News
An interview with Torbjorn Skulstad, CFO of Oceanteam ASA
1. Personal
Q: What is your background and role in the company?
“I joined Oceanteam ASA in 2007 and have been CFO since 2011. Before joining the company I was an accountant for six years at BDO Noraudit Bergen. As for my professional education: I hold a MSc in business and I am also an authorised accountant from the Norwegian School of Business.”
Q: Do you own shares and bonds within the company?
“I do own shares and bonds in the company, because I believe in its long-term strategy. I feel management should be personally involved in the decisions they make.”
2. Financial position of the company
Q: Can you give an update on the current status of the working capital and the liquidity position?
“At the end of the third quarter the company’s working capital and liquidity position was indeed low. This was due to repayment of a USD 35 million bond debt, pre-mobilisation costs due to new projects and costs flowing from the bankruptcy of one of our clients. At the same time, the company secured a large ‘capital on call’ revolving facility, which is being used as a current account to support its growth and working capital assets. The company has now [January 2016 – red.] accumulated USD 116.25 million in total debt with a debt to equity ratio of 1.12, which is about average compared to similar companies.”
Q: Is there a risk that the current bank covenant agreements are in danger and need to be renegotiated?
“No. Currently the company meets all its covenants and is expected to keep doing this going forward. This is, of course, leaving aside any further adverse events which may have an impact on us.”
Q: What is Oceanteam’s strategy to refinance its bond loans?
“We have three key assets, all large VSC vessels, which have been financed by banks loans. We are working with various scenarios, including the use of interest swap agreements as financial instruments. In general you could say we tap as many sources as we can to spread the risks and to remain liquid, which is key in this market. As for refinancing, of course we try to get the best deal we can, but there are many factors - like our improved credit rating – which affect when and how we can get access to the bond market. We aim to refinance at the earliest opportunity. Currently the bond market is closed for competitively priced loans, but as soon as there is a window we are ready to execute our refinancing plan. In the meantime, we will continue as we are and will be as transparent as we can be about it.”
Q: The company has reported an earnings-per-share loss for the past three years. When will it be profitable again?
“This is hard to predict as this currently very depends on the reduction of our cost of capital. At the same time there is considerable uncertainty as to how long it will take before oil & gas demand picks up and I expect market conditions to remain challenging for some time. The current oil price and the fluctuations and trade barriers affect us. They affect our customers and all kinds of oil & gas investments are put on hold or delayed.
The last three years we’ve been in a turnaround, focusing on the renewables energy market and on our solutions portfolio, both of which boost revenues and earnings. But even so, volatility and uncertainty affect the whole market, and pressure the results. Our business is dependent on cyclical markets. We cannot do more than sail as close to the wind as possible and ride the next upturn. We strongly believe that in the long-term, exploration and production activities are likely to increase again and the demand for large construction support vessels and services is likely to grow.”
3. Stock price
Q: At the beginning of 2011 the stock traded at almost 8 NOK and now it’s below 4 NOK. Why is the stock so cheap and does that worry you?
“2011 and 2016 stock prices cannot be compared, because we refinanced restructured in early 2013 and devalued five NOK warrants into one NOK warrant. So if you look from the one NOK perspective, the stock price is not that bad. Having said that, I do think the price is too low, though relatively stable and the company appears to be undervalued. I’m not really worried about this as we have a clear strategy for the coming years which will boost our revenues and downgrade our capital costs.”
Q: If the share price was higher, what would that mean for Oceanteam ASA?
“A higher share price means better access to the capital markets and bank capital, because you look like a stronger company with more value. But this is only true if the share price would be at least, say, 100 per cent higher. Over the past three years we have been all the way up to 7.10 NOK and down to 3.45 NOK. This shows the current market sentiment.
But market sentiment will not affect our focus on strong long-term backlog and the full utilisation of our high-end deep water assets, because this is a strategy that gives long-term stable cash flow. The moves to diversify our global business units will make us more robust in the future when it comes to decreasing oil prices. Geopolitical tensions mean we will continue to focus on stable regions and to team up with strong local partners with proven track records and access to capital in their respective markets.”
4. Risk management
Q: How can you shake off the image of being purely an oil & gas sector player?
“Oceanteam is understandably associated with the oil & gas sector given our history. But looking forward, I think we will see a change in perception because we are going to play an important role in the renewable sector as well. The company profile has fundamentally changed. But even though renewables are a different industry, it is the general financial markets that are affected by the current developments in the oil & gas sector. Things can change for the better in the short-term and we see a lot of traditional oil & gas players considering a move into the renewable energy sector as well.”
Q: 50% of group revenue is in US dollars (shipping), the rest in euros. How do you see developments in the currency markets?
“We deal with currency market differences mainly by natural hedge, which means that we have the income in the same currency as we have the costs. We have very good risk mitigation at this level. We try to keep our foreign currency levels as low as possible, to avoid any big movements. This is one thing we learned from the past, when our reporting currency was NOK and our revenues in USD. Nowadays currency fluctuations may affect our business, but the effect is limited. We do the same in terms of interest rates but there I have a policy of 50/50 fixed and floating. That makes it possible to take some of the upside of the low interest rates, while avoiding the risk of being hit hard by increases.”
Q: What is your background and role in the company?
“I joined Oceanteam ASA in 2007 and have been CFO since 2011. Before joining the company I was an accountant for six years at BDO Noraudit Bergen. As for my professional education: I hold a MSc in business and I am also an authorised accountant from the Norwegian School of Business.”
Q: Do you own shares and bonds within the company?
“I do own shares and bonds in the company, because I believe in its long-term strategy. I feel management should be personally involved in the decisions they make.”
2. Financial position of the company
Q: Can you give an update on the current status of the working capital and the liquidity position?
“At the end of the third quarter the company’s working capital and liquidity position was indeed low. This was due to repayment of a USD 35 million bond debt, pre-mobilisation costs due to new projects and costs flowing from the bankruptcy of one of our clients. At the same time, the company secured a large ‘capital on call’ revolving facility, which is being used as a current account to support its growth and working capital assets. The company has now [January 2016 – red.] accumulated USD 116.25 million in total debt with a debt to equity ratio of 1.12, which is about average compared to similar companies.”
Q: Is there a risk that the current bank covenant agreements are in danger and need to be renegotiated?
“No. Currently the company meets all its covenants and is expected to keep doing this going forward. This is, of course, leaving aside any further adverse events which may have an impact on us.”
Q: What is Oceanteam’s strategy to refinance its bond loans?
“We have three key assets, all large VSC vessels, which have been financed by banks loans. We are working with various scenarios, including the use of interest swap agreements as financial instruments. In general you could say we tap as many sources as we can to spread the risks and to remain liquid, which is key in this market. As for refinancing, of course we try to get the best deal we can, but there are many factors - like our improved credit rating – which affect when and how we can get access to the bond market. We aim to refinance at the earliest opportunity. Currently the bond market is closed for competitively priced loans, but as soon as there is a window we are ready to execute our refinancing plan. In the meantime, we will continue as we are and will be as transparent as we can be about it.”
Q: The company has reported an earnings-per-share loss for the past three years. When will it be profitable again?
“This is hard to predict as this currently very depends on the reduction of our cost of capital. At the same time there is considerable uncertainty as to how long it will take before oil & gas demand picks up and I expect market conditions to remain challenging for some time. The current oil price and the fluctuations and trade barriers affect us. They affect our customers and all kinds of oil & gas investments are put on hold or delayed.
The last three years we’ve been in a turnaround, focusing on the renewables energy market and on our solutions portfolio, both of which boost revenues and earnings. But even so, volatility and uncertainty affect the whole market, and pressure the results. Our business is dependent on cyclical markets. We cannot do more than sail as close to the wind as possible and ride the next upturn. We strongly believe that in the long-term, exploration and production activities are likely to increase again and the demand for large construction support vessels and services is likely to grow.”
3. Stock price
Q: At the beginning of 2011 the stock traded at almost 8 NOK and now it’s below 4 NOK. Why is the stock so cheap and does that worry you?
“2011 and 2016 stock prices cannot be compared, because we refinanced restructured in early 2013 and devalued five NOK warrants into one NOK warrant. So if you look from the one NOK perspective, the stock price is not that bad. Having said that, I do think the price is too low, though relatively stable and the company appears to be undervalued. I’m not really worried about this as we have a clear strategy for the coming years which will boost our revenues and downgrade our capital costs.”
Q: If the share price was higher, what would that mean for Oceanteam ASA?
“A higher share price means better access to the capital markets and bank capital, because you look like a stronger company with more value. But this is only true if the share price would be at least, say, 100 per cent higher. Over the past three years we have been all the way up to 7.10 NOK and down to 3.45 NOK. This shows the current market sentiment.
But market sentiment will not affect our focus on strong long-term backlog and the full utilisation of our high-end deep water assets, because this is a strategy that gives long-term stable cash flow. The moves to diversify our global business units will make us more robust in the future when it comes to decreasing oil prices. Geopolitical tensions mean we will continue to focus on stable regions and to team up with strong local partners with proven track records and access to capital in their respective markets.”
4. Risk management
Q: How can you shake off the image of being purely an oil & gas sector player?
“Oceanteam is understandably associated with the oil & gas sector given our history. But looking forward, I think we will see a change in perception because we are going to play an important role in the renewable sector as well. The company profile has fundamentally changed. But even though renewables are a different industry, it is the general financial markets that are affected by the current developments in the oil & gas sector. Things can change for the better in the short-term and we see a lot of traditional oil & gas players considering a move into the renewable energy sector as well.”
Q: 50% of group revenue is in US dollars (shipping), the rest in euros. How do you see developments in the currency markets?
“We deal with currency market differences mainly by natural hedge, which means that we have the income in the same currency as we have the costs. We have very good risk mitigation at this level. We try to keep our foreign currency levels as low as possible, to avoid any big movements. This is one thing we learned from the past, when our reporting currency was NOK and our revenues in USD. Nowadays currency fluctuations may affect our business, but the effect is limited. We do the same in terms of interest rates but there I have a policy of 50/50 fixed and floating. That makes it possible to take some of the upside of the low interest rates, while avoiding the risk of being hit hard by increases.”