Edda Wind ASA

OSE:EWIND

Earnings Call Transcript

[Kenneth Walland, executive]

Good morning, everyone, and welcome to Edda Wind quarter 3 presentation. My name is Kenneth Walland. I will start the presentation. And I will be joined by CFO, Tom Johan Austrheim, shortly to cover the financial part. We also have a Q&A session after the presentation. Lars Stubhaug will coordinate that one, VP Finance, so please feel free also to publish questions during the presentation.Topics we will cover during the presentation. Edda Wind are taking our place as a market leader in the offshore wind segment, commissioning service vessel operations and service operation vessels. We are seeing a fleet of 14 vessels coming between now and up to last delivery quarter 1, '26. So a sizable fleet. We have already established a long and strong relation with our customer and client. And we also now have gradually more and more vessels into operations.Presently there are 5 vessels in operations. Number 6 is in the final stage of testing and will come on scene later this quarter. All the vessels are built at attractive yard prices and delivery schedules. So we started the first order of this new built series in 2020. And of course the price level reflect also that. High spec vessels including very forward leaned technology including the emission part of it where we are having a path towards zero emission operations either by hydrogen concept or also on the last series methanol-ready vessels.Edda Wind is operating in both the long-term operation maintenance segment but also the shorter commissioning segment. So we have a balanced portfolio of contracts that you will see in both these segments. We can work on sort of any size of turbines, bottom-fixed, floating and so on. So even though a young company, we feel we have a very long and good track record also from the heritage of the founder companies and the companies now supporting our company. We have been focusing on offshore wind for 10 years already. We have built up a strong backlog that you will see more in detail later. So we are definitely in the right direction here, and that we will also see when we come to the sort of highlights of this quarter.In the first quarter this year we had 2 vessels in operations. Second quarter, four vessels. This quarter five vessels and gradually more and more. And of course that is also visible on the result of the company and the activity of the company. That will be covered also in detail more by Tom shortly. But I would say a very positive trend on revenue, EBITDA, profit and so on.Also, some subsequent events are mentioned here. We started the SiemensGamesa contract in France 1st of October. Edda Passat commenced the new short-term contract end of October, and also, and we will come back to build number 416. We have taken steps there to ensure delivery of that vessel in the first quarter of '24. Maybe more visible, the same possible trends, whether we look at the revenue, the last 12 months revenue or the EBITDA, definitely pointing in the right direction. And as we know, there will be more vessels coming online within the next period. We will have 3 vessels additional delivered in '24. We will have 4 vessels delivered in '25, and another one in '26. Again, a total of 14 vessels.Edda Boreas was delivered this summer and started the commissioning work at the Dogger Wind Farm. This is taken in here maybe a typical or a good example of a commissioning work that the CSOVs are sort of intended for. Dogger with the commissioning then on Dogger A, B, and C and most likely also D is a huge project. There are already now 4 CSOV vessels in operation at Dogger, and that sort of creates quite a lot of vessel days. And we will see the sort of advantage of Tier 1 or special purpose built vessels for work on projects like this. Very fine vessel big capacities on personnel on board, gangway systems, flexibility, crane, helideck and so on.She will be there most likely -- it's a firm contract, 2 years, but she will most likely be there for 3 years. So that's a contract that was starting beginning of July this year. Edda Nordri was delivered as a sister of Edda Boreas and the other 6 vessels totally being built at Gondan, the CSOVs. She was delivered in the beginning of September from the yard. She is now in the final stage of gangway installation in Denmark, will be ready for operation in a few weeks. Harbor acceptance test of the gangway system is in 2 weeks from now on. And then she will enter the contract we started in France with SiemensGamesa from beginning of December. She is again same spec, similar spec as the Boreas, number 3 of the 6 sister vessels following the first one, Edda Breeze. Also the next one was the build 492 was launched in September more or less at the same time as we had delivery. That vessel will be delivered Q2 '24. And at the same time, we will also have a launch of the next one after her, build 503 at Gondan. Sorry for all the numbers.Market wise. We are remaining very optimistic about the market. Of course we see there are some news on the horizon related to development of wind farms, and in particular where there is a sort of a committed price. And the costs have gone -- increased by far for many of the developers. But we see that as more of a requirement for calibrate the prices going forward. We -- and also developer that we meet are very strong in the belief of wind farm and the wind farm industry. And we see that also in vessel demand. There will be a huge demand for these type of vessels, still combined with a very limited supply.And we also feel that now when the sort of special purpose built Tier 1 vessel have been introduced, they are definitely more effective for the clients. They have much less fuel consumptions, by that also emission. And also they can be offered at attractive rates in particular since the oil and gas tonnage is either attracted back to oil and gas, or are being offered at high rates if they are to continue in the wind industry. And we also see clear proof of that during the season with high day rates. So we remain very optimistic about the demand for the vessels in combination with what I said, sort of limited supply for these reasons.That's also visible on the growth projections from the wind developers. Again there has been news lately, maybe in particular from U.S. where some developers have even canceled or put on hold projects or plans. Edda Wind is not exposed to operations in U.S. U.S. will and can be a future market for Edda Wind but in that case it will be against firm contracts. And presently there are no such contract in place, so we are not exposed in Europe. We feel there is still huge plans and increased development in general, even though that some projects maybe have been shifted to the right.Also, we see that there are quite a number of unplanned projects or additional work due to these delays or circumstances during development of the wind farms. So again, when we liaise with the analysts and brokers and the market in general, again, still big demand for vessels, lack of supply. And sort of these 200-plus vessels needed by 2030, 2/3 will be CSOV vessels, 1/3 SOVs. This is worldwide, excluding China. And we also know that the CSOV always can trade down and act as SOV if needed.So we are optimistic on the demand. That means we are also optimistic on the expected day rates, and these are sort of figures from Clarksons on this, on the historical data and also forecast on a mid case. And we also see that we have been able to secure contracts on sort of this mid-case level going forward for the contracts we've done with Vestas for '24 and '25. Quite a number of players, many with maybe 1, 2 and few vessels. Again, Edda Wind is taking a lead with a fleet of 14 that we are building up. So if we sort of categorize them, there is one company above -- with 10 vessels or more. So of these 74, I think accounted vessels that are visible here, Edda Wind will have around 20%.There are 4 companies with -- between 5 and 10 vessels, and there is a number of companies with less than 5, down to 1 vessel. We feel the size we are building up give us flexibility to take on project, still keep up a high utilization because we are able to fill the gaps between project. That is important to us. We feel that size is also advantage. Cost-wise, OpEx, training, spares, otherwise we feel that size has also give us negotiation power. And it could also of course be a platform for consolidation going forward.The fleet, coming up, looks like this. I will not mention all of them, but we can start with Edda Passat. I think when we presented last quarter here 3 months ago, we were more or less in the same position as today. She had a few weeks left of her present assignment. We said we were working openly to secure more work. We did so. She is now working on a contract, short-term, started end of October. That will run sort of into -- close to the end of the year. And there are some options.We are still in the same position. So we are not getting Edda Passat openly on sort of all type of projects she will fit into. We have to realize she is a SOV by design and capacity. So that means she is not suitable for all commissioning work, but the type of projects she is working on now is also within sort of commissioning or after work at the wind farm. And we are then working openly to secure more work after this present one.Mistral, not really anything to mention. But I think Tom will mention the drydocking taking place last -- in September. Edda Brint already started in March with Vestas, 15 years. Then we have the 416, the build at Balenciaga. We have announced earlier that we had challenges with that build, delivery of the build and also the sort of situation at the yard. It's a yard-specific challenge. So we announced last quarter we are taking sort of active action there. After that period, we have gone in. We have taken legal title to the vessel.We have introduced project management, economic management so that we have control of the coordination, planning of work, planning of payment of suppliers and so on to ensure that we can deliver the vessel by quarter 1, 2024. The vessel is obviously at least 90% completed. All the equipment is already on board, except gangway, which will be put on board and installed in December or end of November, December. By that, all the equipment is on board. So we are in sort of commissioning stages, which already has started.So we are sort of now seeing good progress because there has been halted progress during the summer [ stop ]. Now we are optimistic to have that vessel delivered first quarter of '24, which will then be the permanent vessel for the SiemensGamesa contract in France.Breeze, Boreas, not that much to mention. They are working, Breeze, on the Ocean Breeze contract until '32 in Germany. Boreas was already mentioned at Dogger. Nordri has been mentioned as the vessel delivered in September, will be in operation as a front runner in France for -- in a couple of weeks.Then we have the next vessels being delivered as mentioned this summer onwards, and they are all on track as per plan. So with that, I think, Tom [indiscernible].

[Tom Austrheim, executive]

Thank you, Kenneth. And as you said, a quarter of growth in third quarter, not only versus same quarter last year but also versus second quarter. So we'll go through some of the figures, starting with the P&L.Revenue came in at EUR 11.8 million, which was 59% more than the same quarter the previous year, but also a 28% increase compared to the preceding quarter, i.e., the third quarter. The income from Breeze was reflected in both years as we had a front runner of Breeze last year as well, but Boreas and Brint are new to the P&L in this quarter, so to speak. And as Kenneth touched upon, Edda Mistral has her 5-year docking in this quarter, and we had 20 days off-hire on that.Despite that, Passat and Mistral, which are comparable because they were in last year and in this year, Passat and Mistral in aggregate had an increase in the income this quarter compared to 2022 third quarter. So that is also a positive, we would say.On the OpEx, that is reflecting the increase of the fleet as well. Payroll and remuneration, other operating expenses, you see a drop. The reason for that is the front-runner we had in 2022, which was on time chartering, the time charter rate was reported on other operating expenses. So that has now been replaced, so to speak, by personnel expenses or other operating expenses and interest and depreciation.On EBITDA then, EUR 4.8 million, which is 260% (sic) [ 241% ] increase over the preceding or the same quarter last year. And we see that that is in line with the consensus among analyst expectations. On the financial items, increase in interest expense reflecting more vessels being delivered and being financed. Interest income is obviously on deposits. And the currency effect is mainly relating to Norwegian kroner and also some pound sterling, a positive this quarter, and you see year-to-date also positive EBITDA, more neutral.And that gives a profit before tax of EUR 1.8 million for this quarter, which is significantly above same quarter last year. And on the graph at the bottom there, you see the historical performance has been a long wait for the growth, which is now happening last quarter, this quarter and going forward, as aa Kenneth said, on deliveries of more vessels next quarter, next year and the year after. EBITDA, same story, but with some nonrecurring effects in a couple of quarters historically.On the balance sheet, you see investments in vessels and new buildings increasing. So far this year increased by around EUR 160 million. The cash and cash equivalents at the end of the quarter was EUR 34.6 million. The equity EUR 290 million, approximately 57% equity ratio.The backlog of the company is good, EUR 415 million, including options, EUR 314 million of those are our firm. You see a good spread between the industry measures and Kenneth touched upon, we are seeing basically a deal flow of everything that is moving in the offshore wind segment. So we have all the -- among our backlog so only the industry measures.The backlog over time, you see there are some firm revenue left for 2023 fourth quarter, and then an increase '24, '25 as more vessels are delivered and then tapering off, as you would expect that some contracts are [indiscernible] closer to delivery.We'll have 6 vessels in operation by the end of this year. We'll have 9 vessels in operation by the end of next year for a total of 14 vessels when the last vessel is delivered Q1 2026.This one, I think, is quite interesting. It shows the split between our firm contract base, option days and open days, which we can secure work for in the market. On top, we have placed 3 gray boxes, which is the analyst forecast day rate midcase for CSOV work, EUR 40,000 to EUR 44,000. And I think this shows that the company is well-positioned to take advantage of the expected growth in the work and also in the day rate that are to come.The options are mainly relating to Edda Mistral for Orsted on Hornsea but also some for [ SSE ] at [ TogeBank ] in '25 and '26. So that I think is a slide that shows the potential of the company going forward.This one, those who are following the company might have seen before in very similar terms. We have 4 debt facilities for the fleet, 2 product placements for single vessels and 2 loan facilities for 4 and 3 vessels respectively. We have no balloon payments before 2027. We have a fixed -- our debt is an interest rate hedged by 75%, and the hedged portion has a all-in rate of 3.2%, which we think is quite attractive in the market that you see in the last couple of years. We are working on financing for more vessels. And we expect to complete 1 transaction before the year.And then on summary, perhaps back to Kenneth.

[Kenneth Walland, executive]

[indiscernible] I guess we will have to be together for the Q&A. Before we start with the Q&A, just a final page. 2023 has been a busy year. As you know, we had challenges at [ 24 ] on delivery on the gangway systems. 2023 is way different. We have already put 3 vessels into operations. Number 4 will come shortly. At the same time, we are also building up, call it the new Edda Wind organization. Presently Ostensjo is the ship manager and also providing corporate services to Edda Wind. With the size we are building up, it is [indiscernible] a logical move for Edda Wind to build up in-house management. We are well underway with that project. We have recruited very skillful people already. So from being 2 and 3 persons in the start-up phase, we are by now 12. And by next year, we expect to be at least double that number. And of course, the process now is to put Edda Wind in a position with all the structure, system and procedures needed to take over management during 2024.We have a very good dialogue with Ostensjo. We have entered into, call it a transition agreement with them, how to do the overlap. Ostensjo will be there until end of '24 per the plan, but Edda Wind will gradually take over a few vessels during second half '24 to ensure a more smooth overlap transition period. So it's also an exciting project for the organization and for the company, which will have of course a start-up cost, but in the long run also will be a saving for the company and also give us, call it, a better hand on the wheel.And we have already said we will be obviously going forward also, 3 more vessels to put into operation next year, another 4 in '25 and the last one in '26. So with that, I think we conclude the presentation and go over to the Q&A, assisted by Lars.

[Lars Stubhaug, executive]

Very good. Thank you, both. We've received a few questions on the web. And then anyone keep listening, to anyone that's still listening in, feel free to keep asking questions, and we'll respond accordingly. The first one goes to you, Kenneth. "Are you able to comment about the man overboard incident on Boreas at Dogger Bank?"

[Kenneth Walland, executive]

Yes, I can. We had incident during gangway connection on the Edda Boreas at Dogger in August, which is also covered in the quarter 3 report. The event during gangway connection led to a man overboard situation with high potential, as it also described in the report. Luckily, the person involved only sort of was subject to minor consequences. He was taken into hospital and released the same evening. But again, the incident were a high-potential incident. We have done investigation afterwards. And of course, as you often see, it's a mix of, call it, technical root causes and also human. So there is follow-up on that incident. It's reported to all the relevant governmental bodies. There are safety flash shared among the fleet. There are experiences shared in the industry, both by us and also by the manufacturer and our client. And of course, we have taken that very seriously because it's incident we should not experience and that we do not want. Very good to see that sort of the procedures on board worked very good after the incident. The guy was picked up from the sea within 5 minutes by the vessel's rescue boat, man overboard boat. And again, he had only a fracture in his wrist, but a serious potential event.

[Lars Stubhaug, executive]

Thank you, Kenneth. On Slide 12 in the presentation we have shown the vessel demand in 2023 versus 2022, and we see a small drop in demand. And the question is, "How is this possible with such a positive market outlook and demand side?"I may start with that one. And then it's from [ Mikkel ]. Mikkel, obviously demand is a function of, at least on the CSOV side it's a function of distance from shore and the number of turbines built. And this kind of drop in demand is related to CSOV demand and not SOV demand, which is in -- by definition, cumulative. So the CSOV demand and the drop is mainly driven by Asia. So Taiwan and other Asian Pacific waters.Next one, I will direct to you, Kenneth. "If the soft demand within renewable continues, are you able to take on work within oil and gas with your vessels?"

[Kenneth Walland, executive]

There is nothing preventing us from taking work in oil and gas. Our vessels are sort of purpose-built for offshore wind, but we see that there are similar vessels by other companies that already have taken on work in oil and gas than in particular related to maybe walk-to-work campaigns where there is a requirement for a larger number of personnel due to maintenance, sand blasting, panting campaigns on the installations and so on. And of course, as I said, with CSOVs, fallback for CSOVs could be the SOV market. It could also of course be oil and gas market. There is nothing sort of preventing us from that, even though we are optimistic that there are more than enough work in the wind market for our fleet.

[Lars Stubhaug, executive]

Thank you, Kenneth. Kind of building on from [ Edward ] here. "Are there any long-term tenders out in the market that will fit for Passat?"

[Kenneth Walland, executive]

Presently, there is no long-term tender. We are working on quite a few tenders that are suitable for Passat, not recommencement immediately after her present assignment, but more towards quarter 2 and so on. But it's not a long 5, 10 and so years tenders right now. But of course, that is maybe the type of tender where she will be ideal and should also be very competitive.

[Lars Stubhaug, executive]

Thank you. This one goes for you, Tom. Could you repeat what your average rate is right now? You mentioned that you expect to close financing for one or more vessels before year-end? What kind of interest cost do you expect to be able to achieve?

[Tom Austrheim, executive]

Yes. What we said is that we have -- on the debt that we have in the balance, just now we have a coverage for 75% at average 3.2% per annum for 75%. For the interest that or the interest cost on the vessels that we are yet to finance and some of those we are working on at the moment. Well, that would be Euribor, will take a euro loan. So it will be Euribor plus the margin. And what is the margin, I don't think we normally publish that on a deal-by-deal basis. But let's say it's below 3% margin plus Euribor at --

[Lars Stubhaug, executive]

You will expect Euribor to be somewhat higher than previously when entered into. Thank you, Tom.Back to you, Kenneth. "With all the smaller players ordering new builds, is there any appetite for chartering in additional tonnage in order to increase exposure to the market and take advantage of the in-house operational platform that we are now building?"

[Kenneth Walland, executive]

For Edda Wind, well, first, we have to build in-house platform. We are in the process of doing so. And of course, there will, from time to time at least in the buildup phase, we have seen that we have had requirement for frontrunner vessel. We had the Edda Fjord chartered in from Ostensjo for a longer period. We have a front vessel -- external front-runner vessel right now to start up the contract in France until Nordi is ready in a few weeks. So it's that type of requirement could mean we would need vessels. But of course, as the fleet grows, the probability that we -- I'm not able to fill sort of our committed work is becoming less. But of course, there could be a situation where we need a front-runner vessel or we are benefited by taking in a front-runner vessel instead of using all.

[Lars Stubhaug, executive]

And then kind of building on, on the same. So just elaborating basically. "Do you look to acquire any of the smaller players in the market?"

[Kenneth Walland, executive]

There is no immediate plan for that, no.

[Lars Stubhaug, executive]

And this may go to both of you, so you could pick and choose. You're right in the report that the yard price of the C416, the Goelo, can increase by 10% to 15%. Can you elaborate on this cost increase? And is the stated cost increase based on a gross or net, meaning net of the Spanish tax lease, the oil price.

[Kenneth Walland, executive]

Yes, I could comment on it. I think maybe the easiest to refer to is the ready for sea cost because that's eventually what matters to us and what we need to sort of cover. The plan ready ready for sea cost now is, I would say, max EUR 50 million or shortly below EUR 50 million, which is then what we refer to as the price increase indicated by 10% to 15% from the original. So of course, that's an increase. If you compare to the spec of the vessel and what this vessel would cost today, I would say the yard price with the specification with Voith Schneider, the LOHC plant and everything would be around EUR 60 million for that vessel, plus over ready for sea cost project management, interest costs and so on. So I would say probably closer to mid-EUR 60 million than low-EUR 60 millions as a new ready for sea cost. And by that, sort of even though we are disappointed by the EUR 50 million, it's becoming out to be a cheap vessel since he was ordered in 2020.

[Lars Stubhaug, executive]

Thank you, Kenneth. Last question here, at least currently. "An offshore wind installation company last night announced a contract termination for work in 2026, but with good termination fee received. Do you have good termination clauses in the contracts?"

[Kenneth Walland, executive]

If you are talking about termination for convenience, yes, they are normally a good deal for us as a company. They are different. It's a negotiation of course also as part of the contract, but I would say, in general, they are somewhere between 50% and 100% of the committed period, value of the committed period.

[Lars Stubhaug, executive]

"So you are not afraid of terminations then?"

[Kenneth Walland, executive]

That's not our worst nightmare, yes.

[Lars Stubhaug, executive]

Okay. Thank you, Kenneth. As for now, that was all the questions. So unless I see anything in a second. No. Very good.

[Kenneth Walland, executive]

Okay.

[Tom Austrheim, executive]

Okay.

[Kenneth Walland, executive]

Thank you very much for the attendance, and thank you very much for the questions. Have a nice day.

[Tom Austrheim, executive]

Thank you.