Seaway 7 : Financial Reporting Document

Seaway 7

Transcript: Seaway 7 Conference Call

Date: November 17, 2021, 14.30 CET

Stian Lysaker: [00:00:02] Welcome everyone. For the first part of this call, all participants will be in listen only mode. And afterwards there will be a Q&A session. With me on the call today are Stuart Fitzgerald, our CEO, and Mark Hodgkinson, our CFO. The results press release is available to download on our website, along with the presentation slides that we will be referring to during today's call. May I remind you that this call includes forward looking statements that reflect our current views and are subject to risks, uncertainties and assumptions. Similar wording is also included in our press release. I'll now turn the call over to Stuart.

Stuart Fitzgerald: [00:00:49] Thank you, Stian, and welcome everyone, nice to be with you for our first quarterly call as Seaway 7. And my first call as the CEO of Seaway 7. You can see the agenda there. I won't go through it bit by bit, but I will first talk to and give an overview of Seaway 7 before Mark will move into the financials. I'll give an operational update and then we'll look at the market and summarize before taking questions.

Stuart Fitzgerald: [00:01:19] Much of this is familiar to many of you, but just to have a common basis for starting out here, a brief summary of the combination that has taken place to from Seaway 7. Seaway 7 was a combination of Subsea 7's Renewables business, offshore fixed wind together with OHT. The combined company was renamed Seaway 7. At the time of the combination, Subsea 7 own 72 percent of the shares in Seaway 7, and that was held as a consolidated holding at Subsea 7 level, the OHT's shareholders held 28 percent of the company. Completion of the transaction was progressed on plan and was completed on the 1st of October. And we've been operating on an independent basis since that time. Seaway 7 retains the OHT's listing on the Euronext Growth and, as stated at the time of the combination, has an intention towards a future listing on the Oslo Børs. And that intention is maintained and Mark will talk more to that.

Stuart Fitzgerald: [00:02:28] A little bit about the offering of Seaway 7, both to our shareholders and our clients. So we sit in the market as the largest pure-play listed wind services company. I think most of the people on this call are familiar with the market projections within offshore fixed wind, strong market fundamentals, and that's being reinforced as we speak to clients, as we have been doing over the last six weeks. Within Seaway 7, we have a market leading combination of assets, capabilities and track records. We believe we've got the right assets as we head into this market, the right capability mix and exposure to different segments. And we have a track record of more than a decade executing projects within offshore fixed wind. Our client and geographic footprint is unique. We have a long track record with both renewables clients and relationships with the IOC clients from oil and gas who are entering this market in a serious way now. Geographically, we're an international organization with execution centers in each of the key markets that we see throughout Europe, Asia and the U.S., and we believe that that footprint gives a scale to tackle a globalizing market. We've got a strong backlog position, 1.3 billion as of the 1st of October and our shareholders in Subsea 7 and the Blystad group have long experience with offshore energy service and services and value creation within that space. We believe this combination sets us in a position to be one of the market leaders in offshore wind.

Stuart Fitzgerald: [00:04:21] This graphic here on one page shows our asset base, as well as the segments in which we operate. At the bottom, you see the three vessels which are active within offshore cables, where we have a market leading position. On the left, the Phoenix, a conversion that we carried out earlier this year. In the middle, the Aimery, which is a custom designed state of the art, inner-array cable lay vessel and then the Moxie, which acts as a support for that vessel for efficient, industrialized installation of inner-array cables. Above the Aimery there on the right, you see the newbuild vessel, the Seaway Alfa Lift and on the left the Seaway Strashnov and the Seaway Udin. Those three vessels positioned us within the foundations market for both jackets and monopiles and also within the substations installation market as you see that operation being carried out by the Strashnov. We see that as a fleet with the range of capabilities and customized to have the right asset for each of the different projects that we see in this market going forward. On the left, the VIND1 vessel, newbuild also, with a core capability towards turbine installations, but also an ability where the project specs are appropriate to trade into the offshore foundations market. Between that fleet of four vessels, we see the ideal asset mix for the market coming forward within foundations and also

then the emergence of a positioning towards the wind turbine market. At the top right there you see a heavy transportation vessel. There are five of those in the fleet, only one shown here. We see as this market globalizes and as the supply chains globalize, that heavy transport is becoming an increasing component of the large projects that are underway. We see multiple tenders at the moment where heavy transport is an element of those bids, and it's a clear value add to the capability and asset offering of Seaway 7.

Stuart Fitzgerald: [00:06:47] Those segment exposures and those assets can be brought together in different contract models, as different clients have different buying preferences. That's not only with different clients, but it can be for different projects and in different geographies as well. So we can sell those services either as segmented T&I services, or as EPCI's within array cable projects, or as integrated T&I's where we combine the different installation operations across the segment, remove interfaces for customers. Also in some cases as a full EPCI balance of plant project as we see on Seagreen project. We see increasing tendencies from our clients in the interactions that we have, and the tenders that we're working on, towards integrated packages as they move into new regions and as projects scale up in size. So we think that the capability that's been brought into play by the combination between Subsea 7's renewables business and OHT is coming to the market at the right time, with the right offering, well aligned with the market needs. I'll then hand over to Mark, who will run through the financial report.

Mark Hodgkinson: [00:08:14] Thank you, Stuart. And good afternoon, everyone. I'd like to turn to the reporting of the Q3 results. And before I talk about the individual numbers, I just like to outline the fact that the quarterly results, these condensed consolidated financial statements of Seaway 7 reflect only the contribution from the legacy OHT and do not include the results from the Legacy Seaway7 business that was owned by Subsea 7. Just to confirm the Q3 results are purely for the OHT business. What I would say is that looking forward, the Q4 results will be the first full quarter results, i.e. they will be the first results where we show the combined businesses of both the Subseay 7 and OHT. So that's the Q4 results will be combined, whereas the Q3 are simply the OHT results. The consolidated financial statements will account for the combination on a reverse takeover basis. So also as an indication, the full year 2021 results will include the legacy Seaway 7 results for the first three quarters and then the combined business results for the Q4. So we will give further guidance to the market on this particular accounting

presentation as we approach the Q4 numbers. But I wanted to introduce the topic on this call so that it's not new when we get to it. So for now, we're looking at the Q3 numbers, which are the OHT numbers.

Mark Hodgkinson: [00:09:48] Turning to Slide 10. This shows our income statement for the third quarter. The third quarter revenues of 17.4 million were slightly down on the previous quarter of 17.8. And this is reflective of the utilization, which remains high at 96 percent and slightly better than the 93 percent achieved in the previous quarter. The adjusted EBITDA, which is labeled operating profit loss before depreciation and amortization expenses for the third quarter, was 1.7 million, which was down from the 3.9 million in Q2. Now this reduction is reflective of lower effective day rates achieved on the contracts within the quarter and certain one off voyage related costs in that quarter. Not expected to be repeated. It's important to note that the typical operational expenditure of the vessels remains below 10000 dollars per day, which is, I think, consistent in the previous quarters.

Mark Hodgkinson: [00:10:51] now turn to Slide 11, we show the balance sheet and cash flow for the quarter. The company's total assets totaled 315.3 million dollars, which is up from 300.1 Million dollars as at the end of Q2 2021, and the total book equity was 226.9 million. The cash flow summary shows an operating net outflow of 1.4 million dollars for the quarter and a net investment of 18.3 million dollars, which was mostly new build capital expenditure. The outflows were funded by increased borrowings under the revolving credit facility of $15 million and the reduction of the cash and cash equivalents of $4.9 million. As at 30th September 2021, the remaining undrawn amount under the revolving credit facility was $13 million.

Mark Hodgkinson: [00:11:49] We'll move now to Slide 12, which is a depiction of the backlog, as at the first of October 2021, that's 1.3 billion U.S. dollars. We estimate the backlog at 1.3 billion. However, this is an estimate we highlight that these are estimates and that the annual splits can change from time to time. We should also note that we have since the 1st of October announced two additional contract awards, one for Ørsted and one for SSE. These are not included in the numbers in the backlog, as shown in the pie chart.

Mark Hodgkinson: [00:12:31] Now, I know there's been a number of questions or requests from the market for information concerning the starting balance sheet of Seaway 7. As I

indicated earlier, we are applying reverse acquisition accounting to the combination, and this exercise is currently work in progress. It will take quite some time in Q4 to complete that. So the information presented on this slide is therefore very preliminary in nature. It is not audited and may possibly change. But to provide some indication, we anticipate that the total non- current asset value of Seaway 7, as at the 1st of October, would be within the range of 800 million U.S. dollars to 1 billion U.S. dollars. And that we believe the majority of that value will be in the property plant and equipment. Now, we anticipate that the cash and cash equivalents balance will be approximately 15 million as at the 1st of October 2021, and that the external debt will be the 37 million shown on the balance sheet at the end of 30th September 2021.

Mark Hodgkinson: [00:13:35] If I look now towards the financing considerations, Stuart alluded to this earlier. So just to repeat, the indication at the announcement of the combination was that the intent is to move the listing from Euronext growth to the main Oslo Børs. In doing that, there were a number of financing considerations that we take into account and these are in discussions with the board. And the financing considerations, include things like the appropriate capital structure for a business such as Seaway 7. The efficient funding of the ongoing new build vessels that had been committed. So those are the committed expenditures highlighted in the note. The free float considerations of obtaining a listing on the Oslo Børs and the rules around that. We're also looking at the way of financing for future fleet growth should that occur. Should the investment opportunity be appropriate. And finally, we're also considering the timing in the market for any of the activities you might do around financing with a view that we move at the right time when the conditions are appropriate. So what we can say is that we believe there are attractive operations for debt financing. We have talked to the banking market and we indicate that there are a number of options that are available to us. What I will also say is that if we did approach the market for some debt financing, the borrowings will be in the name of Seaway 7. There is support from Subsea 7, if required, and if that support was to be supplied, it would be in the form of a guarantee of any debt financing. In the short term, there will be working capital support from Subsea 7, and we expect in the medium term that Seaway 7 will have its own working capital facility from the external debt market. So I believe with that, Stuart, I will pass it back to you for the operational update.

Stuart Fitzgerald: [00:15:37] So I will give a brief summary here of the new build projects and projects ongoing. The Alfa lift vessel build progress continues, with focus on commissioning