Siem Offshore Inc

OSE:SIOFF

Earnings Call Transcript 2021-Q4

[Bernt Omdal, executive]

Good day, everyone, and welcome to the review and presentation of our results for the fourth quarter 2021. My name is Bernt Omdal, I'm the CEO. I'm joined here today by our CFO, Vidar Jerstad. And together, we will take you through this presentation.

Siem Offshore's report for the fourth quarter 2021 was released prior to the market opening today. We will cover the main happenings through the quarter and subsequently, financial performance and position, vessel employment and contract backlog, and we will provide some comments on the market outlook. Following the presentation, we will open up for questions that you might have.

Looking at the highlights for the quarter. We had a revenue of USD 65.3 million, and we delivered an EBITDA of USD 24.8 million, equivalent to 38%. We have a positive EBITDA from all vessel segments. And our net interest-bearing debt was at the end of the year, USD 532.4 million, which is down by USD 395 million compared to the same time last year. We had a contract backlog at year-end of $298 million, and we have improved our balance sheet following the financial restructuring.

Moving on to the next slide. Yes. Last year in Q4, average utilization was 90% for the fleet. That's excluding vessels in lay-up. We had 4 vessels in lay-up at the end of the quarter. And 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 changing with shorter notices. So far, we have managed to maneuver well and we have managed to stay in operation most of the time.

On the contract side, we have been awarded some new contracts and some extensions have been given on existing contracts. Remaining options for the vessel Siem Stingray exercised by GE Renewable, we have received an contract extension for the vessel Siem Spearfish. And also, Siem Dorado have been awarded 2 new contracts related to subsea work on offshore wind farms. And the construction in Siem Barracuda has also been awarded a contract with a firm duration of 5 months. The anchor handler, Siem Opal, was awarded a contract with Equinor with a firm period of 6 months. Siem Pilot and Siem Thiima both vessels have been awarded long-term contracts in Australia, pilot for 572 days and 3 years for Siem Thiima. And we have recently been awarded a 6-month extension for the vessel Avalon Sea, which is trading in Canada.

Vidar Jerstad will now present the results for the fourth quarter 2021 in details.

[Vidar Jerstad, executive]

Thank you, Bernt. As already stated, operating revenue in fourth quarter of 2021 was $65.3 million. That's an increase of $8.2 million or 14% compared to same quarter last year. Operating expenses were $35.6 million, up $1.6 million from last year. G&A expenses were flat at $4.9 million. This leads us to an operating margin in the fourth quarter of $24.8 million. That's up from $18.4 million in the same quarter 1 year earlier. That's an increase of 35%.

The operating margin for the full year reached the $100 million, $100.6 million to be more precise. Depreciation last quarter was $15.9 million there have been no impairments or reversal of impairments in the last quarter or the last year as a whole. Operating profit in the last quarter was $8.9 million, $38.2 million for the full year.

Net profit in the quarter before taxes after financials is $5.2 million, after taxes, $7.1 million. Results after adjusting for minority shareholders in subsidiaries is $8.1 million. For the full year, we sold to shareholders is $107.9 million compared to last year, where we had a loss of $298.9 million. Remember then that this year's results includes a financial gain of $92 million. That was a debt forgiveness element in relation to the conversion of debt in the second quarter.

Also remember that last year's results includes impairments of $277 million. Still also adjusted for these one-off effects, the figures show clear improvements from last year. The following must be recognized for 2021 compared to 2020. For the whole year, we see increased revenue, reduced operational costs, almost flat G&A expenses and not least, reduced financial expenses as an effect of the restructuring of the company in the second quarter.

If you read a report in Note 10, you will see that the interest expenses in last quarter was $4.7 million, same quarter last year was $9.8 million. Next year, we will see this effect for the full year. In a year where the global pandemic affected the demand for our vessels and our services, and it also affected the ability to operate on a normal circumstances, our employees has managed to focus and deliver strong operational results. We believe these figures shows that.

And now let's take a look at the segment's overview. This shows the operating margin for the different segments. G&A is not included in the graphics. In the fourth quarter, and the year as a whole, all segments have an improved operating margin compared to 2020. Also note that all segments also the anchor handling vessels now has a positive operating margin before G&A. However, despite our anchor-handling vessels, is -- in number of vessels represent our largest segment in operating margin terms, this segment contributes least. Our OSCV vessels and well intervention vessels represent more than 50% of the operating margin.

And let's take a look at the financial positions. Siem Offshore had a successful restructure and implemented in the second quarter of last year. $269 million of debt was converted to equity and mandatory debt service on remaining debt were reduced and the total debt service will be adjusted to cash flow generated. That is flexibility. There were also no uplift in margin on the remaining debt. They were restructuring together with last year's down payment of principal of $124 million leaves us with a balance sheet where the gross interest-bearing debt is reduced to $624 million. Equity is $340 million, representing a book equity ratio of 32.8%.

And now let's take a look for the cash flow for the full year. We started 2021, we started out with $103 million in cash. We've received $102 million in cash from operations. We have paid interest of $20 million. We have invested in vessels, $28 million. We have sold 3 vessels and received $52 million. We have repaid debt of $124 million, we have got some equity from minority shareholders in 1 of our subsidiaries of $10 million. We have also received some money back on a debt to clients of $4 million, and we have some currency effects.

At the year-end, we had $92 million in our bank accounts. And the contract backlog. We had at year-end a backlog of $298 million, below, you see the -- in the slide, you see the backlog distributed on vessel segment and years. It is worth to mention that our vessel backlog related to offshore wind clients are increasing. Our vessels are attractive vessels also for the renewable market.

[Bernt Omdal, executive]

Okay. We will now go toward the fleet and our geographical footprint. On this slide, Slide 10, we have listed the vessels in operation for the OSV segment. Currently, we have 28 owned vessels in operation. And in addition, we have 3 vessels on management. There are no major changes in the fleet composition. Thus, we will not go into the details here. We still try to sell out older and smaller vessels, which we consider as noncore assets.

On the next slide, Slide 11, that covers our geographical footprint. We are, as you can see, a global player moving our vessels to markets or call it, geographical areas where you find the margin attractive. Most of our fleet is on term contracts, except for the anchor handlers we have in the North Sea. We have our own offices in Norway, Canada, U.S.A., Brazil, Ghana and Australia. In other countries, we have local support to our operations.

We continue our work to minimize our carbon footprint. I mean we would like to highlight some of the recent actions taken. We have installed shore power systems on all relevant vessels. We have battery packs installed and planned for on 4 vessels. Fuel consumption has been reduced by equipping our fleet with Høglund Ship Performance systems in combination with Maress digital software. We have 3 dual-fuel vessels. And by running on LNG, we were able to reduce our emission, which is something we are highlighting for our clients if they have a preference to run on MGO.

Waste reduction initiatives, both onshore and offshore and towards clients has been implemented, recycling policy is implemented in accordance with international accepted green recycling regulations, practices and procedures. And we will also soon deliver a full ESG report in our annual reports.

On the market update on Slide 13, the fourth quarter activity and utilization levels were impacted by entering the winter season, especially for the anchor handlers and PSV segment. The North Sea and anchor handlers spot market experienced a declining activity with a large number of vessels available for longer periods. And the same is so within the PSV market, even though there were some spikes on demand for short periods. But offshore construction market, it was more activity than in previous years, and the market was almost sold out for the quarter with the improving day rates.

The combination of increased oil and gas activity and offshore wind campaigns is beneficial for all segments. And the long-term fundamentals and outlook for OSV market are gradually improving on the back of increasing oil prices and energy demand. And we see several projects that have been approved for this year and more are being considered. And especially within Brazil, West Africa and the North Sea, we see increased activity. Although, the situation in Ukraine will influence the market for all vessels is still too early to say, but we believe that the summer campaigns in Russia will be affected.

So when it comes to the offshore wind market, we expect it to grow substantially going forward, not only in Europe. The rest of the world is following after. We have managed to position ourselves in the renewable market also outside of Europe. We have a proven track record of serving offshore wind farms globally since 2014 with more than 200,000 personnel transfers via motion compensated gangway. So this is something our clients recognized as a significant part of our contract backlog relates to offshore wind projects.

So to summarize, despite all the challenges the OSV sector has been faced with in 2021, the Siem Offshore team managed to deliver a margin above $100 million. We deliver first-class operations with an excellent HSEQ performance. We have a firm contract backlog with a positive margin. We continue to strengthen our position within the renewable segment and positive -- and we see a positive market outlook in all segments and especially within the subsea market. You see that maintenance on the subsea infrastructure has been neglected for years. And we see also a much higher activity within the IMR/Subsea segment.

So that was the end of our presentation. We will now open up for any questions that you might have.

[Vidar Jerstad, executive]

There is a question here about the financial expenses and interest rates to be paid. There is a question if we -- whether we believe that the levels shown in the fourth quarter will persist going forward?

I can say that we have roughly 2/3 of the debt is floating debt. So if there are interest rates -- rate rise due to inflation or other things that will somewhat affect us. But beside from interest rates moving, nothing should change that picture.

[Bernt Omdal, executive]

There is a question regarding our anchor handlers in Australia, whether we'll keep them in Australia or not. Well, that's depending on the employment situation. As mentioned during the presentation, we are moving our vessels where we can find a good margin for our vessels, whether that's going to be in Australia or anywhere else in the world, it's too early to say.

[Vidar Jerstad, executive]

There is also a question regarding the CapEx going forward. It says that the CapEx per quarter in 2021 was roughly $7 million. Is that a level we should expect going forward as well? I believe there will be slightly some figures going a bit below that, but if you assume $7 million a quarter, I think you have a rough good estimate or we will be at that level or below.

[Bernt Omdal, executive]

There is a question saying, when is going to be activated. Could you please be more specific? Siem Ruby is -- we have started the reactivation, it will probably come into the market in April and May, the way we see it.

[Vidar Jerstad, executive]

Going back to the CapEx question of $7 million per quarter, we believe we will be on the low side of that going forward.

[Bernt Omdal, executive]

Any other questions? Okay. If no further questions, we thank you all for attending the call and wish you all a great day. Sorry, there's one more question coming here. I see the PSV fleet revenue seems to have turned in terms of utilization and rate. We expect to see that trend continue. We believe that there will be -- there is a demand for modern high-spec tonnage. So we believe that we will see a better market for dual-fuel modern PSVs.

Any other questions, please. Okay. Then we all -- then we thank you all for attending the call and wish you all a great day. Thank you so much.