Odfjell Technology Ltd

Hello, welcome to Oddfjell Technology's Q1 presentation. My name is Gert Haugland. I'm the SVP for Finance and Investor Relations in Oddfjell Technology. I'm joined by our CEO Simon Leung and our CFO Jone Torstensen. You'll find the presentation on our website and I ask you to take notice of the important message on page two of the presentation. Today, Simon will start by presenting the key highlights and talk about the market outlook, a recent acquisition, the backlog and contract status. And thereafter, Jonna will cover the financial figures before we conclude with a Q&A session. You can submit your questions through the webcast portal or by using the dial-in numbers. I now hand it over to Simon for the first part.

Thank you, Gert. Thank you everybody for calling in and welcome to this Q1 presentation. I would like to start with just highlights for the quarter. We have had a revenue of 1.5 billion NOK, EBITDA 212 million NOK, which gives us a net profit of close to 52 millions. We have had in the quarter a good growth on the order backlog. We have kind of worked hard to bring that up, and today the order backlog is going by approximately 2 billion to 40.2. The cash and the liquidity availability is still strong. Now we reach 867, and we have a very comfortable debt situation by the leverage ratio of 0.6. All these details will be more addressed when Jona has his presentation. Talking about the market and so forth, we have for a while talked about doing growth via acquisitions and organic. We have now concluded the first, which is a company, McAllion. which we have bought 100% of the shares. The Magarian is a known company serving special tools. Our interest in Magarian has primarily been to address and get the wider portfolio products and solutions and with patents for whip stocks, casing and packing milling tools and fishing and remedial products. We have, in a way, mapped our capabilities over time, and we have talked about the plug abandonment slope recovery market as a global market, especially now, both in, especially in the North Sea, especially in the UK sector, but the Norwegian sector will also follow closely. This is a good fit for us. We have worked hard to get it concluded. And this company will give us access to solutions where we can combine into a wider aspect of services for a variety of plug abandonment slot recovery projects. This is the first step on the road. We have announced that we also, we have said earlier that we're also going to do more. This is a small bolt on acquisitions. The price we have paid is an initial price of 3 million British pounds and we also have an earn out over three years of capped at 2.5 million pounds. This earn out will be based on successful growth and And from McGarren being a small company today, we will bring the company and the solutions and the people into Odd Field Technology. And they will be participating in a much wider marketing network and much wider aspects of client access. So this is a strategic driven one. And we see that when we do simulations of how we can grow this part of the products they have developed and continue to develop, we see a significant potential here. All over the world, really. I'll come a little back to that later. So this is a relatively small acquisition. It's very easy to integrate. It's a perfect fit for us. The personnel we bring over are very welcome and they are very competent. So I also like to address a little about what we do on energy transition. I have been frequently asked in the market because we We have been known after the short two years we have existed as a separate company to develop, of course, integrated services, integrated offerings based on the long history we have operating over the last 50 years. I also want to share with you how we think about the energy transition because I'm frequently asked about that. So just to start there, we are not there to kind of announce that we have put aside a lot of capex to do this. On this slide, you can see the four numbers. There is kind of a saying that our, in a way, experience, the heritage is opening for us to be a player in the future regarding energy transition. We have built up a company. We are now 2,400 people. And when we announce in a way how we are thinking, we get actually quite good feedback from the market that people want to work with us because they see both the existing business and the interest shift also into the more renewables and emission reduction activities, which is a kind of an important element in the global marketplace as we speak. So on this, This slide, I want to share with you that the number three that we have integrated global reach and services. We are in a position where we can combine things that others can't do. We have a strong engineering capability of 350 people now, both very core into the oil and gas, well services, semi-submersible upgrades, technology to reduce emissions and so forth. So they are well qualified to kind of also develop the both sides. The thing we are doing for the future development of renewables, we know our clients very well. We know the oil companies very well. We know many of them, good and bad, has announced significant investment into renewables. We talk about billions and billions of NOC. Our plan, because we have developed solutions that can bring and help clients to install technologies to reduce emissions primarily. In Norway only, the target is to reduce emissions by 2030 with 50% from some few years ago. Significant ambitions, tough to reach, but it's possible. So our plan is really to tap into their investment capacity. and participate with projects, solutions and offer solutions and get kind of a financing via their investment capabilities. So we're not going to set aside quite a lot in a way, a package of money and say we're going to spend this on renewables, no. We are there to use and follow our clients globally and they are big and we have mapped their ambitions and we're going to follow their capex capacity. Plug abandonment is something we will prioritize going forward. The number four, market attractiveness. Plug abandonment, we have spent enough time there now. It's important for us to be a player. McGarrion gives us a wider portfolio products. We look at other companies too. And I can say that in the future, we expect more to come regarding this. But these will be acquisitions for profitable growth. We're not buying it for just to have volume. We're buying it to fill in the gaps we have in our own portfolio. And it's there to do profitable growth. I'd like also just to say a couple of words about Floating Ocean Wind. Ulfhild Ocean Wind has now been very good capitalized by having two new investors from MOL in Japan, third biggest shipping company all over, and Kansai, which is the second biggest utility company in Japan. And they have invested in the company, and we are now in a position now to develop two projects where we have on the target. The one is Goliath Wind up in the north, where we have, it's our project, it's 75 million megawatt, Our plan is to develop that. We have been granted from Enova 2 billion NOC, that's 200 million dollars to support our further technology development, which shows that we, in competition, has proven that we have the best solutions so far. And we also are looking for solutions and in a way, pace that we can develop those two projects. Postponed gulat wind is different. It's smaller. It's a pilot for us is very very important and it's supported by our clients so so so these are the things we are doing and Just to have a quick note at the end of the offshore wind actually Oldfield Ocean Wind has already profits at the bottom line So a little more at the market This map shows that we have said before we have opened now the office in us it's light blue we are looking at that to be a marketing office primarily we that office will serve clients that operates south america primarily and also clients that operates west of africa we talk about deep water markets and the we talk about the big majors out there like exxon's like chevron like total shell ENI and so forth. All the big drillers are based in, except for very few, are in Europe. But the big American drillers are all based in Houston and we serve them by Whale Services. So that's also a very good fit. We have a very interesting bid now in Brazil with Whale Services for a major client. We are optimistic. We hope we can announce something not too far into the future, maybe a couple of two, three months or something. We see a significant more activity also in Namibia, where we have the two rigs today and more to come. And we see that the ramp up of Namibia will be good. We see also more activity on the general West African coast with deep water activities. We see now that drillers are getting more longer contracts, better day rates, and we are there to serve them. We also see now that all over the place, especially within rail services, because this map is really rail services, and we see recalms coming up, even though there was a slight setback in Saudi, We overview on that picture is that those rigs, those jackups that was laid off or terminated, they will be active elsewhere. The market is big and we see a ramp up of activity and we see more tenders to come in all these green dots over the place and we have said Quite many times, I think you heard me before, 23 and 24 is two years where we see a little flat development. So I had not expected too much ramp up in 24, which has shown to be a fact. However, we see 25, six and seven and onwards as much more promising. This is also reflected by other reflecting about you know drilling activities we follow drilling activities onshore shallow water deep water harsh environment all over the place so we we are perfectly positioned to to harvest where we see profitable growth in in this area so some sum up from the market We're optimistic. We see a stronger market in the future and we will tap into that market with at most we can. The order backlog is now 14.2 billion NOK. And it's good to see that we are able to bring more in. I'm very pleased that we also see growth within both operations and rail services, engineering and projects. It's kind of a different type of business, but as I said many times again, that part of the company is key to develop further solutions and to bring also the energy transition in place. P&E serves all the upgrades, SPSs, modifications, entering of new technologies, reduce emissions on existing installations, supporting clients, it's a it's a key to be present and to be a part of a client portfolio and and and client relation delivering here creates more activity down the road uh on the backlog on the next slide the backlog there is of course the the the the the division of grana project for equinor has been important to us uh we We have increased, with Equinor, one more platform to operate. We were not able to keep Heidrun platform, but we won Visun and Grane. We know both of those platforms from earlier. We know them very well, and we will make sure that those two operations will be better. It's also good to see that that wealth services has also won significant more projects in the North Sea and in the Middle East. We have increased the backlog with 0.7 billion on wealth services, and you will see later that the margins in that backlog in the performance is good, even though we have addressed and will address further some problems with operations in Norway. Operations Norway has a lower margin today, first quarter, than we actually like to see. There's a recovery plan in place where Jona will share with you some of the actions there. First of October, we will start a new portfolio with Equinor. We will, if we look at kind of where we see the challenge in the operation, it's a low margin on operation Norway. However, we see already significant step-up improvements. So we're quite optimistic that we will build a better performance. I'm saying that our targets, our long-term targets with operations is high single-digit margin into double-digit area in the future. And that's possible. It's possible, but it needs some, I would say, good performance reach incentive schemes, improve terms and conditions, and then, which is always a challenge, but we have done it before, we'll do it again, and then kind of roll into a better situation. Operations today operates 19 installations, 18 plus one jack-up. And we also see that out in the world, not here in Norway or in the UK, we see that we are able to address different combinations of search services led by operations, which has some sort of a way where we can combine solutions and technologies into new packages. We talk about Asia Pacific, we talk about also partly Middle East, where we are able to see a better utilization of what we have and better margins. So, semisumorum, we are optimistic about that too. And by that, I'll hand over the financial updates on you, Jone. Thank you.

Thank you, Simon. Starting on page 12. Q1 is a good quarter for OTL, taking into consideration that Q1 is usually the quarter with highest seasonal financial impact for a company like Oddfell Technology. Revenue in Q1 has a growth of 12% compared to Q1 23. EBITDA in Q1 24 is 212 million compared to 193 million in Q1, which means a growth of 10%. Cash generated from operation is 75 million in Q1 compared to 86 million in Q1 23. Available cash was $867 million in Q1 compared to $598 million in Q1 2023. And net profit of $52 million compared to $43 million in Q1 2023. And the equity ratio increased from 25% in Q1 2023 to 32% in Q1 2024. And finally, on this page, COPEX level in line with plans and the growth strategy. Let's have a look on the business area, starting with well services. It's another good quarter for well services with growth in revenue and EBITDA compared to Q1 23. It's a revenue growth of 19% and an EBITDA growth of 28%. And that's mainly driven by good operation globally. high activity in Kuwait, Europe, Malaysia, Namibia, and improved and very good performance in Saudi, and very high utilization globally. EBITDA level is now of 37% in Q1 compared to 35% in Q1 23. We see a strong market for well services is coming up with expected high demands for all products lines globally, And WellService is now well positioned for further development in existing and new region with focus on capital discipline and high margin business opportunities. The next one is operation. As Simon said, a challenging start for the year for operation with a margin level of 2% for Q1 2024. due to low bonus earnings high cost related to crude transportation delays and high sick leave offshore the revenue increased with seven percent in q1 24 compared to revenue in q123 as simon said we have established a commercial recovery plan for operation norway and i expect that this approach in addition to expected positive commercial impact from new awarded contracts in the portfolio, will improve the financial performance going forward. And we're talking about a lot of cost initiatives. We're looking into contract terms. We will have a lot of initiatives to achieve more bonuses, etc. There is a high tender activity ongoing operation now, which is an important operation since increased scale will also improve the financial performance. The next business area is project and engineering. P&E delivered a strong quarter with a normalized and good margin level of approximately 15% due to very high activity and high utilization in all segments. revenue increased with 16 percent compared to q1 q123 i think we have to say that we have a strong foundation established management capability and project execution model strengthen which means that project and engineering are well positioned to further develop the service offering in existing segment and positioning otl for future energy transition business opportunities Going to the next page, cash flow, as Siemens said, OTL is a strong balance sheet and the cash position is as expected in Q1 24. The cash balance affected by typical working capital fluctuations resulting in a 61 million cash balance decline compared to Q4 23. We had an increase in working capital with 116 million in Q1 due to increase in trade receivable. Remember that the last four days in March were public holidays and a reduction in trade payables in Q1 compared to Q4 23. Available cash was 867 million in Q1 compared to 598 million in Q1, which is an increase of 269 million. We are currently planning the refinancing process and we will execute at the most optimal time for the company. The L10 figures, the last 12 months development for OTL, still good trends for revenue and EBITDA and demonstrate consistent growth trends. We are now working with our yearly strategy process update including the strategy direction objectives and action and this plan will be based is based on expected upcoming market outlook so to conclude good performance strong order backlog and order intake positive market outlook well prepared for growth organic and more m a in the coming years a good balance sheet and and significant available liquidity low debt recovery plan for operation established at operation norway and finally uh dividend increased from 25 million to 35 million yes that concludes the presentation and we're now ready for um the q a session

and I think we'll start with the call-in questions there any thank you sir ladies and gentlemen if you would like to ask an audio question please press star one on your telephone keypad please also just ensure your mute function is not activated in order to allow you similar to each equipment so that is star one if you wish to ask a question Our very first question today is coming from Lucas Dahl calling from Arctic. Please go ahead. Your line is open.

Thank you. Good morning, gentlemen. Just a quick question on the dividend announcement. Obviously, you have increased it from the previous quarter's level, but you are still below what you are allowed to pay out in terms of the covenant that you have on your debt. Can you just sort of provide some color on what you are thinking going forward?

Yes, this is Jona. The board, our director, decided yesterday to increase the dividend payment from 25 million to 35 million. As you know, the capacity is higher. It's actually 172 million for a year and 43 million in the quarter. the dividend program will be revisit in the next uh for next quarter after we have finalized and discussed with the board the strategic direction and the five years financial view uh so we'll come back to that in next quarter and just to remind her that dividend payments in 2023 was 100 million okay

And then on Siemens comment about your sort of offshore wind initiatives, obviously you have multiple activities in that space. But I was just wondering, as they progress, where do you sort of see yourself in that overall offering? And I mean, what kind of, do you want to be an operator? Do you want to be a technology provider? And what kind of capacity or capex commitment would those potential paths encompass?

Well, currently we have financed Ulfhild Olsson with quite a lot of external investors. As I mentioned, the Japanese companies have a big trust in what we have done. O2L Ocean Wind is a company where we will both develop technology, but we have also said to be profitable and to have cash flow until the market is kind of established. We have also said we are a developer. So our plan is to participate in development of projects. I mentioned Gulab Wind, which is exclusive to us. a small one, but an important one to prove that we have technology and solutions for harsh environment, 15 megawatt turbines offshore. And Utsida, we also are on the business list there and probably are well qualified for the one third that is available for us. Our plan is never to be into execution. We are developing the project. We are farming down at FID, final investment decision, to principle zero. So we are there to establish projects, develop it, and farm down, and roll the earnings to the next project, develop it, and farm down. This strategy has shown to be successful so far because we actually have a black bottom line in Oceanwind. Oddfeld Technology will not be sitting and pouring Carpex into Oceanwind more than we have done. So the plan is not to be a leading shareholder or anything. We are there to support what we have done so far. develop the company and participate when it's suitable. We have no plans to pour in more equity. Technology has people supporting the development, both execution of projects, engineering, so forth. And that's what we invoice into the Opfeld Oceanwind and get paid for. So for us, it's a very good synergy between the two companies. It's born out of Oddfield 50 years experience of maritime business, and it's going to harvest over the next future. Oddfield Ocean means ambition is to be a leading provider of technology globally. And we talk about hundreds and hundreds of installations globally. That's why we also get access to, for example, the Asia Pacific market around Japan is the first step. I hope that answers it.

OK, and then just finally, when I look at your platform drilling portfolio, there is quite a few contracts coming up for renewal early next year. So the question is when there will be a decision whether those options are taken or not, and what are your sort of base case expectations?

Well, we We have, you know, within platform drilling, there are quite often that the options are executed, different from floating or semi-submersible, you know, drilling campaigns. But we have a quite good view on where we are in our portfolio. We, for example, has quite soon and and renewal of the marine installation in the uk is not announced yet but we are quite optimistic about it um we see that the portfolio we have won in norway now with the new projects with equinor has a different setup and we hope that could could contribute to a better performance but also we are looking at markets within jacob management which is different from just running a platform where normally the margins has been quite quite low we look at check more jacob management in the region around us and we also look at several solutions down especially in the middle east where there are need for that kind of services and they are better paid off so when we look at kind of a the growth within operations is also more into a combined type operation, not just a regular platform drilling operations as we have seen historically. We'll come back to more about that when we are able to announce something, but we are looking and piggybacking, for example, rail services presence globally for that kind of solution. So combining rail services and operations globally in certain regions are quite interesting. which is a little unique about the setup with old technology, where we have said that we have integrated so-called integrated services. These are exact examples to do that, to combine things into a better solution. What we can do.

Okay. Okay. Thank you.

Thank you very much, Lucas. Ladies and gentlemen, as a reminder, if you have any questions, press star one on your telephone keypad at this time. We do not appear to have any other audio questions. I'd like to turn the call over to Gert for any questions that were submitted by webcast. Thank you.

Yes, we've received quite a few questions, and we'll pick out a few and answer those. I think a question to you, Simon, is more on the operations week first quarter. The question goes against the timeline. When will we see improvements? And maybe how will these new contracts affect it? Could you talk a little bit about that?

Yeah, I can do. As I said in the presentation, we have identified the challenges with operations Norway. Quite disappointing of course, we're not happy to see those low numbers but we have identified the reasons for them and when you know the reasons you can fix it. And Jone detailed, described recovery plan and we see already improvements in the performance, which because this is of course, we didn't invent that recovery plan yesterday, we have seen it for a while and we are now implementing those kind of actions. So already we see improvements, but the point is to see it's going to be sustainable. That's too early to say, but we're optimistic about it. We have recovered things before and we'll do it again. And the team within OPS are also very, very competent and know exactly how they can do it, but we don't have all the answers yet. The new contracts with Equinor will start first in 1st of October this year. so those are has a different terms and conditions and and and and commercial framework so that they will help but on that road until then we need to do the recovery and and that's what we talk about here plus that we have a lot of other tenders internationally on things that is more in as i said recently to lucas there are combinations between services and drilling operations that can be quite interesting and we are bidding several of them internationally And if we pick it up, that goes both within plug abandonment, go through the work over activities, and slow recovery activities, and that combines rail services and operations in a good fit. So I think that it's going to be fixed.

Okay, thank you. We also have received a question regarding guidance on CAPEX for 2024.

I you know, yes, I can see that say something about that. I think that, of course, it depends on activity level. And as I said, we're going into new regions, and also delivery time on equipment. But we have our estimate now is is between 250 million and up to 275 million copies for 2024. Yeah.

Let's see if we have any other here we haven't covered. A lot of the questions are similar. There is, I think we covered it, but there is a question about calling the bond early and, you know, if the focus will be covenants and what our thoughts are.

Yeah, as I said, we are well prepared for the refinancing process. And the first call date for the bond is August 22, 24. The bond market is very strong now. And as I said, we will execute the refinance in the most optimal time. And our target there is, of course, to reduce the finance cost and improve cash flow. It's to secure long-term financing for five years. improve terms and dividend capacity, and of course, improve our financial flexibility. So we are well prepared. We have a lot of company helping us, and we just now look to find the right timing for it.

Yeah, I think we'll end with one last question. And we're asked to comment on inflation and inflation adjustment clauses. And if these have a lag effect or we get the wage inflation adjustment in real time. I think what we can say on that is these large contracts with a lot of personnel costs are very well protected. Any salary increases that are then covered by the client and backdated to the date of the salary increase. And you often see that we invoice additional revenue in the fall to cover for maybe salary increases that came in June, July. I think we've had a 40-minute webcast and I think we would like to conclude for today. I'd like to thank everyone for joining us. If you have additional questions, please send them to me or give me a call and I will gladly answer. Thank you everyone and have a good afternoon.