Deep Sea Supply PLC Quarter 4 2015 Financial Report 19 February 2016
Deep Sea Supply Plc 4Q 2015 Financial Report BOARD OF DIRECTORS REPORT In 4Q 2015, Deep Sea Supply ( DESS or Company ) reports consolidated revenues of MUSD 22.9 and EBITDA of MUSD 10.5 (46%). Following ordinary depreciation of MUSD 13.0, extraordinary impairments of book value of vessels of MUSD 117.2, financial expenses of MUSD 5.5 and negative currency items of MUSD 0.7, the pre-tax profit was negative MUSD 126.3. For the twelve months period ended 31 December 2015, the Company reports consolidated revenues of MUSD 132.4, EBITDA of MUSD 69.2 (52%) and pre-tax result of negative MUSD 119.8. Comparing 4Q 2015 financial figures with 3Q 2015, revenues decreased by MUSD 10.7. The main reason for this was lower utilization due to vessels coming off long term charters not being replaced by new contracts. The vessels operating expenses decreased with MUSD 1.9 from 3Q 2015 to 4Q 2015, mainly due to vessels in lay-up and underlying cost reductions. Reporting principles The sale of 50% of DESS Brazilian business took place in May 2013, when DESS established the company DESS BTG, 50% owned by DESS and 50% owned by the Brazilian investment bank BTG Pactual. DESS BTG acquired 15 vessels operating in Brazil and 6 newbuilding PSVs from PSV Holding Inc. For the vessels owned by DESS BTG, 50% of total figures are incorporated line by line in the statement of comprehensive income and balance sheet in the presentation of 2Q 2015 and this report from Board of Directors. Cash flow Cash flow from operations was MUSD 77.9 for the twelve months period ended 31 December 2015. Capital expenditure related to scheduled special surveys and upgrading was MUSD 5.5. In the twelve month period, the Company has repaid borrowings of MUSD 39.7 and paid interest expenses of MUSD 17.9. The Company has given a loan to DESS BTG, under which USD 15.0 mill was drawn by end of 3Q 2015. In the balance sheet this loan is shown as loans to related parties. Cash and cash equivalents were MUSD 87.1 by the end of 4Q 2015, which is an increase of MUSD 25.2 compared to MUSD 61.8 by the end of 4Q 2014. Net interest bearing debt was MUSD 407.2 by the end of 4Q 2015, which is a decrease of MUSD 52.8 from end of 4Q 2014 due to increased cash position and repayment of borrowings. Balance sheet and impairment of book values When testing the book value of all assets for possible impairments, the Company has considered both market valuations received from independent ship brokers and an internal cash flow valuation on a per vessel basis. Such cash flow valuation reflects the current low contract coverage, significant number of vessels in lay-up and a very difficult market outlook.
The result of these tests shows an impairment of book values of USD 123.7 mill for the total fleet on a consolidated basis. Of this, USD 6.5 mill is deducted from deferred gain in the balance sheet, resulting in a P&L effect of the extraordinary impairment of USD 117.2 mill. Following the impairment, book value of the fleet was MUSD 714.5 by the end of 4Q 2015 compared to MUSD 880.3 end of 4Q 2014. Total shareholder s book equity is MUSD 322.5, and the Company s value adjusted equity is 37.2%. Total number of outstanding shares in the Company was 261,197,194 at the end of the quarter. Refinancing The Company s bank loan facilities, except the senior loan facility, are maturing in 2019 or later. The senior loan has maturity date end of October 2016 and a balloon payment of USD 117 mill. The dialogue with the banks to refinance this balloon payment is in progress and will continue in the next months. OPERATIONS Fleet As per end of 4Q 2015, Deep Sea Supply had 14 AHTS vessels and 25 PSVs in the fleet, in total 39 vessels. Of these vessels 18 are owned 100% by the Company and 21 vessels are owned 50% through a Joint Venture with BTG. Following the sale of two AHTS vessels in February 2016, the fleet will be reduced to 37 vessels. The Company s organizations in Singapore, Brazil and Norway perform the chartering activities and the technical management of DESS fleet. Newbuilding program The Company has no vessels under construction. Lay-up of vessels Deep Sea Supply has laid up in total 15 vessels, of which 14 are PSVs and 1 AHTS. Blocking of vessels in Brazil 4 vessels that were out of operation in Brazil in 4Q 2015 due to lack of local operating licenses (CAA), returned to operation in mid January 2016. The new CAA is valid until 27 February 2016, and the Company is working to have this further extended. New Charter Contracts in 4Q 2015 On 22 November 2015, the PSV Sea Witch commenced a time charter contract for operations in West Africa. The contract is expected to last until March 2016. EVENTS AFTER END OF 4Q 2015 The Company has sold the two AHTS vessels Sea Lynx and Sea Bear. The vessels will be delivered to new Owners within February 2016. Sea Lynx was 100% owned by the Company, while Sea Bear was owned by Ship Finance International Ltd ( SFI ) and leased to the Company under a 12 year sale and leaseback agreement entered into in 2008. Following the sale of Sea Lynx and the termination of the sale and leaseback agreement with SFI for Sea Bear, the Company s loans are
reduced by USD 21.9 mill and the cash reduced by USD 6.6 mill. The sale and termination will give a book loss of USD 17.0 mill which will be included in the 1Q 2016 financials. OUTLOOK During the fourth quarter of 2015, the company saw a continued weakening of the global OSV markets. In Brazil, the situation remains difficult with reduced activity and foreign flagged vessels being blocked by vessels with local flag. The North Sea spot market is challenging with unsustainable rate levels and low utilization. No improvement in the market situation for OSVs is expected in the short to medium term. Following the sale of two AHTS vessels, the Company has no vessels in the North Sea spot market. The contract coverage for 2016 for the Company is not satisfactory. DESS is currently pursuing some term opportunities, however the competition is fierce and rate levels are low. As a consequence of the weak market, Deep Sea Supply will continue to lay up vessels that do not have any fixed activity the next months. In addition to laying up vessels to reduce cost, the Company is working hard to further reduce operating expenses for the vessels in operation. The 50% owned joint venture with BTG ( DESS BTG ) which owns 21 vessels, is in a challenging financial position with a significantly reduced contract backlog following the expiry of many term charters without new contracts being entered into. The cash position was USD 25.7 mill end of 2015, and the Company is dependent on certain adjustments of its financial obligations going forward. The financing of DESS BTG is non-recourse to Deep Sea Supply Plc. On a consolidated basis, the Board is pleased that the Company has been able to further strengthen its balance sheet and build its cash position through 2015. Limassol, 19 February 2016 Deep Sea Supply Plc
Quarter 4 2015 Financial Report Deep Sea Supply PLC Group (DESS PLC) owns 50% of Deep Sea Supply BTG Group (DESS BTG) following the establishment of the Joint venture on 31 st May 2013. The financial statements of DESS PLC are presented in the following way, as Management believes they give a clearer view to the reader: Consolidated Income Statement, Balance Sheet and Statement of Cash flows: The results (50%) of DESS BTG are added line by line to those of DESS PLC As per IFRS this line by line presentation of the financial statements is not allowed therefore they are also presented in this report as follows: Consolidated Income Statement: The result of DESS BTG is apportioned to DESS PLC (50%) and is shown under line Share of Profit/Loss from JV Consolidated Balance Sheet: Share (50%) of Net Assets/liabilities of DESS BTG are shown as one line called Investment in Joint Venture Consolidated Statement of Cash Flows: This includes only Cash flows of DESS PLC 1
FINANCIAL RESULTS Income Statement, Balance Sheet and Statement of cash flows with discontinued operations and results of DESS BTG (50%) added on a line by line basis CONSOLIDATED INCOME STATEMENT (Unaudited figures in USD 1,000) YTD 2015 YTD 2014 4Q 2015 4Q 2014 3Q 2015 Operating revenue 132,425 163,167 22,899 44,172 33,582 Vessel operating expenses -55,009-70,424-10,745-18,916-12,616 Other operating expenses -10,994-13,085-2,616-4,124-2,726 Other gains/(losses) 2,770 4,057 998 740 430 Gain on sale 0 0 0 0 0 EBITDA 69,193 83,715 10,537 21,872 18,672 Depreciation, amortization and impairment -164,803-49,580-130,195-22,948-11,780 EBIT -95,609 34,135-119,658-1,076 6,892 Financial income 653 662 179 196 134 Financial expenses -20,969-25,744-5,471-6,016-5,225 Net currency items -2,996-3,400-705 -1,834-861 Net financial items -23,312-28,482-5,998-7,653-5,952 Other write offs -873-4,839-660 -4,839 0 Pre-tax result -119,795 814-126,316-13,568 940 Taxes -732-1,710-230 -1,598-63 Profit for the period/year -120,527-896 -126,546-15,166 878 Average number of shares 261,197,194 198,786,235 261,197,194 198,786,235 261,197,194 Average number of shares diluted 261,197,194 198,786,235 261,197,194 198,786,235 261,197,194 Earnings per share -0.46-0.00-0.48-0.08 0.00 Earnings per share diluted -0.46-0.00-0.48-0.08 0.00 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME YTD 2015 YTD 2014 4Q 2015 4Q 2014 3Q 2015 Profit for the period/year -120,527-896 -126,546-15,166 878 Cash flow hedges 21 836 335-203 -61 Total comprehensive income for the period/year -120,506-60 -126,211-15,369 817 2
CONSOLIDATED BALANCE SHEET (Unaudited figures in USD 1,000) 31.12.2015 31.12.2014 Non-current assets Vessels cost 714,500 880,270 Equipment 745 1,032 Total property, plant and equipment 715,245 881,302 Other long term receivables 0 819 Loans to related parties 15,000 0 CIRR deposit 13,258 19,487 Total non-current assets 743,502 901,608 Current assets Inventories 3,374 3,173 Loans to related parties 0 35,384 Other short term receivables 9,780 11,087 CIRR deposit 2,684 3,176 Freight income not received 15,286 35,466 Cash and cash equivalents 87,079 61,839 Total current assets 118,203 150,126 Total assets 861,706 1,051,735 Liabilities Borrowings 354,844 496,968 CIRR loan 13,258 19,487 Deferred gain 401 7,645 Loans from related parties 7,500 0 Other long term payables 0 267 Financial derivatives 221 243 Total long term liabilities 376,224 524,608 Borrowings 146,979 42,376 CIRR loan 2,684 3,176 Trade and other payables 13,221 19,239 Deferred gain 122 1,491 Loans from related parties 0 17,692 Total short term liabilities 163,006 83,975 Total liabilities 539,230 608,584 Net assets 322,476 443,150 Shareholders equity Share capital, share premium and treasury shares 207,507 207,673 Retained earnings and other reserves 114,970 235,475 Total shareholders equity 322,476 443,149 3
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited figures in USD 1,000) Year ended Dec 15 Dec 14 Cash flows from operating activities Cash generated from operations 77,865 78,268 Net cash generated from operations 77,865 78,268 Cash flows from investing activities Acquisitions and upgrades of property, plant and equip. -5,553-8,639 Acquisitions of new vessels 0-412,150 Net cash (used in) investing activities -5,553-420,789 Cash flows from financing activities Interest and finance expenses paid -17,861-22,106 Payments of Dividends to Shareholders 0-10,457 Interest received 456 0 Proceeds from borrowings 0 241,745 Increase of share capital 0 196,599 Loans to related parties 10,000-10,000 Repayments of borrowings -39,666-34,397 Net cash (used in)/generated from financing act. -47,071 361,384 Total changes in liquidity in the year 25,240 18,863 Cash and cash equivalents at beginning of year 61,839 42,977 Cash and cash equivalents at end of year 87,079 61,840 4
Segment reporting Segments- Area of Operations & Type of Vessel The segment results for the period ended 31 December 2015 are as follows: South America Mediterranean and Black Sea Unallocated Total North sea Africa Asia Australia AHTS Operating revenues 2,814-43 11,007 0 31,734 4,040 0 49,552 Vessel operating expenses -3,714-313 -5,369 0-13,694-825 0-23,915 EBITDA AHTS -900-356 5,638 0 18,040 3,215 0 25,637 EBITDA MARGIN AHTS N/A N/A 51% N/A 57% 80% N/A 52% PSVs Operating revenues 22,503 7,033-151 29,474 12,960 11,054 0 82,873 Vessel operating expenses -9,677-5,454-1,642-703 -9,526-4,092 0-31,094 EBITDA PSVs 12,826 1,579-1,793 28,771 3,434 6,962 0 51,779 EBITDA MARGIN PSVS 57% 22% N/A 98% 26% 63% N/A 62% TOTAL Operating revenues 25,317 6,990 10,856 29,474 44,694 15,094 0 132,425 Vessel operating expenses -13,391-5,767-7,011-703 -23,220-4,917 0-55,009 EBITDA TOTAL 11,926 1,223 3,845 28,771 21,474 10,177 0 77,416 EBITDA MARGIN TOTAL 47% 17% 35% 98% 48% 67% N/A 58% Other gains 0 0 0 0 0 0 2,770 2,770 Other operating expenses 0 0 0 0 0 0-10,994-10,994 EBITDA 11,926 1,223 3,845 28,771 21,474 10,177-8,224 69,192 52% The corresponding segment results for the period ended 31 December 2014 are as follows: South America Mediterranean and Black Sea Unallocated Total North sea Africa Asia Australia AHTS Operating revenues 6,619 3,634 12,755 0 37,940 2,550 0 63,498 Vessel operating expenses -3,648-2,440-5,462 0-17,317-1,100 0-29,967 EBITDA AHTS 2,971 1,194 7,293 0 20,623 1,450 0 33,531 EBITDA MARGIN AHTS 45% 33% 57% N/A 54% 57% N/A 53% PSVs Operating revenues 34,125 25,660 1,454 7,830 23,725 6,875 0 99,669 Vessel operating expenses -14,572-7,755-2,066-692 -13,403-1,969 0-40,457 EBITDA PSVs 19,553 17,905-612 7,138 10,322 4,906 0 59,212 EBITDA MARGIN PSVS 57% 70% N/A 91% 44% 71% N/A 59% TOTAL Operating revenues 40,744 29,294 14,209 7,830 61,665 9,425 0 163,167 Vessel operating expenses -18,220-10,195-7,528-692 -30,720-3,069 0-70,424 EBITDA TOTAL 22,524 19,099 6,681 7,138 30,945 6,356 0 92,743 EBITDA MARGIN TOTAL 55% 65% 47% 91% 50% 67% N/A 57% Other gains 0 0 0 0 0 0 4,057 4,057 Other operating expenses 0 0 0 0 0 0-13,085-13,085 EBITDA 22,524 19,099 6,681 7,138 30,945 6,356-9,028 83,715 51% 5
RESULTS AS PER IFRS CONSOLIDATED INCOME STATEMENT (Unaudited figures in USD 1,000) Note YTD 2015 YTD 2014 4Q 2015 4Q 2014 3Q 2015 Operating revenue 70,155 88,050 14,553 25,319 17,667 Vessel operating expenses -27,354-34,935-5,263-10,162-6,386 Other operating expenses -7,384-8,532-1,742-2,990-1,900 Share of profit from JV -62,680 1,243-67,930-3,069 530 Other gains/(losses) 3,167 4,640 939 986 664 Gain on sale 0 0 0 0 0 EBITDA -24,096 50,466-59,444 10,084 10,574 Depreciation, amortization and impairment 4-83,173-27,945-63,532-16,086-6,604 EBIT -107,269 22,521-122,975-6,002 3,970 Financial income 1,124 1,176 286 325 271 Financial expenses -12,246-15,277-3,205-3,583-3,103 Net currency items -1,302-4,879-206 -1,516-208 Net financial items -12,423-18,980-3,125-4,774-3,040 Other write offs -659-4,276-446 -4,276 0 Pre-tax result -120,351-735 -126,546-15,052 930 Taxes -175-161 -0-112 -52 Profit for the period -120,527-896 -126,546-15,164 878 Average number of shares 6 261,197,194 198,786,235 261,197,194 198,786,235 261,197,194 Average number of shares diluted 6 261,197,194 198,786,235 261,197,194 198,786,235 261,197,194 Earnings per share -0.46-0.00-0.48-0.08 0.00 Earnings per share diluted -0.46-0.00-0.48-0.08 0.00 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME YTD 2015 YTD 2014 4Q 2015 4Q 2014 3Q 2015 Profit for the period -120,527-896 -126,546-15,164 878 Cash flow hedges 21 836 335-203 -61 Total comprehensive income for the period -120,506-60 -126,211-15,367 817 6
CONSOLIDATED BALANCE SHEET (Unaudited figures in USD 1,000) Note 31.12.2015 31.12.2014 Non-current assets Vessels cost 4 462,851 541,494 Equipment 4 393 519 Total property, plant and equipment 463,244 542,013 Loans to related parties 0 7,678 Investment in Joint Venture 69,051 123,994 Loans to related parties 15,000 0 CIRR deposit 13,258 19,487 Total non-current assets 560,553 693,172 Current assets Inventories 2,108 2,322 Other short term receivables 4,025 4,965 Loans to related parties 0 35,192 CIRR deposit 2,684 3,176 Freight income not received 10,012 21,661 Cash and cash equivalents 74,186 47,289 Total current assets 93,015 114,605 Total assets 653,568 807,777 Liabilities Borrowings 5 215,407 298,777 CIRR loan 13,258 19,487 Deferred gain 6,921 7,645 Other long term payables 0 267 Financial derivatives 221 243 Total long term liabilities 235,807 326,419 Borrowings 5 86,276 21,860 CIRR loan 2,684 3,176 Trade and other payables 6,203 11,684 Deferred gain 122 1,491 Total short term liabilities 95,285 38,211 Total liabilities 331,092 364,630 Net assets 322,476 443,148 Shareholders equity Share capital, share premium and treasury share 7 207,506 207,674 Retained earnings and other reserves 114,971 235,474 Total shareholders equity 322,476 443,148 7
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited figures in USD 1,000) Share Capital Reverse acquisition reserves Share premium reserves Other paidin-equiy Cash flow hedge reserve Retained earnings Total Balance at 1 January 2014 2,544-123,386 130,264 1,807-1,274 247,265 257,220 Share capital increase 2,680 193,919 196,599 Profit for the period/year -896-896 Dividend payment from retained earnings -10,457-10,457 Valuation of share option scheme -153-153 Other comprehensive income 836 836 Balance at 31 December 2014 5,224-123,386 324,183 1,654-438 235,912 443,149 Balance at 1 January 2015 5,224-123,386 324,183 1,654-438 235,912 443,149 Profit for the period/year -120,527-120,527 Valuation of share option scheme -168-168 Other comprehensive income 21 21 Balance at 31 December 2015 5,224-123,386 324,183 1,486-417 115,385 322,476 CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited figures in USD 1,000) Year ended Note Dec 15 Dec 14 Cash flows from operating activities Cash generated from operations 42,003 47,179 Net cash generated from operations 42,003 47,179 Cash flows from investing activities Acquisitions of vessels, contraction contracts and other PPE 4-4,530-376,143 Borrowings to related parties 20,000-20,000 Net cash (used in) investing activities 15,470-396,143 Cash flows from financing activities Interest and finance expenses paid -9,225-6,420 Interest received 456 0 Payments of dividends to shareholders 0-10,457 Proceeds from Borrowings 5 0 201,245 Increase in share capital 0 196,599 Loans to related parties 0 Repayments of borrowings 5-21,099-17,114 Net cash (used in) financing activities -29,868 363,853 Total changes in liquidity in the period 27,605 14,889 Cash and cash equivalents at beginning of year 46,582 31,693 Cash and cash equivalents at end of year 74,186 46,583 8
1. General information Deep Sea Supply PLC ( the Company ) and its subsidiaries, here after collectively ( the Group ) principal activities are to engage and invest, directly or indirectly, by itself or through subsidiaries or part-owned companies, partnerships or other forms of entities, in the international offshore supply vessel business. The Company has its primary and only listing on the Oslo Stock Exchange. These unaudited condensed consolidated financial statements have been approved for issue by the Board of Directors on 18 th of February 2016. 2. Basis of preparation These condensed unaudited consolidated interim financial information for the year ended 31 December 2015 have been prepared in accordance with IFRS as adopted by the E.U. applicable to interim financial reporting, IAS 34 Interim Financial Reporting and the regulations of Oslo stock exchange. The interim financial report should be read in conjunction with the annual financial statements for the year ended 31 December 2014, which have been prepared in accordance with IFRS as adopted by the European Union. 3. Summary of significant accounting policies Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2014, as described in those financial statements. Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual earnings. At the date of approval of these financial statements a number of accounting standards were issued by the International Accounting Standards Board but were not yet effective. The effect of those standards is not expected to be material for the Group. There has been no further impact on the measurement of the Group s assets and liabilities. 4. Property Plant and equipment Vessels Finance lease vessels Vehicles & equipment Total Opening net book value as at 1 January 2014 162,820 35,648 257 198,725 Vessels acquisition 214,622 0 0 258,753 Delivered new vessels 156,004 0 0 111,873 Additions 4,971 140 406 5,517 Depreciation and amortization -16,067-2,741-144 -18,952 Vessel Impairment -3,276-10,627 0-13,903 Closing net book value as at 31 December 2014 519,074 22,420 519 542,013 Opening net book value as at 1 January 2015 519,074 22,420 519 542,013 Additions 4,233 27 144 4,405 Depreciation and amortisation -23,989-2,017-270 -26,276 Vessel Impairment -52,802-4,096 0-56,898 Closing net book value as at 31 December 2015 446,516 16,335 393 463,243 9
5. Borrowings and loans 31 Dec 2015 31 Dec 2014 Borrowings Non-current 215,407 298,777 Current 86,276 21,860 301,683 320,637 Movements in borrowings are analyzed as follows: Period ended: 31 Dec 2015 31 Dec 2014 Opening Balance as at 1 January 320,637 133,131 Proceeds from new loans 0 207,250 Repayments of loans -21,099-17,114 Borrowing costs 2,145-2,630 Closing amount end of period 301,683 320,637 6. Earnings per share YTD 2015 YTD 2014 4Q 2015 4Q 2014 Basic Profit attributable to equity holders of the company -120,527-896 -126,546-15,164 Weighted average number of ordinary shares (thousands) 261,197 198,786 261,197 198,786 Basic earnings per share (USD per share) -0.46 0.00-0.48-0.08 Diluted Profit attributable to equity holders of the company -120,527-896 -126,546-15,164 Weighted average number of ordinary shares (thousands) 261,197 198,786 261,197 198,786 Diluted earnings per share (USD per share) -0.46 0.00-0.48-0.08 7. Events after the balance sheet date The Company has sold the two AHTS vessels Sea Lynx and Sea Bear. The vessels will be delivered to new Owners within Friday 19 February. Sea Lynx was 100% owned by the Company, while Sea Bear is owned by Ship Finance International Ltd ( SFI ) and leased to the Company under a 12 year sale and leaseback agreement entered into in 2008. Following the sale of Sea Lynx and the termination of the sale and leaseback agreement with SFI for Sea Bear, the Company s loans are reduced by USD 21.9 mill and the cash reduced by USD 6.6 mill. The sale and termination will give a book loss of USD 17.0 mill which will be included in the 1Q 2016 financials. 10