Akastor Asa Asa

Good afternoon, and welcome to the presentation of Akastor's first quarter results. My name is Øyvind Polske, CFO of Akastor, and I'm joined by our CEO, Mr. Karl-Erik Kjellstad. We're also pleased to have HMH with us from Houston, represented by Tom McGee, CFO, and David Bratton, SVP Finance. Kalle will start by taking us through the key highlights, followed by Tom and David with an update on HMH. I'll then cover Acosta's consolidated financials before handing it back to Kalle. We'll wrap up with a Q&A session. Feel free to submit questions at any time during the presentation. With that, I'll hand it over to Kalle. Please.

Thank you, Eivind, and good afternoon and good morning to our US participants. And thanks to everyone for joining us for this first quarter Acosto earnings call. Let's start on slide two with some key highlights for the first quarter. We are pleased to deliver another good quarter marked by solid performance across our portfolio. HMH reported an EBITDA of US$33 million in line with the first quarter last year, and with a free cash flow of US$15 million. Order intake was US$198 million, implying a booked bill of one. The continued financial performance with a robust performance of HMH continues to be an important foundation for a potential future liquidity event. HMH is keeping its S1 filing with the SEC updated and timing of potential launch continue to be dependent on market conditions and sentiment. HMH remains our most valuable investment. The book value of our shareholding in HMH remains at around 70% of our total net capital employed, with a book value of NOK 3.4 billion per the end of the first quarter, or 12.4 kroner per Acosto share. This is somewhat down from previous quarter due to currency effects. All the Arcov's offshore vessels remain on its contract through the quarter and delivered solid operations for its clients. As mentioned in the last quarterly presentation, our cost of ownership in Arcov's offshore increased to 66.7% in the first quarter, following the completion of the buyout of Mitsui 25% stake and then followed by the sale of 8.3% of this stake to MOL. In the quarter, Arcos Santos was nominated as the winner of the Petrobras reverse auction for a four-year MPSV contract starting July 2026. That has been followed by ongoing negotiations with Petrobras. No contract has yet been signed and remains subject to mentioned negotiations. But we are hopeful that Arco Santos will continue to deliver quality services for Petrobras for another four years immediately after the current contract period ends. Further, early April, the refinancing of Arco's seafarer vessel was completed through a non-recourse USD 110 million facility, uh with a maturity in december 2028. our book value of arcos was around 0.4 per our cost of share per the end of the quarter ddv offshore In a quarter, DDB Offshore entered into an agreement to sell Scanly Peregrino for US$25, with a completion expected in Q2.25. Up and closing, Acosto plans to distribute a significant portion of the net proceeds as dividends to shareholders. The book value of our investment in DDV Offshore is 1.4 NOK per Acosto share, based on an average book value per vessel for about $11 million. Our total book equity value for the end of the period was NOK 20.2 per share, which is somewhat down from last quarter, and this is again mainly due to currency effects. Acosto continues to be in a solid financial state, with a positive net cash position and no draw on corporate CF. With that, I'm pleased to introduce HMS CFO and EVP Thomas McGee that, together with SVP Finance, David Bratton, will take us through the HMH first quarter results. So, Tom, the word is yours.

Thank you, Karl-Erik. Thank you. Good morning. Good afternoon. I'm going to timestamp this for you. It's 8.05 Central Standard Time in Houston, Texas, April 30th. The reason for that is it's something I say in the next 15 minutes will be rendered completely obsolete and wrong by something that happens in the world in the next 48 hours. That is the level of uncertainty we're dealing with. So that's kind of how we'll kick this off. Despite that, we've got some pretty good performance. Let me start by talking about the markets. And this will be – we can't talk about forward guidance given what the – given the regulations we're under right now. I can't talk about the market and give you a picture for what we see both good and bad. Let's start with the bad. The trade situation, we'll get this on the table. We know we already got a question on this. The tariff impact, just the first order impact, had it been in place, the current regime, to the best of our knowledge, as it exists today, not tomorrow, If it were in place in 2024, it would have been about a 3% to 6% hit to EBITDA. We think we can mitigate most of that. So that gives you an idea of what it would have looked like in 2024. So the first-order effects are negative, but they're not significant. I think, obviously, we're more concerned, and we've taken some questions from some of you already since this has been in place. The second- and third-order impacts are what we concern ourselves a lot more with. And that's the macro. You've got recessionary data coming out of the U.S. this morning. You know, oil price. We've got an OPEC meeting next week. We feel like there's a lot of bearishness already built into oil from that. But there's a lot of stuff we can't control there. This is stirred up. So we're definitely worried about what kind of macro impact it has that, you know, that would happen on us. There is also potential for further supply chain disruption. That's unclear. There's a little bit of unknowns there. If you think about freight falling and seeing some of the weird things that are occurring, there's a potential impact there. And then finally you get into some customer behavior and I'll categorize that in two different areas. One would be you can't make that in the U.S., you can't make that in China, and having some of those discussions, which everyone is having right now. And then you have the secondary effect of some of the customers just restraining spending and saying, I'm going to wait and see what happens, right? So that's sort of the negative market backdrop. But let's go to the positives. Despite all of that, you've seen positive offshore drilling data points over the last few weeks. If you're watching earnings reports, you saw a new backlog being issued at what I think are pretty good day rates. And so you think about we're 80% offshore, 75% aftermarket. That resilience in this, in light of all of these macroeconomic challenges is pretty impressive. And so when we saw positive data points over the past few days on that offshore market, albeit probably more geared towards 26, and this is probably about the drillers, you know, getting contracts and starting to erase that white space in 2026, it just shows the resilience of that market. So we do think there are a lot of positive things happening at the same time as a backdrop. Obviously, it's a challenging environment. But despite that, we got a book to build one, and we had an EBITDA that was flat year over year. And we don't release a budget, but that was our budget. It was absolutely on budget. The market behaved exactly as we expected to, despite all of the turbulence that we saw. So we thought that was a very good result. Unlevered free cash flow came in strong. I think we have gone – Really after two things, one is inventory and trying to, we peaked inventory last year, trying to work to bring that back down. We're doing a great job of that. And I think receivables have gone from underperforming to outperforming on collections. So we're very happy with free cashflow performance. And that'll continue to be choppy as you've seen over the years. But I think coming out of the gate strong first quarter of the year is a big message to send that they were serious about bringing that EBITDA to the cashflow line. We signed a new multi-year service agreement supporting long-term – sorry, multi-year service agreement for Riser. Again, we're continuing to grow that business, and we'll talk at the end a little bit more. We are growing businesses now despite the challenging market. I mean, we're adapting these trends through productivity and cost. So we've got a lot of things. If you think about what you can do in this market, you find ways to grow. You control costs. And we're doing a lot of work around bringing manufacturing costs of products down to open new markets for us. So despite the challenging environment, good performance, and a lot of opportunity on the price.

So on to you, David. Great. Okay, I'll begin with the total company results, and then we'll move into the segment details. Revenue for the quarter was $198 million, up 3% year-on-year, driven by project activity, partly offset with lower services volume. and down 14% quarter-on-quarter, driven by lower services volume and non-repeat of prior quarter contract service agreement performance. Adjusted EBITDA on the quarter was 33 million, down 2% year-on-year, driven by lower service volume, and down 31% quarter-on-quarter, driven by lower service volume and a non-repeat of contract service agreement performance. Adjusted EBITDA rate was 16.5% on the quarter, down versus 1 to 24, driven by product mix. Orders for the quarter were $198 million, down 5% year-on-year driven by lower spares orders, and down 6% quarter-on-quarter driven by lower equipment volume. Finally, on cash flow, unleveraged free cash flow in the quarter was a positive $15 million driven by improved collection efforts by the team and progress on working capital management. We ended the quarter with $47 million in cash and cash equivalents on hand. Next, I'll walk you through the product line results in more detail. In aftermarket services, revenue was $84 million in the quarter, down 10% year-on-year, driven by lower overhaul and repair volume, and down 19% quarter-on-quarter, driven from contract service agreement performance in the prior quarter and lower digital technology volume. Aftermarket service order intake was $102 million in the quarter, up 22% year-on-year, and up 12% quarter-on-quarter, driven by overhaul and repair order intake. Spare's revenue was $60 million in the quarter, flat year-on-year, and up 8% quarter-on-quarter, driven by improved convertibility of existing backlog. And spare order intake was $61 million in the quarter, down 17% year-on-year, and down 2% quarter-on-quarter, following a trend of restrained spending by our customers. And project, product, and other, revenue in the quarter was $55 million, up 34% year-on-year, driven by project milestones, and down 25% quarter-to-quarter during byproduct volume. Lastly, moving to net interest-bearing debt, winning the quarter with $47 million in cash and cash equivalents and a net debt of $153 million. Happy to note that the RCF was undrawn per 1Q25, with net $15 million repaid during the quarter. As Tom said, overall, we're very proud of the team's performance in this quarter. And if I'll turn this back over to Tom.

Yeah. It's a good place to start. Capital structure is solid. To the extent there is downside risk in the market, we're well prepared to weather it. We have a very resilient-based business. When we're out on the road, we talk about that all the time. I think that's really showing in this environment. That said, we're also getting ready to launch some growth initiatives, which is exciting and We look to take advantage of this weakness in the market and make sure we find ways to improve this business, not just on the cost side, but on the growth side. So, again, challenging environment. We're very well positioned. Great performance so far. Resilient-based business. And we're going to keep finding ways to improve and grow the business. So with that, I'll turn it over back to William and Carla. Thank you.

Thank you very much, Tom. I will then take you through Kastur's financials, starting at this slide with our net capital employed. HMH, as Kalle mentioned, remains our largest investment with Kastur net capital employed equal to 50% of the book equity value in HMH. Our carrying value of this investment decreased by 168 million compared to Q4, driven by currency, partly mitigated by positive net profit in the period. The net capital employed of NES and DDV offshore was also somewhat down in Q1, driven by FX. The net capital employed of Akovs, as Kalle mentioned, was 109 million, down from 138 million in Q4. The reduction reflects our share of net profit in the period, partly offset by an increase from the investment made during the quarter, which raised our equity stake to 66.7%. Please, however, note that most of the investment costs related to the ACOS transaction was allocated towards shareholder loans taken over from Mitsui, included in the reported net debt of 729 million of cash position at quarter end. Looking ahead, continued net losses in ACOFS driven by the current contract portfolio will further reduce our book value of ACOFS. We consider this book value to be an historical and quite conservative measure, which does not fully reflect the underlying asset value of that company. And we see meaningful upside potential and will continue our efforts to ensure that this is increasingly reflected and understood over time. The value of our listed holdings, which include Oddfjell Drilling, ABL, Maha Energy and Ivilco Drilling, increased by 2 million in the first quarter. The negative value of other, which includes smaller financial investments, pension accruals and various provisions, was reduced by NOK 79 million in Q1. The main driver here was the conclusion of the remaining guaranteed preferred return to Mitsui and MOL related to the seafaring contract originating from the ACOFS offshore transaction back in 2018. This was paid out and netted as part of the ACOFS transactions during the quarter. The remaining balance of order per Q1 is mainly related to pension, with the larger component tied to HMH following the carve-out of certain pension plans at HMH's inception. In total, net capital employed then decreased by 221 million in Q1, primarily then driven by non-cash FX effects. I'll then turn to the next slide for an overview of the net debt movements in the quarter. In Q1, we had a total net cash position, including about 270 million of cash held at the corporate level, which decreased to a net cash position of 19 million at the end of the period. This reduction was primarily driven by our investment in NACOs, as well as payment of the mentioned guaranteed preferred return to Mitsuo and MOL, partly mitigated by positive cash flow and FX effects in DDV Offshore. Remember that the net cash position per Q1 includes a net debt position of NOK 253 million in DDV offshore. Following the announced sale of Scandi Peregrino, this is expected to be reduced in Q2 as one third of the gross debt will then be repaid. Our total net interest bearing debt at the end of the first quarter with this came in at a net cash position of 729 million, including our interest bearing positions towards ACOFS and HMH. Compared to last quarter, our shareholder loans towards ACOFs increased by around US$10 million following the transactions mentioned, partly offset by the US$7.5 million seller credit towards Mitsui, payable in Q2 and Q4 this year, as well as negative FX effects on the US dollar loan holdings. Our external financing facilities remained as per end of 2024. The DDV term loan was reduced to about US dollar 27 million following one installment paid during the period. Our corporate bank RCF remained undrawn and fully available per end of Q1. Our available liquidity per end of the quarter was 617 million, including then 33 million of cash held through DDV. Then our consolidated P&L. As always, bear in mind that most of our holdings, including HMH, NES, and ACOFS, are not consolidated into our group financials, and thus that the consolidated revenue and EBITDA represent a very minor part of our total investments. DDV Offshore delivered revenues of 75 million in the quarter, with two out of three vessels on contract for most of the period. Scandi Peregrino delivered no revenues in the period as commencement of her new contract was delayed. EBTA came in at 28 million in Q1, up year on year as a result of low utilization last year. but down quarter on quarter due to mobilization of Peregrino to Australia and costs in connection with the delay, as well as specific positive one-off effects last quarter. Other revenue in Q1 came in at 1 million with an EBTA of negative 25 million, and with that, consolidated revenues and EBTA for the quarter came in at 76 million and 3 million, respectively. Our net financial items came in at a negative of 154 million in the period. Financial investments contributed negatively by 2 million, driven by a small adjustment to our valuation of NES, as well as certain effects of our smaller listed holdings. Holdfjell Drilling delivered a positive effect of 11 million, including dividends received in the period. The FX accounting effect in Q1 was negative by 159 million and is explained by the strengthening of the NOC versus the US dollar, which has a P&L effect, primarily on our US dollar denominated receivables. Share of net profit from equity-accounted investments contributed negatively by 31 million, consisting then mainly of our relative share of net profit in HMH and ACOFS offshore. Akofs contributed negatively with 50 million, while HMH contributed positively by 24 million. And with that, I'll pass the word back to Kalle. Please, Kalle.

Thanks, Revin. Let me then roll off this presentation with some ownership agenda reflections. Let's move to slide 15. We continue to have a portfolio of nine investments, of which four are liquid listed holdings. Worth mentioning, our ownership position in Avilco Drilling has in the second quarter more or less been converted to cash through a distribution of dividends to the Avilco Drilling shareholders, where we in our custom received around $3.5 million in April. Avilco Drilling has announced its intention to delist and dissolve and will thus no longer be part of our portfolio going forward. Let's move to slide 16. where most have already been covered by Tom. Our ownership agenda for HMH remains firm. It is to expand the business through organic growth and value-adding acquisitions. It is to maintain the leading market position via customer centering R&D, catalyzed by digital technologies. And we continue to target to make HMH an investment that is liquid. HMH is, as mentioned already, keeping its S1 registration filing updated and is as such in a continuing to prepare for potential listing. Timing of possible public offering is subject to a variety of factors and it's difficult to comment timing at this time. Let's move to slide 17, covering NERS Faircroft. Nesfaircraft continues to deliver growth in revenues year on year, despite a more challenging environment for recruitment and especially permanent placements, given the turmoil that we experience in the market. The company is, as mentioned before, exit ready, with different alternatives being explored, including a potential listing, also here subject to the market is offering an attractive valuation for a company like Nesfaircraft. A key priority In addition to making the investment liquid, it is to continue to grow the company, both organically and through M&A, to enhance value for all shareholders. Slide 18, Arcos Offshore. We were happy to see that Arcos Offshore delivering solid operation in yet another quarter. Arco Wayfair delivered a revenue utilization of 94%, however affected by four days out of operation in connection with a flu outbreak on board the vessel. Arco Seafarer delivered a technical uptime of 95%, but with a revenue utilization of 85% due to weather conditions, as the charter rate is reduced with 50% during periods where we are waiting on weather. And we have not been through the winter season, and hopefully waiting on weather will be a minor factor going forward. Arkov's Santos delivered revenue utilization of 98% in the period and continued its improved trend seen over the last quarters. With this, total revenues for Arkov's ended up US$34, with an EBITDA of 10 million in line with previous quarters. Arco offshore have all its vessels on contract with solid clients and is well positioned for attractive renewal post existing contracts. And this has already been demonstrated by the new seafarer contract awarded in the fourth quarter last year, as well as the current process with the renewal of the Santos contract as already mentioned. We are very pleased also with the completion of the refinancing of the Arco seafarer vessel in April through the 110 million bank facility The new facility has been used to refinance the previous bank loan, as well as NOK 105 million shareholder loan, where Acosto held 67%. And this facility will also be used to finance the upcoming five-year periodic survey that the vessel will go through this fall. The refi improves liquidity of the company and also demonstrates the solid position of the company. Then DDV Offshore. With the backlog secured last year, the three DDB offshore vessels now all have contracts in Australia. These contracts will deliver good growth in both revenue and EBITDA going forward. In the first quarter, Scandi Atlantic began its new one-year contract, achieving an 88% utilization in the period. Scandi Peregrino, however, recorded 0% utilization as the startup of its new contract was delayed due to certain technical issues, with commencement not being expected in the second quarter. Our strategy for DDV remains to maximize the value of our investment by leveraging the attractive day rates that drive solid cash flow, while we actively continue to assess second-hand market opportunities for potential additional vessel sales. And then, finally, let's look at slide 20 with our key priorities going forward. Our custom strategy continues as before, with our key target being to develop the companies in our portfolio, and when the time is right and values are attractive, execute value enhancing exits. We are currently in a net cash position with no draw on corporate facilities, enabling us to time transactions when values are attractive, with the goal of returning proceeds to our shareholders. We look forward to start delivering on our ultimate goal in 2025, returning proceeds from transactions to our shareholders, And with that, we are through the presentation and we'll move over to a Q&A session. And I believe that we will pause for a minute or two to provide you the opportunity to place questions. Thanks.

Yeah, we'll start with the Q&A session. We have received a few questions on the same topic regarding the HMH listing and whether the timeline is affected by the current macroeconomic conditions. conditions. I think it's, it's as both Colin and Tom has touched upon, it's very difficult to comment, both based on a on a legal position and also based on not knowing how the markets will develop. So I think we'll, we'll leave it at that. But But move on to another questions, where you can touch upon this topic, maybe color, how do you view potential shareholder distributions going forward? And has this changed in light of the recent market disturbance?

As mentioned already, our customer is now in a strong position with no debt at the corporate level and with a net cash position. And also as mentioned, following the expected second quarter closing of the announced sale of Peregrino, we plan to distribute a significant portion of the net proceed as dividend, with payment anticipated shortly after the closing of the transaction. And this, I would like to mention, is a major milestone representing Acosta's first ever distribution to shareholders and alliance with our stated strategy to return value through realizations. We remain committed to this approach and aim to distribute additional capital enabled by future realizations. And realization will depend on the market, obviously.

Thank you. Then a question to HMH and I guess to Tom, and I know you touched upon this, Tom, but the question is, could you please elaborate around the impact you see from tariff environment, both in terms of direct cost effects and potentially also implications for revenue development? Also, what measures are you taking with regards to optimizing supply chain in this regard? So I'll hand that over to you to comment on, Tom.

Sure. Sure. I think I gave you the directional, you know, the impact of the tariffs. So we set three to six percent of EBITDA on last year. Although you can, you know, you mitigate that in a couple of ways. And I think, you know, we are looking at supply chains and we always are doing that. And so ultimately, the way our supply chains are set up, Our legacy ESS product lines and topside equipment is largely kind of shielded from a lot of this. And so you have a little bit of protection there. PCS product line is a little bit more hit. But even that, you know, with the way we manage it and bring it back and forth around the world, we have pretty good coverage. So our supply chain overall is not particularly exposed to this. We will continue to look at ways to optimize it if we need to. Again, if we have specific requests from customers saying we need to work around some things. But so far, just I think there's so many manufacturers that are in far worse position. We have a pretty good scenario and we continue to follow it. And so we're not really concerned about the base impact. And so secondary effects that they can hurt. And what would hurt on the, you know, what a tariff could do on the revenue side is, you know, talk about the customer just saying, hey, I'm going to stop spending until I get certainty. But if your rig's working, you kind of have to spend. So I think that's why you saw a good first quarter is you saw people continue to spend on their rigs, right? And I think that was good. And again, I can't give forward guidance, but I can point to the drillers and say that, you know, over the last few days, the next couple of years outlook for our customers, the drilling contractors is actually improved. And so I think we've got to look through all of this and say, like, there is, you know, there are good things happening to the drilling contractors underneath this. Now, you know, there could be some revenue hits in terms of being locked out of a market or something like that, which is, you know, I guess possible. But again, when you look at the base we have with that resilient offshore base, you can look at the drilling contractors and see how that's continuing to function quite well. So there are a lot of unknowns here. We've done the best we can in terms of mapping out the impact. But we continue to think that, you know, it's pretty light. And what are you worried of? What are we worried about? We're not the price of oil. I mean, it's like that's a bigger driver. And right now, even that volatility has not slowed down contract negotiations for the offshore drillers with operators who still want to go forward with those projects. So I think that's probably the best way to say it.

Thank you very much, Tom. And I guess you partly answered this question through your last answer, but I'll pass it on anyway. Maybe you can say something about it. Given the current muted offshore drilling outlook, can you please provide some more color and how you assess the potential going forward and overall, and if there's anything specific to comment on regarding the fleet of rigs equipped with your system particularly?

No, I think we've said everything in terms of what the contractors are saying.

Agreed. Thank you. With that, I think we have received the last question regarding potential to distribute proceeds from Davilco drilling dividend that Kalle mentioned. I think I'll just comment that it's relatively small, so there's no plans for a specific dividend from a customer in that regard, but it, of course, adds to our cash buffer and potential for distributions going forward. I'll leave that by that. And with that, I think we are through the Q&A session. And we'll just thank you all for your attention and welcome you back to our presentation of the second quarter on July 10th. Thank you very much.