Odfjell Technology Ltd

Hello, welcome to Oddfjell Technologies Q2 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 disclaimer on page two. Simon will go through the key highlights and talk about the market outlook the backlog and contract status. Jona will thereafter cover the financial figures before we conclude with a Q&A session. You can submit your questions through the webcast portal or use the dial-in numbers. I'll now hand it over to Simon for the first part.

Thank you, Gert. And thank you for calling in, everybody. I'm going to go through, as Gert said, highlights and the markets for both financials and what's happening in the market. So the overall numbers, which will be more in detail by Jono later, is revenue in a quarter of 1.36 billion NOC. We have an EBITDA of 221, net profit 88 plus. The order backlog is still strong. It's 13.4 billion NOC and still a strong cash position with 846 million NOK, and still quite comfortable leverage ratio with the depth on EBITDA of 0.7. If we look at the order backlog, we are... Next slide, please. We still have, we are reporting the whole backlog and within the operations also what's including platform from drilling and jack up management. We also report options because we see it's quite very likely quite often and very seldom these options are not declared. So it's different from other type of businesses. We are reporting the part of backlog because it's really We perform well and what we do, the options are there and historically shown that these are close to 100% called upon if we do the job well and do right HSE and so forth. So the backlog today is 30.4 billion NOC and of course, the biggest portion of that is within operations. a significant backlog in Welsh services, which is also quite interesting. And the smallest part is by the nature of the business in project and engineering. I come back to the tender activity. We have several tenders active these days, and I'll share with you a little later where and what type of activity we foresee over the next period and the next coming years. contract overview and awards we we have as we announced earlier we have got a stronger portfolio with with equinor in norway we are we by first of october we will start up with new new uh two new platforms yeah and we vision um and still keep uh johan sider and all these options have been been on so that has been declared so we are running these contracts until 28. We also see that the activity level also in the UK is ramping up. We have several tenders now also working to increase the backlog over there. And we have seen that Equinor, for example, has exercised the options on Mariner, a very important business for us in the UK. It's quite complex and demanding operations, and we have deserved our work there. together with an alliance or a teamwork together with the main service and the client himself. We serve with well services and we also serve them with project engineering upgrades. There's a lot of things happening there. So Mariner is really an important operation, both for us and of course for the client. same with the with the with bp clear which is it has extended the the options there and declare them and and of course together with uh with johans so i do you see this coverage here which is a quite comfortable situation regarding the operation side which also includes includes includes jackups This part is quite important for the rest of the company, because all these installations are, in a way, now and then under modifications. We deliver well services type of thing, rental capacity, well-bought cleanup capacity, casing running capacities. So a lot of the business we are doing is kind of an add-on services to operations itself. So the platforms are literally spoken a platform for add-on services for the rest of the company. That's why we focus on this one. And that's why we also want to extend and increase the number of platforms and increase the order backlog in that perspective. If we look at the activity globally, this is the map I have shown you before. What's new here is that we are about to open now the office in the USA, in Houston, for a business development sales office. We are already in quite advanced discussions with clients in Brazil, and we also now have an opportunity in Suriname. So that's where we follow our own rigs, but the rigs are moving in one of the cases. This is one of the rigs we operate, which could be also operating in South America. And of course, by that, we also just follow with the setup we have on all the add-on sales and services. Our unique combination with whale services integrated operations together with the rig crew and the rig management has shown to be a very efficient package. Clients that have seen it, they like it. Many of them have asked for more because you see that, first of all, it's much more efficient and the costs are lower. So having this close integration between well services activities Jone Peter Reistadler, and tools and dynamics in that respect, together with the cross training with a with a cruise show has shown shown to be a very, very interesting and very efficient way of operating, which shows that. Jone Peter Reistadler, That the fleet in odl we are on all of the there is a mostly on maybe one one one one exception, but it has shown shown to be the top notch regarding efficiency six deputy and effective operations. We have several advanced bids running now in Brazil. We have not yet concluded any of them, but we see a significant ramp up in Brazil regarding several tender activities, tenders coming up with both well-sourced things and operations. So hopefully not too far into the future, we hope to announce that we have done the first land, the first contract there. But it's too early to say for the time being. The clients there are big ones. There are main service providers and direct oil companies. We also have opened an office down in Indonesia to serve close to the market in that area. And we are looking at activities both in Australia and also we are looking at some interesting opportunities in Brunei. So yes, the international market is quite big. We are not the biggest player in that market. So we can actually have the luxury of choosing the ones that we find most interesting. We're just not running after the big volume. We're running after the best opportunities where we can have some competitive edge and have some extra margins to offer. Jone Peter Reistadler, I think I think that that. Jone Peter Reistadler, These areas, we see the market in general quite strong, even though we observe that that the deep water market in in West Africa, South America and also North America has. has developed, but not in the pace that the rig owners, I think, would like to see. But our position in OTL is that we serve all the type of rig markets. We operate in the Middle East, onshore, offshore, mid-water, shallow water, deep water. We operate kind of all over the place and see a quite significant market out there. We are positioning ourselves with the things we are good at. We try to concentrate on the biggest clients we can see. I think today we serve more than 200 clients, but the top 10, top 15 is the most important of them. I mentioned the Middle East. Of course, Saudi Aramco is very important in this area. We have not been hit by the by the termination of Jacobs in that area. We serve about 25 Jacobs in Saudi with all these kinds of services. And we see that that area is actually coming quite strongly back. I think to say that, well, as a sum up, we continue to be quite optimistic about the expansion. We have said earlier that over growth, will come international i see i'm smoking speaking from the norwegian sector of growth within rail services will come on the other areas i have mentioned all over the place So our ambition is to grow the international business within Wales services. And we have looked at one small acquisition already. We have mentioned that earlier. We are also looking at other type of interesting companies technologies where we want to kind of expand the product portfolio and type of operations. So all in all, I think we can say that there's no change in what we said earlier we look at the coming coming years that's quite interesting and we will do our effort to kind of uh to to deliver what we have indicated over the next periods so by that i thank you and i think i'll leave the word over to you only for the financial update thank you thank you simon q2 is another good quarter for otl

Revenue in Q2 24 has a growth of 8% compared to Q2 23. EBITDA in Q3 24 is 221 million compared to 212 million in Q2, which means a growth of 4%. Cash generated from operation is 184 million in Q2 compared to 187 million in Q2 23. Available cash was 846 million in Q2 24 compared to 618 million in Q2 23. Net profit of 88 million compared to 79 million in Q2. And the equity ratio is now 32% compared to 29% year end 23. And finally, the CAPEX level in Q2 24 is in line with established plan and the growth strategy. Let's have a look on the business area and starting with wealth services. A good quarter for wealth services with growth in revenue and EBITDA compared to Q2 2023. Revenue growth of 5% compared to Q2 2023 and EBITDA growth of 3% to Q2 2023. Mainly driven by growth in activity in Namibia, Kuwait and Saudi Arabia. And these factors more than compensated for the no renewable of the contract in Norway. EBITDA level of 33% in Q224 compared to 34% in Q223. We see a strong market for well services coming up, expected high demand for all product lines globally. And I will say that WellService is now well positioned for further development in existing and new regions with very high focus on capital discipline and high margin business opportunities. The next area is operation. The improvement plan, we call it recovery plan, is on track. Positive development since Q1 24 reporting. the revenue increased with 8% in Q2-24 compared to revenue in Q2-23. But their margin in Q2 is now 7%. I guess you all remember the poor margin of 2% in Q2. We have worked very hard with this recovery and program plan. I'm happy to see that this approach has given positive contribution on the margin level operation already in Q2-24. There is a high temporal activity ongoing operation, as Siemens said, which is very important for operations since an increase of scale will further improve the financial performance in operation. The next area is project engineering. P&E delivers strong quota with a good margin of approximately 17% due to very high activity and high utilization of all segments. Revenue increased with 12% compared to Q2 2023, and EBITDA increased with 18% compared to Q2 2023. I think we can say that we have built a strong foundation, management capability and project execution model are strengthened, which means that project engineering are well positioned to further develop the service offering in existing segments and future energy transition business opportunities. Going to the slide for cash flow, OTL has a strong balance sheet and the cash position is as expected in Q2 24. The cash balance is affected by typical working capital fluctuation resulting in a 21 million cash balance decline compared to Q1 24. Available cash was 846 in Q2 compared to 618 in Q2 23, which is an increase of 228 million we are now fully prepared for the refinancing process and will execute it on the most optimal time the ltm figures 12 months development hotel revenue and a bit there are demonstrating consistent growth trends the long term strategic direction and actions are in place The market outlook is good, and we expect positive development for OTL for the next upcoming years. To summarize, continuous steady performance, operational and financially. Order backlog remains robust. Expected strong market for 2025 and 2026. Strategic focus on growth organically and through M&A. Liquidity and debt level remain robust, on track with the recovery plan operation. And finally, dividend distribution of 45 million in Q2, up 10 million compared to previous quarter.

I think we're then ready for a Q&A session.

and thank you ladies and gentlemen thank you ladies and gentlemen if you wish to ask a question at this time please signal by pressing star one on your telephone keypad and please make sure the malfunction on your phone is switched off to allow your signal to reach our equipment yeah it is star one to ask a question we will pause for just a moment to allow you to signal There are currently no questions in the phone queue. This back over to you, Gert.

Yes, I will take a few questions that's come in. The first one from Danske Bank. Asking the lower EBITDA margin within well service. Is it fair to expect that this was a one-off effect in Q2?

I can try to give a flavor of that. You know, the rail services margin has been somewhat lower and it's a combination of the market trend itself, not a trend, but activities in the market. A lot of the rigs we are working on, every time there's a kind of an SPS or a rig move, you know, rail services on those rigs are not getting any income. Because the rigs are not operating and this period last behind us has been quite hectic regarding rig moves and SPSS. That impacts the activity level and of course the same coming with also the margin level. In those type of periods, we cannot just adjust the cost level because we know it's going to ramp up later, quite soon later. So we just have to kind of be on hold and then wait for it. So we see that the reasons behind this is quite transparent. It's nothing magic. It's a lot of activity coming up, as I said, also. So we are positioning for the kind of go back to operations on those assets again. It's also been typical behind the summer. There are also a lot of revision stops and upgrades, which holds the operation itself. And that is the the periods where rail services actually suffer from not having income when the operation stops. So this is a periodic thing. Sometimes it's less, sometimes it's more. This time it has been somewhat more, but there's nothing that kind of worries us regarding the margins on whale services. We are kind of more looking at the future to position the tenders we have advanced discussions on to kind of position the equipment and people for operating in those areas. That's the focus we have. We're not worried about that.

No, I think a follow-up to that, we also have our questions where, you know, if this is a natural speed bump or the market has weakened. And also, it's on here, if the governing party in the UK will have an effect on our business in the North Sea.

No, I don't see that at all. Can't see any link there, so answer is no. Yeah.

the otl bond is callable in august can you give some insights whether you we will call the bond at the first opportunity or not yeah as i said in my presentation we are well prepared we have a tight connection with with the facilitators and we will as i said do it at the best time i can't say anything more than that

So, yes, again, another question here on the US office. Can you comment on how the development has been so far and also comment on the outlook?

The US development, again, the establishment in the US, we have decided and we have a location, we have a place there. We just wait for the formalities to fall in place. I guess that the key personnel that will move there will do that in, let's say, late September, October. We have already quite a hectic activity with the same people, not being present 100% in Houston yet, but with the clients we work with within drilling, and of course, also within clients down in South America. The main targets, from establishing in the US, I just remind that is that all the big players in playing in offshore, especially offshore South America's like Ghana, Suriname, Brazil are kind of located in Houston. And they also the same players are also focusing and operates on the West of Africa, who is the same type of clients. So we want to be close to that client hub and with both the big drillers and within typical deep water drilling and of course also within the clients we work with elsewhere. So the office in Houston is there to be closer to decision-making processes where tenders and awards are given and activities are created. So that's the main reason. So it's mainly a place to be closer to operations and harvest more in the areas we want to do like we see now in Suriname where we follow one client over there and to kind of just to continue with the same services which knows us. We also see the same down in Brazil that the companies we work with elsewhere is also located there and we have quite strong indication and invitation from them to establish our business, especially in Brazil. So we see a lot of activity coming up there. It's too early to say how much we will get, but we're quite optimistic about that.

Yeah. There is a question here from Tommy Johannesson. Can you elaborate on the contract that was not renewed in Q2? uh what the evta loss uh in q2 was and and the coming quarters and you know i think uh all the details we probably won't disclose but can you see him and talk a little bit around the contract uh which contract do you talk about the contract that came to an end in in q2 ccs well yes of course yes yes sorry say that because it's uh

I have some hundred contracts and some of them are wins, some of them are losses. Be more specific and I can answer that. Thank you. But well, this CCS system was not extended with Equinor for reasons they don't need equipment. Well, that system has been has been invested and paid off quite some time ago. And yes, it was a setback that they didn't want to use it, but it wasn't really a surprise because they indicated that. So we are working now to find a replacement for that type of equipment. We own the equipment. And it's relevant for certain operations. And I cannot say how and when, but there are quite a lot of activity because we don't like to see all that kind of equipment just being laid there and not being active. So we talk to a lot of clients, not only here in Norway, but also elsewhere that we can hopefully redeploy that type of equipment. When and how we have to come back to that. I can't say what impact it gives. That's not for the conversation today, but there's an impact. But we, of course, we have a lot of activities and ad hoc operations to close that impact. So yes, that's what I can say.

We have a few questions on the expected growth projections for the 12 to 24 months. And I think we don't give any specific guidance, as many companies do, but maybe you could give a little bit of a view on it, Simon.

Yes, we have, up until now, we have had a quite nice story. Behind us, there's been a quite significant ramp-up, and you see the history in OTL, all these two years we have have existed on their own in the market, we have seen a quite nice growth period. I have said many times that, I repeat it now, that 2023 and 2024, I have said it's kind of a same type of year. There has not been any big ramp up in activity in 2024. However, we have said that in late 25 and onwards, we see a much better market because many of the contracts which has been awarded and are about to be awarded kicks off in that period. So there shouldn't be any surprise to anyone that 23, 24 and partly into 25 is not kind of the big ramp ups and not at all. been planned for. We are working on the long horizon. We don't work quarter to quarter. We work on a long-term basis to position our long-term growth. And I think that's quite important for a company like us, not kind of a rush after the short-term stuff, but build a stronger backlog over the longer term with the right clients where we see also the best earnings. We talked about potential refinancing. We have a strong cash position. We might make it even stronger if and when we do the refinancing. So we prepare for growth, especially with international growth, because we have a strong position in the North Sea in Norway. uh we see a lot of activity coming up there but but you know it there is it's a limited market we will have our share and plus and we see also the the potential somewhat increased activity level in the north sea nor norway but we see a much bigger potential outside norway And these are areas I showed on the map where we have been, most of them, and there's some new areas where we are looking at. For example, we have been in Brazil before, so we are starting up again if we get those contracts we want. And we have been in Southeast Asia markets before, and we are just ramping up that based on the activity and the organization we have in the Middle East. And so we also kind of work with a stronger organization in Southeast Asia, and as I said, also in South America. But the growth we see will be international, mainly South America, Southeast Asia, and more in Middle East.

Yeah, I think we'll take one more question here. We lifted the dividends for Q2. How do we plan on your future level of dividends and can this fluctuate quarterly or are we planning for a long-term sustainable level?

Yeah, as I said, we are in kind of a refinancing process and the timing I can say, but we are soon there. When we have done the refinancing and hopefully improve the terms in that, we will update our dividend program on a more long-term perspective. and, of course, more predictable for the investors.

Yeah, I agree to that. Just want to add on there that, of course, our business is much driven by cash flow. We are looking at growth. We generate significant cash. We, of course, will be a dividend provider and share back to the shareholders. which we find quite interesting. And with the projections we have, as you said, we are running, but we are running slowly and we want to do the right steps at the right time and also close, close moderation with the market. So our ambition is to have a steady program. Hopefully it will be increased in the future. but we will we will start with that we have start uh slow but we're gonna we have the ambition is to increase and be be more i would say um not aggressive but but but but have a more a stronger potential and we see a stronger potential to to to share out earnings to to to shareholders cash to shareholders so

clearly yes both from the board and from the administration we are we are focused on that part so that's going to be a part of the governance going forward i think i will conclude the q a session today if you have any further questions please reach out to me um you can see the my contact details in front of you i thank you all for joining today and have a good rest of the day thank you