Odfjell Technology Ltd

Welcome to Oddfjell Technology's Q4 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 will find the presentation on our website. Please take notice of the disclaimer on page two. We will start with Simon presenting the key highlights and talk about the market outlook, backlog and the contract status. Jona will thereafter go through the final 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'll now hand it over to Simon for the first part.

Thank you, Gert. Good morning, everybody. Thank you for calling in. My voice is a little rusted today, so excuse me for that, but I'll manage. I'll start with the key highlights and the key financials. We have a quarter revenue of 1.445 billion. Every day, 191 million. These numbers will be more detailed presented by Jon a little later. We have a stable and good order backlog. of 30.3 billion. We have a strong balance sheet. We have available liquidity of 1.1 billion with a very comfortable leverage ratio. And we have also this quarter decided to pay dividend of 60 million NOC, which is 1.52 NOC per share. Go to the market outlook. I think we have for a while said that the last part of 24 and into 25 is a little more slow in the market. But however, we see a significant step up in the second half of 25. I will go back to why we see that and how we reach that and stand behind that statement. Still, Norway is a good market, has been for quite a while with the Norwegian oil and gas business supporting Europe and other areas with gas and hydrocarbons in this very unstable situation in the world. The forward in the Norwegian market is strong. It's going to be quite a lot of drilling activity, quite a lot of well construction activities, and also coming more P&A activities. That goes also within the UK sector. So Norway is a good market to be in. It's the biggest offshore market in the world and we have a very good position there. So that's a very strong and stable market. We see also the UK as a good market, more kind of operations over there. We see growth within, we are getting a lot of tenders regarding plug amendment and also well services and drilling operations. What I think is maybe the areas we are focusing more at now is the Americas. We have recently established our office up in down in Houston in Texas. We have, I was there a couple of weeks ago when we have met, we are now in engagement with local companies to establish local partnership for the Gulf of Mexico. We also are very actively in tendering activities down in South America, especially within Brazil, over major clients of back there, down there is really main service providers like typical Baker and Halliburton, Slobache, SLB. So we position ourselves for growth in those areas. and even though the deep water market has a slowdown now currently in maybe the 25 and maybe into 26 clearly there's a ramp up of activities both in south america and west africa we expect that coming late 25 or into 2026. both of those markets, both within our sister company for drilling. So we have a quite good overview of what's going to happen with the drilling activity. And we kind of tag along on that information and knowledge. We also have a significant raise in tender activities in the Middle East. I can highlight Kuwait, Qatar, and Saudi Arabia. We also expect in the future, we are in a very, I would say, Nice position in Turkmenistan at the Caspian Sea, where we provide the services to Dragon Oil. And we also expect not to find a future extension of the contract we already have there, which is a very important contract. to our services within well services. What's quite interesting is that we also see more activity in the Asia-Pacifics. We have already established ourselves with a shell contract in Brunei with a work over project down there, but we also see more activity in Brunei coming. with major clients, and we also see Indonesia and Australia, actually, as an interesting country for servicing our rainbow cleanup tools, our whipstock tools, and more than that. Also, we see plug abandonment activity ramping up more in those areas. So by being present in the area with both tools, people, and contracts, we feel that we are quite well positioned for the raise in activity coming, I guess, late 2025 into 2026. So these are the reasons for us to say that slow start of 2025, late 2024 into 2025, which is quite commonly, frequently commented upon by all our competitors and peers, So that's not a surprise. But our position is that we see that our services will be, we expect a raise in activity level late second half of 25. So just an overview on the backlog. We have a stable, a good backlog. So we feed more activity into the backlog. So it's kind of a stabilized 13, 13 and a half billion. Of course, quite a lot of these are based on operations, long-term contracts. But it's quite good to see that also weather services are picking up more activity. And what is also good is that we have been able to renegotiate the extensions on existing contracts in the North Sea with better terms and conditions. So this also will improve our margins in those areas where we have seen in the mix of the services we are providing, we have seen that some areas have dropped margins, but we have also been able to kind of pick up on the execution of the options to pick up on better terms and renegotiate some of them to improve our margins. I'm delighted to say that we have a strategic cooperation agreement with a company called RealWealth. We have been asked frequently why our agreement with NOV has been terminated. We still run well wire pipe drilling on several of our rigs, but NOV has decided to do all by themselves and has entered a frame agreement with RKBP. I said back then there are other opportunities in the market and this is clearly one of them. This is not just a wire pipe, it's also a power pipe. We know very well from the history they started actually to develop this technology back 20 years ago. And now it's proven, now it's running in onshore US. We have entered this agreement with that company. And this is the only way drill pipe to leverage digital real-time telemetry, well-bore power and better reliability downhole. which is actually resulting in a much better well and more efficient well construction. And also we can reduce impact on climate by reducing needs for downhole batteries and also less emissions. So in that aspect, this product actually takes off all the right elements. Our strategic cooperation so far has been that we have won the first contract with War Energy. with one power pipe. And there are several other options as we speak, where we can easily, or I say, if clients tick off what they want, we can also increase these numbers with more than one string. This is replacing really the observed uncertainty in the so-called high margin product line we have. This is the same and even better. So with the exclusive agreement we have in Norway for the time being that all powered pipe strings shall be delivered by Oddfeld Technology for the next five years plus five one-year options in the future. And Norway is going to be the market where this is going to be tested fully offshore. It's going to be typical Equinor, clearly war energy, also Acro BP, even though they have a frame agreement with NOV. We will see that if this product works, they will be very difficult for anyone else to replace it overnight. So it's a long-term development that all these technologies are protected by IPs. And we also have got quite significant interest from major clients back in the Gulf of Mexico, in Brazil, and all over the world. So we clearly see that a slow start could be a great future on this. We very much believe in what we see here. And with a formal agreement with RealWell and the close cooperation we have established, we will be the one that, together with them, provide this new product into the market. And we see this clearly as a game changer for downhole operations. Power pipe means that you can power tools without having batteries down home. You can do much more efficient and much quicker construction activities. You can do more accurate, for example, drilling and typical major service providers like Halliburton, like Baker and SLBs are enthusiastic about this tool that actually give them the right in a way connection between topside drilling and and their own tools downhole meaning bottom hole assemblies can be made much more efficient and shorter and less vulnerable so there's a lot of websites here and we look forward to engage with war of the first string offshore and by the excellent in the way references you have got from the us by one of the one of the players that used is today his neighbors on short drilling we clearly see that their experience from onshore drilling is fantastic they're going to order more and we're going to bring this into to the offshore era and offshore market will be done by old technology so this is this is you heard me quite enthusiastic about it it's a breakthrough and it's a game changer regarding product and technology we have also decided to keep up our dividend policy we have a strong balance sheet we are ticking off all the elements on the occurrence tests and we have decided to continue to pay 60 now a million knock in dividend in q4 frequently i'm asked what about the future if we deliver what we have in our strategy this number is at least not going to be lower I also said last time about over, and when we saw back in the first half last year that the market will be more slow in 25, late 24, 25, we initiated what we call a performance and improvement program. which is actually in our legacy. This is how we operate. This is how we work. And we established that program in March, April last year. This is to improve financial performance. This is to improve margins. This is to improve competitive edge. We have a very structured and systematic approach to the whole thing. We have done it before. We have been through crisis before. This is absolutely not a crisis, but we use the same systematic and the same models. So what's going to happen here is that we will reduce organization where that's where that fits in. We have already identified areas where we're going to make it more efficient, we are not reducing the organization, because of lower market. No, we are replacing in my work processes with more digital solutions, meaning that we can actually free up capacity to be more efficient and do more. I expect that the result from this program will be significant regarding bottom line effect. I will not say any number. The potential is a very high number. So when that happens, I will share more, but we expect the contribution to the second half will be partly done by this program in this year, especially late Q3 and Q4 and into 26. I think this is a way to adjust and sharpen up the organization and our tools and deliveries, investments, and where we focus to deliver on what we actually are saying here. When I'm saying that we're going to step up significant second half, this is part of it. on top of what we see coming from tender markets and activity in the markets. Remember, we are operating in our 35 countries. Some of the countries we see a slowdown, but most of them we see a ramp up. As I mentioned, Middle East is coming up more, Asia-Pacifics with the countries I mentioned, and of course, also Americas with Gulf of Mexico and South America. So these areas are of interest, and the program we talk about here is... paramount to the liveron and we have high attention from the organization and it's implemented in all businesses where that has been affected and and i see a lot of energy and enthusiasm to make this happen okay uh with this i think uh you know you can take over on the digging down into the more detailed financials thank you thank you simon

I will give an update on the financials, starting with the group financials. Results current quarter versus same quarter previous year. There was a revenue growth of 108 million with higher activity for operation and well services. EPTA dropped with 32 million, driven by shift in product line mix in well services, impacts of no renewed CCS contract in well services, and reduced bonus achievements in operation. Cash generated for operation in Q4 24 is 262 million, and available liquidity is 1.1 billion. The results, current quarter versus previous quarter, revenue growth of 116 million and EBITDA reduction of 10 million. The year and EBIT figure of 825 million includes one-offs of approximately 25 million, covering legal costs related to HMRC tax case in UK, other personal related costs, Some words about the dispute with HMRC relating to OT UK North Sea drilling operation. The dispute concerns whether OT UK is liable for secondary class national insurance contribution for drilling crews operating in the North Sea based on its classification as the host employer. The ruling, received in early January, was in HMRC favour. Legal advisors, Ashurst and King Council, have recommended appealing to upper court. Both OTL and its legal advisor maintain the view that OTUK has a good case, and we expect that the appeal will be in our favour. Let's have a look on the business area, starting with wealth services. Result, current quarter versus same quarter previous year. Revenue has increased slightly, driven by higher revenue in Middle East, increased activity on valuable cleaning in Africa and Norway, and great activity in Europe. EBITDA decreased by 41 million due to changes in product mix globally. The EBITDA margin in the quarter is 29%. The EBITDA margin in 2024 is 33%, excluding pass-through revenue of 211 million. The adjusted EBITDA margin for 2024 is 36.4%. Operation. uh result current quarter versus same quarter previous year revenue increased with 103 million mainly driven by high activity level in uk and norway abedea decreased with 8 million due to lower bonus achievement and cost related to contract closing handover on heidrun and braga for the current quarter versus previous quarter we increased the revenue with 80 million due to change in product or contract portfolio Epidea decreased with 12 million, impacted by contract close, handover for paydrun and bargains. Next business is project engineering. Results, current quarter versus same quarter previous year. Revenue decreased with 9 million, mainly driven by project postponements. Epidea decreased of 5 million due to lower utilization. Results current quarter versus previous quarter. Revenue down with 6 million and EBITDA up with 6 million due to higher utilization. To the cash balance sheet, the balance sheet is robust with high financial flexibility. The equity ratio is now 33% versus 29% and 23%. Available liquidity is above 1.1 billion. The working capital in Q4 has improved 81 million compared to Q3 24. We have spent 365 million in CapEx in 2024. Well services part of that is 315 million, mainly driven by high replacement of equipment and contract wins. We have increased the dividend payments during 24 from 35 million in Q1 up to 60 million in Q3 and Q4. The RCF of 50 million US dollars is still unused and drawn. Finally, the last 12 months development for OTL. OTL has demonstrated consistent revenue growth since its establishment. while EBITDA has declined slightly over the last two quarters, and an improvement is expected in 2025. To sum up, O2L remained focused on its strategic direction, strong cash flow, and improved working capital in Q4. Other backlog remains robust, ensuring significant revenue visibility. O2L secured a strategic Cooperation agreement will reveal real well and led the first contract with war energy. And finally, the performance and improvement program is on track, aiming to deliver higher margin in 2025.

I think that concludes the presentation and we will take a few questions and we'll start with calling questions.

Thank you. If you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. If you change your mind and want to withdraw your question, please press star two. Please ensure your lines are unmuted locally, as you'll be prompted when to ask your question. There are no questions coming through, so I hand back over to you, Gert, to take questions from a webcast.

Okay, we have a few questions. The first has to do with HMRC and the timeline. Maybe you can answer that, Jona?

Yeah, the first has been on the first quarter level now. There is two or in worst case, three additional levels, which can be appealed to. So if we go the whole way, it could end up in 2027. And the point is, there's no cash out before final decision.

Yeah. Another question is on the capex. In light of the higher capex in 24 than we initially guided or estimated. What can we say about the capex in 25 and 26?

Yeah, I can start and maybe Simon can follow. As we said that, we have said that it has been a lot of capex this year and explain why. What we said as a normalized cash for a year is approximately 250 million. If we have additional extraordinary business opportunity with high margin, we will do that. And that example of that is real well. So we expect 250 million going forward for the next two years on the ordinary operation.

Okay. We also have a normal question, which goes to buyback of shares instead of dividend. And I think that's a discussion that has been going on for a while. And I think it is something that will be considered. And for right now, we have focus on the dividend, but it is something that will be discussed in each board meeting. And I think that's all we can say at this point. We have questions about the revenue in Q3 and Q4, or for Q3 and Q4 for well services when it comes to pass through. um and i think what we saw in q4 in 24 is that the pass-through was very high and the total figure for the year was 211 but 80 to 90 million of it ended up in in Q4, which pulled down the margin significantly for value services. This is a typical part of the business where we have contracts, where we see the risk of high maintenance cost is handled through making the customer responsible for it. And we have agreements saying they will pay for the maintenance and repairs. And it fluctuates a little bit. We have not specified this before, but have brought it up this time. And I think we can say that it was much higher in Q4 than it was both in Q3 and Q4 the year before. So I have a question on the startup of the Brunei contract. I think there's no big changes, but it will be early Q3. So I think the estimate right now is still for July 2025. And what's the main contributor to the anticipated margin improvement in 2025? I think the focus is going to be on cost initiatives quite clearly. It's improving the efficiency in the organization. And of course, we're not basing it mainly on the revenue growth. It's about making us more cost effective. making sure we have the right headcount compared to the activity level, but mainly focusing on improving our processes. I think we actually have some technical issues with Siemens. And I think we've been through the main questions and we'll conclude the Q&A here. I thank you all for joining today's call. Please contact me if you have additional questions that were not answered today. And have a nice weekend.