Edda Wind ASA

OSE:EWIND

Earnings Call Transcript

[Kenneth Walland, executive]

Good morning, and welcome to Edda Wind's Quarter 2 presentation. My name is Kenneth Walland, CEO of the company. I will be joined shortly by Herman Hovland Øverlie, CFO; and also Lars Stubhaug, VP Finance. We will run through the presentation and also in aftermath, do the Q&A. So please feel free to post any questions already from the start, and we will coordinate that at that end.

Nice opening picture also with a link to our new slogan "Enabler" ref that we are now replacing the Edda name from the vessel, all the vessels and the fleet to Enabler series of vessel. As said earlier, the name of the company, Edda Wind will remain as our strong company name already established. The agenda that we will cover, quarter 2 highlights, market situation, financials, a short summary and then as mentioned, the Q&A session. Some key events for the quarter. The revenue side is definitely showing a positive trend with more vessels into operation, also more vessels entering the commissioning part of the offshore wind segments.

As reported earlier, the Q2 result negatively impacted by frontrunner or substitute vessel cost that we will shortly come into. We will also cover the private placement done in June and also on the contract side, the Sudri Enabler and the Goelo start-up operations. On the numbers, as mentioned, the revenue side, income side, definitely showing a positive trend with revenues up 62% compared to quarter 2 last year. And we also know that we will gradually bring more and more CSOV vessels into the commissioning part of the market.

So that is definitely showing a positive trend, also, of course, assisted by improved utilization of the vessel after the period we've been through with, in particular Gangway issues of fire events. Same for the last 12 months on the operating income side, up 78% compared to a year ago. Then on the EBITDA side, as mentioned, impacted by substitute vessel cost that we will also come into more detail later on. To some extent, we will also have a substitute vessel cost for the next coming quarters due to the Goelo incident.

Some highlights on the private placement and also some others. In June, we successfully did a private placement of around NOK 400 million. Very good to see the support from the 3 major owners that guaranteed for the amounts, but also good to see that there were very good interest from other investors. So the pro rata ownership share is sort of remaining as prior to the private placement with around 82% on the 3 major owners and then 18% free float to other investors. We also, as reported earlier, have done measures to improve the reliability of Gangway systems, which has been troublesome for the company over a longer period. We did, I would say, a very difficult decision to take 3 vessels out of operations during the first quarter.

In hindsight, a very correct decision. It has definitely created what we targeted to have robust and reliable systems on delivery of the walk-to-work system. So the utilization is now where it should be and we are experiencing now close to full utilization of the vessel. But of course, the impact of the earlier reported events are negative to the EBITDA, as we just saw. Looking forward, that is creating a big optimism in the company that we are able to now operate the vessel as expected. And also, of course, that is a very good motivation for the coming new Edda Wind organization that is in the middle of the, call it, the ramp-up phase.

We are now around 25 people in Edda Wind that are now very keen to start management -- in-house management of the Edda Wind fleet and that will start quite soon as we will also explain shortly. 6th of May, we had a very unfortunate incident on the Goelo Enabler just prior to start of operations in France, Saint-Brieuc wind farm. We had severe damages to the MacGregor Gangway system. It happened during the final stages of testing, a so-called harbor acceptance test where we had damages in the sort of amount that the conclusion was, we needed to report that operations would be delayed. We took the vessel back to a shipyard. We landed the permanent gangway systems. To get quicker into operation and revenue position, we decided to install a rental gangway system on Vard vessel. That system is then still on Vard vessel.

We started operation like that, 18th of July. Hence, there was also then frontrunner cost for the vessel until that period and as also mentioned during the quarter 2. The gangway is under repair at a yard and we will install that later in the year when Edda Wind has in-house substitute vessel available timing around, call it, October, November, quarter 4. And as you will see at the bottom here, we will need to then bring Edda Goelo -- sorry, Goelo Enabler out of operations for a period of about 2 months from France to -- back to France again to do the swap of vessels and demobilize the rental gangway system, install the gangway system and bring her back to operation for Siemens Gamesa, as we have reported also earlier.

I will say, on the more positive side, Sudri Enabler was delivered from Gondan, first week of July. Just prior to that, we have secured a good contract with [indiscernible] commissioner work at Dogger Wind Farms. So the vessel went straight from delivery at the yard to the so-called sea acceptance test for the gangway systems. We went on hire 19th of July in what we consider to be very good contract and also representative of the type of contracts that we are targeting now for the coming fleet of vessels to be delivered, meaning the, call it, the short type of contracts in the commissioning market at attractive day rate.

Sudri Enabler, also Nordri is a representative for those type of contracts, and that is also the expectations for the new builds to come. And we, I guess, see Nordri as a proof that we did a contract again shortly prior to delivery and went straight to operation and on hire, which is also then the target going onward. So Sudri will be on that contract, call it back to back until she starts with Vestas as the second vessel in that Vestas project contract either quarter 4 or first quarter of '26 depending on what Vestas will declare there.

On the management side, we are now building up in-house ship management capacity, meaning that we will take over management of the vessels and the fleet from Østensjø Rederi already from next month and onwards. We will have 8 vessels on the water by New Year, then to be operated by Edda Wind from new year at latest and also the same for the new builds that we are gradually now taking out of the yard. Those will be then taken by management from Edda Wind. We have secured very capable staff in the office with a lot of experience from similar type of operations and shipping companies.

They are very keen to now go to the starting block and do the management on fleet. And we also are expecting that with the volume of fleet that we are gradually building up that is definitely also a benefit to the company, both on cost and quality and also, call it, more strength as a company to build in-house competence. There will still be some outsourced capacity, for instance, like crewing and IT. Other than that, most functions are to be in-house in Edda Wind.

On the market side, we have stated earlier, we are optimistic on the market that definitely remains and we also see proof that the tender activity is, I would say, showing a positive trend. There is quite high tender activity, vessel requirement activity. We also see that from, call it, the discussions and negotiations we are having. The day rate expectations are also showing a positive trend. There are not that many data points in the market right now, not that many vessels secured. But of course, we are doing -- have done some ourselves, and we also see that from the discussions that our optimism remain, and I would say, are even stronger.

On the new building side, quite limited new orders coming into the market. So the, call it, demand supply situation and demand for vessels in these segments are still remaining strong. And of course, we are in a very attractive positions with vessels already on order at attractive pricing and attractive delivery date. So we feel we are in a very good position to take advantage of that position and the market the way we read it. So the fleet, we have here changed the name of the vessels to Enabler even though not all are physically changed yet, that will happen over the next few months as we take them on management. The existing contracts are detailed here.

Also shortly, Herman will show you the backlog situation, what that represents for the firm contracts. But we have Mistral still working with Ørsted as from the start. We have Brint on the long-term contract with Vestas. We have Goelo Enabler eventually working with Siemens Gamesa in France. We have the Breeze Enabler, working on the long term with contract with Ocean Breeze in Germany. Then Boreas, enabler for SSE, Dogger commissioning. Nordri, Vestas that also then, as mentioned, will be joined by Sudri, either late this year or beginning of next year in that project contract. And in the meantime, Sudri will work with [indiscernible] also at the Dogger Wind Farm. Nordri is working in the Baltic Sea right now.

Then on the newbuilding side. First vessels to be delivered is 503 from Gondan, quarter 4. So she will be operational end of this year. Also, as we mentioned, targeting the commissioning segment. Then 2025 will be a busy year with 4 vessels being delivered, one from Gondan in quarter 2. Then we have 2 vessels from Vard, Norway to be delivered in '25, quarter 1, quarter 2. And one vessel from Vard, Vietnam in quarter 2 '25. The last vessel, 968 will be delivered from Vard Vietnam in '26. So it will keep us busy. But also at the same time, we will have a very good opportunity to take the advantage of the market that we see in the commissioning segments going forward.

So by that, Hermann, I think, I leave the word to you for the contract situation and financials.

[Herman Overlie, executive]

Thank you. As of our last couple of quarters, our backlog remains solid with a total of EUR 314 million in backlog and when you add charters option, that number increases to EUR 424 million. Our client base remains well diversified as per previous presentation and comprises of key players within our industry. And as Kenneth mentioned earlier, we are also pleased to welcome [indiscernible] into our customer portfolio. When taking a closer look at our contract coverage, you'll see that it matches well with the anticipated increase in charter rates, as Kenneth touched upon earlier today and, also, as anticipated by the broader analyst community. When only taking into account fully open days, we have for the remainder of the year, only 3% percent of available vessel days fully open. This number then increases to 37% in 2025 and 58% in 2026.

Now moving over to the financials for Q2. Total operating income for the quarter was EUR 14.9 million, up from EUR 9.2 million in the corresponding quarter last year. Operating expenses for the quarter was EUR 14.4 million, up from EUR 6.5 million in Q2 last year. The operating expenses was, as Kenneth touched upon, adversely affected by frontrunner cost of almost EUR 5.4 million during the quarter. Most of this relates to the Siemens Gamesa contract and the Goelo incident. Operating profit before depreciation was therefore EUR 0.5 million. Both depreciation and financial expenses are up in this quarter compared to Q2 2023 due to the fact that we have more vessels in operations.

Now over to the balance sheet. Book value of vessels and newbuilds of EUR 544 million, up from EUR 295 million in Q1 due to yard installments being paid during the quarter. Net interest-bearing debt of EUR 238 million compared to EUR 224 million in Q1. Equity ratio ended at 51%. Our financing structure remains a little changed during the quarter and remains diversified between private placement ECA facilities and commercial bank facilities. All but one of our newbuilds, the C504 have secured debt financing, and we plan to finance this open vessel during the autumn.

Now back to you, Kenneth, for a summary and then before we go to the Q&A session. Thank you.

[Kenneth Walland, executive]

Thank you, Herman. Yes, we have already touched upon the delivery situation for the vessels, 2024. We had the Goelo Enabler and Sudri Enabler already delivered, as mentioned and started contracts in July. We will have the 503 delivered end of the year. And as you will see on the picture, it would operate the gangway systems and walk-to-work systems on that vessel is already installed as we see it from pictures from Gondan. Sudri Enabler was the first vessel to be delivered with the gangway commissioned already when leaving the yard. And of course, that is also what will happen to the next vessels coming from Gondan and from Vard.

The gangway systems for the Vard vessels are to be shipped in quarter 4 for these vessels, both to Norway and to Vietnam and same for the 503. So I think the delivery situation for the fleet here is mentioned. It will give Edda Wind, as mentioned here, up on this slide, a fleet of 13 vessel, making us the leader in these segments, call it CSOV/SOV segments in the offshore wind industry. And we feel that we will benefit from the size, both in volume commercially, also cost-wise and also, as mentioned on the ship management side and so on. And also, we have a series of vessels that are very much the same. So that means we would have also in call it, purchasing spare part situation, safety, training situations and so on, advantages by similar vessels.

The operational track record are definitely going in the right direction and to the level it should be expected to be after the, call it, unfortunate, but successful system upgrades we did in quarter 1 to, in particular, the 3 vessels, but actually all vessels with the MacGregor system has been through various degree of upgrades, including the last ones leaving the shipyard as, for instance, the Sudri. So by that, we are now seeing that the vessels are performing as expected to high utilization and performances. The backlog situation, as just mentioned by Herman, is a strong backlog, but at the same time, also give us the opportunity with available days to target the market in the commissioning segment, that is where we see the best rewards and day rates will be achieved.

We expect and also see signs that, that market is and will be tight. We, as mentioned, see positive trends, both on the day rate side, and we also expect the supply-demand situation to remain tight and with that being a very attractive place for us to be. We have a robust financial platform in the company. Of course, both also related to the private placement that we did in June to, in a way, we will attach the company, but also on the financial institutions that we are supported from, and they have done at, call it, as Herman also described, fixed and attractive interest levels. So that was, in a way, the summary of the presentation.

And I think we can all join here and do the Q&A that will be coordinated by Lars.

[Lars Stubhaug, executive]

Very well. Thank you, Kenneth. Thank you, Hermann. Thanks, everyone, for sending in a question. We'll try and respond accordingly. Some overlapping questions as per usual. And if you don't get the required answers, please feel free to follow up with any of us and then we'll come back.

Starting with you, Kenneth, as always, a question on the listing versus nonlisting. We have strong owners. And the market, according to some here, seems to be seeing a risk of the owners taking the company private. Can you please comment?

[Kenneth Walland, executive]

It's hard for me to comment on that, but I have no signals whatsoever that is a discussion that we are part of. So we are operating the company per the ownership we have today, and I also expect that to be the situation going forward.

[Lars Stubhaug, executive]

So kind of as previously stated. And then to Jonas, thanks for sending several questions here, and I'll try and sum them up. We have a backlog of EUR 39 million for the remainder of '24, but we have limited available capacity, as Herman mentioned. So when elaborating on the potential for additional revenue for 2024, I think, it's fair to say that we have depending on the situation of the frontrunner and which vessels that will take over, either normally or all 503. Is there any revenue potential for the remainder of 2024?

[Kenneth Walland, executive]

Well, as you say, I could at least comment on. We have a requirement by the end of the year where we are doing the vessel swap with -- to cover the Goelo situation. Of course, for some time there, we will need 2 vessels in a way to cover that contract since Goelo is out of operation. But we are also having 1 vessel delivered at the end of the quarter. So there is at least a surplus capacity in the fleet from quarter 4, which will partly be utilized by this vessel.

[Lars Stubhaug, executive]

Thank you. Going forward to Herman, our stock, we are currently trading below NAV. Do you think it could be relevant to sell any of the newbuilds once delivered?

[Herman Overlie, executive]

I think the way we see it now is that there are no kind of immediate plans of anything like that. But -- and we also see a strong demand for these newbuilds, and we anticipate that we'll be able to employ them at very attractive rates. So yes.

[Lars Stubhaug, executive]

And building on from that maybe towards you, Kenneth. It could be relevant to add backlog in regions outside Europe.

[Kenneth Walland, executive]

We are definitely bidding for work outside Europe. And of course, if the right opportunity come up, that is definitely relevant. We don't have any sort of contract there as such. But of course, we are bidding as we speak.

[Lars Stubhaug, executive]

And on the current contracts, people have been discussing delays at the Dogger Bank. We have several vessels at Dogger Bank. Any particular expectations for increased backlog at the Dogger Bank Wind Farm?

[Kenneth Walland, executive]

We, of course, observed the same thing that the progress at Dogger Bank is sort of behind schedule. We have already 2 vessels, they are working. And I think we also touched upon it on the market side. There are a potential in the market for call it, unplanned work or ad hoc work. And of course, it could well be that there is a longer requirement for commissioning vessel at Dogger Bank than previously expected and that would only put us in a better position, I would say. And also, we have contracts that are, call it, limited in time. And of course, that would be a new discussion with a potential vessel requirement.

[Lars Stubhaug, executive]

I agree. I'm kind of building on to that, again to you Kenneth. Can you kind of elaborate and give us your thoughts on entry barriers? What's the highest entry barrier? And do you see kind of client being restrictive to those new players coming in and so forth?

[Kenneth Walland, executive]

I guess, in our company, we have seen at least one entry barrier and that is to have reliable key systems and machine equipment systems on board. And of course, that has been troublesome for our company. We know it has also been a challenge for other companies. So in a way to build robustness convincing delivery to the charters and quality on what you deliver is entry barrier. And of course, we are having, call it, 120 people on board these vessels. We have to ensure that all the personnel transfers we are doing is very safe. We are handling people, a lot of people all the time.

And by that, we need to operate very much on the safe side. And of course, also, that is one of the reasons why we are also taking in-house management now because we feel we are in a better position to have that, call it, entry barrier on it, but we feel to build a competence within the company rather than to build up that competence with the third party is, at least for us, important.

[Lars Stubhaug, executive]

And lastly, building on to that [indiscernible], kind of reiterating what we've said before with regards to consolidation. It's fair to say that we welcome consolidation and would like to be -- take an active part in the consolidation in the industry, and we do see the benefits of such consolidation.

Lastly, to [ Torsten ] here, a clarification, timeline for the options at Vard, Kenneth?

[Kenneth Walland, executive]

There are no options at Vard any longer.

[Lars Stubhaug, executive]

Very good. Thanks for that, [ Torsten. ] So I think with this, I've tried to summarize the many questions, several overlapping ones. Again, if you haven't received a sufficient answer, reach out to [indiscernible] more than happy to set up additional meetings.

So with that, I'll say thanks to you. Thanks for listening in and very much thanks for the questions.

[Kenneth Walland, executive]

Thank you. Have a nice day.

[Herman Overlie, executive]

Thank you.