Solstad Offshore ASA

OSE:SOFF

Earnings Call Transcript

[Lars Solstad, executive]

Good morning, and welcome to the fourth quarter and full year 2024 presentation for Solstad Offshore. This presentation will be held by CFO, Kjetil Ramstad; and myself, CEO, Lars Solstad. It has been a year with a continued market improvement, which is reflected in the results we are presenting today. The outlook is also promising, and we have continued to sign new contracts also into 2025.

I would also like to highlight the settlement we did of the Normand Maximus Residual Claim in fourth quarter that was very value creating for the company as well as further investments we have done into the Service segment, and I will come back to all this during this presentation.

A quick look at the disclaimer before we move over to the 2024 highlights and business update. And as mentioned, fourth quarter and 2024 in general has been a good year for Solstad with high utilization and strong financial figures. The CSV segment has performed at a steady high level, while the anchor handling segment by nature is more volatile, especially the vessels with spot exposure and less utilization in fourth quarter, but are on an okay level for the year in total.

For Solstad Maritime, adjusted EBITDA came in at NOK 799 million in the quarter and NOK 3.23 billion for the year of 2024. This is slightly behind our guiding from third quarter. A strong net result of NOK 2.6 billion contributed to an improvement in the book equity during the year of NOK 6.8 billion, including NOK 4 billion in equity contribution from the refinancing done in first and second quarter including NOK 4 billion in equity contribution from the refinancing done in first and second quarter of '24.

The order intake for the year was above NOK 10 billion and equivalent to a book-to-bill ratio of 1.8, giving us a solid visibility into '25 and also beyond. Based on the fourth quarter result, the Board intends to pay a dividend of NOK 0.5 per share for the quarter, which gives a total dividend payment of NOK 233 million and is similar to what we paid last quarter.

As announced earlier, the intention is to list Solstad Maritime on the Oslo Stock Exchange during second quarter this year, and this process has already started. And as we read the market and with the high volume of revenue already in hand, we expect Solstad Maritime to achieve an EBITDA for 2025 of between NOK 3.9 billion and NOK 4.2 billion, and this is compared to NOK 3.25 billion for 2024.

For Solstad Offshore, we achieved an EBITDA in fourth quarter of NOK 436 million and for the year, a total of just below NOK 1.4 billion. And this is well above our guiding from third quarter. The book equity improved with about NOK 1.3 billion to a total of NOK 3.1 billion, and where the main contribution came from settling the Maximus Residual Claim in fourth quarter. This settlement also opened up for refinancing of Solstad Offshore, enabled Solstad Offshore to start paying dividends again.

Order intake for the year was about NOK 5.6 billion, giving a book-to-bill ratio of 2x. Based on the intention from the Board of Solstad Maritime to pay NOK 0.5 per share for the quarter in dividend, Solstad Offshore will then receive about NOK 64 million in dividends. And Solstad Offshore also intends to start paying quarterly dividends and target the first dividend payment in second half of 2025. We expect Solstad Offshore to achieve an EBITDA for 2025 of in total NOK 1.3 billion to NOK 1.6 billion, whereof NOK 650 million to NOK 750 million is operational EBITDA, while NOK 650 million to NOK 850 million is results from associated companies and JVs.

If we look at the market, I will say that in general, the market continues to be strong and the outlook for the coming year are promising. I would like to highlight Brazil as the geographical region with most long-term opportunities, and we are mobilizing one of our anchor handlers to Brazil right now based on a 3-year contract awarded last year. At the moment, we are participating in several tender processes in Brazil with both CSVs and anchor handlers and where some of the vessels are in Brazil already, while others are by now operating in other regions. And typical contract durations for those potential contracts are 3 or 4 years each.

For the CSV segment, we have high utilization on the fleet, and we see a number of new opportunities in the global markets. This segment and at least for the larger vessels are very project-oriented, meaning also that vessels are transiting a lot between geographical regions. We recently announced a long-term contract for one of our CSVs, where we already now are booked on projects in the North Sea, in Guyana, in Brazil and in the Mediterranean, the coming years. And on this contract, we also have a substantial service delivery on top of the more traditional time charter delivery.

And the fact that we offer more services than the vessel itself has been very well received by our clients, and this adds value to the client and it adds value to Solstad. We reached a settlement agreement for the Norman Maximus historical residual claim in fourth quarter. The overall claim of about $200 million was settled for about $100 million, and this was financed by cash in hand and a new 3-year loan agreement.

As the claim was booked as debt, the overall debt in Solstad Offshore was then reduced by NOK 1 billion due to this agreement. That claim also prevented Solstad Offshore to pay dividends, while the new financial arrangement now permits dividend payments, of course, subject to financial performance. And the contractual status for Norman Maximus is still a firm contract until the very end of 2026, which gives us a significant EBITDA contribution. And Solstad Offshore also has a purchase option to buy the vessel from Solstad Maritime in 2027 for an agreed price of $125 million.

The Service segment in Solstad continued to increase. And as part of this initiative, Solstad Offshore agreed to acquire 25.8% of the shares in Omega Subsea in fourth quarter. This further strengthens our service deliveries by also having direct ownership in the operations and not only in the Subsea hardware. Omega Subsea has about 400 employees, own 12 ROVs, has a revenue of around NOK 800 million in 2024 and a result before tax of approximately NOK 100 million.

This does not change the Solstad business model. The business model is still to deliver vessel and services on day rates and not take on our own projects with associated risk. And as we speak, we now have vessel #5 in the Solstad fleet mobilized with ROVs from Omega Subsea and vessel #6 will be ready during second quarter. And the operating model where Solstad delivers more than the vessel, but still on time charter has been very well received by the Subsea contractors, and we expect to continue to grow the Service segment onwards.

The Service segment achieved a revenue of about NOK 1.3 billion in 2024, which was beyond our expectations and an EBITDA margin of around 25%, which then comes on top of what each vessel has in earnings from the traditional time charter. And as you see from the graph up in the right corner, vessels in both Solstad Offshore and Solstad Maritime benefits from what we deliver through Solstad services.

So then Kjetil, can you take us through the numbers in more details.

[Kjetil Ramstad, executive]

Thank you, Lars. Let's start with Solstad Offshore financial highlights. Solstad Offshore had a fourth quarter utilization of 91% and 95% year-to-date. Revenues for the quarter was NOK 691 million and for year-to-date, NOK 2.8 billion. Adjusted EBITDA of NOK 436 million for the quarter and year-to-date almost NOK 1.4 billion.

In the EBITDA adjusted numbers, we have included the IFRS 16 leases as operational leases. And that is mostly related to Normand Maximus, several vessels in Brazil from Solstad Maritime on bareboat, some ROV and office leases. This amounts to NOK 182 million reduction in the quarter. To be consistent, we also account the leases on the net interest-bearing debt with a reduction of NOK 3.2 billion as shown in the graph on the upper right-hand side.

The net result for the fourth quarter was NOK 732 million, and it's a strong quarter and the net result for the year-end at NOK 1.3 billion. Cash ended in Solstad Offshore at NOK 382 million at year-end. Equity at the end of the year of NOK 3 billion, giving an equity ratio of 35%. During the year, equity has increased by NOK 1.3 billion.

As a result of the Maximus Residual Claim settlement and the following refinancing in the quarter, the interest-bearing debt in Solstad has been reduced with approximately NOK 1 billion. That result in net interest-bearing debt in the financials are NOK 4.6 billion. However, if we exclude the leases from Solstad Maritime, the net interest-bearing debt will be at NOK 1.4 billion, as also shown in the upper right-hand side. And that gives net EBITDA -- net interest-bearing debt over EBITDA on 1x, which is illustrating the low leverage for the Solstad Offshore.

It's very limited amortization over the next 2 years with the most facilities refinanced to 2027 and beyond. In Brazil, we have [ BNDES ] to 2031. Brazil is performing better than planned and is paying down the debt faster than we have scheduled. Firm backlog of NOK 5.7 billion at year-end. I'll come back to that on the next slide.

So if we look at Solstad Offshore backlog, the total backlog for Solstad Offshore was NOK 5.6 billion at the year-end, up from last quarter. Solstad Offshore backlog also includes Solstad Maritime vessels being utilized in Solstad Offshore's Brazil setup. And backlog for the 7 owned or controlled vessels in Solstad Offshore amounts to NOK 2.6 billion. Most of the backlog in Solstad Offshore has been added the last 2 years, so very few legacy contracts in the backlog. In 2025, approximately 85% of the available vessel days has been booked, securing most of the year already.

Then if we move over to Solstad Maritime fourth quarter financial highlights. Utilization of 85% in the quarter, and it's lower than -- a little bit lower than expected due to spot market in the North Sea for anchor handlers has been a little bit slower. Utilization for the full year has been 86%. Operating income for the fourth quarter was at almost NOK 1.6 billion and NOK 6 billion for the full year. EBITDA adjusted of NOK 799 million in the quarter and NOK 3.2 billion year-to-date.

In EBITDA adjusted, we have assumed the same IFRS 16 treatment on the leases, meaning that they are being seen as operational also in Solstad Maritime. This amounts to add-back of positive NOK 66 million in the quarter. Net result of NOK 1.2 billion in 4Q and NOK 2.6 billion year-to-date. Backlog of NOK 9.6 billion at year-end.

Book equity in Solstad Maritime is at NOK 8.9 billion, giving an equity ratio of 46%. The net interest-bearing debt in the financials are NOK 6.7 billion, and we are repaying approximately NOK 1.5 billion on the fleet loan annually. Cash has decreased from NOK 2.3 billion to NOK 2 billion in the quarter, mainly driven by dividend payments and debt servicing in the quarter. Net interest-bearing debt of NOK 6.7 billion over adjusted EBITDA of NOK 3.2 gives a multiple of 2x.

Then if we look at the backlog of Solstad Maritime, the total backlog of Solstad Maritime is NOK 9.6 billion and NOK 16.8 billion if we include the options. Solid, firm backlog additions in the quarter of NOK 3.2 billion, book-to-bill for the quarter of 2x. A large part of the backlog has also been added after the upturn started. In 2026, most of the legacy contracts and lower earning contracts has been finalized. In 2025, 61% of the available vessel days has been booked and the book-to-bill for the year ended at 1.8x.

With that, I give the word back to you to summarize, Lars.

[Lars Solstad, executive]

Thank you, Kjetil. And to summarize our presentation, the Solstad companies have had a strong year with a book equity increase of NOK 1.3 billion in Solstad Offshore and NOK 6.8 billion in Solstad Maritime. Significant backlog has been added at healthy terms and gives us a robust visibility into 2025 and beyond.

I also would like to highlight the Solstad Services, which continues to grow and gives Solstad the ability to take larger part of the value creation without taking on more risk. And this commercial model has been very well received by the clients. And as mentioned, the Solstad Services revenue came in at about NOK 1.3 billion for the full year, and we see also that we will continue to grow that segment into 2025.

We are also pleased to announce that Solstad Offshore targets to pay dividends from second half of this year, while Solstad Maritime continue its earlier announced dividend policy by proposing NOK 0.5 per share for the fourth quarter. And last but not least, we foresee a growth in earnings for both companies in 2025 and indicates an EBITDA for the year in the region of NOK 1.3 billion to NOK 1.6 billion for Solstad Offshore and NOK 3.9 billion to NOK 4.2 billion for Solstad Maritime.

So this concludes our presentation. Thanks for listening in. And now we move over to Q&A, Kjetil. Has there been any questions?

[Kjetil Ramstad, executive]

There are some questions entering in. So if we start with the first one. As I understand, Normand Jarstein, is working on Omega Subsea project in Africa and contract announcement and mobilization with ROVs. Is this something that we will see more of? And yes, can you -- if I'm looking down the road, Normand is available for project work with Omega Subsea Solstad Offshore Cooperation?

[Lars Solstad, executive]

Well, first of all, it's not an Omega Subsea project. We don't take on our own projects. It's correct that Normand Jarstein is mobilized with ROVs from Omega Subsea, but the combination of the vessel and the services we have on board, as I also discussed during this presentation, is working on a project for one of the main subsea contractors in West Africa.

So that will be -- that -- so just to clarify, we don't take on the projects ourselves. We work for the other contractors. And there are -- we expect to mobilize vessel #6 with the same setup in second quarter, and that may very well be the Normand Mermaid, but it can also be other vessels.

[Kjetil Ramstad, executive]

Can you elaborate a little bit on the different EBITDA margins on Service segment in Solstad Offshore and Solstad Maritime. Is it the same margin on both sides? Or how does that work?

[Lars Solstad, executive]

Yes. It's -- in general, it's the same margin, but it also depends on what we are able to achieve from the end client. But in general, it's the same service margin on -- irrespective of if the vessel is working for -- or if the earnings are on a vessel in the Solstad Maritime side or Solstad Offshore side, it's going to be the same.

[Kjetil Ramstad, executive]

And then there's a question on the net interest-bearing debt in Solstad of the NOK 4.6 billion and if that is after Normand Maximus loan payments included paid.

And I can respond to that myself. As I said in the presentation, the net interest-bearing debt in the financial for SOFF is NOK 4.6 billion after the maximum settlement has been completed. And as I also explained, if you adjust the leases from Solstad Maritime, the adjusted net interest-bearing debt at year-end will be NOK 1.4 billion.

Then we have a question. Can you give some more information what you paid for the 36% of the Omega Subsea acquisition?

[Lars Solstad, executive]

Well, it was a part of the agreement that the price is confidential. We think we have bought into a very good company, which adds a lot of value to Solstad. And we think we have paid a fair price, but also I see it as a very good deal for the shareholders in the Solstad system.

[Kjetil Ramstad, executive]

And then we have a question on Solstad Maritime Holding EBITDA decreased from third to fourth quarter. Why did they drop a little bit in the fourth quarter?

[Lars Solstad, executive]

Well, I would say the short answer to that is mainly because of less utilization on the anchor handling fleet. Yes. So that is the short answer to that question. That's the main reason.

[Kjetil Ramstad, executive]

And then next question. Is there a plan to merge Solstad Offshore and Solstad Maritime in the future?

[Lars Solstad, executive]

Well, we are now concentrating on listing Solstad Maritime. That will be done in second quarter and what the future brings, who knows. But what we do now is to concentrate on listing Solstad Maritime.

[Kjetil Ramstad, executive]

Can you elaborate a little bit on CapEx levels for '25 compared to '24, also with timing on regulatory dry dockings?

[Lars Solstad, executive]

Yes. It goes in cycles compared to when the vessels are built and 2024 and 2025 is high CapEx years for Solstad. So we will have a higher CapEx in '25 than we had in '24, but then we expect it to come down again in '26.

[Kjetil Ramstad, executive]

Thank you. And then next question, how do you view the anchor handling market in Australia going forward?

[Lars Solstad, executive]

Well, we have 4 vessels -- 4 anchor handling vessels working in Australia. They are working on fairly short contracts, typically well by well. The rates has come up to a quite good level. The utilization is, of course, the key, and we will -- as we see it, there are rig programs, but there are also quite a few, let's say, moving projects coming up in this year. So we expect to see a good utilization for the vessels. And if not -- I mean, if the market comes down, there are other areas we can transport the vessels to. So we are following that very closely. And the key is to secure best possible utilization regardless of if it's in Australia or somewhere else.

[Kjetil Ramstad, executive]

Can you elaborate a little bit on the open days in 2025 for Solstad Maritime Holding? Is this a concern or an opportunity?

[Lars Solstad, executive]

I would say it's an opportunity. I'm not concerned at all. We have a good contract coverage. We have about the same, let's say, prebooked days for when entering a new year as we normally have, maybe a little bit higher. So not concerned. And for Solstad Offshore, we have -- we are nearly fully booked the first 3 quarters, and we have some open slots by the end of the year, but comfortable with the utilization guide we have prebooked.

[Kjetil Ramstad, executive]

Yes. Then there is a question on -- if you can give some more color on the Solstad Maritime holding leases in SOFF balance sheet.

And also, I can just refer to the presentation as well. You can see it in the bridge in the graph that we had on Solstad Offshore financial highlights, and there is 2 main components on the leases. It's Normand Maximus lease, which is included there; and it's the Solstad Maritime vessels that are on bareboat in Brazil that is utilizing the Solstad Offshore structure locally in Brazil.

Yes. And there's a new question on Australia. I think you responded to that. But how do you see it going forward beyond '25 in the Australian market?

[Lars Solstad, executive]

Well, it's -- I mean it's -- Australia is not a very big market for offshore services. It's about -- it's very much dictated by the rig activity in addition to some of the, let's say, the -- yes, moving work and that comes with more permanent installations.

Whether it's -- I mean, if it's not -- if the activity goes down, we're just going to move the vessels to where the activity is. We see a lot of opportunities in other places. So whether we work in Australia or in Norway or in West Africa or in Brazil, that is not the most important. We would like to keep the vessels working at the highest possible rate and with the highest possible utilization in the global market. That's our main focus.

[Kjetil Ramstad, executive]

And then we have the last question. How do you see first quarter coming out so far?

[Lars Solstad, executive]

Well, it has started okay. We have a quite high dry docking activity that we will have during first quarter and also in second quarter. But -- so the main CapEx is going to be spent the first half part of the year. Except for that, we see that the market is still quite volatile on the, let's say, on the North Sea spot market for anchor handlers, while the Subsea vessels are continuing on a high utilization and looks quite promising also for the year ahead. So yes, but I guess that summarizes it.

[Kjetil Ramstad, executive]

Yes. That...

[Lars Solstad, executive]

So that's it.

[Kjetil Ramstad, executive]

That's the last question. So...

[Lars Solstad, executive]

Okay. So thank you very much, and thanks for listening in. Have a good day.