Odfjell Technology Ltd

Hello, welcome to Oddvig Technology's Q3 presentation. My name is Gert Haugland. I'm the SVP for Finance and Investor Relations in Oddvig 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 take us through the first part of the presentation, while Jone 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. And good morning to everybody. Thanks for calling in. I give you the highlights on the financials. I'm going to go through the market situation and some other updates on our activities as we have now presented in this quarter. The current situation with Q3, we have a strong order backlog and a healthy balance sheet. We have a revenue of 1.33 billion. We have an EBITDA of 2.1 million NOC. We have a very strong order backlog for 30.7 billion NOC, and with an available liquidity situation a little more than a billion NOC. We have also this quarter increased our dividend from 45 to 60 million, with an increase on the shares per 1.14 to 1.52, which gives a good yield. The debt leverage ratio is 0.7, which is according to a level we actually are quite comfortable with. To share a little more about the market situation, which need to get some attention, we are, of course, very close to our largest clients being major oil companies and our main service providers all over the world, actually, where we operate. And the trend has actually over the last six months shown that investments and activity level pickup are somewhat shifted to the right. Jone Peter Reistadt, Ph.D.: : The why to that question or issue is a mixed picture but volatility of oil price and global unrest and uncertainty are are clearly common denominators with respect to reasons. Jone Peter Reistadt, Ph.D.: : Also, now with the with the conclusion of the election in the US or regardless what people think that also will probably be be one of the. elements that has been raised as an issue for uncertainty over the last period. Now that's concluded. So we see the same that activity level are somewhat slowed down and within the different markets, we see that our operators are postponing investments at the same time, our activities on tenders are actually increasing. But the commitment or the commencement of those tenders has been shifted to coming from in 25 is more or 24 is more shifted into the last part of 25. So our situation is that we have to comply with that. And I will tell you later how we will comply with that. But within the different markets, we actually see that there are a mixed picture. have a stable market situation in norway and uk in the uk it's actually a growth within plug abandonment activities and slot recovery activities slot recovery is is also a downhole operation where clients has has the has the still in in the production phase of slots slot recovery is a is a operation that actually creates more revenue for the clients, which means that that's also prioritized. Whilst permanent plug abandonment activity is more like cleaning up what's been done earlier and the activity level in the UK has increased significantly and we are part of actually many tenders today that will probably be awarded in the first part of 2025 and onwards. In the Middle East, we have seen a very variable market up and down. Saudi has clearly been terminating several onshore drilling active rigs, terminating jackups, of course creating an uncertainty in the region. Whilst so far we are not being very much impacted by the termination of the last round they did on fixed onshore drilling activities where we do well services activities, only a minor part of the operations we had there has been shut down, but we have moved all type of equipment over to other parts of Middle East like Kuwait. So it's not that hard impacted. We see a very high tender activity level down in South America. As we have told earlier, we have established an office now in Houston, USA, for actually doing more tender activities, sales activities, marketing activities in South America, but we also actually are looking at operations elsewhere in the Americas. We also see that the deep water operations in West Africa and South America are somewhat postponed or delayed to the right, meaning that the ramp up of deep water activities has not been as the market expected close to half a year ago and more. So still there are activity, but the ramp up seemed to be put a little more to the right. which is also confirmed by contractors operating on that market segment. We see quite a lot of opportunities in the plug abandonment and the slop recovery market. We are actually positioning ourselves quite significant to participate in that growth. You know, this plug abandonment activity is a part of the green shift. And we see now that in the North Europe, like Norway, UK, South America, Gulf of Mexico, and also in the Asian Pacifics are ramping up plug abandonment activities because of the fact that governments and rules and regulations are now pushing harder to actually execute on those, on those wells around the world. There are thousands and 10,000, a hundred thousands of wells that actually are not properly plugged and still are leaking. And some, some, some of them, one of the names that is kind of a link to leaking wells is called zombie wells. And of course this has impact both on climate, but also health on people. So, so, so, um, they, we expect now, and we have got that confirmed from all the clients. And we also see our competitors are positioning stronger for, for pluggable activity. That market has been talked about for many decades, but now I think finally it's going to, something's going to happen. Uh, regarding the order backlog, uh, 13.7, uh, as I said, uh, we, we maintain a high order backlog. Jone Peter Reistadler, And we show now that was most of the backlog in this in that 30.7 is within operations. Jone Peter Reistadler, were very stable but backlog but three 3.1 billion is is within the wealth wealth services and open six within project and engineering. Jone Peter Reistadler, With a regarding the real services backlog, we are taking a quite conservative level of. of the contract bond into that backlog. So it's a conservative estimate that we put in here, not the potential in the backlog, but it's a very relevant and very conservative estimate. We have, of course, had some great wins with major clients so far this year. And currently, this year up to now, we have won more than 100 contracts. And the good thing, even though I kind of have indicated a market which might be and have some slower over the next period, we have never, it's long ago we have seen so much tender activities, but the commencement of those contracts are hitting late 25. which we have indicated earlier that the flat 24 will probably go further into 25. That has been indicated from us at least for the last period, last half a year. Regarding capital allocation, I can say that we have a strong balance sheet. We have a good cash position. We have done refinancing. Over long-term estimates on cash generation are strong, and our leverage ratio are quite below 1.0. As I indicated today, 0.7, which I come back to, which also some elements for distributing cash or covenants for distributing cash to shareholders. Regarding capital investments, we have over two pool is about 4.3 billion NOC as value. We have estimated around 280 to 320 million NOC CAPEX in 24. Quite a lot of that CAPEX estimate has been to replace old equipment and to which actually some of that equipment are more than 20 years old. needed to be replaced, and also that we have won quite many TRS activities, meaning casing running activities, which also need to have quite a lot of estimates. We foresee less estimates next year, which might be commented upon somewhat later. We also do some CAPEX for equipment we know is going to be used. We are quite disciplined. We never do speculative investments. We normally invest against contracts. And of course, if you have to maintain all the equipment, that's... that's necessary, but we quite seldom do speculative investments. But when we see equipment we actually know is used quite frequently and we lack that equipment with a longer, I would say, longer item times, which has been increased since the COVID regarding ability to produce those kind of equipment. We actually had done some speculative investments because on equipment we know it's going to be used and not necessarily against the contract when we did it, but we know that we need it and we need to have it in the pool. M&A investments, mergers and acquisitions. We have done one M&A in 24. That's according to plan and even better. And we are quite also focusing at other now bolt-on acquisitions that will fit into our portfolio of building up technologies and solutions, especially within plug abandonment and slot recovery activities. Regarding dividend, come back to that, we have a good trend to pay more dividend We have 140% growth versus the same quarter last year in dividend. Our long-term strategy is to provide a stable and attractive dividend for shareholders. Having said that, we have stated that we will focus on profitable growth, both organic and via M&As. and to provide attractive shareholder returns through dividends. And that figure here shows today that in Q3, we have 12% implied annual yield. And I think that with the situation we see ahead of us, a strong annual cash generation, we have a substantial available liquidity. We have leveraged ratio well below 1.5 in current thresholds. We are optimistic that dividend will be one part of the thing we will do and attract interest for the company. As I said earlier, we indicated and as I said, we saw the trend of a moderate slowdown in the market activity level already six months ago. So what we did back then, saying that, okay, this happens now, we need to be prepared. So we started the process to establish a performance and improvement program for the coming period from 24, late 20, last part of 24 into 26. This is in line with our good tradition. We have done that many times before. We have seen the market fluctuations and we have always acted before it got too difficult. And that's why we have in Oddfeld also survived the most critical period in the history. So the idea here now is to be prepared and to build robustness to tackle variable market conditions. These type of programs need to be carefully addressed into the organization to get the right buy-in and to get the right focus and attention to make the difference and to deliver on the targets. The cost efficiency, the program is split in two elements. I will not give any quantification on what we will achieve here, but I can say that we have already seen substantial potential. Cost efficiency and commercial targets. We will look at supply chain, we will look at you know, bundling or frame agreements. We have a large number of suppliers where we do procurements. We will look at the process and efficiencies within the systems, meaning that less manual work, more digital solutions. This has been worked with for quite a while now already. And we do have very clear ideas where and how we're going to reduce time and free up more activity and resources to improve on the cost related to these kind of operations within cost. Of course, this will also result that we will reduce the direct resource base based on the improvements we achieve when we get them. And as always, indirect costs overhead will always be addressed. And this will always be there to focus, to handle and to analyze over a resource base to make it as optimal as possible. It's always typical in good times, it's more difficult to do this than in times where the crisis are effects. But we need to do both. And we have a tradition to do both. Regarding commercial targets, we will improve revenue in operations and projects. And we see potential for that. We will, of course, prioritize high margin products. That is easier said than done. But there are different, in our portfolio of services, there are, of course, high margin products and services that are giving lower margins. Of course, it's easy to say the focus will be on the high margin, but we will also focus on to improve the products where we have lower margins. We will scale up contribution from mergers and acquisitions. And we actually, as we speak, have focused on several companies and technologies that we will like to get into our ownership and to put in and to complete our product portfolios on certain services. And of course, this is not done without the people doing the right things. So having an organization now with several thousand people in place, we need to have to improve our commercial discipline and commercial awareness. The expected outcome here is to drive profitable revenue and growth. We have put up quantified targets which is both high level or high case, medium case, low case. So we have a range of outcome of this program. And of course, with the right efforts and the right attitude, quite a lot of this will be achieved. So this is within all business areas. within the top organization the overheads and over global business services which serves both you know all the business areas with type of it with human resource supply chain everything and also we have a quite strong organization big organization down in manila to have high value services to our operations everything is is is addressed There's no holy cows in the company. So I think that for us, this is a way to always be on top that we have an organization fit for purpose with as less fat as possible. So with that, I can't give you any quantified targets, but hopefully that will be reflected in our results going forward. So with that, I leave the word to you, Jona.

Thank you, Simon. I will give you an update on the key financial, starting with the group financial. Revenue in Q3 24 has a growth of 5% compared to Q3 23. EBITDA in Q3 24 is 201 million compared to 212 million in Q3 23, which is a reduction of 5%. Net profit of 39 million compared to 85 million in Q3 23. Q3 24 figures affected by one off due to refinancing in September. Cash generated from operation is 186 million in Q3 compared to 45 million in Q3 23. And the cash position is 514 million in q3 compared to 500 in q3 23 the rcf of 50 million dollars in addition is unused free cash flow from flow of 27 million in q3 compared to minus 54 million in q3 23 and for year today the figure is 493 million Let's have a look on the business area and starting with Well Services. The revenue of 462 million in Q3 compared to 466 million in Q3, which means a reduction of 1% compared to Q3 23. A bid there of 143 million in Q3 compared to 165 million in Q3, which means a reduction of 13% compared to Q3 23. The EBITDA in Q3 2024 is affected by change in product mix globally, rig moves and interruption caused by maintenance stops, establishment cost in new region to support growth, and as Simon said, delays in startup and mobilization inactivity in some regions. Well, service is now well positioned to increase the market share globally, with existing and new service offering. The next business area is operation. The revenue is 644 million in Q3-24 compared to 605 million in Q3-23, an increase of 6%. EBITDA is 49 million compared to 44 million in Q3-23, an increase of 10%. The contract portfolio in operation is strengthened during this last year, and we expect further improvement in financial performance from 2025 after closing less profitable contracts in 2024. The next business area is project engineering. Revenue is 161 million compared to 140 million in Q3 2023, an increase of 15%. EBITDA is 13 million in Q3 compared to 16 million in Q3, a reduction of 20%. EBITDA in Q3 24 is affected by one of cost of approximately 3 million and a quarter related to organizational changes. We have built a strong foundation established with management capability, strength and process execution model, and to drive future energy transition business opportunities. In addition, P&E are well positioned to secure additional projects with major oil companies. So to the cash, OTEL has a strong balance sheet, which means high financial flexibility. The new financing will reduce the financial cost yearly with approximately 40 million per year. Available liquidity is above 1 billion Norwegian kroner. The year-to-date cash flow is affected by one-offs on financial items related to the refinancing in September of approximately 49 million. And the main elements here are call fee and fees to D&B and Danske. We expect, as Simon said, a reduction in the COPEX level in 2025 compared to 2024 forecast. And we will also expect a solid improvement in working capital in Q4. LPM figures. We are pleased to report that the company performance so far driven by our team's commitment to deliver excellence and innovation. Revenue and EBITDA are demonstrating consistent growth trends in revenue and EBITDA, with exception of the small drop in EBITDA in L10 in Q3 2024. We are well in our position to capitalize on the global offshore and onshore business opportunity going forward. So to close this session, we will maintain a clear plan to expand the growth Balance sheet is strong and will support our growth and returns to the shareholders. Solid order backlog remains robust into Q3 2024. Ongoing focus on bolt-on and technology M&As, opportunities that are aligned with our strategy. Focus on expanding margin. And finally, dividend program delivers high direct yield.

Okay, I think that concludes the presentation and we're ready for a Q&A session and we'll start with the calling questions.

Thank you. Ladies and gentlemen, if you would like to ask a question over the conference call, please signal by pressing star 1. That is star 1 for your questions over the conference call. We will pause for a brief moment. Once again, that is star 1 for your conference call questions. There currently appears no questions over the conference call. Okay.

And I'll read some of the questions that we have received. And we'll start with questions regarding the CapEx. The question is if we can quantify the CapEx estimate for 25 and how the long term CapEx compares to 24.

I can give some update there. uh we expect the copics level in 2025 to be approximately around 250 million and also the same level going forward if something happened with huge and good business opportunities that could be changed but the current plans and strategy is in the area of 250 million

There is one question I think you can address, Simon, which is shouldn't the whole theme around zombie wells be very positive for well service in the coming quarters? Or is this something you cannot see yet, but rather anticipate will happen during the coming year? Some clarification would be appreciated.

Yes, I can comment upon that, as I indicated we are already in quite many dialogues with clients to address these things. Zombie wells are typical wells left behind many years ago and are quite a lot leaking in the US. This is a big issue for the time being because it's not only about climate, which is not necessarily on top of that, but it's also dangerous for the people health. And when you hit that part, you actually get attention. so so yes i can say that um that we we are in dialogue i can't say more in dialogue with clients to show our capabilities to handle and to plug a permanently plug abandon those kind of us in a way all kind of us but but in the but in the gulf of mexico for example it's a lot of them we are present there now we have not any specific uh contracts or any tenders along there, but the activities are, when you speak to the clients there, they are putting aside quite a lot of capital to handle that kind of uncertainty and threat. And that I think will, according to the people knowing more about that than me regarding the rules and regulations, this is not any any link to any president over there. It's something that has to be done regardless of government, really. So we see a ramp up there. We also see quite a lot of activity on plug abandonment in the North Sea, especially UK sector, where we are engaged now in six or seven tenders where it's going to be awarded during expected during 25. So that is something we can come back to. So the thing now is that with the acquisition we did with the last, we did this small company, Magarian, where we do WIP stocks and we have other tools in there. We are putting up a portfolio of tools and equipments where we can complete the value chain of doing plug amendment activities. So the M&A stuff we are talking about in this presentation is almost only linked to type of plug abandonment, slot recovery, downhaul activities within Wales services. There are some other stuff there, but the priority is to complete the technology portfolio products to complete the total value chain within permanent plug abandonment and slot recovery. I don't know if that gives any illumination on the question, but yes, this is a high focus market we are looking at.

Okay. How do we view the project engineering segment going forward with less SPS modification for ODL and ODL managed RICs?

Well, I can answer that. I think historically it's about 40% of the operations within P&E has been within ODL and RIG associated. That's true. But at the same time, we are also looking at other type of activities within P&E. If I look forward, there are a lot of modifications on existing platforms. There are a lot of green activities, which we actually have done over the period during the crisis. With all respect with Equinor and RKBP in Norway, they kept the high level activity during the period from 15, 16 onwards through the COVID. to actually develop and install emission reduction technologies on the same submersibles we actually operated during that period. In the deep water market, with the big majors ramping up activities down in Brazil and West Africa, typical, and also Gulf of Mexico, the requirement to reduce emissions. I mean just look at Total's Q3 presentation how they also address what they need to do to complete and fulfill the requirement for reduced emissions. All these kind of technologies we have installed our own rigs are very relevant to do on type of deep water drill chips and other assets like jackups and There are quite a lot of activities possible to get access to within P&E here. So I think, as I said, I think actually during 2025 is probably going to be again a relatively flat year compared to what we have seen so far. But onwards, there will be more activities, especially also within the green shift and modifications on existing installations. So I think we're going to keep a quite steady level within P&E.

Okay. And we have one question on working capital. And if we expect an improvement in Q4 and into 2025, Una?

Yeah, as you remember, last year, we have quite good improvement in the working capital in Q4, which is normal. We expect the same this year. in q4 and we're working very hard to continue this improvement also into 25. yeah but there are seasonal variances absolutely absolutely and i think uh to end the q a i i i think we'll uh

finish with questions. We have quite a few questions on the margin level and expectations into next year on the different segments. Could you talk a little, Simon, about our expectations by segment maybe for the margin level?

Yeah, I think as I believe that that the most interest here is what about the rail services? Yes, rail services has now a lower margin, even with Jone quite good commented upon. There are also fluctuations within what we have invested and what we have won on contracts. So within the portfolio of services, within rail services, there are high margin products and they are products with lower margins. Typical in some areas I can't go specifically for example TRS casing running services is a very vital part of the of the services we provide. TRS has a lower margin than the high margin products But we need to do it and we have to do it and we want to do it. So the investment, as I said, for TRS has been higher than normal during the last period. But as I said many times that if we said we're not going to do that, well, it's not bad margins, but they are lower than the really high margins without coming into details. But as a user, maybe a little stupid metaphor is saying that if you run a supermarket and you say, I won't sell milk, then you have a problem, or bread. You have to sell your portfolio to serve the client what they want from us. So sometimes there are more TRS activities than other activities. That's why the margin has gone down, partly, and also because things have slowed down, rigged moves, I won't repeat what Jonas said. But we expect the value services margin to be as we used to have it in the middle of the 30s plus. That's what we expect. Within P&E, I say the same. These are hit by certain activities. So I guess that P&E will be 15%-ish and up and down around there. uh as i said within within operations uh and never been never going to be a high margin business but at least what we would call high margin but we expect uh we are satisfied with the with the with the operations around the high single single digit into the low double digit area that's what we expect and that's what we aim for if you can say that much so that's uh not the guidance necessarily but just facts all right okay

I think we'll conclude the Q&A session right now. If you have additional questions, please reach out to me. Contact me by email or make a call and we'll try to answer as well as we can. Thank you everyone for joining today's call. Thanks.