DOF Group ASA (DOFG) Earnings Call Transcript & Summary

Good morning, and welcome to the quarter 4 financial presentation for DOF. We start with some highlights for the group in the quarter. But first, key numbers in the quarter. So we had a revenue of close to NOK 2 billion and EBITDA of NOK 753 million. So stronger than last year and a profit -- or a loss of minus NOK 281 million driven by partly unrealized currency losses, and Hilde will talk more about the numbers later on. The discussion with the lenders on the restructuring process has had progress in fourth quarter. But of course, we are not yet have a -- we don't have a solution in place. But as we said, we made progress on that. And we live on standstill agreement still until 28th of February and we expect, of course, then to be extended within a few days. Next slide, please. On the operational highlights, average utilization for the fleet, 82%. So much better than last year. We see improved utilization in all segments. But as normal in our industry, we see seasonal variations in some regions, of course, towards end of the year, where we see, for instance, a lower activity in the North Sea region. We continued to perform well on the Subsea side on the subsea project. So fairly high activity and good outcome from that segment. COVID-19 has been a challenge also this quarter. And when we look at the total cost and the indirect cost of hire, we are talking a few hundred million NOK for the group in 2021 in total. So it's been a challenge, especially in Brazil, we have had high cost to cope with COVID-19. On the tender side, we see high activity especially in the North Sea and Brazil. So we have been working with a lot of tenders and are also now working with a lot of tenders. So it's clearly a good sign of where the activity is going. The backlog by end of the year was NOK 14.4 billion, and we secured -- we have secured NOK 1.9 billion for quarter 1 this year, which is pretty high if you compare it to the turnover in quarter 4 of slightly less than NOK 2 billion. Backlog secured for '22 is NOK 6.1 billion. Then we move on. Not a very busy quarter on new contracts in quarter 4. But some key contracts, we see Acergy, which is a large 400-ton subsea crane -- subsea boat, has been awarded an extension in the North Sea and also done a very important contract for us in the APAC region, which is one of the first really large subsea T&I docks for us in APAC. So that project is planned to happen in quarter 1 2023. So very happy with that. We also see we won a 3-year contract with us in Australia, which is important for our subjectivity in the region. In South America, we won a contract in Trinidad and Tobago for a Constructor so keeping us busy in quarter 1. She's still working in Trinidad and we expected to stay there to end of the -- end of March. So keep giving her 100% utilization in quarter 1, which is always important. When we look at the next slide, this one you have seen before. So it's where we operate so globally and -- so worth mentioning on this is that we see we are start -- we are recruiting people. So the number of employees have increased slightly compared to last quarter, and we will continue to recruit people. And due to that, the activity in the group is increasing. So as you know, we have 58 boats is it -- 59 boats in operation. We have a large fleet of ROVs and AUVs, total is 73. And as you can see, we operate globally in all the major offshore regions in the world. Then we move to the next one. So I will not go through all these in details, but it's just showing the trends on the various focus areas in the group. We see, for instance, on the utilization, of course, on the marine and subsea service delivery, we see we managed 98.2% technical uptime on the vessels in 2021, which is we know our target on the number that we are happy with. And we also see that we had above 99% on the technical uptime on the ROVs . On the client satisfaction, we're fairly good with 4.3 and 4.1 on subsea and marine out of a maximum score of 5. So decent feedback from the clients. So I will not go through all of these, but move to the next slide and then I think Hilde will take that one.

Yes. What you see here is a kind of snapshot on what the group plans to report on the sustainability for 2021. The group has published a full sustainability reporting since 2014, and how we plan to report in our integrated report for '21 is the 4 pillars based on the World Economic Forum. So it's their framework, which is our basis. And it's about people, planet, prosperity and principles. So this framework actually complies with DOF's vision to create a broad stakeholder value. And the DOF Group is also committed to the 4 pillars and believes that this concept is integral to future sustainability initiatives and communication. So then we move on to the financials. Here, you see the main financial highlights for fourth quarter already mentioned by Mons: an EBITDA of NOK 753 million versus NOK 606 million same period last year. Utilization has increased. And you see the split is 69% for the PSV fleet, 87% for the anchor handler fleet and 86% for the Subsea segment, of each project fleet has achieved a very high utilization this quarter. The EBITDA split between DOF and DOF Subsea has increased this quarter compared to last quarter. And that means that DOF Subsea alone achieved an EBITDA of NOK 608 million and the rest of the business, meaning DOF Supply and Norskan, NOK 145 million. On the PSV side, we had 2 vessels in lay-up by year-end versus 8 last year. We have received higher utilization versus last year, but we have had more vessels operating in the North Sea spot market. The fleet in Brazil has achieved a high utilization, but variable utilization for the spot vessel in North Sea, which is very few. It's actually one vessel this period for the group. On the Subsea, already mentioned that the activity has continued to be high from third quarter. And we have also -- we are also seeing a high tender activity. The performance from the PLSV fleet, which includes 7 vessels, have been good. But the utilization has been slightly lower compared to last year and that is mainly due to COVID-19 and off-hire due to that. So if we move on to next. Here, you see the full P&L. I've already mentioned the EBITDA. Just again on the PSV side, as said, improved utilization, but the revenue and EBITDA has been lower this quarter versus last year. It's the opposite on the anchor handler, of which all vessels have been in operation, but 1 vessel in Brazil has partly been off-hire due to mobilization to a new contract. The North Sea market started very good, especially in October, partly into November, but slowed down in December. In Subsea, we have good performance from all regions and especially the Atlantic region and the Asia Pacific region. If you take the full year, the EBITDA was NOK 2.8 billion for '21 versus close to NOK 3 billion for 2020. During this year, we have sold, well, so far this year or the gain from sale of assets including -- includes 5 vessel sales, of which 1 vessel that was recycled during last year. Also worth mentioning that 2020 was a special year for the group, where the -- especially the FX rate impacted the EBITDA first half. And also that this result includes some termination fees due to contract terminated during first half 2020. Looking at the fourth quarter, again, the EBIT was NOK 264 million versus minus NOK 335 million. And as you can see, the impairments has dropped. We have seen stable -- the fair market values during the quarter have stabilized. But we have changed principle on depreciation, which has resulted in higher depreciation so far -- well, for the full year and also this quarter. On the net financial cost, not much to report. The net interest costs are more or less stable. But as you can see, the result from last year was highly impacted by volatility in -- especially U.S. dollar towards BRL and the USD. That resulted in a net loss of NOK 281 million compared to NOK 238 million last year, plus. If we go to next. Here, you see the segment reporting. And as said, the revenue on the PSV segment has dropped with revenue and EBITDA. That's due to more vessels in the spot market, but there's also less vessels in the operation due to sale through the year. I said that the fair market values has stabilized, but our impairment calculation is also based on updated value in use. So that has impacted the impairments for the PSV fleet. On the anchor handler side, you can see that both the revenue and EBITDA has improved. That mainly comes from Brazil, where we have seen better performance from the fleet. Looking at Subsea, you can see that both revenue and the operating result has improved and that is mainly due to higher activity from the subsea regions. The time charter activity, which I will come back to, has been more or less stable. You can also see that the change in principle on depreciation has had highest impact on the subsea fleet. I would also like to emphasize that if you look at the segment, historically, the Subsea portion has represented approximately 70%. But looking at the quarter, both last year and this year, you can see it's above 80%. So more than 80% of the EBITDA for the group represents the Subsea segment. If we go to next. And here, you see the DOF Subsea Group and how we split the revenue in two. On the Subsea IMR projects, we have achieved revenue of NOK 1 billion this quarter, and the revenue for the same period last year was NOK 750 million approximately. So here is where we see a large increase from last quarter. And they achieved a result -- an EBITDA of NOK 307 million and a 30% margin, which is a significant improve from last period -- last year, but also what we have seen historically. So the activity and also the performance from this part of the business has improved a lot also this quarter as it did in third quarter. The backlog from this part of the business is NOK 5 billion. It represents 1,463 employees and that's an increase through the year of 250 people. This personnel only works on subsea and IMR projects and the marine personnel is hired in from the marine vessel operation within the group. 17 vessels in the operation by end of the quarter. If we look at long-term chartering, as I said, the earnings here and utilization have been stable. It's NOK 420 million in revenues and EBITDA of NOK 300 million. That gives a margin of more than 70%, which is pretty normal for this part of the business. The backlog is close to NOK 6 billion for the long-term chartering in DOF Subsea. It represents 8 vessels, of which 7 vessels are PLSVs. If we go to next. Looking at the cash flow, if you look at the fourth quarter, the net cash from the operating activity has improved from NOK 676 million to NOK 451 million (sic) [ improved to NOK 676 million from NOK 451 million ], which is -- and the main change is improved working capital, which is seasonal variation and normal, especially for the Subsea business. If we look at the full year, we can see that the cash flow for operating activities has dropped and the main explanation is that, well, first of all, 2020 was a very special year for the group due to COVID-19, termination of contracts, FX impacts, et cetera. And the main variance from '20 to '21 is actually higher activity, which is within the subsea project activity meaning that, that has impacted the working capital. There is also low interest paid and that is due to the standstill agreements. And this quarter, capitalized interest, meaning interest not paid, is NOK 131 million versus NOK 87 million last year. Capitalized interest for the full year is around NOK 800 million for 2021. If we look at net cash from investing activity, it was NOK 257 million, of which the main portion represent class dockings and some mobilization costs to new contracts. If you take a full year, you can see that the net cash from investing activities is a significant change. That is mainly due to class dockings postponed from 2020 until 2021. You can also see that the net cash contribution from sale of assets was NOK 172 million. Payment of borrowings this quarter was NOK 353 million versus NOK 325 million last year, of which the main portion this quarter has been debt service from the DOFCON JV. If we look at the full year, payment is NOK 1.4 billion versus NOK 1 billion in 2020. NOK 400 million of the payments in '21 is from the DOFCON JV. The remainder is debt service in Norskan Offshore and DOF Subsea Brazil, who serves debt service according to our refinancing agreement signed in 2020. There is also lease up paid and DOF Subsea has also bought back alone at a significant discount in third quarter. So that gives a total cash of NOK 2.2 billion by end of the year versus NOK 2.3 billion by end of 2020, of which NOK 145 million is restricted cash. So if we move on to next. If you look at the historical performance, there are some variation in the EBITDA margin, as you can see. But it's good to see that by this quarter, the margin have increased. And as said, the main improvements this quarter as well as previous quarter is higher activity within the subsea project business. You can also see that the noncurrent assets has dropped significantly through the period even though we haven't sold that many vessels, and the main reasons is impairment of the fleet. During this period, total impairment is between NOK 5 billion and NOK 6 billion. That has, of course, impacted the equity, which now is negative by NOK 1.3 billion, down from NOK 7.3 billion in 2017. The net interest bearing debt is NOK 19.9 billion. No major changes even though we have paid NOK 1.4 billion, but there were also some capitalized interest included in this net interest bearing debt. So next. Looking at the balances, no major changes on the long-term assets. There are some depreciation and impairments, but there are also some CapEx this period shown in the cash flow statements of NOK 275 million. One vessel has been classified as a financial lease and that vessel was delivered to new owners in January 2022. Deferred taxes mainly relates to the DOFCON JV. And as mentioned, the cash has been stable through the year and also the last quarter. The cash is negative. And of course, that impacts the going concern assumptions. On liability, the noncurrent interest-bearing debt represent the -- our portion of the debt in DOFCON JV. Current portion of debt of NOK 19.1 billion, mainly represent the debt that is under restructuring. So if we go to next, you can see that the revenue year-on-year is stable. EBITDA slightly lower, meaning close to NOK 3 billion in 2020 and NOK 2.8 million (sic) [ NOK 2.8 billion ] in 2021. The firm backlog is slightly lower compared to last year. I expect that the firm backlog will increase during the next few months. So if you go to the final one, just a quick update on the restructuring, which is described in the financial report, and approximately NOK 19 billion of the group debt is part of the standstill agreements, which has been negotiated for 1.5 years. We have signed standstill agreements until -- which is applicable until the 28th of February. As I said, we have bought 1 loan facility at a significant discount that was done in the third quarter. The BNDES facility or actually all their facilities in Norskan and the DOF Subsea Brazil are served according to a refinance agreement signed in February. And in parallel, there are ongoing discussion with BNDES and the other lenders to reach a robust, long-term refinancing solution for the group. The dialogue with the lenders is constructive. There has been progress made during the quarter and so far into this year. However, there are certain pending issues still, hence, the outcome of the debt restructuring process is still uncertain. So then I give the word to Mons.

Thank you, Hilde. A few slides on markets and outlook. So I will not spend much time on this, but of course, the oil price has strengthened a lot since November last year. And of course, this is from at least on, and of course, we see that also the CapEx is expected to rise within the offshore deepwater, which is our main market. And OpEx is also expected to grow going forward. So it's then also done in combination where we see the offshore wind installation spending is growing. And of course, we see the last 3, 4 years, we have seen quite a lot of the -- a fair large portion of the subsea vessels working in the offshore wind market and that has been steadily growing over the few years. So of course, it's interesting to see how this will develop now when you see high activity on the subsea side and also continued growth on the offshore wind side. If you turn the page, please. And of course, this is also a bit about the oil price. And I think worth mentioning here is that Rystad believes that the demand will come back where it was pre -- before the pandemic, and also they expect that the demand will pass the 2019 demand. So that is, of course, positive for the activity in that of -- in the market DOF operated. And when we look at a bit more in detail how we see the market on a day-to-day basis around the globe, we have a slide -- the next slide. First, this one, which is showing the predicted vessel demand going forward, and of course, we see that if you look at the growth on the left hand side that in oil and gas there will be growth. I mean so there was a growth from 2020 to '21 and continued growth into '22. What is also interesting to see, of course, is that the green part of the bar, which is offshore -- renewables offshore wind and this is growing going forward. So then if you look at the growth on the right-hand side. Of course, it shows that the demand for each vessel category are all expected to grow from '21 to '22. And of course, also done going forward on the -- also if you look at the demand towards [ mid and end of the detail ], of course, it's a reason to be fairly optimistic on the utilization of the assets here. So if we look at then how we see the market today and this year. If we start with the PSV market, we have seen a slow spot market so far in the year where utilization rate has been fairly low and also then the rates been lower. But what we also see is that the tender activity in the North Sea has been fairly high and that through the months the term rates have gradually picked up. So this is a higher rate level over for the term fixtures in the PSV segment compared to a year ago, which, of course, is positive. On the anchor handling side, of course, the spot market has been slow in January and part of February. And we -- of course, it's a mix of lower seasonal activity, but also then very extreme bad weather that has impacted the market. So of course, it's been low utilization and low rates for most of that period. Today, of course, we -- the market is, of course, very fluctuating a lot, and of course, very difficult to predict today. Of course, we are in a good move. We operate 2 boats in that market today. And as we speak, one of them are fixed at 57,000 points and the other one was fixed yesterday at 42,000 points. So of course, it's is fluctuating a lot. How it will develop through the year, nobody knows. But we do expect the market to run stronger and through the summer season. And of course, there is quite a few projects that will happen this year and that's part of the reason why we are a bit optimistic on the market. Ourselves, we will participate in -- there is a [ tow-out of the new order ] platform expected to happen mid-March, where we will have a vessel on and that will go 6 of our vessels on project that could impact the market in March. And then we, ourselves, we are looking very much forward to the Hywind Tampen project that will start April, May, which also will take a few boats out to the market and quite a few other projects. So we are hopeful that the market will turn stronger during the next few months. In Brazil, of course, on the anchor handling side, we see, let's say, the spot market, we have had 1 boat in the spot market in Brazil the last year and we see a strong spot market. There are hardly any boats available. And on that port, we have had high utilization and good earnings. So it's limited number of vessels available in the market. And we also see high tender activity. Just before Christmas, we bid on a tender for a large anchor handler in Brazil and we see more tenders coming. So I think the next few months, we'll see how these tenders will land. And let's see how that goes and we will update you on that. So in summary, the year has started weak in the North Sea and then we are, let's say, as normal or hopeful that the summer season will show higher utilization and higher rates. On the Subsea side, as we saw from our own operations in quarter 4 that we had fairly high utilization on the subsea fleet globally. And if you look at the markets, we see high activity in Brazil, both on the tendering side and on our own fleet, where we have full coverage on the fleet. In the Atlantic, the picture is, I would say, almost like Brazil. Of course, as normal, a bit lower activity during the winter months. But higher tender activity and then we see, let's say, very balanced market utilization during the season. So we expect high utilization from the Atlantic region in '22. In North America, we also see higher activity and that we also see better utilization so far this year than we saw same period last year. In APAC, it's a bit slower, where we see especially first half not that active, but then we see the tender activity from second half it's higher and we expect the utilization activity level to increase in APAC going forward. On the backlog side, of course, we have NOK 1.9 billion in firm backlog for quarter 1 this year. And of course, if you compare that to the turnover in quarter 4, that's slightly below NOK 2 billion. Let's say, it's a good coverage for quarter 1. And for the year, we have NOK 6.1 billion in firm backlog, which also is a pretty decent starting point for the year. As a sum of all this, we expect the EBITDA in quarter 1 this year to be better than the quarter 1 in 2021. On the financial side, Hilde has already said moved a bit. We are, as you all know, in a dialogue with the lenders concerning a robust, long-term financial solution. And we see progress, but the solution is not yet in place. And also, we need to emphasize that the debt restructuring we are discussing with the lenders include conversion of debt to equity. So that was the quarter 1 presentation. We are not having a Q&A session after. But we, both Hilde and me, are available on e-mail and over phone. So feel free to call us if you have any questions. So thank you very much and have a nice day and a good weekend when that comes. Thank you very much.