Siem Offshore Inc

OSE:SIOFF

Earnings Call Transcript 2021-Q2

[Bernt Omdal, Chief Executive Officer]

Good day, everyone, and welcome to the review and presentation of our results for the second quarter 2021. My name is Bernt Omdal and I'm the CEO of the company. Today, I'm joined by our CFO, Vidar Jerstad. And together, we will take you through this presentation. Siem Offshore's report for the second quarter 2021 was released this morning prior to the market's opening. Today, we intend to cover the main highlights of the report, and we will refer to the presentation issued together with the financial report. We will cover the main happenings through the quarter. And following the presentation, we will answer any questions that you might have. Looking at the highlights for the quarter. We continue to deliver safe and efficient operations in all regions. The coronavirus is still a challenge for us, operating vessels on a worldwide basis with rules and regulations regarding travel changes on a weekly basis. But so far, we have managed to maneuver well and we have managed to stay in operation most of the time. We had a revenue of $66.4 million, and we delivered USD 26.4 million in operating margin. That is equivalent to 40%. We have a positive EBITDA from all vessel segments, and our cash position was $105 million at the end of the quarter. And the contract backlog at the end of the quarter was around USD 390 million. The utilization of the fleet was quite good as well, 89% and that is excluding vessels in lay-up. Moving on to the next slide. We secured some contracts as well during the quarter. The Siem Spearfish was awarded 110 days from contract with options. Siem Dorado was awarded 2 contracts, 1 40-day contract and 1 55 days contract with options for working in Guyana. And the anchor handler of Siem Pearl was awarded a 3 months firm contract with options in the [indiscernible] We also managed to sell 2 of our large anchor handlers, that is the Siem Diamond and the Siem Garnet. And under subsequent events, we just were awarded a 6-month extension for the Siem Topaz, and we secured a contract for 1 of our construction vessels for minimum 300 days of work. So going forward, Vidar -- my colleague, Vidar Jerstad, will now give you some more details regarding the restructuring plan that was implemented in May and then he will also present the results for the second quarter 2021.

[Vidar Jerstad, Chief Financial Officer]

Yes. Thank you. Siem Offshore's solid backlog and strong operational performance secured a $26.4 million in operating margin in the second quarter. All our segments are performing according to or above expectations and delivers positive operating margin. We also successfully sold 2 anchor handling vessels, generating surplus cash after debt repayments. Surplus cash has been used for debt repayment of the remaining 8 anchor handling vessels. We also implemented a restructuring plan for the company, 26th of May 2021. Also note that our fleet at the end of the half year consists of 28 offshore vessels, where 5 of them were in layup at the end of the half year. Some key financial numbers. Revenue in the quarter was $66.4 million, which is up $1.9 million compared to the same period last year. EBITDA $26.4 million, up $2 million compared to last year. Operating profit is $11.3 million. Compared to last year, we must remember that last year, it was recognized an impairment of the vessels of $251 million. So the [ comparison ] to last year is not very good. Net profit is $103 million, and that relates to the restructuring plan that was effective. Debt-to-equity conversation has led to a debt forgiveness element of $91.6 million, and that is recognized through the profit and loss statement. On the next page, we take a closer look at the figures. I have already commented the figures on the quarter. If we take a look at the half year, we still see the same thing, that things are improving. We see operating revenue increasing. We see operating expenses decreasing. We see operating margin increasing. And also, operating margin in percentage is increasing, that, we see for the quarter and also for the half year. It is very satisfying to see a positive development in revenue, expenses, operating margin and even for administrative expenses, there are positive developments for the half year. And especially if we adjust for the stronger NOK and stronger Canadian dollars, the lower G&A cost is pretty huge. On the next page, we will comment the segments and operating revenue for the segments. As already said, all segments are performing as expected or better. And all segments are having positive operating profit. Still, we need to acknowledge that the anchor handling market is the most challenging one as our 10 vessels that we have contributed least to our operating margin. We are very pleased to have sold 2 of the vessels above that and out of the market, and we will not meet the vessels in competition. Now let's take a look at the restructuring plan that was implemented on the 26th of May 2021. I will go through the main highlights of the plan that was implemented. $269 million of bonds, secured bank debt and negative mark-to-market of financial hedges were converted to equity in Siem Offshore Inc. at a price [ 10 ] per share -- or NOK 0.10 per share. $92 million of the debt-to-equity conversion was recognized as debt forgiveness through the profit and loss statement. There were issued close to 23 billion new shares in the company. A reverse split of the shares, 100 against 1, was implemented just a few days later. Existing equity were diluted to 4% of outstanding shares. Converted debt represents 96% of outstanding shares. There are now no bond debt in Siem Offshore Group. Siem AHTS Pool, a minority shareholder in that subsidiary converted shareholder loans of $39 million into equity and also contributed with $10 million in cash for debt repayments. There are no known debt maturity in the group before 31st of December 2024. Annual cash interest and fixed debt amortization on remaining debt is significantly reduced due to flexible amortization schedule and possibility to PIK interest for some vessels. Financial covenants and general undertakings are also revised down. So going to the next page. How is the restructuring of the company together with the strong operational performance in the last quarter affecting the balance sheet? Let's first take a look at the interest-bearing debt. At the end of the first quarter, our interest-bearing debt was $1.039 billion. Then we have equitized bank debt of $132 million. We had equitized bonds of $131 million, and repayment of debt and other items represent $113 million. Interest-bearing debt end of first quarter is $663 million, a reduction of $376 million or 36%. Also note, we have achieved this without any upticks in interest level or interest margin. Addition to the reduced interest-bearing debt, we have also achieved a reduction in amortization structure and schedule of the remaining debt. That makes the company more flexible in repayment of debts. Earlier, the minimum annual debt service represented $119 million. Today, our minimum debt service is $46 million. That's $73 million in reduction per year. Also, we have a cash sweep mechanism attached to this deal that ensure that excess cash will be used to repay more debt. Cash sweep based on figures from the 30th of June 2021 is estimated to be $28 million and will be paid in September. Based on the existing backlog, Siem expects to repay additional debt through the cash sweep mechanism going forward. Our debt conversion to equity surely also affects the equity, not only the interest-bearing debt. If we take a look at our financial position on the 30th of June 2021, we have a book equity that is $333 million. That represents 31% of the balance. That is up from $12 million and 1% half year earlier. Cash and cash equivalents is $105 million. Gross interest bearing debt is $663 million. Net interest bearing debt is then $558 million. So finally, let's take a look at the cash flow for the last half year. We started out with a cash of $103 million. Our strong operational performance made $54 million from operations. We paid $11 million in net interest. We invested $10 million in CapEx. We sold vessels and received $53 million for vessels that led to repayment of debt, and we totally have repaid debt for $83 million. Equity from minority shareholders in subsidiary, $10 million, and we also had some currency effects. We ended up with a cash of $105 million. Strong operational performance have proved that all segments are performing according to or above expectation and delivers positive operating margin that we can see in the cash flow. We sold vessels above that and excess cash was paid debt for other vessels, that we can see in the cash flow as well. And also going forward, interest-bearing debt is reduced by 36% and amortization schedule is flexible. We also have a strong equity going forward, $333 million, 31% of the balance.

[Bernt Omdal, Chief Executive Officer]

Very good, Vidar. Thank you. So then we will now go into the fleet and the employment situation. So on this slide, we have listed up vessels in operation for the OSV segment. Currently, we have 28 owned vessels in operation. And in addition, we have 4 vessels on management. We have, as mentioned by Vidar, sold 2 of anchor handlers, so we are down to 8 large anchor handlers in our fleet. And as stated before, we try to sell our older and smaller vessels, which we consider as noncore assets. Moving on then on Slide 16 and 17, [ focus on ] geographical footprint and our contract backlog. So we can start with anchor handlers. We still have 3 anchor handlers working for Beach Energy in Australia. That is the Siem Topaz, Siem Sapphire and Siem Aquamarine. And in Canada, we have 1 anchor handler working there, that is the Avalon Sea. The contract expires in 2022. And we have another anchor handler on management, which is the Siem Commander [indiscernible] And furthermore, we have 2 anchor handlers trading the spot market, that's the Siem Opal and Siem Pearl. And we have also 1 vessel in Singapore currently idle, waiting for a slot at the yard. That is the Siem Amethyst. She will go through the 10-year class renewal. And the remaining 2 anchor handlers are in lay-up. That is the Siem Emerald and Siem Ruby.All of our construction vessels are also on contract. Siem Stingray, firm contract till end of October. Siem Barracuda, firm contract until end of the year. And then we have the Siem Spearfish. She is currently in South America, working to have her back in November. And Siem Dorado is also in South America on a contract that expires end of next month. There's no changes to the well intervention fleet, the Siem Helix 1 and Siem Helix 2 are still on their firm contracts, which expires in 2023 and 2024. Moving on to the PSVs. We have 6 PSVs, none of them are trading in the spot market. They are all on contract. Siem Thiima still in Australia. We expect her back early 2022. Pride, Siem Pride is firm until 2025. We have the Siem Symphony, which is firm until May next year. And Siem Pilot is working in Canada, we expect her back during September. And then in Brazil, we have 2 PSVs trading there, that is the Siem Atlas and Siem Giant, contracts still end of 2022. And also in Brazil, we have some smaller vessels, 2 of them are idle, 2 are working on contract that expires late next year and early 2024. We also have the core drilling vessel, Joides Resolution, no changes there, her contract expires in 2024. And the well stimulation vessel, Big Orange, is firm until early 2022. So that covers the -- our contract backlog. Moving on, the contract backlog in numbers. As mentioned before, we have a strong firm backlog with a positive margin of USD 390 million. So a little bit about the market for the second quarter. It was more or less as we expected with the increased activity in all segments. We had no exposure to the PSV spot markets as all our PSVs are on term contracts. For anchor handlers, we concluded some really good spot jobs. But the utilization was not as high as hoped for, bringing the average rate for the quarter a bit down for the anchor handler segment. When it comes to the construction vessels, we managed to secure contracts for all of them, and we hope that we will be able to keep them onshore throughout the winter as well. There's no significant changes to the outlook. The market is still challenging, but the long-term outlook is better. We see an increased tender activity for 2022 and onwards and especially on the West Coast of Africa and also in Brazil. The winter season might be challenging, but for the second quarter or at least 2022, we believe we will see the activity level picking up again. And as mentioned before, many times before, we believe the market will benefit from consolidation as there is too many vessels controlled by too many owners. So to summarize, the company continued to deliver positive EBITDA from all vessel segments. We deliver first class operation with an excellent QHSE performance, and we have a strong firm contract backlog. We continue to strengthen our position within the renewable segments and the restructuring agreement implemented, as mentioned by Vidar, and we also successfully sold 2 of our anchors handlers at book value. And we believe -- still believe in an increased demand for oil in the next decade, which in turn will keep the oil price stable and increasing willingness to invest. And we also see that the maintenance of the subsea infrastructures has been neglected for years. So higher activity is expected within the IMR/Subsea segment. COVID-19 is still a challenge. It's not over, even though many of us are vaccinated, but it's still a challenge for us to move through and service personnel around the world. So again, consolidation will create a better market balance, especially within anchor handlers and the OSV segment, there are fewer vessels and owners. That was the end of our presentation. We thank you for listening to us, and we will now open up for any questions that you might have. Please feel free to ask any questions. Okay. If there's no questions, then we, again, thank you all for attending the call, and we wish you all a great day. Thank you.