Akastor ASA

OSE:AKAST

Earnings Call Transcript 2019-Q1

[Leif Hejø Borge, Chief Financial Officer]

Good morning, and welcome to the first quarter presentation for Akastor. Here in Oslo, our CEO, Karl Erik Kjelstad, is present, together with myself, and my name is Leif Borge.And I'll give the word to Karl Erik to go through the highlights of the quarter. Please, Karl Erik.

[Karl Erik Kjelstad, Chief Executive Officer]

Good morning, everyone, and thank you for attending this call. Let us start with having a look at the highlights for the first quarter. I'm now on Slide 3 in the presentation.With regards to the financials, revenues of NOK 1.1 billion were about 21% higher than the first quarter last year, and this confirms the trend that -- in activity level that we also saw in the last quarter 2018, a positive trend.The EBITDA of NOK 92 million includes an effect from the new IFRS standard that Leif will talk more about, but the result is in line with the previous quarter. Net interest-bearing debt increased with some NOK 144 million and this is mainly caused by higher working capital reflecting the higher activity level.Then on the 2nd of April, we were happy to confirm that the merger between First Geo and AGR was completed. As you probably remember, Akastor has a 55% owner -- economic interest in the new merged company. Also, worth mentioning is that we, in early April, can confirm the next drilling package for MHWirth and Awilco for the first out of 3 options for mid-water harsh environment semi. This contract has a value of about $100 million and will be included in the order intake for the second quarter.Let us move to Slide 5. Just stating that there are no changes in our portfolio other than that AGR now is a formerly part of Akastor and also includes First Geo.Let us then look at the performance of our portfolio companies on Slide 6. Some comments. First of all, the new -- the rig -- newbuilding market is still limited, but MHWirth experienced increased demand in services and also in product sales. Revenue compared with corresponding quarter in 2018, both for product sales and services is up with 24%.MHWirth delivered an EBITDA of NOK 88 million that corresponds to a margin for close -- of close to 10%. The new management team in MHWirth with Chairman Pete Miller and CEO Eirik Bergsvik is now well into the business and working together with also Akastor to expand and develop MHWirth business further.AKOFS Offshore delivered a somewhat disappointing first quarter result with an EBITDA on 100% basis of NOK 136 million, mainly due to low utilization on Skandi Santos vessel that operates for Petrobras. This was partly compensated by excellent operation of Aker Wayfarer, that also operates for Petrobras, that had a very good performance in first quarter. When it comes to the Seafarer upgrading project for Equinor, this is well on track and the vessel is currently at the Myklebust shipyard where the upgrading takes place.The other portfolio companies has small numbers but solid performance, and I would like especially this time to mention Cool Sorption has delivered a very good result due to good performance on a specific project.Then just on some smaller fractions on the market on Slide 7. As I mentioned in the beginning, the market is still challenging, but we see that several market drivers has positive development after the setback that we had in the last quarter last year.The oil price is -- has developed positively in the first quarter. The oil companies that is in a way the ultimate client in our value chain has a strong cash position, they have challenges with declining reserves and they also have effective investment economics in new projects. We hope and we also believe that these fundamentals, over time, will contribute to a higher demand for our portfolio companies, services and products.With those words, I would like to leave the word to Leif, who will take you through more on the financials. Thank you.

[Leif Hejø Borge, Chief Financial Officer]

Thank you, Karl Erik. First of all, Akastor implemented IFRS 16 as of first quarter this year. This has mainly to do with how we treat operational leases. In short, the leasing cost are booked as depreciation and financial costs and not operational cost as before, while the net present value of the leasing commitments are booked in the balance sheet as fixed assets and leasing liabilities.As we are actually owned, the underlying assets are results. We have not adjusted historical numbers, but explain the effects on the Q1 numbers in the slides where it's relevant. Slide 29 gives more detail on the overall effects.As already mentioned by Karl Erik, revenues of NOK 1.1 billion were up 21% from last year. Most of the growth comes from MHWirth. And also Cool Sorption has a strong quarter revenue-wise. The EBITDA of NOK 92 million includes NOK 27 million of effect from IFRS, explaining most of the growth from last year. Net profit ended on NOK 62 million compared with a negative result last year.Then let's move on to Slide 10. I will come back to report -- reporting segment, so let's focus on the financial items to the right on this slide. You may remember that we had very negative effects in the fourth quarter last year due to valuation of several of the financial assets. This quarter, we had a somewhat opposite effect. The positive result of NOK 47 million on the preferred equity instrument of Odfjell Drilling includes NOK 8 million cash interest, NOK 8 million PIK interest and NOK 31 million valuation effect on the warrant structure. The valuation effect is, of course, an effect of increased share price of Odfjell Drilling during first quarter.The Awilco Drilling effect of NOK 13 million is also due to increased share price of Awilco Drilling. The result of NOK 17 million on NES Global Talent is a pure valuation effect of our 17% shareholding in the company, while a negative result of AKOFS and of Deepwater represents 50% of the net profit of the 2 companies. On this slide, you can also see the financial cost of leasing liabilities of NOK 8 million as a result of IFRS 16.Then moving on to Slide 11. Net bank debt increased from NOK 408 million to NOK 638 million. However, close to NOK 100 million of this relates to the funding of the Seafarer CapEx, which will be repaid, and a separate financing for the vessel has been put in place.The increase in net debt we then take into account Akastor's receivables toward AKOFS. Increased NOK 144 million to NOK 290 million, which mainly can be explained by increased working capital. The working capital will always fluctuate a bit among others due to milestone payments in the projects.Slide 12 shows the split of capital employed on the biggest investments in the Akastor portfolio. As you can see, MHWirth and AKOFS Offshore represents a lot of the values, but investments in NES Global Talent and Odfjell Drilling are also material investments. The book value represents around 82% of the market -- sorry, the market cap of Akastor was around 82% of the book value as of the closing on Tuesday.Then let's have a look at MHWirth on Slide 15 (sic) [ Slide 13 ]. Revenues increased with 24% from last year to NOK 900 million in the first quarter. The growth was more or less the same in services and in projects and single equipment quarter-by-quarter.There is still a long way to go from peak revenues back in 2014 around NOK 10 billion a year for MHWirth, but the company is getting closer with around NOK 4 billion annual revenues. Run rate, reached roughly 50%, is done on services. The number of active rigs in operation is relatively stable, with 40 -- 52 at the end of the first quarter, but still, we start to see some growth in service revenues.The EBITDA of NOK 88 million includes effect from IFRS 16 of NOK 17 million, thus the underlying EBITDA margin was around 8% before IFRS 16. The order intake in the quarter was NOK 1 billion, but remember that this did not include the new drilling package to the Awilco rig.With regards to AKOFS Offshore, I'm now at Slide 14. Revenues of NOK 258 million and EBITDA of NOK 136 million is somewhat down from the last quarter of 2018. This is fully due to low revenue utilization on the Santos vessel being 76% in the quarter. Revenue utilization continued to be low in April, so you should also expect a somewhat weak second quarter for AKOFS. On the other side, the Wayfarer vessel has a very high revenue utilization in the quarter.With regards to the third vessel in the portfolio, Seafarer, the CapEx program is going according to plan and we still expect commencement of the 5-year contract with Equinor in the first half of 2020.With regards to NES Global Talent, please look at Slide 15 in the presentation. Remember that we own 17% of the shares in the company and are not consolidating figures from the company in our Akastor consolidated group accounts.The company continues to show solid growth, both from the acquisition that were made last year, but also organically. This is driven by increased need for offshore engineers across the world, reflecting higher activity in the industry.Finally, Other Holdings on Slide 16. You may remember that all of these smaller entities struggled with their earnings in previous years so we're glad to see that they are all starting to contribute to the overall earnings of Akastor.Step Oiltools delivered revenues of NOK 140 million with an EBITDA of NOK 4 million, more or less in line with last year. With regards to First Geo, this is the last quarter you will see figures for First Geo. Next quarter, we will present consolidated figures for AGR after the merger with First Geo.For 2019, we expect a run rate EBITDA for the combined entity of around NOK 20 million per year. In the first quarter, First Geo delivered revenues of NOK 30 million and an EBITDA of NOK 2 million.Then Cool Sorption delivered a very strong first quarter. The revenues of NOK 60 million and an EBITDA of NOK 9 million. This is mainly due to progress on one relatively big project for the company that will be delivered at the end of 2019.That concludes our presentation, and we are ready to open up for the Q&A session. So operator, please help us facilitating that.

[Operator]

[Operator Instructions] It appears we have no question at this time, sir.

[Karl Erik Kjelstad, Chief Executive Officer]

Okay. Well, it appears that there are no questions this morning, so then I would like to thank you all for attending this call. And I hope you will all call back on the 17th of July when we are presenting our second quarter numbers.Thank you very much, and have a nice day.

[Operator]

This concludes today's conference call. Thank you, everyone, for your participation. You may now disconnect.