Reach Subsea ASA (REACH) Earnings Call Transcript & Summary

Good morning, and welcome to this presentation of the third quarter results for Reach Subsea ASA. The report and numbers was released earlier this morning. So some of you may already have seen that the third quarter was very strong. And we are really excited to be able to share some more details with you. I'm Jostein Alendal, the CEO of the company. And with me is CFO, Birgitte Wendelbo Johansen, and she will go through the good numbers in a bit. At the end, we will do our best to answer any questions you might have, so please submit questions through the webcast player during and after the presentation. As you might have noticed, Reach has evolved a lot during this year, which the numbers and the results clearly show. We will continue to grow and develop the company, also in the years to come but now in a rising market. Exciting times. So you could say that 2023 is one step up towards our even bigger goals for the future. I will come back to this later, but let's have a look at the highlights for this third quarter, and move to Slide #3. As I alluded to in the intro, we continued the third quarter in the way we ended the second, with a record strong financials driven by a very high activity. And overall revenues grew 64%, and operating profit increased by 150% compared to same period last year. But as you know, safety at sea is extremely important for us. And I'm happy to report 0 incidents during also this hectic quarter, all credit to our people offshore and onshore. The market outlook is very strong, both in short and long term. And the visibility is improving accordingly. And we have signed some very important contracts during the third quarter. We have, for example, entered a contract, bringing us to Brazil for the first time and including contracts in Europe. We have received awards for more than NOK 200 million already for next year, which is actually a sign of improved market conditions. We continue to secure vessel capacity and have signed a 4-year contract on a great vessel called Deep Cygnus. She will be mobilized in the first quarter of next year. And that said, it is important for us to balance our core vessel fleet also in the coming years, not only adjusted to the market but also in combination with our upcoming unmanned concept Reach Remote. And I'm happy to say that Reach Remote is on track for delivery in 2023, and I will come back to that later. Finally, our newly acquired companies Octio and iSurvey are performing great and working really well with the rest of the Reach family. On [ WROVs ] and those who need a reminder, let me take some minutes and say a few words about our company and what we do, which leads me to Slide #4. In short, we are a subsea service company with a constant drive to challenge technical boundaries and how we do things. We look at subsea and marine operations as well as we are still in the pioneering times. The last subsea sensor has not been invented yet, and new technology constantly brings fantastic opportunities. But at the same time, we are -- as we are enjoying this, we have a solid focus on business. I say this often, it's good to have a high future growth but be sure to make money on the way there. Our financial figures over the years confirm that we have a very good balance between long-term goals and the day-to-day business. We are today 250 employees located in 4 countries. Plus, we are doing operations in a number of regions. Equipment-wise, we have 10 work-class ROVs and 2 special-built high-speed survey ROVs. And this is subsea robotics at the finest. A good balance there between equipment and people and a solid foundation for further expansions. This year, we have 4 vessels on full-time charter, but we also take in additional vessels on a project-to-project basis. Then we have the 2 Reach Remote USVs in order. That's unmanned surface vehicles. This is marine robotics at the finest. As a company, we have now built over 10 years of subsea experience and with a perfect reputation in terms of reliability, safety and environment. We also have a very strong economic balance sheet, especially following strong results over the past couple of years, and the capital injection from Wilhelmsen earlier this year. Birgitte will, of course, go more into details in a bit. But no matter the market conditions, technology and other factors, experienced staff or business and good systems is absolutely necessary to be our preferred partner, like Reach. And we really had all that in place. But rest assured, although we drive technology and target growth, we put shareholder value first, and we will only seek profitable growth, which leads me to Slide #5. We offer a wide spectrum of subsea services, which is a win-win formula when it comes to utilization and profit. I won't go into details about our services, but we do say that any and all offshore and subsea asset owners are our clients, and we provide services through the whole asset life cycle, for mapping and documentation before installation, preinspection, maintenance and repair and, to the end, decommissioning and removal. Our expertise lays in the planning of complete offshore operations, choosing the right tools for the job and, in between, invent some new ones but also operating the right competence and teams together. By the way, it is on all platform: offshore wind farm, subsea template, pipeline of power cable. They all require the same subsea services in various forms. Reach Subsea has now become a complete provider of subsea services, including also surveying technology, data management and data analytics. To put it simply, we cover the whole subsea value chain. We have the confidence, technology and capacity and long-lasting client relations to be [indiscernible] in the years to come and, for sure, deliver on our vision of being a world-leading provider of subsea data and solutions to our clients. So who is buying our services, now and into the future? I will try to illustrate on Slide #6. Let me show you this well-known slide to underscore that all the major players across all segments of the subsea industry are clients of Reach. We have a strong foothold in the oil and gas sector, which is now experiencing tremendous activity, as you know. In addition, offshore wind, offshore cables and other emerging sectors are on the rise. Offshore wind is set to see enormous growth in the coming years, and we already find a good portion of work in that segment, [indiscernible] seabed mapping before installation and regular inspections on existing wind farms. Offshore cables, one of high-service core business areas, is another growth area. Numerous cables will be laid in the coming years and going forward. We are also here an important partner for survey, installation and maintenance. As everything we do is developed for the oil and gas industry, safety and quality is absolutely top-notch and plug-and-play for the other sectors. Let me also add CO2 storage as an emerging market. Octio technology and expertise is in the forefront when it comes to reservoir monitoring in a cost-efficient way. And just to elaborate a bit on Octio, which leads me to Slide #7. I'm really excited about this company that we acquired in December of last year. Octio is a company with unique technology for monitoring of seabed and gas reservoirs. It is very cost-efficient and not at least very environmentally friendly compared to traditional 4D seismic. And also, the Reach Remote system will be perfect for deploying the Octio sensors on the seabed. The Octio gives service subsea a fast track into the carbon capture and storage segment. The first contracts for commercial carbon storage in the North Sea are signed, and the Octio technology is perfectly fit for the hugely important monitoring of these storages, again, very cost-efficient and flexible. The technology complements or replace conventional 4D seismic at a fraction of the price and delivery time. But best of all, this passive monitoring technology offers an alternative with no impact on marine life. So the Octio's technology is proven and has been used by Equinor over the years on the Oseberg, Aasta Hansteen, Troll and Midgard fields, and it has been used on the 2 CO2 storage projects in Norway on the Sleipner and Snøhvit fields. As a part of Reach complete offering, Octio will be a great and profitable success in the future, not only here in the North Sea but globally, which leads me to Slide #8. From our home market in the North Sea, we are expanding globally. Australia became a new market for us earlier this summer when we signed a contract for a large job for Octio. In third quarter, we also announced a very large contract in Brazil, with a strategic cooperation with one of the established players down there. These are examples on how we will work going forward, leverage on our technology, experience and partners and also our customer networks. In a couple of minutes, I will talk a bit more about Reach Remote. But what I can say already now is that Reach Remote will be a key for continued international expansion for Reach. The future for robotic maritime industry will be global, and so shall we. Reach Remote will be an extremely attractive platform on the global scene, and we expect to be among the global leaders in this maritime robotics together with our partners. That said, our tender activity is also global and very high at the moment, stretching from Australia to Brazil, with also big opportunities in the Gulf of Mexico and Mediterranean. A lot of opportunities will come, and establishment in new areas will most likely be together with local partners. But M&A or just building up from scratch can also be alternatives, which leads me to a small glimpse on the strategic growth transitions we have made this year on Slide #9. It might be a repetition for many, but a good thing can't be told too often. Through the acquisition of iSurvey and Octio/Monviro, we are now complete provider of subsea services, including surveying technology and data management and analysis. It is great to see that the acquired companies are working really well with the rest of Reach, and we are already able to take out the benefits of the cooperation, for example, through joint projects, win and deliveries, as the numbers for this season shows. Further, with Wilhelmsen as a new co-owner, we have also secured funding for the Reach Remote project and have an attractive industrial partner with great competence and mutual ambitions. Finally, the partnership with Kongsberg and Massterly is essential when it comes to bringing comfort to the new marine robotic technology. We are talking a regional industry building here. Execution of this strategy is well on track, and we are well positioned to leverage on a strong market going forward. And as I said, we will continue to bring cutting-edge technology to the market. This brings me to Slide #10. And this is a favorite topic, the marine robotics, and this will be a game changer for the subsea industry. And there is no doubt, the future is unmanned also at sea. Our project is on track for launch in 2023, and the steel cutting for the hubs has already started. We are looking forward to offer this to our clients who are awaiting this eagerly, and we experienced an accelerating tension around the world. Benefits are obvious. The OpEx goes down with 65%. Emission as well, down with 90%. And of course, CapEx is much lower than manned vessels. In the current market environment, with increased demand and higher cost of manned vessels, the Reach Remote business case, with these savings, is even better than before. And time to market is very short. If the Reach Remote USVs have been available today, around half of our work could have been done with these unmanned vessels. This brings me further to Slide #11. To put it simply, the unmanned vessels transport the subsea equipment out on site and act as a power bank, data center and the communication module. The market for combined marine and subsea robotics will be endless as collecting data and information will be more affordable for a wider range of clients. And as I said before, this is just a start of a really exciting journey for us. We have a clear ambition and goal to be among the top 5 global companies when it comes to marine robotics. It is extremely good to have all the parts of the parcel in place. But I have to mention, both pandemic effects and the equivalent effects of war do create some challenges also for us. But I'm confident that we and our suppliers have this under control. During the coming winter, the steel house will be fabricated, and installation and testing of only Kongsberg technology will be done at Trosvic yard during next year and spring and summer. We are also ready to specially build ROVs for long endurance with Kystdesign, our local ROV manufacturers, so to speak, here in Haugesund. As we have said before, Massterly, our bridge and navigator, is on track with our operational center in Horten and already in operation with [indiscernible] and further with the [ ASKO ] vessels later. Today, we'll be well up and running and ready for our USVs next year. Finally, we are also on track with our remote operation center here in Haugesund. So to summarize, one thing is the exciting new technology. The business case do indeed look better every day. With this optimistic note, please let me hand over the word to Birgitte. She will go through details about our solid figures.

Thanks, Jostein, and good morning, everyone. Just a reminder before I start, should you have any questions to our presentation, you can submit them on the webcast while we speak. Looking at Slide 12, we're proud to present another strong quarterly results for the third quarter of 2022 as well as year-to-date. EBIT was NOK 58 million compared to NOK 23 million last year on a turnover of NOK 365 million, a growth of 63% compared to the NOK 224 million in the third quarter last year. The main drivers for the improved results are a high utilization, improved pricing environment and addition of the new businesses, iSurvey and the Octio Group. Total comprehensive income ended at NOK 52 million for the third quarter compared to NOK 44 million for the third quarter of 2021. Please note that the Octio Group figures are fully consolidated into our accounts since the start of this year, while the iSurvey transaction was closed towards the end of the first quarter, meaning that our P&L includes both acquisitions as from the second quarter of 2022. The balance sheet, as per quarter end, is fully consolidated, showing Reach, Octio and iSurvey altogether. And for the same period last year, iSurvey and Octio are not part of our figures. Our peak season was characterized by high activity, high demand for all of our services, with a strong utilization of all our assets, both ROVs and vessels as well as full utilization for equipment and personnel. So let's look into details and what lies behind the figures on Slide 13. As mentioned, revenue in the third quarter increased by 63% compared to 3Q last year to NOK 365 million. And as you can see on the left-hand side, the strong increase in the oil and gas market was the main contributor to our high number of project days sold, with profitable margins in all segments. The third quarter EBIT was NOK 58 million compared to NOK 23 million last year. And the pretax profit in the quarter was NOK 67 million compared to NOK 23 million in 2021. This gives year-to-date figures a turnover of NOK 835 million, which is close to 70% higher than the year-to-date turnover last year of NOK 495 million, and even quite much higher than the full year turnover last year of NOK 635 million. Year-to-date EBIT was NOK 71 million compared to NOK 53 million last year. So let's look a little bit more into the detail at the drivers. The increased revenue from last year is explained by a higher number of project days sold as well as higher pricing and also revenue from the acquired businesses. And the improved EBIT is primarily a result of high utilization and strong project execution in an improving market as well as contribution from the acquired businesses. You might read more about the details in the full report. So let's move to Slide 14, please. Looking at the year-on-year EBIT development from the third quarter last year to the same period this year, we see that the main drivers are project margins and utilization, which again illustrates the improved market conditions and increased demand from our clients. EBIT for the Octio Group represented about NOK 5.3 million while EBIT for iSurvey Group represented about NOK 3.8 million in the third quarter of in 2022. And as mentioned, these entities were not part of our 2021 figures. The positive contribution from our newly acquired entities, iSurvey and Octio, is a result of strong performance and also the start of performing integrated projects within the Reach Subsea Group. So let's move to Slide 15, please. Reach Subsea had a sustainable growth, balancing cash and working capital and debt with a robust equity level. At the same time, we have delivered to our shareholders by paying dividend according to our policy. And as many of you know from our previous presentations, our growth plans are still quite substantial, especially with the USV project, the Reach Remote, as Jostein talked about. We have a cash working capital position of about NOK 325 million and limited existing financial debt. And remaining investment for the Reach Remote is about NOK 320 million, with the expected debt financing of NOK 200 million, meaning we are well positioned for the coming investments next year. So let's have a look into the growth development on Slide 16. We have included a new slide this quarter to illustrate how our activity has grown based on the ROV and vessel days, which are the 2 elements contributing the most to our turnover. Remember that the vessel commitment is our most expensive tool in the toolbox and, hence, our utmost priority when it comes to utilization. In addition to sold ROV and vessel days as well as the utilization, the revenue and profit strongly depends on the complexity of the projects and also the seasonality. In addition, we now have the contributions from iSurvey and Octio, which is not reflected in these figures. Our peak season, having our main market of operations in Europe and the North Sea, is typically the second and the third quarter, followed by a fourth quarter that might somewhat be a joker depending on weather and demand from our clients. The first quarter is known to be harsh, which is why we always try to seek other markets such as the Mediterranean, Trinidad, Brazil, et cetera. And as you can see above, our vessel and ROV utilization has been really strong in the peak season this year. So let's transfer this into revenue and EBIT on the next slide, Slide 17. As mentioned, Reach had a positive development in utilization and profit margins the last couple of years, which is illustrated in these 2 graphs. Again, as mentioned on our previous slide, there's a typical dip in Q1, which can be seen clearly on the graph to the right, with an improvement in the second and the third quarter. An important detail, we do not adjust or accrue our vessel cost according to activity as we, according to IFRS 16, use a linear depreciation on our vessel commitment. This has a reinforced effect in the quarters with lower activity as our budgets have utilization-adjusted rates based on expected seasonal activity. Let's move to sustainability on Slide 18. Reach Subsea has reported on our sustainability goals since 2019, and you can find all the reports on our web page. Our ESG reporting is a combination of focus on environment, being a responsible employer, and doing business in a responsible way all over the world. In the full report on our web page, you can read more about how our report complies with the United Nations Sustainability Goals and also the GRI standards. We have kept most of the KPIs relatively unchanged, some adoptions to our business and various expectations. So our KPI should be quite easy to follow and measure to be prepared for taxation and audits. As some of our ESG targets includes campaigns and other actions, a few are still orange as for the first 9 months of the year, as you can see. However, we have the intention to end up with a green mark on most of our boxes and then be meeting our KPIs also for this year. Unfortunately, we had one work-related injury in the second quarter, an infection resulting in absence. It is, however, good to see that our colleague is healthy, back at work and that our operations and HR teams have received positive feedback on how this incident was handled together with the Norwegian Seafarer's Church (sic) [ Norwegian Seamen's Church ] in Rio de Janeiro. Safety is always our utmost priority, and we're proud to have a strong positive [ HTQ ] statistics. Then I hand the word back to you, Jostein, for a summary.

Thank you, Birgitte. Let me wrap up by using the familiar last slide, #20, as a backdrop. Reach is now a complete provider of subsea services, and we have taken big steps this year in broadening our offering and creating a platform for further and continued profitable and strong growth. Reach is a leading player when it comes to subsea robotics of the industry, and I'm happy to say that we are in a great position to take a lead in the future of marine robotics. We operate in a great market, still pioneering time. And we are delivering really strong results, mainly driven by our focus on also day-to-day business. We also have broad spectrum of services, and we have broad spectrum of our clients around the world. Our robust financial profile will also allow the right long-term investments at the right moments, of course. And even though we have delivered on our M&A ambitions in the last 12 months, we continue to look at acquisitions opportunities and cooperation partners in other geographical areas. That will add value to our business, not only adding expertise for our current operations but, for sure, for our robotic future. So I'm looking very much forward to the coming quarters and years. We have had a great development this year. And as I said in the start, we will continue to grow and develop the company also in the years to come but now in a rising market, really exciting in the coming years. And by that, let's wrap up the presentation and move over to answering your questions. Please continue to submit questions in the webcast player. We are back to answer in a few seconds.

Yes. Like to see there's a few questions that have come in throughout the webcast. You can still ask questions while we answer a few questions that have come in so far. The first question is, do you expect to have the same fleet next year as you had up until today? Jostein, maybe you could answer that.

Yes. As I showed you, we had 4 vessels on full-time charter this year. And we're going to have the same size in fleet next year. We might expand given the market situation, of course. But that's the plan and to have the same core fleet the coming years.

Yes. Good. There's another one. Can you say something regarding revenue in Q4? And is the market still tight and contracts are -- and will be get paid? Well, we cannot comment or guide on revenue or results. But as we have described in the report, the activity is expected to be quite good in the fourth quarter, even though a few of the vessels will be phased out as the Viking Neptun and the Olympic Challenger. But Delta, Artemis and Havila Subsea, they are expected to have a good activity, and also in iSurvey and the Octio vessels, we see quite good activity. But of course, the fourth quarter is always a little slower than the second and the third quarter as described in the presentation. And there's a question about growth. Are you planning more growth in new locations or in existing regions? I guess you can say 2 words about that, Jostein?

Yes. Yes, we're going to go not only in our home market here in the North Sea but definitely globally. As I showed you, we have a goal of being in every time zone, so to speak. So yes, the ambitions are there.

Good. That's all the questions that we see and that we received. It seems the message has been crystal clear. I must say if you should have any questions afterwards, feel free to send us an e-mail, and we will try to respond as good as we can. So until next time. Have a good day.