DOF Group ASA (DOFG) Earnings Call Transcript & Summary

Good morning, and welcome to the quarter 3 presentation for the DOF Group ASA. Together with me is Hilde Dronen, our CFO; and I'm Mons Aase the CEO. This slide, DOF at a glance, shows a summary of what the DOF Group are around the globe. So we are an integrated service provider, delivering vessels, engineering, and execute projects globally. Control a fleet of 54 boats. Operate from all continents. Long history. Backlog at NOK 22.3 billion. And a bit more than 4,000 employees. And the graphs here show the development and revenue. Last 12 months, NOK 13.1 billion, so a big step up compared to '22. It also shows the historical EBITDA is split between the segments. We will come back to that later on. And the employees around the globe. You know our biggest region is South America with 1,800 people. And then it's split between Atlantic, APAC, and North America. Next slide is on the quarter 3, the operational and financial update. So another good, solid quarter for us. EBITDA strong and improved cash flow. So as we see, revenue of close to NOK 3.4 billion in the quarter and EBITDA NOK 1,295 million and EBIT NOK 889 million. So happy with the quarter, good quarter, and a solid improvement, of course, from the same quarter last year. Good performance on some subsea projects. In general, good performance in DOF Subsea. And we have sold a boat called Neptune, and we also charted in a boat called Stril Explorer. So we have the number of vessels in the fleet are the same, but one less vessel owned, and one more chartered in. Good order intake in the quarter, 4.3 billion in the quarter, and now NOK 22.3 billion in total backlog at the end of the quarter. Fleet utilization a bit lower than what we normally have, so at 85%. But still delivering a pretty healthy operational result. And after balance, we have bought 3 non-core PSVs from our lenders, and after that again we have sold 2 of them. So that's -- and we sent the press release on the economics in the purchase and in the sale. And then on the Stril Explorer, we have charted in for 3 years. We had 4-year options, and the first task is to support the newly awarded PIDF project in Brazil, so which will at least take 2 years to complete. On the segments, the subsea side of course is a bit more than NOK 1 billion of the EBITDA, Norskan 145 and DOF Rederi 118. And Hilde will talk later more about the numbers in detail later on. So to summaries, a decent quarter for the Group also in quarter 3. On the sustainability part, this is the same slide as always. What we are very happy to see is that there is zero LTI frequency, which is we are happy with, and of course that is what we strive for every day, to avoid any serious incidents with. So we work on that, and of course happy to see that we achieved that in this quarter. Then on -- the rest is the same as we have had in previous presentations, so I think I'll leave it like that. And you see yourself that you are highly recognized, both for operation excellence and also our focus on sustainability, on emissions, on all aspects of it. So you can read it yourself. And we move on to the next one, which is showing what DOF is. So we are an offshore service provider. We own vessels, we operate vessels, and -- but we've also done specialized service providers, subsea service providers, yes. So we own a fleet of 47 vessels. We charter in 7, meaning we have a control of fleet of 54. You see the market value is stable compared to last quarter at NOK 28.4 billion. And that is done after we have sold the boat, so we have had a small increase than on the rest of the fleet. We own 74 ROVs and AUVs, important equipment for executing the subsea services work. And then what we are selling of course is vessels and time charter, but of course the largest portion on DOF Subsea are integrated services, long-term IRM scopes or shorter-term subsea projects. So that's what we do. And as you see, we have increased guidance for the full year. So that is now up to NOK 4.75 billion to NOK 4.85 billion. And so it's up a bit from what we guided in second quarter. So I think we leave that slide like that. And of course, this is what it's all about. Yes, it's all about the people. I talked a bit about operational excellence on the ESG slide, sustainability slide. And of course, I also talked about on the previous slide, the projects we are doing globally. And these are the people that do it. And of course, the value of the organization, let's say, the margins we are able to produce on top of the straight assets, that's the people that are providing. And so it's a very high value in the global organization in DOF. And then a bit about the markets. So we -- in this presentation we focus a bit especially on Brazil. And the markets in general are still strong, the offshore and subsea. Service markets globally, we see high tender activity gradually, continuously increasing rates on margins and a lot of opportunities globally. So the trend we have seen in the last few quarters have continued into quarter 3, and it looks promising. But I'll have a few slides on Brazil later on, and talk a bit more about that then. On offshore wind, of course, we have just opened an office. We have ambitions on that, especially within the floating wind. And of course, that's a global market. And so what we have done in this quarter is that we have opened an office in South Korea, to follow that market and to position ourselves for work in South Korea, which we see as one of the countries with the projects coming first within the offshore floating wind. And we do quite a few studies, and feeds for clients around the globe, and -- but of course, the big projects are not expected to go offshore before '27, '28, but they need to be won and awarded a few years before that. So I hope into 2024 or early 2025 that we will see that we actually start to get awarded projects in that space. And of course, floating wind is perfect for our fleet, with the anchor handlers, it's more floating wind unit of [indiscernible] PSV is the same operations. So we follow that closely, and we have ambitions in that space, and are trying our best to position ourselves in the right way. Then on, 2 slides on Brazil. Of course, as you saw, Brazil is the region that we have the largest presence. We have more than 20 boats. We operate a big ROV fleet. We have more than 1,600 employees. And we have a track record since early, for more than 20 years now. And of course, we have been brave in Brazil, building a fleet, a unique fleet in Brazil with the most advanced anchor handlers, the most advanced pipe layers, and a very solid general CSV fleet. So it's, we have a, I would say, a very good -- we are in a very good place in Brazil and we think Brazil is one of the most exciting countries going forward as well. So we see a lot of opportunities for further growth in Brazil. Then one slide on the market, you could say, or what we see of opportunities. The one on the left-hand side here is showing, it's a snapshot from the business plan of Petrobras, showing their need for vessels between '24 and '27. Yes, so it's quite a big number both in PSV anchor handlers, but also done in the pipe layer, PLSVs and RSVs and PSVs and so on. So we see steady growth in Brazil. At the moment, we are working on a few tenders, very interesting tenders. Perhaps on top of the list is there is a new pipe lay tender going in next week. And of course, we are offering quite a few boats. And of course, 3 to 4-year contracts could build. If we are successful in that, they're going to be building a big backlog well into the future, yes. So we're going to talk more about that in the quarter 4 presentation, of course, when we see how that pans out. But we are very excited about that tender and look forward to that. Yesterday, we present -- we bid a few boats on an anchor handling tender in Brazil. And also, of course, we'll share more information on that going forward. And then we are waiting for a new RSV tender then to be delivered later in November. So quite a lot of opportunities as we speak. And of course, both within pipe layers, anchor handlers, and RSVs, we think we have a decent position to take a fair part of it. Then it's a slide we have borrowed from Clarksons, and this slide shows, the graph here shows the backlog for the Tier 1 subsea players, EPC players, and then it also shows then the number of vessels they have in their fleet. The grey is the number of vessels and the blue is the backlog, yes. So short version here is if you compare to the 2013, '14, the backlog and -- no, the backlog is the same. But the fleet they have is at least short, close to 30%, yes. And of course, that's what we see in the market now, is that they have less capacity. They will, as we see it, need more boats. And we see it already that they share, let's say, scopes awarded to Tier 2 players. Not only boats, but full scopes, yes. So we see, especially down '25, '26, we think there will be a very strong demand for subsea assets from the Tier 1 players. Then on, this is just showing the development, let's say, through the cycle on 2 typical vessels, subsea vessels, and you see pre the oil crisis and post the oil crisis and through the oil crisis, and you can study this in detail. But it shows that if you compare the first half of '23, the EBITDA on the blue, EBITDA, which is from the vessels, is back to pre-oil crisis. And then in the meantime, we have added -- built DOF services. We're also now making good money on the subsea services side, so the project margin side, that we didn't have before the downturn, yes. So the market is back, and we have built a business that we are able to actually make good margins on top of what we did in the booming times of before the oil crisis. This is the backlog. So I mentioned the total amount NOK 22.3 billion. We see the visibility for quarter 4 is high. So there is around NOK 3 billion in the backlog. And I guess, we had a bit of a turnover of around NOK 3.3 in quarter 3. So it's almost sold out. And then for next year, we have around plus/minus NOK 10 billion in the book and I would guess that's around plus/minus 70% of the expected revenue next year. So it will be a decent strong end to '23 and also '24, a very good starting point for '24. And of course, we expect to continue to build the backlog for '24 going with the next few months as well of course. So all in all, optimistic for the next quarter and the next year. And of course, this is a slide showing what we have of, let's say, legacy contracts pre-downturn. What we have of downturn contracts which is of course very low margin, and what we have on post downturn. And of course, this is also what you see in the numbers, the gradual improvement in EBITDA, of course, terms because we are done moving assets gradually from old contracts to newer contracts. And as you see, that trend will continue going forward with, let's say, with the old contracts gradually being less and less important on the earnings side. Then I'll leave it to Hilde. Please, Hilde.

Thank you. As you can see, our revenue is growing. The third quarter, 2022, was actually a quite strong quarter, where we achieved an operational EBITDA of NOK 1 billion. But as you can see, third quarter this year is even better. It's slightly below the quarter that we achieved in the previous quarter this year, which was record high. And again, we have a strong operational performance, especially in DOF Subsea, where we have very strong performance on certain projects. But we also see stable and good operations, both in DOF Rederi and the Norskan segment. There is a small gain on sale of assets, and that is actually the sale of Skandi Neptune. This vessel was actually agreed to sold in 2021, but due to a contract that she had to complete before we could deliver the vessel, then the sale didn't happen or delivery didn't happen before this year. So what you see here is just part of the gain from the sale of this vessel. The other one is booked earlier. The Skandi Buzios incident has not had a big impact on the P&L this quarter due to the loss of higher insurance coverage. We do not expect these vessels to become off-hire before late second -- to come on-hire before late second quarter 2024. On the depreciation, it's higher than previous year. That's due to more vessels, we have taken over Skandi Hera and Skandi Darwin during the second quarter. There has not been any need for neither impairment or reversal of payment this quarter, but we do see that the value of our fleet is increasing. We have a lower interest cost that's basically due to a lower debt and reduced margins on the refinance debt in DOF Subsea and DOF Rederi, the same as we saw in the last quarter. And we have an unrealized loss due to a weak Brazilian real to U.S. dollar. So that gives a net profit of NOK 338 million versus minus NOK 412 million, same quarter last year. On tax is NOK 53 million versus NOK 71 million. And this quarter, we have paid approximately NOK 60 million in withholding tax, and NOK 215 million year-to-date this year. If you look at the segment, as mentioned, it's DOF Subsea who is outperforming. And if you see the EBITDA, it goes from NOK 800 million to NOK 1,036 million, and that's also reflected in the revenue. So that reflects the high activity, especially on certain projects in Brazil and in the Atlantic region, the same as previous quarter. But we also see a high and increasing activity in the North Sea, partly due to the Guyana contracts, but it's also quite busy on other projects that this region is working with. And we also see improved performance and activity in the Asia-Pacific regions. And DOF Subsea has achieved utilization close to 90% this quarter. Looking at Norskan, the EBITDA has improved, and 8 out of 9 vessels have been working on firm contracts. During the year, this company has been impacted by mobilization to new contracts, and also partly this quarter, and also the fact that one vessel has been partly idle due to a low utilization in the short-term market in Brazil. But early September, she started on a firm contract at good earnings in this region. Norskan only have a margin of 24%, but that reflects that this company is the vessel manager for the entire fleet in the Group. That currently counts 21 vessels, but will be 22 very soon. DOF Rederi, good performance, especially on the PSV fleet that has operated in the North Sea spot market. A bit more variable for the anchor handler fleet. It has been impacted by 3 RSV vessels that has been partly off-hire or mobilizing to a new contract in Brazil. These vessels will be fully committed in fourth quarter. So here we achieved a utilization of 86%. So all-in-all, a significant improved EBITDA for DOF Subsea, and slightly better than a previous quarter for DOF Rederi and Norskan. If you look at the cash flow and the operational cash flow is strong this quarter, NOK 1.45 billion versus NOK 924 million versus last year and NOK 2.9 billion year-to-date versus NOK 2.2 billion. This is typically seasonal variations, and also the fact that by end of last quarter, we have had a lot of projects that was completed and ended, and the trade receivables has been impacted by that during this quarter. But it does reflect a high activity in the Group. The net interest is significantly higher. That's due to standstill agreement in 2022 and taxes paid has more or less, the withholding tax, paid on contracts in Guyana and West Africa. Sale of tangible assets, that's the delivery of Skandi Neptune. And purchase of tangible assets, that's normal. Class stockings and you also see that purchase of contract costs, that's pretty high, and that's mobilization on new contracts, especially in Brazil. What's also worth mentioning is that we have paid NOK 500 million on our debt, which is normal amortization. And it also includes amortization on the new loan facilities. Paid out non-controlling interest, that's actually the purchase option for exercising the option of the shares in Iceman done in July. And there is also a share issue, which is the green option that was done in July. And a dividend, there was paid a dividend from DOF Installer to the shareholders. That was paid in July, so that's what you see here, is the impact paid to the minority shareholders in this company. So all-in-all, the cash by end of the year is close to NOK 4 billion. Included in that is restricted cash, mainly in DOF Subsea. If you look at the balance, it's no big events this quarter. So of course, 1 vessel sold. No -- nothing much on the deferred tax assets. That's mainly for the Brazilian activity. And the non-core assets that basically include lease of vessels and that's a prepaid contract cost and a tax claim in Brazil. The lease of vessels, we also have a debt because we are hiring in 3 vessels on firm contracts. That's paid, that's booked as debt in the Group balance sheet. The cash position has increased due to good operational cash flow. And as I said, part of that is restricted, and that is approximately slightly below NOK 1 billion. The equity is increasing, and the main event there is the greenshoe option, but the option on the shares announcement is also booked against the equity. Yes. The net changes in the non-current debt is normal amortization and currency impacts. And on the current portion of NOK 1.6 billion, that include the next 12 months amortization of the debt, but it also include the full debt in Skandi, a spend of NOK 230 million. This debt has been refinanced and has been drawn this month. The first debt maturity is from 2026 and onwards, and I will come back to that. And here you see the debt overview. This is a graph that we have shown earlier. And as you can see, we are financed into 4 silos. It's the Norskan, DOF Rederi, DOF Subsea, and DOFCON. And if you assume a stable EBITDA based on our guidance, we see that we can accelerate the debt faster than a normal amortization. What's important to see here is that, is the last column, and it's what you see in light blue. That is the debt that comes due first in January 2026. It's approximately NOK 4 billion. There are cash sweep in 3 of the silos, but not in DOFCON. The DOFCON debt matures later than 2026. And the majority of the debt in Norskan matures later than 2026. And I think the last facility is due in 2023. So what you see here in dark blue and light blue are long-term debt. If you go to next, then we see the terms of this debt. The first one is actually the remaining of the bond loan, which is slightly below NOK 800 million. That matures by end of 2027. It's peak interest, and it's the same terms as the refinance facilities in DOF Rederi and DOF Subsea, meaning 2% in margin. On Norskan, NOK 4 billion of the debt matures in the period from 2029 and to 2023. And that has a fixed interest during the entire period. And the last one is DOFCON, that has not been part of the restructuring, and that is normal amortization. It's mainly BNDES and [ Exfin ] at fixed rate. So in other words, we don't see that this Group has a refinancing issue on the first maturity. And here you see the historical performance of the Group. And the margin has been actually quite stable, even though the market was very difficult through '18 and '19. But it's we are closer to 40% in the last 3 years than earlier. And of course, what's worth mentioning here is the big impact on the equity, which is after the restructuring, and also the big impact on the non-current debt versus the current debt. So the net interest-bearing debt by end of the quarter was NOK 14.5 billion. This is also the same slide as we've shown in the second quarter, but what has changed here is that we have increased the EBITDA guiding, and we also see that the EBITDA the last 12 months is NOK 4.8 billion. The interest rate has increased due to increased floating interest, so that has slightly increased. And the scheduled repayments are the same, and also the maintenance CapEx. So with this assumption, we see that there are cash available to accelerate repayments through cash sweep. And as I said, there are cash sweep mechanism in most of the silos, except for the DOFCON facilities. And this also includes the impact on the acquisition of the Hera and Darwin, and also the Skandi Iceman, which is now refinanced as a normal loan from November.

Thank you, Hilde. Then we are on the final slide, and that is the outlook, most of it has been said previously in the presentation. But as we said, we have updated the guidance to -- NOK 4.75 billion to NOK 4.85 billion for 2023. And we do that, of course, based on a strong year so far and good visibility and backlog for quarter 4. Then after that, we have -- we see a good visibility for '24. We have a high backlog. As we saw, most of the backlog has been one post the downturn, and the markets are active, I would call it very active, and we see positive developments in rates, margins, and also as we mentioned, asset values. And I would say that is more or less globally in all segments and in all areas. Yes, so I think we leave it like that. And thank you very much for listening to us. And have a nice day and a nice weekend when that comes. Thank you very much.