DOF Group ASA (DOFG) Earnings Call Transcript & Summary

Hello, everyone, and a very warm welcome to this third quarter 2025 presentation from DOF Group. It will be the tried and tested format, which includes operational and financial highlights presented by CEO, Mons Aase; and CFO, Martin Lundberg, followed by a Q&A session. You can ask your questions through the Q&A function in the webcast player and you can do that at any time. And then we will cover them at the end. And with that, I leave the word to you, Mons, and I assume you want to spend a few moments on this beautiful front page to start us off.

Thank you, Erik. Thank you very much, and welcome to all. Yes, of course, I want to do that. This is the Skandi implement as 1 out of 4, what we call I-class boats, so big construction boats with 400 ton crane. And this is the first red I-class here. So it's finally in the DOF colors with the DOF logo on. And of course, also perhaps -- and she is -- this is -- she is actually today working for a client in U.S. and then she will head to Mexico later in November, yes. So happy to see down there. I guess also perhaps I have been reading all the analyst updates on DOF this morning. And of course, I see a few of the analysts talk about a weaker market. And I probably told you that before, but every Monday, I have all of our commercial BI guys globally on a call. And I don't see any weakness in the markets we operate in. And of course, you have to remember, 85% of our business is services, it's projects, it's engineering, it's not boat. And we see a continued strong market. And I have to say, when I left the guys on the phone on Monday that I got pretty optimistic on filling the remaining white spots in '26 and also '27. We have very high tender activity. We have strong leads on all the boats. And we -- I think we will have continued decent order intake in the next week and months. So then meaning that, for instance, the '26 backlog will be at the highest level ever when we end this year. I also read that the analysts, you write a lot, there have been a lot of writing on Petrobras. And of course, I don't quite -- I don't quite recognize what some of them are writing. So I think we will show later in this presentation that for us, it's more an opportunity than anything else. And we will also show, of course, that somewhat weak vessel market on occasions are good news for us. So of course we -- all of our third party fleet is -- will be growing. And of course, we have an example here on a project that we have saved quite a bit of money compared to when we bid, yes. So -- but I'll come back to that. So it was a long speech on the first page. But I guess that is what I want to remember that we don't see any softness in our markets, and we are still very positive on Brazil going forward. So then we can change the page. And this, I guess, is an old one, shows the main events from last quarter is, of course, that the backlog has been growing a lot by end of the quarter, we had $4.7 billion in backlog, which is the highest ever and of course, gave a very, very good foundation for '26 and '27 on the forefront. And also then we keep growing when you measure on the number of employees. So I think it's the first time DOF have more than 6,000 people working for us. So it's a milestone. It's the first quarter we are above 6,000. Further update, I guess, the last 12 months EBITDA is still growing and the last 12 months, of course, earnings are still growing. So all in all, a positive development for us. Then the next one is -- actually, this is what we keep on building. So of course it's -- and I think I'm going to spend a few moments on this slide, just to rephrase it. Of course, what we are offering to our clients is projects, services, engineering, diving, and so on. So our sales are not -- the vessel is only a small part of typical sale DOF are doing. And of course, that means that we have fewer competitors and we have for the IRM work in the North Sea there might be 2, 3 competitors for a subsidy of an APAC, that might be 2. So it's a very different ball game than being only a pure shipowner. And as I said on the front page, we will grow our [indiscernible] fleet because on many occasions, we will actually do better if there are a bit under-utilization on certain part of the global oil basins. And of course, here we of course show the last 12 months on the -- we have split out the -- what we are able to earn on the subsea or subsea employees. But of course, that is showing what we are -- but what you also have to remember is that the subsea projects increases utilization on the vessels and of course reduces the risk for utilization on the vessels. So it's all linked -- and you can, of course, have a long, long discussion about DOF shipowner or a service company. And in my view, we are a service company. So whether we perform our work with our own boats or third-party boats, it's the same service we are doing. So of course it might be -- and I can't answer that. It might be that if the weakness seen lately on -- especially in the North Sea CSV market continue, it might even be an advantage for DOF because we utilize those boats to serve quite a different market than a pure shipowner are doing. I'll leave it like that. But I think it's important to understand, especially when I read these analyst reports that you have to understand that we operate in different markets. So then we go to the next. So this is quarter 3 and we had an EBITDA of $205 million that included $12 million in gain on 2 vessels we sold, 2 older vessels we sold. DOF Denmark delivered $54 million and you have to adjust for the sale, then you are at $42 million. So it is -- of course, it is much better than quarter 3 last year. And we call it a good quarter and according to our expectations, yes. So -- and as I said, backlog very good of taking in what we have a one-off balance date, we are now above $5 billion. And then we have a very high backlog, of course, for quarter 4 and part of the reason narrowing the guidance from $750 million to $760 million. It's still the same midpoint, $755 million. DOF revenue towards EBITDA are in the range. We have said between 1.5x and 2x. We are now at 1.9x. And Mr. Lundberg, our CFO, of course, we have been busy in the quarter. We did a 5-year bond. And perhaps even more interesting is that we financed the Skandi Norseman. This will be the name of the Canadian newbuild. You know 100% financing securing $140 million in debt [indiscernible] I think that is the first time in my life in DOF where we actually don't spend a single dollar on a newbuild. So it's pretty good. But Martin will talk more about that later on. We also repaid close to $80 million of the debt in Norskan and being delivering a good quarter, having a very high backlog for both quarter 4 and '26 and still see a very strong market. Then we also decided to increase the dividend to $0.35 per share. So to be paid on November 27. So then we move to the next -- so this is some work in the quarter. And yes, I don't go through all of them, but I start with one in the middle, Skandi Patagonia. Sometimes people ask us what is the expected life of our type of boats. I think the Patagonia here is a good example. She is built in year 2000 and was now extended from January '26 and on the 3 plus 2-year deal and likely she will be servicing that contract when she turns to there. So that means that the technical lifetime of these boats are more than 30 years. And the interesting is also that having the right specification, that boat is equipped with crane, pulling, diving, et cetera, of course, we also were able to increase the rate quite a lot on that boat. And then perhaps also mentioning the Skandi Inventor, which will be on a 1-year contract with a very large oil company in Australia. So then first time at DOF we operate one of the I-class boats in APAC. Then I will come back to the Acu, Niteroi, Vitoria extension. I also come back to the [indiscernible]. I think also good to see here that we have done contract in the North Sea. We have done contracts in Argentina. We have done contracts in -- we extended 2 boats 1 year in Guyana. We have done contracts in Mexico. So of course, it's -- and I think that's also perhaps one of the reasons why we still think that there is a lot of opportunities. Of course, it is the unique global placing for what we have now. So we, of course, see much more than a regional player will do. So it's been a good quarter in all regions and a lot of opportunities also in all regions. So then the next one, please. So this is this is then what we have ended up with after the Petrobras discussion, roughly comment from the analysts. And of course, this is -- we got a bit more than 1-year extension on the Niteroi and Vitoria roughly half year on the Acu. And then starting their 3-year contracts after that. So now all 3 are now into 2030. And the consequences for the DOF P&L, I guess, very nice to have full '29 cover here. But the consequence for the P&L in '26 is that cash flow is almost the same, is plus/minus 0. And on the EBITDA for '26, you are talking single-digit million dollars. So it is marginal. And so I think at least I would have done that deal any day in the week, if that's the cost of getting firm backlog into 2030 on these books. The next one is then the backlog. We see it with the additions after -- and September, we are at a bit more than 5.1 billion. And I have to say we -- of course, with the pipeline we have and with the opportunity we see, there will be more contracts won this year and some of them pretty interesting as well. And so that means that it will be difficult, of course, to fill much more in quarter 4, you see, we have [ 186 ] million in the book for quarter 4. And of course, that is on the midpoint on the revenue guidance, we are at 99%. You have to admit, of course, that we expect the revenue to be a bit higher than the midpoint. So it's probably not 99%, probably a few percentage less. So it's very few white spot on very few boats in quarter 4. And then for '26, we are now roughly 1.5 billion. And of course, that is then 75% of, let's say, 2 billion. And as I say, and it was already known that is record high. I think when we started '25, we were below 75%. So I think it will continue to grow the next few months. And so I guess the starting point we will have when we end this year for '26 will be, I think, the best we ever had. And likewise, I think '27 also we will see that growing towards year-end and into next year. So as you understand, I'm pretty optimistic on continuing winning work and then especially covering the white spots we have on a handful of vessels in '26. That I think was the last one. I have one more, then it's Martin here. And this is a PIDF project. It's a very interesting project we have been executing in Brazil since 2021. And so I think this is a time we win that. And it will go over 3 years. It's more than 4,000 inspections. And the contract value is approximately slightly less than $400 million. It's, of course, a big contract. And the core fleet we need on that boat is 3 boats to be able to execute it. And of course, in the past, we have executed that partly with our own boats and with the Stril Explorer that we have chartered in. But our own boats know that have done the job now in '25, they are going on long-term contracts us on our recent [indiscernible] meaning that we have to replace them. And likely they will be replaced with through third party already chartered in the, Sea1 Atlas. And then we are negotiating to a boat on the project. And interesting here is that when we bid this and [indiscernible] and I don't remember, we probably bid this long before in first half this year, it might even be as early as first quarter -- first quarter this year. And then we -- of course, we had the cost assumption on boats. But then with the vessel market being a bit slower, the rates we have got in here is less than we had in the cost when we bid. So the effect on that project is $15 million on the cost side on that project. So it's quite large numbers for us. That market has been a bit softer for these type of boats. And of course, that's good in this occasion, and I think it will be good in more occasions for us going forward. So then we have one more for me. This is done. We have sold 3 anchor handlers, and I guess this is in line with what we have communicated that we want to sell the oldest and lowest spec anchor handlers. And as you see here in the red here, the 3 boats are much less than [indiscernible] it's not young boats. So we -- it's part of our strategy to high-grade on anchor handlers. And of course, the earnings so far this year for these 3 together in total are less than $1 million in EBITDA. So of course, it's -- you will not see it on the bridge from '25 to '26 when we sold these boats. So when we first have this slide, I think then we are left, I think I counted 25 anchor handlers. And the interesting one is that 19 out of those 25 boats are all on long-term contracts, either in the North Sea or in Canada or in Brazil or elsewhere. So there are 19 out of 25 boats are on long-term charter, 3 of them are, the Hercules, the Skansen and -- they are equipped with large cranes. So of course they don't trade, let's say, the normal rig move market. They work on global mooring projects or on subsea projects. And of course, they are enablers for us to win and execute quite a few of the mooring projects we do globally. And then we are left with 3 and which then are anchor handlers without the crane and then without long-term contracts. But they are today in Congo on subsea project, mooring project. So we need them for having control and towing to support those projects. So we are now -- as we said on the last presentation, we are where we plan to be on the anchor handling fleet. So it's -- as you -- I'm pretty satisfied with the backlog we have on those ports and with the composition we now have. I think we have -- we have the leading high-end anchor handling fleet in the world market. And -- and of course, now with a backlog and with an exposure that we are really happy with. So then Lundberg, no, you can.

Yes. Thank you, Mons. And as you started alluding to, it has been an active quarter on the finance side with a few highlights on top of the very strong operational results. And I would say I agree with you, SeaDragon, the Norseman newbuild financing being one of them, issuance of the bond loan and other and also getting -- repaying the last bit of the restructured debt with the international facility in Norskan also a good one to have done. And on the next slide, we see that this is another strong quarter across the segments. It is largely in line with our own internal expectations. And if we compare it to same quarter last year, it is still an improvement. But of course, it is particularly good to see the DOF Denmark fleet delivering consistent strong numbers. And this is in line with the explicit guidance we provided in December of last year on that fleet. So of course, that is really good. So $194 million worth of EBITDA if we exclude the $12 million sales gain. And on the leverage side, we are now, as Mons said, within the target range of 1.5x to 2x net interest-bearing debt to EBITDA on the last 12 months. The number is now 1.86 or 1.9 and the net debt is $1,332 million, so relatively flat, slightly down from the last quarters. Main drivers on the debt changes this quarter is the mentioned financing, so 148 million net effect from the issuance of the bond loan, 79 million drawn on the private placement on the SeaDragon and Skandi Norseman financing. That is offset by the repayment on the Norskan international facility of 73 million and also the sold vessels contribute a repayment of $11 million. Other than that, it is the normal amortization, normal payment on lease debt, and so on. The cash increased by $120 million to $520 million, so a very solid liquidity position. And this is the Norseman financing. We have shown this before, a few more details this time around, $79 million drawn in the quarter, all-in interest cost of $7.24 million for the duration of the 15-year contract. So something that the offshore markets really see and that we have not seen that on previously. It is a very favorable financing package. It provides 100% leverage, and it is served solely by the charter from the end client. So no contributions from the wider DOF Group, it is no recourse. So no guarantees or anything that goes back to the wider DOF Group on this one. So on a stand-alone basis, a very, very strong financing package. Yes. This is, of course, what we mentioned on that we have resolved the first or the only near-term balloon maturity with the Norskan facility that was previously due in January of next year. So now there is -- there are no balloons in the near term and all of the restructured debt has been repaid. Some of the vessels remain on a quite steep repayment profile and particularly the -- a couple of the vessels in the JV are amortized to 0 within the years '27 and '28. In addition to this mandatory amortization, there is the well-known sweep mechanism in Norskan that, of course, may affect the numbers, but that has provided sufficient cash in that. Yes. And operational cash flows, very strong, $152 million, although there is a small further increase in working capital that is, of course, linked to the high activity levels, particularly in the project business. The CapEx or the net investment -- investing activities is $35 million. That is a CapEx of $71 million. $29 million of that is related to the new build, in the Canadian new build, and the rest is maintenance docking and ROEs. And that is offset with $29 million from the sale of the 2 vessels that was delivered during the quarter. Movements on debt we covered on the previous slide. The net effect from financing activities is $7 million on the positive due to the financings, but that includes a dividend of $73 million. And again, a cash position of $520 million at the end of the period. So with the strong operational results, strong backlog visibility, the confidence in the market and further strengthening of the financial positioning or position, we are increasing the dividend to be paid in November to $0.35 per share. And with that dividend, the total shareholder distribution of 2025 is at $234 million. And with that, I will hand it back to you, Mons.

Thank you, Martin. So we are here at our updated guiding for the year. And I guess on revenue, we are $1.9 billion to $2 billion. As I said, I think we will be towards the upper end of that on revenue. On the EBITDA, we have narrowed the guidance from $740 million to $770 million, down to $750 million to $760 million, so same midpoint, $750 million. Depreciation untouched and then net operating income increased, we also narrow the guidance on that, so same midpoint. And then same interest cost, a bit less tax payable, so reduced that a bit. And then on the CapEx side, overall figure being the same, but a change on the maintenance side, we are down $10 million. And then on the growth, we are up $10 million and id due to some movement on some dockings. And then we have purchased a couple of ROVs, more to serve our own fleet, but also, of course, then to have on third-party boats like the ones for the BIF ship. So -- but I guess main here is that the guidance is now $750 million to $760 million. That's our last page. And yes, I don't repeat that $750 million to $760 million, all-time high backlog, as we said, $1.5 billion in the book for '26, which should be around 75% and then above 50% now for '27. Of course, also then large number of prospects and high tender activity. And I could add a very optimistic global commercial team that see opportunities. And so we -- I guess we can't guarantee anything, but we expect to continue to build the book. And of course, today, so we are -- I have to say I'm very optimistic on for next year and the following year based on what we see in the -- already in the schedule and also the opportunities we have on each boat going forward. So it looks good. And as normal, we have some pictures here just on the highlights. Of course, the one on the left here up is the first red I-Class and it is, let's say, a milestone for us and also first long-term contract for an I-Class in Australia. The next one is the Skandi Patagonia, as I said, 25-year old boat, will probably be 2 years when that contract ends, if it's not extended further. And due to our spec and your cost of maintenance level, we have also been able to, I would say, increase the rate quite considerably. So she will contribute to higher earnings in next year. Then Skandi Skansen, 2 comments on her. I mentioned the fleet, very good backlog for the [indiscernible] fleet. We have high-graded fleet and Skansen has had a fantastic year, the main enabler to doing the global mooring projects. And we see a good opportunity for similar projects in 2026. Then this is [indiscernible] representing the [ PREF ] where we actually see that DOF taking advantage of somewhat weaker vessel market for some of the vessel class here. Then we have the Constructor which was -- we grew out of it in [indiscernible] that was extended 1 year in Guyana. And then you have the PLSVs where we have secured backlog for 3 out of the 6 owned PLSVs into 2030. So I think we write in the press release, I seem to remember that we now have 17 boats in Brazil that's working towards on '29 and into 2030. So it's pretty good. It's pretty good. Then I say thank you, and we open for the Q&A session.

Very good. Thank you, both. So as I mentioned at the start, feel free to send any questions through the Q&A function in the webcast. We have quite a few already. So let's kick off. The first one goes to you, Mons. With almost no capacity in the near term on your own fleet, would you consider leasing any vessels on a speculative basis to have capacity? Or will you only do this against contracts if you don't -- if you aren't able to cover that with your own fleet?

Of course, I think the answer to that is what do you mean by speculative, yes. Will we have like we did the Maersk installer before we actually bought Maersk Supply Service. Of course, we took that both on the long-term charter without having a full backlog on her. But of course, it was based on the market knowledge and the opportunities we saw. So I think mainly it will be boats like on the PIF like we did in Guyana and towards back-to-back on long-term contract. But of course, we have -- I will not rule out that if we have a good business plan that we will take boats on charter without having, let's say, a full coverage on that boat. And of course, we have done that, as I mentioned in the Maersk installer, and of course, we have been doing that also in U.S. on the couple of Jones Act boats we have on charter on that. So the answer is, if the rate is right -- rate is correct and the effect is correct and we see opportunities, we will probably do that.

And again to you, Mons, you mentioned that you don't see any weakness in your market, but the analysts do. Just from my understanding, does that mean that you think the analysts are looking at the wrong market? Or do you disagree with the market view that they have on those markets that they are talking about?

Of course, it is -- you see, of course, the North Sea PSV market is a bit weaker. You see that the spot anchor handling market has been the disappointment this year. And of course, you also see some owners having less utilization and earnings on some CSVs. So of course, the analyst is correct that some of the vessel market are weaker. But we are not exposed to them here because we are selling quite different services. So the answer is that they are correct, but they are wrong on what market DOF operate in. Yes.

Then to you, Martin. Are you able to provide any update on recent dividends from DOFCON and expectations in the near to medium term there?

Of course, that is not something that we control on our own, and we will not give any firm guidance on that. What we can say, we received $30 million per partner in Q2 of this year. Historically, we have had 2 dividends per year. And I think we can also say that we look at extended contracts and our confidence in that market, of course, tells you that from an operational and cash flow perspective, there is no reason why this -- why the level should be any lower going forward than they have historically.

Then back to you, Mons. What are the most important vessels that remain without contract in 2026? And related to that, we can also combine with another question, which is what is your level of confidence on securing work for the I-Class in 2026?

Yes. No, I guess we can start with I-Class. So I guess as per what we have made public is that one of them is 365 in APAC. And then you know that we have, I guess, most of first quarter covered on [indiscernible] we have someone's backlog on the [indiscernible]. And as it looks today with the recent update from the [ BA ] guys with the dialogue we have on [indiscernible] it's reason to be fairly optimistic that those ports will deliver more in '26 than what they did in '25, meaning that I think we will build a good schedule on what is left to be building on those ports. And that is not based on guessing, that is based on what we see in the tender pipeline and in the, let's say, in the clarification we have from the clients already.

You've now sold 3 low-end anchor handling vessels. Would you consider selling remaining vessels with similar capabilities?

Yes. I guess, if you look at the slide we had on the -- with the anchor, [indiscernible]. It is, I guess, the similar capabilities, I guess, then you are talking about boats less than [indiscernible]. I think it's -- then you're talking the 2 Brazilian built and flag boats, which are both on long-term contracts. And you are talking about to Qatar and [indiscernible] that are also both on long-term contracts in Canada. Qatar, of course, we -- earlier this year, we won a new long-term contract for that at a higher rate. So I think it's -- I think the answer to that question is that we have probably done selling boats as they are -- we have had offers on the Brazilian boats, with the [indiscernible]. But of course, we see it's more value for us to put them now on these new contracts. So the earnings -- the values we have been offered has not reflected actually the earnings we can get on the boat. So I think we are done selling -- so the plan on what we were to sell on the anchor is behind us. But of course, if there is somebody for anything here is for sale if the price is high enough. So -- and of course, but to high-grade the fleet that has been done.

Then on the dividend, you've taken that up to a very decent level now. How should we think about that going forward? Is there still room to increase? And how often would you look to assess the level on a quarterly or annual basis?

I know, I can start first and you might add, Lundberg. I think first of all is, of course, it's the Board that decides the dividend. And the decision on $0.35, of course, is a decision based on the situation right now. So I think as I understand it, it will be a quarterly decision, at least for now. And then what happens in '26, of course, will depend on what -- it depends on is the backlog, is the earnings, is the market, and so on. So I think the people asking that question has to be patient. I think you have to wait for February when we reveal quarter 4 earnings and when we present '26 guiding and have, of course, hopefully, news on the backlog side as well. I don't know if you want to add something, Martin.

No, I think that covers it well.

Can you comment on the lower margin in the subsea region segment for this quarter?

I don't have much color. I don't think that should be any -- it's not something you have to worry about. It's -- I think it depends on when you finalize projects, where in the projects you are and what you decide to, let's say, the booked income and profit on it. So it's -- I think it's not a sign that we will have weaker earnings in that segment going forward.

Do you see yourself done with discussions with Petrobras? Or could we expect adjustments to other existing contracts going forward?

Of course, when you have 2,000 people and close to 20 boats soon in Brazil, of course, you will be finalized in discussions with Petrobras. But there will be more deals like extending existing contracts against a rate increase and postponing the new contracts. I think that we will have to comment if and when it arrives.

And then further on Brazil and Petrobras, do you have any update on the new build tender for the RSVs? And will you participate in the anchor handling new build there?

On -- I guess, it is -- still discussions, yes. So it's not really any update other than it is under discussion. And on the anchor handling tender, I guess, it's still a few weeks before that is due. So I think we will answer that later on.

For the PIDF, what kind of vessel would you consider for the last spot there?

I think it's not very high. We need a certain number of boats and the ability to mobilize 1 ROE or 2. So it's not -- it could even be, let's say, PSV with some extras boats on it.

Martin, the debt amortization profile for next year, while quite -- is still fairly steep and would imply a rapid reduction in debt. Are you considering looking into ways to change the current amortization profile?

Yes. I think we touched on that very briefly on the Capital Markets Day as well, and we do agree that the amortization profile on leverage at this level is quite steep. And due to the fact that we are now already within the range of our target leverage, it's natural for us to have a discussion with a few of the lenders to smoothen that profile or to take other measures to make that, call it, the average amortization a bit longer than it is currently.

And a question on the shareholder base. Are you able to shed any light on how much is still owned by former creditors and how that has developed during the year?

Yes, it's a good question. And of course, on the financing side, we said that we let go of the last restructured facility this quarter. And I think it's fair to say that we are very close to saying goodbye to the final creditor shareholders as well. I think we are -- we entered into this year, we were around 5% of the shareholder base being former creditors. And I guess we are just short of 2% or something like that for the time being. And one of the largest creditor, originally largest creditor shareholders sold in the -- around 7 million shares during the last couple of months. So I think it's -- there is no -- of course, we've never been very worried about an overhang, but now I think it's fair to say that there is no overhang of credit to shareholders in the shareholder base.

After a busy quarter on financing activities, what are your key priorities on that front going forward?

I think now we've done quite a few of the big project that we have. I'm not going to go through it again. But of course, the amortization, smoothing of amortization profile could be one of the aspects that we will need to look into going forward. And I think also we do have a substantial working capital. It is not normal in a high activity. But of course, it is a big number. So that's also something that we have high on our agenda to try to optimize.

You emphasized the subsea regions and projects as a key differentiator. Who do you see as your main competitors in this segment?

It's -- I think it's very few global players in that market. I think we have shown in the past slide on -- it's more regional-based operators. Of course, in the North Sea, of course is the typical suspects like the portion Subsea7 on somewhat our scope in APAC, it's a bit [indiscernible] and it's a bit [indiscernible] in U.S. it could be Oceaneering. So it varies a lot and also it varies a lot, of course, on the type of work, if you go to the global mooring market, of course, it's a few other names. So if it's, let's say, smaller project, other names than the [indiscernible] space. So it's not one single competitor globally. It's depending on segment and the regions, it's 1 or 2 or 3 we compete within each region.

That was the last question we had. So thank you all for providing questions, and thank you to Mons and Martin for presentation and the Q&A session.

Thank you very much, and thank you for listening.

Thank you.