Akastor Asa Asa

Good afternoon and welcome to the presentation of Acastor's third quarter results. My name is Øyvind Polske, CFO, and I'm here together with our CEO, Mr. Carl-Erik Kjellstad. As usual, we have with us HMH, represented by Tom McGee, CFO, and David Bratton, SVP Finance. Kalle will, as usual, start with some key highlights before Tom and David will go through HMH. I will then focus on Akastor Consolidated Financials before I turn it back to Kalle. Towards the end, we'll open for questions through the new web solution where questions can be posted at any time. I will then leave the word to Kalle. Please, Kalle.

Thank you, Eivind, and good afternoon and good morning to our U.S. participants, and thank you to everyone for joining us here today. We are pleased with our third quarter results, and we remain positive for the outlook for 2024 for all of our portfolio companies. Slide two. Let us start with the key highlights for the third quarter. Our portfolio companies had a strong quarter with good operations and corresponding results. We are pleased to see continued positive development of HMH in the quarter, demonstrated by a 32% year-over-year growth in EBITDA to US dollars 46 million in a quarter. This is in fact equal to the level recorded in the fourth quarter last year, and does on par with the highest quarter results since HMH was established three years ago. If we look at the rolling LTM, Adjusted EBITDA was USD 167 million per the third quarter, significantly higher than one year ago. The continued profitable growth for HMH continues to be an important foundation for a future HMH liquidity event. On this note, HMH continues to keep its so-called S-1 filing prospectus with the SEC in the US updated. The timing of a potential launch of an IPO continues to be dependent on market conditions and the IPO sentiment. HMH remains to be our most valuable investment. The book value of our shareholding in HMH remains around 70% of our total net capital employed, with a book value of NOK 3.4 billion per the end of the quarter. or NOK 12.3 per Acosto share. Arcus Offshore delivered good operations in the quarter with a high revenue utilization despite a planned maintenance stop for Arcus Santos. Our book value of Arcus was around 1 NOK per Acosto share put at the end of the quarter, reduced from the second quarter driven by negative profit in the company. DDV Offshore had all three vessels in operation through the quarter and generated solid earnings. We were pleased to see that DDV secured new engagement for two of its vessels post the third quarter, with a total firm contract backlog now of around $3 million, providing a solid visibility going forward. The value of our investment in DDV Offshore is 1.4 Norwegian kroner per Acosta share, and this is based on the book value per vessel of modus $11 million per vessel. Acosta maintains a net cash position through the quarter, with no draw on corporate credit facilities. In total, and including value of our listed holdings that had a value of close to one NOC per Acosto share per the end of the third quarter, our book equity value per the end of the period was around the same level as the previous quarter. That means about NOC 20 Kroner per Acosto share. With that, I'm very pleased to introduce HMH's CFO and EVP, Thomas McGee, that will take us through HMH's third quarter earnings. So Tom, the floor is yours.

Thank you, Karl-Erik. Obviously, we are very excited about this quarter. I saw a strong top-line growth and strong EBITDA growth, as Karl-Erik just mentioned. Very good margin performance. Orders a little soft. I think what's happening there is the drillers are—we talk about white space, even though some of the drillers are still the aftermarket revenue for a couple of quarters. So we did see a little bit of lightness there, but really offset by really, really strong margin performance. And if you think about how that develops, when we're out meeting with investors, we talk about that aftermarket business as we continue to optimize the cost structure of HMH and grow the aftermarket side, that pulls your margin up. But as we continue to grow the land business and do growth initiatives, that can actually dampen margin performance. So over the long run, you know, we do expect to see margins as strong quarter to quarter. It's going to continue to fluctuate, and I don't think we should set the expectation over long periods of time. So anyway, as you look at the quarter, really strong execution on aftermarket, raising the margins and really leading to what is for us a record quarter on the margin side. And again, still making progress on land. And so that does include some of the land execution that we're continuing to get better at and continue to deliver some of those We're making good progress on all fronts there. We also appointed a new chairman, Dan Rabin. We're very happy to have him join as part of our overall approach to the IPO this year that Carla has talked about. Continue to monitor conditions there and look at it. But from our perspective, we keep our S-1 updated. We continue to be ready. we're very happy with the progress we've made there. And then finally, we got stuck here, but we have a lot of our other colleagues who are in the Middle East right now celebrating an opening of our Saudi facility. So we continue to make really great strides there. And then finally, I know it's listed as the first bullet point. We'll talk about it here as we flip the page. We'll talk about the drill form acquisition. And we're out meeting with investors. We've got a page that shows our global footprint. We talk about how we took two effectively subscale global businesses, combine them into one, optimize cost structure, but maintain this incredible network globally, be able to push product and service through anywhere in the world in the oil field. And so you take something like this, you take a technology and you can read the slides. I'm not going to read it to you, but you take the technology that we have here. It's a commercial technology. we're deepening our relationship with a very important client, Helmer and Payne in the U.S. And then we take that technology and we push it through that global network we've been talking about. And so in the long run, this gives us tremendous growth opportunity, particularly in the Middle East and South America. We're including the products in some bits there. And so it's just a classic example of what we built this business to do. So we're excited about that opportunity. We welcome the team on board. So with that, I'll pass it on. David, to touch on some numbers.

All right. Thanks, Tom. I'll begin with the total company results, and then we'll move into segment details. Revenue for the quarter was $213 million, up 5% year-on-year, and up 3% quarter-on-quarter, driven by increased product shipments, partially offset by decreased aftermarket service revenue. Adjusted EBITDA in the quarter was $46 million, up 32% year-on-year, and up 11% quarter-on-quarter, driven by increased product volume and improved revenue mix within projects, product, and other. Adjusted EBITDA rate was 21.7% in the quarter. Orders for the quarter were $194 million, down 6% year-on-year, driven by a decrease in aftermarket services, and up 8% quarter-on-quarter, driven by increased projects, product, and other, partially offset by lower service intake. Finally, the cash flow, free cash flow in the quarter was flat. There were by time of key milestone collections and working capital build for key rig upgrades and land equipment projects. As we look into the fourth quarter, we expect free cash flow to be positive. We ended the quarter with 33 million cash and cash equivalents on hand. On the next page, I'll walk you through the segment results in more detail. In aftermarket services, revenue was 141 million in the quarter, down 4% year on year. and down 6% quarter-and-quarter, driven by lower service order intake in the quarter. Aftermarket order intake was 130 million, down 10% year-on-year, and down 8% quarter-and-quarter, driven by flat rig activity and restrained spending by customers. And projects, product, and other revenue in the quarter was 73 million, up 30% year-on-year, and up 25% quarter-and-quarter, driven by increased product shipments. Lastly, moving to the next page on net interest-bearing debt. We ended the quarter with $33 million in cash and cash equivalents and a net debt of $197 million. Overall, proud of the team's performance in the past quarter. And despite the near-term restraints spinning by customers, we continue to be optimistic about the longer macro trends in the market. And with that, I'll turn it back over to Tom.

So first to touch on, I'll touch on four things here to wrap up, but first touch on cash and the balance sheet. If you look over the course of the past year, you've seen the AR and inventory grow. And that balance sheet has grown considerably. That's consumed a lot of our cash. A lot of that is growth and growth of core products. It's growth of aftermarket. It's things that happen. However, as we've seen it grow, it's stabilized. We expect it to stabilize and decline next year. So we do have a lot of focus on shrinking that balance sheet and actually increasing our cash conversion. We'll start to see that in Q4, as we've talked about, similar to what happened last year. But I think the overall trend is you've seen that balance sheet grow over the past year. It has peaked and will be starting to move in the other direction. Second, we'll talk, you know, David mentioned it, you know, this sort of flattish and offshore environment that we continue to see, the tug of war between the operators and the drilling contractors and the operators, you know, trying to get them to sign contracts. Some of the drilling contractors trying to wait and hold out for a higher rate. You know, we see this as a very positive long-term sentiment, particularly when you talk to the drillers about the end of next year and end of 26. lead to a little bit of restrained spending in the short term, which is what you're seeing on the order rate. So we do continue to see that play out, but we think it's still a very bullish environment in the long run and literally lends itself to strengthened conviction around product and digital upgrade cycles in the long run and continues to have us very well order volume for a couple quarters. Third, growth. I mean, we've got examples of both land in the Middle East. We've talked about both over the past few quarters, making very tangible progress and adding product on land, re-engineering cost structure to be more competitive on land, re-engineering products to be more competitive on land. So there's a lot of work there and you're starting to see that in some of our actions that we're reporting in the Middle East. Continue to build that out and had a great customer event there over the last couple days and are really excited about the progress we're making in that market. And then finally, we can't say much about it, but just to wrap up, we are recognizing for an IPO when the market conditions present itself. We will be watching for both oil field sentiment and overall IPO market conditions and evaluating windows as we go forward. So with that, great execution this quarter. I'm very excited and we'll pass it back to the Acosta team.

Thank you very much, Tom. I will then take you through the cost of financials, starting then on this slide with the net capital employed. HMH remains our largest investment, and the carrying value of this investment, which is then equal to 50% of book equity value in HMH, increased by 120 million compared to Q2, driven by positive earnings in the period. The net capital employed of DDV was positively affected by CapEx and earnings, whilst book equity value in ACOFS was reduced due to continued negative net profit. The value of our listed holdings, which include Oddfjell Drilling, ABL Group, MA Energy and Avilco Drilling, decreased by a total of 37 million in Q3, of which 20 million related to Oddfjell Drilling. The negative value of other, which includes smaller financial investments, pension accruals, and various provisions, was reduced compared to last quarter, primarily due to the settlement of certain legacy provisions. With all this, our total net capital employed increased by 118 million in the period, while equity value was up by 38 million. I will then turn to the next page for an overview of the net debt movement on Akastor in the period. As you know, and as a result of the cash effect related to the Drew case in Q2, we cleaned down all our corporate facilities and built up a strong net cash position that was maintained through this quarter. Per Q3, most of our cash holding has been invested in a liquidity fund in order to improve interest return. The liquidity fund holds fixed income securities that have a short term. In practice, this fund investment works as a cash account, but is reported under IFRS as a short term financial investment. In Q3, the total net cash position, including then the fund investment, decreased somewhat through corporate cash flow, as well as negative cash flow in DDV related to working capital build-up as a result of commencement of new contracts and payment of SPS costs from previous periods. With this, and including also funding of ACOFS of approximately 30 million in period, total net bank debt came in at a net cash position of 123 million per end of Q3. This includes a net debt position of 296 million in DDV offshore. We expect DDV's cash flow to improve going forward based on the current backlog leading to a reduction in net debt, particularly after the commencement of the newly secured contracts that commence early 2025. Including our interest-bearing positions towards Ahcofs Offshore and HMH, total net interest-bearing debt per end of the quarter came in at a net cash position of 752 million. Then the overview of our external financing facilities. Our facilities remained as per end of Q2, and our corporate bank, RCF, which was amended and extended upon receipt of Drew proceeds, remained undrawn and fully available also per end of Q3. Per September, our total available liquidity was 754 million, including the fund investment of 404 million and 25 million of cash held through DDV. Then our consolidated P&L. As always, bear in mind that our largest holdings, including HMH, NES, and Ahcovs Offshore are not consolidated, and thus the consolidated revenue in EBITDA represent a very minor part of our total investment portfolio. DDV Offshore delivered revenue of 97 million in the third quarter, a solid increase both year on year and quarter on quarter, driven by all vessels being in operation through the period. EBITDA in DDV came in at 40 million, also significantly up compared to last quarter, as a result of the improved utilization. Q4 for DDV will be affected by low utilization and mobilization of Peregrino to Australia ahead of contract commencement in early next year, but we then expect to improve both revenues and earnings in 2025 through the new contract backlog secured this quarter. Other income in Q3 came in at 2 million with an EBTA of negative 15 million. And with that consolidated revenues and EBTA for the third quarter came in at 99 million and 25 million respectively. Looking at the net financials, net financial items came in at a net negative of 59 million in the period. Financial investment contributed negatively by 42 million, driven by negative share price movement among our listed holdings. The FX accounting effect in Q3 was negative 27 million and related to the weakening of the US dollar NOC through Q3, which has since reversed through the start of Q4. Net interest contributed positively by 5 million in the period, significantly improved compared to previous periods, driven by the down payment of all corporate debt last quarter and the current cash position that we have on our corporate level. Share of net profit from our equity-accounted companies contributed positively with 57 million, consisting then mainly of our 50% share of net profit in HMH and Ahcovs Offshore. Ahcovs Offshore contributed negatively with 42 million in the quarter, while HMH contributed positively by 100 million. And with that, I'll pass the word back to Kalle.

Thanks, David. Let me then run off this presentation with some ownership agenda reflections. Let's move to slide 16. There is no change in our portfolio of investments from the previous quarter. We continue to have a portfolio of nine investments, of which four are liquid listed holdings. Let's move on to slide 17, HMH, where I believe most already have been covered by Tom's presentation. HMH is, as mentioned earlier, keeping its S-1 filing updated and is as such continuing to prepare for potential liquidity events. Over the last couple of months, peer valuation of U.S. oil service companies have developed negatively and we will probably need to see a peer valuation taking a positive turn in order to enable an attractive U.S. IPO for HMH. As a part of the process to further prepare HMH for its next phase, we, together with our co-owner Baker Hughes, have sought to recruit an independent chairman for the company to bring in additional expertise and strategic guidance to the company. We are very pleased that our preferred candidate, Mr. Dan Raboon, have accepted to become HMH chair. Dan has strong experience from the industry and particularly his experience as chairman of Champion X is very relevant for HMH and as well other US listed companies where he has been chairman and in the board. Let us move on to slide 17 on Nes Firecroft. Nesfirecroft continues to deliver strong results. The company is, as mentioned before, exit ready with different alternatives being explored, including a potential IPO. Also here, subject to that the equity market is offering attractive valuation for a quality company like Nesfirecroft. But for Nesfirecroft, as for HMH, we will also need to see a shift in peer valuations for an IPO to be attractive. A key priority in this environment for Nes Firecraft will be to continue to develop the company, both organically and through M&A, to enhance value for all shareholders. Slide 18, covering Arcov's offshore. All of the Arcov's vessels were on contract through the quarter. Arcov Wayfarer delivered a strong revenue utilization of 99%, while Arcov's Wayfarer recorded 98%, including demobilization of cold tubing equipment in the period. Arco Santos delivered a revenue utilization of 85% in the period, improved compared with the last quarters, but also affected by a specific maintenance stop of 10 days in August related to a crane on board. Adjusted for this, utilization was well above 90% also for Santos, which we find very positive. With this, total revenues of ARCOVS ended up at US$38 million within a bidet of US$11 million, both slightly up compared to the previous quarter and as a result of the mentioned utilization. Due to the liquidity situation in ARCOVS and somewhat weak utilization, In the first half year, Arcov's needed additional funding from its owner of US$4 million in July. We continue to evaluate our options regarding the investment in Arcov's offshore, including our ownership strategy. Given the positive market cycle in the subsea vessel sector, we see a potential benefit of a somewhat longer-term approach aimed at maximizing the value of our investment. Down on slide 19, DV Offshore. All DDV offshore vessels are now in operation, and the company thereby delivered a significant growth in both revenue and EBITDA in the third quarter. Further, as mentioned already, DDV signed new contracts for Atlantic and Peregrino post the quarter end, and as of today, also as mentioned, have a backlog of about $33 million, which ensures strong visibility and cash flow going forward. We also see good opportunities for continuing engagement for the Amaral vessel in Australia post the current firm contract that expires later this year. And by that, all three vessels will be in operations in Australia. Our strategy for DDV is clearly to capitalize on the strong momentum in the market, with an attractive day rate that generates solid cash flows, while we continuously monitoring the second-hand market regarding a potential sale of the remaining assets to optimize the total value of our investment in DDV offshore. Finally, let's look at slide 20 on key priorities for our customer going forward. In the third quarter, we marked, in fact, our 10th year anniversary from the Acosto listing that took place September 29th in 2014. Since the listing, Acosto's strategy has been to develop the company's portfolio, and when the timing is right, execute value-enhancing exits. This strategy has unfolded through more than 20 transactions, and I would say utilizing nearly every tool from the M&A playbook. In total, we have received proceeds of about 9 billion NOK through these transactions and settlement of legacy cases. As a result, we are now debt-free and in a net cash position with no draw on corporate facilities. Looking ahead, we remain fully committed to our strategy of developing portfolio companies and executing value-enhancing exits when the time is right, to be followed with distribution of proceeds to our shareholders. So with that, we are through the presentation and we will move to a Q&A session. And I guess, Øyvind, we will pause for a minute or two to provide time for questions.

Yeah, thanks. We'll be right back. Yeah, I'll start with a couple of questions that we have received that goes to HMH. One question that I might ask you to answer, Tom. HMH reports margin in Q3 higher than what we've seen previously. What were the drivers there, and is this a level that we should expect to see also going forward? I know you touched upon this, but I guess a good message that can be repeated.

I'll talk a little bit of the driver. I think I gave the forward-looking part of it, said as much as I'm allowed to say there, so I think that's covered. But I will talk about the drivers. coming into play that have been going on since integration as we put these businesses together. So you are seeing some of that play out. And the other strong, strong trend this quarter was some execution around aftermarket. Some of that is mixed shift where you get a little bit higher margin parts. And so there's some of that that occurred, but some of it was just straight out. The team did a great job delivering on some service and repair. So you had a combination of those two things probably being most significant.

Thank you, Tom. And I'll follow up with the second question to you. With regards to cash flow, the FCF, as you mentioned, was low also in Q3. Can you please explain this low cash flow conversion seen over the last couple of quarters and elaborate on how you see this develop going forward?

Sure. balance sheet will take. Some of that is assisted by the fact that the way when we recently put the businesses, took the final step of putting the businesses together, it becomes a lot easier to manage that inventory and AR build and do it together as a pool. And so we've got really good line of sight to that. And so I think that's really the driver. That said, I probably should have mentioned this before, because we're getting ready for an IPO, you do end up with Certainly, that's been a little bit of the story this year. And a lot of that gets capitalized. So there is a little bit of a drag there. But it's primarily balance sheet growth. And you can look back a year ago to the day and look at that inventory line and see where it is. And we have stabilized and we're going to drive it down.

Thanks, Tom. Then the third question, which I know we've also touched upon, but the question is as follows. Service order intake fell quite significantly in Q3. Do you expect this to turn over the coming quarters?

Okay, that is interesting. Yeah, I think we can safely say that spending patterns... For the drillers, without making it a forward-legged, spinning patterns for the drillers will normalize. I mean, I think what you have here is you have the drillers restraining spending for some of the rigs, not all the rigs, certainly not the ones in operation. But as you get this game between the operators and the drillers, you'll end up with a couple quarters of... And if the rig is hot and sitting, they'll still cut back on some of the spares and some of the things that they don't want to do. Then you'll make up for that later. So I think this is something that we'll have to watch the driller behavior. pick back up so again this is just you got some rigs that are that are hot and waiting on contracts but but aren't actually working and so they're gonna you know just get it'll be a little cautious and restraining their spending as they wait for the right contract

Great. Thanks, Tom. That makes sense. Then we have several versions of the same question, but I'll take this one to you, Calle. How do you view potential distributions in light of the current cash position for Akastor?

The proceeds that we have received related to the Drew case in the second quarter, as you recall, it enabled us to pay down all debt on a cost to corporate and put us in a net cash position. And this was an important step for us. And as mentioned also last quarter, distribution of proceeds to shareholders will be a decision of the board. And the board will also have to take into account cash flow commitments targeting to ensure financial flexibility. But what remains very clear is that we are very committed to distribute the proceeds. Third quarter, the assessment continue to be that distribution at this current time are not prudent based on commitments and also uncertainty related to timing of future realizations. But we expect this to be reassessed at the next realization of cash proceeds to Acasto.

Thank you, Kalle. And with that, I believe we are through the questions that we have received. And I would like to thank you all for your attendance and welcome you back for our presentation of the fourth quarter results on February 13th next year. So thank you very much.