Odfjell Technology Ltd

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 we'll start with Simon talking about the key highlights and the market outlook, backlog, and contract status before Jone go through the financials figures. We'll conclude with a Q&A session, and you can submit your questions either through the VET portal or by using the dial-in numbers. I hand it over to you, Simon, for the first part.

Thank you, Gert, and thank you all for calling into the Q1 presentation. I'll start with Just to give you all the reminder of the company's highlight or key numbers regarding size. We are today a company with 2,500 employees. We operate in more than 30 countries, as you see on the map right there. We have a strong balance sheet and I will come more into the details here. So if you can take the next information. On the highlight side, The quarter is in line with Q4 and reflects our steady performance without any major lows or highs. We have an EBITDA of 193 million NOC. We have a revenue of 1.3 billion. And the numbers will be presented more in detail somewhat later. In the 193, this quarter included 4 million in restructuring costs related to our improvement program, which we in detail presented in the previous quarter. So we are on track on that. Operation delivers on historic average levels. Project and engineering continue to experience high activity and delivers to this sport strong margins. Well services delivers consistent revenue while the shift in product line mix has lowered the margin. It is one of our main targets to get back to the level of mid-30s regarding the margin level, which we have been historically stable. Stability and consistency might feel like a letdown based on our ambition to grow our business, but in the current market situation, we believe this is absolutely acceptable. We also expect improvements in the second half of the year based on contracts, projects, and the new revenue side regarding new contracts. Our priorities will be to focus on margin improvements initiatives while continuing to seek growth opportunities. Highlights. We had this unfortunate information yesterday that the termination of Brunei workable contract is unfortunate for us and we are not allowed to showcase our capabilities and solutions. We worked hard for that contract. A number of opportunities for our concept in Southeast Asia is still there. All is definitely not lost. We have a very good relationship with our clients. Engineering and operation preparation is very relevant for other opportunities in the region. The financial impact on 2025 is enormous. is absolutely minimal, and we will get our cost compensated by the client. On the EBITDA, we actually expect a low single-digit effect in the 2026 EBITDA also. This termination is just to give us some more reflection on that. We absolutely have got information from our client that this has nothing to do with what we have done. It's other parts of the project that the client had to consider to conclude with a termination. At the same time, we have... a very constructive dialogue with the client and there are more activities in the region so we so we are positioning us for for future operations in a very attractive region for both work over jobs and plug environment activities powered wired drill pipe project for war energy with expect startup start of in 2026 is progressing according to plan We also did an additional acquisition of 2,000 meters with powered drill pipe, so-called 5-inch. We're also going to serve for war energy with the earliest startup already later this year. I guess in October, November, we will have a startup of that package, which will deliver empathy contribution in this year. We have also been awarded extension of platform for dealing contracts and approved TRS contract for ConocoPhillips in Norway. And as we have shown on this chart, we deliver 60 million NOC dividend for the third quarter on growth, which equals to a direct yield of approximately 14%. Main exposure in the North Sea and with production operations reducing cyclicality and providing greater earnings visibility. No exposure. We have no exposure to U.S. operations land. So our expectation forward will be relatively stable regarding both operations and the level we are working on today. So with that, I take the next slide, Gert. This is the market outlook. We have, as I said, we have a solid backlog. We have kept the level now for several quarters. We expect a higher activity level from Q3 this year. This map shows tenders we are chasing as we speak. They are typically grouped in different regions, so I don't need to go into those regions, but typically the tender value today where we are active is about 8 billion NOK. We expect to take our share of that. We also see that in regions like South America and also Asia-Pacifics and also Africa. We see also that there are more to come and we expect more activity within the drilling segment later this year and more into the late 26. We see definitely a ramp up from major clients that the more the activity level will increase. We are well positioned for growth in our new regions. We are now well established in Houston. We are working with a partnership with another company, which is local in the Gulf of Mexico. and we will not address the land market in the US for us good reasons but we certainly are close with several clients both within oil companies and drilling companies in the Gulf of Mexico and Brazil so we have optimistic view on the market development in the Americas from Gulf of Mexico and South We also see that in the future, there might be more activity up in Atlantic Canada, but we don't see that as a kind of immediate development, but there are future projects up there, which is under development. where we will hopefully take part of those operations following the drilling campaign for one of the bigger projects Equinor are developing up in Atlantic Canada. So we are certainly following the drilling market close, serving the semi-submersibles that's going to operate in that region. We see a very stable and active market in the North with North Sea, Norway and UK. This is today compared to the rest of the world. While the rest of the world, especially within drilling, Jacobs deepwater has a drop in activity level. We see actually a quite high and stable operation for serving oil and gas production, especially in Norway. Of course, driven by the need for increased delivery of hydrocarbons to Europe because of the unfortunate and tragic war with Russia and Ukraine. We also see, we have announced that we are building up our capabilities within the plug abandonment market. And the market we are targeting here, this is something we will see as a long view. plug abandon market is something we have a long haul a long view on we believe that market will be significant for a company like us in the future We have a special good focus on the European market with the UK as the strongest market for the time being. We see also that the Norway, Norwegian market will be more present with plug abandonment. later this decade but we also have a quite interesting view on the plug abandon activity in the gulf of mexico or what they call now girl from america but but we have now been invited by couple of companies to to to to investigate over capabilities for serving tools, plug abandonment tools down hole with some players in that part of the market. P&A in the Gulf of Mexico is coming stronger and we certainly believe that that's going to be a very interesting market down the road. So please take the next. as I said we have a strong and robust backlog we are winning a lot of contracts this part of the slide to the right side shows typical the numbers from big contracts to smaller contracts and they are we are every almost every week we are picking up activity and by that also maintaining the or the where we have had all the last quarters. Just to mark, that 30.1 billion, the backlog from the Brunei termination is already taken care of. So still, without that backlog, we have still 30.1 billion NOK in backlog, which is a strong message. So, within the three divisions, operations where services plug about protein engineering, you see how that's been split. And it's quite interesting to also see that within P&E, where we have uh in the various when we split the the the company we had that level but we have actually almost doubled the level of backlog in the p e department delivering today strong margins which is actually quite good with a high utility level utilization level sorry take the next uh this is uh this is an interesting slide we are still one of the top performers regarding uh shareholder return over the last 12 months we have delivered 225 million NOC in dividend we have established that dividend program and we have said consistently that we want to have a program which is predictable and stable um we since since the since the listing we have delivered to back to shareholders 325 million knock and today with the 14 in private annual direct yield uh it's quite an impressive level actually compared to what has been delivered from from all the competitors and and what we expect in the future so we are absolutely in the high high high level of of actually stand behind our capability of generating cash and doing what we do for growth and at the same time deliver significant dividend which shows a company very stable company with with a strong value sheet and operational capabilities so you can take the next thank you well our priorities is of course to to make sure we are operating safe and and effective I think one of the good things by determination from Shell in Brunei was that they were very impressed about our performance regarding preparations, you know, safe and secure operation because this is a new market for us. So it's very unfortunate that the other part of the project could not deliver, but we absolutely got a very good feedback on our very consistent and and thorough way of planning and executing over part of the project was which actually impressed the client and in all the sadness of losing the contract i think we have given the people that has done that fantastic job a good feedback and they wish they have absolutely deserved We are working, we are on track with our improvement program. We said that one of the things that we actually are holding on, we believe we will have a stronger second half of the year. regarding performance, financial performance, that is, of course, based on new contracts, establishing new operations and, of course, also the results from over-improvement programmes, which is very, very important. We will consistently present how we are developing according to the ambitions in that programme. So with that, I think I'll leave the word to Jone Torstensen, the CFO. Thank you.

Thank you, Simon. It's a positive start to the year with stable activity for all business area. EBITDA in line with previous quarter, while EBITDA margin is improved due to improved margin in operation and in project and engineering. Our improvement programme contributes positively in many commercial perspectives, including margin improvement, and we expect, as Eben said, this to continue, especially in Q3 and Q4 this year. There has been approximately 4 million in one-off costs in Q1 due to restructuring related to our programme, which means that the adjusted EBITDA in Q1 is 197. O2L has a strong balance sheet, which gives us high flexibility to positioning OTL for strategic and profitable growth, both organically and through acquisition in existing and new markets. Next is wealth services. Financial performance is as expected in Q1, with lower activity in UK. Europe, Namibia, offset by high activity in the Middle East. EBITDA level in Q1 is affected negatively due to activity shift from higher profitable product lines to lower profitable product lines. We expect this to improve in Q3 and Q4. There is a high ongoing tender activity now in both existing and new regions. Jone Peter Reistadler, We have successfully secured an extension of the trs contract combo phillips make office, as well as additional work for war, energy, using power wide wave pipe. Jone Peter Reistadler, The next area is operation good start to the year with stable and predictable revenue, along with improved it there and if they are marching. We expect that this trend will continue in the next quarter with strong focus to further improve efficiency in our contract portfolio. There are also high tender activity ongoing here globally, both for traditional drilling operation and for P&A projects. The Brunei work over contract termination will have limited financial impact in 2025. The last one is project engineering. Good start to the year with stable and predictable revenue and improved EBITDA and EBITDA margin level. We expect this trend to continue in the coming quarters with a strong focus on maintaining the current high utilization level through efficient deliverables in existing order backlog, expansion of client base, and introduction of new service offering. SPS work for key clients at Feld Drilling has been an important element of our development over the last year. In parallel, we have developed solid positions and contracts within modification and upgrade segment at fixed installation platforms and floating storage units with clients, for example, as Equinor and Agrabp to balance our portfolio. Cash flow is affected by high investments related to contract wins, equipment replacement, and acquisition of 10% of real wealth. We expect significant reduction in investments in Q3 and Q4. However, we will of course always consider investment in high margin business cases going forward. As expected, the working capital increased by 73 million in Q1. At the end Q1 2025, working capital stands at 353 million, representing 6% of the LTM revenue. We have maintained the dividend level at 60 million in Q1. Available liquidity is 938 million, plus additional 600 million from the bond TAR agreement. The graph are showing LTM revenue and EBITDA development at forecast since Q1 2022. Stable and predictable revenue level for EBITDA. We expect improvement in the LTM EBITDA figures from Q3 2021. Finally, key takeaways. Order backlog remains stable and robust with good revenue visibility. We expect financial improvement from Q3 and Q4. We have a very strong cost discipline approach, and we are on track on our improvement program. And finally, strong commitment to shareholders with consistent dividend payments, delivering on high direct yield, and OTL has probably the highest direct yield compared to our peers. It's now time for Q&A.

yeah we'll start the q a by taking uh calling questions so if there are any thank you sir if you'd like to raise a question please press star one on your telephone keypad if you change your mind and want to withdraw your question please press star two and please ensure your lines are unmuted locally as you'll be prompted when to ask your questions. So as a reminder, to join the queue for questions, please press star one on your keypad. Last reminder to ask a question from your keypad, please press star one. We seem to have no question today coming from a phone line, so I'll hand back over to you, Gert, to take webcast questions.

Okay, thank you. We have one question regarding the backlog. I think Simen covered it. But the question is if the Brunei contract is taken out of the backlog. And as Simen also mentioned, we have taken the Brunei project out of the backlog that we presented today. And we also have another question on how many wired drill pipe springs we have targeted to be operational in 2026. And if we can also give a 2025 capex expectation estimate. Let's start with the wired windpipe. Simon, would you like to cover that one?

You can take it, Gert.

Okay, so we have ongoing vibrate pipe projects on deep sea Aberdeen and deep sea Norcap today. atlantic was ended the summer last year and and we have the upcoming projects for uh war uh starting in the beginning of uh 2026 but now with a shorter string the the expected startup is in the fall like seaman mentioned And when it comes to these older vibrate pipe projects, we are expecting the Deepsea NorCat project to end at the end of the year, that it runs out end of Q3, beginning of Q4. And when it comes to Deepsea Aberdeen, we have It was, I think the contract was ending now in May, but it's been extended at least to the beginning of next year. And we're very hopeful that we will able to also utilize that string for the upcoming project on 12, which would give us another eight to 12 months use of that string. And the last part there hasn't been confirmed, but that's what we're working against. So next year we should have three,

strings working um or throughout most of 26. true good when it comes to the 2025 capex expectations um yeah i can say something there maybe see if we can fill in um this have been a high complex the last four quarters as i said we expect a significant reduction from q3 25. And the CAPEX level is driven by investment in real wealth, high margin projects and replacement of equipment. Of course, the level going forward is dependent on the same things, but we expect a reduction going forward compared to what we have had the last four quarters.

I guess a significant reduction.

and i think we covered most of the catholics questions that's for the most let me see refresh here um and yes we have one questions regarding the the real investment and our ambitions and expectations um can you take that question uh seaman

Do you mean the investment in the company? Yeah. We have invested in the company because we truly believe that... that the technology with Readwell is something that will be a game changer in the future. So this is for us an important step into the company also to provide our influence of how the technologies should be developed together with the other shareholders. So when we see this on the long-term basis, clearly that by both having two power pipes now in production, one is going to start up operations in late this year, and there will be more activity to also to develop tools according with the so-called powered pipe. So we work, we look at opportunities to develop our own tools to support and to be add-ons to that powered string. At the same time we know that over I would say close clients and slash competitors will also start to develop new tools to be supported by that new technology. And just to remind that we have offshore wise, we have a global exclusivity to be the first choice for delivering power pipe to any client globally, offshore. Which is also a good thing when we see this technology will work out, we guess that it will be very attractive to use power pipe on typical mature fields, which is the biggest market. in the in the next couple of decades so so this this investment is clearly something we have worked hard to do and i know around the table in the board or directors and can also influence the direction to how the company shall be developed so that's the reason for that okay thank you um

We also have a question on how we see our services within the P&A segments compared to our peers. Do we have all the tools and skills necessary to complete whole projects and for the long duration of the contracts?

I guess I can start to share that. For us, plug abandonment is a long-term market. This will be absolutely more and more important down the road, but it will take many, many years. We realize that on some technology elements, we are not in the front, but we have time to develop and combine what we are but our, in a way, competitive efforts together with other we can partner up with. So we look at the P&A market both with kind of a similarity, at least a lot of similarities and synergies between slot recovery and plug abandon. Slot recovery combined with plugging is, of course, a better business case for clients, but then you produce more oil and gas. But with plug abandonment, it's only plugging and abandonment. So our set of technologies where we have invested now in companies and solutions so far is filling up over, I would say, completeness of technologies that is going to be used into the P&A market. Where we don't today have the necessary technology or solutions available, we partner up. And some clients actually prefer to use company A for that technology, company B for that technology, and company C for that technology. And some clients like us to kind of put together those solutions into a package. Just to remind the people that view P&A, P&A is definitely not a one-size-fits-all type of business. It's very different from field to field. And in one field, you can use these solutions. In another field, you have to use that solutions and so forth. So it's absolutely not one size fits all. Definitely not. But there are the same elements in there and they need to be combined in a different manner. You also need to differentiate between between subsea P&A and surface P&A activities. So subsea means that you need a floater and we are clearly positioned well to also to pick up activities for that element while having the our sister company odl having a strong ability to operate semi-submersibles and floaters so we also have that kind of capabilities but there are there are still things we like to to add on over over to complete our pna uh portfolio of tools and technologies definitely but but we don't have it today we will partner with with clients that can or companies that will support uh with that uh with those solutions so many of the tenets we are doing now we are working and developing knowledge how to compose a winning strategy with the clients like we did for example with Shell down in Brunei uh we also are actively intended pna tenders in that regions which is very different from typical pna activities in the north sea and very difficult different from activities in the gulf of mexico so so so we we have uh we are patient we're going to do be a pna activity uh down the road but we also look at a project with pna that will actually get the margins which is acceptable to us, not just volume for the case of volume. We also look at the profitability in those activities. So we have the pressure actually not to pick and choose, but we actually pick up the targets we believe most in and try to win projects in that direction. So that's the situation with P&A.

Jone Peter Reistadler, Thank you and we'll end the Q amp a with questions regarding the utilization of other equipment, then, if we're happy with the current pool of equipment and if we need additional investments and I think. Jone Peter Reistadler, I can cover that and we definitely have a very high utilization of most of our equipment currently. And it is also part of the background for the high capex that we've seen the last few quarters. And another contributor is, of course, when we're expanding our business outside of what has been our core markets, it means that we need a larger pool of equipment. The high capex we're expecting this year is also very much driven by the powered by grid pipe projects, which are very high capex type of projects, but they deliver a very high EBTA also. So, you know, I think 25 is going to have a significant higher capex than we're used to and without any Jone Peter Reistadler, A major high margin projects one next year we would be back to a more normal level, which would be. Jone Peter Reistadler, You know, in the 200 250 range and but you know we, we are always chasing good projects and and we must be open to be able to to invest if the opportunities come along. I think by that we will conclude today's Q&A session. Please reach out to me if you have additional questions that were not answered today. And I thank you all for joining our call and have a good rest of the day. Thank you.

Thank you.