DOF Group ASA (DOFG) Earnings Call Transcript & Summary

Good morning, and welcome to the quarter 2 presentation for DOF. Hilde Dronen, our CFO; and myself, Mons Aase, will give you the presentation. If we start looking at some highlights for this quarter. Maybe start with the financial highlights. So the revenue, exactly NOK 2 billion and an EBITDA of NOK 680 million compared to NOK 700 million last quarter. So we are up from quarter 1, but still a bit behind the same quarter last year. Hilde will do a closer dive into the numbers later on in the presentation. We are still discussing with lenders and bondholders on the restructuring and making some progress, and Hilde will also talk a bit more about that later on. When we look at the next slide, operational highlights. We have had 80% utilization on the fleet compared to 70% last year, which is a combination of -- we have sold a few boats since last year so only 1 vessel left in lay-up, so it's an improvement on that side. We have still had very challenging markets. So if we look to North Sea spot market for PSVs, anchor handler has been a disappointment this summer season, I would say. But then our subsea project activity has picked up the last few months. And then we also see that activity remained fairly high during the second half of the year. So a good backlog for that part of the business. COVID-19 still a challenge, impacted operations with extra cost of hire and all have big implications. So we are talking triple-digit numbers and million NOK in costs so far this year. So it's a challenge. So let's hope it gets better going forward. Backlog, when we wrote this here, we have NOK 13 billion, then secured in quarter 3 NOK 1.8 billion. So here we are talking then in sum around NOK 15 billion as we speak. And a good backlog for the remainder of '21 of NOK 3.3 billion whereof NOK 1.8 billion is for quarter 3, which if you look at the turnover for quarter 2, around NOK 2 billion. Of course, NOK 1.8 billion is above 90%. So it's high secured backlog for second half. And then we see the curve down here on next year and the following years. And that is not updated with the recent released contracts. So it's a bit higher, of course, than what is shown in that graph. So when we look at the contracts on the next page, it's quite a few. And so in the Atlantic, I think the most important to note is that through Subsea region, the Atlantic we have secured quite a few projects securing good utilization and also I would call it decent earnings for that region and the fleet in that region during summer season and also into third quarter and into fourth quarter. So a few other boats are busy more or less towards end of the year. We also won our second job in our joint venture with Aker Solutions called KDS, joint venture for DNO. But also, you remember well across that joint venture we'll do the installation of the Hywind Tampen floating wind farm next season starting offshore in April. And of course, it's a very important project for us and look forward to that. So we will report more on that when we get closer to it. Skandi Seven, very happy with that, extended in Africa, in Angola with an old major donor and she's been working for them for a while now and it's extended over until May next year. So it's a job where we deliver project management, engineering, procurement, logistics, and of course, also the deepwater construction so like flex-laying and then IRM on existing infrastructure. So it's what you can call a full-blown field support services. In South America, we -- I think it's worth starting with the one we just released earlier today, which is two 3-year contracts, one for each for the Skandi Vitoria and Skandi Niteroi. So commencement latest February next year, but it might be we commence earlier and that both vessels then firm for the next 3 years, which is a very important contract for us. And of course, that means all 6 vessels in the joint venture with Technip are on long-term contracts with Petrobras for the next few years. Also, worth to mention the Paraty extended 1 year with Petrobras, summer next year. And then a few other contracts, Neptune started in quarter 2 and then working more or less we expect to quarter 2 '22. So an important contract for us and good utilization during the winter of course. We have 1 vessel down in Brazil in what we call a short-term spot market and it's been good so far this year in our utilization, and we also have now secured 3 jobs that secure this utilization and decent earnings for the rest of 2021. In APAC, the press release yesterday and very important for us now securing satisfactory utilization and other earnings in APAC for quarter 3 and quarter 4 and also into quarter 1 next year. So there are more details in the release, but we are talking -- I think we are talking around NOK 400 million DOF awards in APAC. So it's a decent and important award securing good earnings through the -- through what we here in Europe call the winter period. So all in all, a good run on new contracts, especially in the last few weeks. So then when we turn to the next one. Of course, we have mentioned before and we do it again that, of course, DOF very focused on what we call ESG and that we put a lot of pride and effort into being a leader within those important areas. Worth mentioning is that we -- this quarter, we were, together with some other companies in Europe, I think 300 companies. We're on the list among, DOF is a company that Financial Times and an independent data company has analyzed and very proud to inform that we were on that list on what they call Europe's Climate Leaders in 2021. You can find for more information about that on our homepage, and of course, also in Financial Times. So very proud of that. On the Carbon Disclosure Project, nothing new, but we have A- score, which is top 30% of the companies. And then total score on the ESG 100, we are ranked top 20 out of the 100 largest companies in Norway. And then as you see also on Amnesty, we are top 5 over the Nordics on that. So we just have to continue this work and stay in the forefront on these important areas. Then on the next page, this is an old slide. So what is worth commenting on this is that we, of course, operate from 6 continents, 20 offices globally. We operate now a fleet of 58 boats where 50 owned. And we have, by the end of the quarter, around 3,800 employees or contractors. And of course, that is an increase of a couple of hundred since we reported under quarter 1. So I think that is showing that activity in some areas, some segments have picked up the last few months. So then we can move on to the financials. So I'll leave it to Hilde Dronen take you through the numbers.

Thank you. So we move on to the main financial highlights. As already mentioned by Mons Aase, the operational EBITDA is close to the EBITDA last year, NOK 680 million versus NOK 701 million last year. And also the utilization has been higher compared to the previous year. If you look at the segments, we can see that the utilization on the PSV is slightly below what we achieved last year even though we have only 1 vessel in lay-up. Main reason is that last year we had more vessels in operation and we had fairly good utilization through second quarter until several vessels went into lay-up by end of the quarter. Four of these vessels has after June 2020 been sold. The utilization in second quarter has also been impacted that we have had 3 vessels being reactivated from lay-up. Two of these vessels went on hire on contracts in Guyana in July. On the anchor handler segment, it's 86% versus 59% and that mainly represent the utilization for our Brazilian fleet, where the whole fleet has been -- was in operation by end of the quarter. And during the quarter, we reactivated 1 vessel, which went on hire during second quarter. Also on Subsea, we have better utilization, 83% versus 74% and especially the project fleet has achieved good utilization this quarter and the activity has increased significantly compared to same period last year. On the cakes below, you see the share of EBITDA, which, by a coincidence, is exactly the same compared to last quarter. So 75% of our EBITDA are from DOF Subsea. And you can see the split in numbers. DOF Subsea achieved an EBITDA of NOK 512 million in second quarter and DOF Supply, which represent DOF Rederi and Norskan, Norskan our Brazilian operation, of NOK 168 million. And you can also see the utilization for the full DOF Subsea fleet, which was 82% and 78% for the full DOF Supply fleet. Already mentioned that by end of the quarter, we have had 1 vessel -- 1 owned vessel in lay-up and we have reactivated 2 -- 3 PSV from lay-up and 1 anchor handler. On the anchor handler segment, 1 vessel was sold for recycling during the quarter. That vessel was built in 1999. And on the Subsea, already mentioned, improved utilization and performance from the regions and for the PLSV fleet that includes 7 vessels. We have achieved a high utilization also this quarter. So if we move on to next and see the details on the P&L. The EBITDA in second quarter has been impacted by sale of mainly 1 vessel, 1 recycled, that's just a minor amount, but the main amount here, approximately NOK 30 million. That's the sale of the Geograph. Year-to-date, it's close to NOK 1.2 billion in EBITDA compared to NOK 1.5 billion. Also bear in mind that the EBITDA numbers for second quarter 2020 was highly impacted by a very strong U.S. dollar to both BRL and Norwegian kroner, so that positively impacted the EBITDA last year. When looking at EBIT, you can see it's NOK 148 million compared to minus NOK 354 million. And the main difference is related to impairments where it was NOK 218 million compared to NOK 780 million last year. And if you look at the accumulated numbers, the EBITDA was strongly negatively impacted by high impairments during second quarter last year. If you look at the net financial costs, the interest cost is actually lower compared to the same period last year of NOK 257 million compared to NOK 368 million. One reason is the currency impact, which is negatively on the financial result last year. But the main -- the big numbers is actually the unrealized currency gain/loss, where we had a gain of NOK 804 million this quarter versus minus NOK 38 million last year. And looking at the accumulated numbers, you see the difference is much higher. The main variance in the currencies this quarter has actually been that BRL has strengthened towards U.S. dollar. The Norwegian kroner to U.S. dollar has been stable. Looking at the valuation of the fleet, that, of course, impacts the impairments booked. We have seen a drop of 1.3% in the fair market value of the fleet. We have also updated the value in use calculation. We have seen that the values -- the fair market values, which we received from external broker companies has been -- have been actually stabilized on some vessels. But of course, there is still a risk of additional drop in value and then more impairments going forward. If you go on to next, here you see our segments and you can also see that the PSV represent just a minor part of our business. The vessel has declined through sale of vessels during second half '20 and so far this year. On the anchor handler, it represent 20%. And of course, Subsea as in previous quarter, represent the biggest part of our business. The EBITDA from the PSV and anchor handler is more or less in line on what we achieved last -- same period last year. If you look at the Subsea segment, it's slightly below. But also bear in mind what I mentioned about the currency impacts for last year, and that what we have seen through second quarter is that the Subsea project activity has increased significantly compared to same period last year. And a gain from sale of asset is already mentioned. And you can also see the split in impairment. It's actually minor numbers on the PSVs and anchor handler already written out quite a lot and the main impairments this quarter is from the Subsea segment. And of course, the EBITDA margin reflects increased activity from the subsea project activity where we have lower margin compared to time charter activity. So if you move on to next, and here, you see the DOF Subsea Group and how they split their segments. That's Subsea IMR project and long-term chartering. And the gross revenue from the projects is NOK 1.1 billion and achieved an EBITDA of NOK 209 million and a firm backlog of NOK 3.8 billion. It's close to 1,500 employees related to this business and that excludes the seafarers. It is mainly Subsea personnel. And it's also this part we have seen an increase in total employees of the group and it's represented by 17 vessels, of which 2 are chartering from external owners. But a margin of 90% is a good margin compared to previous quarters. If we look at the long-term chartering, the revenue is close to NOK 400 million and an EBITDA of NOK 275 million. This is represented by 8 vessels, of which 7 are PSLVs working on term contracts and one Subsea vessel working on our long-term contract in Argentina. And the backlog here is NOK 6.2 billion. The backlog does not include the new contracts and the press release we sent this morning. If you go into next, if you look at the cash flow and the net cash from operating activities is NOK 395 million versus close to NOK 600 million last year. And the main reason why the cash flow is lower compared to previous year is increased activity from the project activity and that includes higher outstanding receivables by end of the quarter, paid now in third quarter. So increased activity this quarter has significantly impacted the cash flow. But it's also based on seasonal variation where we expect to build cash during second half of 2021. Of course, the cash flow is impacted by reduced interest paid due to standstill agreements for the vast majority of the debt in the group. We have, in this quarter, sold 1 vessel and delivered 1 for recycling. That represented the sale of tangible assets. We have invested NOK 250 million, which mainly are related to vessel conversions, class dockings and purchase of ROVs. And we have also done some mobilization to new contracts. And then we go to payment of borrowings, which is NOK 415 million, which mainly represent the debt service for the DOFCON JV which paid the debt and served the debt as normal. And there are some lease arrangements and parts of the debt in DOF Subsea and Norskan is actually served by amortization. So then we have our cash by end of the quarter of NOK 2.1 billion based on management reporting, of course and then restricted cash out of that is around NOK 154 million by end of June. So if you go into next, and this is a graph that we show on every quarterly presentation just to show the trend. And this is excluding a gain from sale of assets and it's a small drop compared to previous quarter last year and the same quarter last year, also explained both on margins and numbers. But it's much better than we achieved the first quarter, which was less than NOK 500 million in EBITDA. Looking at the noncurrent assets, no big events and total assets of NOK 22.9 billion. And of course, if we look at the same quarter last year, the main difference is actually depreciation and impairments. Equity is negative due to weak results the last 2 years. The noncurrent debt of NOK 3.7 billion is slightly -- is below the previous year, and of course, a big drop from if you go further back and that's due to the refinancing situation that the group is in, and that's why we have a current debt of NOK 20.3 billion, which I will come back to on the next slide. Net interest-bearing debt of NOK 19.7 billion compared to NOK 22.6 billion, and of course, more than NOK 2 billion of the variance in these numbers is actually currency variation and a very high dollar by end of second quarter 2020. So if you go into next. When looking at the balance, already mentioned no big events on the vessel, on the long-term assets during the quarter. Of course, impacted by depreciation and sale of vessel. Looking at the deferred taxes, that basically or mainly relates to the DOFCON JV. Already deferred taxes was written down in 2019. So that gives total assets of NOK 18.7 billion. On the current assets, it's NOK 4.3 billion compared to NOK 3.9 billion. And of course, looking at the cash and the cash equivalents, you can see that there is a minor drop since year-end and main reason for that is 2 things. It's actually mobilization and conversions to new contracts and class dockings, which is normally very busy during second half. And then there's also increased activity from the Subsea projects. Of course, the equity -- a negative equity impacts the going concern assumptions. And the second quarter numbers is actually based on a going concern and that's due to discussions, which the group has with its secured lenders and bondholders and the current standstill agreements. The noncurrent interest-bearing debt is close to NOK 3.7 billion and basically relates to DOFCON JV and some lease debt. All of the debt are classified as short-term debt. I think the net interest-bearing debt and the currency variation is already commented. So I go on to next. If you look at the group key financials, you can see the revenue the last 12 months and the EBITDA the last 12 months. And on the firm backlog, by end of the quarter, that was approximately NOK 13 million, but we have added here light yellow just to show the newly awarded contracts that was released last Friday, yesterday and today and we just wanted to show the impact on the backlog. So hopefully, the trend goes upwards on the backlog going forward. So if you go into the next. Approximately NOK 18 billion of the group debt is under restructuring. We have agreed standstill agreements with -- the vast majority of the secured lender, both in DOF Group and in DOF Subsea Group, and that excludes the DOFCON JV. The standstill agreements are applicable until the 31st of August and we are now working on an extension of these standstill agreement. The standstill agreements with BNDES matured in May for Norskan Offshore Ltda. and DOF Subsea Brasil. And both company has since June served the debt according to a refinance agreement that was signed in February 2020. That means that the amortization for these facilities is 20% of -- it is a 75% reduction of normal amortization. However, we have in parallel ongoing discussion with BNDES on a long-term refinance solution. And that's due to that the discussion with the secured lenders and bondholders are continuing and the progress has lately been good. And that progress is actually conditional a long-term solution with BNDES. So that is actually the status on the debt restructuring. And of course, obviously, when we have the standstill agreements and there are discussion around extension of standstill agreements, we believe that a long-term solution is possible to achieve. And then I give the word to Mons.

Thank you, Hilde. A few words on the market, I have a few slides on that. So just showing, this is from Rystad. And of course, they are predicting then growth in both offshore CapEx and offshore OpEx the next few years, which, of course, is positive and gives some expectations for higher activity around the globe and perhaps also especially on the subsea side. Longer term, of course, we -- as everybody knows, it will be high growth on renewables. And of course, at the point in the future, there will be more CapEx on the renewables than on traditional oil and gas. So of course, we are spending a lot of time and efforts on our strategy within the renewables. And as you heard earlier in the presentation, of course, we have the Hywind Tampen floating installation next year, and of course, we hope to do much more job on the renewables side in the years to come. So reason to be a bit optimistic on activity level on both within the renewables, but also within oil and gas the next few years here. On the next slide, we look at Brazil. And of course, this, let's say, is well coordinated with award from Niteroi and Vitoria being pipelayers in Brazil. So of course, we see that Brazil is back with full blast and a lot of large projects, and as you see, reached our -- predicting a strong demand increase for pipelayers in Brazil. So -- which is good for us, where we have at least 6 vessels working in that market. On the next slide, we -- it restores prediction on vessels in various segments. The one on the left hand here showing the split between oil and gas and the wind on total. And of course, we see -- compare '22, '23 and onwards with '24 we see there is -- will be a decent demand increase, according to Rystad, both within oil and gas and the renewables. When you look at the split on the right-hand side, it's, of course, the same but then split between PSVs, anchor handlers, offshore construction boats and then on the wind side insulation buses. And also, we see growth, of course, both in all segments going forward. So if Rystad correct, of course, we see we are moving into some years now with higher activity and growth, both on the wind side and on the oil and gas side. So let's hope they are correct. When we look at the next page, which is the final page in this presentation, we -- as we said at the start, the market has been challenging. And -- but of course, as we have said, we see increased activity in certain regions. Brazil I already mentioned that we expect that the activity in Brazil to increase further. We have seen low earnings and low utilization, especially on the anchor handlings. But also on the PSV side, of course, we see competitors now bidding 1-year contracts close to OpEx level. So it's been the North Sea so far this year has been disappointing, and we expect it to be disappointing or weak also during the winter. Then, of course, there is a small hope due to expected higher activity that will get a bit firmer into second quarter '22, but that remains to be seen. As we said on the Subsea project segment, we have secured good backlog for remainder year, and of course, we expect higher activity in second half compared to first half. And we also now see quarter 1 next year to quarter 1 this year, of course, we will see much higher backlog and of course, expect also, of course, first quarter next year to be better than first quarter this year. As we saw in the last -- the previous page, increased demand also for offshore wind and of course quite a few of the offshore service boats or construction boats work in that space. So today, we have 2 boats in that space, we have Skandi Constructor and then we have Skandi Acergy, which is working on, let's say, a field development with the offshore wind space towards the end of the year. So as we said, the backlog for remainder of year is NOK 3.3 billion, which is pretty high and then, as we said, NOK 1.8 billion for the third quarter. So all in all, we expect better operational EBITDA in second half compared to first half. On the financial side, of course, it is the discussion with creditors are ongoing and making some progress. And of course, the ambition here, of course, and the goal is to reach a long-term solution for the group. And until we have that, of course, we are dependent on standstill agreements with the lenders to, let's say, to remain as a going concern. So that was the end of the presentation. We are not having a Q&A after, but if you have questions, please call Hilde or call me and we -- or send us an e-mail and we will answer as best as we can. Thank you very much for listening and have a good day all of you. Thank you. Bye.