DOF Group ASA (DOFG) Earnings Call Transcript & Summary

So this is DOF at a glance, it's we operate 55 vessels globally. And from the map, we see the biggest hubs we have in Brazil, North America and Asia and then the Atlantic region. So we are reporting in 4 regions. And on 4,000 people working for us a bit more and operating on all continents, and we have the backlog by end of quarter 2 was [Foreign Language]. Let's move on this slide. It's a bit technical problems here today. So the quarter was the best quarter we have had so far in the group and so that we reported... So you have to excuse you guys that are on the webcast, we have technical problems here on the presentation. So try to fix it. Okay. We go back again, sorry again. And I think I'll start then on the -- so a small break again. We have still technical problems. Okay. Then we start again on the highlights for the quarter 2. So we had the highest EBITDA so far in the group history and a revenue of NOK 3.5 billion and an EBITDA of close to NOK 1.350 billion. So it's a very strong quarter. EBIT at NOK 1.4 billion profit of close to NOK 1.140 billion. So it's a very good quarter for us. So good performance, especially from the Subsea side globally, perhaps particularly strong in Brazil and the Atlantic region. Good earnings on the PSV fleet. And you say the only negative was that we had a few not delivering as we expected in the Norskan fleet anchor in Brazil due to some dockings and some mobilization for new contracts. Order intake, NOK 1.6 billion. We also announced a big contract just after balance. So in real life, it was NOK 2.6 billion, and the backlog now NOK 20.8 billion plus NOK 1 billion, so NOK 21.8 billion. And that gives us a very high visibility for second half '23 and also very good visibility for '24. We have around NOK 9 billion in the book for '24 already. And of course, we expect to build that a lot in the next few months. We are back again. And I'll leave the details on the numbers to Hilde. She will comment on the segments. And so and as we see here, we also have bought Skandi Iceman and we exercised an option we had done. We also have a slide on that later to explain why we did that. So next, this one is perhaps the most important slide in this presentation. It's a sustainability and so from emissions to quality and all aspects, and the first year is that we buy Petrobras, of course, our biggest clients were also this year are under last year awarded best operator. They have between 23 and 25 suppliers. We were awarded the best performing operator. So it is proved that it will deliver quality globally. We have a higher CDP score. We have as you see on the right-hand side here, we have been 3 years in a row over by Financial Times awarded -- got a letter [indiscernible] from them saying that they regard us one of the climate leader in Europe. So we do a lot of work on that side. And also important is the -- if you see the uptime on the fleet and the ROVs and so close to 100% for ROVs and close to 98% for the vessels. And of course, that is also a sign that we operate with very high quality. And what are we doing? So in the owner, of course, we were back in the 2000 before 2005 we were a pure shipowner. Since that, we have built a services company globally. So we have no around 2,000 of our employees are working in with anything else than operating the boat. So it's 300, 400, 500 engineers as lots of ROV pilots and so on. And what we do is we deliver projects. So we deliver projects either on short projects, 1 month, 2 month, 3 months, we are doing higher round services where we include all of our skills. So you can say we make money in 2 pockets. We make money on the boats then we make margins on the services may put on top. And we see, of course, that we generate more Norwegian than we did one very pure ship owner. And looking at this, you also see here on this is new on the slide, we showed a fair market value of the fleet. And as we say in the financial report, board values, margins and rates are continuing to go up. And the fair market value for the fleet now is NOK 28.4 billion, yes. So we are still priced very well below the value of the fleet. And due to the strong second quarter and also if you know the visibility and the backlog for second half, we have lifted the guidance for the year. We had the previous guidance of NOK 4.2 billion to NOK 4.7 billion and we lift that node to NOK 4.5 billion to NOK 4.75 billion. So then we go to the next sometimes it's moved without me pushing. So this is just a few. Of course, we do a much more project than this. And it's just a few projects we have been executing this quarter and since we are in Bergen today, we perhaps we're going to start with Skandi Iceman on the Hywind Tampen. So and I guess most of you know that Hywind Tampen is the large hosting wind farm installed so far. And we did all the -- we had a T&I say, for the tower installation of all the floating turbines here. So that was finished this quarter. And of course, we are a bit proud of that. And we have a few slides on floating wind later on. And of course, it's a market where we believe it's towards under this decade is going to be very interesting. But already now, we see that we are doing a lot of heads and globally from the North Sea to Japan to Korea, and U.S. and Australia. So it looks like it's going to be a very interesting global market for us going forward. But we come back to that, we executed -- we have 2 boats for Exxon in Guyana later on, it's a very interesting area perhaps the fastest-growing area if you don't include Brazil globally. So we see we're going to have a lot of growth in Guyana going forward. And this is -- you see it's a green boat, but done with a DOF logo on, and is also left in to explain that we -- of course, the business model being a subsea service provider, of course, you can execute that from third-party boats as well. So it's a boat we have on 3 to 5 years shorter and we make a very nice margin on top by adding on the services. So then in Brazil, we are the largest market leader in what we call [ La Canada ] and also the largest fleet working for Petrobras, we have the largest player in the pipeline, together with our partner, Technip,and we are the market leader in what we call IRM which is inspection, repair and maintenance. The PIDF is an example of that is an inspection program where we have a revenue roughly NOK 1 billion a year that project with very good margin, that's executed in this quarter. And then we have this Skandi Acergy and she's a good example of how we run the business. So she started a year in down here in -- for Beach in Australia doing a T&I assure project, and then she went to Israel for Chevron on the Leviathan field did the same, and now she's in U.K. doing a similar project for [indiscernible] . So it's a snapshot of some of the projects we have been executing this quarter. And this is done backlog, some of the contracts recently won and some of the projects. And if you in -- so last year '22, we booked NOK 14 billion of new backlog. And then so far this year, if you include the one on the right-hand side here, the Skandi Acergy, we have booked, let's say, NOK 5.4 billion. So what this tells us is that we have very few legacy contracts in the backlog, meaning that then, of course, that's why we see the earnings are picking up. So we see margins and rates on the overall we booked in '22 and '23 are much higher than the work we booked before that. So and we expect that trend to continue. So of course, we see -- we spoke about Acergy on the last slide. If you see the margins on the rate we have on the Acergy for this work we just announced compared to the work she executed in Australia in first quarter, which was a contract we won in '21 now you could say that the gross margin on that project has doubled here. So it's been moving fast, yes. So it's almost repricing it bit by bit. And we do believe that looking at the backlog and for the big team won guys, we expect '25 and '26 to be really the hottest years, yes. So we could have and we did here. We had the choice it or doing a 3-year contract in West Africa or this contract and we decided this from because we expect the rates and margins to continue to pick up here. And so this is just Vega as another example, she was announced in a bit earlier this year and Skandi Vega with an ROV working here in the North Sea for Equinor and another example where we see rates picking up. And of course, on that boat, we expect -- we have been earning roughly NOK 80 million a year in EBITDA, and we expect the new contract to yield our own [indiscernible] . So it's just another example of where the market is going. The Guyana one is -- and I have a slide on that. We are very proud that we -- Exxon is the largest oil company on the globe. And the hottest place for them is Guyana and they choose do for delivering to very large subsea construction both to support their activities to develop field development, but also on the IRM side in that region. Gamma is another example is a PSV where we saw the rate picking up with roughly 5,000 a day from the old contract to the new contract, so which the new contract commenced May this year. Then the RSV in Brazil, it's another example -- they are just -- that's part of the reason why we are not happy with the Norskan performance in the quarter because these boats have been mobilizing for the new contracts. So they are getting on the new 3-year contract as we speak. And of course, on them, we expect to double the EBITDA margin compared to the old contracts. So I can continue like that. But I'll finish perhaps also showing the give whole contract here, which is an example of what is really achievable if you are looking in this market, yes. So on that, we had a market value of that by end of the quarter on USD 16 million. And we expect to stay on -- so you see here is 6 months, but it has been extended over a few months, and we have more than -- we have around 55% margin on that year. So approximately 9 months, you almost pay the whole book. But I'm not saying we can do that on every deal we do, but it's an example if you are a bit look how the market is, especially in South America, Southeast Asia. So then we have the next one, and I try to push, it's working now. And what is our strategy? It is to be the large player globally on subsea services, but not on the heavy duty field developments, but on the smaller projects and on the IRM side. And here is an example of -- and of course, the hottest market we see now and I have a slide, the next slide is show that is Brazil and Guyana we see a fantastic growth in both areas. And then is offshore wind. And why and it's off floating offshore wind. And why are we saying that we're going to be a big player in that segment. That is due to, of course, our experience from oil and gas, whether you're more floating offshore wind unit or a more floating FPSO rig is the same operation. So you need the same type of fleet. You need the same type of competence. And so that's why we are putting a lot of effort globally into that, building an organization and of course, setting up in Korea and the places that is important to be. So next slide is showing here Stabroek have we enthusiastic about Guyana and Brazil. And the left hand here is Guyana. It's to see the production for 2020 to '27 so it's going from 200,000 barrels a day to 1.2 million barrels a day. So it's a lot of growth, and it's a long-term plan. And of course, we expect this to continue beyond '27 as well. It's the discoveries in Guyana is like the pre-salt in Brazil. It's a huge discoveries and every time they drill, they find a lot of oil. So we expect that to continue, and we expect our relationship with Exxon will offer us a lot of opportunities in the region. And Brazil, of course, and you have to remember, we are a market leader in IRM and in pipe lay and in anchor big anchor in Brazil. And of course, this is all about FPSOs, and there should be more. They should be maintained where they are installed. And of course, they all need flexible pipes to produce here. So of course, the growth in Brazil is big. It's 18 FPSO during the next few years. And of course, we have a slide on that later on Petrobras is going forward. And of course, it's we expect a huge growth and, of course, a very strong market for all of our services and assets in Brazil. So it looks good. And then on the next one, it's showing up. This is a Petrobras at Nor-Shipping a few months back. And then, of course, this is from the one on the right-hand side here is from their own presentation. And so showing that they are going on tender 170 boats going forward. And of course, this is done in all segments from PSVs to anchor handlers two pipe layers and or wave boat inspection, both diving boats and so on. So it's -- and we see that on this -- on the left-hand side, this is just tenders going at the moment. It's so we are working on pipeline tenders. So of course, we expect the Petrobras on tender last year, and they didn't manage to find one boat. So they want to increase the fleet with 5 boats did not end up with a single contract, yes. So we expect all the vessels in Brazil in that segment to bring you then we also believe that they will try to secure more boats. Tender RSV tender, [ Skandi ] tender, and an inspection work. So we look forward to the fall to see how these tenders will end up, but we are optimistic. So the next one is on why are we, part of the reason why are we optimistic over the market going forward. So we are showing you that the demand side is picking up. And we have shown South America, but it's more or less globally. I mean we see the same in Norway, we see it starting to pick up in Asia Pacific and West Africa also picking up. So demand is picking up. But then what this slide is telling us is that we -- the supply side, we believe, is going to be flat here. So meaning that utilization and rates and margins will continue to grow. And of course, why do we not believe that people will place orders for new boats. It's a lot of reasons. Number one, most of the industrial players in this segment has been through rough road. So none of them have cash and they have big restrictions on investments. Number two, of course, is that we see new billing prices are extremely high. So today, we expect a lowest rate DOF square meter PSV costing 300-and-something million in '13, '14 is now probably double here. And if you want to build a big anchor, you probably NOK 1 billion, NOK 1.2 billion. So of course, the rate has to continue to pick up a lot before can define doing it. So that's why we believe that the market, the supply side will be very limited growth. Yes, sir. This, I don't spend much time on this. So what -- how are we positioned towards our peers and competitors. So we are -- so the main point on this one is that we are global. So we execute projects globally from Canada to Australia. New Zealand we are not executing the big projects. So when Technip, subsea 7 and those guys do a $1 billion project, we do perhaps a $15 million project in these spaces. So we have a much lower risk on execution. So let's say, less than 5% of our revenue stems from lump sum contract or the rest is direct. So I leave it like that. And this is done the backlog. So we know the asset content I mentioned earlier, we have roughly NOK 22 billion in backlog. And for the rest of the year, we see we have NOK 5.3 billion. So I don't know perhaps that is 85% to 90% of the expected revenue for second half. And with said here, we have around NOK 9 billion for '24 meaning that we have perhaps around between 65% and 70% here. And of course, we expect that to be built. So with close to 70% back for '24, you know with the uncertainty on '24 will be is already very low. So you could say that we know that '23 will be strong and that we almost know that '24 will be a good year as well. And what we said earlier in the presentation, the margins on the rates are higher than it used to be in the backlog. So that's also why we see the earnings are picking up. Dronen Hilde, very pleased to welcome you.

Thank you. As already said by Mons, we have a strong result this quarter is actually the highest EBITDA ever achieved in the quarter. So we are very happy about that. And that is mainly due to increased activity, especially on projects in DOF Subsea, but there's also improved terms on new contracts at higher rates. We acquired 2 vessels in May, so they have been included in the result from May. And we also had an incident on Skandi Buzios early June. And that has had a minor impact on the quarterly result. So and also year-to-date a very result compared to last year. We also decided to reverse impairment on 4 vessels, basically due to new contracts at improved terms, the higher rates. So and this NOK 440 million represent reversal impairment on 4 vessels. On the financial income, there are some noncash transaction that's related to a certain transaction of approximately NOK 50 million with no cash impact. We also have a lower interest cost this quarter, and that's due to lower margins on the refinanced facilities. There are minor currency impact in the quarter versus a high negative impact last year. And the reason for that is that the BRL, which is important to us, has strengthened towards dollars, while the Norwegian kroner has weakened. If you look at the taxes, There, we -- that includes slightly below NOK 80 million in withholding tax. And as for holding tax we pay on contracts we have in the Guyana West Africa and in Angola. But all in all, it's a long time, I've seen that our profit was above NOK 1 billion. Looking at the segments. And as we reported in the first quarter report, we have changed the segments. And these are the main subsidiaries, silos, where we did the refinancing, which was completed first quarter. And here you see DOF Subsea Group, which includes our 50% share in DOFCON, it's Norskan and is DOF Rederi and then corporate. And as I said, the main reason for the very good result this quarter is high activity and continued good performance on projects in Brazil. That included PIDF already mentioned by Mons, but it also other contracts with very good terms achieved during the quarter and also first half. We also have increased activity in the Atlantic region, substantially this quarter. Hywind Tampen is one example. They also did a project in the Med and they also continued with very good performance on a project in Angola. We also see the increased activity in the America, where the Guyana project is the main project, but we also see increased activity in what they do in U.S. Gulf. This region also cover a contract that we have in Canada. It's a 10-year contract that started in 2017. In the Asia Pacific region, we see a stable activity. So the utilization achieved for this activity was 92%. And then we have the PLSV fleet, which is basically the DOFCON JV. There, we suffered from 20 days off-hire on the Skandi Buzios in June but the rest of the fleet had a good performance and high utilization. So all in all, 90% for the DOFCON fleet. On the Skandi Buzios, as we said in the report, we do expect -- we do not expect that vessel to come back on hire this year. And she has 90 days loss of hire insurance. So the third quarter will not be impacted by the off-hire, but the fourth quarter will be. In Norskan, we had variable utilization of the fleet. But still, we are a much better result compared to previous year. And the simple reason for that is new terms and higher rates on the new contracts. But the utilization is only 75%, and that's mainly due to one vessel being idle 2 months and she will also be idle partly of the third quarter, but she will start on a contract in September. We do expect the result for Norskan to improve because during first half, we have done a lot of mobilization for the new contracts that Mons showed here. And we also have some other contracts which had start-up in July. Looking at DOF Rederi and that includes also the Skandi Iceman vessel. They had very good performance this quarter, mainly due to very good earnings on Iceman, but also the other vessels on the Vega, 2 big anchor handlers and good spot earnings on 3 PSVs. So here, we achieved a utilization of 90%. And here, you see where we did the reversal of payment as 2 vessels in DOF Rederi and 2 vessels in DOF Subsea. If you look at the cash flow, you see that the net cash from operating activities is NOK 471 million versus NOK 693 million. So it's actually lower than previous year. The underlying cash flow is actually very good. But this quarter, it has been impacted by high receivable towards end of the period. And that's because we completed a lot of projects in late June. Hywind Tampen is one example and also several others where we did the invoicing towards end of the quarter. So we have a lot of outstanding NOK due revenue towards the end of the quarter. and approximately close to NOK 1 billion has been paid already. We have cash-wise higher interest payment this quarter because we had standstill agreements with no interest payment last year. The net cash from investments that include normal maintenance docking and mobilization to new contracts but that also include the net cash on the Skandi Hera and Darwin investment. The reason why it shows as a net cash impact is because we bought the company that owned these 2 vessels. And that when we consolidated that company from May and that's why it shows a net cash flow because the price of the vessel is above approximately NOK 560 million and the new loan that we took over was around NOK 400 million. Yes. Net paid on borrowings. That's a normal debt service on the old facilities, new facilities. The first maturity on the new facilities is in January 2026. And that proceeds is from the share issue we did in June. And that does not include the greenshoe option of approximately 1.8 million shares that was done in July. So cash at the end of the period is NOK 3.6 billion. Also worth mentioning that a large portion of that, approximately NOK 1.2 million is restricted. And the reason for that is that the money from the share issue was made available in July. So that's why it's shown as restricted. And there are also restricted cash on the new facilities to cover CapEx going forward. Looking at the balance sheet. And if I compare to the quarter last quarter, you see that the tangible assets, meaning the vessels have increased and that's due to, well, we reversed some previous impairment, but the main reason is the acquisition of Skandi Hera and Skandi Darwin. The deferred tax mainly include the DOFCON and the Brazilian activity. And on the noncurrent assets, that has increased during the year, and that's because we lease external vessels. We have some prepaid contract costs, and there is a tax claim in Brazil, which we won. Receivables and here, you see, as I explained on the cash flow, the increase in receivables due to project invoiced late in the period. I already mentioned restricted cash and increased activity. Looking at the equity, and of course, we are happy to see that the equity is growing, of course, and part of that is the capital raise, but the main reason is, of course, a good results through first half and through this quarter. Looking at the long-term debt, that has increased, and that's due to FX because the Norwegian krone has weakened towards U.S. dollar approximately 80% of our loan is krone dollar, and that's a pretty good match to the revenue we have in the group. The current portion of the debt that represents normal amortization, and it also including 2 new facilities only Hera and Darwin. And as mentioned, the first maturity is in January 2026. If you look at the debt and how that is developing the next 2 years and especially that we have a maturity in January 2026 on the new facilities. That does not include the facilities that we have in Brazil and that includes Norskan and DOFCON mainly because there, we have loan maturity and the maturity is beyond January 2026. It's a favorable financing because it's a fixed rate through the entire period. And it's a long duration. I think the last facility is due in 2023. But what we try to show here on these columns is that if you use a stable EBITDA of NOK 4.5 billion. And here, you see how the debt is developing. And you see also that on the refinanced facilities, that's mainly in DOF Subsea and DOF Rederi, partly in Norskan, the amortization is very low. But the last column that you see in brackets here, that is the cash sweep where we assume the earnings of NOK 4.5 billion. So that's -- so the debt will actually be reduced at that level. That's what we expect. But if you see the light blue, that's the DOFCON facility that is sorry, if you see the light blue, that is the debt that we have to be refinanced in January. And the gray is that step that has maturity beyond January 2026. So to summarize, we actually have good control of our debt and how that is developing going forward. And we are not concerned about the refinancing that we have to do late 2025. Also worth mentioning that on the new facilities, we have pretty good terms. And the last one, I will do this quite quick. But here you see development in the revenue. You see development in margin. And of course, it's very good to see that, especially the last columns where you see that the equity is normalized, the noncurrent debt is normalized. And the net interest in bearing debt by end of this quarter is NOK 15.5 billion and on the guidance, as you saw, we decided to increase the guidance to NOK 4.2 billion to NOK 4.7 billion. And we achieved an EBITDA of NOK 3.8 billion and now NOK 4.6 billion the last 12 months. We will pay approximately NOK 1 billion in interest costs and the scheduled repayments is approximately NOK 1.4 million. The maintenance CapEx is -- previous guiding is NOK 800 million to NOK 1 billion and we know that we are in the lower end of that guidance. So this gives you a picture on what kind of deleveraging capacity we have in the group. So then, I give the word to you, Mons.

Yes. So we have only a few slides left. And I guess the slide here that you showed perhaps was the most interesting slide with sort of the capacity to repay up and then, of course, then is cash to equity, and we are talking about that's going to be pretty high in the next few years, yes. And [ Siva ] did we buy these boats when the main goal here is to repay it up. Then of course, that is because we had very favorite options on those boats, yes. So Skandi Hera, we had an agreement with a bank to buy it for outstanding debt, that was around NOK 300 million. And by the quarter now the broker values of NOK 448 million. So that's the reason why we did. And of course, we also had the higher earnings on her. So NOK 58 million in EBITDA in first half. And of course, then if you multiply that with it, of course, it's a multiple less than 3 years. So it was a good deal for the group and Iceman more or less the same. We have -- we paid net after cash around NOK 300 million for her and of course, the same EBITDA around NOK 60 million. So it's not that we are going to continue to buy boat at market prices, but we have to use these options in state so much in the money for us. And then to summarize quickly on the outlook. As we say, we are due to a strong first half and a very high backlog for second half, we increased our guidance to NOK 4.5 billion to NOK 4.75 billion for the year. We have a strong backlog here, say, adding what we have on after, we are probably around '22 so we have a very good visibility for second half '23 and starting to get a very good visibility for '24. And markets are very active globally. And as we said, perhaps the hottest places today are Brazil follow [ Bergen ], but also then very active in other regions and more or less globally. And the supply side are flat, meaning that we expect the trend on rates, margins and asset values to continue in positive. So as you understand, we are happy with the second quarter, and we are looking forward to the future. And I think we serve is after the oil crisis. Thank you very much.