Investment Research Offshore Supply - Danske Bankdanskeanalyse.danskebank.dk/abo/CreditUpdate... ·...

Important disclosures and certifications are contained from page 115115 of this report. www.danskeresearch.com

Investment Research

The OSV market is set for a restructuring, with liquidity and solvency challenges

forcing through consolidation, many equity holders being wiped out and some

bondholders losing money. We expect the best players to come through the turmoil

stronger and bigger and eventually to generate profitability. We highlight Solstad

Offshore, Farstad Shipping, Eidesvik Offshore and DOF Subsea as the safest players.

Oversupply and collapse in demand. We expect a further fall in utilisation and

dayrates, which would create profitability challenges for many years ahead. We estimate

one-third of the anchor handling tug supply (AHTS) and platform supply vessel (PSV)

fleet must be stacked to bring the market back to balance. We favour subsea owners as

they have longer contracts, which provide a buffer through the downturn.

Overrated fleet values. In general, our calculated DCF-based fleet values are well below

the reported fleet values provided by shipbrokers. Single transactions might support

shipbroker estimates but in the current oversupplied market, with generally low

profitability and low returns on newbuilds, we argue that the market values of the fleets

that the company report is far too high. We believe that our DCF model gives a much

more realistic picture of the values and see significant risk of big value impairments.

Consolidation. OSV players with limited asset support and aggressive debt repayment

schedules risk being unable to refinance. Thus, we expect significant consolidation

opportunities, enabling the best players to increase market dominance and profitability.

Investment conclusions. We question the equity values in Havila Shipping and Siem

Offshore and, combined with aggressive debt repayments and limited cash flow

generation, we argue that creditors will require more equity in order to refinance the

debt. Therefore, we argue that the current equity is highly at risk and that bondholders

run the risk of not being fully repaid. In contrast, we view Solstad Offshore, Farstad

Shipping, Eidesvik Offshore and DOF Subsea as winners due to their modern fleets,

asset support and relatively strong balance sheets.

Key financials

Company

Market cap

(NOKm) P/B

Equity

ratio

Net debt/

EBITDA Rating

Deep Sea Supply DESSC-NO 606.0 0.26 42% 7.3 B- DOF ASA DOF-NO 560.8 0.12 21% 6.2 B+ DOF Subsea n/a n/a n/a 38% 5.3 B+ Eidesvik EIOF-NO 304.5 0.15 39% 5.9 B Farstad Shipping FAR-NO 780.0 0.12 34% 5.3 B Havila Shipping HAVI-NO 215.8 0.13 24% 5.9 CCC+ Olympic Ship n/a n/a n/a 35% 5.4 B Rem Offshore REM-NO 894.0 0.44 31% 6.2 B- Siem Offshore SIOFF-NO 678.3 0.19 39% 6.9 B- Solstad Offshore SOFF-NO 1042.8 0.18 30% 6.2 B+

Note: Based P/BV and market cap based on stock prices as at close on 2 September 2015

Source: Danske Markets estimates

2 September 2015

Analyst Iver Christian Båtvik +47 85 40 54 31 [email protected]

Analyst Øyvind Mossige +47 85 40 5 491 [email protected]

Key points

Oversupply and weak demand.

Overrated fleet values.

High financial leverage and debt

level.

Fragmented market finally set for

consolidation.

DBM’s indicative ratings

Deep Sea Supply: ‘B-’

DOF: ‘B+’

DOF Subsea: ‘B+’

Eidesvik Offshore: ‘B’

Farstad Shipping: ‘B’

Havila Shipping: ‘CCC+’

Olympic Ship: ‘B‘

Rem Offshore: ‘B-’

Siem Offshore: ‘B-’

Solstad Offshore: ‘B+’

Offshore Supply

Time for consolidation

mailto:[email protected]

2 | 2 September 2015 www.danskeresearch.com

Offsh

ore S

up

ply

Offshore Supply

Contents

Introduction ..................................................................................................................... 3

They have done it before – seized opportunities in rough sea ......................................................... 3

Executive summary .................................................................................................................................................... 3

Scrapping one-third of the fleet .......................................................................... 5

Stacking costs ............................................................................................................... 7

Bank balloon loans a liquidity threat ................................................................ 8

Newbuild activity – a bursting bubble .......................................................... 12

Room for more cancellation of newbuilds ................................................................................................. 13

Dayrates under pressure .................................................................................... 15

Comparisons ............................................................................................................... 17

Peer group data summaries.............................................................................. 21

Initiations of coverage ............................................................................................ 26

Deep Sea Supply ....................................................................................................................................................... 26

DOF.................................................................................................................................................................................... 35

DOF Subsea ................................................................................................................................................................. 44

Eidesvik Offshore ASA .......................................................................................................................................... 52

Farstad Shipping ....................................................................................................................................................... 61

Havila Shipping .......................................................................................................................................................... 70

Olympic Ship ................................................................................................................................................................ 80

Rem Offshore .............................................................................................................................................................. 87

Siem Offshore ............................................................................................................................................................. 95

Solstad Offshore ................................................................................................................................................... 104


Offsh

ore S

up

ply

Offshore Supply

Introduction

They have done it before – seized opportunities in rough sea

Significant economic value and experience have been created by companies along the

Norwegian coast by companies making the right investments in vessels, to support and

grow worldwide offshore oil and gas activity. This knowledge will now be put to the test

and we are confident that significant value will once again be created. This storm has

several end games and we see consolidation as the most likely and beneficial one for all

stakeholders. Our credit ratings are set with this story in mind and our top picks are the

companies that we believe are well equipped to create value from a challenging market

that requires action and awareness.

The access to bank financing is tightening as asset values fall, putting pressure on leverage

ratios. Lower exploration activity is slowly leading to lower offshore activity through a

falling number of active floaters and delays in development of projects offshore. In our

view, these effects are bound to hit the demand for offshore support vessels (OSV) and

subsea vessels. Meanwhile, low interest rates and easy access to export financing continue

to support vessel deliveries from yards well into 2017. This means scrapping and stacking

of vessels, particularly in the PSV and AHTS segments. We also expect subsea vessels to

face lower utilisation, hitting operating margins hard and prompting a need to sell vessels.

We are well into the oil services down cycle, a storm that we believe will carry with it

further refinancing and restructuring, lay-ups and lay-offs and likely mergers and

acquisitions. In our view, supporting the right companies could turn out to be highly

profitable, as experience, knowledge and skill sets guide the industry to once again take

action to create significant long-term value and invite investors in on the journey.

Executive summary

Deep Sea Supply (B-). Deep Sea Supply has a pure AHTS and PSV exposure but in

return a careful debt maturity profile and a financially strong owner. The company has

built its fleet at attractive prices, yielding an ROE significantly above those of peers.

This, combined with a financially strong majority shareholder, makes the company a

candidate for consolidating the market. High leverage, combined with pure AHTS and

PSV exposure, still means the risk is considerable. The company has no outstanding

bonds.

DOF ASA (B+). Many assets, together with 51% ownership in DOF Subsea, means

DOF is a giant within the OSV space. We see a lot of unlocked value potential from

the size of the fleet, despite the high leverage. Market capitalisation is a fraction of the

enterprise value.

DOF Subsea (B+). Pure subsea exposure means DOF Subsea is a potentially very

attractive company for the equity market when the exploration and production (E&P)

spending cycle turns. It is shielded from low spot rates in the PSV and AHTS markets

and the company ranges among the top long-term contracted in our peer group.

Eidesvik Offshore (B) has an attractive debt maturity schedule combined with a solid

backlog from long bareboat contracts on its seismic fleet. The company also has an

attractive but relatively small subsea fleet. The low number of vessels makes earnings

vulnerable should the two vessels coming of contract in 2015 remain idle. On the

upside, we think the second-hand market for newer subsea vessels is still at attractive

levels, which could be a credit positive should a sale of one of these assets materialise.

The company has no AHTSs and a PSV fleet concentrated in the North Sea.


Offsh

ore S

up

ply

Offshore Supply

Farstad Shipping (B) is an established player with more than 30 years of operational

record. The company’s fleet renewal programme over the past five years has

increased its leverage to a high but not unbearable level, given the company’s high

value backlog.

Havila Shipping (CCC+) is, based on our estimates, dependent on raising additional

capital in addition to refinancing bank and bond debt. We view the risk in Havila

Shipping as very high at the current stage in the down cycle.

Olympic Shipping (B) has its strength in a strong liquidity position, which was hit

hard in Q2 15 as the company completed seven yard stays for its vessels and had

significant outstanding claims from customers. The cash balance is set to improve in

Q3 and bring the liquidity buffer back to the investment case.

Rem Offshore (B-). A young fleet exposed mainly to the subsea segments, countered

in part by high spot exposure to the PSV segments and a small fleet size. This said,

we believe the company is well positioned to make value-creating changes.

Siem Offshore (B-) is dependent on refinancing a significant portion of debt without

asset value or earnings support. We still think the quality and diversification of the

fleet will defend debt holders’ stake in the company.

Solstad Offshore (B+) stands out, with solid subsea exposure and limited PSV

exposure. The fleet is older than average but debt levels are also moderate, which

provides solid asset support for the outstanding bonds. The short-dated bond looks

particularly attractive.


Offsh

ore S

up

ply

Offshore Supply

Scrapping one-third of the fleet

A serious challenge for the OSV sector is that a significant number of vessels are still

under construction. With demand expected to fall due to lower E&P spending (-10% in

2016) and lower rig activity, we expect the number of active floating drilling rigs to fall

from 280 in 2014 to 200 floaters in 2016.

For the PSV segment, this means at least 30%, as a combination of newbuilds and

vessels, of the existing fleet needs to be taken out of the market in 2015, with another

15% taken out in 2016. We see a need for vessel reductions in the AHTS segment of at

least 15% in 2015 and 20% in 2016. With these numbers, we believe utilisation will fall

to c.55% for both segments, meaning pricing will remain at cash breakeven levels, as the

market will remain 20% oversupplied.

To bring balance to the market in 2017, we believe the PSV segment needs to take out in

total 30% of the fleet (including cancellation of newbuilds) and the AHTS segment needs

to take out as much as 35%, until demand recovers.

Table 1. Expected supply growth and scrapping

OSV supply growth 2015E 2016E 2017E

Clarksons order book estimate

PSV 9% 4% 0% AHTS 4.90% 4.30% 2.10% Danske Bank Markets scrapping and newbuild cancellation

PSV -30% -15% 0% AHTS -15% -20% 0% Expected net supply growth

PSV -21% -11% 0% AHTS -10% -16% 2%

Source: Clarksons, IHS Petrodata, Danske Bank Markets

Chart 1. AHTS fleet (no.. of units) Chart 2. PSV fleet (no. of units)

Source: IHS Petrodata, Danske Bank Markets estimates Source: IHS Petrodata, Danske Bank Markets estimates

0

200

400

600

800

1000

2001 2004 2007 2010 2013 2016e

Total AHTS FleetDemand for PSVEstimated supply

0

500

1000

1500

2001 2004 2007 2010 2013 2016e

PSV fleet no scrappingDemand for PSVEstimated supply


Offsh

ore S

up

ply

Offshore Supply

Chart 3. AHTS utilisation Chart 4. PSV utilisation

Source: IHS Petrodata, Danske Bank Markets estimates Source: IHS Petrodata, Danske Bank Markets estimates

Chart 5. Contracted floating drilling rigs (no. of units)

Source: IHS Petrodata, Danske Bank Markets estimates

We have used the relationship of AHTS’s per floating drilling rig over the past 10 years

to estimate the demand for AHTSs. For the PSV segment, we take a more bullish

approach, using a linear progression, implying that there will be more need for PSVs per

floating unit in the near future than in the past. However, as demand for PSVs is more

dependent on the number of active fields and distance from shore than demand for

floaters, it makes sense to assume that the underlying/structural demand for PSVs is

growing.

Chart 6. AHTS per floater (no. of units) Chart 7. PSVs per floater (no. of units)

Source: IHS Petrodata, Danske Bank Markets Source: IHS Petrodata, Danske Bank Markets

40%

45%

50%

55%

60%

65%

70%

75%

80%

2001 2004 2007 2010 2013 2016e

AHTS Utilisation

40%

45%

50%

55%

60%

65%

70%

75%

80%

2001 2004 2007 2010 2013 2016e

PSV Utilisation

0

50

100

150

200

250

300

2001 2003 2005 2007 2009 2011 2013 2015e 2017e

Floaters

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2001 2003 2005 2007 2009 2011 2013

AHTS per floater

10 year avg

Linear (AHTS per floater)

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2001 2003 2005 2007 2009 2011 2013

PSV per floater

10 year avg.

Linear (PSV per floater)


Offsh

ore S

up

ply

Offshore Supply

Stacking costs

Stacking or docking of vessels today is rarely on a completely cold basis. For smaller

PSVs and AHTSs, the cost savings come from reducing crew, who account for 60-75% of

costs. The vessels will still have insurance, docking fees, electricity, regular inspection

including security and oil costs. The vessels will be connected to land electricity to save

fuel costs. For PSV, this type of stacking brings daily costs down to NOK20,000 per day,

while for an AHTS we estimate the cost would be NOK30,000-40,000.


Offsh

ore S

up

ply

Offshore Supply

Bank balloon loans a liquidity threat

A significant portion of the supply companies’ debt consists of bank debt secured in one

or a fleet of vessels. Typically, these facilities come up for renewal after five years, at

which point five-twelfths or c.42% of the debt has been paid. With 60% initial loan to

value and 25 years straight depreciation of the vessels, the loan to value at year five will

be c.44%. However, companies argue that the vessels depreciate less in the first 12 years

and using half the depreciation the first year’s loan to value would be 39%. Ship owners

therefore expect rolling and even gearing up on current bank facilities to 60% loan to

value. Even today, shipbroker estimates of ship values are close to this slow depreciation

rate.

Chart 8. Debt maturities – Deep Sea Supply (USDm)

Source: Company data, Danske Bank Markets

Chart 9. Debt maturities – DOF ASA (NOKm)


23

57 57 57 56.6

25.0

0

10

20

30

40

50

60

2015 2016 2017 2018 2019 2020

Long-term bank borrowings

0

2,000

4,000

6,000

8,000

10,000

2015 2016 2017 2018 2019 2020

Liabilities to credit institutions Derivatives

DOF09 NOK700m-3mN+7.25% 2/17 DOF11 NOK700m-3mN+4.75% 2/18

DOF10 NOK700m-3mN+7% 9/19


Offsh

ore S

up

ply

Offshore Supply

Chart 10. Debt maturities – DOF Subsea (NOKm)


Chart 11. Debt maturities – Eidesvik Offshore (NOKm)


Chart 12. Debt maturities – Farstad Offshore (NOKm)


0

500

1,000

1,500

2,000

2,500

3,000

2015 2016 2017 2018 2019 2020

Debt to credit institutions DOFS 5/2018 5%+NIBOR

DOFS 10/2015 6.25%+NIBOR DOFS 4/2916 5.5%+NIBOR

0

200

400

600

800

1,000

2015 2016 2017 2018 2019 2020

Balloons Instalments

EIOF01, NOK300m 3mN+4.5% 5/18 Quarterly adjustments

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2015 2016 2017 2018 2019 2020

Instalments FAR04 FAR03 Balloons Guaranteed renewals


Offsh

ore S

up

ply

Offshore Supply

Chart 13. Debt maturities – Havila Shipping (NOKm)


Chart 14. Debt maturities – Rem Offshore (NOKm)


Chart 15. Debt maturities – Siem Offshore (USDm)


0

500

1,000

1,500

2,000

2015 2016 2017 2018 2019 2020

Bank - mortaged debt HAVI08 PRO, 3mN+8.5%, 8/16

HAVI04, 6mN+3.75%, 11/16 HAVI07, 3mN+4.50% 3/17

HAVI06, 8.6% 3/17

0

200

400

600

800

1,000

1,200

1,400

1,600

2015 2016 2017 2018 2019 2020

Debt to dredit institutions REM05 9/19, 6.74% REM04 3/18, 7.22%

0

50

100

150

200

250

300

350

2015 2016 2017 2018 2019 2020

Bank debt SIOFF01 NOK600 3mN+4.75% 1/18

SIOFF02 NOK700 3mN+4.40% 3/19


Offsh

ore S

up

ply

Offshore Supply

Chart 16. Debt maturities – Solstad Offshore (NOKm)


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2015 2016 2017 2018 2019 2020

Mortgage loan with floating interest SOFF03 NOK700m 2016, 3mN +4.4%

SOFF04 1000m 2019, 3mN+3.5%


Offsh

ore S

up

ply

Offshore Supply

Newbuild activity – a bursting bubble

One key feature of the offshore supply market is that there has been a long period with a

high number of newbuilds, leading to constant growth in the total fleet. The newbuild rate

peaked in 2007 at around 35% of the fleet and has now fallen to 12%, against an average

of 17% since 2001.

Chart 17. Total supply and newbuilds/total fleet

Source: IHS Petrodata, Danske Bank Markets

Total utilisation for the OSVs on contract and in the spot market has been only 74% since

2001 and declined to 67% as of July 2015, with low utilisation and poor economics

driven by a high willingness to order new vessels.

Chart 18. Utilisation and newbuild rate as a % of total fleet

Source: IHS Petrodata, Danske Bank Markets

0%

5%

10%

15%

20%

25%

30%

35%

1200

1700

2200

2700

3200

3700

4200

Jan 2001 Jan 2004 Jan 2007 Jan 2010 Jan 2013

% n

ew

bu

ild

s o

f t

ot

al

fle

et

Am

ou

nts

of v

es

sel

s

Total Supply Newbuilds / Total fleet

0%

20%

40%

60%

80%

100%

0%

5%

10%

15%

20%

25%

30%

35%

Jan 2001 Jan 2004 Jan 2007 Jan 2010 Jan 2013 % T

er

m +

Sp

ot

of t

ot

al f

le

et

% o

f ne

wb

uil

ds

of t

ota

l fle

et

Newbuilds / Total fleet Total utilisation


Offsh

ore S

up

ply

Offshore Supply

Chart 19. Contracted, spot and not working AHTS vessels Chart 20. Contracted, spot and not working PSVs


Room for more cancellation of newbuilds

Asian yards dominate the order book. Of current orders for newbuilds, 52% are

placed at yards in the Far East, with 98% of these in China and 2% in South Korea. In

addition, 11% of newbuild orders are at Brazilian yards.

Chinese yard orders are speculative. The orders placed at Chinese yards are

regarded as very speculative, typically with low initial yard payments, which, with the

current oversupplied markets, means we believe it is likely that those placing the

orders will not take delivery of their vessels.

Actual delivery of vessels lower than indicated by the order book. With 22% of

current newbuild orders not yet in production, we see a high likelihood that the actual

delivery of vessels will be significantly below what is indicated by today’s order

book.

Chart 21. Newbuild orders by region: AHTS and PSV Q2 15 Chart 22. 78% of current orders are under construction Q2 15


PSVs are constructed more widely than the relatively more complicated AHTSs.

The regional difference between the PSV and AHTS segment is mainly that 72% of

vessels under construction in South America are PSVs and that the US and Gulf of

Mexico, which have historically been a closed market due to the Jones Act, is 100%

PSV newbuilds. China maintains more than half the market for newbuilds, currently

having 26 subsea vessels, 160 PSVs and 44 AHTSs under construction (according to

ODS, Clarksons).

0%

20%

40%

60%

80%

100%


Term Spot Not Working

0%

20%

40%

60%

80%

100%


Term Spot Not Working

52%

11%

10%

10%

9%7%1%

Far East South America

Indian Ocean Northwest Europe

Southeast Asia USA, Gulf of Mexico

Other 22%

78%

On order Under construction


Offsh

ore S

up

ply

Offshore Supply

Chart 23. Newbuild orders for AHTS vessels by region Q2 15 Chart 24. Newbuild orders for PSV vessels by region Q2 15

Source: Danske Bank Markets, IHS Petrodata, Clarksons Source: Danske Bank Markets, IHS Petrodata, Clarksons

61%

5%

13%

8%

13%

Far East South America Indian Ocean

Northwest Europe Southeast Asia

47%

15%

8%

11%

6%11% 2%

Far East South America

Indian Ocean Northwest Europe

Southeast Asia USA, Gulf of Mexico

Other


Offsh

ore S

up

ply

Offshore Supply

Dayrates under pressure

Dayrates in 2015 are below historical averages. Dayrates for both AHTSs and

PSVs have so far in 2015 been below their 15-year historical average (since 2001, not

adjusted for inflation) and down from the three-year average.

PSV market oversupplied. AHTS rates have been relatively more stable than PSV

rates, where the market is currently heavily oversupplied, indicated by spot rates well

below 2014 and historical averages.

A strong seasonal effect from rig moves and high North Sea activity in Q3 has led

to AHTS rates averaging 11% above the average since 2001.

Weak markets indicate weak Q3 prices. The seasonal trend reverses in weak

markets, when excess capacity is sent to the North Sea in anticipation of a stronger

spot market, or on lack of contract opportunities. Notably Q3 rates in 2003, 2004 and

2005 were 30%, 14% and 6%, respectively, below average.

The weakness we have seen in the AHTS market so far in 2015 is set to accelerate

into Q3. The PSV market is likely to remain at cash breakeven rates, with expected

cancellations of newbuild orders.

Spot market exposure is a key driver for earnings surprises quarter to quarter.

Over time, AHTS and PSV dayrates have been stable but very volatile; single fixtures

can move up and down significantly, making spot market exposure a key driver for

earnings surprises quarter to quarter.

Chart 25. Average AHTS spot rates Chart 26. Average PSV spot rates


$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

2015 2014 Avg. 2012-2014

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

2015 2014 Avg. 2012-2014


Offsh

ore S

up

ply

Offshore Supply

Chart 27. Average AHTS spot rates Chart 28. Average PSV spot rates


0

100,000

200,000

300,000

400,000

1-J

an-0

1

1-J

an-0

2

1-J

an-0

3

1-J

an-0

4

1-J

an-0

5

1-J

an-0

6

1-J

an-0

7

1-J

an-0

8

1-J

an-0

9

1-J

an-1

0

1-J

an-1

1

1-J

an-1

2

1-J

an-1

3

1-J

an-1

4

1-J

an-1

5

US

D

0.00

100000.00

200000.00

300000.00

400000.00

US

D


Offsh

ore S

up

ply

Offshore Supply

Comparisons

Solstad Offshore stands out with limited PSV exposure and an old fleet, while Deep Sea

Supply is at the other end of the scale, with a young fleet and high PSV exposure but in

return a careful debt maturity profile.

Table 2. Fleet comparison September 2015

Deep Sea

Supply DOF ASA

DOF

Subsea

Eidesvik

Offshore

Farstad

Shipping

Havila

Shipping

Olympic

Ship

Rem

Offshore

Siem

Offshore

Solstad

Offshore

Fleet composition AHTS 38% 29% 0% 0% 49% 33% 18% 0% 28% 37% PSV 63% 29% 0% 38% 40% 52% 36% 55% 34% 20% SCV 0% 43% 100% 29% 11% 11% 41% 35% 11% 43% Other 0% 0% 0% 33% 0% 4% 9% 10% 26% 0% No. of vessels AHTS 15 20 0 0 31 9 4 0 15 17 PSV 25 20 0 8 25 14 8 11 18 9 SCV 0 30 26 5 7 3 9 7 6 20 Other 0 0 0 6 0 1 2 2 14 0 Sum 40 70 26 19 63 27 23 20 53 46

Average vessel age 5.6 7.6 6.3 9.1 9.6 7.4 6.8 4.0 8.6 10.9


Booked vessel capacity shows how many of the available vessel days each company has

on firm contracts per year for all vessel types. Havila has booked relatively more of its

fleet than its peers, particularly for 2016, when the company has booked 69%, while the

average is well below 50%.

Chart 29. Booked vessel capacity


68%73%

53%

64%70%

85%

68%

57% 57%64%

29%

49%45%

39% 39%

69%

18%

33%

48%40%

5%

41% 44%

27%22%

45%

4%

21%

42%

21%

3%

28%

40%

17%

8%

30%

0% 0%

31%

11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Deep Sea Supply

DOF ASA DOF Subsea Eidesvik Farstad Shipping

Havila Olympic Ship REM OffshoreSiem Offshore Solstad Offshore

2015 2016 2017 2018


Offsh

ore S

up

ply

Offshore Supply

Chart 30. Contracted EBITDA % of total EBITDA


In line with the chart above, we see that the companies have limited 2015 EBITDA

exposure compared with 2016.

Liquidity and refinancing risk is key to the valuation of the supply companies.

Chart 31. Debt repayments (NOKm)

* Converted from USD to NOK for comparison purpose


70%

88% 89%

68%

83%94%

89%

68%

87%

46%

78% 81%

38%

81%

99%

82%87%

57%

6%

59%

91%

32%

103%

86% 82%93%

43%

5%

62%74%

13%

36%

68%

0%

72%

27%

0%

30%

60%

90%

120%

150%

Deep Sea Supply

DOF ASA DOF Subsea Eidesvik Farstad Shipping

Havila REM Offshore Siem Offshore Solstad Offshore

2015 2016 2017 2018

191

5,708

2,844

195

1,290

648 735

2,382

1,245

462

4,055

2,321

359

1,800 1,684

804 713

1,583

4,313

462

3,049

800 867

1,500 1,4891,227

868

1,583

5,980

462

4,021

1,890

580

2,875

699

1,218

2,188

134

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Deep Sea Supply* DOF ASA DOF Subsea Eidesvik Farstad Shipping Havila Olympic Ship REM Offshore Siem Offshore* Solstad Offshore

2015 2016 2017 2018


Offsh

ore S

up

ply

Offshore Supply

Table 3. Shadow rating of companies

Scale and business profile (45%)

Profitability and

returns (15%) Financial strength (40%) Summary

Position Assets EBIT/assets EBIT/interest Net debt/EBITDA Total debt/book rating

Deep Sea Supply BB B CCC+ CCC+ CCC+ B+ B- DOF ASA BBB- BB+ B+ B+ CCC+ CCC+ B+ DOF Subsea BBB- B+ BB- BB- B- B B+ Eidesvik B+ B- CCC+ CCC+ CCC+ AA B Farstad Shipping BBB B+ CCC+ CCC+ CCC+ B- B Havila B B B+ B+ CCC+ CCC+ CCC+ Olympic Ship BB- B- B+ B+ CCC+ B- B Rem Offshore CCC+ B- BB- BB- CCC+ CCC+ B- Siem Offshore BB B+ CCC+ CCC+ CCC+ B B- Solstad Offshore BBB- B+ BB- BB- CCC+ B- B+


When calculating EBITDA, EBIT and other multiples, we use an average of the reported

EBITDA over 2014-16 and our forecast EBITDA for 2015 and 2016.

Chart 32. Fleet and market position

Chart 33. Profitability and returns: EBIT/assets average

2014-16E

Source: Company data, Danske Bank Markets Source: Company data, Danske Bank Markets

Chart 34. Net debt/EBITDA average 2014-16E Chart 35. Debt/book average 2014-16E (x)


BBBBB- BBB-

B+

BBB

BBB-

CCC+

BB BBB-

-20

-15

-10

-5

0

02468

1012141618

CCC+

B+BB-

CCC+CCC+

B+ B+BB-

CCC+

BB-

-20

-15

-10

-5

0

0%1%2%3%4%5%6%7%8%

7.3 7.3

5.35.9

6.97.4

6.7

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Deep Sea

Supply

DOF ASA

DOF Subsea

Eidesvik Farstad Shipping

Havila Olympic Ship

53%

66%57% 58% 61%

71%61%

0%10%20%30%40%50%60%70%80%


Offsh

ore S

up

ply

Offshore Supply

Table 4. Operating cash flow – capex and repayments (NOKm)

FCF less repayments 2012 2013 2014 2015E 2016E 2017E 2018E

Deep Sea Supply -690.1 -2,308.3 -3,079.4 249.8 -303.2 -475.6 -267.4 DOF ASA -4,995.0 -2,943.0 -3,721.0 -4,555.2 -2,532.1 -1,784.6 -2,882.5 DOF Subsea -584.0 -1,901.0 -1,580.0 -6,097.6 -3,326.4 225.8 -632.1 Eidesvik Offshore -915.8 5.6 46.2 -707.6 20.9 -505.7 -182.5 Farstad Shipping -1,920.6 -2,289.1 -2,525.7 -1,400.0 -728.3 -2,236.0 -2,499.6 Havila Shipping -822.4 -1,375.7 -944.6 -815.2 -1,461.5 -1,454.6 -842.5 Rem Offshore -346.7 -1,365.4 -1,092.2 -677.8 -417.5 -737.4 -1,185.8 Siem Offshore -466.0 -2,559.1 -3,243.3 -2,747.3 -3,333.7 -1,127.1 -1,648.3 Solstad Offshore -228.5 -942.5 -2,851.7 -1,904.5 -3,469.7 -5,545.4 172.4

Source: Company data, Danske Bank Markets estimates


Offsh

ore S

up

ply

Offshore Supply

Peer group data summaries

Table 5. Peer summary – FactSet consensus

B’berg Price Mkt cap Sales (USDm) Sales (% change)

ticker Company name (NOK)* (USDm) 2014 2015E 2016E 2017E 2015E 2016E 2017E

DESSC NO Deep Sea Supply Plc (NO Listing) 0.27 69 88 151 133 130 72% -12% -3% DOF NO DOF ASA 0.67 74 1617 1225 1176 1223 -24% -4% 4% EIOF NO Eidesvik Offshore ASA 1.27 38 156 131 108 103 -16% -17% -5% FAR NO Farstad Shipping ASA 1.98 77 690 506 485 474 -27% -4% -2% HAVI NO Havila Shipping ASA 0.72 22 269 191 177 167 -29% -7% -6% REM NO REM Offshore ASA 5.31 108 217 160 155 177 -26% -3% 14% SIOFF NO Siem Offshore 0.22 183 491 457 523 525 -7% 14% 0% SOFF NO Solstad Offshore ASA 2.80 108 593 433 414 411 -27% -4% -1%

* Prices as at close on 1 September 2015

Source: FactSet consensus, Danske Bank Markets


Offsh

ore S

up

ply

Offshore Supply

Table 6. Peer summary – FactSet consensus

Equity EBITDA (USDm) EBITDA margin (%) EBIT (USDm) EBIT margin (%)

ticker 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E

DESSC NO 33 77 53 46 38 51 40 36 6 31 7 1 6 21 5 1

DOF NO 468 392 334 367 29 32 28 30 305 244 193 218 19 20 16 18

EIOF NO 78 72 46 40 50 55 43 39 32 42 16 11 20 32 15 11

FAR NO 255 169 144 129 37 33 30 27 119 52 38 23 17 10 8 5

HAVI NO 137 89 76 66 51 47 43 39 94 51 38 29 35 27 21 17

REM NO 129 76 64 80 60 47 42 45 107 56 45 63 49 35 29 36

SIOFF NO 194 141 162 175 40 31 31 33 97 -12 40 51 20 -3 8 10

SOFF NO 236 179 168 164 40 41 40 40 163 123 111 103 28 28 27 25

Equity Net income (USDm) Interest expense on debt (USDm) Net debt (USDm) ROE (%)


DESSC NO -1 10 -11 -16 10 296 424 397 382 -0.2 2.3 -2.7 -3.7

DOF NO 13 34 14 26 216 2,698 2,708 2,880 2,837 2.4 7.5 2.5 4.4

EIOF NO -28 17 -2 -6 23 322 397 374 359 -8.0 9.0 -0.6 -2.5

FAR NO -1 -54 -35 -49 98 1,216 1,261 1,276 1,251 -0.1 -3.5 -5.2 -8.0

HAVI NO 1 3 0 -9 63 742 640 611 592 0.2 3.2 0.0 -3.9

REM NO 52 21 19 36 41 573 525 497 535 17.3 - #N/A -

SIOFF NO 58 -67 -24 -18 51 1,124 1,050 1,402 1,357 7.0 -6.8 -3.6 -3.2

SOFF NO 24 17 51 40 83 1,336 1,200 1,374 1,303 3.0 8.1 7.6 5.6

Equity Total assets (USDm) Net cash from op. activities (USDm) Funds from operations (USDm) Total equity/total assets (x)


DESSC NO 800 1012 962 912 41 63 40 28 27 7 56 31 1.29

DOF NO 4312 4003 4183 4199 199 190 186 207 271 123 178 215 0.30

EIOF NO 741 724 699 673 68 - - - 68 0.72

FAR NO 2587 2335 2248 2127 188 85 78 63 171 109 81 64 0.59

HAVI NO 1117 970 925 883 61 50 44 36 69 34 42 34 0.34

REM NO 999 900 871 928 90 45 39 50 104 n.a. n.a. n.a. 0.5

SIOFF NO 2261 2085 2344 2213 189 59 89 104 169 59 89 104 0.7

SOFF NO 2367 2076 2271 2206 240 121 108 98 220 121 108 98 0.4

Equity EBITDA interest coverage (x) EBIT interest coverage (x) FFO interest coverage (x) Total debt/EBITDA (x)


DESSC NO 3.5 0.6 2.7 10.25

DOF NO 2.2 1.4 1 6.51

EIOF NO 3.4 1.4 3.0 5.07

FAR NO 2.6 1.2 1.8 5.91

HAVI NO 2.2 1.5 1.1 5.77

REM NO 3.2 2.6 3 5.12

SIOFF NO 3.8 1.9 3 6.40

SOFF NO 2.9 2.0 3 6.40

Equity

Net debt/EBITDA (x)

FFO/net debt (x)

FFO/total debt (x)

Total debt

(USDm)

Total equity

(NOKm)

ticker 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E 2014 2014

DESSC NO 8.83 5.50 7.55 8.23 0.09 0.02 0.14 0.08 0.08 343 443

DOF NO 5.77 6.92 8.62 7.74 0.10 0.05 0.06 0.08 0.09 3,046 916

EIOF NO 4.13 5.49 8.13 9.02 0.21 0.17 396 283

FAR NO 4.77 7.45 8.84 9.72 0.14 0.09 0.06 0.05 0.11 1,509 884

HAVI NO 5.42 7.20 8.09 8.99 0.09 0.05 0.07 0.06 0.09 789 270

REM NO 4.43 6.94 7.72 6.73 0.18 n.a. n.a. n.a. 0.16 664 311

SIOFF NO 5.79 7.46 8.65 7.76 0.15 0.06 0.1 0.08 0.14 1243 824

SOFF NO 5.65 6.70 8.19 7.94 0.16 0.10 0.1 0.08 0.15 1512 675

Note: Based on prices as at close on 1 September 2015

Source: FactSet consensus, Danske Bank Markets


Offsh

ore S

up

ply

Offshore Supply

Table 7. Oil services peer comparison – FactSet consensus

Share

price Mkt cap EPS (USD) P/E (x) EV/EBIT (x) EV/EBITDA (x) P/BV (x)

(USD) (USDm) 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2015E 2016E

Petroleum Geo-Services ASA 4.5 962 0.25 -0.06 0.07 18.0 61.8 22.4 35.9 27.9 3.3 4.0 4.1 0.5 0.5

Dolphin Group ASA 0.1 27 0.07 -0.05 -0.02 1.0 6.1 29.4 2.7 2.6 2.6 0.1 0.1

Polarcus Limited 0.0 15 -0.11 -0.14 -0.07 35.4 4.3 4.9 6.9 0.0 0.0

TGS-NOPEC Geophysical Co. ASA 19.4 1,969 2.40 1.22 1.35 8.1 15.9 14.4 6.6 10.6 9.7 2.6 3.5 3.6 1.5 1.4

Spectrum ASA 3.6 193 0.79 0.33 0.48 4.6 11.1 7.5 3.1 8.6 5.1 1.1 2.2 1.5 1.0 0.9

EMGS ASA 0.1 20 0.12 -0.15 -0.05 0.8 4.3 2.2 13.0 2.5 0.2 0.3

CGG (CGG.N) 4.6 820 -1.09 -1.00 -0.50 15.7 71.3 31.0 3.5 5.3 4.8 0.3 0.3

Average seismic 6.5 13.5 27.9 13.0 18.3 18.0 2.7 5.0 3.5 0.6 0.5

Archer Limited (ARCHER.OL) 0.1 85 -0.05 -0.21 -0.09 41.9 4.7 10.9 6.7 0.2 0.2

Kongsberg Gruppen ASA (KOG.OL) 15.1 1,816 0.97 1.01 1.18 15.6 14.9 12.9 8.3 9.6 7.7 5.5 7.0 5.9 2.3 2.2

BW Offshore Limited (BWO.OL) 0.4 264 0.24 0.08 0.01 1.6 5.1 27.8 8.5 14.4 22.5 4.6 5.2 6.9 0.2 0.2

Average other oil services 8.6 10.0 20.4 19.6 12.0 15.1 4.9 7.7 6.5 0.9 0.9

Seadrill Ltd 7.5 3,715 2.59 2.43 1.79 2.9 3.1 4.2 9.2 8.5 11.1 6.7 5.8 6.7 0.3 0.3

Fred. Olsen Energy ASA 4.9 322 1.90 2.59 1.69 2.6 1.9 2.9 11.2 8.4 9.3 3.6 3.2 3.1 0.3 0.2

Odfjell Drilling Ltd. 0.6 119 0.21 -0.41 -0.22 2.9 14.7 57.7 5.6 10.9 7.5 0.1 0.1

Songa Offshore 0.1 100 -0.02 0.02 0.08 4.9 1.4 46.7 29.6 12.2 3.9 11.5 5.9 0.1 0.1

Awilco Drilling PLC 4.4 132 4.58 4.34 1.09 1.0 1.0 4.0 2.0 0.9 3.7 1.8 0.8 2.7 0.4 0.4

Sevan Drilling Ltd 0.9 28 -0.77 0.84 0.62 1.1 1.5 56.4 11.3 12.4 11.8 6.7 6.8 0.0 0.0

ProSafe SE 2.8 663 0.81 0.57 0.73 3.5 5.0 3.9 5.8 9.9 9.0 4.6 7.1 6.3 0.8 0.7

Ensco plc (ESV.N) 17.1 4,028 6.22 4.04 2.37 2.7 4.2 7.2 6.5 6.7 9.7 4.9 4.7 5.8 0.4 0.4

Rowan Cos. Plc Class A (RDC.N) 17.6 2,214 2.14 2.81 2.35 8.2 6.3 7.5 14.0 8.5 8.8 7.6 5.0 4.8 0.4 0.4

Pacific Drilling S.A. 1.9 396 0.87 0.79 -0.25 2.2 2.4 12.8 12.8 33.1 8.3 7.5 10.5 0.1 0.1

Diamond Offshore Drilling, Inc. (DO.N) 22.7 3,115 3.13 2.11 0.43 7.3 10.8 52.9 10.4 13.1 30.8 6.2 5.8 8.3 0.7 0.7

Transocean Ltd (RIG.N) 13.7 4,984 4.97 3.27 0.14 2.8 4.2 98.3 5.3 6.1 22.6 3.7 4.0 8.3 0.4 0.4

Atwood Oceanics Inc. (STW.N) 18.2 1,178 4.79 7.32 4.57 3.8 2.5 4.0 8.6 4.7 6.7 6.3 3.6 4.7 0.4 0.4

Noble Corporation plc (NE.N) 12.7 3,073 2.86 2.37 1.17 4.4 5.4 10.8 7.6 7.5 11.6 4.5 4.6 5.7 0.4 0.4

Average rig/drilling 2.6 2.8 3.0 20.9 11.4 16.5 5.4 6.6 5.6 0.3 0.3

Statoil ASA (STL.OL) 14.8 47,184 1.65 0.95 1.15 9.0 15.6 12.9 4.0 7.2 5.6 2.5 3.0 3.1 1.1 1.1

Total SA (FP.PA) 45.5 104,053 5.60 4.08 4.26 8.1 11.2 10.7 7.6 10.7 8.8 4.2 5.4 4.8 1.1 1.0

Royal Dutch Shell plc (RDSA.AS) 25.4 162,268 3.45 2.13 2.45 7.3 11.9 10.4 8.1 9.1 6.9 4.3 4.6 3.9 0.9 0.9

BP plc (BP.L) 5.4 98,096 0.66 0.37 0.45 8.1 14.6 11.8 6.9 12.1 9.0 3.9 4.8 4.3 0.9 0.9

Average oil majors 8.1 13.3 11.4 6.7 9.8 7.6 3.7 4.5 4.0 1.0 1.0

Lundin Petroleum AB (LUPE.ST) 13.0 4,021 -1.37 -0.56 0.85 15.2 11.2 10.9 16.2 4.9 15.2 8.1

Det Norske Oljeselskap ASA

(DETNOR.OL)

6.0

1,207

-1.61

0.51

0.77

11.7

7.7

6.9

5.8

15.0

3.4

3.5

1.7

1.3

EnQuest plc (ENQ.L) 0.51

Premier Oil plc (PMO.L) 1.6 812 -0.40 -0.28 0.17 9.4 30.9 11.5 3.6 4.5 3.9 0.5 0.4

Tullow Oil plc (TLW.L) 3.4 3,055 -1.68 0.04 0.18 75.1 18.1 19.0 11.9 5.7 7.0 5.5 0.8 0.7

DNO ASA Class A (DNO.OL) 1.1 1,224 -0.07 -0.10 0.18 6.5 4.0 8.4 12.5 2.1 2.3 1.7

Average E&P 43.4 11.4 19.0 8.9 8.7 8.7 4.0 4.1 2.5

Deep Sea Supply plc 0.3 69 0.04 0.04 -0.05 7.2 6.7 17.4 15.8 66.4 8.2 6.4 8.9 0.2 0.2

DOF ASA 0.7 74 0.49 0.36 0.12 1.4 1.9 5.3 10.0 11.3 15.1 6.8 7.0 8.7 0.1 0.1

Eidesvik Offshore ASA 1.3 38 0.71 0.81 -0.05 1.8 1.6 14.1 10.2 25.2 6.5 6.0 8.9 0.1 0.1

Farstad Shipping ASA 2.0 77 0.63 -0.65 -0.91 3.1 13.8 25.4 34.8 6.9 7.8 9.3 0.1 0.1

Havila Shipping ASA 0.7 22 -0.03 0.26 0.00 2.7 10.2 12.9 16.5 7.0 7.4 8.3 0.1 0.1

Siem Offshore AS 0.2 183 0.12 -0.09 -0.05 1.9 15.0 39.5 6.7 8.8 9.8 0.2 0.2

Solstad Offshore ASA 2.8 107 2.70 1.30 1.32 1.0 2.1 2.1 10.6 10.5 13.2 8.0 7.2 8.7 0.2 0.2

Rem Offshore ASA 5.3 108 1.23 0.96 4.3 5.5 11.1 13.3 8.3 9.3

Average offshore supply 3.1 3.2 5.3 13.4 15.1 32.9 7.0 7.2 9.0 0.1 0.1

* Prices as at close on 1 September 2015

Source: FactSet prices and consensus, Danske Bank Markets


Offsh

ore S

up

ply

Offshore Supply

Table 8. Oil services peer comparison – Danske Bank Markets estimates

EV/EBIT (x) P/BV (x) Dividend yield FCF yield

Company name 2015E 2016E 2017E 2015E 2016E 2017E 2014 2015E 2016E 2014 2015E 2016E

Dolphin Group 8.6 13.1 2.2 0.0 0.0 0.0 0.0% 0.0% 0.0% -537% -125% 349% EMGS n.m. 50.3 n.m. 0.3 0.3 0.3 0.0% 0.0% 0.0% -91% 33% -42% Petroleum Geo-Services n.m. n.m. 7.3 0.6 0.6 0.5 2.8% 0.0% 0.0% 6% -10% 21% Polarcus n.m. n.m. n.m. 0.0 0.1 0.2 0.0% 0.0% 0.0% 41% -795% -887% Spectrum ASA 12.4 6.4 1.3 0.9 0.8 0.7 1.7% 2.2% 6.7% -38% 16% 43% TGS 9.9 11.4 8.8 1.5 1.4 1.3 5.0% 2.7% 2.7% 30% 25% 29% Seismic – average 10.3 20.3 4.9 0.5 0.5 0.5 2% 1% 2% -98% -143% -81%

Awilco Drilling 0.9 3.9 3.0 0.5 0.4 0.4 45.4% 0.0% 0.0% 65% -19% 34% Fred. Olsen Energy n.m. 19.0 69.9 0.3 0.3 0.3 0.0% 0.0% 0.0% -7% -89% 15% North Atlantic Drilling 16.3 24.7 17.5 0.5 0.5 0.5 0.0% 0.0% 0.0% 179% 44% -86% Ocean Rig UDW 7.1 9.2 11.8 0.1 0.1 0.1 11.7% 0.0% 0.0% -15% 36% -59% Odfjell Drilling n.m. 29.4 7.2 0.1 0.1 0.1 0.0% 0.0% 0.0% 61% 96% 196% Pacific Drilling 8.7 19.3 15.9 0.1 0.1 0.1 0.0% 0.0% 0.0% 59% 50% -40% Prosafe 8.9 7.5 6.6 0.8 0.7 0.6 6.8% 5.6% 9.3% -84% -17% 37% Seadrill 7.3 10.3 9.7 0.3 0.3 0.3 0.0% 0.0% 0.0% 42% -14% 1% Sevan Drilling 10.9 15.0 14.7 0.0 0.0 0.0 0.0% 0.0% 0.0% 358% 288% 531% Songa Offshore 37.7 14.4 13.3 0.1 0.1 0.1 0.0% 0.0% 0.0% n.m. 95% 181% Drilling & accommodation – avg. 12.2 15.3 17.0 0.3 0.3 0.3 6% 1% 1% -137% 47% 81%

Aker Solutions 6.9 8.8 9.1 1.3 1.3 1.2 4.4% 4.0% 3.7% -17% 0% 7% BW Offshore 10.4 17.9 11.9 0.2 0.2 0.2 13.0% 10.4% 20.7% -20% -54% 22% Subsea 7 5.5 10.2 8.9 0.5 0.5 0.4 0.0% 3.3% 3.3% -5% 8% 8% Equipment, services & FPSO – avg. 7.6 12.3 10.0 0.7 0.7 0.6 6% 6% 9% -14% -15% 13%

Akastor n.m. n.m. 18.6 0.4 0.4 0.4 0.0% 0.0% 0.0% -77% 19% 21% Ocean Yield 15.6 14.3 11.1 1.4 1.3 1.3 8.1% 10.1% 13.4% -5% -33% 30% Kongsberg Gruppen 10.7 9.0 8.1 2.2 2.2 2.0 4.2% 4.2% 4.2% 0% 8% 8% Other - average 13.2 11.7 12.6 1.3 1.3 1.2 4% 5% 6% -27% -2% 20%

Deep Sea Supply 7.3 13.8 32.0 0.2 0.2 0.2 0.0% 0.0% 0.0% 88% 28% -2% DOF ASA 7.6 10.1 11.2 0.1 0.1 0.1 0.0% 0.0% 0.0% -187% 248% 206% Eidesvik 4.7 8.2 8.3 0.1 0.1 0.1 0.0% 0.0% 0.0% -132% 120% 114% Farstad Shipping 7.3 10.4 24.6 0.1 0.1 0.1 0.0% 0.0% 0.0% 27% 78% -13% Havila Shipping 6.7 9.4 16.4 0.1 0.1 0.1 0.0% 0.0% 0.0% 188% 124% 19% Siem Offshore 6.0 9.6 11.6 0.2 0.2 0.3 0.0% 0.0% 0.0% -25% -118% 32% Solstad Offshore 5.2 7.4 10.9 0.0 0.2 0.2 32.5% 19.2% 0.7% n.m. 95% 49% Rem Offshore 8.1 9.9 15.1 0.3 0.3 0.3 0.0% 0.0% 0.0% 9% 33% 15% Offshore supply – average 6.6 9.8 16.3 13% 16% 17% 4% 2% 0% -5% 76% 52%

Average 10.8 14.9 11.1 0.7 0.7 0.7 4% 3% 4% -69% -28% 8%

* Based on prices as at close on 2. September 2015

Source: FactSet prices, Danske Bank Markets estimates


Offsh

ore S

up

ply

Offshore Supply

Table 9. Oil services peer comparison – Danske Bank Markets estimates

Company name NIBD/EBITDA (x) ROIC (incl GW & adj.) Sales growth EBITDA margin

2015E 2016E 2017E 2014 2015 2016 2015 2016 2017 2014 2015 2016 2017

Dolphin Group 2.1 1.9 1.0 9.7% 3.9% 2.5% -2% -7% 27% 28% 25% 31% 43% EMGS n.m. 1.3 1.4 12.9% -7.8% 0.4% -56% 28% 2% 31% 0% 25% 28% Petroleum Geo-Services 2.1 2.7 1.2 1.7% -2.3% -0.4% -24% -11% 65% 48% 47% 43% 51% Polarcus 5.5 13.9 10.0 2.2% -2.6% -4.7% -28% -7% 22% 34% 35% 19% 28% Spectrum ASA 0.2 -0.1 -0.4 24.0% 5.9% 8.4% -35% 57% 61% 82% 73% 71% 82% TGS -0.4 -0.4 -0.4 19.9% 11.7% 9.7% -30% 8% 19% 77% 82% 82% 83% Seismic – average n.m. 3.2 2.1 12% 1% 3% -26% -1% 40% 52% 50% 50% 56%

Awilco Drilling 0.1 0.7 0.0 53.2% 46.4% 10.0% -5% -47% 3% 71% 72% 45% 47% Fred. Olsen Energy 1.9 3.3 3.6 4.5% -4.8% 2.8% -5% -17% 0% 44% 56% 49% 43% North Atlantic Drilling 6.1 6.5 6.1 8.3% 3.8% 2.6% -41% 0% 19% 46% 51% 45% 45% Ocean Rig UDW 4.0 4.7 5.4 7.0% 6.2% 4.5% -6% -5% 1% 53% 56% 48% 45% Odfjell Drilling 34.2 5.6 3.1 2.6% -5.9% 1.7% -6% -4% 10% 25% 4% 23% 31% Pacific Drilling 4.7 6.2 5.9 5.3% 4.8% 2.1% 1% -14% 12% 52% 54% 44% 44% Prosafe 4.3 3.9 3.3 12.7% 8.9% 8.9% -3% 28% 9% 57% 57% 56% 53% Seadrill 4.3 5.3 4.9 7.8% 6.8% 5.5% -14% -2% 12% 64% 56% 49% 47% Sevan Drilling 6.3 7.2 6.6 -1.9% 4.6% 3.3% 20% -6% -3% 39% 49% 42% 41% Songa Offshore 11.2 6.5 6.3 2.8% 1.7% 3.1% -5% 83% -9% 40% 45% 40% 42% Drilling & accommodation –

avg.

7.7 5.0 4.5 10% 7% 4% -11% -1% 7% 53% 50% 45% 44%

Aker Solutions 1.2 1.5 1.4 25.1% 15.4% 10.4% -24% -16% -3% 8% 7% 8% 7% BW Offshore 3.8 5.1 4.4 7.0% 3.8% 2.5% -20% -19% 11% 49% 46% 48% 50% Subsea 7 0.2 -0.1 -0.2 -3.5% 6.4% 3.1% -17% -20% -3% 21% 17% 16% 17% Equipment, services & FPSO 1.7 2.2 1.9 10% 9% 5% -20% -18% -2% 18% 16% 15% 16%

Akastor 11.1 8.3 3.8 -3.8% -2.5% -1.4% -18% 0% 0% 12% 11% 12% 12% Ocean Yield 4.5 5.2 3.9 7.6% 7.6% 8.5% n.m. n.m. n.m. n.m. n.m. n.m. n.m. Kongsberg Gruppen -0.2 -0.4 -0.7 24.2% 18.3% 18.7% n.m. n.m. n.m. n.m. n.m. n.m. n.m. Other – average 5.2 4.4 2.4 9% 8% 9% n.m. n.m. n.m. n.m. n.m. n.m. n.m.

Deep Sea Supply 6.3 11.9 27.5 4.1% 2.6% -1.0% -8% -21% -19% 51% 47% 30% 16% DOF ASA 5.7 8.4 9.2 8.5% 7.2% 4.7% -17% -18% -4% 34% 34% 27% 24% Eidesvik 4.3 5.6 5.4 5.0% 6.3% 0.3% -16% -39% -7% 56% 67% 76% 74% Farstad Shipping 6.8 9.7 23.0 5.9% 2.8% 0.3% -28% -27% -18% 38% 34% 32% 16% Havila Shipping 6.6 9.2 16.0 9.0% 5.9% 3.0% -24% -18% -17% 51% 48% 40% 27% Siem Offshore 5.2 8.4 10.2 3.8% 0.6% 1.1% 1% -7% -14% 36% 43% 34% 31% Solstad Offshore 5.4 7.1 10.4 10.3% 7.7% 5.2% -20% -24% -14% 46% 46% 43% 33% Rem Offshore 6.3 7.7 11.7 13.8% 7.2% 5.3% -31% -15% -17% 61% 53% 49% 39% Offshore supply – average 5.8 8.5 14.2 7.5% 5.0% 2.4% -18% -21% -14% 46% 47% 41% 32%

Average n.m. 3.7 2.7 10% 6% 5% -19% -7% 15% 41% 39% 37% 39%

Source: Danske Bank Markets estimates


Offsh

ore S

up

ply

Offshore Supply

Initiations of coverage

Deep Sea Supply

Initiation of coverage

We assign a ‘B-’ corporate rating to Deep Sea Supply. The company has no vessels

under construction and is fully funded through equity and long-term bank debt. The

equity ratio is comfortable at c.40% and the majority and main owner is financially

strong and known for his record in the asset-heavy oil services segment. Weighing

negatively is the low contract coverage and high financial gearing.

Key credit considerations

Established player with large and diversified fleet

Deep Sea Supply is a large OSV player focused on the AHTS and PSV segments. It has

significant exposure to Brazil, in addition to Australia, the Mediterranean, the North Sea,

South-East Asia and West Africa. The fleet of 40 OSVs comprises 15 AHTSs and 25 PSVs.

The company owns 12 PSVs and nine AHTS vessels 50/50 with BTG. The average vessel

age is 9.2 years for the AHTS fleet and 3.4 years for the PSV fleet. The largest shareholder is

John Fredriksen, with 44%, and the stock has been listed on the Oslo Stock Exchange since

2006.

Backlog and contract coverage

At the end of Q2 15, the company had a backlog of USD128m, excluding options. The

company’s contract coverage is 68% for the rest of 2015, 29% for 2016 and 5% for 2017.

Asset support

Our DCF-based fleet value calculation of NOK651m implies EV/NIBD of 1.4x, while the

reported fleet value and book value of NOK831m and NOK862m, respectively, based on

shipbroker estimates and newbuild cost less depreciation, implies EV/NIBD of 1.79x and

1.85x. Contracted EBITDA of USD53m, excluding options, is currently 11% of NIBD.

Financial leverage

Deep Sea Supply has a combination of very high financial leverage, a moderate backlog

and low contract coverage for 2016 and 2017. Based on our 2016 estimates, the

NIBD/EBITDA ratio is c.12x. However, the OSV companies have high operational

leverage, meaning that a moderate market improvement has a big positive impact on the

financial leverage. Adding that the company is fully funded with exclusively long-term

bank debt and that the booked equity ratio is at 44% leaves us comfortable that the

company will manage to come through the downturn without raising equity.

Key ratios

USDm 2012 2013 2014 2015E 2016E 2017E 2018E

Total revenues 124 139 163 150 118 96 127 EBITDA (adj.) 50 61 81 70 36 15 46 EBITDA margin (% 0.4 0.4 0.5 0.5 0.3 0.2 0.4 EBITDA interest coverage (x) 2.1 2.6 3.1 4.8 4.1 1.8 5.2 FFO/net debt (%) 8.1 -3.1 14.4 10.5 6.6 1.8 9.4 Net debt/EBITDA (x) 9.6 5.2 6.2 6.3 11.9 27.5 8.8 Total debt/total capital (%) 68.5 55.0 53.4 52.2 53.2 55.3 55.3


Facts

Sector: Oil Services & Industrial

Shipping

Corporate ticker: DESSC

Equity ticker: DESSC

Ratings:

No official ratings Danske Bank Markets: Corporate rating: B-

Analysts:

Iver Båtvik

[email protected]

+47 95 97 74 45

Øyvind Mossige

[email protected]

+47 40 92 24 46

Key credit strengths

Exclusively funded by equity and long-term bank debt.

Comfortable equity ratio.

Financially strong controlling owner with excellent record.

High focus on profitability.

Key credit challenges

Cyclical and oil price dependent industry.

Limited backlog and contract coverage.

High financial leverage




Offsh

ore S

up

ply

Offshore Supply

Business risk profile

Deep Sea Supply in short

Deep Sea Supply has taken advantage of low newbuild costs at Asian yards, ordering a

series of vessels at lower prices than peers. This has given the company a low cost and

uniform fleet for operation. Despite ordering from alternative yards in Asia, second-hand

prices for the ordered vessels have held up well compared with the more costly

Norwegian builds. However, we believe the fleet would have lower value in the current

oversupplied market should vessels be put up for sale.

Deep Sea Supply is a large OSV player focused on the AHTS and PSV segments. The

company has significant exposure to Brazil, in addition to Australia, the Mediterranean,

the North Sea, South-East Asia and West Africa. The fleet of 40 OSVs comprises 15

AHTSs and 25 PSVs. Of the vessels, 12 PSVs and nine AHTS vessels are owned 50/50

with BTG. The average vessel age is 9.2 years for the AHTS fleet and 3.4 years for the

PSV fleet. The company’s largest shareholder is John Fredriksen, owning 44%, and the

stock has been listed on the Oslo Stock Exchange since 2006.

Risk factors

Continued oversupply in the oil market and a further cut in E&P spending remain the

key risks for the OSV players, including Deep Sea Supply.

The OSV market is highly fragmented and characterised by low investment discipline

and high fleet growth. Fleet growth needs to come down in order to bring balance into

the OSV market.

Deep Sea Supply has high financial leverage and needs to secure significant contracts

near term, in order to maintain fleet utilisation and cash flow generation.

The company has significant exposure to Brazil and given the distressed situation for

Petrobras and the country’s focus on local content and locally built vessels, the

vessels operating in Brazil run the risk of not being awarded extensions.

Fleet

The fleet of 40 OSVs comprises 15 AHTSs and 25 PSVs. Of the vessels, 12 PSVs and

nine AHTS vessels are owned 50/50 with BTG. The average vessel age is 9.2 years for

the AHTS fleet and 3.4 years for the PSV fleet.

Chart 36. Fleet composition (based on number of units)

September 2015

Chart 37. Revenues by vessel type 2016E

Source: Company data, Danske Bank Markets Source: Company data, Danske Bank Markets estimates

37%

63%

AHTS PSV

34%

66%

AHTS PSV


Offsh

ore S

up

ply

Offshore Supply

Chart 38. Contract profile September 2015 Chart 39. Vessel age profile September 2015


Contract coverage

The company has low contract coverage for 2016 and beyond and needs to secure

significant contracts in order to meet our EBITDA forecast.

Chart 40. Booked capacity Chart 41. Contracted EBITDA vs forecast EBITDA


Historical performance

Despite an extremely challenging market, Deep Sea Supply has been successful in securing

relatively strong fleet utilisation over the past few years. However, within the PSV segment

in particular, the chart below shows negative development over the past few months.

Chart 42. AHTS: historical utilisation Chart 43. PSV: historical utilisation

Source: ODS Petrodata, Danske Bank Markets Source: ODS Petrodata, Danske Bank Markets

33%

37%

30%

Short-term [<1 yr] Mid-term [1-3 yrs] Long-term [>3 yrs]

9.2

3.4

5.6

0 2 4 6 8 10

AHTS segment

PSV segment

Weighted average

68%

29%

5% 3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2H 2015 2016 2017 2018

70%

46%

6% 5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2H 2015 2016 2017 2018

0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013 2014 2015

No contracts Spot Term

0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013 2014 2015



Offsh

ore S

up

ply

Offshore Supply

Liquidity

The company has significant near-term debt repayments and, in combination with falling

dayrates and utilisation, illustrated by a decline in operational cash flow, the company is

dependent on extensive refinancing in order to maintain a healthy liquidity.

Chart 44. Cash flow from operations (USDm) Chart 45. Investments (USDm)

Source: Company data, Danske Bank Markets estimates Source: Company data, Danske Bank Markets estimates

Chart 46. Debt repayments (USDm) Chart 47. Assumed new debt (USDm)


Table 10. Summary of cash flow

USDm 2014 2015E 2016E 2017E

Cash flow from operations 78 72 30 9 Net investments -421 -11 -11 -11 Change in debt 207 -20 -1 -1 New equity 197 0 0 0 Other -77 -36 -57 -57 Net change in cash -16 4 -38 -59

Cash end of period 62 97 116 113


4840

7872

30

9

0

10

20

30

40

50

60

70

80

90

2012 2013 2014 2015E 2016E 2017E

-92

-252

-421

-11 -11 -11

-450

-400

-350

-300

-250

-200

-150

-100

-50

0

2012 2013 2014 2015E 2016E 2017E

-40

-70

-34-30

-57 -57

-80

-70

-60

-50

-40

-30

-20

-10

0

2012 2013 2014 2015 2016 2017

105

52

242

10

56 56

0

50

100

150

200

250

300

2012 2013 2014 2015 2016 2017


Offsh

ore S

up

ply

Offshore Supply

Chart 48. Cash development (USDm)

Source: Company, data, Danske Bank Markets

Capital structure

Chart 49. Balance sheet Q2 15 (USDm)


Table 11. Balance sheet summary (USDm)

2014 2015E 2016E 2017E

Vessels and equipment 881 845 811 779 Other tangible assets 20 47 47 47 Accounts receivable 35 31 25 21 Cash & equivalents 62 97 116 113 Other current assets 53 17 16 16 Total assets 1,052 1,036 1,015 976

Total interest-bearing debt 539 521 520 520 Equity 443 452 435 399 Other current liabilities 69 63 59 57 Total equity & liabilities 1,052 1,036 1,015 976


Asset support

At the end of Q2 15, the company had a backlog of NOK6.8bn, excluding options. Our

DCF-based fleet value calculation of NOK14.1bn implies EV/NIBD of 1.35x, while the

reported fleet value based on shipbroker estimates and the book value implies EV/NIBD

of 1.77x and 1.83x, respectively. Contracted EBITDA, excluding options, is currently

26% of NIBD.

33.8 31.641.9 40.3 40.4 43.0

61.8

96.6115.5 113.3

136.6

195.3

0

50

100

150

200

250

2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

Total fixed assets

Cash1Current

Interest bearing debt

Equity

Other

0

200

400

600

800

1,000

1,200

Assets Funding


Offsh

ore S

up

ply

Offshore Supply

Chart 50. Asset support Q2 15 (USDm) Chart 51. EV/NIBD Q2 15 (x)


The calculated fleet value corresponds to a loan to DCF value of 71%.

Chart 52. 71% loan to value based on our calculated asset values Q2 15 (USDm)

Source: Danske Bank Markets

Key credit metrics

Chart 53. FFO/net debt (%) Chart 54. Net debt/EBITDA (x)


53

651

831 862

0

200

400

600

800

1000

Contracted EBITDA

DCF based fleet value

Reported fleet value

Book value

Value Net debt

0.11

1.40

1.79 1.85

00.20.40.60.8

11.21.41.61.8

2

Contracted EBITDA



Book value

275

715 989 339

465

186

0

200

400

600

800

1,000

1,200

-5

0

5

10

15

20

-100

0

100

200

300

400

500

600

2012 2013 2014 2015E 2016E 2017E

FFO Net debt FFO/net debt (%)

0

5

10

15

20

25

30

0

100

200

300

400

500

600

2012 2013 2014 2015E 2016E 2017E

EBITDA Net debt Net debt/EBITDA (x)


Offsh

ore S

up

ply

Offshore Supply

Chart 55. EBITDA interest coverage (x) Chart 56. FFO interest coverage (x)


Chart 57. Debt/capital (%) Chart 58. Equity ratio (%)

uy


Corporate credit rating

We assign a ‘B-’ corporate credit rating to Deep Sea Supply. The rating is based on a

review of relevant rating methodologies from S&P and Moody’s.

Supporting the rating is Deep Sea Supply’s asset backing based on our DCF-based fleet

value calculation, book values and broker estimates. The equity ratio is a comfortable

c.40% and the main owner is financially strong and known for his record of playing the

asset-heavy oil services segments.

Weighing negatively on the rating is the oversupplied market and uncertain demand

situation, combined with high financial leverage and a declining backlog and contract

coverage. The company has significant exposure to Petrobras, which we consider a key

risk, given the uncertainty regarding renewal of contracts.

Management and board of directors

Management

CEO – Jon Are Gummedal.

CFO – Anders Hall Jomaas.

0

1

2

3

4

5

6

0

20

40

60

80

100

120

140

160

2012 2013 2014 2015E 2016E 2017E

Interests EBITDA Interests coverage (x)

-1-101122334

-20-10

01020304050607080

2012 2013 2014 2015E 2016E 2017E

Interests FFO Interests coverage (x)

01020304050607080

0

200

400

600

800

1,000

1,200

2012 2013 2014 2015E 2016E 2017E

Total debt Total capital Debt/capital (%)

0

10

20

30

40

50

0

200

400

600

800

1,000

1,200

2012 2013 2014 2015E 2016E 2017E

Equity Total capital Equity ratio (%)


Offsh

ore S

up

ply

Offshore Supply

Board of Directors

Harald Thorstein, Chairman.

Neophytos Neophytou, Director.

Hans Petter Aas, Director.

Kathrine Fredriksen, Alternative Director.

Financials

Table 12. Profit and loss

USDm 2012 2013 2014 2015E 2016E 2017E 2018E

Revenues 124 139 163 150 118 96 127

Opex -74 8 -79 -79 -83 -81 -82 EBITDA 50 147 84 71 36 15 46

EBITDA (adjusted for non-recurring items) 50 61 81 70 36 15 46

Depreciation & amortisation -32 -22 -50 -45 -44 -44 -43 Impairment charges and other non-rec. 0 0 0 0 0 0 0 EBIT 18 125 34 25 -9 -28 3

EBIT (adjusted) 18 40 31 24 -9 -28 3

Interest expense -24 -24 -26 -15 -9 -9 -9 Interest income 2 1 1 1 1 1 1 Other net financial items 0 -2 -3 -1 0 0 0 EBT -4 100 1 10 -17 -36 -5 Tax -1 0 -2 -1 0 0 0 Net income -4 100 -1 9 -17 -36 -5

Net income (adjusted for non-recurring items) -4 14 -4 8 -17 -36 -5 Dividends 0 0 -10 0 0 0 0


Table 13. Balance sheet

USDm 2012 2013 2014 2015E 2016E 2017E 2018E

Vessels and equipment 640 515 881 845 811 779 747 Other tangible assets 38 30 20 47 47 47 47 Accounts receivable 30 27 35 31 25 21 27 Other current assets 17 43 53 17 16 16 17 Cash and equivalents 40 43 62 97 116 113 137 Total assets 766 657 1,052 1,036 1,015 976 974

Total interest-bearing debt 525 361 562 540 540 539 539 Net interest-bearing debt 484 318 500 444 424 426 402 Long-term interest-bearing debt 278 299 496 479 478 477 477 Other long-term liabilities 253 50 28 38 38 38 38 Short-term liabilities 26 30 43 42 42 42 42 Accounts payable 24 13 19 20 16 13 18 Other short-term liabilities 27 8 22 5 5 5 5 Total equity 157 257 443 452 435 399 394

Total equity and liabilities 766 657 1,052 1,036 1,015 976 974



Offsh

ore S

up

ply

Offshore Supply

Table 14. Cash flow summary

USDm 2012 2013 2014 2015E 2016E 2017E 2018E

EBITDA 50 61 81 70 36 15 46

Tax cost -1 0 -2 -1 0 0 0 Funds from operations (FFO) 39 -10 72 47 28 8 38

Changes in working capital 9 -36 4 24 3 2 -3 Other CF from operations -10 15 -5 -21 -8 -8 -8 Operating cash flow (OCF) 48 40 78 72 30 9 35

Net investments in fixed assets -92 -252 -421 -11 -11 -11 -11 OCF net of capex -44 -212 -343 61 19 -2 24 Repayment of debt -40 -70 -34 -30 -57 -57 -57 Dividend 0 0 -10 0 0 0 0 New debt 105 52 242 10 56 56 56 New equity 0 0 197 0 0 0 0 Other cash flow from financing and investing -21 233 -32 -6 0 0 0 Change in cash 0 3 19 35 19 -2 23

Cash at end of period 40 43 62 97 116 113 137


Table 15. Ratios

Ratios 2012 2013 2014 2015E 2016E 2017E 2018E

Revenue growth (%) 7.1 11.9 17.5 -8.3 -20.8 -18.9 32.5 EBITDA margin (%) 41% 44% 50% 47% 30% 16% 36% EBIT margin (%) 14% 28% 19% 16% -7% -29% 2% ROCE (%) 3% 20% 3% 3% -1% -3% 0% EBITDA interest coverage (x) 2.1 2.6 3.1 4.8 4.1 1.8 5.2 EBIT interest coverage (x) 0.8 1.7 1.2 1.7 -1.0 -3.2 0.3 FFO interest coverage (x) 1.6 -0.4 2.8 3.2 3.2 0.9 4.3 FFO/total debt (%) 7.5 -2.7 12.8 8.6 5.2 1.4 7.0 FFO/net debt (%) 8.1 -3.1 14.4 10.5 6.6 1.8 9.4 FOCF/total debt (%) -8.4 -58.8 -60.9 11.3 3.6 -0.3 4.4 Total debt/EBITDA (x) 10.4 2.5 6.7 7.6 15.1 34.8 11.8 Net debt/EBITDA (x) 9.6 2.2 6.0 6.3 11.9 27.5 8.8 Debt/total capital (%) 68.5 55.0 53.4 52.2 53.2 55.3 55.3 Total equity/total assets (%) 20.5 39.1 42.1 43.6 42.9 40.9 40.5 FFO/investments and acquisitions (x) 0.4 0.0 0.2 4.3 n.a. n.a. n.a. Dividends/net income (previous year) n.a 0.00 0.00 0.00 0.00 0.00 0.00 Dividends/FFO (%) n.a 0.0 14.5 0.0 0.0 0.0 0.0



Offsh

ore S

up

ply

Offshore Supply

DOF


We assign a ‘B+’ corporate rating to DOF. Supporting the rating is a large and modern

fleet, a large backlog and high local presence in Brazil, which puts the company in a

favourable position when it comes to future contract renewals. The company has

significant asset support based on shipbroker estimates, while our DCF and calculated

book value leaves a relatively limited buffer. The financial leverage and equity ratio

weigh negatively on the rating.



DOF is a large OSV player well diversified across OSV segments. The company has

significant exposure to the North Sea and Brazil, in addition to some vessels in Australia

and the Mediterranean. The fleet of 70 OSVs comprises 20 AHTSs, 20 PSVs and 30

subsea vessels. Of the company’s vessels, 50% are on long-term contracts (more than

three years).


The company’s backlog is c.NOK30bn, excluding options. The company’s contract

coverage is 73% for the rest of 2015, 49% for 2016 and 41% for 2017.

Asset support

Our DCF-based fleet value of NOK19.4bn implies EV/NIBD of 1.11x, while the fleet

value of vessels, based on shipbroker estimates and adjusted for ownership, of

NOK23.2bn implies EV/NIBD of 1.33x. The numbers based on booked vessel values,

adjusted for ownership, are NOK17.0bn and 0.97x, respectively. Contracted EBITDA of

NOK11.6bn, excluding options, is currently 67% of NIBD, which is highly supportive.

Financial leverage

On our estimates for 2015-17, the financial leverage in terms of NIBD/EBITDA is in the

c.7-9x range. Following a significant newbuild programme, combined with limited

earnings generation over the past few years, we forecast a booked equity ratio of only

22% at the end of 2015. The current market capitalisation is NOK622m, compared with

total interest-bearing debt of NOK17bn (adjusted for ownership).

Key ratios

NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

Total revenues 8,136 9,754 10,196 10,605 9,162 8,786 8,651 EBITDA 2,790 3,103 2,949 3,286 2,431 2,073 1,977 EBITDA margin (% 0.3 0.3 0.3 0.3 0.3 0.2 0.2 EBITDA interest coverage (x) 2.1 2.2 2.2 2.7 2.6 2.8 2.6 FFO/net debt (%) 5.7 8.3 4.8 7.2 7.4 7.2 6.9 Net debt/EBITDA (x) 7.6 7.2 7.1 6.7 8.4 9.3 9.1 Total debt/total capital (%) 73.7 75.5 72.8 72.2 70.5 68.4 66.3


Facts


Shipping

Corporate ticker: DOF

Equity ticker: DOF

Ratings:

No official ratings Danske Bank Markets: Corporate rating: B+

Analysts:

Iver Båtvik

[email protected]

+47 95 97 74 45

Øyvind Mossige

[email protected]

+47 40 92 24 46


Asset support.

Large and modern fleet.

Strong backlog.

Long-term contract profile.

High local presence in Brazil, several Brazilian built vessels.


Cyclical and oil price-dependent industry.

High financial leverage.

Low equity ratio.




Offsh

ore S

up

ply

Offshore Supply


DOF in short

Founded in 1981, DOF is an international group of companies that owns and operates a

modern fleet of supply and subsea vessels combined with a strong engineering capacity to

service the offshore energy market. The company has a global presence and works with a

strong group of leading international clients.

DOF ASA is the holding company for DOF Subsea AS, Norskan Offshore Ltd and DOF

Management AS.

Risk factors

Continued oversupply in the oil market and further cuts in E&P spending remain the

key risks for the OSV players, including DOF.


and high fleet growth. The fleet growth needs to come down in order to bring balance

into the OSV market.

DOF has high financial leverage and needs to secure significant contracts near term,

in order to maintain fleet utilisation and cash flow generation.

The company has significant exposure to Brazil and given the distressed situation for

Petrobras, the vessels operating in Brazil run the risk of not being awarded extensions.

Fleet

The fleet of 70 OSVs comprises 20 AHTSs, 20 PSVs and 30 subsea vessels. In addition,

the company charters in five vessels from other vessel owners. The average vessel age is

6.4 years for the AHTS fleet, 9.3 years for the PSV fleet and 7.3 years for the subsea

fleet. The company has 50% of the vessels on long-term contract (more than three years).


September 2015 Chart 60. Revenues by vessel type 2016E


28%

29%

43%

AHTS PSV Subsea

16%

11%

73%

AHTS PSV OCV


Offsh

ore S

up

ply

Offshore Supply

Chart 61. Contract profile Chart 62. Vessel age profile


Contract coverage

The company has limited contract coverage for 2016 and beyond and needs to secure

significant contracts in order to meet our EBITDA forecast.



Liquidity

The company has significant near-term debt repayments and in combination with falling


dependent on extensive refinancing in order to maintain healthy liquidity.

Chart 65. Cash flow from operations (NOKm) Chart 66. Investments (NOKm)


27%

23%

50%

Short-term Mid-term Long-term

6.4

9.3

7.3

7.6

0 2 4 6 8 10

AHTS segment

PSV segment

Subsea segment

Weighted average

73%

49%

41%

28%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2015 2016 2017 2018

88%

78%

59% 62%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 2016 2017 2018

1,255

2,038

1,661

1,403

0

500

1,000

1,500

2,000

2,500

2014 2015E 2016E 2017E

-81

-1,027

-139 -139

-2,000

-1,000

0

2014 2015E 2016E 2017E


Offsh

ore S

up

ply

Offshore Supply

Chart 67. Debt repayments (NOKm) Chart 68. Assumed new debt (NOKm)


Chart 69. Cash development (NOKm)


Capital structure

Chart 70. Balance sheet 2014 (NOKm)


-4,895

-5,566

-4,055

-3,049

-6,000

-5,000

-4,000

-3,000

-2,000

-1,000

0

2014 2015E 2016E 2017E

4,036

3,462

2,500

1,500

0

1,000

2,000

3,000

4,000

5,000

2014 2015E 2016E 2017E

2,832

2,214

1,696

1,0561,250

1,577

1,9711,682 1,650

1,365

983

1,660

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

Fixed assets

IntangibleCash

Other assets


Current liabilities

Equity

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Assets Funding


Offsh

ore S

up

ply

Offshore Supply

Table 16. Balance sheet summary (NOKm)

NOKm 2014 2015E 2016E 2017E

Fixed assets 24,634 23,644 22,660 21,723 Intangible assets 1,539 4,238 4,238 4,238 Cash & equivalents 1,971 1,682 1,647 1,323 Current assets 4,187 3,101 2,691 2,606 Total assets 32,331 32,664 31,236 29,890

Interest-bearing debt 23,524 23,595 22,040 20,491 Equity 6,867 7,195 7,578 7,835 Other 1,940 1,875 1,617 1,564 Total equity & liabilities 32,331 32,664 31,236 29,890


Asset support


value of vessels, based on shipbroker estimates and adjusted for ownership, of

NOK23.2bn, implies EV/NIBD of 1.33x. The numbers based on booked vessel values,

adjusted for ownership, are NOK17.0bn and 0.97x, respectively. Contracted EBITDA of

NOK11.6bn, excluding options, is currently 67% of NIBD, which is highly supportive, in

our view.

Chart 71. Asset support Q2 12 (NOKm) Chart 72. EV/NIBD Q2 15 (x)

Source: Danske Bank Markets Source: Danske Bank Markets

The calculated fleet value corresponds to a loan to value ratio of 90%.

Chart 73. 48% loan to value based on our calculated asset values (NOKm)


11,601

19,385

23,200

16,953

0

5,000

10,000

15,000

20,000

25,000

Contracted EBITDA



Book value

Value Net debt

0.67

1.11

1.33

0.97

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

Contracted EBITDA



Book value

14,122

14,931 29,052 9,667

19,385 17,409

1,976

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Contracted period

Terminal value

Fleet value JV adj. Value of owned fleet

Net debt Net asset value


Offsh

ore S

up

ply

Offshore Supply

Key credit metrics








We assign a ‘B+’ corporate rating to DOF. Supporting the rating is a large and modern fleet,

a large backlog and high local presence in Brazil, which puts the company in a favourable

position when it comes to future contract renewals. It has significant asset support based on

shipbroker estimates, while our DCF and calculated book value leave a relatively limited

buffer. The financial leverage and equity ratio weigh negatively on the rating.

0

1

2

3

4

5

6

7

8

0

5,000

10,000

15,000

20,000

25,000

2012 2013 2014 2015E 2016E 2017E


0

2

4

6

8

10

12

-5,000

0

5,000

10,000

15,000

20,000

25,000

2012 2013 2014 2015E 2016E 2017E


0

1

1

2

2

3

3

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2012 2013 2014 2015E 2016E 2017E


0

1

1

2

2

0200400600800

1,0001,2001,4001,6001,800

2012 2013 2014 2015E 2016E 2017E


64

66

68

70

72

74

76

78

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2012 2013 2014 2015E 2016E 2017E


0

5

10

15

20

25

30

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2012 2013 2014 2015E 2016E 2017E



Offsh

ore S

up

ply

Offshore Supply


Management

CEO – Mons S. Aase.

CFO – Hilde Drønen.

Board of directors

Helge Møgster, Chairman.

Helge Singlestad, Deputy Chairman.

Karoline Møgster, Board member.

Nina G. Sandnes, Board member.

Kristian Falnes, Board member.

Financials

Table 17. Profit & loss (NOKm)

NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

Revenues 8,136 9,754 10,196 10,605 9,162 8,786 8,651

Opex -5,136 -6,643 -6,779 -6,955 -6,730 -6,713 -6,674 EBITDA 3,000 3,111 3,417 3,649 2,431 2,073 1,977

EBITDA (adjusted for non-recurring items) 2,790 3,103 2,949 3,286 2,431 2,073 1,977

Depreciation & amortisation -1,110 -1,193 -1,045 -1,374 -1,123 -1,076 -1,031 Writedown 0 0 0 0 0 0 0 EBIT 1,890 1,918 2,372 2,275 1,309 997 946

EBIT (adjusted) 1,680 1,910 1,904 1,912 1,309 997 946

Interest expense -1,325 -1,434 -1,355 -1,221 -953 -740 -775 Interest income 71 62 82 78 76 76 76 Other net financial items -376 -572 -756 -197 0 0 0 EBT 265 -25 420 909 432 333 247 Tax 85 -25 78 -168 -43 -33 -25 Net income 350 -50 498 741 389 300 222

Net income (adjusted for non-recurring items) 140 -58 30 378 389 300 222

Dividends 0.00 0.00 0.00 0.00 0.00 0.00 0.00



Offsh

ore S

up

ply

Offshore Supply

Table 18. Balance sheet (NOKm)

NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

Goodwill 409 418 418 425 425 425 425 Other intangibles 718 1,009 1,121 3,813 3,813 3,813 3,813 Tangible fixed assets 26,179 26,243 23,383 23,514 22,530 21,593 20,701 Other tangible assets 78 136 1,251 130 130 130 130 Other receivables 775 688 1,133 1,097 975 953 934 Inventories 57 70 84 0 0 0 0 Accounts receivable 1,393 1,867 2,331 2,004 1,722 1,669 1,625 Cash and equivalents 1,250 1,577 1,971 1,682 1,650 1,365 983 Restricted cash 895 735 639 0 0 0 0 Total assets 31,754 32,743 32,331 32,664 31,245 29,949 28,610

Total interest-bearing debt 23,411 24,717 23,524 23,595 22,040 20,491 18,970 Net interest-bearing debt 21,266 22,405 20,819 22,003 20,480 19,216 18,077 Short-term interest-bearing debt 2,000 3,248 5,840 5,604 5,604 5,604 5,604 Other long-term liabilities 4,980 5,311 4,642 3,766 3,766 3,766 3,766 Accounts payable 683 1,058 1,191 1,224 1,052 1,020 992 Tax payable 122 143 190 0 0 0 0 Public duties payable 86 92 101 0 0 0 0 Other short-term debt 542 280 409 574 493 478 465 Total equity 6,749 6,346 6,867 7,195 7,584 7,883 8,105

Total equity and liabilities 31,754 32,743 32,331 32,664 31,245 29,949 28,610


Table 19. Cash flow summary (NOKm)

NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

EBT 265 -25 422 1,666 432 333 247 Gains/loss from sale of fixed assets -210 -8 -468 -320 0 0 0 Depreciation and amortisation 1,110 1,193 1,045 1,351 1,123 1,076 1,031 Net interest paid 1,183 1,331 1,273 0 0 0 0 Tax cost -43 -48 -6 -178 -43 -33 -25 Other cash flow adjustments -1,354 -1,471 -1,231 -397 300 55 48 Change in working capital 232 447 220 -84 -150 -28 -24 Funds from operations (FFO) 1,205 1,858 1,007 1,591 1,511 1,375 1,253

Operating cash flow (OCF) 1,183 1,419 1,255 2,038 1,661 1,403 1,277

Net investments in fixed assets -2,233 -1,518 -81 -1,027 -139 -139 -139 OCF net of capex -1,050 -99 1,174 1,011 1,523 1,264 1,139 Repayments of debt -3,945 -2,844 -4,895 -5,566 -4,055 -3,049 -4,021 New debt 5,115 3,186 4,036 3,462 2,500 1,500 2,500 Other financing and investing activities 0 -99 -7 -18 0 0 0 Change in cash 120 144 308 -1,111 -32 -285 -382

Cash in end of period 2,146 2,314 2,703 1,592 1,560 1,275 893



Offsh

ore S

up

ply

Offshore Supply

Table 20. Ratios

2012 2013 2014 2015E 2016E 2017E 2018E

Revenue growth (%) 25.1 19.9 4.5 4.0 -13.6 -4.1 -1.5 EBITDA margin (%) 34% 32% 29% 31% 27% 24% 23% EBIT margin (%) 21% 20% 19% 18% 14% 11% 11% ROCE (%) 6% 6% 8% 7% 4% 4% 3% EBITDA interest coverage (x) 2.1 2.2 2.2 2.7 2.6 2.8 2.6 EBIT interest coverage (x) 1.3 1.3 1.4 1.6 1.4 1.3 1.2 FFO interest coverage (x) 0.9 1.3 0.7 1.3 1.6 1.9 1.6 FFO/total debt (%) 5.1 7.5 4.3 6.7 6.9 6.7 6.6 FFO/net debt (%) 5.7 8.3 4.8 7.2 7.4 7.2 6.9 FOCF/total debt (%) -4.5 -0.4 5.0 4.3 6.9 6.2 6.0 Total debt/EBITDA (x) 7.8 7.9 6.9 6.5 9.1 9.9 9.6 Net debt/EBITDA (x) 7.6 7.2 7.1 6.7 8.4 9.3 9.1 Debt/total capital (%) 73.7 75.5 72.8 72.2 70.5 68.4 66.3 Total equity/total assets (%) 21.3 19.4 21.2 22.0 24.3 26.3 28.3 FFO/investments and acquisitions (x) 0.5 1.2 12.4 1.5 10.9 n.a n.a Dividends/net income (previous year) n.a -11.27 56.88 -9.83 -7.51 -10.43 -10.18 Dividends/FFO (%) n.a -2.36 -2.63 -5.53 -2.55 -2.02 -2.92



Offsh

ore S

up

ply

Offshore Supply

DOF Subsea


We assign a ‘B+’ corporate rating to DOF Subsea. Supporting the rating is a large and

modern fleet, a large backlog and high local presence in Brazil, which puts the company

in a favourable position when it comes to future contract renewals. The company has

significant asset support based on shipbroker estimates, while our DCF and calculated

book value leave a relatively limited buffer. The financial leverage and equity ratio

weigh negatively on the rating.



With a modern fleet of offshore vessels, ROVs and diving and survey systems, DOF

Subsea combines expertise and technology to deliver integrated subsea solutions to the

offshore oil and gas industry. The two core business segments are long-term charter

agreements for the fleet and the execution of complex subsea operations to depths of

4,000 metres, using owned and operated, purpose-built vessels. DOF Subsea has presence

in the North Atlantic, the Gulf of Mexico, Brazil, Asia and West Africa, with a team of

c.1800 subsea personnel and marine crew. The fleet stands at 26 offshore vessels,

including four newbuilds, 54 ROV systems, including one AUV/IIV system and 10

diving spreads.


The company’s backlog is c.NOK19bn, excluding options of NOK17bn. The company’s

contract coverage is 53% for the rest of 2015, 45% for 2016 and 44% for 2017.

Asset support


value based on shipbroker estimates of NOK16bn implies EV/NIBD of 1.52x. The

numbers based on booked fleet values are NOK13.0bn and 1.24x, respectively.

Financial leverage

Based on our estimates for 2015-17, the financial leverage in terms of NIBD/EBITDA is

in the c.4-7x range. Our forecast equity ratio is 38%.

Key ratios

NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

Total revenues 5,248 6,579 7,073 7,101 6,403 6,208 6,389 EBITDA (adj.) 1,788 1,945 1,929 1,849 1,445 1,246 1,454 EBITDA margin (% 0.3 0.3 0.3 0.3 0.2 0.2 0.2 EBITDA interest coverage (x) 2.4 2.4 2.8 3.7 5.6 7.1 20.9 FFO/net debt (%) 7.6 11.3 5.5 11.9 11.7 11.9 17.6 Net debt/EBITDA (x) 6.2 5.9 4.6 4.8 6.9 7.1 5.2 Total debt/total capital (%) 67.2 67.5 59.4 55.6 56.1 52.9 47.9


Facts


Shipping

Corporate ticker: DOFSUB

Equity ticker: DOFSUB

Ratings:


Analysts:

Iver Båtvik

[email protected]

+47 95 97 74 45

Øyvind Mossige

[email protected]

+47 40 92 24 46


Asset support.

Large and modern fleet.

Strong backlog.


High local presence in Brazil, several Brazilian built vessels.







Offsh

ore S

up

ply

Offshore Supply


DOF in short

DOF Subsea was established in May 2005 as parent DOF ASA acquired GEO Group AS

and its subsidiary Geoconsult AS.

Today, the DOF Subsea Group is located in the North Atlantic, the Gulf of Mexico,

Brazil, Asia and West Africa, with a team of c.1,800 subsea personnel and a marine crew.

The fleet, which is the largest of high-end construction vessels (including newbuilds) in

the world, stands at 26 offshore vessels, 54 ROV systems, including one AUV/IIV system

and 10 diving spreads.

DOF Subsea established a new shareholding structure in 2008 and delisted from the Oslo

Stock Exchange. The company is owned by DOF ASA (51%) and First Reserve

Corporation (49%). First Reserve Corporation (FRC) is a leading energy-focused private

equity firm, with a history of over 25 years investing in the energy industry. DOF

Subsea’s headquarters are in Bergen, Norway.

Risk factors


key risks for the OSV players, including DOF Subsea.

DOF Subsea has high financial leverage and needs to secure significant contracts near

term, in order to maintain fleet utilisation and cash flow generation.

DOF Subsea is highly operationally geared and dependent on high fleet utilisation in

order to generate positive returns and cash flow.

Construction and timing risk due to four newbuilds under construction scheduled for

delivery in 2016.

The company has significant exposure to Brazil and, given the distressed situation for

Petrobras, the vessels operating in Brazil run the risk of not being awarded extensions.

Fleet


September 2015 Chart 81. Revenue by business segment 2014 (NOKm)


0

5

10

15

20

25

30

35

Subsea vessels

Owned Construction In-chartered

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Charter revenues Project


Offsh

ore S

up

ply

Offshore Supply

Chart 82. Contract profile Q2 15 Chart 83. Vessel age profile Q2 15


Contract coverage

A significant part of the fleet is on long-term contracts but the company needs to secure

significant new orders to meet our EBITDA forecast.



Liquidity



dependent on extensive refinancing in order to maintain a healthy liquidity.



10%

40%

50%

Short-term Mid-term Long-term 6.3

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

53%

45% 44%40%

0%

10%

20%

30%

40%

50%

60%

2015 2016 2017 2018

89%81%

91%

74%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 2016 2017 2018

1,1571,040

793

1,244 1,262

1,083

0

200

400

600

800

1,000

1,200

1,400

2012 2013 2014 2015 2016 2017

-265

-1,206

1,180

-3,607

-2,268

-58

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

2012 2013 2014 2015 2016 2017


Offsh

ore S

up

ply

Offshore Supply





Capital structure

Chart 91. Balance sheet Q2 15 (NOKm)


-1,476-1,735

-3,553-3,735

-2,321

-800

-4,000

-3,500

-3,000

-2,500

-2,000

-1,500

-1,000

-500

0

2012 2013 2014 2015 2016 2017

1,218

2,2362,068

2,8973,226

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2012 2013 2014 2015 2016 2017

1,521

1,989

1,362 1,478

1,8332,120

1,148 1,0481,274

1,442 1,465

0

1,000

2,000

3,000

2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

Total fixed assets

CashCurrent


Equity

Other

02,0004,0006,0008,000

10,00012,00014,00016,00018,00020,000

Assets Funding


Offsh

ore S

up

ply

Offshore Supply


2014 2015E 2016E 2017E

Vessels and equipment 12,144 13,351 15,076 14,591 Other non-current assets 2,192 1,815 1,815 1,815 Accounts receivable 1,558 1,264 1,142 1,111 Cash & equivalents 2,120 1,148 1,048 1,274 Other current assets 406 497 449 437 Total assets 18,420 18,075 19,530 19,228

Total interest-bearing debt 10,936 10,058 10,963 10,163 Equity 6,111 6,867 7,488 8,004 Other current liabilities 1,373 1,150 1,079 1,061 Total equity & liabilities 18,420 18,075 19,530 19,228


Asset support


value based on shipbroker estimates of NOK16bn implies EV/NIBD of 1.52x. The

numbers based on booked fleet values are NOK13.0bn and 1.24x, respectively.

Chart 92. Solid assets Q2 15 (NOKm) Chart 93. EV/NIBD Q2 15 (x)


The calculated DCF fleet value corresponds to a loan to value of 85%.

Chart 94. 85% loan to value based on our calculated asset values Q2 15 (NOKm)


4,376

12,426

16,000

13,032

0

4,000

8,000

12,000

16,000

20,000

Contracted EBITDA



Book value

Value Net debt

0.42

1.18

1.52

1.24

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

Contracted EBITDA



Book value

3,869

9,326 13,195769

12,426 10,537

1,889

02,0004,0006,0008,000

10,00012,00014,000


Offsh

ore S

up

ply

Offshore Supply

Key credit metrics








We assign a ‘B+’ corporate rating to DOF Subsea. Supporting the rating is a large and

modern fleet, a large backlog and high local presence in Brazil, which puts the company in a

favourable position when it comes to future contract renewals. It has significant asset support

based on shipbroker estimates, while our DCF and calculated book value leave a relatively

limited buffer. The financial leverage and equity ratio weigh negatively on the rating.

0

2

4

6

8

10

12

14

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2012 2013 2014 2015 2016 2017


012345678

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2012 2013 2014 2015 2016 2017


-35-30-25-20-15-10-50510

-500

0

500

1,000

1,500

2,000

2,500

3,000

2012 2013 2014 2015 2016 2017


-60

-50

-40

-30

-20

-10

0

10

-200

0

200

400

600

800

1,000

1,200

1,400

2012 2013 2014 2015 2016 2017


01020304050607080

0

5,000

10,000

15,000

20,000

25,000

2012 2013 2014 2015 2016 2017


051015202530354045

0

5,000

10,000

15,000

20,000

25,000

2012 2013 2014 2015 2016 2017



Offsh

ore S

up

ply

Offshore Supply


Management

CEO – Mons S. Aase.

CFO – Jan Nore.

Board of Directors

Helge Møgster, Chairman.

Helge Singlestad, Deputy Chairman.

Alex Townsend Krueger, Board member.

Neil John Hartley, Board member.

Mons Svendal Aase, Board member/CEO.

Hilde Drønen, Board member.

John Mogford, Board member.

Doug J. Muiscaro, Board member.

Financials

Table 22. Profit & loss (NOKm)

NOKm 2012 2013 2014 2015 2016 2017 2018

Revenues 5,248 6,579 7,073 7,101 6,403 6,208 6,389 Opex -3,250 -4,626 -4,679 -5,048 -4,959 -4,961 -4,935 EBITDA 1,998 1,953 2,394 2,053 1,445 1,246 1,454 EBITDA (adjusted for non-recurring items) 1,788 1,945 1,929 1,849 1,445 1,246 1,454 Depreciation & amortisation -669 -772 -577 -595 -542 -542 -542 Impairment charges and other non-rec. 0 0 0 0 0 0 0 EBIT 1,329 1,181 1,817 1,458 902 704 912 EBIT (adjusted) 1,119 1,173 1,352 1,254 902 704 912 Interest expense -741 -800 -691 -495 -256 -175 -70 Interest income 47 43 49 22 44 44 44 Other net financial items 43 -98 0 168 0 0 0 EBT 468 318 710 950 690 573 886 Tax 8 -98 25 -91 -69 -57 -89 Net income 476 220 735 858 621 516 798 Net income (adjusted for non-recurring items) 266 212 270 654 621 516 798 Dividends 0 0 0 0 0 0 0



Offsh

ore S

up

ply

Offshore Supply


NOKm 2012 2013 2014 2015 2016 2017 2018

Vessels and equipment 15,013 15,376 12,144 13,351 15,076 14,591 14,106 Other non-current assets 999 964 2,192 1,815 1,815 1,815 1,815 Accounts receivable 816 1,298 1,558 1,264 1,142 1,111 1,141 Other current assets 318 339 406 497 449 437 449 Cash and equivalents 1,478 1,833 2,120 1,148 1,048 1,274 1,442 Total assets 18,624 19,810 18,420 18,075 19,530 19,228 18,954

Total interest-bearing debt 12,517 13,370 10,936 10,058 10,963 10,163 9,073 Net interest-bearing debt 11,039 11,537 8,816 8,910 9,915 8,889 7,631 Long-term interest-bearing debt 8,785 8,302 5,593 5,351 6,256 5,456 4,366 Other long-term liabilities 2,749 3,125 2,380 1,494 1,494 1,494 1,494 Short-term liabilities 1,030 1,976 2,974 3,222 3,222 3,222 3,222 Accounts payable 436 802 797 737 666 648 666 Other short-term liabilities 522 390 565 404 404 404 404 Total equity 5,102 5,215 6,111 6,867 7,488 8,004 8,802




2012 2013 2014 2015 2016 2017 2018

EBITDA 1,788 1,945 1,929 1,849 1,445 1,246 1,454 Tax cost 8 -98 25 -91 -69 -57 -89 Funds from operations (FFO) 840 1,301 485 1,058 1,163 1,058 1,340

Changes in working capital -107 269 157 18 -99 -25 25 Other cash flow from operations -532 -1,076 -1,318 -532 -15 -81 -75 Operating cash flow (OCF) 1,157 1,040 793 1,244 1,262 1,083 1,315

Net investments in fixed assets -265 -1,206 1,180 -3,607 -2,268 -58 -58 OCF net of capex 892 -166 1,973 -2,363 -1,005 1,026 1,258 Repayment of debt -1,476 -1,735 -3,553 -3,735 -2,321 -800 -1,890 New debt 1,218 2,236 2,068 2,897 3,226 0 800 Other investing and financing cash flows -505 6 -184 2,118 0 0 0 Change in cash 129 341 304 -1,083 -100 226 168

Cash at end of period 1478 1833 2120 1148 1048 1274 1442


Table 25. Ratios

2012 2013 2014 2015 2016 2017 2018

Revenue growth (%) 22.5 25.4 7.5 0.4 -9.8 -3.1 2.9 EBITDA margin (%) 34% 30% 27% 26% 23% 20% 23% EBIT margin (%) 21% 18% 19% 18% 14% 11% 14% ROCE (%) 8% 6% 11% 9% 5% 4% 5% EBITDA interest coverage (x) 2.4 2.4 2.8 3.7 -32.8 -28.3 -33.0 EBIT interest coverage (x) 1.5 1.5 2.0 2.5 -20.5 -16.0 -20.7 FFO interest coverage (x) -17.9 -30.3 -9.9 -48.1 4.5 6.1 19.3 FFO/total debt (%) 6.7 9.7 4.4 10.5 10.6 10.4 14.8 FFO/net debt (%) 7.6 11.3 5.5 11.9 11.7 11.9 17.6 FOCF/total debt (%) 7.1 -1.2 18.0 -23.5 -9.2 10.1 13.9 Total debt/EBITDA (x) 6.3 6.8 4.6 4.9 7.6 8.2 6.2 Net debt/EBITDA (x) 5.5 5.9 3.7 4.3 6.9 7.1 5.2 Debt/total capital (%) 67.2 67.5 59.4 55.6 56.1 52.9 47.9 Total equity/total assets (%) 27.4 26.3 33.2 38.0 38.3 41.6 46.4 FFO/investments and acquisitions (x) 3.2 1.1 -0.4 0.3 n.a n.a n.a Dividends/net income (previous year) n.a n.a n.a n.a n.a n.a n.a Dividends/FFO (%) n.a n.a n.a n.a n.a n.a n.a



Offsh

ore S

up

ply

Offshore Supply

Eidesvik Offshore ASA


We assign a ‘B’ corporate rating to Eidesvik Offshore. Positive factors are the

company’s moderate leveraging, solid asset backing and seismic contract backlog.

However, the PSV fleet’s limited geographical diversification and spot market

exposure, together with a short backlog for parts of the subsea fleet, leave it with

significant financial risk.


Eidesvik’s fleet consists of eight PSVs, five subsea construction vessels and six support

vessels. Employing roughly 900 workers, the company maintains the majority of its

operations in north-west Europe. The company has no vessels under construction and no

AHTS exposure, while one of its eight PSVs is stacked.


At the end of Q2 15, the company had a backlog of NOK2.7bn, excluding options. This

figure is driven by its seismic fleet working on long-dated bareboat contracts and

contracted subsea vessels. We estimate contracted EBITDA of NOK720m, with more

than 80% coming from the seismic segment with CGG as counterparty.

Asset support


value of vessels, based on shipbroker estimates and adjusted for ownership, of NOK5.9bn

implies EV/NIBD of 1.96x. The numbers based on booked vessel values, adjusted for

ownership, are NOK4.0bn and 1.33x, respectively. Contracted EBITDA of NOK720m,

excluding options, is currently 24% of NIBD, which is highly supportive.

Financial leverage

Eidesvik Offshore should be able to maintain a positive cash balance by obtaining

refinancing on 70% of its mortgages with varying maturities throughout the period

2015-19. Eidesvik Offshore keeps an equity ratio of 35.4%, placing the company at the

higher end of the leverage spectrum in the Norwegian offshore supply sector.

Key ratios

NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

Total revenues 980 994 985 1,032 661 613 606 EBITDA adjusted 559 551 492 611 329 281 273 Total assets 5,631 5,700 5,556 6,264 6,255 6,087 6,059 EBITDA margin (%) 0.6 0.6 0.5 0.6 0.5 0.5 0.4 EBITDA interest coverage (x) 4.4 3.9 3.7 4.8 4.1 5.8 18.6 Net debt/EBITDA (x) 5.3 4.7 5.1 5.2 8.5 8.7 7.5 FFO/debt (%) 14.7 11.9 9.1 19.4 6.7 6.7 7.8 FFO/net debt (%) 16.0 14.6 11.1 23.0 8.7 9.4 12.3 Equity/total assets (%) 39.1 41.2 38.3 37.6 39.2 41.9 44.1 ROCE (%) 5.4 % 5.6 % 3.9 % 6.1 % 3.0 % 2.5 % 2.5 %


Facts


Shipping

Corporate ticker: EIOF

Equity ticker: EIOF

Ratings:

No official ratings Danske Bank Markets: Corporate rating: B

Analysts:

Iver Båtvik

[email protected]

+47 95 97 74 45

Øyvind Mossige

[email protected]

+47 40 92 24 46


NOK720m in EBITDA backlog.


Limited operational risk through bareboat contracts.

Strong counterparties.

Limited exposure to short-term fluctuations in commodity prices.

Modern attractive assets.

Moderate leverage, relative to OSV peers.


Dependent on contract extension.

Commodity-exposed counterparties.

Exposed to residual value of assets post firm contract period.




Offsh

ore S

up

ply

Offshore Supply


Eidesvik in short

Eidesvik is an offshore supply company with headquarters in Bømlo, Norway. With a

workforce of approximately 900 employees, the company maintains most of its

operations in the regions of north-west Europe. The Eidesvik Offshore ASA Group is a

subsidiary of Eidesvik Invest AS, which owns 67% of its shares.

Fleet

Eidesvik maintains a fleet of 19 vessels, consisting of six seismic vessels, eight PSVs and

five subsea construction vessels. All the company’s eight PSVs are currently residing in

the North Sea, with two of them in the spot market and one stacked. The company’s five

subsea construction vessels are all on term contracts in the North Sea. Of the company’s

six seismic vessels, five are working as bareboats on term contracts, while the remaining

one is on lay-up. The bareboats work without operating costs and the subsea fleet is of

modern standard but it lacks geographical diversification.

Chart 101. Fleet composition August 2015 Chart 102. Vessel age Q2 15


The company’s contract coverage in 2015 and 2016 is a moderate 62% and 39%,

respectively. Half our estimated revenues in coming years will stem from the subsea fleet.

As such, one of the key challenges for the company will be to secure new contracts for

these vessels, particularly for the advanced and profitable subsea vessel Viking Neptune,

whose current contract ends this month. As of August 2015, no new contract had been

announced.



42%

26%

32%

PSV SCV Seismic

8.7

8.4

10.3

9.1

0 2 4 6 8 10 12

SCV segment

PSV segment

Seismic

Weighted average

Vessel years

64%

39%

27%

17%

0%

10%

20%

30%

40%

50%

60%

70%

2015 2016 2017 2018

68%

38%32%

13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2015 2016 2017 2018


Offsh

ore S

up

ply

Offshore Supply

Performance drivers

We estimate that 38% of 2016 revenues will stem from the subsea construction vessels,

while the remaining 62% will be split evenly between seismic and PSVs. As of 2015, the

Subsea division’s EBITDA margin is approximately 70%, while the Seismic division’s is

55% and the PSV division reaches a moderate 25% margin.

The company has secured long contracts for its seismic fleet, all reaching beyond 2017.

All EBITDA from this segment comes from contracts, with stable clients such as CGG.

Given the particularly low spot prices in the PSV market, combined with the company’s

exposure to this segment, we expect the company to look for new contracts in the subsea

market.

Chart 105. Estimated revenues by segment 2016 Chart 106. Estimated EBITDA by segment 2016


Chart 107. Estimated EBITDA margin by segment


We estimate that one of the company’s subsea vessels, Viking Neptune, is a major source

of profit for the company, representing 21% of Q2 EBITDA. The vessel’s current

contract ends in September 2015 and, as of August, no other contract arrangement had

been made public. We have assumed a 50% reduction in EBITDA contribution from this

vessel in Q4 15, so see significant upside to our estimates should the vessel’s contract be

renewed on similar terms. The vessel has been praised by its current client and we expect

new contracts to commence shortly.

23%

38%

39%

Seismic Subsea (SCV) Supply(PSV)

56%32%

12%

Seismic Subsea (SCV) Supply(PSV)

0%

10%

20%

30%

40%

50%

60%

70%

80%

Q3 2015 Q1 2016 Q3 2016 Q1 2017

SCV PSV


Offsh

ore S

up

ply

Offshore Supply

Asset support

We estimate the fleet value at NOK6.1bn, of which NOK1.0bn is owned by subsidiaries

through joint ventures. Thus, our estimate for Eidesvik Offshore’s fully owned fleet

amounts to NOK6.1bn. With NOK3.7bn in net debt and 30 million outstanding shares,

we calculate an NAV per share of NOK46.1. Our valuation assumes that no vessel will

operate on negative margins.

Chart 108. Fleet value and net debt Q2 15 (NOKm)


The following table displays the NAV per share with levels of post-contract utilisation

and cost of capital. We estimate that the highlighted area reflects the most realistic value

for Eidesvik Offshore’s assets.

Table 26. Fleet value and net debt Q2 15 (NOK)

NAVPS (NOK) Post-contract utilisation

0.65 0.7 0.75 0.8 0.85

WACC

7% 179.8 185.5 191.2 196.9 202.6 8% 155.2 88.8 94.3 99.8 105.4 9% 66.6 71.6 76.5 81.5 86.5

10% 51.9 56.4 60.9 65.4 69.9 11% 38.9 43.0 47.1 51.2 55.3 12% 27.4 31.1 34.9 38.6 42.3


Our DCF valuation of the fleet implies an EV/NIBD multiple of 1.66x. Our estimate of

contracted EBITDA of NOK720m is 24% of the EV. The reported fleet value implies

EV/NIBD of 1.96x, while the book value gives a multiple of 1.33x.

Chart 109. Contracted EBITDA, net debt and fleet estimates

Q2 15 (NOKm)

Chart 110. Enterprise value/NIBD Q2 15 (x)


4,905

1,188

6,094

1,042

3,661

1,390

-2000

-1000

0

1000

2000

3000

4000

5000

6000

7000

Contracted period

Terminal value

Fleet value JV adj. Net debt Net asset value

mN

OK

720

5,0515,941

4,037

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Contracted EBITDA



Book value

Value Net debt

0.24

1.66

1.96

1.33

0.00

0.50

1.00

1.50

2.00

2.50

Contracted EBITDA



Book value


Offsh

ore S

up

ply

Offshore Supply

Liquidity

We estimate that the company will have to refinance a minimum 60% of its current

mortgages in order to maintain a positive cash balance. To maintain a fairly comfortable

cash balance, this portion would have to increase to approximately 70%.



Chart 113. Debt maturities (NOKm) Chart 114. Proceeds from new loans (NOKm)


Capital structure

Chart 115. Balance sheet December 2014 (NOKm)


483 476535

583

426 407

0

100

200

300

400

500

600

700

2012 2013 2014 2015E 2016E 2017E

-839

-9

-180

-979

-46 -46

-1,200

-1,000

-800

-600

-400

-200

0

2012 2013 2014 2015E 2016E 2017E

300164

359280

280

587

0

200

400

600

800

1,000

2015 2016 2017 2018

Re

pa

yme

nts

mN

OK

Bond Instalments Balloons

1,011 251 607 4060

200

400

600

800

1,000

1,200

2015 2016 2017 2018

Re

pa

yme

nts

mN

OK

Viking Neptun loan Mortgages

4,795

550212

3,045

2,125

386

0

2,000

4,000

6,000

Assets Liabilities

Non-current assets Cash & equivalents Current assets

Interest bearing debt Equity Other


Offsh

ore S

up

ply

Offshore Supply


NOKm 2014 2015E 2016E 2017E

Non-current 4,795 5,475 5,207 4,947 Cash & equivalents 550 582 854 955 Current assets 212 207 195 185 Total assets 5,556 6,264 6,255 6,087

Interest-bearing debt 3,045 3,763 3,655 3,395 Equity 2,125 2,354 2,455 2,548 Other 386 147 145 144 Total equity & liabilities 5,556 6,264 6,255 6,087


Key credit metrics





0

5

10

15

20

25

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2012 2013 2014 2015E 2016E 2017E


0

1

2

3

4

5

6

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2012 2013 2014 2015E 2016E 2017E


0

1

2

3

4

5

6

7

0

100

200

300

400

500

600

700

800

2012 2013 2014 2015E 2016E 2017E


0

1

2

3

4

5

6

7

0

100

200

300

400

500

600

700

800

2012 2013 2014 2015E 2016E 2017E



Offsh

ore S

up

ply

Offshore Supply



Financials


NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

Revenues 980 994 985 1,032 661 613 606

OPEX -399 -382 -438 -336 -161 -161 -162 EBITDA 582 612 547 696 500 452 444

EBITDA (adjusted for JV and non-recurring items) 559 551 492 611 329 281 273

Depreciation & amortisation -290 -302 -292 -323 -314 -306 -297 Writedown 0 0 0 0 0 0 0 EBIT 291 310 203 373 185 146 147

EBIT (adjusted) 268 250 149 288 14 -25 -24

Interest expense -127 -140 -133 -127 -80 -49 -15 Interest income 5 10 9 7 7 7 7 Other net financial items 115 -32 -310 -83 0 0 0 EBT 284 147 -230 169 112 104 139 EBT (adjusted) 261 87 -285 84 -59 -67 -32 Tax -2 -7 0 -13 -11 -10 -14 Net income 282 141 -231 155 101 94 126

Net income (adjusted) 259 80 -285 70 -70 -77 -46 Dividends -30.15 -30.15 -30.15 0.00 0.00 0.00 0.00



Balance sheet (NOKm) 2012 2013 2014 2015E 2016E 2017E 2018E

Tangible fixed assets 4,738 4,492 4,314 4,970 4,701 4,441 4,190 Other non-current assets 332 412 481 506 506 506 506 Accounts receivable 148 178 175 134 121 112 111 Cash and equivalents 255 583 550 582 854 955 1,178 Other current assets 159 36 37 73 73 73 73 Total assets 5,631 5,700 5,556 6,264 6,255 6,087 6,059

Total interest-bearing debt 3,192 3,169 3,045 3,763 3,655 3,395 3,221 Net interest-bearing debt 2,937 2,586 2,495 3,182 2,802 2,440 2,043 Short-term interest-bearing debt 350 354 417 362 362 362 362 Long-term interest-bearing debt 2,783 2,754 2,576 3,343 3,236 2,976 2,802 Other long-term liabilities 58 61 52 58 58 58 58 Current liabilities 238 183 386 147 145 144 164 Total equity 2,201 2,348 2,125 2,354 2,455 2,548 2,674



52

54

56

58

60

62

01,0002,0003,0004,0005,0006,0007,000

2012 2013 2014 2015E 2016E 2017E


35

36

37

38

39

40

41

42

43

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2012 2013 2014 2015E 2016E 2017E



Offsh

ore S

up

ply

Offshore Supply


Cash flow summary (NOKm) 2012 2013 2014 2015E 2016E 2017E 2018E

EBITDA 582 612 547 696 500 452 444 Tax cost -2 -7 0 -13 -11 -10 -14 Net interest paid -7 -163 -434 -204 -73 -42 -8 Funds from operations (FFO) 469 377 276 731 244 228 251

Changes in working capital -9 38 204 -233 10 8 21 Other cash flow from operations -81 -5 218 338 0 0 0 Operating cash flow (OCF) 483 476 535 583 426 407 443

Net investments in fixed assets -839 -9 -180 -979 -46 -46 -46 Other investing activities 56 94 67 34 34 0 0 OCF net of capex -357 467 354 -396 380 361 397 Debt repayments -559 -461 -308 -311 -359 -867 -580 Dividend payouts -30 -30 -30 0 0 0 0 New debt 952 304 0 932 251 607 406 Other financing cash flow -72 -79 -119 -227 0 0 0 Change in cash 35 321 -36 32 272 101 223

Total cash flow from financing 290 -266 -457 394 -108 -260 -174 Change in cash -66 201 -103 -2 272 101 223

Translation and other effects 9 7 3 0 0 0 0 Cash at end of period 154 362 262 260 532 633 857


Table 31. Ratios (adjusted)

2012 2013 2014 2015E 2016E 2017E 2018E

Revenue growth (%) -1.9 1.4 -0.9 4.8 -35.9 -7.3 -1.1 EBITDA margin (%) 0.6 0.6 0.5 0.6 0.5 0.5 0.4 EBIT margin (%) 0.3 0.3 0.2 0.3 0.0 0.0 0.0 ROCE (%) 5% 6% 4% 6% 3% 2% 2% EBITDA interest coverage (x) 4.4 3.9 3.7 4.8 4.1 5.8 18.6 EBIT interest coverage (x) 2.1 1.8 1.1 2.3 0.2 -0.5 -1.7 FFO interest coverage (x) 3.7 2.7 2.1 5.7 3.1 4.7 17.1 FFO/total debt (%) 14.7 11.9 9.1 19.4 6.7 6.7 7.8 FFO/net debt (%) 16.0 14.6 11.1 23.0 8.7 9.4 12.3 FOCF/total debt (%) -11.2 14.7 11.6 -10.5 10.4 10.6 12.3 Total debt/EBITDA (x) 5.5 5.2 5.6 5.4 7.3 7.5 7.3 Net debt/EBITDA (x) 5.0 4.2 4.6 4.6 5.6 5.4 4.6 Debt/total capital (%) 56.7 55.6 54.8 60.1 58.4 55.8 53.2 Total equity/total assets (%) 39.1 41.2 38.3 37.6 39.2 41.9 44.1 FFO/investments and acquisitions (x) 0.6 41.7 1.5 0.7 5.3 5.0 5.5 Dividends/net income (previous year) n.a 11% 21% 0% 0% 0% 0% Dividends/FFO (%) n.a 6% 8% 0% 0% 0% 0%



We assign a ‘B’ corporate credit rating to Eidesvik Offshore. The rating is based on the

rating methodology of S&P and Moody’s, with a review of the company’s key financial

features. Positive factors are the company’s moderate leveraging, solid asset backing and

high quality fleet. Negative factors are the fleet’s poor geographic diversification, the

company’s exposure to low spot rates and its poor market position in a highly challenged

market.


Offsh

ore S

up

ply

Offshore Supply

Management and board members

Management

CEO – Jan Fredrik Meling

CFO – Svein Ove Enerstvedt

Board of directors

Jan Fredrik Meling, Managing director

Kolbein Rege, Chairman

Borgny Eidesvik, Board member

Lars Eidesvik, Board member

Kjell E. Jakobsen, Board member

Synne Syrrist, Board member


Offsh

ore S

up

ply

Offshore Supply

Farstad Shipping


We assign a ‘B’ corporate rating to Farstad Shipping. Supporting the credit is the solid

asset backing, based on both our calculated fleet values and reported values. However,

following years of high investments along with an overbuilt market and cut in E&P

spending, the contract coverage and financial leverage metrics have weakened.



Farstad Shipping is a major OSV player with one of the biggest fleets within AHTS and

PSV vessels. The company is geographically diversified, with an extensive and

established presence in the UK/Norway, Africa, Australasia and Brazil. The fleet of 63

OSVs is dominated by AHTSs (31) and PSVs (25), in addition to seven subsea

construction vessels. The average vessel age is 9.8 years and the company currently has

no vessels under construction. Farstad Shipping has more than 30 years of operational

record.


At the end of Q2 15, the company had a backlog of NOK6.8bn. Its contract coverage is

70% for the rest of 2015, 39% for 2016 and 22% for 2017.

Asset support

Our DCF-based fleet value calculation of NOK13.5bn implies EV/NIBD of 1.29x, while

the fleet value based on shipbroker estimates of NOK 18.5bn and booked fleet value of

NOK16.2bn implies a ratio of 1.76x and 1.54x, respectively. Contracted EBITDA is

currently 22% of NIBD.

Financial leverage

Following Farstad Shipping’s fleet renewal programme over the past five years, along

with high fleet growth, big cuts in E&P spending and pressure on rates and utilisation,

Farstad’s financial metrics have weakened. Based on our estimates, NIBD/EBITDA is

6.4x for 2015 and 9.7x for 2016. The book equity ratio is 30-35% for 2015-17E.

Key ratios

NOKm 2,012 2,013 2,014 2015E 2016E 2017E 2018E

Total revenues 3,714 4,007 4,369 3,918 3,014 2,467 2,602 EBITDA 1,316 1,517 1,626 1,525 953 405 535 EBITDA margin (% 0.4 0.4 0.4 0.4 0.3 0.2 0.2 EBITDA interest coverage (x) 3.0 2.7 2.6 2.6 1.9 0.9 1.2 FFO/net debt (%) 14.2 12.5 9.6 11.9 5.4 -0.3 1.2 Net debt/EBITDA (x) 5.0 5.3 5.9 6.4 9.7 23.0 17.5 Total debt/total capital (%) 50.5 55.0 58.3 59.7 59.7 62.0 63.8


Facts


Shipping

Corporate ticker: FAR

Equity ticker: FAR

Ratings:


Analysts:

Iver Båtvik

[email protected]

+47 95 97 74 45

Øyvind Mossige

[email protected]

+47 40 92 24 46


NOK6.8bn in EBITDA backlog.

Solid asset backing based on DCF, broker values and book values.

Established market position in all regions.

Large and diversified fleet.

Strong operational record.



Relatively old fleet.

High financial gearing.

Substantial oversupply in the OSV market.




Offsh

ore S

up

ply

Offshore Supply


Farstad Shipping in short

Farstad Shipping is an established global OSV owner and operator, founded in 1956. The

company took delivery of its first vessel in 1975 and has been listed on the Oslo Stock

Exchange since 1988. Farstad Shipping is a major OSV player, with one of the biggest

fleets within AHTS and PSV. The company is geographically diversified, with extensive

and established presence in the UK/Norway, Africa, Australasia and Brazil. The fleet of

63 OSVs is dominated by AHTSs (31) and PSVs (25), in addition to seven subsea

construction vessels. The average vessel age is 9.8 years and the company currently has

no vessels under construction. Farstad Shipping has more than 30 years of operational

record.

Risk factors


key risk for the OSV players, including Farstad Shipping.


and high fleet growth. In our view, fleet growth needs to come down in order to bring

balance into the OSV market.

Farstad Shipping has high financial leverage and needs to secure significant

refinancing in the near and medium term. Along with a falling backlog and contract

coverage, this might involve more equity and a potential loss for creditors.

Fleet

Chart 122. Fleet composition (based on number of units) Q2 15 Chart 123. Revenue breakdown by vessel type 2016


49%

40%

11%

AHTS PSV Subsea

59%25%

16%

AHTS PSV OCV


Offsh

ore S

up

ply

Offshore Supply



Contract coverage

The company has low contract coverage for 2016 and beyond and needs to secure

significant contracts in order to meet our EBITDA forecast. The reason why contracted

EBITDA is above our EBITDA forecast for 2017 is that we forecast a negative EBITDA

contribution from uncontracted vessels.




The utilisation has clearly come down since 2013, particularly within the AHTS segment.



21%

27%

52%

Short-term Mid-term Long-term

10.6

9.3

6.4

9.6

0 2 4 6 8 10 12 14

AHTS segment

PSV segment

Subsea segment

Weighted average

Vessel years

70%

39%

22%

8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

H2 2015 2016 2017 2018

83% 81%

103%

36%

0%

20%

40%

60%

80%

100%

120%

H2 2015 2016 2017 2018

0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013 2014 2015


0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013 2014 2015



Offsh

ore S

up

ply

Offshore Supply

Liquidity

The company has significant near-term debt repayments and, in combination with falling







Chart 134. Liquidity development (NOKm)


1,187 1,184

642

59

0

200

400

600

800

1,000

1,200

1,400

2014 2015E 2016E 2017E

-2,085

-991

-145 -145

-2,500

-2,000

-1,500

-1,000

-500

0

2014 2015E 2016E 2017E

-1,621 -1,565

-1,225

-2,150-2,500

-2,000

-1,500

-1,000

-500

0

2014 2015E 2016E 2017E

2,983

1,301

540

1,720

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2014 2015E 2016E 2017E

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

2014 2015E 2016E 2017E

Operations Net investments Net change in debt

Dividends Cash


Offsh

ore S

up

ply

Offshore Supply

Capital structure




NOKm 2014 2015E 2016E 2017E

Fixed assets 16,124 15,957 15,201 14,467 Intangible assets 102 95 95 95 Cash & equivalents 2,121 1,753 1,565 1,049 Current assets 1,048 803 620 510 Total assets 19,395 18,608 17,481 16,121 Interest-bearing debt 11,316 11,157 10,472 10,042

Equity 6,625 6,216 5,814 4,907 Other 1,454 1,300 1,261 1,237 Total equity & liabilities 19,395 18,673 17,546 16,186


Asset support


the fleet value based on shipbroker estimates of NOK18.5bn and booked fleet value of

NOK16.2bn implies a ratio of 1.76x and 1.54x, respectively. Contracted EBITDA is

currently 22% of NIBD.

Chart 136. Asset support Q2 15 (NOKm) Chart 137. EV/NIBD Q2 15(x)


The calculated fleet value corresponds to a loan to value of 78%.

16,124

1022,1211,048

11,316

6,625

1,454

0

5,000

10,000

15,000

20,000

25,000

Assets Funding

Fixed Intangible Cash Current Debt Equity Other

2,326

13,545

18,50016,187

0

5,000

10,000

15,000

20,000

Contracted EBITDA



Book value

Value Net debt

0.22

1.29

1.76

1.54

0.000.200.400.600.801.001.201.401.601.802.00

Contracted EBITDA



Book value


Offsh

ore S

up

ply

Offshore Supply

Chart 138. 78% loan to value based on our calculated asset values Q2 15 (NOKm)

Source: company data, Danske Bank Markets

Key credit metrics





10,044

3,501

13,54510,534

3,0110

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Contracted period

Terminal value Fleet value Net debt Net asset value

-2

0

2

4

6

8

10

12

14

16

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

2012 2013 2014 2015E 2016E 2017E


0

5

10

15

20

25

0

2,000

4,000

6,000

8,000

10,000

12,000

2012 2013 2014 2015E 2016E 2017E


0

1

1

2

2

3

3

4

0200400600800

1,0001,2001,4001,6001,800

2012 2013 2014 2015E 2016E 2017E


-1

0

1

1

2

2

3

-200

0

200

400

600

800

1,000

1,200

1,400

2012 2013 2014 2015E 2016E 2017E



Offsh

ore S

up

ply

Offshore Supply




We assign a ‘B’ corporate credit rating to Farstad Shipping. The rating is based on a


Supporting the rating is Farstad Shipping’s solid asset backing based on our DCF-based

fleet value calculation, book values and broker estimates. Farstad Shipping is an

established player with a long record, diversified fleet composition and presence in all

regions.


situation, combined with high financial leverage and declining backlog and contract

coverage.


Management

CEO – Karl-Johan Bakken.

CFO – Torgstein L. Stavseng.

Board of Directors

Per Norvald Sperre, Deputy Chairman.

Gro Bakstad, Director.

Astrid Koppernæs, Director.

Janne-Grethe Stran Aasnæs, Director.

Mads Andersen, Director.

Leif-Arne Langøy, Director.

0

10

20

30

40

50

60

70

0

5,000

10,000

15,000

20,000

25,000

2012 2013 2014 2015E 2016E 2017E


0

10

20

30

40

50

0

5,000

10,000

15,000

20,000

25,000

2012 2013 2014 2015E 2016E 2017E



Offsh

ore S

up

ply

Offshore Supply

Financials

Table 33. Profit & Loss (NOKm)

NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

Revenues 3,714 4,007 4,369 3,918 3,014 2,467 2,602

Opex -2,408 -2,483 -2,727 -2,398 -2,062 -2,062 -2,067 EBITDA 1,306 1,524 1,641 1,521 953 405 535

EBITDA (adjusted for non-recurring items) 1,316 1,517 1,626 1,525 953 405 535

Depreciation & amortisation -576 -654 -856 -925 -901 -879 -857 Writedown 0 0 0 -170 0 0 0 EBIT 730 870 785 426 52 -474 -322

EBIT (adjusted for non-recurring items) 741 862 770 430 52 -474 -322

Interest expense -436 -554 -618 -587 -496 -475 -460 Interest income 48 50 35 41 42 42 42 Other net financial items -18 -85 -210 -195 0 0 0 EBT 325 280 -7 -316 -402 -906 -740 EBT (adjusted for non-recurring items) 335 273 -22 -311 -402 -906 -740 Tax 13 -20 -1 -26 0 0 0 Net income 338 260 -8 -342 -402 -906 -740

Net income (adjusted for non-recurring items) 348 253 -23 -337 -402 -906 -740



NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

Goodwill 100 97 102 95 95 95 95 Other intangibles 0 0 0 0 0 0 0 Tangible fixed assets 12,922 14,513 16,019 15,852 15,096 14,363 13,651 Other tangible assets 138 87 105 105 105 105 105 Accounts receivable 624 617 623 571 439 359 379 Other current assets 360 425 425 297 246 215 223 Cash and equivalents 1,493 1,798 2,121 1,753 1,565 1,049 509 Total assets 15,638 17,537 19,395 18,673 17,546 16,186 14,962 Adjustment for operating leases 0 0 0 0 0 0 0 Total assets (adjusted) 15,638 17,537 19,395 18,673 17,546 16,186 14,962

Total interest-bearing debt 7,892 9,648 11,316 11,157 10,472 10,042 9,552 Adjustment for operating leases 0 0 0 0 0 0 0 Adjustment for pension obligations 0 0 0 0 0 0 0 Capitalised interest expenses 0 0 0 0 0 0 0 Total interest-bearing debt (adjusted) 7,892 9,648 11,316 11,157 10,472 10,042 9,552 Net interest-bearing debt 6,524 7,996 9,516 9,723 9,226 9,312 9,362 Net interest-bearing debt (adjusted) 6,524 7,996 9,516 9,723 9,226 9,312 9,362 Short-term interest-bearing debt 1,296 946 1,383 1,158 1,158 1,158 1,158 Other long-term liabilities 170 188 364 359 359 359 359 Accounts payable 224 282 282 172 132 108 114 Tax payable 27 32 27 20 20 20 20 Public duties payable 0 0 0 0 0 0 0 Accruals 0 0 0 0 0 0 0 Other short-term debt 476 509 781 749 749 749 749 Total equity 6,849 6,878 6,625 6,216 5,814 4,907 4,168 Total equity (adj.) 6,849 6,878 6,625 6,216 5,814 4,907 4,168




Offsh

ore S

up

ply

Offshore Supply


NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

EBT 325 280 -7 -316 -402 -906 -740 Interest income 0 0 0 0 0 0 0 Interest costs 0 0 0 0 0 0 0 Taxes paid -34 -12 -26 -9 0 0 0 Other cash flow adjustments 406 815 1,482 1,539 1,187 1,052 814 Funds from operations (FFO) 929 999 911 1,158 498 -28 117

Changes in working capital 111 -38 -261 -30 -143 -87 22 Operating cash flow (OCF) 807 1,045 1,187 1,184 642 59 95

Net investments in fixed assets -1,602 -2,246 -2,092 -1,019 -145 -145 -145 OCF net capex -795 -1,201 -905 165 497 -86 -50 Debt instalments -1,126 -1,088 -1,621 -1,565 -1,225 -2,150 -2,450 Dividend -195 -117 -117 -76 0 0 0 New debt 2,235 2,715 2,983 1,301 540 1,720 1,960 New equity 0 0 0 0 0 0 0 Other financing and investing cash flow 35 -5 7 -275 0 0 0 Change in cash 155 304 348 -449 -188 -516 -540

Cash in end of period 1,344 1,849 1,873 1,687 1,154 979 1,261



2012 2013 2014 2015E 2016E 2017E 2018E

Revenue growth (%) 4 8 9 -10 -23 -18 6 EBITDA margin (%) 35% 38% 37% 39% 32% 16% 21% EBIT margin (%) 20% 22% 18% 11% 2% -19% -12% ROCE (%) 7% 7% 6% 3% 0% -3% -2% EBITDA interest coverage (x) 3.0 2.7 2.6 2.6 1.9 0.9 1.2 EBIT interest coverage (x) 1.7 1.6 1.2 0.7 0.1 -1.0 -0.7 FFO interest coverage (x) 2.1 1.8 1.5 2.0 1.0 -0.1 0.3 FFO/total debt (%) 11.8 10.4 8.1 10.4 4.8 -0.3 1.2 FFO/net debt (%) 14.2 12.5 9.6 11.9 5.4 -0.3 1.2 FOCF/total debt (%) -10.1 -12.4 -8.0 1.5 4.7 -0.9 -0.5 Total debt/EBITDA (x) 6.0 6.4 7.0 7.3 11.0 24.8 17.8 Net debt/EBITDA (x) 5.0 5.3 5.9 6.4 9.7 23.0 17.5 Debt/total capital (%) 50.5 55.0 58.3 59.7 59.7 62.0 63.8 Total equity/total assets (%) 43.8 39.2 34.2 33.3 33.1 30.3 27.9



Offsh

ore S

up

ply

Offshore Supply

Havila Shipping


We assign a ‘CCC+’ corporate rating to Havila Shipping. Supporting the credit is the

solid backlog and diversified fleet. However, following years of high investments, along

with an overbuilt market and cuts in E&P spending, financial leverage metrics have

weakened. Our DCF calculations question whether the fleet value exceeds the debt.



Havila Shipping has a long-term contract profile and relatively young fleet with an

average vessel age of less than eight years. The fleet consists of five fully owned AHTS,

four 50% joint venture owned, 13 fully owned PSVs and one 50% owned PSV, three

SCV vessels and one RRV vessel. The SCV vessels and the RRV are due to come off

contract at end-2015. These two vessels account for 12% of our estimated H2 15

EBITDA for the total fleet. We note that 74% of contracts are longer than three years.


At the end of Q2 15, the company had a backlog of NOK3.5bn, excluding options. Havila

has the strongest backlog among the supply companies, with 85% of the fleet booked for

H2 15, 69% for 2016 and 45% for 2017. Of our forecast EBITDA for 2016, 99% is

already secured through backlog.

Lack of asset support


the fleet value, based on shipbroker estimates, of NOK8bn implies a ratio of 1.44x.

Booked fleet value of NOK7.4bn implies 1.33x NIBD. Contracted EBITDA, excluding

options, is 35% of NIBD.

Financial leverage

Havila Shipping has NOK3.4m of bank and bond debt that needs to be refinanced by the

end of 2017. On top of this, based on our forecasts, the company needs an additional

NOK500m in order to secure a healthy cash position. Considering the already-high

gearing, we question whether creditors will be willing to step up. Based on our estimates,

NIBD/EBITDA is 6.9x for 2015 and 9.2x for 2016. The book equity ratio is only 24-25%

for 2015-17E.

Key ratios

2012 2013 2014 2015E 2016E 2017E 2018E

Total revenues 1,411 1,458 1,691 1,607 1,394 1,154 1,049 EBITDA 593 699 855 770 557 317 204 EBITDA margin (% 0.4 0.5 0.5 0.5 0.4 0.3 0.2 EBITDA Interest coverage (x) 1.4 1.6 1.5 1.9 1.7 1.1 0.7 FFO / Net debt (%) -0.2 4.9 8.3 6.2 4.6 0.5 -1.7 Net debt / EBITDA (x) 10.1 8.1 6.7 6.9 9.2 16.0 25.6 Total debt / Total capital (%) 74.6 72.1 72.1 70.5 70.7 71.9 76.1


Facts


Shipping

Corporate ticker: HAVI

Equity ticker: HAVI

Ratings:

No official ratings Danske Bank Markets: Corporate rating: CCC+

Analysts:

Iver Båtvik

[email protected]

+47 95 97 74 45

Øyvind Mossige

[email protected]

+47 40 92 24 46


NOK1.9bn in EBITDA backlog.

Strong backlog and contract coverage.





Refinancing need.

Limited asset support on our DCF.




Offsh

ore S

up

ply

Offshore Supply


Havila Shipping in short

Havila Shipping is an offshore supply company based in Fosnavåg, Norway. After being

established as a part of the Havila Group in 2003, the company had grown its fleet to 27

vessels by July 2015. With a workforce of approximately 850 employees, the company

maintains the majority of its operations in the north-western Europe region.

Risk factors


key risk for the OSV players.



the OSV market.

Havila Shipping has high financial leverage and needs to secure significant

refinancing in the near and medium term. Along with a falling backlog and contract

coverage, this might involve more equity and potential loss for creditors.

Fleet

The fleet of 27 OSVs is dominated by AHTSs (nine) and PSVs (14), in addition to four

subsea construction vessels. The average vessel age is 7.4 years and the company

currently has no vessels under construction.

We have modelled five fully owned AHTS plus four 50% joint venture owned AHTS, 13

fully owned PSVs and one 50%-owned vessel, three 100%-owned SCV vessels and one

100%-owned RRV vessel.

The SCV vessels and the RRV are due to come off contract at end-2015. These two

vessels account for 12% of our H2 15 EBITDA estimate.

Chart 145. Fleet composition Q2 15 (based on number of

units)



33%

52%

11%4%

AHTS PSV SCV RRV

16%

55%

23%

6%

AHTS PSV SUBSEA RRV


Offsh

ore S

up

ply

Offshore Supply



Contract coverage

The company has relatively high contract coverage for 2015, 2016 and 2017. Due to

expected low spot rates and rates on new contracts we estimate 68% of 2018 EBITDA is

from firm contracts, with only 30% of fleet capacity booked.




Given the currently low dayrates in the spot market for PSVs, Havila Shipping has done

well in accomplishing the high contract rate in this segment. Dayrates in the AHTS

segment have not faced the same weakening and thus the higher portion of AHTS on spot

should not cause too much concern.

9%

17%

74%

Contract length

Short-term [< 1 yr]

Mid-term [1 > 3 yrs]

Long-term [> 3 years]6.7

8.1

6.3

6.7

7.4

0 2 4 6 8 10 12

AHTS segment

PSV segment

SCV segment

RRV segment

Weighted average

85%

69%

45%

30%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2015 2016 2017 2018

94%99%

86%

68%

0%

20%

40%

60%

80%

100%

120%

2015 2016 2017 2018


Offsh

ore S

up

ply

Offshore Supply



Liquidity






Chart 155. Debt repayment


0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013 2014 2015


0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013 2014 2015


196

309

377416

284

96

0

50

100

150

200

250

300

350

400

450

2012 2013 2014 2015E 2016E 2017E

-348

-46

-219

-95-61 -61

-400

-350

-300

-250

-200

-150

-100

-50

0

2012 2013 2014 2015E 2016E 2017E

0

500

1,000

1,500

2,000

2015 2016 2017 2018

Re

pa

yme

nts

mN

OK

Bank - mortaged debt Bank - unsecured debt

HAVI08 PRO, 3mN+8.5%, 8/16 HAVI04, 6mN+3.75%, 11/16

HAVI07, 3mN+4.50% 3/17 HAVI06, 8.6% 3/17


Offsh

ore S

up

ply

Offshore Supply

Chart 156. New debt


Capital structure




NOKm 2014 2015E 2016E 2017E

Fixed assets 7,472 7,240 6,979 6,725 Intangible assets 6 6 6 6 Other long term 79 76 76 76 Cash & equivalents 351 485 516 109 Receivables 452 427 366 282 Other current assets 19 24 21 17 Total assets 8,379 8,259 7,965 7,216



Asset support


the fleet value, based on shipbroker estimates, of NOK8bn, implies a ratio of 1.44x. The

booked fleet value of NOK7.4bn implies 1.33x NIBD. Contracted EBITDA, excluding

options, is 35% of the NIBD.

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

2015 2016 2017 2018

Ne

w d

eb

t m

NO

K

Bank - mortaged debt Bank - unsecured debt

HAVI08 PRO, 3mN+8.5%, 8/16 HAVI04, 6mN+3.75%, 11/16

HAVI07, 3mN+4.50% 3/17 HAVI06, 8.6% 3/17

Fixed assets

Cash

Other current assets


Equity

Other

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000


Offsh

ore S

up

ply

Offshore Supply



The DCF-based calculated fleet value gives a negative net asset value of NOK541m.

Chart 160. Net asset value (NOKm)


Table 38. NAV per share dependent on WACC and utilisation (NOK/share)


65% 70% 75% 80% 85%

WACC

7% 2.6 11.4 20.2 29.0 37.8 8% -8.2 -0.1 7.9 16.0 24.1 9% -17.9 -10.4 -3.0 4.4 11.8

10% -26.5 -19.7 -12.9 -6.1 0.7 11% -34.4 -28.1 -21.8 -15.5 -9.2 12% -41.5 -35.6 -29.8 -24.0 -18.2 13% -47.9 -42.5 -37.1 -31.7 -26.3 14% -53.7 -48.7 -43.7 -38.7 -33.6


1,943

4,986

7,9617,367

0

2,000

4,000

6,000

8,000

10,000

Contracted EBITDA



Book value

Value Net debt

0.35

0.90

1.441.33

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Contracted EBITDA



Book value

2,582

3,077

5,659

673

5,527

-541

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Contracted period

Terminal value

Fleet value Jv adj. Net debt Net asset value


Offsh

ore S

up

ply

Offshore Supply

Key credit metrics








We assign a ‘CCC+’ corporate credit rating to Havila Shipping. We base our rating on a


Supporting our rating is Havila Shipping’s diversified fleet composition and strong

backlog together with asset values backed by book values and broker estimates.

-2

0

2

4

6

8

10

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2012 2013 2014 2015E 2016E 2017E


024681012141618

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2012 2013 2014 2015E 2016E 2017E


0

1

1

2

2

3

0100200300400500600700800900

2012 2013 2014 2015E 2016E 2017E


00000011111

-100

0

100

200

300

400

500

600

2012 2013 2014 2015E 2016E 2017E


68

69

70

71

72

73

74

75

0

2,000

4,000

6,000

8,000

10,000

2012 2013 2014 2015E 2016E 2017E


22

23

23

24

24

25

25

0

2,000

4,000

6,000

8,000

10,000

2012 2013 2014 2015E 2016E 2017E



Offsh

ore S

up

ply

Offshore Supply

Weighing down on the rating is the oversupplied market and uncertain demand situation,

combined with very high financial leverage and the declining backlog and contract

coverage. Our earnings forecast gives us a negative DCF-based NAV, indicating high risk

for the company when it comes to refinancing the debt. We view an equity issue as most

likely.


Management

CEO – Njål Sævik.

CFO – Arne Johan Dale.

Board of directors

Per Sandvik, Chairman of the Board.

Janicke W. Driveklepp, Board member.

Kjartan Medle, Board member.

Roger Granheim, Board member.

Helge Aarseth, Board member.

Hege Sævik Rabben, Board member.

Nina Skage, Board member.

Financials

Table 39. Profit and loss statement (NOKm)

NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

Revenues 1,411 1,458 1,691 1,607 1,394 1,154 1,049

Opex -818 -759 -836 -837 -838 -837 -845 EBITDA (reported) 593 699 855 770 557 317 204


Depreciation & amortisation -161 -188 -269 -327 -322 -316 -310 Writedown 0 0 0 0 0 0 0 EBIT 432 511 586 443 235 1 -106

EBIT (adjusted) 432 511 586 443 235 1 -106

Interest expense -426 -431 -557 -402 -327 -294 -294 Interest income 26 19 7 21 21 21 21 Other net financial items -14 -7 3 -19 -19 -19 -18 EBT 18 93 40 42 -89 -290 -396 Tax -8 -80 -36 -14 0 0 0 Net income 10 13 4 27 -89 -290 -396

Dividends 0.00 0.00 0.00 0.00 0.00 0.00 0.00



Offsh

ore S

up

ply

Offshore Supply


NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

Intangible assets 12 9 6 6 6 6 6 Tangible fixed assets 7,660 7,522 7,472 7,240 6,979 6,725 6,476 Other long-term tangible assets 143 71 79 76 76 76 76 Accounts receivable 347 315 452 427 366 282 277 Other current assets 26 24 19 24 21 17 17 Cash and equivalents 497 403 351 485 516 109 -34 Total assets 8,685 8,343 8,379 8,259 7,965 7,216 6,819

Total interest-bearing debt 6,477 6,018 6,040 5,824 5,633 5,190 5,191 Net interest-bearing debt 5,980 5,615 5,689 5,339 5,116 5,081 5,224 Long-term interest-bearing debt 5,525 4,827 5,012 4,858 4,666 4,223 4,224 Other long-term liabilities 182 131 129 131 131 131 131 Short-term interest-bearing debt 736 1,106 899 876 876 876 876 Accounts payable 60 71 77 91 78 60 59 Other short-term debt 173 187 241 253 253 253 253 Total equity 2,008 2,022 2,022 2,051 1,962 1,673 1,276

Total equity (adj.) 2,008 2,022 2,022 2,051 1,962 1,673 1,276 Total equity and liabilities 8,685 8,343 8,379 8,259 7,965 7,216 6,819



NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

EBITDA 593 699 855 770 557 317 204 Tax cost -8 -80 -36 -14 0 0 0 Net interest paid -399 -411 -549 -382 -305 -272 -272 Other operating cash flow 215 135 10 128 84 121 -9 Changes in working capital -205 -34 97 -86 -51 -70 -5 Funds from operations (FFO) -11 274 474 330 233 26 -86

Operating cash flow (OCF) 196 309 377 416 284 96 -82

Net investments in fixed assets -348 -46 -219 -95 -61 -61 -61 OCF net capex -152 263 158 321 223 35 -143 New debt 800 1,265 884 948 1,493 1,047 700 Debt repayments -671 -1,639 -1,103 -1,136 -1,684 -1,489 -699 Dividend 0 0 0 0 0 0 0 New equity 0 0 0 0 0 0 0 Other financing activities and investing cash flows 162 16 -1 0 0 0 0 Change in cash 140 -95 -62 133 31 -408 -142



Offsh

ore S

up

ply

Offshore Supply

Table 42. Ratios

2012 2013 2014 2015E 2016E 2017E 2018E

Revenue growth (%) 7.0 3.3 16.0 -5.0 -13.2 -17.3 -9.1 EBITDA margin (%) 42% 48% 51% 48% 40% 27% 19% EBIT margin (%) 31% 35% 35% 28% 17% 0% -10% ROCE (%) 5% 6% 7% 6% 3% 0% -2% EBITDA interest coverage (x) 1.4 1.6 1.5 1.9 1.7 1.1 0.7 EBIT interest coverage (x) 1.0 1.2 1.1 1.1 0.7 0.0 -0.4 FFO interest coverage (x) 0.0 0.6 0.9 0.8 0.7 0.1 -0.3 FFO/total debt (%) -0.2 4.6 7.8 5.7 4.1 0.5 -1.7 FFO/net debt (%) -0.2 4.9 8.3 6.2 4.6 0.5 -1.7 FOCF/total debt (%) -2.3 4.4 2.6 5.5 4.0 0.7 -2.8 Total debt/EBITDA (x) 11.0 8.6 7.1 7.6 10.1 16.4 25.4 Net debt/EBITDA (x) 10.1 8.1 6.7 6.9 9.2 16.0 25.6 Debt/total capital (%) 74.6 72.1 72.1 70.5 70.7 71.9 76.1 Total equity/total assets (%) 23.1 24.2 24.1 24.8 24.6 23.2 18.7 FFO/investments and acquisitions (x) 0.0 5.9 2.2 3.5 3.8 0.4 -1.4 Dividends/net income (previous year) n.a n.a n.a n.a n.a n.a n.a Dividends/FFO (%) n.a n.a n.a n.a n.a n.a n.a



Offsh

ore S

up

ply

Offshore Supply

Olympic Ship


We assign a ‘B’ corporate rating to Olympic Ship. The rating is supported by a strong

equity ratio and financially strong owner. Weighing negatively is high leverage and

high exposure to low spot rates in both the AHTS and PSV segments.



Olympic Ship is a privately owned and Norwegian-based global offshore supply vessel

owner and operator with a portfolio of 23 high-end offshore supply vessels. The company

operates 19 high-end offshore vessels owned 100-75% and three partly owned vessels

(30-53% with financial investors), in addition to one vessel under management. With

heavy exposure to the subsea segment, the fleet’s average age of seven years puts it

among the younger fleets in the Norwegian offshore market.

Contract coverage

Contract coverage in H2 15 and 2016 is 68%, supported by the company’s subsea fleet,

while the PSVs and AHTSs are mostly in the spot market.

Asset support and financial leverage

Broker estimates for the company’s ownership adjusted fleet value of NOK8.2bn imply

an EV/NIBD multiple of 1.7x. Debt relative to the current broker valuation (LTV) is

56%.

The financial risk profile is divided between strong financial figures with regard to loan to

value and a strong liquidity buffer through its cash position (NOK449m) and more

aggressive key metrics for earnings and cash flow relative to debt. We expect the cash

balance to improve from Q2 levels as all SPS for 2015 was completed in H1 15 and

outstanding payments from clients are normalised.

Table 43. Key ratios

NOKm 2012 2013 2014 2015E 2016E 2017E

Total revenues 1,017 1,220 1,544 1,441 1,245 1,202 EBITDA adjusted 338 567 889 629 409 387 Total assets 7,479 8,166 9,344 8,954 8,260 7,973 EBITDA margin 33.2% 46.4% 57.6% 43.7% 32.8% 32.2% Debt/EBITDA (x) 13.3 8.5 6.4 8.8 12.6 13.8 Net debt/EBITDA (x) 10.6 7.3 5.4 8.0 12.5 13.5 FFO/debt 3% 5% 35% 7% 4% 3% FFO/net debt 4% 6% 41% 8% 4% 3% Equity/total assets 36% 38% 35% 36% 36% 33%


Facts


Shipping

Corporate ticker:

Equity ticker:

Ratings:


Analysts:

Iver Båtvik

[email protected]

+47 95 97 74 45

Øyvind Mossige

[email protected]

+47 40 92 24 46


Modern subsea fleet.

Asset support based on broker estimates.

Favourable debt repayment schedule.

Healthy liquidity.



Limited backlog and contract coverage.





Offsh

ore S

up

ply

Offshore Supply


Olympic Ship in short

Olympic Ship is a Norwegian-based global offshore supply vessel owner and operator

with a portfolio of 23 high-end offshore supply vessels focused on the subsea segment.

The fleet is relatively young with an average age of seven years as a result of an extensive

newbuild programme initiated in 2008. Olympic is primarily a player in high-end subsea,

an industry with strong long-term fundamentals and traditionally medium- to long-term

contracts. Its significant spot rate exposure through its AHTS, construction vessels and

PSV in the North Sea is credit negative and reduces the earnings visibility but must be

seen in conjunction with its sizeable cash buffer and historical record. Olympic Ship

operates within an oil price dependent volatile industry and the current negative market,

driven by low oil prices and reduced E&P spending levels, is negative, particularly given

its North Sea focused fleet with substantial spot rate exposure. Although we expect short-

term market deterioration, we believe Olympic Ship’s fleet faces strong long-term

fundamentals.

Risk factors

Continued oversupply in the oil market and a further cut in E&P spending remain the

key risk for the OSV players, including Olympic Ship.


and high fleet growth. In our view, fleet growth needs to come down in order to bring

balance into the OSV market.

Olympic has high financial leverage.

Fleet and contract coverage


September 2015

Chart 168. Fleet age by segment 2016E

Source: Company data, Danske Bank Markets Source: Company data, Danske Bank Markets estiamtes

17%

35%

39%

9%

AHTS PSV and other SCV OCV

13.0

7.1

4.9

7.4

0 2 4 6 8 10 12 14

AHTS segment

PSV segment

SCV segment

Weighted average


Offsh

ore S

up

ply

Offshore Supply

Chart 169. Contract coverage as of December 2014 Chart 170. Contract profile as of December 2014


Debt repayment schedule

Chart 171. Debt repayment schedule


Capital structure



Asset support

Broker estimates for Olympic Ship’s owned fleet amount to NOK8.1bn, exceeding the

book value of the company’s assets of NOK7.5bn. With net debt of NOK4.8bn, we

calculate EV/NIBD of 1.69x.

68%

0%

10%

20%

30%

40%

50%

60%

70%

2H 2015

54%

23%

23%

Short-term [< 1 yr]


Long-term [> 3 years]

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2016 2017 ≥2018

Bank loan instalments Bank loan principal OLSHNO 02/09/2015 OLSHNO 21/09/2017 Olympic Ship 14/19

3237

5712

395

7504

886954

0

2000

4000

6000

8000

10000

Equity/Liabilities Assets

Equity Total interest bearing debt (adjusted)

Other Fixed assets

Cash and cash equivalents Other assets


Offsh

ore S

up

ply

Offshore Supply

Chart 173. EV estimates, adjusted for ownership Q2 15 (NOKm) Chart 174. EV/NIBD Q2 15 (x)



We assign a ‘B’ corporate credit rating to Olympic Ship. We base this rating on a review

of relevant rating methodologies from S&P and Moody’s.

Supporting the rating is the company’s equity ratio of c.34%, diversified fleet and

financially strong main owner known for his record in playing the asset-heavy oil services

segments.


situation, combined with high financial leverage and declining backlog and contract

coverage.

Key credit metrics



8,1727,504

01,0002,0003,0004,0005,0006,0007,0008,0009,000

Market value fleet Book value fleet

Value Net debt1.69

1.55

1.45

1.50

1.55

1.60

1.65

1.70

1.75

Market value fleet Book value fleet

0 %5 %10 %15 %20 %25 %30 %35 %40 %45 %

0

1,000

2,000

3,000

4,000

5,000

6,000

2012 2013 2014 2015E 2016E 2017E

FFO Net debt FFO / Net debt

0 %

200 %

400 %

600 %

800 %

1000 %

1200 %

1400 %

1600 %

0

1,000

2,000

3,000

4,000

5,000

6,000

2012 2013 2014 2015E 2016E 2017E

EBITDA Net debt Net debt /EBITDA


Offsh

ore S

up

ply

Offshore Supply



Chart 179. Debt/total assets (%) Chart 180. Equity ratio (%)


Financials


NOKm 2012 2013 2014 2015E 2016E 2017E

AHTS charter hire 326 309 310 219 153 159 Subsea charter hire 288 390 607 748 740 714 MPSV charter hire 102 224 238 156 125 133 PSV charter hire 158 104 173 167 108 93 OCV charter hire 142 193 215 151 118 103 Total revenues 1,017 1,220 1,544 1,441 1,245 1,202

Operating expenses 679 653 654 811 836 814 EBITDA 338 567 889 629 409 387

Depreciation & amortisation 131 156 192 230 232 232 EBIT 207 411 658 399 177 156

Interest expenses 210 231 334 216 211 205 EBT 77 123 318 187 -32 -47

Tax 11 -19 -33 7 0 -2 Net income 66 142 351 180 -32 -45


0 %

50 %

100 %

150 %

200 %

250 %

300 %

350 %

0

200

400

600

800

1,000

2012 2013 2014 2015E 2016E 2017E

Interest expenses EBITDA EBITDA int. coverage

0 %

100 %

200 %

300 %

400 %

500 %

600 %

700 %

800 %

0

500

1,000

1,500

2,000

2,500

2012 2013 2014 2015E 2016E 2017E

Interest expenses FFO FFO int. coverage

58 %

60 %

62 %

64 %

66 %

68 %

0

2,000

4,000

6,000

8,000

10,000

2012 2013 2014 2015E 2016E 2017E

Total debt Total assets Debt/ Total assets

30 %

31 %

32 %

33 %

34 %

35 %

36 %

37 %

38 %

0

2,000

4,000

6,000

8,000

10,000

2012 2013 2014 2015E 2016E 2017E

Equity Total assets Equity / Total assets


Offsh

ore S

up

ply

Offshore Supply


NOKm 2012 2013 2014 2015E 2016E 2017E

Fixed assets 6,020 6,605 7,504 7,575 7,371 7,188 Goodwill 0 0 0 0 0 0 Associates 80 60 30 30 30 30 Working capital assets 306 358 630 595 548 400 Cash and cash equivalents 923 664 886 501 57 103 Other current assets 136 438 102 102 102 102 Total assets 7,479 8,166 9,344 8,954 8,260 7,973

Total debt 4,504 4,792 5,712 5,535 5,170 5,329 Net debt 3,581 4,128 4,826 5,034 5,113 5,226 Working capital liabilities 240 244 264 154 128 0 Other current liabilities 24 37 131 0 0 0 Equity 2,661 3,063 3,237 3,264 2,961 2,644 Total equity and liabilities 7,479 8,166 9,344 8,954 8,260 7,973


Table 46. Cash flow summary

NOKm 2012 2013 2014 2015E 2016E 2017E

EBITDA 338 567 889 629 409 387

Tax paid 48 28 -2 7 0 0 Net interest paid 198 214 34 216 211 205 Other cash flow from operations 49 -89 1,124 0 0 0 FFO 140 235 1,982 407 198 182

FFO (adjusted) 140 235 1,982 407 198 182

Change in working capital 103 -96 -35 -75 21 20 Operating cash flow (CFO) 243 139 1,947 332 219 202

Capex 1,126 731 708 765 40 40 Other positive cash flow from investing act. -25 0 0 0 0 0 Free operating cash flow (FOCF) -907 -592 1,154 -481 142 107

Debt principal and instalments 439 538 898 505 965 841 Dividends paid 0 0 34 30 0 0 Share buyback 0 0 0 0 0 0 Funding shortfall -1,347 -1,131 222 -1,016 -823 -734

New debt 1,459 830 1,415 795 600 1,000 New equity 52 48 0 0 0 0 Other financing activities -36 -7 55 -165 -220 -220 Change in cash 128 -259 1,692 -386 -443 46



Offsh

ore S

up

ply

Offshore Supply

Table 47. Ratios

NOKm 2012 2013 2014 2015E 2016E 2017E

Sales growth 3.8% 20.0% 26.5% -6.7% -13.6% -3.4% EBITDA margin 33.2% 46.4% 57.6% 43.7% 32.8% 32.2% EBIT margin 20.3% 33.7% 43.3% 27.7% 14.2% 13.0% ROCE 3.2% 5.5% 7.9% 4.5% 2.1% 1.9% EBITDA interest coverage (x) 1.6 2.5 2.7 2.9 1.9 1.9 EBIT interest coverage (x) 1.0 1.8 2.0 1.9 0.8 0.8 FFO interest coverage (x) 1.7 2.0 6.9 2.9 1.9 1.9 Net debt/EBITDA (x) 10.6 7.3 5.4 8.0 12.5 13.5 Debt/EBITDA (x) 13.3 8.5 6.4 8.8 12.6 13.8 FFO/net debt 3.9% 5.7% 41.1% 8.1% 3.9% 3.5% FFO/debt 3.1% 4.9% 34.7% 7.4% 3.8% 3.4% FOCF/debt -20.1% -12.4% 20.2% -8.7% 2.7% 2.0% Debt/tangible assets 74.8 % 72.6 % 76.1 % 73.1 % 70.1 % 74.1 % Debt/total assets 62.9% 61.0% 63.8% 62.9% 63.6% 66.8% Equity/total assets 35.6% 37.5% 34.6% 36.5% 35.9% 33.2% Equity/total assets excl. goodwill 35.6% 37.5% 34.6% 36.5% 35.9% 33.2% Dividends/net income 0.0% 0.0% 9.7% 16.6% 0.0% 0.0% Dividends/FFO 0.0% 0.0% 1.7% 7.4% 0.0% 0.0%



Offsh

ore S

up

ply

Offshore Supply

Rem Offshore


We assign a ‘B-’ corporate rating to Rem Offshore. Supporting the credit is the asset

base and decent profitability, while the fleet composition, diversity in terms of assets

and geography and high financial leverage weigh negatively.


Large and diversified offshore player

Rem Offshore has a fleet of 18 vessels: six subsea vessels, nine PSVs and one support

ship. Rem Offshore also has one more vessel under construction, with expected delivery

in early 2017. Of 2014 revenues, it generated 76% in the North Sea and 16% in North

America, while the remaining 12% were split between operations in the Middle East and

eastern Asia.


As of August 2015, our estimate for the company’s backlog is NOK1.6bn, excluding

options. Contract coverage for H2 15 stands at 57%, excluding options. For 2016 and

2017, contract coverage is 33% and 21%, respectively. Estimated EBITDA from

contracted vessels represents 89% of total EBITDA in 2015 and 82% in 2016 and 2017.

Asset support

A DCF-based fleet value of NOK5.2bn and a corresponding EV/NIBD of 1.22x imply a

NAV of NOK943m. The current booked fleet value of NOK6.7bn gives an EV/NIBD

multiple of 1.58x and contracted EBITDA (excluding options) amounts to only 24% of

NIBD.

Financial leverage

We believe the company will find it necessary to obtain refinancing on all its current bank

loans in addition to rolling over both its bonds in order to maintain a positive cash balance

in 2016-19. We assume that the bank and bond loans will be rolled over on the current

terms. The company has outstanding bonds of NOK350m and NOK500m maturing in

2018 and 2019, respectively.

Key ratios

NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

Total revenues 740 970 1,413 1,211 1,081 896 816

EBITDA 461 506 862 643 534 349 267

EBITDA margin (% 62.2 52.1 61.0 53.1 49.4 39.0 32.8

EBITDA interest coverage (x) 2.6 2.0 2.2 2.0 2.0 1.4 1.1

FFO/net debt (%) 7.6 10.2 14.2 8.2 7.7 3.7 1.8

Net debt/EBITDA (x) 5.4 7.3 5.0 6.7 7.7 11.7 15.7

Total debt/total capital (%) 60.3 65.6 66.6 65.4 65.0 65.9 67.5


Facts


Shipping

Corporate ticker: REM

Equity ticker: REM

Ratings:


Analysts:

Iver Båtvik

[email protected]

+47 95 97 74 45

Øyvind Mossige

[email protected]

+47 40 92 24 46


NOK1bn in EBITDA backlog.

Asset backing.

Diversified fleet.

Strong counterparties.




Low contract coverage.

All debt needs to be refinanced in order to secure a healthy cash position.




Offsh

ore S

up

ply

Offshore Supply


Rem Offshore in short

Rem Offshore is a Norwegian offshore supply company, with headquarters based in

Fosnavåg. As of March 2015, the company operated a fleet of 18 vessels: six subsea

vessels, nine PSVs and one support ship. Rem Offshore also has one more vessel under

construction, with expected delivery in early 2017. Of 2014 revenues, the company

generated 76% in the North Sea and 16% in North America, while the remaining 12%

were split between operations in the Middle East and eastern Asia.

At the end of 2014, Rem Offshore had 459 employees, in addition to an undisclosed

amount of hired personnel.

Fleet

The average age of the company’s vessels is four years, making Rem Offshore’s ships

among the youngest in the Norwegian fleet. Rem Offshore owns 35% of one vessel

through associated companies and four vessels through joint ventures with different levels

of ownership. We estimate that 61% of the company’s total revenues in 2016 will be

generated by subsea vessels, 29% will come from the PSV segment and the remaining

10% will come from the company’s OSVs.

Chart 181. Fleet composition Q2 15 Chart 182. Revenues by vessel type 2016


Chart 183. Contract profile Q2 15 Chart 184. Vessel age profile by segment Q2 15


55%35%

10%

PSV SCV OCV

61%

29%

10%

SCV PSV OSV

55%

45%

0%

Short-term [< 1 yr]


Long-term [> 3 yrs]

4.3

4.1

2.5

4.0

0 2 4 6 8 10

SCV segment

PSV segment

OCV

Weighted average


Offsh

ore S

up

ply

Offshore Supply

Contract coverage

As of August 2015, our estimate for the company’s backlog is NOK1.6bn, excluding

options. Contract coverage for H2 15 stands at 62%, excluding options. For 2016 and

2017, contract coverage is 33% and 21%, respectively. Estimated EBITDA from

contracted vessels represents 89% of total EBITDA in 2015, 82% in 2016 and 2017.

Chart 185. Booked capacity Chart 186. Contracted EBITDA vs total forecast EBITDA


Liquidity

We believe the company will find it necessary to obtain refinancing on all its current bank

loans in addition to rolling over both its bonds in order to maintain a positive cash balance

in 2016-19. We assume that the bank and bond loans will be rolled over on the current

terms. The company has outstanding bonds of NOK350m and NOK500m maturing in

2018 and 2019, respectively



57%

33%

21%

0%

10%

20%

30%

40%

50%

60%

2015 2016 2017

89%

82% 82%

60%

80%

100%

2015 2016 2017

567

465

342

177

0

100

200

300

400

500

600

2014 2015E 2016E 2017E

-1,036

-392

-47 -47

-1,200

-1,000

-800

-600

-400

-200

0

2012 2013 2014 2015E


Offsh

ore S

up

ply

Offshore Supply





Capital structure

Total interest-bearing debt was NOK5bn at end-Q2 15 and, with the refinancing

mentioned above, we expect this to remain fairly unchanged over the next few years.



-735 -713-868 -868

-350

-1,400

-1,200

-1,000

-800

-600

-400

-200

0

2015 2016 2017 2018

Debt to dredit institutions REM05 9/19, 6.74%

REM04 3/18, 7.22%

331

641781 781

315

0

200

400

600

800

1,000

1,200

2015 2016 2017 2018

Debt to dredit institutions REM05 9/19, 6.74%

REM04 3/18, 7.22%

182.3

341.8 316.9 351.6

624.1

362.8

665.0 684.3

786.2708.2

496.9456.7

0

100

200

300

400

500

600

700

800

900

2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

0

2,000

4,000

6,000

8,000

Assets Funding

Fixed assets Intangible assetsCash & cash equivalents Current assetsInterest bearing debt OtherEquity


Offsh

ore S

up

ply

Offshore Supply


NOKm 2014 2015E 2016E 2017E

Fixed assets 6,473 6,683 6,549 6,418 Intangible assets 20 20 20 20 Cash & equivalents 665 684 786 708 Current assets 331 209 180 149 Total assets 7,490 7,597 7,536 7,295



Poor asset support

A DCF-based fleet value of NOK5.2bn and a corresponding EV/NIBD of 1.22x imply an

NAV of NOK943m. The current booked fleet value of NOK6.7bn gives an EV/NIBD

multiple of 1.58x and contracted EBITDA (excluding options) amounts to only 24% of

NIBD.

Chart 193. Fleet value estimates




1,689

3,718

5,407

251

5,157 4,214

943

-1000

0

1000

2000

3000

4000

5000

6000

Contracted period

Terminal value

Fleet value JV adjust. Value of owned fleet


mN

OK

1,014

5,157

6,663

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Contracted EBITDA


Book value

Value Net debt

0.24

1.22

1.58

0.00

0.40

0.80

1.20

1.60

2.00

Contracted EBITDA DCF based fleet value

Book value


Offsh

ore S

up

ply

Offshore Supply

Key credit metrics








Management

CEO – Åge Remøy.

CFO – Arild Myrvoll.

0

2

4

6

8

10

12

14

16

0

1,000

2,000

3,000

4,000

5,000

2012 2013 2014 2015E 2016E 2017E


0

2

4

6

8

10

12

14

0

1,000

2,000

3,000

4,000

5,000

2012 2013 2014 2015E 2016E 2017E


0

1

1

2

2

3

3

0

200

400

600

800

1,000

2012 2013 2014 2015E 2016E 2017E


0001111122

0

100

200

300

400

500

600

700

2012 2013 2014 2015E 2016E 2017E


56

58

60

62

64

66

68

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2012 2013 2014 2015E 2016E 2017E


0

5

10

15

20

25

30

35

40

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2012 2013 2014 2015E 2016E 2017E



Offsh

ore S

up

ply

Offshore Supply

Board of Directors

Mr. Peter D. Knudsen, Chairman.

Mrs. Maria Remøy Aurvåg, Board member.

Mr. Torstein Mar Baldvinsson, Board member.

Mrs. Inger-Marie Sperre, Board member.

Financials


NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

Revenues 740 970 1,413 1,211 1,081 896 816

Opex -279 -464 -550 -568 -547 -547 -549 EBITDA 461 506 862 643 534 349 267


Depreciation & amortisation -98 -113 -141 -180 -180 -178 -177 Writedown 0 0 0 0 0 0 0 EBIT 363 392 722 464 353 171 91

EBIT (adjusted for non-recurring items) 255 392 722 464 353 171 91

Interest expense -178 -249 -387 -318 -262 -258 -251 Interest income 44 42 41 64 59 59 59 Other net financial items 0 0 0 0 0 0 0 EBT 230 189 374 205 150 -28 -102 Tax -4 -1 -3 -14 -15 0 0 Net income 226 188 371 191 135 -29 -102

Net income (adjusted for non-recurring items) 119 188 371 191 135 -29 -102 Dividends -41.01 -32.29 -32.68 -91.43 -121.91 -121.91 -121.91



2012 2013 2014 2015E 2016E 2017E 2018E

Goodwill 20 20 20 20 20 20 20 Tangible fixed assets 4,352 5,514 6,431 6,647 6,513 6,382 6,252 Other non-current assets 34 45 42 36 36 36 36 Accounts receivable 93 157 254 209 180 149 144 Other current assets 42 100 77 0 0 0 0 Cash and equivalents 624 363 665 684 786 708 497 Total assets 5,164 6,200 7,490 7,597 7,536 7,295 6,948

Total interest-bearing debt 3,117 4,065 4,988 4,968 4,896 4,809 4,688 Net interest-bearing debt 2,493 3,702 4,323 4,283 4,110 4,101 4,191 Short-term interest-bearing debt 284 368 749 377 377 377 377 Other long-term liabilities 2 8 13 13 13 13 13 Accounts payable 18 24 24 24 21 17 17 Tax payable 3 0 1 0 0 0 0 Public duties payable 17 22 33 20 20 20 20 Other short-term liabilities 72 94 109 115 115 115 115 Other short-term debt 17 22 33 20 20 20 20 Total equity 1,937 1,995 2,335 2,470 2,484 2,333 2,109




Offsh

ore S

up

ply

Offshore Supply


NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

EBITDA 461 506 862 643 534 349 267 Tax cost -4 -1 -3 -14 -15 0 0 Net interest paid -39 -57 -95 86 0 0 0 Other CF from operations -131 -257 -245 -136 -151 -144 -184 Funds from operations (FFO) 190 377 614 350 316 150 75

Changes in working capital 6 93 47 -114 -26 -28 -4 Operating cash flow (OCF) 292 284 567 465 342 177 79

Net investments in fixed assets -216 -1,246 -1,036 -392 -47 -47 -47 Free cash flow 76 -962 -470 73 295 131 32 Share buy-backs 8 15 0 0 0 0 0 Debt repayments -423 -403 -623 -750 -713 -868 -1,218 Dividend -41 -32 -33 -91 -122 -122 -122 New debt 558 1,320 1,422 754 641 781 1,096 New equity 0 0 0 0 0 0 0 Other investing and financing cash flow 94 -199 5 35 0 0 0 Change in cash 272 -261 302 19 102 -78 -211



2012 2013 2014 2015E 2016E 2017E 2018E

Revenue growth (%) 13.3 31.1 45.6 -14.3 -10.8 -17.0 -9.0 EBITDA margin (%) 62.2 52.1 61.0 53.1 49.4 39.0 32.8 EBIT margin (%) 49.0 40.4 51.1 38.3 32.7 19.1 11.1 Capital employed 5053.6 6060.1 7323.0 7437.7 7379.8 7142.4 6796.8 ROCE (%) 7% 6% 10% 6% 5% 2% 1% EBITDA interest coverage (x) 2.6 2.0 2.2 2.0 2.0 1.4 1.1 EBIT interest coverage (x) 2.0 1.6 1.9 1.5 1.4 0.7 0.4 FFO interest coverage (x) 1.1 1.5 1.6 1.1 1.2 0.6 0.3 FFO/total debt (%) 6.1 9.3 12.3 7.0 6.4 3.1 1.6 FFO/net debt (%) 7.6 10.2 14.2 8.2 7.7 3.7 1.8 FOCF/total debt (%) 2.4 -23.7 -9.4 1.5 6.0 2.7 0.7 Total debt/EBITDA (x) 6.8 8.0 5.8 7.7 9.2 13.8 17.5 Net debt/EBITDA (x) 5.4 7.3 5.0 6.7 7.7 11.7 15.7 Debt/total capital (%) 60.3 65.6 66.6 65.4 65.0 65.9 67.5 Total equity/total assets (%) 37.5 32.2 31.2 32.5 33.0 32.0 30.4 FFO/Investments and acquisitions (x) 0.9 0.3 0.6 0.9 6.8 n.a n.a Dividends/Net income (prev year) n.a -0.14 -0.17 -0.25 -0.64 -0.90 4.25 Dividends/FFO (%) n.a -0.2 -0.1 -0.1 -0.3 -0.4 -0.8

Source Company data, Danske Bank Markets estimates


Offsh

ore S

up

ply

Offshore Supply

Siem Offshore


We assign a ‘B-’ corporate rating to Siem Offshore. Supporting the credit is the

large diversified fleet, market position and book values. However, following years of

high investments and an overbuilt market and cuts in E&P spending, financial

leverage and profitability metrics have weakened to the ‘CCC+’ level and

refinancing risk is considerable for the loss-making company.


Siem Offshore has a long-term contract profile for the subsea segment, with a relatively

young fleet. The PSVs and AHTS vessels are older with shorter contracts. The fleet of 45

OSVs consists of 10 AHTSs (average age five years), 12 PSVs (average age of seven

years) and six offshore subsea construction vessels (OSCV) (average age of two years). In

addition, it has 17 subsea construction vessels, mostly on longer contracts. Lastly, the

company has nine vessels are under construction, with expected deliveries in 2015-16.


At the end of Q2 15, the company had a backlog of USD1.63bn excluding options with

USD1.35bn from the OSV division and USD287m from the Industrial division. For H2,

approximately 65% of vessel availability is covered by firm and option contracts. Assuming

a very weak market in 2016 and 2017, some of the vessels will have a negative EBITDA

contribution due to low utilisation and likely stacking costs. This results in firm contracts

covering 87% and 93% of estimated 2016 and 2017 EBITDA, respectively. Should the

market strengthen, or the company stack vessels, there would be upside to our estimates.

Asset support

Our DCF-based fleet value calculation of USD1.1bn implies EV/NIBD of 1.0x, while the

fleet value of USD 1.5bn, based on book values, implies EV/NIBD of 1.42x. Contracted

EBITDA, excluding options, is 45% of NIBD.

Financial leverage

Siem Offshore’s newbuild programme and lack of profitability has led to a challenging

financial situation. To keep the cash balance positive, we assume that all bank debt will

be rolled at current terms and still see the need for USD150m of additional debt in 2016

and another USD50m in 2017. Based on our estimates, NIBD/EBITDA is 5.9x for 2015

and 8.2x for 2016. The book equity ratio is only 37-34% for 2015-17E.

Key ratios

2012 2013 2014 2015E 2016E 2017E 2018E

Total revenues 368 364 491 497 461 396 397

EBITDA 110 123 194 187 156 123 115

EBITDA margin (% 30.0 33.7 39.5 37.6 33.8 31.1 28.9

EBITDA interest coverage (x) 2.6 3.4 3.5 3.6 2.9 2.4 2.6

FFO/net debt (%) 16.1 2.5 12.1 22.2 8.7 6.3 6.8

Net debt/EBITDA (x) 6.9 7.5 5.9 5.9 8.4 10.2 10.4

Total debt/total capital (%) 49.8 53.8 56.2 55.0 58.7 60.1 63.3


Facts


Shipping

Corporate ticker: SIOF

Equity ticker: SIOF

Ratings:


Analysts:

Iver Båtvik

[email protected]

+47 95 97 74 45

Øyvind Mossige

[email protected]

+47 40 92 24 46


USD565m in EBITDA backlog.

Large and diversified fleet backed by industrial exposure

High book values relative to debt.

Strong backlog in OSV division.




Refinancing need.


Low profitability and high exposure to AHTS and PSV market changes.




Offsh

ore S

up

ply

Offshore Supply


Siem Offshore in short

Siem Offshore is a Cayman Islands-based offshore and subsea supplier. Operating a fleet

of 45 vessels, including AHTSs, PSVs and subsea construction vessels, the company aims

to provide a broad spectrum of offshore services.

Siem Offshore’s headquarters are located in Kristiansand, Norway, and additional offices

are found in Brazil, USA, Ghana, Australia, Germany and the Netherlands.

Risk factors


key risk for the OSV players.


and high fleet growth. The fleet growth needs to come down in order to bring balance

into the OSV market.

Siem Offshore has high financial leverage and needs to secure significant refinancing

in the near and medium term. Along with a falling backlog and contract coverage, this

might involve more equity and potential loss for creditors.

Fleet

The fleet of 45 OSVs consists of 10 AHTSs (average age five years), 12 PSVs (average

age of five years) and six OSCVs (average age of two years). In addition to 17 subsea

construction vessels, of which six are installation support vessels, with 10 other vessels

and one installation support vessel. The average vessel age is 8.6 years and the company

has nine vessels under construction.

Mortgage debt financing is secured for all vessels under construction and all newbuilds

except for the four PSVs have long-term contracts for a total of USD761m in backlog.

Chart 202. Fleet composition as of Q2 15 Chart 203. Revenues by vessel type 2016E

Source: Company data, Danske Bank Markets * Excluding Industrial division


28%

34%

11%

27%

AHTS PSV OSCV Other

19%

30%

13%

38%

Platform Supply Vessels

Offshore Subsea Construction Vessels

Anchor Handling Tug Supply Vessels

Other vessels


Offsh

ore S

up

ply

Offshore Supply

Chart 204. Contract profile as of August 2015 Chart 205. Vessel age profile as of August 2015


Contract coverage

Assuming a very weak market in 2016 and 2017, some of the vessels will have a negative

EBITDA contribution due to low utilisation and likely stacking costs. The result is that

firm contracts cover 84% and 95% of estimated 2016 and 2017 EBITDA, respectively.

Should the market strengthen or the company stack vessels, there would be upside to our

estimates.

The total firm contract backlog as of Q2 was USD1.62bn, with USD1.35bn from the OSV

division and USD287m from the Industrial division. For H2, approximately 57% of

vessel availability is covered by firm and option contracts.



Liquidity

The company has significant near-term debt repayments and USD486.4m in future yard

instalments, partly matched by USD430.0m in available debt facilities. Illustrated by a

decline in operational cash flow, the company is dependent on extensive refinancing in

order to maintain healthy liquidity.

The company has two outstanding bonds: SIOFF01, a NOK600m bond maturing in

January 2018, and a NOK700m bond maturing in March 2019.

9%

17%

74%

Contract length

Short-term [< 1 yr]


Long-term [> 3 years]8.7

8.0

3

11.8

8.6

0 2 4 6 8 10 12 14

AHTS segment

PSV segment

OSCV segment

Other segment

Weighted average

57%

48%42%

31%

0%

10%

20%

30%

40%

50%

60%

2H2015 2016 2017 2018

68%

87%93%

72%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2H2015 2016 2017 2018


Offsh

ore S

up

ply

Offshore Supply

Chart 208. Cash flow from operations (USDm) Chart 209. Investments (USDm)

Source: Danske Bank Markets estimates Source: Danske Bank Markets estimates

Chart 210. Debt repayment (USDm) Chart 211. New debt (USDm)

Source: Danske Bank Markets estimates Source: Danske Bank Markets estimates

Capital structure

Chart 212. Balance sheet (USDm)


0

20

40

60

80

100

120

140

160

180

200

2012 2013 2014 2015E 2016E 2017E

34

-243

-449

-211

-325

-17

-500

-400

-300

-200

-100

0

100

2012 2013 2014 2015E 2016E 2017E

-400

-300

-200

-100

0

2015 2016 2017 2018

Bank debt

SIOFF01 NOK600 3mN+4.75% 1/18

SIOFF02 NOK700 3mN+4.40% 3/19

0

50

100

150

200

250

2015 2016 2017 2018

Bank debt

SIOFF01 NOK600 3mN+4.75% 1/18

SIOFF02 NOK700 3mN+4.40% 3/19

0

500

1,000

1,500

2,000

2,500

Assets Liabilities

Fixed assets Intangible assets Cash & equivalents

Current assets Interest bearing debt Equity

Other


Offsh

ore S

up

ply

Offshore Supply

Table 53. Balance sheet summary (USDm)

USDm 2014 2015E 2016E 2017E

Fixed assets 1,957 1,826 2,018 1,902 Intangible assets 39 37 37 37 Cash & equivalents 118 133 75 87 Current assets 147 239 230 207 Total assets 2,261 2,236 2,360 2,233 Interest-bearing debt 1,271 1,229 1,385 1,341 Equity 824 837 817 763 Other 223 236 224 195 Total equity & liabilities 2,317 2,301 2,426 2,299


Interest-bearing debt was USD1,271m at the end of 2014.

Asset support

At the end of Q2 15, the company had an OSV backlog of USD1.35bn, excluding

options. In addition, the Industrial division had a backlog of USD287m as of end Q2 15.

Our DCF-based fleet value calculation of USD1.1bn implies EV/NIBD of 0.99x, while

the fleet value based on USD1.5bn in book value implies EV/NIBD of 1.42x. Contracted

EBITDA, excluding options, is currently 45% of NIBD.

Chart 213. Asset support Q2 15 (USDm) Chart 214. EV/NIBD Q2 15 (x)


Chart 215. Net asset value Q2 15 (USDm)


488

1,067

1,530

0200400600800

1,0001,2001,4001,6001,800

Contracted EBIDA DCF fleet value Bookvalue

Value Net debt

0.45

0.99

1.42

0.00

0.40

0.80

1.20

1.60

Contracted EBIDA DCF fleet value Bookvalue

567

519

1,086

19

1,074

-8

-200

0

200

400

600

800

1000

1200

Contracted period

Terminal value

Fleet value JV adj. Net debt Net asset value

US

Dm


Offsh

ore S

up

ply

Offshore Supply

Key credit metrics








We assign a ‘B-’ corporate credit rating to Siem Offshore. We base this rating on a


Supporting the rating is Siem Offshore’s diversified fleet composition, with high book

values and a large fleet giving a strong market position.

0

5

10

15

20

25

0

200

400

600

800

1,000

1,200

1,400

2012 2013 2014 2015E 2016E 2017E


0

2

4

6

8

10

12

0

200

400

600

800

1,000

1,200

1,400

2012 2013 2014 2015E 2016E 2017E


0

1

1

2

2

3

3

4

4

0

50

100

150

200

250

2012 2013 2014 2015E 2016E 2017E


0

1

2

3

4

5

0

50

100

150

200

250

300

2012 2013 2014 2015E 2016E 2017E


0

10

20

30

40

50

60

70

0

500

1,000

1,500

2,000

2,500

2012 2013 2014 2015E 2016E 2017E


0

10

20

30

40

50

0

500

1,000

1,500

2,000

2,500

2012 2013 2014 2015E 2016E 2017E



Offsh

ore S

up

ply

Offshore Supply


situation, combined with very high financial leverage and a declining backlog and

declining contract coverage. To maintain a positive cash balance, we assume all bank

balloons are rolled and an additional USD150m in new debt in 2016.


Management

CEO – Idar Hillerøy.

CFO – Dagfinn B. Lie.

Board of directors

Eystein Eriksrud, Chairman.

Kristian Siem, Board member.

Michael Delouche, Board member.

David Mullen, Board member

John C. Wallace, Board member

Financials

Table 54. Profit and loss statement (USDm)

USDm 2012 2013 2014 2015E 2016E 2017E 2018E

Revenues 368 364 491 497 461 396 397

OPEX -258 -241 -297 -310 -305 -273 -282 EBITDA 110 123 194 187 156 123 115

Depreciation & amortisation -83 -76 -97 -119 -134 -133 -130

Writedown 0 0 -29 -56 0 0 0 EBIT 54 69 84 -13 22 -9 -15 EBIT (adjusted for non-recurring items) 28 47 68 12 22 -9 -15

Interest expense -42 -36 -56 -51 -53 -52 -45

Interest income 4 5 9 9 10 10 10 Other net financial items 3 -21 36 7 0 0 0 EBT 19 18 73 -49 -21 -52 -50 Tax -4 4 -3 -5 0 0 0 Net income 15 22 71 -53 -21 -52 -50 Net income (adjusted for non-recurring items) -11 -1 55 -28 -21 -52 -50

Dividends 0.00 0.00 -6.53 0.00 0.00 0.00 0.00



Offsh

ore S

up

ply

Offshore Supply

Table 55. Balance sheet (USDm)

USDm 2012 2013 2014 2015E 2016E 2017E 2018E

Intangibles 36 42 39 37 37 37 37 Tangible fixed assets 1,369 1,568 1,874 1,753 1,944 1,829 1,716 Other non-current assets 77 80 83 73 73 73 73 Accounts receivable 44 53 75 0 0 0 0 Other current assets 106 58 72 239 230 207 217 Cash and equivalents 107 101 118 133 75 87 286 Total assets 1,738 1,903 2,261 2,236 2,360 2,233 2,329

Total interest-bearing debt 867 1,024 1,271 1,229 1,385 1,341 1,473 Net interest-bearing debt 760 923 1,154 1,095 1,310 1,254 1,188 Long-term interest-bearing debt 715 863 1,088 1,044 1,200 1,156 1,288 Other long-term liabilities 78 72 67 65 65 65 65 Short-term interest-bearing debt 82 98 127 120 120 120 120 Accounts payable 5 16 11 170 159 129 143 Other current liabilities 72 59 145 0 0 0 0 Total equity 787 794 824 837 817 763 713

Total equity and liabilities 1,738 1,903 2,261 2,236 2,360 2,233 2,329 Total equity and liabilities 8,685 8,343 8,379 8,284 8,073 7,390 7,046


Table 56. Cash flow summary (USDm)

USDm 2012 2013 2014 2015E 2016E 2017E 2018E

EBITDA 110 123 194 187 156 123 115 Tax cost -4 4 -3 -5 0 0 0 Net interest paid -35 -51 -11 -35 -44 -42 -35 Other operating cash flow -52 20 49 -58 -4 -14 6 Changes in working capital 51 -36 -45 77 2 6 -3 Funds from operations (FFO) 122 23 139 243 114 79 80 Operating cash flow (OCF) 71 59 184 166 111 73 83 Net investments 34 -243 -449 -211 -325 -17 -17 OCF net capex 105 -184 -265 -45 -214 56 66 Equity financing cash flow 1 -8 1 100 0 0 0 Repayments of debt -162 -129 -132 -291 -194 -194 -268 New debt 9 320 448 235 350 150 400 Other financing and investing cash flow 16 312 439 241 350 150 400 Change in cash -40 -9 43 5 -58 12 198 Currency effects 10 3 -27 -12 0 0 0 Cash at end of period 107 101 118 110 52 64 262



Offsh

ore S

up

ply

Offshore Supply

Table 57. Ratios

Ratios (adjusted) 2012 2013 2014 2015E 2016E 2017E 2018E

Revenue growth (%) 8.1 -1.2 35.0 1.1 -7.2 -14.0 0.1 EBITDA margin (%) 30.0 33.7 39.5 37.6 33.8 31.1 28.9 EBIT margin (%) 14.7 19.0 17.2 -2.7 4.9 -2.4 -3.8 ROCE (%) 3% 4% 4% -1% 1% 0% -1% EBITDA interest coverage (x) 2.6 3.4 3.5 3.6 2.9 2.4 2.6 EBIT interest coverage (x) 1.3 1.9 1.5 -0.3 0.4 -0.2 -0.3 FFO interest coverage (x) 2.9 0.6 2.5 4.7 2.1 1.5 1.8 FFO/total debt (%) 14.1 2.2 11.0 19.8 8.2 5.9 5.4 FFO/net debt (%) 16.1 2.5 12.1 22.2 8.7 6.3 6.8 FOCF/total debt (%) 12.1 -18.0 -20.9 -3.7 -15.5 4.2 4.5 Total debt/EBITDA (x) 7.9 8.3 6.5 6.6 8.9 10.9 12.9 Net debt/EBITDA (x) 6.9 7.5 5.9 5.9 8.4 10.2 10.4 Debt/total capital (%) 49.8 53.8 56.2 55.0 58.7 60.1 63.3 Total equity/total assets (%) 45.2 41.7 36.4 37.4 34.6 34.1 30.6 FFO/Investments and acquisitions (x) -3.6 0.1 0.3 1.2 0.3 4.7 4.7 Dividends/Net income (prev year) n.a 0.00 -0.30 0.00 0.00 0.00 0.00 Dividends/FFO (%) n.a 0.00 -0.28 0.00 0.00 0.00 0.00 Dividends/FFO (%) n.a 0.00 -0.28 0.00 0.00 0.00 0.00



Offsh

ore S

up

ply

Offshore Supply

Solstad Offshore


We assign a ‘B+’ corporate rating to Solstad Offshore. Supporting the credit is the solid

asset backing, based on both our calculated fleet values and on reported values driven

by a significant fleet of subsea vessels on long contract with strong counterparties.

However, with an overbuilt market and cuts in E&P spending, the contract coverage

and financial leverage metrics have weakened and the outlook remains uncertain.


Large and diversified offshore player

Solstad’s fleet is dominated by subsea/offshore construction vessels based on invested capital

and earnings and vessel values. The fleet consists of 20 subsea and construction vessels

(OCV), nine PSVs, 17 AHTSs (of which eight are small), including one large pipelay

construction vessel to be delivered in Q2 16 from the leading OSV yard Vard Brattvåg in

Norway. The newbuild will be Solstad’s largest vessel at delivery and is contracted to June

2024. Solstad has remaining newbuild instalments of c.NOK1bn in 2015 and 2016.


At the end of Q2 15, the company had a backlog of NOK10bn, excluding options. Solstad

Offshore has a relatively strong backlog driven by the subsea segment (CSV), with all 19

vessels working for three main players. Petrobras contract cancellation risk is limited to

c.NOK340m for two PSV and two AHTS vessels, in addition to one SCV vessel; hence,

we view the overall contract cancellation risk as low.

Asset support


the fleet value, based on shipbroker estimates, of NOK19.9bn implies EV/NIBD of 1.9x.

The booked fleet value of NOK14.7bn leaves EV/NIBD at 1.4x. Contracted EBITDA,

excluding options, is 23% of NIBD.

Financial leverage

Despite remaining capex on newbuilds and the NOK700m bond maturing in Q1 16,

Solstad Offshore should be able to maintain a positive cash balance assuming that at least

90% of bank debt will be rolled at current terms. We consider this a fair assumption,

taking the fleet, backlog and bank relationships into account. Basd on our estimates,

NIBD/EBITDA is 5.7x for 2015 and 7.1x for 2016. The equity ratio is c.30-35%.

Key ratios

NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

Total revenues 3,362 3,546 3,737 3,733 2,971 2,549 2,529 EBITDA 1,454 1,554 1,713 1,727 1,276 831 806 EBITDA margin (% 0.4 0.4 0.5 0.5 0.4 0.3 0.3 EBITDA Interest coverage (x) 2.8 3.5 3.8 3.8 3.1 2.2 2.2 FFO/Net debt (%) 8.9 14.5 11.2 12.6 9.0 5.1 5.2 Net debt/EBITDA (x) 5.8 5.3 6.1 5.7 7.1 10.4 10.3 Total debt/Total capital (%) 62.4 61.0 63.2 62.8 59.2 57.9 57.9


Facts


Shipping

Corporate ticker: SOFF

Equity ticker: SOFF

Ratings:


Analysts:

Iver Båtvik

[email protected]

+47 95 97 74 45

Øyvind Mossige

[email protected]

+47 40 92 24 46


Solid asset backing based on DCF, broker values and book values.

Established market position in all regions.


Strong operational record.

Sound liquidity based on backlog.



Relatively old fleet.






Offsh

ore S

up

ply

Offshore Supply


Solstad Offshore in short

Solstad Offshore is a well-diversified OSV player with focus on high-end subsea vessels.

Subsea vessels are typically chartered out on medium-term contracts with significant

dayrate variations based on different vessel specifications and capabilities. An industry

concern is the substantial newbuilding activity since 2008 (c.50 subsea vessels entered the

market in 2014) and some vessel owners have ordered subsea vessels on spec with no

assigned contract at delivery. Although this is a concern, we believe the increased supply

will be met by increased demand beyond 2016 due to a strong long-term demand picture

supported by large complex subsea projects in areas with limited infrastructure and

substantial maintenance requirements in established areas.

Risk factors


key risks for the OSV players, including Solstad Offshore.



the OSV market.

Solstad Offshore has a relatively older fleet, which in a prolonged downturn could

remain idle and stack to the extent that it has a negative impact on fleet valuation.

Fleet

The fleet consists of 46 OSVs, with 13 announced stacked or to be stacked. After

stacking, we estimate the fleet consists of AHTSs (10, with seven stacked) and PSVs

(four, with five stacked), and 19 (and one stacked) subsea construction vessels. The

average vessel age of vessels is 9.7 years after stacking and 10.9 years before.

Chart 222. Fleet composition Q2 15 (based on number of

units)



37%

43%

20%

AHTS SCV PSV

73%

19%

8%

SCV AHTS PSV


Offsh

ore S

up

ply

Offshore Supply

Chart 224. Contract profile (Q2 2015) Chart 225. Vessel age profile (years) (Q2 2016)


Contract coverage

The risk to contracted EBITDA is, in particular, Petrobras contracts for non-Brazilian

build PSV and AHTS vessels. Solstad has two PSVs, Trym and Vibram, which are on

contracts with Petrobras, where the contract is at particular risk, and we have assumed

that these will come off contract. Also, the AHTSs Drott and Titan and OSV vessel Seven

are on Petrobras contracts; however, we view the likelihood of the contract continuation

is higher and we assume these remain on contract.




The utilisation for PSV and AHTS has come down in 2015, as the market balance has

weakened. The history shows that utilisation has been driven by term contracts.

33%

31%

36%

Short-term [< 1 yr] Mid-term [1 > 3 yrs]

Long-term [> 3 yrs]

7.9

10.8

10.9

0 2 4 6 8 10 12

AHTS segment

SCV segment

PSV segment

Weighted average

64%

40%

21%

11%

0%

20%

40%

60%

80%

2015 2016 2017 2018

87%

57%

43%

27%

0%

20%

40%

60%

80%

100%

2015 2016 2017 2018


Offsh

ore S

up

ply

Offshore Supply



Liquidity

With a strong bank relationship, Solstad should be able to roll its 2016 and 2017 balloon

payments given comfortable loan to values at Q2 15. The risk is that overcapacity leads to

a sharp fall in asset values and the company is able to refinance less than 90% of

maturing bank debt.





0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013 2014 2015


0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013 2014 2015


848711

1,514

1,163

957

549

0

200

400

600

800

1,000

1,200

1,400

1,600

2012 2013 2014 2015E 2016E 2017E

655362

-2,089

-85 -114 -114

-2,500

-2,000

-1,500

-1,000

-500

0

500

1,000

2012 2013 2014 2015E 2016E 2017E

-7,000

-6,000

-5,000

-4,000

-3,000

-2,000

-1,000

0

2015 2016 2017 2018

Mortgage loan with floating interest

SOFF03 NOK700m 2016, 3mN +4.4%

599.9

3,251.5

5,382.0

120.6

0

1,000

2,000

3,000

4,000

5,000

6,000

2015 2016 2017 2018


Offsh

ore S

up

ply

Offshore Supply

Chart 234. Liquidity development (NOKm)


Capital structure




NOKm 2014 2015E 2016E 2017E

Fixed assets 15,187 14,903 14,540 14,184 Intangible assets 62 59 59 59 Cash & equivalents 1,321 1,865 1,647 1,483 Current assets 1,176 1,039 899 788 Total assets 17,746 17,866 17,145 16,515

Interest-bearing debt 11,217 11,215 10,153 9,555 Equity 5,058 5,359 5,700 5,668 Other 1,471 1,292 1,292 1,292 Total equity & liabilities 17,746 17,866 17,145 16,515


Asset support


the fleet value, based on shipbroker estimates, of NOK19.9bn implies EV/NIBD of 1.9x.

The booked fleet value of NOK14.7bn givves EV/NIBD of 1.4x. Contracted EBITDA,

excluding options, is 23% of NIBD.

-8,000-6,000-4,000-2,000

02,0004,0006,0008,000

2014 2015E 2016E 2017E

Operations Net investments Net change in debt

Dividends Other Net change in cash

0

5,000

10,000

15,000

20,000

Assets Funding

Fixed Intangibles Cash

Other non-current Other current Interest bearing debt

Equity Other


Offsh

ore S

up

ply

Offshore Supply

Chart 236. Asset support Q2 15 (NOK) Chart 237. EV/NIBD Q2 15 (x)

Source: Company data, Danske Bank Markets Source Company data, Danske Bank Markets

The calculated DCF-based fleet value corresponds to a loan to value of 83%.

Chart 238. 83% loan to value based on our calculated asset values (NOKm)


Table 59. Share price sensitivity to utilisation and WACC


75% 80% 85% 90% 95%

WACC

7% 52.4 69.1 85.9 102.6 119.4 8% 26.4 41.5 56.6 71.7 86.9 9% 3.3 17.0 30.7 44.4 58.0

10% -17.2 -4.8 7.6 20.0 32.4 11% -35.6 -24.3 -13.0 -1.7 9.5 12% -52.0 -41.7 -31.5 -21.2 -10.9 13% -66.8 -57.4 -48.0 -38.6 -29.2 14% -80.0 -71.5 -62.9 -54.3 -45.7


2,395

12,722

19,900

14,683

0

5,000

10,000

15,000

20,000

25,000

Contracted EBITDA



Book value

Value Net debt

0.2

1.2

1.9

1.4

0.000.200.400.600.801.001.201.401.601.802.00

Contracted EBITDA



Book value

4,064

9,191

13,255

533

10,509

2,213

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Contracted period

Terminal value

Fleet value JV adjustment



Offsh

ore S

up

ply

Offshore Supply

Key credit metrics







0

2

4

6

8

10

12

14

16

0

2,000

4,000

6,000

8,000

10,000

12,000

2012 2013 2014 2015E 2016E 2017E


0

2

4

6

8

10

12

0

2,000

4,000

6,000

8,000

10,000

12,000

2012 2013 2014 2015E 2016E 2017E


0

1

1

2

2

3

3

4

4

0

500

1,000

1,500

2,000

2012 2013 2014 2015E 2016E 2017E


0

1

1

2

2

3

3

0

200

400

600

800

1,000

1,200

1,400

2012 2013 2014 2015E 2016E 2017E


55565758596061626364

0

5,000

10,000

15,000

20,000

2012 2013 2014 2015E 2016E 2017E


0

5

10

15

20

25

30

35

40

0

5,000

10,000

15,000

20,000

2012 2013 2014 2015E 2016E 2017E



Offsh

ore S

up

ply

Offshore Supply


We assign a ‘B+’ corporate credit rating to Solstad Offshore. The rating is based on a


Supporting the rating is Solstad Offshore’s solid asset backing based on our DCF-based

fleet value calculation, book values and broker estimates. Solstad Offshore is an

established player with a long record, diversified fleet composition and presence in all

regions.

Weighing down on the rating is the oversupplied market and uncertain demand situation,

combined with high financial leverage and declining backlog and contract coverage.


Management

CEO – Lars Peder Solstad.

CFO – Eivind Kvilhaug.

Board of directors (December 2014)

Harald Eikesdal, resigning Chairman.

Toril Eidesvik, board member.

Terje Vareberg, acceding Chairman.

Anette Solstad, board member.

Ketil Lenning, board member.

Financials


NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

Revenues 3,362 3,546 3,737 3,733 2,971 2,549 2,529

OPEX -1,908 -1,991 -2,024 -2,006 -1,695 -1,718 -1,723 EBITDA 1,454 1,554 1,713 1,727 1,276 831 806

EBITDA (adjusted for non-recurring items) 1,454 1,544 1,697 1,727 1,276 831 806

Depreciation & amortisation -585 -431 -462 -484 -476 -470 -464 EBIT 869 1,123 1,252 1,243 800 360 342

EBIT (adjusted) 869 1,112 1,236 1,243 800 360 342

Interest income 6 7 21 6 5 5 5 Interest expenses -524 -450 -454 -457 -406 -380 -367 Other net financial items 11 -139 -673 -254 -20 -16 -14 EBT 362 541 145 413 379 -31 -33 Tax 34 -56 -31 -47 -38 -1 0 Net income 397 485 113 366 341 -32 -33

Net income (adjusted) 397 474 97 366 341 -32 -33

Dividends 0.00 0.00 0.00 7.54 4.45 0.17 0.00



Offsh

ore S

up

ply

Offshore Supply


NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

Intangible assets 95 59 62 59 59 59 59 Tangible fixed assets 12,665 12,137 14,773 14,500 14,137 13,781 13,431 Other non-current assets 323 409 414 403 403 403 403 Accounts receivable 518 708 757 979 839 728 738 Other current assets 299 473 419 60 60 60 60 Cash and equivalents 807 1,240 1,321 1,865 1,647 1,483 1,776 Total assets 14,707 15,025 17,746 17,866 17,145 16,515 16,468

Total interest-bearing debt 9,171 9,171 11,217 11,215 10,153 9,555 9,542 Net interest-bearing debt 8,478 8,198 10,393 9,895 9,052 8,617 8,311 Long-term interest-bearing debt 7,114 7,539 10,095 8,611 7,550 6,952 6,939 Other long-term liabilities 114 268 506 545 545 545 545 Short-term interest-bearing debt 2,057 1,632 1,122 2,603 2,603 2,603 2,603 Accounts payable 187 111 372 0 0 0 0 Other short-term debt 571 521 594 747 747 747 747 Total equity 4,665 4,954 5,058 5,359 5,700 5,668 5,634




NOKm 2012 2013 2014 2015E 2016E 2017E 2018E

EBITDA 1,454 1,554 1,713 1,727 1,276 831 806

Tax cost 34 -56 -31 -47 -38 -1 0 Net interest paid -507 -582 -1,107 -705 -421 -391 -375 Changes in working capital -94 489 -337 81 -140 -111 10 Other CF from operations -39 -694 1,276 107 280 222 -21 Funds from operations (FFO) 754 1,189 1,161 1,245 817 438 431

Operating cash flow (OCF) 848 711 1,514 1,163 957 549 421 Net investments in fixed assets 655 362 -2,089 -85 -114 -114 -114 OCF net of capex 1,504 1,073 -575 1,078 843 435 306 New debt 774 1,738 3,348 2,683 3,252 5,382 121 Debt repayments -1,732 -2,015 -2,277 -2,983 -4,313 -5,980 -134 Other cash flows -385 -362 -416 -234 0 0 0 Change in cash 161 433 81 544 -218 -163 293

Effect of foreign exchange differences 0 0 0 0 0 0 0 Cash end of period 807 1,240 1,321 1,865 1,647 1,483 1,776



Offsh

ore S

up

ply

Offshore Supply

Table 63. Ratios

Ratios 2012 2013 2014 2015E 2016E 2017E 2018E

Revenue growth (%) 10.3 5.5 5.4 -0.1 -20.4 -14.2 -0.8 EBITDA margin (%) 0.4 0.4 0.5 0.5 0.4 0.3 0.3 EBIT margin (%) 0.3 0.3 0.3 0.3 0.3 0.1 0.1 ROCE (%) 6% 8% 7% 7% 5% 2% 2% EBITDA interest coverage (x) 2.8 3.5 3.8 3.8 3.1 2.2 2.2 EBIT interest coverage (x) 0.7 1.2 0.3 0.9 0.9 -0.1 -0.1 FFO interest coverage (x) 1.4 2.6 2.6 2.7 2.0 1.2 1.2 FFO/total debt (%) 8.2 13.0 10.3 11.1 8.1 4.6 4.5 FFO/net debt (%) 8.9 14.5 11.2 12.6 9.0 5.1 5.2 FOCF/total debt (%) 16.4 11.7 -5.1 9.6 8.3 4.5 3.2 Total debt/EBITDA (x) 6.3 5.9 6.5 6.5 8.0 11.5 11.8 Net debt/EBITDA (x) 5.8 5.3 6.1 5.7 7.1 10.4 10.3 Debt/total capital (%) 62.4 61.0 63.2 62.8 59.2 57.9 57.9 Total equity/total assets (%) 31.7 33.0 28.5 30.0 33.2 34.3 34.2 FFO/investments (x) -1.2 -3.3 0.6 14.6 7.2 3.8 3.8 Dividends/net income (previous year) n.a 0.00 0.00 0.07 0.01 0.00 0.00 Dividends/FFO (%) n.a 0.00 0.00 0.01 0.00 0.00 0.00



Offsh

ore S

up

ply

Offshore Supply

Jakob Magnussen

Utilities, Energy +45 45 12 85 03 [email protected]

Øyvind Mossige

Oil services +47 85 40 54 91 [email protected]

Ola Heldal

TMT +47 85408433 [email protected]

Henrik René Andresen

Credit Portfolios +45 45 13 33 27 [email protected]

Brian Børsting

Industrials +45 45 12 85 19 [email protected]

Mads Rosendal

Industrials, Pulp & Paper +45 45 14 88 79 [email protected]

Lars Holm

Financials +45 45 12 80 41 [email protected]

Fixed Income Credit Research

Louis Landeman

TMT, Industrials +46 8 568 80524 [email protected]

Thomas Hovard

Head of Credit Research +45 45 12 85 05

[email protected]

Find the latest Credit Research

Danske Bank Markets: Bloomberg: http://www.danskebank.com/danskemarketsresearch DNSK<GO>

Gabriel Bergin

Strategy, Industrials +46 8 568 80602 [email protected]

Niklas Ripa

High Yield, Industrials +45 45 12 80 47 [email protected]

Bjørn Kristian Røed

Shipping +47 85 40 70 72 [email protected]

Sondre Dale Stormyr

Offshore rigs +47 85 40 70 70 [email protected]

Emil Hjalmarsson

Real Estate, Construction +46 8 568 80634 [email protected]

Knut-Ivar Bakken

Fish Farming +47 85 40 70 74 [email protected]

Iver Christian Båtvik

Seismic, Offshore Supply +47 95 97 74 45 [email protected]










http://www.danskebank.com/danskemarketsresearch









Offsh

ore S

up

ply

Offshore Supply

Credit disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske

Bank’). The authors of the research report are Iver Christian Båtvik, Analyst, and Øyvind Mossige, Senior

Analyst.

Analyst certification

Each research analyst responsible for the content of this research report certifies that the views expressed in the

research report accurately reflect the research analyst’s personal view about the financial instruments and issuers

covered by the research report. Each responsible research analyst further certifies that no part of the compensation

of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed

in the research report.

Regulation

Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject

to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske

Bank is subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority

(UK). Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation

Authority are available from Danske Bank on request.

The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts’

rules of ethics and the recommendations of the Danish Securities Dealers Association.

Conflicts of interest

Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high-

quality research based on research objectivity and independence. These procedures are documented in Danske

Bank’s research policies. Employees within Danske Bank’s Research Departments have been instructed that any

request that might impair the objectivity and independence of research shall be referred to Research Management

and the Compliance Department. Danske Bank’s Research Departments are organised independently from and do

not report to other business areas within Danske Bank.

Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes

investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate

finance or debt capital transactions.

Danske Bank is a market maker and may hold positions in the financial instruments mentioned in this research

report.

Danske Bank, its affiliates and subsidiaries are engaged in commercial banking, securities underwriting, dealing,

trading, brokerage, investment management, investment banking, custody and other financial services activities,

may be a lender to the companies mentioned in this publication and have whatever rights are available to a

creditor under applicable law and the applicable loan and credit agreements. At any time, Danske Bank, its

affiliates and subsidiaries may have credit or other information regarding the companies mentioned in this

publication that is not available to or may not be used by the personnel responsible for the preparation of this

report, which might affect the analysis and opinions expressed in this research report.

See www-2.danskebank.com/Link/researchdisclaimer for further disclosures and information.

General disclaimer This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for

informational purposes only. It does not constitute or form part of, and shall under no circumstances be

considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments

(i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or

options, warrants, rights or other interests with respect to any such financial instruments) (‘Relevant Financial

Instruments’).

The research report has been prepared independently and solely on the basis of publicly available information that

Danske Bank considers to be reliable. While reasonable care has been taken to ensure that its contents are not

untrue or misleading, no representation is made as to its accuracy or completeness and Danske Bank, its affiliates

and subsidiaries accept no liability whatsoever for any direct or consequential loss, including without limitation

any loss of profits, arising from reliance on this research report.

http://www-2.danskebank.com/Link/researchdisclaimer


Offsh

ore S

up

ply

Offshore Supply

The opinions expressed herein are the opinions of the research analysts responsible for the research report and

reflect their judgement as of the date hereof. These opinions are subject to change, and Danske Bank does not

undertake to notify any recipient of this research report of any such change nor of any other changes related to the

information provided in this research report.

This research report is not intended for retail customers in the United Kingdom or the United States.

This research report is protected by copyright and is intended solely for the designated addressee. It may not be

reproduced or distributed, in whole or in part, by any recipient for any purpose without Danske Bank’s prior

written consent.

Disclaimer related to distribution in the United States This research report is distributed in the United States by Danske Markets Inc., a U.S. registered broker-dealer

and subsidiary of Danske Bank, pursuant to SEC Rule 15a-6 and related interpretations issued by the U.S.

Securities and Exchange Commission. The research report is intended for distribution in the United States solely

to ‘U.S. institutional investors’ as defined in SEC Rule 15a-6. Danske Markets Inc. accepts responsibility for this

research report in connection with distribution in the United States solely to ‘U.S. institutional investors’.

Danske Bank is not subject to U.S. rules with regard to the preparation of research reports and the independence

of research analysts. In addition, the research analysts of Danske Bank who have prepared this research report are

not registered or qualified as research analysts with the NYSE or FINRA but satisfy the applicable requirements

of a non-U.S. jurisdiction.

Any U.S. investor recipient of this research report who wishes to purchase or sell any Relevant Financial

Instrument may do so only by contacting Danske Markets Inc. directly and should be aware that investing in non-

U.S. financial instruments may entail certain risks. Financial instruments of non-U.S. issuers may not be

registered with the U.S. Securities and Exchange Commission and may not be subject to the reporting and

auditing standards of the U.S. Securities and Exchange Commission.

Investment Research Offshore Supply - Danske Bankdanskeanalyse.danskebank.dk/abo/CreditUpdate... ·...

Documents

Transcript of Investment Research Offshore Supply - Danske Bankdanskeanalyse.danskebank.dk/abo/CreditUpdate... ·...