Prosafe SE

Okay. Good morning.

Welcome to Prosafe's third quarter presentation. I'll just leave the disclaimer, second as usual, and we will also today follow the usual procedure.

I will go through a few highlights and then Stig will take us through the financials and the business update. I will touch a bit on outlook and then wrap us up in a bit more than 25 minutes.

Looking at the recent highlights for the quarter. If you recall the second quarter, we were pleased to announce some positive commercial developments.

We secured a good contract for the Safe Scandinavia on the Norwegian continental shelf, and we reintroduced the Safe Concordia to Brazil and both of these vessels are operating now. On that basis, we have continued with some good developments in the latest quarter.

Safe Boreas was extended by Equinor at Mariner by 8 months, plus another 6 months of options, which can take that vessel all the way through end of next year. Caledonia, 1 work in the U.K.

sector, MMO related, or 4 plus 2 months mid-next year. And lately, after the end of the quarter, we announced that Safe Zephyrus will nicely dovetail from its existing work at the Johan Sverdrup-feltet and almost go directly through U.K.

for interesting contract with BP at Clair Ridge. The order backlog is picking up, not sure that's a highlight, but it's a been long time since we have been able to say that.

So we will comment it back to that positive development. Utilization is also showing a positive trend.

It's about up 10% compared to a year ago. And if you go back and look at the start of this year, it's almost up more than 15%.

EBITDA around $33.1 million. And we haven't mentioned the number a year ago, but you will also note a positive development in that respect.

Cash flow, $26.6 million in the quarter and our cash balance at the end of the quarter is $266 million, quite healthy, and today a bit higher than that. We also announced last presentation that we will scrap the Safe Astoria.

It has been on that list for a long time, and I'm pleased to say that we have sold now the Safe Astoria for scrap. The price is a bit north of $2 million.

And naturally, I can inform that the scrapping or recycling of that vessel will be conducted in an orderly fashion. Finally, as we have mentioned quite a few times, we, in the quarter, entered into a very interesting agreement with COSCO on the 3 vessels and at the same time we made an agreement with our banks which will extend our financial runway on attractive terms.

So I think on the indicators we are coming from a low level on mainly of the indicators, but all of them that we have highlighted are showing a very positive trend, a trend that we think will continue. Okay, Stig, will you take us through the financials?

Thank you, Jesper, and good morning, everyone. It's been another good quarter or maybe one of the best quarters for quite some time, having gone through the valley of darkness for at least 2 year, it's good to see that just over the last few months, there has been quite a few green shoots, as Jesper has alluded to, which is positive.

Let's turn to the results. Operating revenues in the quarter compared to the same quarter last year slightly up.

I see that some of the analysts have highlighted that one effect is, of course, simply IFRS. IFRS always makes life exciting.

So it's income recognition under IFRS $5.2 million in the quarter, but it is important on this quarter that we have a higher utilization in the quarter, currently 6 or 5 vessels operating at that time. That's a positive.

Although note also, as we have guided before, that the average day rate level is currently lower than we have seen for some time. We've been riding the tailwind on the previous up cycle for a period, and I think in rough terms, the average day rate in the third quarter was about half of the average day rate in the second quarter.

So utilization is up but the day rates are down. And that's where we are now before we need to look ahead.

On the operating expenses side, we have $2 million roughly of exceptionals in the quarter related to the COSCO deal that we announced earlier as well as certain restructurings in the organization. So I would say that underlying EBITDA is $33 million as opposed to the $31 million reported.

Depreciation, just as a reminder, obviously it comes down from the same quarter last year and that is basically due to the impairments that we did in 2017 as we remember. Talking about IFRS.

Interest expenses relatively high in the quarter. We are levered.

We all know that, but it's not that bad. So obviously, this is accounting gymnastics related to 2 things.

Number one is the reversal of a reserve account that was created when we abandoned hedge accounting in 2016 in Q3. So that is now, due to the increase in the LIBOR interest rate that kind of falls away and we need to reflect that in the P&L.

So it's a one-off noncash item. The other item is, of course, related to the recent refinancing with our lenders.

And it is basically a reflection of the step-up in margin on the $1.3 billion facility and the fact that we're pushing more amortizations out in time. That is also something we need to reflect in the P&L, and then increase the interest-bearing debt in the balance sheet.

It's important to underscore though that going forward in isolation -- the interest cost in isolation going forward should be coming down by $2 million to $3 million per quarter as a consequence, but also underscore these are noncash one-off items. So that gives us in the quarter a negative EPS, however, and it impacts the equity as well as we'll see when we come on to the balance sheet.

But keep in mind, we not have any equity covenants. We have a nice financial runway.

And also, number three, the main focus in Prosafe should be on the EBITDA and how that may be developed in the years ahead. So moving on to the balance sheet.

Just shy of $2 billion in total assets, book equity of 22%. A very good cash position as you see, $266 million.

Good working capital development in the quarter, and I think it's fair to say that we have -- although leveled, we have sufficient financial flexibility in the foreseeable future that combined with really no covenants that impacts us that we have the financial maneuverability we need, we think to take the company forward as opportunities arise. So moving on to business and operations.

This is just a recap what we have been doing over the last while, certainly over the last year or so. So with the announcement of the COSCO deal and the deal with the lenders at the end of August, we basically have not completed necessarily, but certainly substantially renewed the fleet, which allows us to -- which basically gives us a modern fleet with a significantly reduced average age and global reach.

And as you see, 50% of the fleet now has an average life that is -- or average age actually that is less than 4 years. Financial flexibility, I addressed.

We believe that's sufficient in the foreseeable future to move ahead and take the opportunities that comes along, and we are well positioned now. And we've been talking consistently about consolidation and fleet renewal for the last 3 years and that remains on the agenda.

So we will continue to be active in any potential restructurings in the industry going forward to renew our fleet and strengthen our opportunity to take benefit of any contract opportunities that might arise globally. Before I do a quick update on Westcon, we also continue to do a lot of measures internally.

We have cut most of the costs we think, but there is a lot of activity going on in-house to refine the company to make sure that as much as possible of the cost savings will be sustainable even when the market picks up. Quick update on Westcon.

You are all familiar with Westcon. We have the ruling and we won basically on our accounts.

The next hearing is not yet decided, but it now looks like it will be sometime in the first half 2020. In the meantime, we are doing whatever we can to protect our position and our intention is to not only protect, but if possible improve that position when the opportunity comes.

And in the meantime, let me remind you that we are generating 8% interest on the loan -- sorry, not on the loan, on the amount from the first instance. So it's a pretty good cash management measure.

And then fleet status, as I alluded to in my introduction, we currently have 6 vessels operating. It's been a while since we had that last time.

That's a positive picture. We have had recent contract awards that Jesper alluded to in his introduction; the Boreas, which is basically an extension or an amendment to an existing contract, which is very important.

We have the Caledonia, new contract and then we have the Zephyrus. Six vessels operating and, as Jesper said, scrapping the Astoria, which further enhances the quality of the fleet going forward.

And as you know, we have flexibility now with the lenders to scrap up to another 2 vessels. Whether or when we don't do that remains to be seen.

That depends on the fewer things, not only how the market developments, although that is, of course, one important element. And then, of course, the white space from late '19 going into '20, that's where the excitement might start.

Let's see. So I guess with that, Jesper, I will leave the word back to you.

Okay. Thanks, Stig.

Thanks. On the white spaces, the excitement is -- I have another slide where whitespace is not so exciting, but I will get back to that.

So one -- 2 slides on macro. Naturally, oil price is not something we have any opinion on or track closely.

What we do track, of course, is our customers' expectations or their implied view on oil trade price. I borrowed this slide from Rystad basically highlighting a few key customers' expectations or implied long-term expectations you can see from BP basically, and you can find in their annual report Equinor Capital Markets Day, Repsol basically what do they use for impairment testing in their accounts.

So this is, of course, not hurdle rates, but it's comforting to see for us that there seems to be an average or a fairly decent limited spread on a healthy level expected by our customers, a good proxy for activity going forward. Another good activity for proxy for activity going forward is the global CapEx spending.

And this is the one I was alluding to that this white space is not lost opportunity, but painful memories, I think, and -- but I think what we are focusing on today is a bit on the positive development looking at the 2018 CapEx and the sanctioning activity we are almost seeing, almost, doubling on 2017 levels. And as you can see also from Rystad, depending on the oil price expectations we would expect to see a very dramatic increase in the sanctioning levels and CapEx spend between '19 and '23, both good indications of long-term activity.

A bit down to earth from the macro. There has been a lot of focus on the Equinor announcement that they have an ambition to extend life of 20 installations in the North Sea.

And we just included a brief overview also hopefully, compiled by Rystad. About 24 production hubs in the Equinor system and assuming that we have life-extending one installation in each hub, it may impact us mainly as 80% of their production hub.

So and normally, of course, some of the lifetime extension project is a good opportunity for accommodation, although we don’t know the scope of the exact timing yet. It's actually a bit unfair that I haven't mentioned U.K.

and I will not mention it because it has been -- has brought us the most activity in the recent months and actually when we look forward, we also see the U.K. being very active in terms of maintenance and modification.

But just a few comments on Brazil. Basically, the brief story on Brazil is no news.

It means that things are moving to the right. We see some interaction from Petrobras that would indicate that a tender is imminent, whether it's this year or early next year, we will hope for this year.

But I think, and looking at their contract backlog and the existing vessels they have, there is no doubt that they will be contracting not just one, but more vessels in the years to come. One particular interest, in fact, in Brazil is, of course, the number of new FPSOs coming on stream in the coming years and even though they are replicas and not planned to call for a lot of accommodation as we have seen with other hookups, it may very well happen.

And so basically Brazil, it will be active and we think it will be active in the near term. Mexico is a bit of a different story for Prosafe.

It's a market reentry strategy. As you all know, a new government will take seat on 1st December, and we also understand that, that would imply changing out key positions and persons in pay mix.

Right now our focus, we are quite active in Mexico and our focus is to make sure that the existing and not least the new people coming in are aware of the compelling proposition Prosafe can offer in Mexico. And I think in that respect, we are making good progress.

Order backlog. As I mentioned, just a few numbers.

As you can see now, our backlog has increased to 232 million, and you can see the familiar decline, for instance, driven by the Safe Scandinavia contract coming to an end. And now we are improving on the contract backlog.

Historically, in the high-end space in accommodation, we have globally been awarded about 39% of the global contracts in the past 6 years and in the North Sea about 72%. So we are well positioned for increasing activity.

The good thing is that we are seeing maintenance and modification projects returning. I was basically alluding to that in respect of the U.K.

sector, and I think what is interesting is, of course, how the backlog is compiled, as, of course, rates and duration and utilization, but I think the interesting thing for me is that we now see some customers are active in securing capacity for 2020. And I think that if you look back on what we have -- I mentioned the second quarter, the Scandinavia and the Concordia, those were basically contractor and started with a very short period of time.

Now we are seeing some customers being active for securing 2020 capacity, which is a significantly longer lead time and then perhaps an expectation for some customers that the most attractive capacity is available now, but may not be available in a few months' time. So lead time is increasing.

A bit of a snapshot from our business intelligence system. I don't want to go into too many details, but as you can see we track, of course, the global number of prospects and that remains at a very healthy level.

Naturally, some of the regions, as Asia and Africa is not where we are most active, but it basically shows the other trend we are seeing. Then we can see that tendering activity even right now is not exactly the peak season of tendering.

I think it's fair to say we have seen a small drop in North Sea tendering, which is basically the contracts that we have won. And secondly, I would think that there are still some room for activity in 2019.

And I think that something will come up for 2020 also in the near future. So when we look at this picture and what we see and some concrete prospects, I think that next year we will definitely take out one of our new building from Cosco and then there are some of the prospects that we see that if they materialize in the way we would like, then there could also be a possibility to take out a second new building next year.

Okay. Wrapping us up, as you have heard, good financial performance.

As Stig said, we are at a fairly low level, but we are showing a positive trend in most key indicators. We have won more than our normal share of 70-something-percent recently, and we have secured good contract extensions.

For instance, on the Boreas for a lengthy period next year. Backlog seems to be go -- moving in the right direction, and I think an element we would like to see increasing or continuing is the lead time especially in the North Sea.

The same with Safe Astoria for a few million dollars. It will be scrapped or recycled in a responsible way.

I have already mentioned many times the agreement we did with Cosco, and thanks for the support from our banks in that respect. I don't want to repeat that, but we're very pleased with that.

And I'm pleased to say that we see some use for these vessels sooner rather than later. Consolidation remains on our agenda, and something we are pursuing actively where it makes more sense from a synergy point of view.

And the 2 last points is basically repetition that will show the utilization is increasing and with the lead times we see we also have a expectation that day rates will also show a positive trend. So I think that takes us through the brief presentation of this third quarter, and I would invite for questions, either online or in the room.

Any questions?

Chris from Carnegie. Can you please comment on the increasing gap between probability of tenders versus what's actively tendered?

Yes. I think it's -- we get that recurring question, and I think what we have seen in some months if you go some months back, I think, actually, some of the gap has been decreasing for some time that we have had a better conversion from prospects to tenders in the recent months if you go back to see that, but I think, just now, I think the increasing gap here is basically just an expression of the increasing activity we see, when we look at a global level.

And these -- the ones we include here are basically the P50s, P90s to go into tender. On the P50 basis, you may be some years down the road from a development prospect on MMO and therefore, there can be a time gap between the tender and the prospects.

This is 3-year forward looking. So I think the increase in the prospects is just our expectation of increased activity.

A big question, what's the book value of Safe Astoria?

0.

[indiscernible]. You mentioned that you see potentially taking out one of the Cosco rigs in 2019, possibly 2.

Could you allude a little bit on your bidding strategy?

No. No, but, of course, we don't want to cannibalize our existing fleets, but we do see that for these high spec vessels, there are opportunities.

As I think I've mentioned before, these 3 vessels are all compliant for specifications in Brazil. And if we look back 14 months, we have had 5 instances where we either lost a job or did not get the full utilization, because we didn't have the right vessels available, that be it in Austria, Brazil, U.S.

Gulf and twice in the North Sea. So it's, of course, a balance for us.

We don't want to take them to the market too early. There has to be a sound need and underlying demand for those vessels.

But I think on a concrete basis, also outside Brazil and in the North Sea, we do see some prospects that if they materialize in the way we would hope it could be an opportunity. Other questions?

Yes.

For you to make a quarterly EBITDA of say $50 million, how would you achieve that, most probably if you were to reflect around that issue?

Can you repeat the question, please?

How do you get through $50 million EBITDA?

You're very focused on EBITDA?

Yes. Yes.

How will you get to $50 million. What's the most probable course?

Just 2 ways to get to EBITDA and that is utilization and day rates.

And your expectation would be?

I think Jesper alluded to it. Typically, we'll expect utilization, i.e., general activity to pick up first to drive activity.

And as activity comes up in general then you would normally see prices to follow that's how the market normally works. Also for us, although you have a few exceptions in between, we've seen that, but this is about a gradual recovery of the market that will bring up activity and that's when you are able to increase the rates as well gradually over time.

I'm not sure, if you looking for something else, but...

But if you look historically, $50 million EBITDA quarter 2 and $100 million a year is well below the historical average, even before the boom period.

That's true. If that was your question for company as such, I mean, but I regarded that as a question for vessel.

But if you look at historically, the company has been -- in the previous up cycle the average EBITDA was pretty close to $300 million for a few years, but, of course, the market was booming as well. So we're not guiding on profits going forward.

All I'm saying is that EBITDA is where the focus is for us. And I think from the market and where that ends up, that will be a result of how strongly the market comes back and how good we're at capitalizing on opportunities in the market.

But it is a good question because I think at least in one respect the times where the main focus was keeping you assets warm are over, now it's more of a margin focus.

Second question. Is this a utilization level at which prices would -- you would expect prices to really pick up?

Yes, this is -- it's not a commodity market in that prospect, so you don't have this inflection point at some stage. And if you look historically in the North Sea, I guess, full utilization for the past 10 years have been around 70 basically on how these projects have been slotted together.

So I think you have to look at it probably first in terms of number of vessels and demand and then total utilizations. So I don't think you can say a certain inflection point where you see a dramatic increase.

Other questions?

Other good questions? Okay.

Nothing online. Good.

All good?

Okay. Well, thanks for coming.

I hope you enjoyed the upgrade on both screen and seats. Moving in the right direction as well.

Thanks guys. Thanks.

Thank you.