Solstad Offshore ASA

OSE:SOFF

Earnings Call Transcript 2024-Q3

[Lars Solstad, executive]

Good morning, and welcome to the Third Quarter Presentation of Solstad Offshore ASA. This presentation will be held by CFO, Kjetil Ramstad; and myself, CEO, Lars Peder Solstad.

And it has been a quarter with very strong operational performance, high-fleet utilization and a continued positive market outlook. It is also the first time in many years that we will introduce dividends as Solstad Maritime intends to initiate quarterly dividends from third quarter and onwards. All this, I will come back to during this presentation.

A quick look at the disclaimer before we move on to the third quarter highlights and update on the business. As mentioned, our fleet of 39 vessels has had a strong utilization in the quarter and also year-to-date. This shows high demand for our services, which we also expect to continue going forward. EBITDA adjusted of NOK 328 million in Solstad Offshore and NOK 975 million in Solstad Maritime is a proof of improved commercial terms and solid operations. This also gives us confidence to deliver on the guided numbers for the full year for Solstad Maritime and a positive adjustment to the full year for Solstad Offshore -- to the Solstad Offshore guiding.

On the contracting side, the quarter itself had few significant contracts, but we signed three contracts after quarter end and we are in discussions for several more contracts that could materialize during this quarter. We are about to finalize adjustment of our fleet as our last vessel in lay-up have now been sold and delivery to new owners will take place in first quarter next year. After the sale, the fleet consists of 26 subsea construction vessels and 13 anchor handlers, as well as a growing fleet of ROVs.

We are very pleased to announce that the Board of Solstad Maritime has suggested to initiate quarterly dividends and will seek shareholder approvals for NOK 0.5 per share for third quarter. By this, Solstad Maritime returns NOK 233 million to the shareholders for the third quarter. Summons for EGM will be sent 31st October, and distribution date for the third quarter dividend will be on or about 21st November. More details will follow in the EGF (sic) [ EGM ] summon.

If we take a look at the market, we continue to see a strong global offshore energy market in oil and gas and within renewable energies. To supply side, the coming years are more or less given, as the main part of the relatively limited list of newbuilds will be delivered from second part of 2026 and onwards. The tender activity continues to be high, and we are in final negotiations for several contracts at the moment that could materialize in the quarter.

If I may highlight one geographical region with many opportunities, I would like to mention Brazil. The major subsea contractors have huge ongoing projects for Petrobras and others, and they are bidding for more. This will give very high activity in the country going forward, and this will require more vessels that are suitable for ultra-deepwater projects. This goes for pipelaying, subsea installation work and for moorings and FPSO hookups. We also see the oil companies in Brazil are very active to increase their fleet. And at the moment, there are tenders in the market for several large anchor handling vessels and for ROV support vessels, all of them for long-term contracts. Brazil looks promising going forward, but to be able to participate, it is a necessity to have your own local setup with the right operational licenses and to be able to comply with the strict local content requirements. In Solstad, we have all this.

Solstad Services. We continue to develop our service division. Together with our partner, Omega Subsea, it enable us to provide a broader range of services to our clients in addition to the vessels itself. At the moment, we have 4 vessels we provide these services on, and this will increase to 6 vessels in the first half of next year as we take delivery of four new ROVs. Year-to-date, we have had around NOK 900 million in revenue from services and with an EBITDA margin of about 23%. And this is on top of the margins we get on the time charter contracts. We have plans to develop the service segment further going forward as this has been very well received by our clients, and we see many more market opportunities.

And with that, I give the word to Kjetil, who will take a closer look at the numbers. Kjetil?

[Kjetil Ramstad, executive]

Thank you, Lars Peder.

If we then start with Solstad Offshore, for third quarter, Solstad Offshore had a utilization of 97% for its vessels and 96% year-to-date. Operating income for third quarter was NOK 766 million and year-to-date, NOK 2.3 billion. Operating result before depreciation in the quarter was NOK 375 million, which is an improvement compared to last quarter. EBITDA adjusted of NOK 328 million. By this, we're also adjusting our EBITDA guidance up to between NOK 1 billion and NOK 1.2 billion. As you know, in the EBITDA adjusted numbers, we have assumed that the IFRS 16 leases are booked as operational leases, which means that we are adjusting the adjusted EBITDA with negatively NOK 208 million in the quarter.

To be consistent on the debt side, we are also adjusting the net interest-bearing debt with a reduction of NOK 2.9 billion. And you see that more in the graph on the right-hand side. The SOFF net interest-bearing debt over EBITDA multiple is at 1.8. Result before taxes, NOK 191 million in the third quarter is good. Cash increased to the quarter end of third quarter to NOK 629 million. And then equity in Solstad Offshore is at NOK 2 billion, giving an equity ratio of 22%.

Then net interest-bearing debt in the financials -- the interest-bearing debt in the financials are NOK 5.1 billion. However, if we adjust the NIBD, the net interest-bearing debt with the adjustment of -- it will be at NOK 2.2 billion. And that needs to be done to compare it with the EBITDA adjusted numbers of NOK 328 million. Solstad Offshore has very limited amortization in the next -- over the next 3 years, with all facilities being refinanced to 2027. In Brazil, the company is performing better than planned, and we are paying down the debt faster than planned. We have firm backlog of NOK 4.3 billion. We'll come back to that on the next slide.

And the Solstad backlog, as you see, we have a firm backlog of NOK 4.3 billion, with some additions that Lars Peder mentioned in Brazil for 2 vessels. Solstad Offshore backlog always -- also include backlog for Solstad Maritime for the vessels that Solstad Maritime is utilizing in Brazil. Backlog for the 7 owned and controlled vessel in Solstad Offshore is NOK 1.5 billion. Most of the Solstad Offshore backlog has been added the recent year, meaning that the quality of the backlog in Solstad Offshore is good. With the backlog additions last week, we are close to 100% sold out, if you look at the vessel days available in Solstad Offshore. However, in '26, '27, we have more room to secure backlog at the current market terms.

Then if we move over to Solstad Maritime, also high utilization for the quarter, with 89% for the Solstad Maritime vessels, and it applies to both the anchor handling segment and the CSV segment. The operating income for third quarter was NOK 1.6 billion, and giving an EBITA adjusted of NOK 975 million. That is an EBITDA margin of 60% for the quarter. As communicated before, we expect that second half of '24 will be stronger than first half. And we also in Solstad Maritime on track to meet the guidance for 2024.

In the EBITDA adjusted numbers, we also in Solstad Maritime adjust the IFRS 16 leases, meaning that we then have some add-backs into EBITDA for leases being operational, and the add-back is net NOK 68 million positive in the quarter. Results before taxes in the third quarter was NOK 640 million for Solstad Maritime. Backlog of NOK 7.9 billion, with one award on Normand Cutter after the quarter end with good margins. Book equity at NOK 7.1 billion, giving an equity ratio of 41%. The net interest-bearing debt in the financials are NOK 6.5 billion. This gives an average net debt per vessel of NOK 203 million for the 32 vessels in the Solstad Maritime fleet. Cash has increased in the quarter from NOK 1.5 billion to NOK 2.3 billion.

On the Maritime fleet loan of NOK 8.7 billion, there is a repayment schedule of approximately NOK 1.4 billion on a yearly basis for the next 3 years with a repayment or refinancing in 2027. And then if we go to the backlog on Solstad Maritime, as you can see at the left-hand side, the firm backlog is at NOK 7.9 billion and NOK 15.3 billion if you also include the options. A large part of the backlog has been added after the market upturn has started. But, however, there are still vessels that are working on legacy contracts with potential for higher earnings going forward.

In '26, most of the legacy contracts have come to an end. So that's -- the opportunity comes there. In Q4 -- yes, in 2024, 81 of the available vessel days has been booked and that is quite high, taking into consideration the spot vessels that we have in the North Sea for anchor handling. For 2025 to 2027, we have a good combination of firm backlog and availability, and also there to add more backlog in today's strong market. The book-to-bill year-to-date in Solstad Maritime is at 1.7.

And with that, I hand over to you, Lars Peder, to summarize.

[Lars Solstad, executive]

Thank you, Kjetil.

And then to summarize the third quarter presentation for the company, I will say that this has been a strong quarter with a very high utilization and earnings, and the market outlook continued to be good. We added $50 million to our backlog recently, and more are expected to follow near term. Solstad Services overperformed our expectations and will have revenue this year of well over NOK 1 billion. And together with our partner, Omega, we will continue to develop services further.

And finally, we are very happy to announce quarterly dividend payment from Solstad Maritime of NOK 0.5 per share for the third quarter. And this is a milestone for the company and for its shareholders. And we lift our EBITDA guidance for the full year to NOK 1.0 billion to NOK 1.2 billion for Solstad Offshore, and we keep the guiding of NOK 3.3 billion to NOK 3.5 billion for Solstad Maritime.

So by that, we say thank you for listening in, and we move over to Q&A.

[Kjetil Ramstad, executive]

Okay. Then the first question. Can you say anything about the listing of Solstad Maritime Holding and when that will take place?

[Lars Solstad, executive]

Well, we are -- there are still the same time schedule. We have had us earlier that we are within second quarter 2025. The plan is to list Solstad Maritime, and there are no further updates on that.

[Kjetil Ramstad, executive]

Thank you. Frontier has been working the whole year of '24, but there is not announced anything going forward. What is the status on Frontier on going forward?

[Lars Solstad, executive]

Normand Frontier is working -- has been working in the Mediterranean lately with the vessel, yes, but also with the full set of services onboard, including ROVs, et cetera, and we continue to do so. We haven't signed any long-term agreement on the vessel, but we continue to work also for the coming quarters in the same area as we are today.

[Kjetil Ramstad, executive]

The anchor handling market in the North Sea looks to be weak going forward. Can you comment on if there is any project work planned or what is the expectation for the company?

[Lars Solstad, executive]

Well, on our anchor handling fleet, we have the combination of vessels working long term in Brazil, long term in Australia, and we have the, call it, the spot/project fleet in the North Sea. And on the North Sea fleet, the market is, as mentioned, it has been a weak start of October. Having said that, going from maybe 10 available vessels Monday morning to 0 available vessels Tuesday morning is what we have seen now. That just describes how the spot market is. It changes very quickly. We think that there will still be quite some activity going forward during the winter. We are bidding actively on project work. We will very likely secure some project work, and we are also looking at long-term opportunities for the vessels in other regions. So, yes, I would say it's on long term. I see -- I'm very positive and optimistic for the anchor handling fleet, especially interesting is the project market.

[Kjetil Ramstad, executive]

Thank you. And another question on Solstad Services. We have said that we expect a turnover of around NOK 1 billion in '24. What is the company's ambition for this segment going forward?

[Lars Solstad, executive]

It says Solstad Services has been very well received by our clients. We have a very strong partner with us that we have -- where we share the ambition to develop service segment going forward. We are already moving into 2025. We will have 4 more ROVs coming that we will mobilize on to our vessels. And we look at growing the segment going forward. We are not planning of being a subsea contractor. We are still going to be a ship-owning company, but we add on services on a day-rate basis on top of what we already have and that has proven to be a good niche in the market, and we will continue to develop that in the same manner as we do today.

[Kjetil Ramstad, executive]

Thank you. And another market question now on Solstad Offshore specific. With almost 2 out of 3 anchor handlers in Solstad Offshore firmed up through 2025, we -- and we have a question on Normand Maximus and Installer. Could you elaborate what you see the opportunities are for those vessels in '25?

[Lars Solstad, executive]

Yes. It's, of course, the -- it's very important vessels for the companies, both of them. And on Normand Installer first, that is a joint venture we had with SBM Offshore, that we have had for 20 years or more. And the vessel is kept busy. We had a very good utilization on the vessel this year. It's also in between projects right now, but moving on to next project very, very soon and we will have a busy 2025 as well. So, we own the vessel together with the client, and we have a long-term view on that vessel and on the joint partnership with SBM. Looking at the Normand Maximus, she is busy on projects in Brazil. We'll work in Brazil for most of 2025, and we are in several discussions on what's going to happen after that. But one of the best vessels in the market. We see that there are demand for that type of services, no concern of the chartering opportunities after the present contract.

[Kjetil Ramstad, executive]

Thank you. And then the next question. Saipem said last week that oil companies are now paying booking fees in '27 and '28 to secure capacity. Are you seeing similar trends in offshore and subsea?

[Lars Solstad, executive]

Well, we have seen that. We have actually seen that the clients are willing to a certain extent to make sure that they have access to vessels, let's say, with the commencement a bit ahead. We see that the -- I think that is a consequence of that, that both the ship-owning side and the chartering side see that, especially on the bigger vessels, the most -- let's say, the most sophisticated vessels, we see that there will probably be a shortage going forward. And there are ways of working around that. And one is to secure the vessel long term. The other one is to see what other things can the client do to secure tonnage and one of them is to pay a booking fee. So, I think we will see both going forward.

[Kjetil Ramstad, executive]

Yes. And then to Australia. It seems that you have limited coverage for the anchor handling fleet in Australia for '25. How do you see the opportunities for long-term work in Australia and the region?

[Lars Solstad, executive]

Australia is a vessel where we have 4 vessels operating there at the moment, anchor handling vessels. And you're right, we have -- the contract coverage for '25 is quite open. But we see that we are -- I mean, there are rigs with the drilling program that is already there. We have discussions ongoing with our clients, and we see that the -- we believe that we will be able to keep those vessels in the region and secure healthy contracts for the vessels. So, yes, so we are working on several of those opportunities at the moment.

[Kjetil Ramstad, executive]

And then general questions on supply and demand. How do you see that picture overall going forward? Will we have the same demand in services from Solstad going forward?

[Lars Solstad, executive]

I mean, on the supply, demand, if you mean by the -- linked to the newbuilding activity?

[Kjetil Ramstad, executive]

No, more linked to the project side of services that clients would like to have from us.

[Lars Solstad, executive]

Yes. I mean, I think we -- I mean, we are -- it's very busy now. There's a high demand for our services. I don't see that demand will be reduced going forward, more the opposite. We see that regional -- regional, we see that many of the, let's say, the deepwater regions are very, very active. Brazil is, as I mentioned in the presentation, is very active. We see Guyana continue to grow. We see the African countries. There's a lot to do there. And also probably the North Sea will be busy for at least for the next couple of years and other places as well. So, I don't see the demand for our services will change negatively at all.

[Kjetil Ramstad, executive]

And then there is a question about the leasing liabilities. We see that there is quite some leasing liabilities between the companies. Can you elaborate if this is the level going forward?

[Lars Solstad, executive]

That's more a question for you, I guess.

[Kjetil Ramstad, executive]

I can answer that. And if we look at the leasing liabilities, the main leasing liabilities between the companies is, of course, the Normand Maximus that goes from Solstad Maritime to Solstad Offshore, and that is on a long-term charter to '27. So that will gradually decrease. And then we have the Brazil leases where Solstad Maritime rent out vessels to Solstad Offshore to utilize the Brazilian setup. And the leasing amount of that will depend on how many vessels is being leased through Solstad Offshore on Brazilian projects.

Then we have a question on backlog. We see that the long-term backlog from '28 and onwards is almost only renewables. How do you see this picture of long-term backlog play out in the coming period?

[Lars Solstad, executive]

I think that is the -- I mean, we have been fortunate enough to work closely with one of the bigger or some of the bigger operators within renewable energy. And the nature of their business is that they already have a good overview of their activity into the 2030s. And by that, they secure capacity by hiring services from us. So, that's more the nature of that business is that it's long term and it's -- they have a good overview of future activity. So, that's why we have the renewable energy activity increasing and booked long term after 2030.

On the more oil and gas related, we are working a lot on the project side. We are working with clients that on oil companies, where we see that they are typically booking, especially in Brazil for 3 years to 4 years. So from commencement now that will take us maybe to '27, '28, while working more on the -- directly on the project side is more shorter-term contracts or not as long as three years, four years normally. So, I think it's quite natural, but I think that we have that difference. But I will also say that we are -- now have a quite good overview of 2025 already in terms of backlog and more than we normally have. And as we also stated in the presentation is that we expect to increase that backlog for '25 in fourth quarter. So, I believe we will go into '25 with a quite healthy combination of secured contracts and also some availability to book in profitable work for shorter term.

[Kjetil Ramstad, executive]

Thank you. And then we have the last question for today.

Should we expect the current level of quarterly dividends going forward?

[Lars Solstad, executive]

Well, we have announced a quarterly dividend of NOK 0.5 per share today, and that is for third quarter. We believe we will be able to continue on the same level also for fourth quarter. And then we'll see how we take that further thereafter. But the plan is to have quarterly dividends from Solstad Maritime and to -- yes, we have just started, and we would like to continue on that also going forward.

[Kjetil Ramstad, executive]

Thank you. That was all the questions.

[Lars Solstad, executive]

So thanks for listening in, and have a good day.