Q2 2019 Dof ASA Earnings Call
STOREBØ Aug 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Dof ASA earnings conference call or presentation Tuesday, August 20, 2019 at 6:30:00am GMT
TEXT version of Transcript
* Hilde Drønen
DOF ASA - CFO
* Mons Svendal Aase
DOF ASA - CEO
Mons Svendal Aase, DOF ASA - CEO 
So good morning, and welcome to this quarter 2 presentation for DOF.
Start with the highlights. And so the EBITDA in quarter 2 was NOK 712 million. So that's up quite a bit from quarter 1 and also better than the same period last year. So it's good to see it's moving in that direction.
Average utilization of the fleet, 74%. It's still too low. The goal is that we expect higher utilization in quarter -- in second half. We see we already have 75% or a bit more contract coverage for second half. So it means that utilization and hopefully also then the earnings will be higher in second half.
North Sea PSV market has improved. It's been good, a bit more -- a bit down in the spot last weeks with some more idle time and especially in U.K. So DOF today don't have any fixed than what we had in the spot market on value contracts. So we are not exposed in the spot right now.
Still very high volatility in the anchor handling market. If you look at the average earnings for the boats in the spot so far this year, it's better than last year but it's far away from what you need. Presently, the market is good. Almost the first time this year, we see shorter fixing anchor handlers forward. So let's hope that lasts for a while. We need a couple of months with good earnings too if there's going to be a decent year for anchor handlers, but a bit better than last year.
On the IRM side, it's still the same. It's variable utilization and a very tough market. So we struggle -- not only me, but all of us struggle with -- to get the high enough utilization to give decent return on the IRM fleet. So -- and that's more or less globally. For both, without a long-term contract, it's a big challenge to make decent earnings in the IRM segment now. So of course, what we try to do with that is to increase the number of what we have contracted in that space as well.
So on the long-term contracts, it's been good. I think we have had almost 100% utilization, between 98% and 100% utilization on the long-term fleet. So very happy with that. So that delivers.
Part of the reason why we say we're going to make more money in second half is that we have been accepting tasks with our friends in Petrobras. And during -- after the end of quarter 2, 3 RSVs Olympia, Chieftain and Commander went over now to Petrobras on 3-year contracts and looking forward to that. And our estimate is that they would leave around USD 4.5 million per year or -- in EBITDA per vessel. So of course, that will help on the earnings going forward.
As we said when we presented the last time, we have had challenging times in the refinancing market. We have had vessel that -- with problems to roll over the balloon. And we have fixed that in the short term, so we got an extension for a few months. But of course, there is no long-term solution in place. And as we speak, we are, of course, working on a long-term solution for the group. We see a few banks very unwilling to roll over balloons and, of course, that makes it very difficult. So -- and I -- not more to say about the process and the solution and the outcome today as we are in the middle of it and have not concluded on it yet, but working hard on it. And of course, it needs to be in place within the next few months.
So on the -- (foreign language) So quite a busy year -- not busy year but busy quarter on contracts. So the order margin all around, of course, we are very proud of Skandi Hav. It was the first vessel in the DOF fleet built in 1983 and extended with Petrobras now for a year. And I think it's a good rate. It's making close to [NOK 14 million] in a year in EBITDA. So it's something we are proud of, built in '83.
So then Rio, awarded a new contract in Brazil, not with Petrobras, this time with Total. So it's good. And also, a vessel like the Niteroi, out of lay-up again and working for our partner Technip on an FPSO contract they have with Equinor on the Peregrino field. So that start up in quarter 3 and will keep busy for 140, 150 days, so close to half a year. So hopefully, we will find more work after that. But it's good to see here, out of lay-up again. We don't like that.
In APAC, also very happy with the 5-year contract with Esso, in Australia. So starting now, we left the North Sea and so commencing, I would say, in October. And it's actually the first long-term contract in my career in DOF with Exxon globally. We have never had any success with Exxon -- Exxon or Esso, so it's -- very happy with that. And also the earnings is a proof of that the PSV market is back. So we are not far away from the numbers we had before the downturn in the markets. So it's a positive reference point also for the market.
Then we got a contract in New Zealand for the Atlantic. We also sent a press release today. We have got a new contract for Atlantic and her sister, that's the Emerald, in New Zealand, and which I'm very happy with. The Atlantic, Emerald and that class is medium-sized anchor handlers, and of course, they have been one of the DOF classes to keep going. And so we will see it's -- so Atlantic was taken out to lay-up earlier this year. And so we see a shift in the market for those type of vessel as well where we now have -- I think we had 2 out of 5 boats working last year, and now we have 4 out of 5 boats. So it's moving in the right direction.
In the North Sea, on the IRM side, the subsea side where we won quite a few shorter contracts. So we -- you can say on the IRM fleet, globally, we have decent visibility in quarter 3. So we believe August, September will be okay months. And then, of course, there is challenges normally in quarter 4. So quarter 3 looks okay at the moment. And then we also got 3 5-year contracts with Conoco on Hugen, Nova and Marøy, which we're happy with and so continue to build backlog.
This is not new. I guess it's some movements on the boats. And still around 3,500 employees and still 67 boats. I think the new on this map is we have 3 boats in Guyana, 2 PSVs and 1 subsea boat, and working down there at least, I think, well into quarter 4. And it is an interesting place, where we see Liza 2 gone up and after now Liza 1, and then where we're also waiting for Liza 3. And so it's -- we think it will be more to do in that area. But not much new on this slide.
Then Hilde will do the financials.
Hilde Drønen, DOF ASA - CFO 
Thank you. Yes. As already said by Mons, the operational EBITDA of NOK 712 million, which is approximately NOK 200 million more than first quarter this year; an average utilization of 74%, 93% in PSV, which is much higher than previous quarter, and that is mainly due to several vessel mobilizing for new contracts in first quarter. So we had 0 PSVs in lay-up this quarter and high utilization and good performance.
On the anchor handler segment, 69% utilization, which is slightly higher than previous quarter, well, mainly due to seasonality. And also, that 1 vessel was idle the entire quarter in first quarter, and that vessel went on hire on a new contract end May in Brazil. We also see that utilization in the North Sea spot market has been better than last year. However, still high volatility.
On the subsea segment, it's 67%. A generally high utilization. A good performance on the long-term chartering vessels. However, variable and low utilization in some regions, especially the Asia Pacific and Atlantic region. And as you see, still, if you split in the segment, our main portion of EBITDA comes from the subsea and then the rest from the anchor handler and PSVs mainly -- well, DOF Supply and Subsea.
And here, you see it in numbers. DOF Supply, that is the PSV and anchor handlers fleet, an EBITDA of NOK 267 million this quarter; and NOK 445 million for the DOF Subsea fleet. If you take the overall utilization for these 2 groups, it's 72% in DOF Subsea and 75% in DOF Supply.
By end of the quarter, we had 5 vessels in lay-up: 3 anchor handlers and 2 PLSVs, of which 1 is currently mobilizing for a new contract with start up late third quarter.
If you look at the numbers. I will focus on the 2 columns here. This quarter, separately, it's NOK 712 million in EBITDA compared to NOK 595 million -- NOK 594 million last year; and NOK 669 million compared to NOK 560 million, if we include the hedge accounting.
And I already mentioned, good performance the PSV fleet, all vessels in operation. And on the anchor handler side, it's improved, but still high volatility. And on subsea, good performance on long-term chartering and variable from the regions.
If you look at the impairment done this quarter, it's NOK 154 million and mainly relates to the oldest part of our fleet. What we have experienced, both last quarter and this quarter, is that the broker valuation has stabilized. So the impairment is actually done only on the oldest part of the fleet and where we see that it's -- it could -- there is a risk of low utilization on this part of the fleet. And it's actually mainly the old vessels in lay-up.
Not much to say on financials. No big movements in the U.S. dollar, how we are funded. It's Norskan and DOF Subsea who has the dollar debt; and DOF Rederi is only Norwegian kroner. And we are -- cash-wise, we are actually hedged. That's something I've mentioned several times, that on Norskan, we have a balanced risk due to the U.S. dollar, but cash-wise, we are actually perfectly hedged.
If you look at the segment. And if you see on the operational EBITDA, if you see the PSVs, these were NOK 43 million this quarter compared to last year's NOK 31 million. On the anchor handler, NOK 183 million compared to NOK 131 million; and NOK 443 million compared to NOK 398 million, and that gives a total of NOK 669 million to NOK 560 million. So you see in all segments, we are performing better than previous quarter. On subsea, it's mainly due to more vessels on firm contracts, the PLSVs. And on anchor handler and PSVs, nothing more that we have achieved better performance.
And here, you see where we have done impairment. It's on the anchor handler side. It relates to a few very old vessels. And the same goes for subsea. And still the same trend, here, you see the segment who represent the highest part of our EBITDA.
If you look at the balance sheet. And here, I'm comparing last quarter with this quarter. And you see on the long-term asset side, nothing to report really. All newbuilds are delivered and that the last newbuild was delivered in first quarter this year.
On the operational side, we achieved an operation cash flow of NOK 586 million this quarter compared to NOK 358 million last year same period. And on investments, it was 2 -- minus NOK 237 million, and that's mainly due to conversion and main class renewals. No newbuild CapEx this quarter. And on finance activity, it was minus NOK 476 million. That is mainly normal amortization.
And here, you see the movements on the noncurrent interest-bearing debt. Normal amortization this quarter was NOK 515 million and is 1 bond loan. That is moved from long term to short term.
If you look at the current portion of long-term debt, that mainly includes a bond loan, a bond loan which is partly due in October this year and May next year. Amortization, estimated of approximately NOK 2 billion, and balloons of NOK 1.2 billion and credit facilities and other interest costs mainly.
On the equity side, no movements on the convertible loan. However, in third quarter, some part of this loan has been converted to share. But that's third quarter.
If we look at the historical performance. We see -- if we follow the EBITDA from 2016 until now, NOK 712 million. And you see an improvement from last year to 2019. And of course, we hope that will continue. If you look at the net interest-bearing debt, it has gone up. And that is mainly due to 1 more vessel delivered this year.
If you look at the key figures, some historical figures here as well. And if you -- this is the revenue the last 12 months. And you see it's slightly up, and also on the EBITDA, which is positive. But if you look at the backlog, it's slightly down compared to last year. However, I recognize that in first quarter, we reported a backlog of NOK 20 billion and this quarter, we are reporting the same number. So we have actually built backlog this quarter as we did last quarter.
If you look at the debt maturity profile. And if you take DOF, excluding DOF Subsea first, you see here that there are some balloons that has moved until 2020. And as already mentioned by Mons, we reported in first quarter a new situation that we have problems on rollover -- on regular rollover on balloons, which again is a new situation, and we have achieved a short-term solution. However, we are working on a long-term solution, and we believe that we will succeed on that. DOF has historically had a good relationship with our banks, and we still have, and we will continue to have that. So a long-term refinance solution is in process. If you look at the same in DOF Subsea, no big changes here, other than that 1 balloon is moved until later this year.
If you see our counterparty exposure, you see that our main exposure is with the ECAs. That's mainly export credit facilities like GIEK and BNDES. And the regular banks, 36%; and then bonds, 12%. And here, you see the bank balloons for 2019, which is slightly changed from previous quarter.
So then you will take DOF Subsea, Mons?
Mons Svendal Aase, DOF ASA - CEO 
Yes. A few slides on DOF Subsea. So not very much about that, but so now we have stabilized on 27 boats and no newbuilds, and on the employees' side also, it's more or less stabilized. So I also note that next year, DOF Subsea is 15 years anniversary from they started in 2005. So I don't go through the history, but it's been interesting year-on-year at least.
On the numbers with DOF Subsea. So we see revenues picking a bit up last 12 months. We also see that EBITDA is in the right direction and the backlog a bit weaker. That's also partly on currency. And so hopefully, this -- the trend on the 2 first draft continues. And as I said, we believe quarter 3 will be okay also for DOF Subsea with a decent visibility on the backlog.
This is the segments. And of course, where we and most our competitors are struggling is on the margin, on the earnings. On the IRM side, where we see the margin is 10%. It's too low. And of course, that is where we have the main focus, is to reduce the exposure on that and to increase the margin. So we are working with that, and hopefully, we're going to win a few contracts that will help us on that side.
So what happened was that there's quite a few of the vessels that are working on long-term contract, and through the downturn, of course, they were re-levered, and of course, they were moved into the IRM side. And so we're working harder to increase the backlog on that fleet, and hopefully, we will succeed on that. But it takes time, of course.
On a long term, it was a decent quarter with good utilization, apart from Vitoria and Niteroi that has been in lay-up. But now Niteroi is out working and will make money again from late quarter 3. So that's how we're split. So we all see that the challenge here is on the Subsea/IRM side.
And (foreign language) then on the outlook. We believe second half to be better than first half. As we said, we have 75% firm backlog for quarter -- for the second half. And of course, that means that the utilization will be higher than first half. And we see -- I think we can confirm that the activity is increasing in most of the regions, if not all, but of course, still oversupply of vessels and services. So the activity is -- I think we can state that if we go to APAC, we will see that more drilling, but still slow on the IRM side, but more drilling. So you also see that on the boat side, that we win more contracts in APAC than we did a while back.
In the North Sea, there is no doubt that the market is more busy. First, we have a rest on the PSV side, but still not quite there on the anchor handling side and still too competitive on the IRM side, but higher activity.
And in Brazil, there is a lot of -- we work on quite a few tenders these days and we expect more. So I also think that Brazil has started to move in a more positive direction. So -- but it will take time before we see balance in all the markets.
On the financial side, where Hilde mentioned that -- and we repeat that, that the risk has increased on refinancing. And still, we have a few balloons that are only fixed short term, and that has to be sorted long term. So we -- the Board and us are working on a long-term solution, and of course, as I said, it's too early to comment that in any detail. We are working on it, and hopefully, we can tell you more next time we meet in November on the quarter 3.
So that's where we are. So then we are open for questions.