Maersk Supply Service A/S (DOFG) Earnings Call Transcript & Summary

Good afternoon, and welcome to this DOF Presentation. My name is Mons, also CEO in DOF. Together with me, it's Hilde Dronen, our CFO; and our -- the Chair of the Board, Mr. Svein Harald Oygard. So we will start with a few words from Svein Harald. And please for Svein Harald.

Thank you, Mons. I will briefly summarize the transaction rationale. The transaction that's now launched combines the best of DOF and Maersk Supply Service into the new combined company. DOF is a major supplier of integrated offshore services with, in total, 43 vessels. What's remarkable with DOF is its ability to develop long-term client relationships in key offshore regions like Guyana, Brazil and so on and work with clients to create value. And then to combine that with project competencies that allows the company to add value beyond the value of the vessels. It's been a very successful strategy and explains the high return figures for DOF over the last year. We then combine that with Maersk Supply Service, which is a global asset provider with a very high quality and modern fleet. It consists of 8 construction support vessels, 13 anchor handlers and 1 cable layer. The average vintage of these vessels is 8.5 years compared to 11.7 years for DOF and 12 years more or less being in the industry standard. So it's a modern fleet. It's with high-quality assets and that are ready to be employed immediately into high-value projects. DOF is largely sold out on part of it anchor handling fleet. Of the 12 vessels we have, 11 are deployed until the end of '25 and beyond. So for DOF, it's very valuable to get access to additional tonnage. With this, we create an enhanced position of DOF as a major integrated offshore service provider with the world's largest fleet of CSV vessels and high-end anchor handlers. In reality, we will be a global leader and with no rivals of size in this specific segment of the market. It's also important to mention that the anchor handlers that goes into this new entity both from DOF and Maersk have mutual features that distinguish system or other vessels. One, they are simply larger with more capacity with higher engine capacity. They are also in the standard of configuration, they all have ROVs and some even have multiple ROVs, some have cranes which also allows these vessels to do a combined scope. First, the vessel handling, so the rig handling or the FPSO handling, then the mooring and then the linkup of the pipes and so on, and they're also to do work within decommissioning and so on. So with this, there is a capacity of the fleet that really adds value to DOF. And of course, it's DOF's aspiration as we'll go through in this presentation to within the frame of the DOF model to add further value to the vessels that now enters the DOF fleets from Maersk. So I will now give the word to Mons, who will go through the specifics of the transaction and the elements of the portfolio and the strategy. Mons?

Thank you, Svein Harald. So I started my career as a ship broker 30 years ago and have followed the Maersk fleet and the Maersk organizations in that. And of course, I've been admiring their fleet, I've been admiring their -- the way they operate and the quality of their services. So of course, this is I'm very confident that this is -- will become a great success for both Maersk and for DOF going forward. The transaction is that we are buying Maersk Supply Service, as from Maersk Supply Service Holding, which is a daughter company of A.P. Moller Holding. So we have a cash consideration of USD 577 million and around 58.8 million shares. And we are financing that with a bank facility earned up written by 4 banks, USD 500 million. And then we are doing placement in total of $125 million. So we did a private placement yesterday after close at NOK 99 per share and plan to do a repair issue later on. So timing is -- yes. So yesterday, we signed and announced and did the private placement. That will be an [ idiom ] end of towards the end [ July 26 ] and then we will publish the prospectus and then hope for closing sometime in quarter 4 dependent on when we are filing in a few countries. So it depends on when we get the feedback. We do not expect any negative feedback as the market share is should be too low to make any problems in any country. So this is -- so the target here is in the red box. So we are buying Maersk Supply Service from Maersk Supply Services Holding and we've again done is owned by A.P. Moller Holding. And then we were mentioning is that we are buying it on a -- there is no adopted Maersk Supply Service areas, and there are certain cash and net working capital into it. I have a bit more on the numbers later on. Then why we are doing it? Of course, it's as Svein Harald said, we -- end of we have very, very high backlog now in the group, we duration all the way into 2029 onwards and or in '24 and '25, you could say that we are almost sold out both on the CSV side and on the anchor handing side. So of course, we have been negotiating this agreement for [ Avalon ] we have planned for it, and we have entered in quite a few contract lately for our own fleet to make room for this fleet. And so it's immediate earnings in a very hot strong market -- global market for both CSVs and anchor handlers. So it's complementary where we operate from the same -- some same countries. So of course, I have a slide on that later on. And of course, it's a very good fit. And of course, there will be soon I guess to take out it both on cost, but also, of course, on scale and presence and, of course, towards our clients around the globe, of course you become even more relevant with a bigger fleet and a bigger offering. And we do believe it's a very attractive priced deal assets and, of course, done with very substantial earning potential bolt-on. The vessels, but also to add on project earnings on the Maersk fleet that we offer from our own fleet today. We believe A.P. Moller Holding will be a very good owner Svein Harald will talk a bit more about that later on, but we believe it will be a very good own award. For us, we share the same targets on growth on corporate governance. And so we will look very much for what we have them on board together with us and developed DOF and a combined company further. Hilde will talk a bit about the financing, but it's -- we think it's a very robust transaction with low leverage, and we do believe that this really increased the dividend capacity in DOF. And also, we do believe it's a possibility that we can pay a dividend earlier with this transaction done with [ routed ]. So we are planning an integrated service offering in what we think is a very strong oil and gas market. And then we also see a strong growth on the offshore renewables or offshore wind market. Going forward, where both of our CSVs and however anchor handlers can play an important role. So this is the Maersk. They launched Maersk Supply Service, where they launched it's 22 boats. They have more than 50 years of experience operating in this market. Young fleet [ 8.5 million ] is average, 12 employees, headquartered out of Denmark. It's -- the fleet is 1 cable layer, which is a very interesting vessel for us, it's probably one of the segments after that is the hottest at the moment and very high growth due to, of course, all the work on the Offshore Wind side, where they all need cables, [ boarding terrain ] and from field to shore. We have the CSV fleet which is here is a picture of the Maersk Installer, she has 3 sisters for 4 boats with 4 on towing cranes. And the youngest in the world fleet of that type of vessels. So it's -- they are built in 2017 and 2018. And of course, we know them well, we have -- the Maersk Installers actually on short to DOF as we speak and doing very well, and we have a high backlog for remainder of the year and we see that we can do around $1 million a year from May on -- $1 million per month, sorry, for the remainder of the year. So it shows that there is a great potential to add services and earnings on top of the vessel, right. Then it's the anchor handling fleet, where we have 10 boats and 8 of them are above 250-tonne bollard pull. So it's the very high end of the global anchor handling market. And the picture here is Maersk [indiscernible] which is one of our boat so that class, we are buying. And of course, they are the newest and much more than anchor handlers deliver from yard in '17 or '18. So it's a very young fleet and a very, very capable fleet. And so we think it's a perfect fit for our own operations. So we very much look forward to run those boat together with our new colleagues in Maersk. So we look forward to that. This is done on the number. So this is -- as we said, it's 58.8 million shares, $577 in cash and a total consideration of 1 billion on -- USD 1.1 billion. And then there are certain adjustments to that. The cash adjustment, it's some in the company and also then we are paying interest on the cash portion from first of July. And as you remember, the debt in Maersk Supply is not in that company, it's in the model. So there is no interest, this is on a debt-free basis, we are buying it, yes. So this is done, I think a very important slide here. This is done over assessment on the estimated enterprise value at year end '23, but also down at year end '24, where we expect closing around late in quarter 4. So as we said, the [ 11, 12 ] is the consideration. Then there are certain adjustments to the lock box accounts per December '23. And then our in the lockbox, $55 million in cash. So getting you to [ $1.37 ] billion in EV year-end '23. And then as I said, there is no doubt in the company we are buying. So decent cash flow in '24 and then some major intercompany and a few other issues. So we expect cash at the end of the year between $140 and $170. Here, we have used [ $155 ] as an average leaving you with a year-end EV of $937, which is done around the date we expect to -- that the closing will happen. So 2 numbers to remember from this, year-end '23 enterprise value, $1.27 billion and then year-end '24 enterprise value $937. So this is done the fleet, so it will be 65 owned boats, 33 CSVs, 24 anchor hanlders and 6 PSVs and one cable layer. And reducing the average age of the combined fleet compared to DOF with 1 year and the average age of the fleet we are buying are 8.5 years. So it's a large fleet, very modern fleet and a very high end fleet, yes. Comparing that fleet with, let's say, the peers. So on the left-hand side, we have typical vessel owners. And on the right-hand side, you have the more subsea construction companies, Tier 1, Tier 2 players. And of course, the fleet by -- owned by an combined company is the 4 biggest and of course, we think we are in a sweet spot, controlling a very large fleet and then together with our large subsea organization offering. Sophisticated integrated services on the subsea side, but also on the renewable side. So we and of course, we do believe that in the market we are coming in to now the controlling the assets will become more and more important. The market is turning in the favor of those owning steel, and we think steel is -- or vessel is the most scarce resources in the mix going forward in this, what you can almost call a booming market. This is always bad globally. So we get to increase size more or less globally, especially in North America, we get more boats, big growth in Canada, Guyana. Also in the North Sea, it's increasing scale. And in Africa, especially Angola, it's increasing scale. And of course, that means that the SG&A per vessel will come down, the probably the utilization will come up because you and so we do believe there is quite a bit of caution I guess and also done, let's say, markets in [indiscernible] we can take out of when you combine these 2 entities. Of course, we expect to grow going forward as well as, of course, it's also that we also believe that we, of course, by doing this become an even more attractive place to work. So we will be attracting new talents and able to grow the business, continue to grow the business going forward. This is done on the fleet and a bit on the reflections around pricing. And as you see the broker value -- independent broker values by year-end '23 was $1.319 billion. And of course, comparing that, if you remember from that previous slide, we had year-end '23 enterprise value at [ $1,029 ] and we had year-end enterprise value at end of '24 at $937. And so of course, that shows that year-end '23, it's a multiple 0.79x on the footnote here, year-end '24, you are at 0.74x next year. So we think it's an attractive deal on looking at steel values. And we have done so Maersk here on the, let's say, 11 U.S. boats showing that the 4 high class to the Maersk and the cable layer plus the 5, on closing Ghana still have a market value of [ $1,040 ]. Comparing that to the 2 numbers year-end '23 and year-end '24. So we think it's a very attractive price deal on what we call steel values, yes. Then this is the plan going forward. So we of course, we will, of course, on the vessels, the market is getting stronger the backlog from us, we will come back to. But of course, it's gradually coming off, let's say, old contracts and then we also planned on to put subsea services on top and, of course, do the same as we have done in DOF we can grow both the vessel earnings and then subsea earnings on top, yes. So we look very much forward to that. I'll come back to the backlog and show you in more detail when the vessel gets available and ready to renew on higher rates in this very good market. So here you see that. And as you see, the majority of the CSVs, they will come available in -- either in -- or available or become available in '25 and the latest one in mid-'26 and of course, it's worth to note that the gray color here is because it's unpriced options. So of course, that is fully exposed and then the blue here is the installer that is [ unchartered ] also we see most of the CSVs will be open in the market going forward, and of course, is a perfect time for that as there's been increasing, increasing rates for those type of vessels. And then the same picture really on the anchor handlers. We're 7 of the anchor handlers are exposed of an -- 7 of the anchor handlers are exposed either [ Olino or Don ] will come available in mid-'25. So 7 of 7 in that box, of course, all are around 250-tonne bollard pull high-end anchor handlers. So then you see only a few yellow and green ones into '26, which is some of them have -- a few of them have legacy contracts and some of them has been at contracts that are done recently. So on the Maersk Achiever and the Maersk Mobiliser the contract was done earlier this year. So they, of course, are at market already. And on the right-hand side, it is showing the backlog for DOF, so you see almost sold out in '24, soon getting sold out in '25 almost. And then building backlog for 2016 onwards and this was per and June, and we are -- we have quite a few contracts still in the pipeline. So we, of course, expect that to grow further in the next few months. So we have plan for this. As we have told you, we have been negotiating this for quite a long time, and we have thought this will end very -- it on dead end and as such, we have placed our own assets on longer-term contracts to give space for the new vessels coming into the fleet. And this is something we normally don't do, but we normally don't give mark to market EBITDA. But we let's say, this is for illustration and so the tool beyond this slightly is that if you're able to repeat on some of the Maersk vessels, what we have done recently, on our own boards, then they have these -- that earning potential. So we recently did 2 countries for anchor and that's one Skandi Iceman here in Norway for Equinor and one [ Scania Mason ] for Petrobras in Brazil, of course, and both on 3-year contracts. And the contract yields around $15 million per year in EBITDA, yes. And those are more or less same as back as the M-class. M-class is a bit newer, but they are more or less the same spec. So what we've done and done on the CSV side, we recently did the 2-year contract with ENI in Angola. We have the Maersk Installer on charter [ door ] so this is done based on the contract we have done on that on her recently. And then we have the Skandi Acergy fixed to Subsea7 with commencement February, March next year. And then you see the earnings we get out of those contracts. So you have the vessel earnings, but then you have the project earnings on top. So then we are using that same math saying that we should be able to repeat something similar for 5 M-class boats therefore high-class boats. [ The Maersk ] is almost a sister of [ Scania 7 ]. Then we say that the earnings potential here is between $240 million and $260 million per year, yes. And that is auto 11 boats. So then if you only look at those 11 boats and look at the year '23 number for the enterprise value we are estimated, then you are at 3.6 on the whole purchase here based on auto 11 boats. And of course, done -- there is a high earning potential of the remaining 11 boats, but we didn't do this for more than these 11 boats. So and of course, this is a start like a lot and together, I think this one when the one we showed on the go or the vessel values or market values on the boats shows the economics how we see them in this agreement. Then a bit about A.P. Moller Holding. Of course, we -- as I say, I've been admiring them for through my whole career, starting in the early '90s. And of course, I think most of you know them being a major owner in one of the most large logistics companies used to be Maersk Tankers on Noble Drilling. So I think a lever like that, you probably know them very well. And as I said, I personally look very much forward to work together with them and make it off even greater company than it is today.

Thank you. So then turning to organization and governance. So first Mons, will stay on as CEO of DOF. Hilde will continue as CFO, followed by Martin [ Lundbeck ] as planned from 1st of January 2025. Then, of course, we also welcome the employees of MSS to DOF. It will be a very attractive platform for professional growth as it now will be our focused companies with a global exploration and the ultimate industry leader in this segment. And we are in need for talent as this is a growing industry as we have bolder aspirations with regard to the role that we play towards our client and that basically should provide attractive opportunities for the people that now come on board. The organizational structure as of today of DOF consists of 4 regions that has the responsibility for the client relationships, the commercial processes and for the project delivery. And those are high-performing regions that establishing a very strong presence for DOF, not least in the high-growth regions like Guyana and Brazil and so on. So I think it's a very good starting point and also for bringing onboard the talent of MSS. We have asset operations entity that runs the vessels and that take care of integrity, fleet management and so on. And 2 competent centers, 1 in conventional subsea and 1 in renewables, which then, of course, positions DOF well to play a key role in the energy transition. And also, yes, with regard to example, offshore wind, both bottom fixed and the floating, the latter being a key priority for DOF. And we're also, of course, the fleet capacities that we now bring on board, not least anchor handlers and the cable layer have a very important role to play as these installations are put in place and later on, maintained. On the governance, the agreement with A.P Moller Holding includes statement that basically says that as of the EGM to be called in late July, 2 additional board members will be brought on board. Both being nominated by A.P. Moller Holding. They also will have the right, of course, depending on the general meeting, to nominate the chair of the Nomination Committee for the next 2 years. This, of course, is important because it solidifies and illustrates the role that we expect A.P. Moller to play going forward, basically contributing to the growth of the company, helping to set direction and of course, creating value for shareholders. Furthermore, of course, it's a signal that we do expect this to be a long-term position. There shouldn't be any issues related to overhang, i.e. need or urge to sell shares as this is illustrated by this commitment to stay on in clear governance position and even take an additional role through the Nomination Committee. In the process, we have had with A.P. Moller Holding, One of the key priorities, as we understood, has been to retain a high ownership stake in the new company and where we agreed on the 25% figure which also was then solidified yesterday in the share issued, where they signed up for additional shares to basically continue the 25% position. Think is a good, at least from my personal view, it's a good balance. We have very competent shareholders already in DOF, large industrial owners, large financial owners and with A.P. Moller, in addition, I think it will be one of the strongest ownership groups of any offshore company in the world. With that, I will give the word to Hilde as you go through the financial aspects of the transaction more thoroughly. Thank you.

Thank you. This shows how the DOF Group is funded today in 4 silos and now we have our 5th, which is the Maersk Supply Services. As already informed by Mons, we have received a committed term sheet from 4 banks, and that's DNB, [ Dana Ship ] Finance, Deutsche Bank and Danske Bank, where they are committed to fund 500 million of this acquisition. In addition, we successfully did a private placement yesterday of 100 million, and the plan is to do a repair. So we assume equity issue of in total 125. So in fact, we have -- we are over financing this acquisition on the cash portion. If you look at fair market value of the fleet, which was approximately NOK 1.3 billion, then you have a loan-to-value of 38%. However, if you assume the net debt on signing considering the private placement, you -- we have assumed the net debt to be NOK 377. But on closing, which is assumed to happen in fourth quarter this year, we have estimated a net interest in bearing debt to be NOK 277, which gives a loan-to-value of 29% versus 21%. So it's a low leverage on this acquisition and this company. And I further believe that is kind of strengthening the refinancing that we are planning for one of the silos, which is DOF Subsea, which is assumed to happen in 2025. As you can see on the rest, it's 4 silos. And again, it's mainly DOF Subsea, the remaining debt, who is going to be refinanced because DOFCON is the JV owned by DOF and DOF Subsea and Technip. There are no refinancing risk here, you have Norskan, which is a Brazilian entity, and we want to keep a favorable financing for that company. It's highly leveraged, but the current funding we have is quite favorable. It's a flexible amortization structure, and it is -- the first maturity is in 2030. In DOF Rederi, there are 0 refinancing risk. Main terms on this new facility is 3.5% in margin. It's a 7-year amortization profile and the financing is nonrecourse from DOF Group ASA. So that's it on the financing.

So I think this is the final slide. And so as we see, we see a very strong market in oil and gas, and that is globally. So and it's for all vessel classes, of course, the market for [ marine structures ] have been very strong for oil. And we, of course, see that we see that term earnings on anchor handlers and also boat earnings recently has increased, and we expect the same development on that -- in that segment as we have seen on the subsea segment. So we think the timing is perfect to add this fleet and add the competence on let's say, a very, very competent Maersk Supply Organization to help us build a fantastic company. So oil and gas, very strong, and we think the cycle has just started. We see we do contract now into '29 and beyond. And that what you could call a historical high rate levels and then you see your clients are willing to do that. And of course, they do that because they expect this to last for quite a while. On the offshore wind both the CSVs and the anchor handlers can play a vital role, especially on floating wind, of course, the anchor handlers will be key. And we have done some tenders and looked at it. And of course, one project with [ 55, 552 ] will require 1,200 anchor handling days alone. So if you've done in '27, '28 onwards got if you were those projects every year. Of course, it's going to be a fantastic market for the global anchor handling fleet. So I think we'll leave it like that. And then we -- that was -- we open for -- say thank you very much. And we have received a few questions, which we will try to answer.

And I guess it's still possible to send in questions. So we have 15 minutes left, and we will try to answer the questions we have on [ Martin Lundberg ], our [indiscernible]. So he will ask the questions. You have sent and we will try to answer as best as we can.

And the first question is how many of the vessels do you expect to generate project EBITDA?

And of course, of course, if you look at it gradually, of course, you -- we expect it was -- as when the CSVs comes available, we will -- we will gradually put -- put them into the subsea organization and add subsea service on them. The plan is, of course, not to have all of them on short-term projects, but some of them on longer-term contracts like we have [indiscernible] and Angola, or Equinor in Norway. So once so but to add services on top of it. So see if we can do 20% margin on top period, that is what we planned for. And on the anchor handling side, of course, we of course operate, you can say, you can split an how we operate and simplify it in 3. So we have a few -- we have 11 or 12 banks owned fleet now on long-term contracts companies like Equinor or Petrobras and similar, where we have mainly boats with ROVs, mainly with ROVs. And then we -- from time to time, I have a vessel in the North Sea spot market, which just the time we speak, is very hot. And then we need -- because we execute projects globally in what we call the mooring market, but also in the deco market, typically installing FPSO or an FPSO or decommissioning an FPSO and FSO or actually changing because the mooring lines don't last well, because you have a hose also to change their mode. So we need to, let's say, to fill that need, we need 3, 4 of these anchor handlers in that market. Yes. So typically, a project that requires 3, 4, 5 boats. And of course, on those project of course, we can also add on subsea margin on top. So it will be -- on the anchor handlers it will be a mix where you run on the term or in the boat with ROVs and done on the project side. We will add the full engineering and full services on top. And also, of course, we are using anchor handlers also for all the subsea scope. So like even inspection work or -- so it's difficult to comment an exact answer on the anchor handlers. But let's say, quite a bit in large part of that. Then we'll have a certain subsea scope on top.

And secondly, do you expect -- or should we expect that all vessels will be kept in the group? Or is it likely that some will be sold?