DOF Group ASA (DOFG) Earnings Call Transcript & Summary

[Audio Gap] Contract in quarter 3 next year and then Skandi Geosund that will be delivered in quarter 1 to the new owners. One vessel in layup compared to 10 last year. The reduction, of course, partly due to better markets. So some of vessels reactivated and then some of the vessels in layup, sold or scrapped. The backlog is around NOK 15 billion, and we -- in the quarter, we won contracts worth close to NOK 3 billion. Backlog for quarter 4 is NOK 1.9 billion, and of course, compare that to the turnover of slightly above NOK 2.2 billion in quarter 3 shows that then it's a really high utilization secured on the -- in the company. And of course, we, as a consequence of that, expect good utilization and a decent quarter 4 based on the backlog. Backlog for '22, NOK 5.6 billion, which is also pretty okay compared to the expected to [indiscernible] next year. So all in all, from the operational side, a good quarter showing improvement for last year and also quarter 2 this year. So the next page gives a small rundown on most important contracts we have won, not mention all of them, but Skandi Seven was extended in Africa 6 more months and taking out to the fall in -- to May in '22. And of course, it's a very interesting contract for us where we do the full favor of services from project management, engineering, procurement and other services and deepwater construction and maintenance. And as we speak today, we are doing, for instance, the flex-lay campaign for a client in Africa. So in APAC, we secured several contracts for -- in quarter for execution in quarter 3 and quarter 4 and also into first half '22, and securing, I would say, good utilization for the 2, both Hercules and Singapore in quarter 3 and quarter 4 and the start of '22. In South America, we were very busy. So several long-term contracts: Botafogo, 3 years; Amazonas, extended 1 year; Achiever, extended to the end of '22; and Paraty extended 1 year to July '22. And then the 2 pipe players we own together with Technip secured 3-year contracts, which we are very happy with and of course, all 6 vessels in that joint venture are on long-term contracts with Petrobras. And of course, it's this contract -- these contracts in Brazil is just to prove that Brazil activity is increasing a lot, and we expect it to further increase and that there is a lot of big projects in the pipeline in Brazil, and so giving certain reason to be optimistic for the rest of the fleet in Brazil for the next few years. When we look at the next page, it's -- we are maintaining our focus on ESG and I mentioned last time also is that we are awarded by Financial Times, the European Climate Leaders in '21, which is a great achievement for us. And so still pushing hard on this Carbon Disclosure Project, on the ESG score and all of it. And of course, this is getting more important towards clients, banks and all of our stakeholders. So we will keep working hard on this. And hopefully, we can continue to achieve these very good results. On the next page, we have called this slide a commitment to reduce emissions. And this is showing in some of the initiatives we are doing. So this year, we expect to reduce the overall fuel consumption with 3% by doing shore power, by doing battery packs, of what we call ship energy efficient plans and of course participation in the Carbon Disclosure Project. Then on the right-hand side on the slide, it's -- I wanted to mention a few words on a very interesting resource project that we've been doing together with Kongsberg Maritime for more than 3 years, and we call it Intelligent Efficiency. And later this month, with the research part, it will be completed. And the system is a predictive, intelligent and dynamic guidance tool. I will not go into too many details and other partners are Innovation Norway, SINTEF and NORCE. And of course, the plan for us is to implement this on the fleet during '22 and onwards. And of course, what we conservative calculate and estimate is a reduction on CO2 emissions by doing that of 10% on each vessel the system is implemented on. The interesting part here is, of course, is that the CapEx of doing this is very limited. So only NOK 1 million or NOK 2 million for each vessel we install it on and, of course, compared to, for instance, battery packs, it gives us more or less the same reduction in consumption. But of course, that's a much, much lower cost. So we believe this is, let's say, a great achievement not only for DOF but of course also for the rest of the industry when, hopefully, this can be implemented not only on the DOF fleet but also on other fleets around the globe. So really looking forward to start this implementation on the DOF fleet next year. Then on the next slide, it's a slide showing where we are located. So it's not much new on this. So still operating from 6 continents, 20 offices around the globe. Close to 4,000 employees, and in respect of the fleet where we have 30 within the Services segment, 15 in the anchor handling segment and 14 PSVs. And then we also operate, of course, a large fleet of ROVs. I think we are #4 globally on the size of the ROV fleet and we also own 2 what we call AUVs operating globally. And of course, what we do is vessel management. It's project management. It's field development, field production. It's -- it's not -- that is what we -- the subsea service we do, so it's engineering, project management, survey and so on, on a global scale from our 4 subsea regions in Brazil, North America, the Atlantic and the APAC region. So then we go to the next one, and then I will leave it to Hilde to do the more details on the financials for the quarter.

Thank you. So if you look into the main financial highlights in third quarter, the operational EBITDA is NOK 865 million compared to NOK 879 million. But as already mentioned by Mons, the underlying EBITDA for this quarter is actually better than last year quarter. If you look at the utilization, the overall utilization for the fleet was 83% compared to 71%. And as you can see, especially on the PSV and anchor handler segment, the utilization has been higher. On the Subsea segment, it's lower, and that's actually the TC, the long-term chartering segment, which has been slightly lower compared to last year. Looking at DOF Subsea EBITDA, they achieved an EBITDA of NOK 645 million this quarter and DOF supply, which is mainly DOF Rederi and Norskan and the PSV and anchor handler fleet of NOK 220 million. On the -- within the PSV segment, we have had 1 vessel in layup. And we have had more vessels in operation this quarter. We reported in second quarter that we had reactivated 3 vessels from layup and the earnings from those vessels has impacted the result within this segment this quarter. Looking at the anchor handler, the utilization has improved, but the [ EBITDA ] is more or less in line with last year quarter. And we also see a high volatility in the spot market, also in earnings and utilization. In the Subsea, the activity has been high also this quarter, a good performance, especially from the Atlantic and Asia Pacific regions. And as you can see for the PLSV fleet, utilization has -- is lower, and I will come back to that on the next slide. So if we move on to next. Looking at the P&L, you can see that quarter-by-quarter that the revenue is more or less in line and the net gain on sale of a vessel that is Geosund and that has -- the gain has been booked and the vessel has been booked as a financial lease, after the client exercised purchase option of this vessel, and it will be delivered first quarter next year. We also sold a vessel last year, and that was an old anchor handler on Asia Pacific. But if you go deeper into the EBITDA, the operational EBITDA is actually better this quarter compared to last year because that was impacted by several one-offs. And the main is actually a termination fee of NOK 110 million, which was booked third quarter last year. Just quickly mention on the year-to-date numbers, we have so far this year sold 6 vessels, and the net gain you see here that is from the sale of 4 vessels because 2 of the vessels will be delivered next year. The EBITDA last year was also very much impacted by high volatility in U.S. dollar and especially a weak NOK and BRL to U.S. dollar. On the PLSV fleet, we actually had lower utilization, and that is 1 vessel where we had a COVID outbreak and the vessel was off hire more than a month due to that situation. But again, very good performance, especially in the Atlantic and Asia Pacific regions on the project activity. You can see that the impairment is much lower compared to last quarter and also year-to-date. The main portion of the impairment is actually the first time consolidation of Iceman. As part of the ongoing restructuring discussions, DOF now owns 74.5% in Iceman, meaning that that vessel has to be fully consolidated. So that has had an impact on the impairment. On the opposite side, we have actually reversed parts of the impairments on Skandi Neptune due to the sales price agreed on that vessel. And again, that vessel will be delivered next year. On the financial income, you see that this NOK 279 million compared to NOK 5 million last quarter. And the main portion of that is a repayment of a loan facility at a substantial discount and resulting in a financial gain of NOK 249 million. The financial costs are more or less in line compared to last quarter. And as you can see, the currency loss also realized and unrealized has -- is higher and that is mainly due to a very strong dollar both to NOK and BRL by end of September. So then I think we can move on to next. Looking at the segments, the PSV, already mentioned, has a better revenue and EBITDA. And the impairments is much lower compared to previous quarter. And also the margin has been better. Looking at the anchor handlers, the operational EBITDA, excluding gain from sale of assets, is more or less in line with last year. And looking at -- also looking at the margins, they are more or less in line, slightly better last year. Looking at Subsea, already mentioned the one-offs. The underlying EBITDA is better than compared to last year due to the -- mainly the termination fee. And that gives a market -- a margin of 43% compared to 44%. If we reduce by gain from sale of assets, it's 40% margin on the subsea activity. And again, you can see that the main portion of our earnings EBITDA comes from the subsea activities. And then we can move on to next. Here is -- here we have splitted the subsea/IMR project and the long-term chartering. If I take the project activity first, what's interesting here is that the margin has improved from 19% last quarter to 26% this quarter. And also looking at the revenue, which has increased and bear in mind that including in the revenue last year, the revenue was impacted by several one-offs. Employees is around 1,500 compared to 1,200 last year quarter. So we see that, especially in second quarter and third quarter this year that this activity has increased. And already mentioned by Mons that a large portion of the backlog is already secured for fourth quarter, which is also relevant for this part of the activity. Going into the long-term chartering, which include 8 vessels, the revenue, EBITDA and also the margin is quite close to the last year earnings and margins. So if we move on to next. If we look at the cash flow, the operational cash flow after interest paid is NOK 670 million compared to NOK 779 million. And again, this -- the cash has also been impacted by one-offs last year. Also worth mentioning that looking at the year-to-date cash flow, where we are -- it's approximately NOK 1.4 billion this year and NOK 1.8 billion. And one important variance is actually change in the working capital due to increased activity within the project segment. You can also see that the interest paid this quarter is low and that's due to the standstill agreement. There are no cash impact from sale of assets this quarter as both vessels will be delivered next year. Purchase is mainly class dockings on the fleet, and that's planned class docking and the contract costs are mainly conversion and mobilization. And that's not a big amount this quarter. If you look at payment on borrowings, there's change in interest-bearing debt. That is mainly debt service on the DOFCON JV. It's amortization of parts of the DOF Subsea and Norskan, mainly the BNDES facility and repayment of a loan in DOF Subsea. By end of the quarter, the restricted cash of NOK 2.2 million was NOK 155 million. So if we move on to next, looking at the EBITDA, you can see that for the last quarter, the EBITDA has been above NOK 800 million. This is normally the high season, especially in DOF Subsea, second and third quarter and the low point was actually in 2018. Looking at the noncurrent assets, that's our vessels, substantial reductions since 2017, and that is mainly impairments booked and vessels sold. So it's actually a change of NOK 9 billion. The equity is still negative. And of course, that's a going concern assumption and the group is dependent on extension of standstill agreement with its lenders. Looking at the debt, the net interest-bearing debt is [ 9.8 ] compared to 21 last year. The change is repayment of debt and there's also currency impacts. So if we go into the balance sheet, some of the points is already mentioned. But if I focus on the change this quarter, not much on the noncurrent assets. Looking at the current assets, you can see that receivables is increasing and especially compared to year-end. And the main reason for that is actually higher activity. The equity is already mentioned, and of course, impacts the going concern assumption. The noncurrent interest-bearing debt, that is our portion of the DOFCON JV and some lease debt in DOF Subsea. The current portion of debt that basically represent the debt that is undergoing restructuring. This has been impacted by a consolidation of Iceman, which has increased the debt. And [indiscernible] has also been reduced by close to the same number, NOK 400 million, after repayment of a loan facility. So no big changes on the current portion of the debt. So if we move on to next. Here you see the revenue, EBITDA, firm backlog since 2015 and the last 12 months. Of course, on the EBITDA, you can see that it has reduced. But bear in mind that especially 2020 has been -- was a very special year on high volatility in currency, which has, of course, impacted our financial results very negative last year. Looking at the backlog, we are more or less at the same level by end of September last year, and that is NOK 15 billion in backlog. So if we go to the last one, it's approximately NOK 19 billion of the group that is undergoing restructuring. We have standstill agreement with 91% of the secured lender in DOF Group and 95% of the secured lender in DOF Subsea. There are also some international banks which is funding the Norskan activity and all these lenders have signed a standstill agreement until end of November. Already mentioned that we paid one loan facility in third quarter. In Norskan Offshore and in DOF Subsea Brasil, the debt are served according to a refinancing agreement signed with BNDES in February last year. However, there are ongoing discussion with BNDES and the other lenders to reach a robust long-term refinance solution for the group, which, of course, BNDES is a very important part. The dialogue with all the lenders and the bondholders is constructive, and the progress has been made during the quarter. But a final solution is not yet in place. Thank you.

Yes. Then a few words on the market and finally, the outlook. So we start with the market. So this is now showing we have got from Rystad showing what they expect as demand for what type of vessels going forward. So we -- and, of course, we partly noticed this also in the market. We have people around globe talking to clients, and we do expect activity to continuing picking up. And so on this slide, it shows that demand for vessels will increase, both in oil and gas and in wind. And money is going forward now on and we also see on the left-hand side that the demand will increase for all type of vessels, anchor handler, PSVs, subsea vessels and also dedicated vessels for the wind industry. So next slide shows -- it's just a slide on the projects we are doing next year on the Norwegian continental shelf. So it's called Hywind Tampen, which is 11 wind turbines to be installed on Snorre and Gullfaks, combined capacity of 88 megawatts. And of course, what we are doing, and this is together with our joint venture partner, we are responsible for engineering, procurement, construction and installation of -- for the 11 floating turbines. So it's a very interesting project for us and, of course, a very good reference for the future in the floating wind market. So our scope will be towards installation of all 11 units, and we'll manage all marine activity both at the quayside and offshore. We will utilize [indiscernible] or perhaps more. But Skandi Skansen and Skandi Iceman were utilized for this, and we talk around 60 to 80 to 100 days per vessel on these projects. And of course, if you look at the future, it's -- when you see the float -- we have floating wind parks planned some years ahead. Of course, they are much larger. So of course, it shows that the demand for over most advanced large anchor handlers, they will get the market in the floating offshore wind, and we have a slide showing that on the next page, please. So we're showing that there will be a slow increase until '24. And after '24, of course, we expect that market to become a very interesting market for us. So we see in '24 it's predicted 9 or close to 9 vessel years in that. And then we, of course, you see on the left-hand -- right-hand side, that is expected pretty high increase in the installation of floating wind towards 2030. So it's an interesting segment for us. And of course, this Hywind Tampen is a very good reference. And of course, with the experience we have from the oil and gas market with installation and mooring of FPSOs and rigs and so on, of course, it's a segment where we can utilize the full capacity and competence of the group from the engineering side, to the design side, to the installation side and 2 of our large anchor handling fleet. Then on the outlook, we mentioned already that we see increased activity in most regions. We see high tender activity and high activity in Brazil. We have seen the PSV market, especially but also the anchor handling market, we have seen improvement in the quarter and the PSV market in the North Sea are still pretty tight when we are now in the middle of November. And the anchor handling market is more -- let's say, more variable, and -- but we have seen some peaks that has been promising, but still too low utilization in that market. As normal, we expect a weaker North Sea market during the winter, but we expect it to pick up again in the spring, and we do expect a better market in '22 than what we have seen in '21. On the Subsea side, I would say almost globally the tender activity is high. And of course, we expect that trend to continue to see higher activity on the -- in Subsea market in '22 compared to '21. We also see a slight increase in demand within the offshore wind and -- but of course, where we see, we really want to take a strong position is on the floating side, where we see, as we mentioned, our fleet, both anchor handling fleet but also part of the Subsea fleet and our competence is very well suited for that market. The backlog for quarter 4 is NOK 1.9 million (sic) [ NOK 1.9 billion ]. As we mentioned earlier, we had a turnover of slightly above NOK 2 billion in quarter 3. So it means that we have a very almost record-high order book for quarter 4. We expect, however, that the operational EBITDA will be slightly or a bit lower in quarter 4 compared to quarter 3. But all in all, a good backlog, as mentioned for quarter 4 and also for the first months of '22. As mentioned by Hilde, the dialogue with the lenders concerning a robust long-term financial solution has had progress in quarter 3, but still some major items to be agreed and so a solution is not in place. And of course, we cannot guarantee that there will be any solution in place. So that is the end of the presentation. We will not do a Q&A session on this call. However, both Hilde and me are available right now after the call. And if you have questions, please give one of us a call, and we will answer as fast as we can. Thank you very much, and have a nice day.