we look at the markets, we -- as we say, it was a weak quarter 1. Expect, as normal, higher activity through the summer, but overall, we don't expect '21 to be a very good year, let's say, in that way. But we see that there might be an up-cycle when we come into '22. Also, oil prices is now $65. And should we be -- analysts tell us that there are more activity coming going forward, so both on the CapEx side and on the OpEx side. So -- but of course, still a lot of supply, so might be that in some segments that we don't -- we still will be off balance between supply and demand. Longer term, of course, we, as everybody else, is looking at the renewable side. And of course, it's predicted that renewable will surpass oil and gas in CapEx in the future. So of course, it's -- it will be interesting to follow that part of the energy market. Next slide show the CapEx side. And as you can see from the graphs, see a slow and steady improvement in offshore investments, so ticking up a bit. And especially then '23, '24 is growing a bit compared to the last couple of years. So of course, it's -- we do expect higher activity, as we said, going forward compared to '21. So if we look at the next one, it shows vessel demand. It's a bit -- it's a busy slide. But on the PSV side, the market is fairly tight, especially on the Norwegian side show it's -- I would say, it's reason to be fairly slightly optimistic for the summer season on the PSV side. On the anchor handling side, of course, we see the utilization more or less stabilizing around 60%. And of course, that is too low to make money. So it's too low to get good rates, and it's too low to get -- so we need to see higher activities, especially on the rig side in U.K. to see that market being, let's say, coming back to healthy levels. So of course, when we look at -- on the rig side, we -- where we see increased tender activity. In Norwegian side, it's somewhat recovering in '21. But of course, it's the U.K. side we need to see more recovery in. And what happens in '22, we don't know, but of course, it's -- we -- where the oil price we see, we expect it to -- activity to grow a bit. But if it's enough, nobody knows, of course. So I'm not -- we are not very optimistic for the anchor handling market in North Sea in '21. On the next slide, floating wind, of course, is an interesting segment for us. Especially our fleet of anchor handlers are very well suited for that market. Obviously, it's a few years until we really see that it takes off. But let's say, second half of 2020, so our -- we see there will be pretty large growth in that area. And of course, DOF Subsea are part of the world's largest floating wind farm to date. So next year, where we are to -- in our partners to install the Hywind Tampen. And of course, we look forward to do that. And the offshore phase will be executed from a few of our boats. So it's a very interesting project. And of course, we want to build on that track going forward in the floating wind segment. So it will not save the day, in a few years, but longer term, of course, it's a very interesting market for us. When it goes to outlook on the operations and the markets, as we have said several times, we expect the markets to remain challenging, but we see signs of increased activity in certain regions. North Sea, Norwegian sector, and Brazil, we expect increased activity and that they will lead recovery going forward. We see increased vessel demand within offshore wind. And of course, that not only the floating wind, but on the fixed side of it is expected to grow rapidly the next decade, so an interesting market to follow. On the backlog, we said we had NOK 1.9 billion secured for quarter 2. So it's a high backlog in quarter 2 for us. And utilization are expected to stay high. For the full year, we have -- for remainder of the year, we have NOK 4.7 billion in backlog, so also a decent foundation for the last 3 quarters of '21. And as a consequence, we expect the operational EBITDA in second quarter to be higher than the first quarter. On the financial side, Hilde and we stated that we are in discussion with the group creditors to reach a long-term refinance solution. We are dependent of continued standstill agreements with creditors until the long-term financial solutions agreed to maintain as going concern. Of course, there are no guarantees that we will reach an agreement. But as Hilde said, the discussions are constructive and -- but challenging, and we are working hard to get to an agreement. So that was end of the presentation. We do not have a Q&A session, but please feel free to give either Hilde or me a call if you have any questions. Thank you very much, and have a good day.

Thank you.