DOF Group ASA (DOFG) Earnings Call Transcript & Summary

Good afternoon, and welcome to the DOF Group's Quarter one presentation. The plan is that we go quickly through the presentation and then open for questions in about 15 minutes and then try to end it in half an hour from now. So this is what is we deliver offshore services globally. We own a lot fleet boats and we have a large Subsea service operations with around 2,000 people. So you see the fleet, the ROVs and the product we deliver on the EBITDA in each region. Yes. So I think the important [indiscernible] that we are so much more than a ship on a lot of revenue stems from the Subsea service operations we have globally. When we look at quarter one, we can start with -- we have been high activity in all regions. Of course, [indiscernible] will see a further ramp up when we come into the more season -- summer season in the North Sea, for instance. And so we, of course, expect activity, revenue and margins to pick up going into second and third quarter. Average fleet utilization, 87% is a bit lower than we could hope for [indiscernible], but the main explanation for that is the Skandi Buzios being on fire in the entire quarter. And if you compare quarter 1 of '23 to quarter 1, '24, the visuals were in that quarter and this quarter. And with [indiscernible] in it, the EBITDA would have been around $135 million. So shown on an almost a 200% increase if you compare, let's say, up and [indiscernible]. Order intake in the quarter, $280 million and then $250 million of the balance. And I guess the next slide here is about the backlog. And I think the slide, we have now $2.2 billion in backlog with including the after balance. And the main message here is that we said on our last presentation back in February that within Norwegian summer, meaning July, we expect the backlog to be closer to $3 billion, $2 billion, and that is still a message. We expect to see a strong order intake in the next weeks and months. And of course, that is based on ongoing tenders and processes and discussion we are in. And of course, if you look at what we have done so far this year, it's a few examples, of course, is that we see a longer duration 3 years, 2 years, 3 years and so on. And then also we, of course, see rates, margins increasing. So a few examples here, if you look at the Skandi Iceman on this slide, we are talking the new contract compared to what we made in '23, we are talking $5 million up from here alone. [indiscernible] it's the same. We see more a doubling of the EBITDA on here. And so it's a few examples of how the market is going. And then one example is Skandi Rio done just with Petrobras 4-year contract. So meaning interestingly enough that you have backlogged on to almost under 28% and the rate is approximately 50% from USD 50,000 a day to USD 75,000 a day. So I think what the main message here is that we are building backlog at higher earnings and then starting to build backlog in '26, '27 and into '28 and of course, I also expect some of the new deals we are waiting on, we'll see building in 2029. And we expect this to continue. And as I said, we expect backlog to creep closer to #3 billion by July than the $2.2 million we have today. So and of course, that means that, of course, you see go back here, you will see that the backlog for '26, '27 and also '28, '29, will creep up. And of course, that shows, of course, that clients are now willing to pay higher rates for longer, yes. So it might be that if you are in an optimistic mode, you could say that perhaps the cycle will last longer than the next few years. It might last to the end of the decade, at least, if we continue to build this backlog. This is just an example of we have a few [indiscernible] in as a part of our business model. So this is just an example. It's a backlog for a [indiscernible] we took on IR in end of -- in April, and so now we see almost full book. We have a small gap in July. And then on bottom here, it's the explanation why we did it. You see we make $3.5 million to $4 million on a project between 150 days. And of course, if you analyze that, you're talking around $10 million more or less without investment for us, which also shows that, of course, the organization, of course, are fully capable of making decent money on [indiscernible] CapEx. This is just a snapshot on April and the second quarter. The short message is, it's high backlog, high activity, and it looks promising also for second and also third quarter and fourth quarter this year. Then Hilde will do quickly the numbers here.

Yes. The EBITDA achieved is $114 versus $104, same quarter last year. The depreciation has -- and that's due to increased activity. I will come back to that outperformance, especially from the subsea regions. The depreciation has increased, and that's due to the fact that our -- the book value of our fleet is higher because we did some reversal of impairments last year, but also that we actually bought 2 vessels in second quarter last year. Financial costs, around 31%, but what the main impact on the financial cost is unrealized currency and derivatives and that's mainly coming from the Brazilian activity, where we still have functional currency in Brazilian reals and a strengthened U.S. dollar towards that currency. We have mitigated the impact on the balance and the P&L on unrealized currency. However, we still have some companies with other functional currency than U.S. dollar. And you see that DOF Subsea is the main portion of the EBITDA also this quarter. If we go to the balance sheet, the growth in net noncurrent assets, that's mainly more vessels, 2 more vessels, which had an impact quarter-on-quarter. And because the vessels that we sold during '23 and until now has had a minor impact on the balance sheet. We also have some contract costs, which is partly mobilization costs to contracts that was mainly booked last year, partly this year, and there's also some subleases for vessels we hire in. Deferred taxes are -- have increased due to reversal of impairment last year. Receivables have increased mainly due to increased activity in the last 12 months. If we go to equity, it's a minor reduction even though we have a small net profit this quarter, but that's related to other comprehensive income and mainly currency impacts. If we look at the balance sheet development, you see that net interest bearing debt is at the same level as last -- as end of the year, and I will come back to that. Equity ratio of 34% and net interest bearing debt EBITDA is 2.9%. If we take the cash flow with an EBITDA of $114 million, the operational cash flow was $110 million and adjusted with paid interest and taxes, it's $78 million. So significant better than same quarter last year. And you will see changes in the net working capital, especially from the project activity that can vary quarter-by-quarter. We have sold one vessel, it's 2004 PSVs, so this is the price we got for that was $10 million. We have high CapEx in the quarter. That's due to several maintenance stockings and also one docking that we actually decided to do this quarter instead of next year. And then repayment on borrowings is $48 million. So here you see the development in cash. And if I go to next interest bearing debt, the cash flow from payment has lease payment of $7 million and amortization of approximately $40 million. But what's important to emphasize here is that the new charter contract with DOF Installer has increased an interest bearing debt to USD 44 million. That is the gross value of our commitment when we hired in this vessel. And it will be gradually reduced when we pay charter hire to the vessel owner. But there is no revenue connected to this vessel because it -- we didn't have any revenue by end of the quarter. But you saw from Mons presentation that the EBITDA we can have on top of the lease payments to this vessel for 100, 150 days work, can be USD 3 billion to USD 4 million. If you look at the DOF debt that consists of secured debt, mainly bank debt of $1.5 billion. We have the bond loan in Subsea of approximately $70, and that's peak interest and we may convert it on maturity in '27. And you see that lease vessel is increasing and that's due to that we have 5 vessels, which we have chartered in from other vessel owners. Yes. This is -- the comment here is that you see where how our revenue have developed. And of course, that includes an increased EBITDA. We had some comments this morning regarding the EBITDA margin. And when analyzing, looking at DOF, you shouldn't be mainly looking at EBITDA margin, you should actually look at the actual EBITDA. Because the EBITDA margin impacts what kind of projects we do. But as you saw from Mons presentation, the 12 months contribution from project on top vessel hire was USD 95. And you see the graph below, that's the development in net interest bearing debt and interest bearing debt. Just quickly on the operational performance, outperforming performance, especially from the subsea regions. Main projects in the Atlantic region has been in West Africa and the North Sea. And one major docking in the quarter. But even though they are giving good results. And I'm happy to see the development in Asia Pacific, where the performance has been really good and steady high and good performance and good results from Brazil and the U.S. On the DOFCON JV, the main event is the Skandi Buzios, where the repairs are about to be completed in the Netherlands. The VLS has been reinstalled. And the plan is to -- for the vessel to sail early June to Brazil. And then Norskan, which also had close to 100% utilization for the fleet and that's due to good performance on Skandi Amazonas in the spot market. And DOF Rederi, the same stable operation and 2 vessels sold, one has impact on the results in March and the other one will come in April. This is something we show every quarter and it's actually how we are financed and this by 4 silos. And the main event is that the net interest in bearing debt to EBITDA is going down. And you see that of Subsea is 2.4%, which is steadily reducing its 2.2% in DOFCON, and of course, the Skandi Buzios has had a negative impact on the earnings. And you see that the last 12 months EBITDA is lower than for 2023. Norskan, we have a high leverage and a net interest-bearing debt to EBITDA at 7.1%. But here, the vast majority of the debt matures in 2030. It's with BNDS, it's a fixed interest the entire period. And we are not concerned about this high leverage for this company. And DOF Rederi they are steadily improving their key figures. And you see that they have an EBITDA in the last 12 months of 46% and net interest-bearing debt to EBITDA in by 2. This number will improve additionally after we have sold and delivered the Skandi Gamma next quarter. We are not concerned about any refinancing risk for these entities, as you see here. And in fact, what we need to refinance in '26, that's part of the debt and DOF Subsea and a minor part of Norskan. In DOF Rederi, there is 0 refinancing risk. So then, I give the word to you, Mons.

Thank you, Hilde. And this is done the guiding -- updating on the guiding. So it's a few changes sort of revenue has been lifted a bit from Norwegian $1.4 million to $1.7 million. And of course, the revenue line is the most difficult line to guide on, as a lot of the projects could contain purchases. It could contain variation orders and so on. And of course, it's difficult to guide on that. On the EBITDA line, we had narrowed the window and lifted lower under. It was $470 million to $520 million. Now we have lifted out to $492 million. $520 million based on the good first quarter and, of course, good visibility going forward. And then we see after second quarter what we do next time we go. So -- but at least we are more confident than ever in February. So that's the main changes to the guidance. And on the net interest cost, tax payables CapEx, it's unchanged. So my message here is that we are upping the EBITDA. Then on the final slide here, it's I guess, a bit more outlook, as I said, guidance up $490 million to $520 million. High backlog for -- already for '24. And very high backlog for '24, good backlog for '25. But as I said earlier, we expect a strong order intake also in the next few months and meaning that we also will see building a backlog, stronger backlog for '26 and beyond. Yes, so then at rates and margins that are higher or much higher than for most of the new contracts than what the units have been working on before. So market are still very active. It's a lot of opportunities. It's a positive development rates and margins. And we also, of course, see as a consequence that, that asset values are increasing. So then that was the presentation. And then we are open for questions. So let's have -- if you have any questions, please let us know, and we will try to answer as best as we can.

Yes. So we have one question from -- which is with a strong development, should we see a refinancing and dividend soon. Of course, we have started to let's say, evaluate when and how to do refinancing. What is sure is that we will have to do it next year. And of course, then if we do it next, we expect to pay dividends for '25. And that's the plan A. And of course, we of course are looking at the [indiscernible] perhaps if we do it earlier, but that, of course, is a balance against what we expect is higher cost for new funds compared to the finance we have. So I think that's the best answer we could give on that question. Any more questions? So we haven't got more questions.

That we just say thank you.

So thank you for listening. And please, you send us an e-mail or give us a call if you have further questions, or wanted to discuss. So thank you very much for listening, and have a nice evening. Thank you.

Thank you.