Prosafe SE

Okay. Good morning, and welcome to Prosafe's Fourth Quarter 2019 Presentation of Results and Market Update.

The disclaimer is unchanged. I'm sure you're all familiar with that.

We have a brief agenda today. I will take us through the highlights and an update on the merger, and wrap up with strategy and a summary, and Stig will take us through the financial situation and the financial results.

Highlights in the quarter include utilization of the fleets at only 23%, which gives a total for 2019 of 50.9%. The EBITDA in the quarter resulted in a loss of $6.4 million, of which $6 million -- includes a cost of $6 million, which are nonrecurring.

I'll get back to that. Cash flow was $7.3 million, and that leads us to a year-end liquidity reserve of just below $200 million.

Importantly, we are engaged in a constructive process with our lenders to agree a long-term financial solution that Stig will update on shortly. We have sufficient liquidity until early 2021.

And I remind that the liquidity covenant in our loan agreements is $65 million, and we would expect that we have an agreement with the lenders well before early 2021. We have received provisional findings related to the merger in U.K., which went against us, and I'll come back to that.

And the timelines now look that we should expect final decisions in both Norway and U.K. no later than before end of March.

I'll just leave on to the merger update. As you recall, we have a share purchase agreement with Floatel International, the shareholders in Floatel International that has a drop debt date mid this year.

And completion is subject to mainly 3 conditions, which is lender approval; shareholder approval; and most importantly, competition authority clearance in Norway and U.K. And as you know, it has not been an easy process with the authorities in Norway.

We are in an appeal process. There is a meeting next week.

And I understand that the appeal Board have yet again reached out to customers, and I think we can only hope that the input from customers will be given more weight this time than in the first round. In the U.K., we received the provisional findings, as I mentioned, that does not go our way.

I think we have a deadline until today to propose any remedies. I don't think we will do that.

And I am aware that statistically speaking, it is not common that the final decision is materially different from the provisional findings in the U.K., even though they are provisional. So that's where we are with the merger process and that particular and important condition precedent.

I think we will just go to the financials. Stig?

Thank you, Jesper, and good morning, everyone. So let's move on.

As you all know, we engaged in the dialogue with our lenders at the tail end of 2019, and that has been going on since. It's -- in our mind, it's on track.

And not surprisingly, it will take time. We have, in our mind, a very constructive, open collaborative process with our lenders as we've had for 4 years and in previous processes.

And we have every intention from the company's point of view to do our utmost to maintain that constructive, collaborative process with our lenders, hopefully, obviously, with the aim of arriving at a long-term solution that is to the benefit of the company as well as the stakeholders. As part of that, we have recently asked our lenders for further extensions to certain waivers as well as payment deferrals.

And we're doing this, obviously, to create stability as well as visibility while we are in the process of negotiating with the lenders and discussing a long-term solution. We expect to be able to provide some form of an update to the market on or about the 13th of February on the basis of this.

And in the meantime, I think it's important to underscore that we are continuing to operate on a business-as-usual basis. We believe that solution is achievable.

The form of the solution is yet to be seen, but we firmly believe a solution is achievable. And we have, as Jesper alluded to, sufficient liquidity.

Moving then on to the fourth quarter, in isolation, just to give you a few comments on that. Income in the quarter clearly down from the same quarter last year, reflecting mainly a significant drop in utilization, but also a marginal drop in average day rates, as you see from the numbers.

There is one other element that I think explains part of the miss in Q4, and that is that other income, which you will see in one of the supporting slides, is close to 0 in the fourth quarter. And I think on average, certainly in previous years with very high utilization and high utilization in the North Sea in particular, other noncharter income has been a pretty large recurring revenue stream from the company, $8 million, $9 million, $10 million, maybe $12 million per quarter.

That is only $1.9 million in Q4 '19. So those reasons explain the drop in revenues.

Operating costs, leaving aside the exceptional, so just over $6 million, as Jesper explained well. I think we have good control on the costs, and we have good cost performance.

But of course, it leads to a negative EBITDA in the quarter of $6 million. Depreciation is down, and you all understand why.

But as a reminder, we did some significant impairments to the vessels in Q3 last year of $345 million -- $341 million, sorry, which of course, brings down the asset base and therefore, the depreciation base. I think the only other thing I want to mention is the fact that we have positive interest cost in the quarter, and that ties back to an agreement we made with lenders, allowing lenders to reelect from warrants to PIK interest related to future delivery of the Nova and the Vega.

And the accounting effect of that is basically a reduction in that, which flows via the P&L, gives us a positive interest cost in the quarter and increases the equity as well through retained earnings. Moving on to the balance sheet.

I think there are 3 main points to mention on the balance sheet: Number one, we have sufficient liquidity until early 2021, all else equal, based on current terms and known facts and contracts; number two, as a consequence of the process we are in, the bank debt is reclassified from long term to short term; and of course, thirdly, the book equity is marginalized following the impairments last year. But as we underscore, we have sufficient liquidity.

We're in a good constructive process, and we believe that a solution for the company is achievable. And we will keep the market updated in the process going forward.

So with that, I leave the word back to you, Jesper. Thank you.

Thanks. Thanks, Stig.

Okay. A few comments on our main focus areas, in addition to what Stig just mentioned.

First of all, on the commercial, of course, keep our vessels working by winning contracts. We had one contract that was awarded to a competitor in U.K.

around year-end, where we were unfortunately unable to offer the technical crane specification that there was in demand from the customer. But otherwise, I think we have won more than our fair share and proportional share of the contracts in the market, and we are, of course, focused on maintaining that relative outperform in the market.

Our OpEx continues to reduce, both in operations and in lay-up, and we drive efficiency through core teams and our HSSEQ excellence. Last year, we did not have any LTIs or serious incidents for that matter.

Internationalization. As the hookup projects that have kept us busy in the North Sea for the past few years are waning off, we are expecting reduced activity in the North Sea going forward.

And therefore, we focus on the other key markets, including Brazil, Mexico and a few other regions that we have in focus that could offer good utilization for our types of assets. Stig has touched on the financing, on the situation there, and I just want to add that we've had a good dialogue with our customers who understand the situation and I think are satisfied with our willingness and ability to perform our services to the usual standard, both in the short term, but also in the longer term.

And finally, consolidation will, I think, remain a topic in not just our niche, but probably in much of the oil service space for a considerable period of time. In our space, there's no doubt there's a need for consolidation.

There's a need to drive further efficiency through consolidation and to make sure we have a sustainable niche. So that is what we are working on these days.

The backlog, I don't want to dwell too much about the past. But I think the development has been quite clear.

We waned off particularly on the backlog in connection with the Safe Scandinavia, ceasing working at Oseberg. And since then, it's been more or less flattish and currently stands around $146 million at the end of the fourth quarter.

As you can see, the fourth quarter is a period where we had 2 contracts ending, and we had the Eurus commencing. And that period of time is normally where you have more expenses than you have earnings, and we are no exception to that situation.

And then we have, in total, currently, the backlog is 5 contracts: 3 in Brazil and 2 in the U.K. As Stig already alluded to, we expect day rates and utilization for 2020, which would be below 2019 level.

And I think, without going into too much detail about the markets, but we would expect that there are more market news in the coming months. We are in a period of time where New Year is over, and we have a period of time until shortly before summer holidays where, hopefully, some decisions will be made.

I think we will add a bit to our backlog and increase few of the periods. And as you know, there are processes elsewhere, such as Brazil, that will also reach a conclusion, hopefully, sooner rather than later.

But needless to say, and as I think we have been frank about, we have one 3-year contract on the Eurus. But when we come later to this year, then basically that's the only long contract we have, which of course, gives significant uncertainty as to the future backlog and prospects in utilization.

Cost reduction, I'll just touch very briefly on. To the left, you have our SG&A, which I think is largely variable.

Of course, there are fixed elements, but those of you who have visited us know that we don't have a big corporate headquarter. People work with daily operation and running the business.

So regardless, we've been able to reduce SG&A by about 60% while we basically have had the same number of vessels in operation, if we exclude bareboat charters. I think on the left here, I think, it's an increment of $5 million if people are interested at that level of detail.

Offshore as well, we have reduced cost significantly, reducing the number of crew on the vessel, being more smart about maintenance and basically changing much of our cost structure. So we now have a more variable cost structure that can be scaled with our activity levels compared to previous when we had a high utilization and higher fixed cost.

And I think there is a bit more to do. And the thing that's not on this slide is basically what we call ramp up and ramp down.

When you have short contracts, actually, your ability to ramp up and be ready in a short period of time, and also ramp down becomes a relatively large part of your total cost. So in summary, $6 million loss in the quarter, including nonrecurring one-offs at $6 million, mainly related to downsizing of the organization, about 2/3 are related to downsizing and cost savings.

Liquidity just below $200 million. Stig explained the constructive process we have with our lenders.

Further cost reductions are initiated, and I would expect that we would improve from the current level also going forward. The merger process is challenging with the competition authorities, despite the fact that customers are positive or relaxed.

Its decision is probably in March. And then we are looking at focusing increasingly on new geographies outside the North Sea.

And as I mentioned, day rates and utilization for 2020, as a bit of our guidance, will probably be below 2019 levels. And I think that concludes our brief presentation today, and we would, of course, be happy to take questions.

In your report, you highlight, I mean, the mark that you are -- Fredrik from Clarksons. So in your report, you highlight that you are seeking opportunities in new niches for alternative use of vessels.

Could you elaborate a bit on that? Is that only regions?

Or are you kind of going -- trying to use the vessels for something else than accommodation?

Well, it's both. It's both.

We have looked into some adjacent segment where, I think, we could put some of our vessels to good use. We are participating in a tender on some offshore wind where you hook up fixed installations, where we are competing in the Southern part of the North Sea with some lift boats, where -- but where the metrics could make sense for us, not as a massive contribution to EBITDA, but basically to still add to our bottom line and keep the vessels working.

And just to kind of follow up the regular market activity. I think it was reported today that there's a Petrobras tender for smaller accommodation units.

Is that something that you would participate in? Or is it too small for you?

No, that's too small. I think it's 40 people or something like that, very small monohull vessels.

That will be, I think, mainly in the Southern part of Brazil Campos Basin. I think it was out 2 weeks ago or something like that, but it doesn't really involve us.

Yes.

That's fair. And the final one from here.

Do you have any kind of updated thoughts on just the structural changes in the business? Like are there other vessels coming in -- coming into the market and cannibalizing your, at least -- or what have been your typical customers or typical type of demand?

Yes. I think -- well, I think that's a longer session.

We could do a whole day on that. But I think there are definitely some changes, both on the demand side, of course, with the hookups waning off and also being done differently, whether you use the heavy lift vessels.

That, of course, reduces the offshore hours and impacts our demand for fixed platforms. For floating platforms, as you know, FPSOs, it's not common that you have a lot of floater requirement for hook up of those.

And then we see on the MMO part that customer seems focused to try to stretch as far as possible their maintenance campaigns, and that reduces the peaks from when you draw a floater. It's a longer discussion, but I think we do see some changes in the industry that we have experienced is not actually something that is good as now, it's something you could have seen over the past few years.

Christopher from Carnegie. You said that you expected to update the market next week regarding the discussion with the lenders.

Is it more likely that you then will have a final solution? Or is it more likely that you'll need more time for discussing with the lenders?

I think, clearly, the latter. The -- what I specifically referred to is that we have now informed that we have asked lenders for further relief while we are working with them to find a good solution.

So it's more a natural milestone, probably next week that we need to provide the market with an update. In terms of arriving at a solution, I think we need to respect the fact that what we have seen over years in terms of development in this market is relatively dramatic.

We have a pretty large lender group. And it's only natural that it will take time, I think, to try to align everyone around something that appears to be a sensible and sustainable solution for the company going forward.

So that will take time.

Yes. And regarding the lending group, could you say how many banks are involved in this discussion?

Yes. I guess maybe I'm allowed to say some.

I give you a ballpark figure. I wouldn't talk about who the lenders are, obviously.

But we have, as you know, 2 facilities that's well known, a large one and a smaller one, specifically for the Notos. And I think the -- in rough terms, you can say that we have 15, 16 lenders, give or take.

Magnus Olsvik, Kepler Cheuvreux Bank. Just a bit more on the market as you've had some very, very brief comments to say here today.

But can you say anything more about the opportunities out there, if there are any for 2020? Are you involved in any tenders as of today, North Sea versus internationally?

Yes, yes and yes. I think it's -- at this stage of the year, everything is in process.

And normally, it takes a month or 2 to conclude. So we would rather see basically what concludes from those ongoing processes that we will try to give an indication here at the halfway point.

But yes, there are ongoing processes, both internationally and a bit in the North Sea as well that we expect will be concluded maximum within a month or 2. Some earlier and some will take a bit longer.

And how many are we talking about?

Yes. I don't want to be too specific.

I will tell you when it's over.

Tobias with Clarksons as well. Just one question, and it's obviously not kind of key focus these days, but just out of curiosity.

With regards to the Westcon dispute, what's kind of the timeline there now?

Curiosity is fine as well, Tobias. And I think just recalling, I believe that the hearing is scheduled to commence on the 31st August this year.

And I believe that a total of 11 weeks have been set aside, which means that we may see a similar timeline as we did in the first instance, where you have the hearing in the autumn. And then I think the judgment was received in March.

So I would not be too surprised if we see something along the same lines, judgment next March and then hearing this autumn.

All right. And just back to the market.

When do you think we can expect a comeback from your slide with the prospect -- the number of prospects?

Yes. So the thing is we will guide basically and use a bit more on the activity.

And what we have done recently is focused on the near-term activity because the prospect and how you rank that can be very difficult with this level of uncertainty. And we're quite careful not to give a strong indication.

If you just do a weighted average of the prospects, I think that will be -- I'm not sure that would give a very good picture on the future demand. And honestly, we don't have that level of transparency where we very clearly can set this on like pearls on a string what will happen.

So we will come back with some more forward guidance, but possibly in a different way.

But if we focus on 2020 demand globally and not only for your part, but how many kind of awards or new contracts do you think are out there?

For 2020, I think it's too early to say. I think it's too early to say.

Any other questions?

Okay. Any further questions?

None from the net -- Internet as far as I can see.

Okay. Okay.

Thanks for coming, and see you next quarter.

Thank you.