Prosafe SE

Good morning, and welcome to Prosafe's second quarter 2020 presentation of the results and business updates. We'll turn quickly to the disclaimer on Page 2, which you will notice identical to the disclaimers used in the previous presentations.

And therefore, we will turn to the agenda for the presentation today on Page 3. The agenda will be familiar-looking to most of you, which follow us on a regular basis.

I will quickly, shortly turn to the highlights, and then I will hand over the presentation to Stig Christiansen, CFO, who will cover the -- an update on the financial situation and the financial results for the quarter. And then I will round us off with a business update, including our strategy and summary.

So turning to Page 4 for covering the highlights for the second quarter of 2020. In brief, it was a quarter heavily impacted by the COVID-19 crisis.

The effect was that many of the planned activities for us were either suspended, delayed, deferred or canceled. And at one stage, I think, during the quarter, there was, only to my knowledge, 1 or 2 floatels of the type that we use in operation globally.

Therefore, we titled 2020, a lost year and utilization of the quarter was at an all-time low of only 6.5% compared to the 71.6% we had last year. And when I say it's a lost year, it also indicates that we do not see a dramatic change on the contrary of our utilization in the third quarter.

The financial results show that EBITDA for the quarter came in at minus $10 million and cash flow was minus $5.5 million. However, we have successfully implemented COVID-19 plans to safeguard people and assets.

And that means that we now have -- we have, throughout the quarter and the year, had prudent COVID-management plans that our customers have expressed satisfaction with and we are comfortable that we are capable of resuming and performing our activities in a safe way. So secondly, we have performed cost-saving initiatives to protect liquidity and to position the company through the turmoil.

Liquidity, at the end of second quarter, stands at $178 million. And as Stig will come back to shortly, we remain in our constructive dialogue with our lenders regarding a sustainable financial solution.

And all going well, we expect to complete the refinancing process in the second quarter of '20 -- sorry, the second half of 2020, all going well. A few commercial highlights.

As you have seen, we have announced a deferral by about a year of the work we were supposed to do for Total in U.K. sector this year until next year, adequately compensating us for that delay.

Safe Notos remains suspended and off hire in Brazil, and we have ongoing discussions with Petrobras about resumption of the activity as well as extension of the contract beyond the current duration. Safe Eurus will resume operations in Brazil for Petrobras on the September 24, and we have participated in workshops with Petrobras to make sure that we probably manage the COVID risks in our operations, and they have satisfied themselves that we are fully capable of managing that risk as well.

Finally, we have decided to sell the Regalia for recycling, and that process has commenced. I will turn it over to Stig now to turn to Page #6 and provide an update on the financial situation.

Stig?

Thank you, Jesper. I think you have already cover the main points.

But of course, I will go through it for sake of good order. So Page 6, as Jesper alluded to, update on financial situation.

So in brief, we have sufficient liquidity to continue to trade, undertake existing commitments and also to take onboard new business. That is critical and fundamentally important.

The so-called forbearance arrangement, that we have been operating under for quite some months, lapsed at the end of July this year. However, we continue to remain in constructive discussions with our lenders, and we have majority support.

We continue to work with lenders to find, what we call, a sustainable financial solution for the company. And therefore, while doing that, we continue to operate on a going concern basis.

We are discussing -- we're making progress, and we are discussing specific solutions with our lenders with an aim of achieving a consensual agreement with all our lenders on a 100% basis. However, it is still too soon for us or too early for us to start sharing details with you about how such a solution may look like, including the financial implications as well as also the accounting implications of that.

In general, though, we have stated already that the solution we are seeking will, to our minds, significantly improve the balance sheet and therefore, significantly improve the financial situation of the company. We remain optimistic, and we aim to conclude, as Jesper alluded to, the process with our lenders before the end of 2020.

We will, of course, revert to the market in due course, as we have further information available. So moving on then to the profit and loss statement on Slide #8.

And as you will see, the revenues are significantly down, below USD 5 million, reflecting, in essence, an all-time low fleet utilization of 6.5% in the quarter. That's the first.

In essence, we only had the Safe Notos and the Safe Eurus operating for a very few days in early April, and we have the Safe Concordia operating into 1st -- 3rd of May this year, all units in Brazil. And the resulting effect, as alluded to by Jesper, is a negative EBITDA in the quarter, which is also the first time we have seen in Prosafe.

Obviously, the backdrop to that, following COVID-19 and the oil price collapse on top of the industry already being in recession and with generally low activity; and adding to that, what we have communicated earlier, the structural changes within our industry, in particular, in Norway, basically means that 2020 is a lost year as far as operational activity and things goes. However, there are other important things going on, including the bank process, which we have addressed and which I think Jesper will come back to later on in the presentation.

So the only thing I would like to highlight in addition to these points are basically that depreciation is obviously down significantly following the impairments that we have done over the last basically 9 months, Q3 last year and Q1 this year on the basis of development and our reassessment of the outlook. What is important to underscore is, however, we continue to keep full focus on, turn every stone, control costs, focus on efficiencies as well as spend to protect liquidity.

Costs in isolation, if we adjust for the accounting effect of taking delivery of the Safe Eurus in the same quarter last year, are down basically $26 million in the quarter compared to the same quarter last year. So we have been able to drive down layup costs, and we have also been able to continue to drive down costs in operations without compromising the integrity of vessels or safety in operations.

Then moving on to the balance sheet, which is Slide #9. And there isn't really much to say following our more in-depth analysis of the balance sheet in Q1 when we did the impairments.

It is obviously significantly reduced following the reassessment of the outlook and the impairments made that I have already addressed. And the resulting effect thus far is then a negative book equity of about USD 900 million.

However, as you know, we are working constructively with our lenders to remedy this situation. And then next to arrive at a sustainable balance sheet and a situation that will allow us to continue to develop and position the company for the future.

And meanwhile, we have sufficient liquidity, and we remain open for business in the process, while we work to agree with our lenders. So I think with that, Jesper, I would like to turn the word back to yourself.

Thank you, Stig. Thanks a lot.

And then we turn to Page 11, giving a business update. And as you know, our key focus is to protect and create value from being a leading provider of offshore accommodation services globally.

And in that respect, we would like to highlight a few focus areas these days. Number one is to maintain our commercial win record.

As you know, we have probably a relative outperform in that respect, winning more work than our relative fleet size would otherwise indicate. And the key here in these times is to keep the vessels working.

And I'm pleased to say that so far, we have a constructive dialogue with our lenders, and we have also been able to fully comfort our customers and potential customers about our financial situation and our ability to perform the work. We have not had any challenges in that respect to date.

We also focus on having the best-in-class OpEx, both in operation and in layup. It has been a learning curve.

I mean, we're getting there. It's a matter of continuous improvement also in that respect and something that remains in our focus.

We deliver our services efficiently through our core teams and HSSEQ excellence. As Stig covered, we are focusing on a process, a constructive process with our lenders to find a long-term solution and in the meantime, reducing cost and spends to preserve cash in these times remains an absolute priority.

Finally, as I alluded to in the highlights section, we have decided to sell the Regalia for scrap, and we further evaluate recycling and consolidation opportunities. And there's no secret that the floatel industry is in strong need of further recycling of vessels.

But I believe that with the fleet we have remaining, there's probably limited scope for that in the near term. And consolidation is naturally something that has to be on the agenda in the fragmented industry we are in.

Slide #12 shows our customary contracts overview, so I will just go through the vessels on the top left corner, one by one. Safe Boreas remains available for work and is actively marketed for such.

And we may have an idea or two of what could be a suitable employment for that vessel, but probably only commencing next year in 2021. Caledonia, we reached a satisfactory agreement with Total to defer the work 1 year.

It's an unfortunate situation with the COVID-19 situation, but we are very pleased with the agreement we reached with Total, where both parties displayed excellent flexibility to strike and agreements. The Safe Eurus will commence operations under 24th of September and has a lengthy remaining contract in Brazil.

And the Safe Notos will probably commence operation in Brazil a bit later than Safe Eurus, and as mentioned, we are in dialogue about when recommencement of activity should take place and also the possible extension of the work scope we have and signed in Brazil. Scandinavia is in layup and actively marketed for both accommodation services, but also for tender support.

And finally, the Zephyrus, we are -- had a job in 2020, and we expect to conclude on 1-year deferral of that work shortly. So all in all, if we are successful in the endeavors we have for Concordia, Notos, Zephyrus and Boreas, we should be looking at a situation where we would have 6 vessels in operation in 2021, which, of course, is a more returning to the normal activity level.

Having said that, competition is intense. And we focus on keeping our win rates.

Turning to Page 13. We see the dramatic development in the backlog going back to 2014.

And as you will see in recent years, it has been more stable, however, at much, much lower levels. Our backlog at the end of second quarter was $122 million.

And with the activity I have mentioned ongoing on the commercial side, it is our aim to add to that backlog shortly, and we would also aim to end the third quarter or fourth quarter this year with a higher contract backlog than we entered the year with. Turning to Page 14.

As -- a familiar slide as well for many, shows the dramatic cost reductions that we have achieved and also which are ongoing. SG&A down about 60% compared to 2015, largely comparable activity levels.

And SPD -- sorry, the CPD OpEx also down 30% to 40% depending on the region. Also for layup, we have had a learning curve and are now better to more cost-efficient layup, while protect the integrity of the vessels.

In short, what we have done is that we have implemented a more variable cost model that better allows us to scale costs up and down, both SG&A and OpEx, to reflect activity in the market. Turning to Page 15.

There's a clear global oversupply of floatels. However, the graph may look a bit more dramatic than reality, the supply of 38 vessels.

Not all of those 38 vessels compete for average up globally. And the bars we have below shows demand and number of vessel years, and there is a difference between the number of vessels in demand and the number of vessel years, as it sometimes takes 2 to 3 vessels to perform 1 vessel years of demand.

Regardless of these details, there remains a significant oversupply in the industry. And I am fairly convinced that we will see recycling of competing vessels in the market.

Some of the vessels have been layup for many years and have high reactivation costs, and we struggle to see a justification to invest in reactivation of those vessels. I think recycling will have to happen.

Finally, turning to Page 16, summarizing what we have just went through. 2020, we call a lost year due to the COVID-19 and oil price crash combination.

Utilization for the quarter was only 6.5%, all-time low, and we don't see the dramatic improvement to any extent of that in the third quarter. Reported EBITDA, minus $10 million.

Cash flow, minus $5.5 million. However, we maintain a very healthy liquidity reserve of $178 million.

Importantly, we are ready to operate in a safe manner. We are actively in discussion with a number of customers, who are also -- so we are also capable of providing the necessary comfort that we are capable and willing to perform the work in discussion.

The dialogue with lenders remains constructive, as Stig mentioned, focusing at this stage on our consensual solution, and we are hopeful to reach a conclusion in the second half of this year, all going well. I gave an update on various commercial activities, where we see a slight uptick in activity, and we also expect further tenders to be released shortly for work in 2021 as well as 2022.

Many of these tenders mainly relate to work in the North Sea, both Norway and U.K. We are pleased to note that Eurus will resume operations in Brazil, a testament that operations can be done safely in these COVID times.

And we have marketed Regalia for sale, with the purpose of recycling her naturally in a way compliant with all conventions in that respect for green recycling. So we expect tender activity to pick a bit up, and we'll be -- look forward to increasing our backlog as the third and fourth quarter progresses, and we look forward to updating the market about that in due course.

That concludes the presentation, and I believe Stig has a good eye on the -- any questions coming in, Stig?

Yes, that's correct, Jesper. And of course, reminding people that you have the opportunity to send questions via e-mail.

I -- we hope that is something you have seen. Anyway, we have one question so far, Jesper, and that's from Magnus Olsvik, Kepler Cheuvreux.

And the question is, have you experienced any changes in the market after the temporary tax package approved by the Norwegian Parliament in June?

Yes. I think that's a very good question, Magnus.

Yes, we do see, of course, an increase in activity. And some of projects, which were shelved, we now see are dusted off and reconsidered by the operators.

But I would say that for many of these projects, we may be a bit later in the value chain. It depends, of course, of the type of the project.

So we have not discussed anything concrete, but still expect to see the effects, although we have noted the uptick in activity with the customers. It has yet to materialize into tender activity.

Okay. So far, Jesper, there are no further questions coming through.

So I propose that I will follow up the e-mail, while you start rounding off, Jesper, and unless somebody comes in within the next 25 seconds, then I think we're done.

Okay.

No further questions received, Jesper.

Okay. Well, then I would like to thank for the participation for all listening in, and we look forward to update you in the third quarter results or if we have other interesting news in the meantime.

Thank you very much, and have a nice day.