COLUMN | Dive in diving: Boskalis, Rever Offshore, James Fisher, Mozambique [Offshore Accounts]

Boskalis buys Rever

Boskalis announced here it has purchased beleaguered North Sea diving outfit Rever Offshore from Rever’s private equity owners Fara Holdco on January 5.

Boskalis is playing a great hand in the industry downturn, scooping up high value distressed assets from distressed owners, or their lenders, using the powerful cash flows from its core dredging business to build up a strong position in both renewables and subsea. It has already snapped up a very large construction vessel from Emas on a bareboat charter for peanuts – Boka Pegasus – and two high end dive vessels with troubled histories, now Boka da Vinci and Boka Atlantis.

Boskalis also announced the bareboat of the subsea vessel Topaz Tiamat from P&O, now renamed Boka Tiamat. Previously, Boskalis had swallowed Smit, and made a play to take over Fugro, which was rebuffed in 2016, but only after Boskalis has acquired 20 per cent of the survey player.

Two boats from Bibby Offshore

The business now known as Rever Offshore is the diving company formerly known as Bibby Offshore, which merged with Cecon Construction in 2018 under the auspices of Fara, and was renamed Rever. Rever has historically operated in the North Sea out of Aberdeen, and Boskalis will obtain two dive support vessels, of which one is fully owned (Rever Polaris) and a second chartered in from Volstad (Rever Topaz).

Rever generated €90 million in 2020

The press release doesn’t give any value for the transaction, but does let the cat out of the bag regarding the distress that Rever was in due to the Covid crisis. Amid the details of the acquisition (“The Rever group employs an onshore staff of around 130 in addition to approximately 220 offshore workers,” blah blah blah…), Boskalis mentions that, “the 2020 annual revenue is approximately €90 million (US$108 million), most of which is generated through numerous framework agreements. Based on projected cost synergies, the acquisition payback period is expected to be less than three years.”

A three-year payback at the bottom of the market implies significant upside in the recovery from Boskalis and aggressive cost cutting plans.

Going concern warning in 2019 accounts

The sale was critical to Rever, because a quick visit to Companies House, where British companies are legally obliged to file their accounts, shows that in the calendar year to the end of 2019 the revenue of the main Rever subsidiary, Rever Offshore UK, was actually £113 million (US$152 million), so the figure Boskalis quotes for 2020 was down by about a third. Even on higher revenue in 2019 than in 2018, Rever managed to lose £29.9 million (US$40 million), and the accounts came with an ominous warning that the business faced issues continuing as a going concern, particularly through the next three months when North Sea dive projects dry up over winter.

Fara had waived repayment of a £15 million (US$20 million) parent company loan, which had been due in July last year, and the Rever directors believed that they had sufficient “financial headroom” to continue operations until August this year. But clearly, the take-over by Boskalis provides a stable parent company and strong overlaps with Boskalis’ existing diving business. Boskalis boasted that it is now, “a solid top three player opening up ample opportunities for operational efficiencies and synergies.”

Volstad benefits from purchase

Also relieved will be the owner of Rever Topaz, Volstad, which trades a customer of dubious financial standing for the balance sheet might of Boskalis. The bareboat charter was renewed in 2017 by Bibby firm until December 31, 2019, with what Bibby at the time described as “flexible options” to further extend the charter to the end of 2024. Of course, the risk is that at the end of 2021, Boskalis may decide that they have cheaper and better in-house options than Rever Topaz.

The unanswered mystery: the two Cecon hulls

Baird covered the merger of Bibby Offshore and Rever Offshore here. One mystery remains from the take over by Boskalis: What has happened to the two newbuildings left unfinished for what must be the longest period in the history of the offshore industry, which Rever, through Cecon Contracting, owned?

More than a decade ago Cecon had ordered a trio of high specification subsea vessels at Davie Shipyard at Quebec in Canada. These were the magnificent Cecon Pride, Cecon Excellence and Cecon Sovereign, which started construction in 2008 to a Wartsila design from 2006. The first vessel in the trio, Cecon Pride, was eventually completed by the Canadian yard in 2014, and promptly sold to a standalone company owned by American private equity company Fortress, and it now trades mainly in Asia as plain Pride.

And then there were two. The announcement of the Bibby/Rever merger declared that, “the vessels are not yet completed, with the Cecon Excellence expected to be delivered in Q1 2019 while the Cecon Sovereign is expected to be delivered in Q1 2020.”

That hasn’t happened, to my knowledge, and the take-over of Rever by Boskalis makes no reference to the fate of these ships, one of which was seen in Bulgaria, after it was finally removed from the ill-fated Davie yard, following the bankruptcy/restructuring of the original ship owner Cecon in 2013, and several changes of ownership at the Canadian yard (here).

Sovereign Scrapped

After publication, a reader wrote to tell us that the steel blocks for Davie Hull 719 (Cecon Sovereign) were scrapped at the yard in Quebec in 2017, although some equipment was retained by Cecon. One mystery, solved. Thank you!

Excellence still in limbo

In 2017, the hull of Cecon Excellence arrived at Varna’s Shipyard for finishing and fit out, as you can see here. Rever made the bold decision to choose the Bulgarian shipyard Bulyard, a yard previously known mainly for its ship repair activities, to complete the vessel. Cecon Excellence was apparently around 65 per cent completed upon arrival in Bulyard.

High specification vessels

Cecon Excellence will be a high specification vessel if and when it ever makes it into service. The vessel has an alphabet soup of class notations: 1A1, DYNPOS AUTRO, E0, CLEAN, COMF-V (3) C (3), HELDK-SH, SF, ICE C, CRANE, NAUT OSV, with a length of 130 metres with accommodation for 100 persons, helideck, 250-tonne active heave compensated crane, and DP Class 3. One has to hope that Wartsila “future-proofed” the design, however.

We now have now learnt from sources that Cecon Excellence was actually relocated from Varna to the Westcon Yard in Florø, Norway, back in July 2020. There is excellent aerial photography of the hull on an OHT heavy lift ship in he Mediterranean and here. So, in the course of its building, the unfinished hull has had three ship yards in three countries on both sides of the Atlantic as well as the Black Sea.

It’s not clear to me what will happen to this vessel now, into which so much money, so much effort and so much hope have been invested. Will it ever be finished? How much more work has been done since the three wasted years in Varna? When will it finally stand on the cusp of completion in Westcon?

And, if Rever has been sold to Boskalis, who has been left owning the unfinished hull and who is paying to complete it? A capital commitment for a newbuilding is the kind of detail Boskalis’ shareholders might want to know about if the hull was included in the deal, which it seems not to have been, judging from the press releases. The aerial photography shows that quite a few million needs to be spent on this ship, which is now in its third decade and thirteenth year of construction…

Lesson learnt?

The fact that so much effort has been spent by Rever and its predecessor company trying to finish the Cecon units is a reminder of how dangerous it is to catch a falling knife in the offshore market, when what seems a bargain may be a liability, and when it may be better to write off a sunk cost and walk away than struggle on and out in good money after bad.

We saw this from the saga of the large anchor handler Sayan Prince, which was abandoned by its prudent Italian owners in South Korea when the yard defaulted and the market turned sour in 2015, but was then rescued and towed to Turkey for completion by Sevnor (here), which also seems not yet to have happened, despite the imminent restart of the Nord Stream 2 operations in the Baltic (Reuters coverage here).

There remain more ghost assets in offshore at both the pre-delivery and the lay-up side of the equation than perhaps many in the industry care to acknowledge.

Fisher misses again

One company that has finally owned up to its legacy issues in diving is James Fisher and Sons, which didn’t bid for Rever, despite its history of aggressive acquisition. On January 7, 2021, Fisher released its post close trading update for the calendar year just finished, which you can read here. It isn’t pretty; the company tried to explain how things weren’t quite as bad as they could have been:

“Whilst the fourth quarter continued to be challenging, we saw an improvement in trading over the third quarter with revenue ahead sequentially by seven per cent. Revenue for the full year, subject to audit, was 16 per cent lower than 2019. As a result, underlying operating profit for the full year, before separately disclosed items, is now expected to be at the higher end of the £35 million – £40 million (US$47.83 million – US$54.66 million) range previously disclosed on November 6, 2020.”

As usual, the problems lay in the company’s diving division. Rever’s awful financial accounts for 2018 and 2019 show that Fisher had either done a stellar job of managing its Subtech diving division up until the wheels fell off in the first quarter of 2020, or that perhaps Fisher’s earlier opaque accounts served with lashings of goodwill weren’t very revealing as to what was actually happening.

When something looks too good to be true, it probably is

We previously covered Fisher’s November profit warning here, and warned here regarding the likely write-down of the two dive support vessels Subtech Paladin and Subtech Swordfish, which were purchased in 2019 for around US$70 milllion.

Fisher began by observing that, “there has been a significant impact from the lack of subsea projects, both in offshore wind and oil and gas.”

Really? Next, the company will be wondering why its toilet paper targeted at bears has not been a success.

Fortunately, shareholders need not be concerned, because the same chairman who embarked on the ill-advised expansion has now taken firm action:

“We have already taken swift actions to reduce overheads in marine support and have reviewed the carrying value of its entire asset base. As a result, the board intends, subject to audit, to make a one-off impairment provision in relation to goodwill, fixed assets and certain accounts receivable within this division, which has no cash impact. Separately disclosed items for the group are now estimated to amount to between £75 million (US$102.5 million) and £85 million (US$116.16 million) in 2020.”

Fisher’s best euphemism: disclosed items

So, the so-called “underlying profit” will be around forty million pounds, but the write-offs will amount to eighty million pounds, which seems to indicate a net loss of forty million pounds, a loss for the first time in the last decade of Fisher’s existence. What is stranger still is that the losses appear to exceed the total value of both the dive vessels, which Fisher acquired, so presumably there were revenue impairments or goodwill on top of the write-down in the vessel values, or perhaps capitalised drydocking or enhancements to the ships.

Has Fisher been generous with its capitalisation and amortisation policies? The phrase “disclosed items” is remarkably unrevealing of what has actually happened, but a great euphemism, nonetheless. Many shareholders will be suffering large “disclosed items” on the value of Fisher shares, especially the charitable family trust that is the group’s largest shareholder, and that poured in more money to buy stock in 2020.

Fisher will announce its full year results on March 2, 2021.

Fisher’s war zone: Mozambique

Not only are Fisher’s accounts battle-scarred; one of its largest markets, northern Mozambique, where its Marine Services division has a big project, is literally now a war zone.

In December, Total evacuated its staff from the US$23.5 billion Mozambique LNG project work site at Palma following more violent attacks by Islamist guerrillas. All non-essential staff were evacuated from the construction base for the LNG plant as the security situation in Northern Mozambique took another turn for the worse.

“In view of the evolving security situation in Cabo Delgado province and in the district of Palma, Total has decided to reduce the number of personnel present at the Afungi site,” the French energy giant was reported to have said in a statement.

Deteriorating military situation

The insurgents threatening the LNG plant construction also clearly threaten Fisher’s activities to build a jetty and marine facilities there for Total’s plant. The Islamist rebels struck just kilometres from the project’s security perimeter, hitting Monjane town south of the LNG plant site on December 29. A Mozambiquan military patrol was ambushed nearby, as well, and the village of Olumbe was also attacked.

More worryingly, on New Year’s Day, the extremists struck at a settlement called Quitunda where unfortunate villagers who had been resettled from the LNG plant site had been relocated. There, the jihadis left pamphlets stating their intention to attack Palma itself. The attacks have become more widespread in 2020 and the rebels are clearly gaining in confidence and effectiveness.

“A free fire zone against coastal marine traffic”

Researchers at ACLED describe a situation (here) that can only be of serious alarm to all vessel owners involved in operations in northern Mozambique:

“On the Mocimboa da Praia coast, helicopters have been in action to destroy insurgent boats in the area. The government issued a warning to fishermen and traders not to sail too far north of Ibo district, as that section of the coast is now effectively a free fire zone against coastal marine traffic. Many of the boats that insurgents captured in Mocimboa da Praia harbor have now been destroyed. However, a downside of the operation for the government is that the no-go order has temporarily shut down the sea route to Palma, further isolating the town.”

Since Fisher’s trading update made no mention of the impact of the violence on its Marine Services business, it is hard to know the financial impact the turmoil has had on the company, but Mozambique had been previously flagged as a growth area by Fisher and other marine services companies.

It now looks like parts are becoming more like Basra in 2005 than Bergen in 1975.

Desperate need for assistance

Now the government of Mozambique is considering calling in foreign troops to assist in containing the insurgency, with both the USA and the EU offering assistance, whilst Total is apparently considering hiring more private security companies of various types.

Perhaps Fisher’s defensive statements in its trading update may yet lead to the development of a marine security business for the company? Or, more true to form, perhaps Fisher will buy a private marine security company and enter a new growth market?

Background reading

Our previous coverage of Mozambique is here (“The AK-47 points the way”).

Our previous coverage of Fisher’s “too good to be true” performance is here.

Website of the Van Dyck Group, which is at the forefront or Mozambique’s private security response to the rebel assaults, is here (You’ll find your Google adverts will become much more interesting once you browse a mercenary company’s website.).

Non-governmental research group ACLED’s full collection of reports into the violence in Mozambique is here – recommended reading into the threat that Total and the government must overcome if the country is to benefit from its massive deep-water gas reserves. Grim material.