DOF Group ASA (DOFG) Earnings Call Transcript & Summary

A warm welcome to you all to this Q2 presentation from DOF. Today's presentation will include operational and financial highlights and some news on certain market segments in the coming years before we then round off with a Q&A session. [Operator Instructions] All right. With those practicalities out of the way, let's get going. Eirik [indiscernible] the first order of business is to pause for a moment and marvel at this beautiful picture of one of the newest additions to the DOF fleet or what you say, Mons?

Yes, it's a beautiful picture. And yes, it is on the [indiscernible]. So we took deliver [indiscernible] end of June and [indiscernible] a bit earlier. So this is [indiscernible] and of course, she is now on the way to Guyana the first term contract on her. So it's been a success so far. And of course, the market for this type of boats very big high -- that has been very good so far this year. And our market view is, of course, that it will strengthen going forward. We have a few slides on that. We're going to talk more about that. So at least so far, the earnings from these boats has been very good in second quarter, and we expect that to continue. So then we move on. And this is the traditional slide at the glance. So I guess worth noting is, of course, that revenue last 12 months creep up. EBITDA also rose. We go back to that. And a few changes to the fleet going to talk a bit more about that later on. And we have a Capital Market Day in September. And then, of course, we will talk more about why we are doing what we are doing on the fleet side. And it's all about adding high-end vessels that where we can add services and margins and then selling less capable assets where we are not able to add services on top. So that was at the glance. And this is what we do. And of course, most of you have seen this before. So we own a fleet. We own -- today, we own 61 boats at the end of the quarter. And then we have hired in boats from external owners where we used to execute our projects and contracts worldwide. And then we own a very large fleet of ROVs and subsea equipment. So I think we are among the top 5 owners of ROVs. And of course, good earnings on those. And of course also we see values on the ROV have increased. What used to be a new building price for less than around $4 million is now $5 million this year and secondhand value as well. And then we own that equipment, we had services, engineering services, project management and so on. And we then sell to our clients what we call integrated offshore services. And then adding margin on top of the vessel earnings. And you see here the development in those through the last few years and the last 12 months. So still creeping up and last 12 months [indiscernible]. Next one is showing -- I think is showing the highlights for the quarter and we delivered of course, Martin Lundberg will more about that when he comes on -- we delivered EBITDA of $238 million, which is the highest EBITDA we ever had in a single quarter. So it's up 11% compared to the quarter 2. And of course this is excluding the effects of the Skandi Amazonas and also $10 million in sale gain we had on selling a small anchor. So the reported EBITDA, of course, is $358 million, and I'll leave it to Martin to explain that. Utilization of the fleet 88%. And of course, very happy with the backlog now stands at $7.2 billion and -- and of course, that gives us very good visibility going forward and perhaps the best visibility we had when you look at the backlog for '27, '28 onwards. So -- and of course, that is also part of the reason why the Board decided to do a small increase on the dividends as we see the visibility and also the market outlook. We are getting more and more convinced that this market will stay strong for long. So -- and of course, that's why we increased the dividend. And the graph, of course, shows the [indiscernible] the debt and equity and so on and I leave Martin will talk more about that later on. So a good operational quarter and a very strong outlook based on a very solid order book. So this is a few -- some of the awards. And of course, it's spread globally. It's starting in Australia, [indiscernible] almost a year and what I would call a very healthy rates and margins. And then we have 3 on the [indiscernible] commenced late June, early July started that contract. And of course, then is having 3 out of 4 CSV with services for Exxon in Guyana. So very proud of that. We won a project in Total in Nigeria that will involve 4 boats, which is a big project that we believe will deliver good margins for us. Then we extended [indiscernible]. And of course, interesting on the pipeline there is an ongoing tender. We have [indiscernible] and we are the only bidder for the we have one competitor with a similar size boat. So let's see it will take a bit of time, but we of course, are hopeful and it's a 4-year contract starting in early [indiscernible] meaning that if you are awarded that you have backlog for those boats to 2032. And as you remember, [indiscernible] the backlog to 2030. So of course, we see that the backlog starts creeping into the 2030s and beyond. So -- and it's also a sign, of course, all companies are viewing the market. They are -- when they go long and into the 2030, of course, it's because they believe the market will be strong also going forward. Then I mentioned the front page, it was the 2 anchor going to Caribbean that is Guyana. And it's very interesting. It's the first time we do large anchor handlers on drilling support in that area. So we see now the demand for very, very high-end boats developing outside Brazil and the North Sea into new areas. And likewise, if you on the bottom, you see here, of course, it's a 4-year contract for a high-end anchor handler in Suriname. So it's our first entry into Suriname and very interesting to see that they demand a very big anchor handler with crane on a 4-year contract and also, of course, including ROV services on top. And I think -- so I'll leave it like that. But of course, it's been good from APAC to Canada to the North Sea and to Caribbean and so on. So it's been a global good quarter for us. And of course, we also expect it to continue. There will be more awards, there will be shorter awards and there will be long awards. And we expect the backlog to continue to build going forward. And then the next, I guess, summarizes this is. And for those of you remember how it looked back in when we bought DOF [indiscernible] course, it changed a lot. We have sold quite a few low-end boats and then we have bought a couple of high-end boats. And of course, the backlog has also changed dramatically. So I think we [indiscernible] half this year, we have 3.5 boat exposed to the spot market. And then for next year, we have all boats and 3 of them with and we have never had such a high backlog and we also see, of course, rate levels. I think the last year, you could say the rates are up around 15% compared to the existing rates we have. So it's [indiscernible]. We feel we have a very balanced approach now to the market exposure on those boats. And it might be, of course, as we write that we will need to in to support us on a few projects. The next page is showing why also the reason why we are a bit optimistic on these boats is that this is what you call the floater market. And then you see that was being done in '26. And then we have 3 for '27 and '28. And especially from second half '27, we see a very busy market on mooring projects globally. And that is, of course, part of the reason why we have these 3 anchor handlers big trades to capture that market. So all in all, to summarize anchor handers, very healthy pipeline of mooring projects. Demand for high-end anchor handlers also, let's say, the traditional areas and and very strong balanced North Sea spot market. So we are, as you understand, optimistic on that segment going forward. So this is the backlog so around $7.2 billion if you include what we have won after balance date. And for [indiscernible] this year, we have -- we are raising our revenue guidance for this year. So we -- with the new guidance, we have a backlog around 92%. And next year, we are creeping up towards 70% and '28 around 5%. And of course, it's interesting to see that if you look at Q1 backlog, we are $300 million higher now than we were a year ago. So it's the strongest ever. And as I say, we expect that to continue, and I wouldn't be surprised if we are 80% plus when we start '27. So it's quite good. And we see the -- as I said, we see the pipeline of expected awards and bids and that is very, very promising. So all in all, very optimistic on continuing to build backlog for the group. Then yes, I talked a bit about what we are doing with the fleet. We are selling PSVs. We continue management of them. We have a small ownership and they will continue working on their jobs and we will manage them. But -- and then we are netting out $50 million in cash from it. And of course, on a PSV, you make the day rate, and that's what you make on that go on a project or PSV, of course, you make margins on top. And of course, that's why we are exiting this segment gradually. And it's not because we don't believe that PSV will be a decent place to be going forward. It's simply because it's not part of our core strategy anymore to do that types. And then we have on the next slide, of course, we have invested in 2 new builds to late '24, early '27, early '28. And of course, that is part of the strategy. We are selling, let's say, older assets and noncore assets and then we are focusing in on new core assets. So this will be anennasse2. -- of course, on the present earnings we have on similar fleet, we believe this will be what you call it in English. Active, it's a very difficult in -- for the numbers in. and then next one is showing what we talked about earlier is that we will high grade the fleet, but we will be cash neutral or cash positive and fund it from vessel sales. And I guess this one is showing the graph here is showing that with the PSV sale and so on and so on, if we have a 65% debt on the 2 new will be slightly cash positive on what we have done so far on sales and purchases of both. And that is how we will do it going forward. So we will be minimum cash neutral when we renew and high-grade the fleet. So that's it really. So then Mr. Lundberg, you take the word?

Yes. Thank you. And yes, I'll go a bit more into details on these numbers. I guess it's needless to read them all. But across all the segments, it's another strong quarter. On this slide, you see that, yes, it's a good development across the group where the shipbuilding section or segment is -- has the biggest improvement from last year with 17% and it's one of the big drivers for that is for sure the [indiscernible] project market. So that's been a good contributor. 11% up here quarter to the same quarter last year, so $24 million. And of course, in this graph, we are showing the underlying, call it, operational EBITDA exclusive of any sales gain and Amazonas booking effect that I will come back to. Of course, it's important to say that those are -- they are nonrecurring, but they are still earnings. And the sales gain of $10 million related to the sale of Skandi Laser delivered in the quarter, while the Skandi Inventor and the 4 PSVs delivered after Q2 will not be booked until they are in that quarter. So there is no sign of those in this quarter presentation. Still and comfortably within our targeted leverage range. We have communicated 1.5 to 2, this is where we want to stay. That is also one of the important principles of the dividend levels. This is -- we see, as Mons said, a very stable, strong markets for the longer terms. So this is a comfortable place to be. We said that we could be -- we could sit in the upper end of that range when we see good visibility and good tendering activity, and that's where we are at the moment. On debt development, it is slightly down on normal amortization and of course, the Amazonas impact is a part of that. We've also done a few new loans related to particularly the [ Skandi Saltfjord ] being delivered to us in the quarter. And of course, new debt has no corresponding EBITDA in the [ 1.8 ]. So that will improve when we have a full year of operations. On this one, it is a few highlights. Of course, positive change in working capital on a high activity quarter not always, we managed to do that. So that is -- we are happy about the operational cash flow in this quarter, a relatively high CapEx number when you look at the purchase of Saltfjord and the general CapEx being maintenance, purchase of ROV systems and also an installment, a new build installment on the Norskan being delivered for the long-term contract next year. This CapEx, as you see from the financing activities, is also partly financed, so it's not all cash out. And same with, of course, biggest portion on the financing activities is, of course, the one we're happy with and that is the dividend payment of close to $90 million. Positive that, cash remains comfortable and even a little bit up from last quarter. Yes, this is the, call it, the one complicated booking event during the quarter. So I'll spend a little bit of time going through how you get to the underlying numbers. And of course, the booking of insurance is different from booking of the sale. So the vessel is written down to 0 and you get the revenue on the entire value of the insurance payout for the settlement. So the net settlement after a local tax element is $111 million impacting the revenue. The EBITDA is impacted by $110 million. There is a $1 million cost that was amortized over the contract period that we just -- we had to expense and this event occurred. And it is a debt repayment on the vessel of $95 million, and we have a $19 million receivable on the balance for the remainder of the insurance claim. The book value of the vessel was $42 million. So if this was booked as in a similar manner as a sale, it would result in a gain of $68 million and $110 million as we show in this overview. Of course, this is an owned vessel being one of the higher levered silos or segments of the group. And of course, when this $95 million debt repayment has been done, there is $309 million remainder debt on the company, net $282 million and leverage on the -- somewhere in the 3s on the last 12 months earnings, excluding the [indiscernible]. And with the new contracts commencing next year, we see that high leverage on [indiscernible] is past us. Yes. This is more just an overview of the dividend to be paid on the 4th of September, and it is showing how the dividend payments have been developing over the last 1.5 years and the total amount of $505 million is yes, it's a high number, and it's something that we think we have a sustainable and strong dividend level, and we are working to continue to have a strong and good level of dividends and something that we're able to maintain over a long time. I'll leave it back to you, Mons.

So this is updated guidance. And as we mentioned earlier, we lift the revenue guidance midpoint is $250 million compared to [indiscernible] so one is we have -- we keep the low end of the range at $40 million and we lower the high end. And of course, the reason for lowering it is that the PSVs we talked about were delivered to new owners in July. [indiscernible] in May. And then we are moving forward [indiscernible] for the remainder of the year. And of course then of course, in reality, apples-to-apples, we are guiding up and not down. So we are actually guiding up $15 million when we adjust for that. So it's not that we have -- we believe the market is worse or the prospects are worse. It's just that we have these 3 events that we have to adjust for. And then going down similar on net interest and on tax. Then on CapEx, of course, there are a few changes. The maintenance CapEx is up a bit. And of course, that is to reflect that the [indiscernible] is coming from '27 into '26. So it's just a timing issue and nothing more. And then of course, on the new builds with the PSVs we are buying, we are paying in those this year and we pay 85% on delivery. So all in all, not many major changes. And I guess most of them natural consequence or not any shocking news to anybody that on. The last page is just to summarize the new guidance, $840 million to $860 million, very strong backlog, 92% for '26, already 68% for '27. And I think that is probably the highest we ever had so early in the year [indiscernible]. So we, of course, expect that to continue to build. And as we said, strong pipeline, high tender activity, a lot of negotiations ongoing as we speak and expect new awards on going forward as well, of course. And then strong [indiscernible], which we talked a lot about and also then a strong project market for the -- and then we have the pictures here, the one on the left-hand side here is [indiscernible] expect a lot of good earnings going forward. The second one is a picture of one of our [indiscernible] classes where we have secured backlog for 2 of them in the quarter. And of course, we expect to build backlog for the 2 remaining going forward as well. So it looks good and very proud of our first long-term contract in Suriname and I guess, one of the first contracts for any industry player in that country. And of course, we expect we have seen in Guyana that will be a lot more opportunities going forward and other players. And the last one, of course, is the [indiscernible] where we extended and then we have this tender with Petrobras live and hope of course is to win 3 contracts, which will then give the backlog into [indiscernible]. I'll leave it like that. And then we are open for questions.

We are indeed. We have received a lot of questions already. Thank you for that. I think we have enough to cover the remaining 30 minutes, but please do keep them coming if you have any using the Q&A function in the webcast player. We start with one on dockings. You include some effects from timing of dockings. And the question is what drives the decision to move docking in general and then specifically for Forsa, if there are any particular considerations there?

Of course, it can be one reason for docking. It can be a schedule as you always discuss with the client when it is the most convenient time to do a docking. So that could be one reason. Another reason can be that you see that you have available slots and sometimes difficult depending on where in the build you have a boat and the reason can be that you have a technical problems and I don't want to stock the boat once and then do the docking later on. So it could be many reasons for that. So -- but we are talking here about moving the docking forward 3, 4 months. So it's not dramatic. So -- and of course, the window for docking the class is normally 3 months.

Thank you. Do you have an updated valuation of the vessels as of June 2026? And if yes, how does this compare to the book value and to the end of 2025. Martin?

Yes, it is the valuation included in the deck. It is $4.2 billion that is the broker estimates on the fleet. And yes, the book value of the fleet is included in the report. I will have to [indiscernible] slightly find it here.

I can just fill in on the broker values in the meantime. As of the end of Q4, that was $4.1 billion, so slightly below the current broker value. Of course, that includes a slightly different fleet with the [indiscernible] coming in and going out for those values.

Yes, I can also, of course, the broker values are based on [indiscernible]. So it's not a direct measurement because you have contracts on most of the -- so you have to adjust for that [indiscernible].

Yes. Fixed asset in the quarter is -- tangible asset is [ $3.160 ]. So a [ $1 billion ] higher broker estimates than the current book value of those assets. Of course, the tangible assets also include ROVs. So -- but the broker value [indiscernible]. So the real difference is slightly higher.

How do you translate the increase in floaters that you described into demand for the anchor handlers? Is it possible to quantify with a number or range? And I guess the latter is difficult, but perhaps, you can talk about the sort of general scope for such a floater and vessels typically utilized vessel days, et cetera.

Yes. Of course, it's -- you have a pre-lay and then you have a hookup phase when you do a float. And [indiscernible] often use a big [indiscernible] so that's, of course, why we have a few of those. And then in a hookup phase, you normally use the same boat and then you need 3, 4 boats in addition for [indiscernible]. And then, it's -- so I think a typical duration for a project each of these phases, let's say, that's a month. But then, of course, most of these projects are West Africa or more long way from [indiscernible]. So of course, there is normally almost sailing on top. So that's why it's for hookup, then you can have 4, 5 boats out for, let's say, for 90 days.

Perfect. Thank you. A few more questions on this project anchor handler topic. The first one is how many of your anchor handlers currently have cranes? And will you install cranes on any new ones?

Today, we have 3. We have 150 or 250 tonne cranes. And we will install [indiscernible] in March, April next year. So then we will have 4. But then is going to [indiscernible] so she will, of course, be to the market. So then we will have the same exposure with [indiscernible].

[indiscernible].

And then related to this, do you have enough anchor handling capacity to meet the grooming demand that you illustrate for 2027? And do you think sourcing third-party vessels could become an issue?

Of course -- so I think we have the core fleet we need. We have the enablers that we need. And of course, quite a few of the projects we have done in the past, we have used third-party boats as well. So it's not something we look at problem to source. So we are doing this project project, we are starting next week and then we, of course, use 3 boats from owleetin.'s pretty normal that we don't have the whole.

Thank you. Moving then over to Brazil and first, [indiscernible]. Will Petrobras seek to replace this vessel? And if so, how will they do that?

Well, I can't answer what Petrobras will do or not do. Will we replace it? And the answer to that is no.

Thank you. In [indiscernible], what is the reason for the high EBITDA margin? And are these sustainable?

Yes. I think that, that is probably looking at an adjusted number for the Amazonas event. So the Amazonas recognition of $110 million in EBITDA is the reason for that. And of course, that is not a recurring event and it's not something that you will see in the numbers going forward. So the underlying EBITDA margin in is in this quarter pretty similar to what it has been historically. And it's of course it's a high asset segment with 8 vessels operating on long-term contract, but it also has a management element to it that gives EBITDA contribution, but with higher volumes on that, it dilutes slightly dilutes the margins.

We do expect, of course, the numbers in an adjusted for Amazonas to improve next year as start new contract early next year. So going forward, of course, we expect from [indiscernible].

Yes. I was actually the next question ahead of me with the trajectory of the [indiscernible] addressed to them. Then on the shipbuilding segment, are there any specific and isolated events impacting this quarter? Or was it mainly reflecting good contract and a good spot market?

I guess no special events, it is reflecting contracts a strong spot market in the quarter.

Yes. We've seen some very strong vessel transactions, especially on the subsea side reported over the last 12 months. Do you see any opportunities to dispose of older DOF vessels, especially in the subsea segment at these strong levels?

Yes, we have said perhaps that the next you will see from DOF is selling a boat and we have sold a few. Yes, it's correct. You see there is fairly short distance between pricing on the second boat. So we can't. But of course, we are looking at we're looking at selling a couple of more, but we'll have to go back to that when it comes -- if it comes up.

And a question on tax. The tax and tax rate is quite a bit higher in this quarter. Can you break down the effect and explain why this is?

Yes, I can at least try. It is higher, and it is mainly the big difference is Amazon. So it has a tax effect in the P&L, although it is not a cash tax because there is a corresponding opposite effect on the realization of the dollar loan in [indiscernible] that call it eliminates the effect, but that the value of that tax loss in the -- from the load was booked, so it's a temporary difference. So you utilize deferred tax assets on that particular event. So from the overall tax cost of $68 million, $69 million on management accounts for the quarter, more than half is deferred -- reduction in deferred tax assets, so utilizing former losses. And if you look at on the cash flow, only $23 million was tax paid in the quarter. So of course, you recognize the P&L effects on tax for every penny that you earn, but you utilize the tax loss carryforwards to eliminate the [indiscernible].

And then slightly related, what is the Scandia accounting effect on net profit for the quarter?