Akastor Asa Asa

Good afternoon, and welcome to the presentation of Acastor's second quarter results. My name is Eivind Poske, CFO, and I'm here together with our CEO, Mr. Karl-Erik Kjellstad. As usual, we are glad to also have with us HMH from Houston, represented by Tom McGee, CFO, and David Bratton, SVP Finance. Kalle will start with some key highlights before Tom and David will go through HMH. I will then present the consolidated financials, before Kalle will wrap up. Towards the end, we'll open for questions through the webcast solution, where questions can be posted at any time during the presentation. I'll then leave the word to Kalle. Please, Kalle.

Thank you, Emil. And good afternoon and good morning to all US participants. And thank you for joining us in the middle of the summer break time. We are pleased with our second quarter results and remain positive on the outlook for all of our portfolio companies. Let's move on to slide two, with some key highlights for Acosto in the second quarter. It was a strong quarter with regards to cash, driven by the final settlement of the Drew case that resulted in US dollars 176 million in cash payment to Acosto. The Drew settlement led to a positive accounting effect of a NOC 748 in a quarter or NOC 1.3 billion in total for the first half year. And a strong net cash position per annum of the period with no draw on our corporate bank facilities. After the Drew settlement, we also have extended our corporate revolving credit facility to the second quarter of 2026. We are very pleased to see continued positive development of HMH in the quarter, demonstrated by a 23% year-over-year growth in EBITDA, driven by increased aftermarket activity and stronger margins. HMH delivered an EBITDA result of US$42 million in the quarter, and that is an LTM EBITDA of US$153 per the second quarter. Also, in a quarter, HMH filed a so-called confidential S-1 to the United States Securities and Exchange Commission SEC for a potential US IPO, which may occur in the second half of 2024, pending market condition and a positive IPO sentiment that will enable an attractive valuation. The continued profitable growth for HMH continues to be an important foundation for a future HMH liquidity event. HMH is by far our most valuable investment. The book value of our shareholding in HMH post the Drew Award equals to around 70% of our total net capital employed. With a book value of slightly above 3.2 billion per the end of the quarter, or just about 12% per our cost of share. In the quarter, DDB Offshore completed the reactivation of the Scandi Peregrino And by this, all three DDV vessels are in operation and well positioned in an attractive market. Further, based on the world instrument that we established with Oldfield Drilling in 2018, Acosta received approximately 3 million shares in Oldfield Drilling in the quarter, boosting the value of our listed investments to close to 300 million NOC by the end of the quarter. As you see from the overview on this slide, the book equity value of Acosta by the end of the second quarter was up with three kroner per share compared to the previous quarter. From 7.2 kroner per share in the first quarter to 20.2 kroner per share by the end of the second quarter. And this is driven primarily by the effects related to the Drew Award. With that, I'm pleased to introduce HMH CFO and EVP Thomas McGee. He has been able to connect despite lack of electricity and very challenging conditions in Houston these days. So Tom, the word is yours.

Thank you. Well, fortunately, with HMH, we didn't sustain any significant damage. We just have issues with power and internet right now, which we're finding are very important to function in today's world. But we found a backup location. So as Carl Eric said, we did file a confidential S-1. So we can't comment more on that, but obviously just want to make sure you're aware of the release that we issued around that. We had a strong quarter revenue-wise, continuing to see the growth in our core business that we've been talking about. EBITDA up significantly quarter over quarter and year over year. So very happy with that result with a very strong margin. And we continue to be very proud of our margin as we work on cost initiatives, improving our gross margins and just having the business grow with some solid incrementals. And then finally, the orders were down. I will say there were some significantly large product orders last year and two very large product orders last year that impacted that. So we don't see anything out of the ordinary other than those product orders we've guided have been very chunky. On cash, I do want to say a couple things. And this happened last year. So this is not unusual. And there's a little bit of seasonality here. Last year, we guided toward the second half cash and delivered at year end the way we said we would. I think we're facing largely a similar situation here. We had two significant areas impacting it. And then I'll talk a little bit about the seasonality. First, we had a strategic inventory build related to specific rig reactivations, Middle East opportunities. That's equipment and spare parts provisioning, along with some Sionics positioning on inventory. So you do have some real growth here that's driving inventory. I continue to see that rolling over. I don't think we're looking at significant inventory growth moving forward. That will be released, I think, in the second half of the year. But I think there was a little bit of that driving it. But we also had a couple missteps related to some past dues and timing of product milestones. those are being addressed. They will be resolved over the third and fourth quarter. So what you had in that case was two significant payments pushed out from Q2 to Q3. And then finally, on the seasonality, we have bonus payments and insurance renewal and IPO expense all occurring in Q2. So there are some odd cash items that are there. So we continue to be very happy with where we're performing. I think the EBITDA reflects the state of our business cash timing-wise. I think our business, you got to look at it over the year. This year looks a lot like like last year, and I think we'll see a very strong back half the way we did last year. And as we bring in that inventory that's released and make those collections starting really in a couple weeks and then slipping into late Q3 and early Q4, we'll meet what we have internally as our cash forecast. I think we're comfortable doing that, but just wanted to hit that up front. Other than that, continue to see a strong offshore environment. We're happy with How we're progressing internally in terms of integration and then for right now, further integration of our businesses to become one HMH and continue to put one face in front of the customer and then optimize the operations around that. So I think we've got a lot of good, good things going on on that side and then also really continuing to position for growth and a lot of exciting things going on. in terms of targeting the onshore business globally. And we've got significant progress there in a number of regions, including we've highlighted that what we've been working on hard in the Middle East this year has been a big focus of ours. We are making headway in some North American markets in Mexico and even a little bit in the U.S. So we feel good about where we are. And we think we're set up for a very strong second half and continue to look forward to a great market. So with that, David, I'll walk you through some of the financials.

Thanks, Tom. I'll begin with the total company results and then move into the segment details. Revenue for the quarter was $208 million, up 10% year-on-year, driven by increase in aftermarket services and increased product shipments, and up 7% quarter-on-quarter. Adjusted EBITDA in the quarter was $42 million, up 23% year-on-year, driven by aftermarket services volume and improved product mix, and up 26% quarter-on-quarter. Adjusted EBITDA rate for the quarter was 20%. Orders for the quarter were $179 million, down 19% year-on-year and down 14% quarter-on-quarter, driven by non-repeat large product orders in the prior periods. Finally, on cash flow, free cash flow in the quarter was negative $12 million, driven by working capital build for key rig reactivations and upgrades and timing of key milestone collections. Wayne in the quarter with $40 million cash and cash equipment on hand. Now I'll walk you through the segment results in more detail. In aftermarket services, revenue was $150 million in the quarter of 9% year-on-year and of 3% quarter-on-quarter, driven by spare part output, partially offset by lower overhaul and repair volume. Aftermarket order intake was $141 million in the quarter, down 11% year-on-year, driven by high-rig reactivation services from a prior year and down 5% quarter-on-quarter. In projects, product, and other, revenue in the quarter was $58 million, up 14% year-on-year, and up 22% quarter-on-quarter, driven by increased product shipments, partially offset by lower project volume. Lastly, moving to net interest-bearing debt, we ended the quarter with $40 million in cash and cash equivalents, and a net debt of $173 million. Overall, as Tom mentioned, I'm proud of the team's performance in the quarter, and we continue to be optimistic about the macro trends in the market. And with that, I'll turn it back over to Tom.

Yeah, I think that's really it. I think we're great first half of the year. Looking forward to a strong second half. Customers continue to be optimistic. We're hopeful that we continue to see growth in the offshore environment, a lot of opportunities on land in the Middle East and across several other geographies. And we continue to make progress on the technology side with our digital offerings, and we're excited about continuing to drive that forward. So with that, I think we turn it back over and just say we're excited to be here and excited to file the S-1, but can't say anything else about it. So that's it.

Thank you very much Tom. I will then take you through the customer financials starting at slide 9 with our net capital employed. We were very pleased to see a significant decrease in our net capital employed in the quarter as then the drew positions were transferred to cash and thus no longer remains a separate balance sheet item. As mentioned by Kalle, we received a total of US dollar 176 million, consisting then of the termination fees and cost reimbursement of 108 million, which was accounted for in Q1, plus the final settlement of US dollar 68 million, mainly related to interest compensation, which was accounted for this quarter and had a positive effect on equity of almost three kroner per cost of share. HMH has a current value in our books equal to the 50% of the book equity value in the company. Carrying value of HMH remained around the same level as per Q1, with negative effects mitigated by positive earnings in the period. Net capital employed of NES increased slightly, driven by an updated valuation, while DDV was positively affected by capex spend in the period. The book equity value in the Akovs offshore was reduced due to negative net profit in the quarter. As Carl mentioned, we have this quarter split out our listed holdings, which then include Oddfjell Drilling, ABL Group, Maha Energy and the Vilko Drilling. The value of these holdings increased by a total of NOK 128 million in the period, primarily driven by Oddfjell Drilling, where the shares received in May had a value of 176 million per end of Q2, compared to a book value of the warrant structure of 56 million per end of Q1. Other net capital employed, which includes certain smaller holdings, as well as pension accruals and various other provisions, increased compared to last quarter, driven by payout related to the Seafair PREF dividend structure towards our Japanese co-owners, which had a negative cash effect in the period of approximately $15 million. This was fully provided for and had no equity effect. This structure stems back from the sale of Acura of Alcoves Offshore in 2018, with US dollar 5 million remaining after the payout this quarter. With all this, our total net capital employed decreased by around 800 million in the period and explained by the value of Drew transferred to cash. Equity increased by knock 834 million. If you then turn to our next slide for an overview of the net debt movements in the period. Our net bank debt decreased by 1.6 million in the quarter, driven then by the total proceeds from Drew of 1.9 billion. Other cash flow in the quarter included the payout of the mentioned $15 million to Mitsu and MOL. With this, our total net bank debt came in at a net cash position of 240 million per end of Q2, including the net debt position of DDV offshore of 261 million. Net debt in DDV was up from last quarter as expected due to capex and utilization effects following the SPSs completed in the period. We expect positive operational cash flow from DDV going forward. However, Q3 net cash flow will be affected by cash outflow related to CapEx from the previous period. Including our net interest bearing positions towards Alcove Social and HMH, our total net interest bearing items per end of the quarter came in at a net cash position of 831 million. Turning to the next slide for an overview of our external facilities. As a result of the cash effect related to Drew, we cleaned down all corporate facilities in Q2 with a strong net cash position per end of the period. The clean down included the subordinated liquidity facility from Aker Holding AS, which was also cancelled in the period. Our corporate bank RCF was amended and extended to Q2 2026 upon receipt of Drew proceeds. Then with no draw on this facility per end of the period. With this, undrawn committed corporate credit facilities per June was 320 million. In addition, we held 560 million of cash, of which 63 million sits in DDV offshore assets. The current cash position and extension of financing facilities provide a solid liquidity headroom going forward. Then our consolidated P&L. As always, bear in mind that most of our holdings, including HMH, NAS, and ACOFS, are not consolidated, and thus the consolidated revenue in EBITDA represents a very minor part of a cost to it. DDV Offshore delivered revenues of 57 million in the quarter, increased both year-on-year and quarter-on-quarter, despite lower utilization on both Peregrino and Atlantic as a result of completing their SPSs in the period. EBTA came in at 15 million in Q2, improved compared to Q1 as a result of better utilization, and also compared to Q2 last year as rates have increased and mitigated lower utilizations. We expect to improve both revenues and earnings going forward as all three vessels are now in operation. Other income in Q2 included a positive effect of 31 million related to a portion of the final Drew settlement of $68 million, which was then not attributable to interest. And this came in addition to the 599 million accounting income that we saw in Q1. EBTA for the older segment was also positively affected by this 31 million effect, reduced by corporate costs to a net positive of 13 million. With that, consolidated revenues in EBTA in the second quarter came in at 91 and 28 million respectively. If we then take a closer look at our net financials, our net financial items came in at the net positive of 854 million in the period, driven by the final Drew settlement where about 66 million dollars was related to interest compensation, which gave a positive effect of knock 717 million under other financial incomes. Further, Oddfjell contributed positively with 123 million, driven by the value of the shares received compared to the warranty agreement as it was booked per Q1. Our other listed assets contributed positively with a total of 8 million, related to share price development through the quarter. Interest expenses was 14 million in the period, significantly down from previous periods, driven by the reduction in debt. The FX accounting effect in Q2 was negative 33 million and is related to the weakening of the US dollar versus the NOC compared to end of Q1. Share of net profit from equity-accounted investees contributed positively with 28 million, consisting mainly of our 50% share of net profit in HMH and ACOFS offshore. Akos contributed negatively with 51 million in Q2, while HMH contributed positively with 77 million, driven by positive net profit in the period. And with that, I'll pass the word back to Kalle. So please, Kalle.

Thanks, Eivind. Let me round off this presentation with some ownership agenda reflections. Let's move on to slide 15. Our portfolio of investment has changed since the previous quarter, due to the conclusion of the Drew case, and also through our 1.3 ownership in Oldfield Drilling. By this, we now have nine investments, of which four are liquid listed holdings. Let's move to slide 16, HMH, where most has been already covered by Tom's presentation. But as mentioned, we continue to be pleased with both the performance and also the outlook for the HMH business. HMH is well on track to be ready for a potential liquidity event in the second half of 2024, but the process is as mentioned dependent on that the equity market is offering attractive valuations for the oil field sector in general and specifically for HMH. And it's therefore, of course, no guarantee that the initial public offering will be completed. Over the last period of time, both peer valuation and US IPO sentiment has shown signs of positive development. And we are therefore hopeful that this will continue going forward in order to enable an attractive US IPO for HMH. Let's move to slide 17, Nesfaircraft. Nesfaircraft continues to deliver strong results. It was interesting to note that Nesfaircraft competitor, Airswift, a considerable smaller company than Nesfaircraft, was sold from one PE investment company to another PE player in the quarter. Nes Faircroft is, as mentioned before, exit ready, with different alternatives being explored, including a potential IPO. Also here, a subject to that market is offering attractive valuation for a quality company like Nes Faircroft. Then Arcos Offshore on slide 18. All vessels of the Arcos vessels were on contract through the second quarter. Arco Wayfarer and Arco Seafarer both delivered strong revenue utilization of 99% and 94% respectively. Despite that, Arco Seafarer revenue utilization was negatively affected by some downtime in connection with the mobilization for a new coal tubing campaign for Equinor. Arco Santos delivered a revenue utilization of 72% in the period, improved compared to the first quarter, but affected by a certain operational incident and planned maintenance stop in May. Utilization in June was above 90%, and we expect to see continued improvement of Skandi Santos' performance in the third quarter. With this, the total revenues of ARCOVS ended up at US$35 million with an EBITDA of 10 million, both slightly up compared to previous quarter as a result of the improved revenue utilization. Due to the liquidity situation in ARCOVS and a somewhat weak utilization in the first half of this year, ARCOVS needed additional funding from the owners of US$2 million in April, and we expect further funding of US$4 million from the ARCOVS owners in July. As mentioned during our first quarter presentation, we are assessing our options for the investments in Arcos Offshore, including our ownership strategy, with a potentially longer-term approach targeting to enhance the value of the investment in Arcos Offshore based on the positive market cycle for the subsea vessel sector. Then, DDV Offshore on slide 19. As mentioned, all DDV Offshore vessels are now in operation, and the company delivered both growth in revenue and EBITDA in the quarter. Our strategy for DDE is to capitalize on the strong momentum in the market with attractive day rates that generate attractive cash flows, however, while continuously monitoring the second-hand market regarding a potential sale of the remaining three assets to optimize the value of this investment. Finally, let's move to slide 20 that covers the key priorities going forward. Based on the changes in our portfolio in the second quarter, we have now here categorized over nine investments in the following three main categories. First category being Enable Liquidity, and that is for HMH and NS Faircroft. Our target here is to enable a gradual realization of these investments post a listing. The category Optimize Exit is for our listed holdings as well as DDB Offshore, and our target is a realization in the medium term with a focus on optimizing values. And finally, the category Develop and Divest is for offshore and fern energy services, where we believe that the value enhancement can be achieved with somewhat longer time horizon. But regardless of this categorization, our overall target remains the same as when we started our journey almost 10 years ago now. Firstly, to strengthen our balance sheet by paying no debt. The Drew Award was a significant milestone here, enabling us to eliminate all corporate debt and place Acosta in a net cash position. We will continue to develop our portfolio companies, targeting to optimize and realize value of our investments, with the ultimate goal of distributing proceeds to our shareholders. This strategy is well underway to be delivered on. So with that, we are through the presentation and we will move to a Q&A session. And I believe we should pause for a minute or two even in order to provide time for questions.

Yeah. Thank you, Kalle. We'll be right back in a few seconds. Yeah, so we are back with a few questions. First, to Tom, you report margins that are higher than we have seen previously in Q2. Could you please elaborate a bit on the drivers here, and is this a level that you expect to see also going forward? So I'll leave that to you, Tom.

I mean, I think there are a couple drivers of that. We do have a large... Right. And as the business grows and recovers from from the downturn, you should expect to see incrementals. Right. And so I think some of that is incrementals. There's a little bit of mix in there and our margins do vary by by byproduct category. And I will caution you that we could have and I've said this before. we can have positive events that are margin drags. So if we were to win a new build drill ship order, which we don't see coming, so I'll use that as an example that's not going to happen this year, that would probably be a little bit of margin drag, but we would be thrilled to get it. I think you could see some of that on the land side as well. And so I think there's a little bit of caution there. That said, we also have done a tremendous amount of work over the past two and a half years And that work continues to optimize the business post combining these organizations. And that's not just like taking out costs. There was a lot of it costs that came out in several categories where we did get cost out, but it's also about doing things better and improving utilization. And in some of our facilities, it's, um, working on combined sourcing efforts. And so we have a lot of things that I think are showing up in that number and a lot of effort there. So I'd caution you that there could be a lot of movement on that as we continue to grow our business and look at opportunities outside of just that core aftermarket business. But that core aftermarket business is should be a robust EBITDA margin. And that's been our view all along. And so hopefully that gives you a little bit of color on that. I don't think it's an aberration. But we do, I hope that we have some large positive events that might actually be a margin drag. Because if we're doing our job, we will actually win some of those. But overall, I think that we're quite happy with the margins. And we think that this profile largely represents what you should see in this business.

Thanks, Tom. Then another question for HMH. HMH order intake fell below 1x sales in Q2. Is this a signal of a more selective market, and how do you see this develop going forward? I guess you touched upon it in your presentation, Tom, but maybe you could elaborate slightly.

Last Q2, we had $50 million representing two product orders that didn't happen in this Q2, and so that stuff's just choppy. The underlying business is exhibiting trends that we've

know would expect to see thanks um then we have a question uh from uh kim in sb i believe uh what kind of structures are are you considering for the ipo hmh will there be primary um yeah yeah we're not we're not yeah we're not allowed to talk about anything like that at this point yeah and then then A question for you, Kalle, I guess, in the same question. Could you potentially distribute shares directly to a cast of shareholders as part of an IPO in HMH?

If we had an Oslo IPO, that would be an option on the table. With a US IPO, that's somewhat more complicated and not very likely.

Yeah, and then we have a few questions around the same topic, so I'll kind of combine them. Are there any ambitions to pay out dividends during 2024? And do the new credit facility include restrictions on dividends? So I'll leave that to you, Kalle, to comment on.

Yeah, so potential distribution to shareholders are up to the board to decide. And for the second quarter, the board has not recommended distribution based on Yeah, ensuring financial flexibility and also the target we have to avoid debt on our cost to a corporate level. And as we have communicated, we are targeting several realisation going forward and we expect the board to reassess the situation on a regular basis. And our long-term strategy remains and we aim to distribute proceeds from future realisation of our portfolio to our shareholders. And then the question was about any restrictions on the financing. The situation now is that we don't have any draw on the bank facilities. If we draw on them, we will need a consent from the banks. But, you know, if we like, we can also just cancel the facility if we have done these realizations because we will not really be needing those facilities. So we don't think that will be any problem. a major roadblock for paying dividends when that situation occurs.

Thank you, Kalle. And with that, I do think we are through the questions that we have received. And I would just like to thank you all for your attention and welcome you all back for our Q3 presentation on October 30th. Thank you very much.

Thank you.