Prosafe SE

Okay. Good morning, morning, morning, and welcome to Prosafe's Second Quarter 2019 Presentation.

I trust you all know the disclaimer. Otherwise, it's also online.

No changes from last time around. I will take us through the highlights, Stig will cover the financials, as usual, and then I will round us off on the other 3 topics on the agenda, which is the same agenda as you've seen last time apart from, of course, a bit of update on the merger process.

So highlights in the second quarter. First of all, high utilization of 71%, which is a peak for the year or spike.

And I think we have to go almost 4 years back until we saw our utilization at the same level. Financials.

The EBITDA came in or the reported EBITDA of $53.1 million, whereas the underlying EBITDA was about $37 million. Stig will come back to the difference.

Cash flow in the quarter of $18 million, which means that we have a liquidity reserve at the end of the second quarter of $241 million. The second quarter also saw us winning what there was in that quarter, 3 contracts, a 3-year contract in Brazil, as you have seen before.

And then we added Concordia in Brazil for Equinor, a short contract early 2020. And last, the Caledonia won about 5.5 months of work for Total in the U.K.

sector in 2020. So we've won what there was.

And finally, the process, the merger process is ongoing, and I will give an update on that towards the end of the presentation. Over to Stig and the financials.

Thank you, Jesper, and good morning, everyone. So of course, he has -- or Jesper has already covered the highlights on his introduction.

So that's for sake of good order. Operating revenues in the quarter of USD 75 million at the utilization of 72%, or nearly 72%.

That compares to $100 million in the same quarter last year where we had utilization of 46%. But of course, as is well explained on the slide and as most of you know, the day rate situation is very different.

So in the same quarter last year, we had average day rates of $235,000 a day, whereas, in this quarter, as you'll see, it's down to -- just over $130,000 a day. So utilization is up, but clearly, the day rates are reflecting the development in the industry, to put it that way.

You can also say that we are still, to a small extent, riding the tailwind of the previous upcycle. We still have the Boreas working for Equinor at the Mariner field at a very good day rate.

That was entered into in the previous upcycle. She will continue to operate now through October at least, but of course, we are soon coming to the end of the tailwind of the previous upcycle and everything is kind of adjusted to the current environment.

Whether that's the new environment or not remains to be seen, but it's certainly the current. Operating expenses is, of course, very much affected positively this quarter by the reversal of the accrual of layup cost on the Eurus.

So we have explained that well before. Now we took delivery against contract in Brazil, so we reversed that.

That's a noncash effect and obviously brings down the cost level, so the true cost level is, of course, higher in the quarter. And the true EBITDA, I would say, underlying is, as Jesper alluded to, about $37 million versus the reported $53 million.

So the $37 million would more likely compare to the $57 million in the same quarter last year. But if you look at it from a margin point of view, keeping in mind the significant reduction in day rates, I think it's still fair to say that you see the efficiencies in the company and the effects of the cost cuts that's been going on continuously and that continues to go on to run the company efficiently and adapt to the current environment.

On the depreciation side, it's slightly down $3 million from the same quarter last year. It's really we don't depreciate a vessel over a straight line.

It's decomposed into various elements, so we have completed some depreciation on some mooring equipment, and we have also completed an earlier life extension on the Safe Scandinavia, not the TSV conversion but the life extension, so that brings down depreciation a little bit. So that gives us an operating profit in the quarter pretty much at par with the same quarter last year.

On the interest expenses side, just to remind you, if you go back and read our Q3 report from last year, you will note that we had a very large one-off noncash effect in the accounts in Q3 last year related to previous refinancing as well as previous hedge accounting. And when that was adjusted, we basically brought down the quarterly interest costs, which is why we're now at the more normal level of 18 -- compared to -- sorry, $15 million compared to the $21 million we had in the same quarter last year.

Other financials, so minus $10 million, of course, reflecting marked-to-market on our hedging portfolio interest swaps as well as interest caps and the falling interest rate. So that gives us a net profit in the quarter of $2 million compared to $7 million in the same quarter last year.

Quick look at the balance sheet. I think the only thing I would like to mention or repeat is what Jesper already alluded to.

Although the cash and deposits in the balance sheet is $121 million, we underscore the fact that the company, based on committed credit facilities, have a liquidity reserve of $241 million at the end of the quarter. And that's more important than the $121 million in the balance sheet.

Other than that, you will see that newbuilds have increased slightly compared to last quarter and previous quarters, and that is, of course, because we made part investments in the Eurus in the quarter, and then the remaining investment on the Eurus will happen in Q3. So you will see the full Eurus effect in the balance sheet in the next quarter, but the initial down payment is reflected in newbuilds.

So I think newbuilds is important. Liquidity, I talked to you.

I think the final element I would just like to mention is that you see the drop in the other interest-free current liabilities, which again ties back to the reversal of the layup accruals on the Eurus, which is why that has dropped significantly. So it basically leaves us with a pretty stable balance sheet, $1.7 billion, and a pretty stable book equity ratio as well, but good liquidity position to take us forward.

So I believe those are the points worth mentioning, and then I'll leave the word back to Jesper. Thank you.

Okay. Thanks, Stig.

Okay, moving on. The usual backlog slide, as you will see, also reflective of the day rate environment going forward.

The backlog also looking forward, is fairly modest compared to historical levels. And I think the only thing worth noting in that respect is that this is, of course, in Q2 and since we have added the Total contract for 2020 for Caledonia of a bit more around $100,000 a day, and we have also added an option called on the Boreas at Mariner, so that's end October now.

Otherwise, let me just walk through each of the vessels, starting from the top. Scandinavia completed a successful campaign at -- for Aker BP at Ula in the second quarter.

Caledonia just came off contract with ConocoPhillips in the U.K. sector at Judy field.

And as you can see, we will use the Caledonia for Total in 2020, which again means that we are likely to use the Zephyrus as the most cost-efficient solution for the Shearwater project in 2020 for Shell. Boreas, you can see we've added another option month called by Equinor.

And Concordia has now completed its MODEC contract in Brazil. And the white space between the end of the MODEC contract and commencement of the Peregrino job for Equinor, we will use for an SPS, and I think it arrived at quayside yesterday for that work.

The Safe Eurus is, well, you can track it online, it's well underway to Brazil, awaiting commencement of the 3-year contract, and that seems to be going according to plan. And then finally, let me touch a bit on the Regalia, which had a very short 60-day contract for Shell at Gannet.

And nevertheless, I'm quite pleased about the contract that, financially, the contract basically paid the 5-year SPS for this vessel, so that was good. And I think from a commercial point of view, it is now completely without risk to reactivate a vessel that has been called for about 3 years, complete an SPS and still perform a very time-critical short job.

And even though we had fierce competition for the job also we were able to convince Shell that we were capable of executing that project and manage that risk. And I think, for me, that just means that if you look back, we have basically had a very good commercial success for the past 2 years.

We've won everything, apart from perhaps one, if I had to be a bit harsh, not in the North Sea but elsewhere. And that confidence customers have in our ability also to activate and perform with the older vessels means that, going forward, I'm fairly comfortable that whatever pops up I think we're very well positioned to continue our good commercial performance even though day rates, of course, reflect the very competitive environment.

Looking a bit forward on our standard prospects graph. 50% probability of going to tender 3-year forward-looking.

10 tenders ongoing right now. As you can see to the far right on the screen, actually, there's not any tenders ongoing for the North Sea right now, which is a bit unusual this time of the year.

But if you look back a year ago, also slightly different, although not dramatic, and we still have time. Of course, on the MMO projects, have a bit shorter lead time, so we still have time both this year and next year to see if we can add to the backlog.

Otherwise, as you may have seen in the press and elsewhere, there are 3 ongoing tenders for Brazil, 2 3-year tenders for a smaller floatel, a UMSPP, I think it's called, and one 90-day job, which is not so interesting. And as you'll see, we're bidding for the 3-year tenders.

I think the results were available in the media and now follows the customary technical and financial qualification process, which we intend to follow very closely to see what our possibilities are in that respect. Merger process with Floatel, which, I guess, most are interested in.

Just a bit of recap, we announced the 45-55 exchange ratio transaction in June based on a fully diluted basis. And we basically have mainly 3 conditions that we have to fulfill before we can complete the transaction.

First, competition clearance in Norway and the U.K., which is ongoing. In Norway, we are in the so-called second phase.

We had our first phase, which is a bit more brief, and then a more thorough second phase. We are in the second phase.

There's still some work to be done, but we are hopeful that there'll be a conclusion in September, although these timetables with public authorities involved is, of course, not entirely under our control. In U.K., we are still in the first phase, which a bit more [ symmetrical ] than the possible second phase that also exists in the U.K.

And I think we would probably know also in September if we go into a second phase, which will then add to the overall time line. Again, this is slightly outside our control, especially what time implications that will have.

Credit approval is ongoing. I guess the banking process, as mentioned below on the second to last dot, is going well.

We have more than majority -- well, more than majority consent from the banks. And then the bondholder approval on the Floatel side will only take place later.

So all in all, the timing of the closing depends mainly, at this stage, on the competitive process whereas the creditor process looks to be more predictable. So in summary, good activity in the quarter, 71% as of today, a bit less than 71% at the Regalia and the Caledonia have come off contracts.

The day rates, we can see that all over the numbers, of course, are not at historical levels, even though we still have a bit from the legacy left. We have 3 recent contract awards in the quarter, continuing our commercial success and winning contracts.

Liquidity, still at a healthy $241 million. MMO will be key for 2020 with the hookups waning out.

And we have an ongoing process with Floatel where we hope to have some conclusions in September. Okay.

I think that sums up briefly the run-through of the second quarter, which some called financially uneventful, but as you can see, we have -- we didn't feel it was uneventful. So I think we can take questions.

Any questions in the room? Go ahead, Christopher.

Christopher from Carnegie. Have you received any feedback from the competition authorities in Norway, U.K.

so far?

Yes. I think we've had 7 meetings in Norway.

It's a process we've had a long time. And I think the important feedback is one from authorities, and the thing is that I don't want to speculate on percentages and decisions.

I will leave that to the authorities. We've had a good long process.

This kind of niche is not something that comes to the authorities every week. So we've had a good process.

And I think another important factor in this respect is customer reactions. And I think my overall impression is that most customer reactions have been relaxed.

If you want to, you can access that information at the competition authority, and you can see, for instance, Equinor and Aker BP giving their view on the transaction, and I think there's a recognition of the industrial rationale. There has been 1 or 2 we've been concerned, which I consider more of an isolated concern.

So that's where we are in Norway, with a fairly relaxed attitude the way I read it, but you can take a look. In U.K., we don't get information directly on what customers are saying.

And we will see the meeting activity with authorities is a bit different in U.K., and we will see shortly if they feel that we should go into a more thorough investigation, which is not unusual.

And could you indicate any expected length if the U.K. decides to go for a second phase?

That's -- well, I wish I could. But I think the maximum length of a Phase 2 without remedies is about 6 months, but I understand that the authorities will plan themselves a bit of what is needed.

And we may not be the most complex niche in the world to overlook. So exactly how long time that takes I don't know.

But I think at least if we go into a Phase 2 in U.K., that will take us into 2020. I think that's for sure.

But the exact duration of it, that's very hard to guess. Yes?

Magnus Olsvik, Kepler Cheuvreux and Swedbank. Just a question on the fleet.

I mean you have Notos rolling off a contract with Petrobras mid next year. Have you started any discussions with Petrobras on extensions?

And what is the outlook on that unit?

Yes. I don't have so much to update in that respect, but I think Petrobras right now are busy on adding to their contract backlog.

They took the Eurus. They have the 2 3-year contracts right now, which is for a lower spec than the Eurus and the Notos.

So we would expect to have a discussion after they have completed that.

And on fleet size, I mean now when you combine with Floatel, how do you see the combined fleet size versus your current fleets today?

No. I don't want to speculate too much on that, the combined fleet size.

I guess the truth is, of course, that with the combined fleet, we need to cover a wider geography, and I think that makes sense. And that will be part of the efficiencies.

But apart from that, I think to answer more concretely, the only vessels I can get a bit uncertain about right now is the Bristolia. That is probably on life support.

And we are considering some organ donation as it has some good parts that we might use, but I'm not sure how many summers that will see. Other questions?

Okay. Any questions online?

No.

Do you want the spotlight, Stig? Okay.

Well, on that basis, thanks a lot for coming.

Thank you.

Thanks.