Solstad Offshore ASA

Good morning and welcome to the second quarter presentation for Solstad Offshore ASA. This presentation will be held by CFO Kjetil Ramstad and myself Lars-Peder Solstad. We are happy to present the best quarter we have ever had with a very high utilization on our fleet, a record high revenue and also a record high EBITDA. We have also continued to build the backlog in a nice way during the quarter. The quarterly report is still a bit messy as the PSV fleet was delivered to new owners a week after the quarter end and thereby the balance sheet in June still includes the PSVs. Having said that, in this presentation we have excluded the PSVs to give a correct picture of how the company are developing based on the relevant fleet of CSVs and anchor handlers. After this presentation, there will be a Q&A session, so please send in your questions by using the chat function. A quick look at the disclaimer before we move on to the financial highlights of the quarter and as mentioned these numbers are excluding the PSVs and that also goes for the last year's numbers which you will see in brackets. And as you see, the revenue came in just above 1.9 billion NOK in the quarter and with 934 million Norwegian kroner in EBITDA, that means an operational margin of close to 50% and it has been some time since we saw similar margins. and we continue to build a healthy backlog with good counterparts and our cash position has also improved further. Looking at the assets, the debt and equity, these numbers are all adjusted for the PSV sale and Kjetil will dive deeper into these numbers later in the presentation. We have seen a continued high demand for our services with increased willingness from our clients to charter in longer and to accept improved commercial terms for our services. This has resulted in a 77% increase in EBITDA in the quarter compared to second quarter last year, which is our best operational result ever. It's also very encouraging to see that as much as 31% of our EBITDA comes from renewable energy activities. During the second quarter we have been involved in several offshore wind projects in Taiwan, in the UK and in France and also in other countries and this market segment is contributing significantly to the high demand for offshore vessels and then particularly the CSVs. The earlier announced sale of our PSV fleet was concluded just after the quarter end, resulting in a significant reduction in the company's debt and a reposition of Solstad as one of the main owners and operators of high-end offshore tonnage. The entire remaining fleet will have all types of offshore energy activity as markets and we are able to offer our clients not only vessels on time shutter but also additional services as ROVs, survey, tooling and project support. And our experience is that our clients are welcoming this offering and we are able to increase revenue and EBITDA per vessel. In this quarter, we have ordered four new ROVs that will be utilized on the company's CSVs from end of this year. We continue to see many opportunities in the market. Brazil is very active and at the moment there are opportunities in the market for pipe laying vessels, ROV survey vessels, large anchor handlers, medium sized anchor handlers, all for long term contracts. And there are also ongoing bidding in other geographical regions and also to subsea contractors for global project work. For the anchor handling fleet that are not on term contracts, we experience a busy project market and for our fleet of five large anchor handlers trading the project and spot market, we have had several good projects in the quarter with earnings compensating for a rather slow North Sea spot market. And we are actively seeking project work and we expect to be involved in several projects also in second half of 2023. On the market, we continue to see a market with very high bidding activity. Clients are willing to commit longer and to improved commercial terms. This goes for oil and gas and also renewable energy activities. More clients realize that it's highly probable that there will be a shortage of vessels and are therefore interested in securing capacity. Except for the SOV segment, where there are plenty of vessels under construction, there are close to zero vessels being built that can service both the oil and gas and renewable energy markets. And lack of capacity or lack of new capacity in a market that continues to grow could easily make a strong market even stronger. going forward. And as we see it, there will not be any meaningful new capacity added to the market the coming years. To have a strong global presence will continue to be a benefit. North Sea based rigs have left the North Sea region for contracts in Africa, Australia and Canada, but they will still require support and preferably from companies that can offer local content services. Brazil and Guyana will have very high field development activity and to have the global approach is necessary to be able to participate in this activity. Same goes for other areas and within offshore wind local content is even more in focus than in oil and gas. We believe that our first class fleet and service in combination with direct presence or in partnership with others in many of the busiest regions will be beneficial also going forward. I would like to give you a few examples of contracts we have signed lately. Norman Pioneer is our oldest vessel and we are now signing a new contract for 18 months for clients in Brazil and that is at the highest rate that we have ever seen on that vessel. and as a consequence of the new contract we are also taking the vessel through its 25-year class meaning that we will extend the commercial life of the vessel until 2029. Norman Maximus, our largest vessel, now went on hire to a new client this week and are now booked for the coming two years. And she's gonna, on a new contract, she's gonna work on global subsea contracts. And we are already now also participating on tenders beyond 2025, 2026. So there's a lot of interest in that type of vessel. Norman Carioca is the only PSV we did not sell. And that vessel has now been converted to a well stimulation vessel on the client's account. And at the same time, the contract was extended with four and a half years, meaning that she is fully committed until end of 2027 at good terms. And going forward, we will include Norman Carioca as one of our CSVs. If we take a look at the backlog, also in second quarter, we signed contracts for higher value than we invoiced our clients in the same period, giving a book to bill of 1.1. This is the same factor as we had in second quarter. But keep in mind that the revenue back then was about 1.3 billion and now it's 1.9 billion. So the value of the new contract is significantly up. And the figures shown on this graph is also of course excluding the PSV fleet. The total firm backlog is at 6.5 billion NOC and about a double at 12.3 if we include options. And as you will notice, the backlog for execution in second half of this year is fairly high, and the same goes for 2024, especially if options are included, which is a likely scenario in a tight market. An overweight of the firm backlog comes from the CSV segment. And the backlog has high quality and all new contracts are being done at healthy margins. We believe that we have a good combination of backlog in hand and available capacity to add more contracts in an improving market. We have already signed more contracts after quarter end and are involved in a large number of bidding processes and contract negotiations globally. These are for both anchor handlers and CSVs and it is with oil and gas clients and it is with renewable energy clients. And this gives us the comfort that we have a good combination of the right type of vessels firm contracts and availability capacity to take on more contracts, long term, medium term, and projects in a market that we believe will continue to improve. So then, Kjetil, I hand the word over to you to take a closer look at our numbers.

Thank you Lars. If we start with the income statement, as mentioned the second quarter has been the best quarter in the company history, also taking into consideration that the PSV fleet has been sold. Operating income from continued operations was increased by 44% to more than 1.9 billion NOC compared to last year. And EBITDA adjusted from continued operations increased by 77%. to 934 million NOK compared to 528 last year. EBIT was 630 million NOK or 33% over revenue. It's good also to see that the net result for the quarter is positive 336 million NOK. If you look at the EBITDA distribution on the graph on the right hand side, you will see that more than 30% of the revenue was generated from renewable projects or activities. But also, as you can see, more than 80% was then also generated by the CSV fleet. So it's good to have a fleet that can do both activities. If we go on the balance sheet, and the balance sheet is a pro forma balance sheet trying to illustrate how the balance sheet had looked like if we have closed the PSV transaction in second quarter. So this is just for showing how it would look like. But as you can see, the largest movements on the balance sheet is obviously on the fixed asset, where you can see that the reduction has been almost six billion compared to last year. And also, if you look at accounts receivable and cash, you see that cash is on the same level as last year, but also accounts receivable is up, and that will be normalized in third quarter, and we expect that the cash position will increase going forward. If you look at the equity side, it's also a little bit up from previous or from last year. I will come back to that a little bit on the next slide. Same on the debt side. You can see that the debt has been reclassified from long term to short term, but you can also see that the reduction has been nearly six billion of reduced debt to credit institutions. And this also gives an equity ratio that is increasing for the company. If we start on the equities side, and as we have mentioned previous quarters, our debt is 70% dominated in US dollars. This, of course, when we translate it to NOC in our group books, we will have some unrealized foreign exchange effects, as you can see. It's been less the last quarter, but the last 12 months, we still are looking at the unrealized effects of almost a billion knock. On the good side, we see that the company's operations are performing, and the net result for that period correspondingly is 1.2 billion knock. giving an increased equity of approximately 300 million compared to last year. On the debt side, it's a little bit of the same. As you can see, we have repaid 1.6 billion NOC of debt in the period, but we also We have also added on a new lease for Norman Maximus of almost a billion, and we have FX effect of almost 1.5 billion NOK on the US dollar loan. So as mentioned, we sold the PSVs and then we are taking down the interest bearing debt with almost 6 billion NOC, taking us down to 17 at the end of second quarter. Then if we go to refinancing, and as you know, we have refinance coming up early next year, end of first quarter. And on the main portion of the refinancing is related to what we call the fleet loan, which is, It consists of 36 vessels after the PSV sale. It was 71 before. And of course, as mentioned, the debt there was reduced by approximately 6 billion NOK, as you can see on the graph to the right-hand side. Meaning that when we come to debt maturity in 2024, the gross debt will be around 13 billion NOK in total to be refinanced. And from the fleet loan, it's approximately 11 billion NOK. On Norman Maximus, as mentioned, we signed a new bare boat agreement there last year. And it's good to say that that structure is standing on their own feet with a new contract taking the vessel through the next two years with healthy cash generations in that structure. BNDS in Brazil and the structure that we have there is also self-funded with contract backlog and also adding on Carioca improves that position, so that is good. We have started the discussions with all stakeholders regarding the refinancing, and we have engaged financial advisors to assist us in this process. And we will share information when we have information that we can share with all of you. So with that, I will give the word back to you Lars to wrap it up.

Just to summarize the presentation, we have had a very good quarter with excellent operations and record high revenue and EBITDA. This has also continued into the third quarter and the market conditions look promising going forward. From early third quarter we have left the PSV segment and we now have full focus on the high-end CSV and anchor handling segments. And industrial this makes a lot of sense for us as this is the part of the market with the better outlook in our view. Our entire fleet are now also relevant for all types of offshore energy activities, meaning that we're also going to be very relevant for the ongoing energy transition. As a consequence of the sale, our debt are reduced with approximately 6 billion NOK, which should be beneficial for the 2024 refinancing of the company. The outlook for offshore energy activity continued to look good with very high investment programs from our client side, both within oil and gas and within renewable energy. So with that, we conclude our presentation and we move over to Q&A if there are any questions.

There are some questions. The first one is on the Australian market. Are the company considering sending more vessels to the Brazilian market in the coming period? I mean the Brazilian market.

Yeah, why not? We are participating in tenders there, and if we are successful, we will do that. We see Brazil as one of the main geographical areas for us, and we find it very interesting. So we are following that very closely.

Next one is, it looks like the company has a split of long term and short term contracts, especially on the CSV side. Can you explain why we are not doing longer term on most of the vessels?

uh well that is a um i think it's all it comes down to what what uh what uh what the rates we can achieve of course if we uh if if we find the commercial uh terms attractive enough enough on the long-term contracts we will will of course go long term but as i As per now, we also find it very interesting to keep some vessels in the shorter-term market because we see that the project market has been really good also looking over a period of a year, for example, compared to what we can do on long-term contracts for some of the vessels. So I think it will be a combination also going forward, but probably a little bit higher, let's say, percentage on the long-term contracts if we look a year ahead from now.

Congratulations with a good second quarter. Do you expect that there will be availability on the CSV fleet during the winter season like it has traditionally been some years back?

Well, I think in the tight market we see less differences between the seasons. But also back to the previous questions, we have a few vessels trading the project market. So we are continuously looking for projects that will take us through the winter season. But I think it will be, let's say, less availability than we saw, for example, last year.

Thank you. You mentioned the schedule on normal Maximus. Can you give an update on if the vessel is fully booked for 23 and 24 or any available periods?

The vessel is now fully booked. So the vessel is booked from early this week and until third quarter 25. So fully booked.

Okay, good. There is market reports recently stated that Australia is now sold out for high-end anchor handler capacity. With several rigs mobilizing to Australia going forward, how do you see the demand for large anchor handlers moving from North Sea to the Far East?

That may happen. It's one of the few, let's say, long term markets for anchor handlers. You have Brazil, Australia as the two long term contract markets. And as it is now, the old vessels in Australia, the bigger anchor handlers are working. So additional rigs should require more vessels moving in from other areas. So I believe that will happen.

And then the next question is, can you comment on the earnings potential? Do the companies still have old type of contracts from previous periods in its portfolio that have a potential for higher earnings down the road?

Yeah, we still have a few, let's say, legacy contracts that we are working on and many of them will either come to a conclusion or to contract end within, let's say, the next six to 12 months or or we will roll them over from firm to optional periods, and most of the optional periods are at a higher price than the firm contracts. So there are quite a few of the contracts that will be rolled over to better terms going forward, both on the anchor handling segment and on the CSV segment.

And then the next question is, the market is generally dominated by high activity and in many segments there will be lack of vessels. How do Solstra regard the future when it comes to new builds and planning for new investments?

I think what we're gonna do now is to concentrate on the fleet we have. We see that there is, so we don't look at new builds at the moment. I think we are still in, I mean, we still have to refinance the company, as you know. We have a, if you look at the, at the cost of new vessels is probably double from what the latest generation vessels cost when they were delivered back in 14, 15, 16. There is a technology vacuum. What type of fuel are you going to go for? Financing is a third element. From Solstice side, we are concentrating on the vessels we have at the moment, but we are looking more into how can we build on more services to the vessels we have so we can generate additional revenue and EBITDA based on the same vessels. Thank you.

And then there is a question if we can say a little bit more on what our strategy is around additional services. We mentioned new ROVs, et cetera. Can we elaborate a little bit around that?

We see that it's not only vessels that are going to be shortage of going forward. It also goes for equipment, it goes for people, it goes for tooling, it goes for engineering capacity a lot. And we believe that if we can offer a larger scope to our client, that will be beneficial. And we are doing some investments ourselves together with some very recognized partners to build up a fleet of ROVs that we are mobilizing onto our own vessels. And we are also able to offer other type of services with the same partners. So by bundling more services into the vessel delivery, we believe we will make ourselves more attractive and we also believe that we are able to take up more margins than on the vessel alone. So that is a clear strategy for us going forward that we will do more within services.

Okay, we are starting to approach the end, but here is another one. Very good performance. How much would you say the CSV rates has increased on average year on year if you also exclude the impact of normal maximus?

If we compare with... with a year ago, I would say that the rates has probably doubled, something like that, depending on type of vessel, of course, but in general doubled.

That's good. I think that concludes the questions. So thank you for the presentation.

Thanks for listening in. Thank you. Have a good day and a good weekend. Thanks.