Odfjell Technology Ltd

Welcome to Oddfjell Technologies Q2 presentation. My name is Gert Haugland. I'm the FTP for Finance and Investor Relations. I'm joined today by our CEO, Simon Leung, and our CFO, Jone Tostensen. The full presentation is available on our website, and I ask you to take note of the disclaimer on page two. Simon will start with the key highlights, including market outlook, backlog, and contract status. Jona will then take you through the financial results before we conclude the Q&A session. You can submit your questions through the webcast portal or by using the dial-in numbers. I now give the word to Simon.

Thank you, Gert. Thank you so much and welcome to the Q2 conference call, all of you. Just to start with a quick focus on the company itself. We have still a global presence. We operate in more than 30 countries and we are actually looking at also new areas. We have a strong liquidity position. We have a substantial equipment pool with 4.6 billion NOK as a value. And we have maintained a very strong order backlog over the period. From highlights... This one, yeah. Sorry. Sorry, I just flipped a little bit wrong here. Sorry. Highlights are... Financial highlights are... As I said, the revenue is approximately 1.4 billion. We have achieved 193 million NOC EBIT DA. If we adjust for the restructuring costs, we will come back to later, and some one-offs, the underlying operations are about 204, which indicates a trend. for increased earnings and margins, as we have also indicated earlier in the second half of 2025. The order backlog, as I said, maintained at a high level, and the good news is that we also see more activity within the rail services sector, which has also grown their backlog over the period. still pay 60 million dividend. We have done that for a while now, which yields approximately 11 percent over the period. This one, market outlook, thank you. In general, we need to share somewhat information what we see on the market side. We operate in a market where over the last period has been some softening, but we still see quite heavy activity within the sectors we are operating in. The tender pipeline about, as we talked about, about 8 billion NOC is just the extract of what we actually have put on our priority list. which is a mix between the different business areas. There are quite a lot within rail services. There are actually more and more activity within plug abandonment activities, especially in the UK and in the Middle East and somewhat also now in Norway. But UK and Southeast Asia is more active regarding plug abandonment. We also see now that there are activities within operations, typical potentially wins in that direction. And of course, we also see that the activity level within project and engineering are quite active. We have now finalized all the SPSS for ODL, but we see still quite much activity for engineering projects coming over the next period. What we see now is that, yes, we have spent CAPEX for growth. The company has delivered well over the period. But we also see now that we will start to put priority on investments that could bring the company to a next level. And that's also one of the reasons we have increased CAPEX over the period, because they are invested against both maintaining the position we have, but also future future spends. We will, for the type of growth thinking, we are looking at the potential M&A market. We will still, we have already invested in our book heavily within wild pipe, power pipe. where we can come back to more details. But we today have three contracts within that area, two with power pipe and one with extension with regular wire pipe. And the reasons we are – has increased CAPEX is also that we Due to fact that there are delivery time on equipment that we see are relevant for many of those tenders we are working with, that we need to make sure that we have CARPEX in time and place, that we can meet and win the requirements from the different tenders we are working with. That means, as I said, some want front-end loading of that, but still we never invest against the type of leads that doesn't bring us up to the level we want regarding both margins and cash flow. For the next, for the order backlog slide, nothing really more to say. I think the good thing there is a strong backlog within rail services. Operations are always very stable. We also report the options, but within platform operations, the options are in very much up to us and ours to lose. So we report them. But the rail services, we are quite conservative when we estimate the rail services backlog. We know that many of those contracts are based on frame agreements and not that fixed as a type of term contract. So this is just an extract of the potential we need. Approximately, I think less than 50% we are reporting as a backlog. So there are much more potential in here, but we don't take that into grant just to be careful on that side. We have recently also within rail services signed new contracts in the Middle East and Central Asia. We finally signed a very important contract for us in Turkmenistan with Dragon Oil, and we also have signed a new fishing and retrieval contract in Kuwait. In addition to that, we have also announced that we have one strategic contract with what I call a blue chip client for drilling rental tools, which will start from Q4 and onwards. Quite important, these contracts are all on the right side of the margin level we are looking for, and this is also why we are investing in that direction. We pay dividend. We have paid stable dividend over the period. Since listing, we have paid 444 million NOK to shareholders since we listed in 2022. That means quite a unique position and we still prioritize both growth and dividend. While saying that, we will carefully look forward now because there are some very interesting leads we are looking for, especially in South America. and within some P&A type of activities. We are looking for, maybe we will do some focused investments in that direction based on, of course, winning contract and based on the right level of margins and on tools and services. P&A will be important for us but I have stressed many times that even though the market are very I would say attractive interesting growing we see all over the place that plug abandonment will be more and more but I think clients are looking for solutions that are more I would say maybe smart disruptive to the regular way of doing it and which will require also more new technology and different way of executing those kind of So, we see a P&A market which fits very well into OTL as a company that integrates both service operations and engineering, and with the right mix of tools and partnership, we are quite focused to go in that direction. I actually forgot to mention our partnership in the Gulf of Mexico with OSP. We expect now that the first contracts with rentals and support both in the Gulf, in South America, and also synergies against the Middle East market will pay off and start later this year. OSP is a very strategic partnership for us and has very complementary equipment and technologies that will fit into our portfolio of services. So yes, we focus growth over the next period. We will see that we have indicated a higher income, higher earnings, higher revenue. Second half, we see the same going on in 26. And that's why we also have done the performance and improvement program, which is part of the growth history we have. We started early back in 24, initiated that program in significant I would say total program within the company, streamlining operation resource base, taking down manning, doing things more efficiently regarding process analysis. Today we have reduce the headcount in more than 80 people. We have today 50 million in restructuring costs. We still see some restructuring costs coming out the next half, but all these activities within improvements will gain and start to bring to the results in the company later this year will be a part of the second half increase in both in earnings and efficiency and we see the full I would say, potential being taken out in 26. So we have absolutely not forgotten any or reduced the focus on the improvement program. I also can mention that our organization down in Manila will also be streamlined more in direction with what we actually are doing there, also to reduce cost, manning, and increase efficiency. So with that, We look at the market as a quite potential positive for us. We indicate increased earnings second half. We see that the CAPEX level, well, could be viewed somewhat high currently, but that will be stabilized and will be done against the contracts and investments which yields the right level of return. So with that, thank you, Jone, and start on the financial update.

Thank you, Simon. This is Jone. Steady activity level with underlying margin improvement. The quarter is in line with Q1, reflecting steady performance without highs and lows. EBITDA of 193 million includes 11 million in restructuring costs related to our performance improvement program, which means that adjusted EBITDA is 204 million in Q2. The improvement program is on track, and we have had 50 million in restructuring costs year to date, and that's the majority cost is behind us. The underlying improvement in the last two quarters, I expect to continue into second half of 2025. We have, as Simon said, already reduced our workforce with 80 employees in 2025. Available liquidity remains solid despite high front-loaded strategic capex and working capital build-up. We expect improvement in cash position, improved working capital, and reduction in capex in Q4. The order backlog remains stable around 13 billion NOK. Next, please. The next is wealth services. EBITDA margin improved. compared to Q1 due to improved product mix. EBITDA margin is 31% and 34% if we exclude pass-through charges. Secure extension of Kuwait and Turkmenistan contracts and the high performing wide-wheel contract prolong. There's a high tender activity is ongoing globally with focus on high margin business opportunities. We expect that the high front-loaded COPEX combined with effects on ongoing improvement program will contribute positive on EBITDA and cash flow from Q3. Operations, the activity level is steady. RIGMIC stability supports predictable earnings and margin lift on the way from performance improvement program. Operation remain focused, optimize operation structure, continuous improvement of efficiency in operation, and optimize the cost level. There's a high tender activity ongoing globally, both for traditional drilling operation and for P&A projects. One of our main commercial priorities for operation is to secure work with Brunei Shell Petroleum in Brunei, using the technology and experience from our previous collaborations. Engineering delivered a strong quarter with high revenue and strong EBITDA margin. Increased activity in Q2 due to high activity on SPS for Deep Sista Vanger and Deep Siaverdin, which was successfully completed on time, on budget. SPS work for client, for key client Rotfeld Drilling has been an important element of our development over the last years. In parallel, We have developed solid position and contract within modification and at fixed installation platforms and floating storage with key clients as Equinor and Akka BP to balance our portfolio. This is showing GDPR and revenue development since Q1 2022 for revenue, stable, predictable and controlled growth in revenue. solid EBITDA growth until Q2-24, small drop in Q3-Q4 and Q4-24, and improvement from Q1-25. We expect this improvement to continue into the next upcoming quarters. To summarize, stable operation with margin improvement, dividend of 60 million equal to direct yield of 11%, strategic 25th CARPEX front loaded from wide wheel path and growth projects, strong cost discipline approach and on track with our performance improvement program. And finally, positioning for a stronger second half driven by contract ramps up at the well service product mix and ongoing efficiency initiatives.

Thank you, Stephen and Yuna. We'll now move on to the Q&A session.

Thank you. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To answer your question, please press star 1 1 again. Once again, that's star 1 1 to ask a question.

I think there's one question from Touls Olsson.

Touls Olsson, the first question. Your line is open.

Thank you, guys. Just a quick question on CapEx as you think about, I know you don't give guidance, but as you think about 2026 forward, what should we sort of think about on that side, given sort of the quality elevated level that we've been coming?

As I said, we don't guide on numbers, but I think we will absolutely... We have front-loaded some CAPEX and we see that... Probably that's what you think. Will that trend just continue? No, that will not continue. We will reduce CAPEX because some of this has been loaded early, some linked to real wealth, some linked to strategic equipment we need to secure for future contracts. Typically, we will maintain the equipment with some part of the CAPEX. I can just indicate some 120, 30 million for maintenance. But on top of that, we will see a reduction in CAPEX from at least from Q4 and onwards. But I also say that if we find cases where we see a good rate of return and rate of return on investment on all the right CAPEX, all the right KPIs, we have capacity to do investments, but we don't plan for more from up. We don't plan for more that, so we see a reduction for the current level from Q4 and onwards.

Thank you, Dasku. Another one as well. In terms of, you talked a bit about M&A. Talking about more call it partnership buying part of companies or is this equipment or full companies? How do you think about that position if you will?

Regarding M&A I think we did partners or we bought partly us into the ownership of Realwell. We see Realwell products as quite interesting going forward. Currently we have two contracts on power pipe. One will start later this year, I guess October, November, maybe in that area. And the second package will start up in March next year with very nice, I would say, numbers, good margins. excellent in that respect, plus that we have still one wired pipe from the previous technology we bought from NOV with Deep Sea Aberdeen with Equinor that will run the wired pipe out 26. But as you also know, that wired pipe with RKBP is done future with the NOV, but we still see the package we have on one of the rigs for ODL will run out 25. So, regarding that's an M&A in a very early stage project. What we're looking at when I mentioned that we are positioning ourselves for for future plug abandonment work. on kind of a major operations. In that respect, we have targeted a couple of companies with technologies which operate today with full cash flow, so we don't buy into any equity rates or any developing rates. We could potentially buy into type of technologies that would be quite interesting for providing more complete package to clients for plug abandonment activities. We do that together with operations in OTL. We also look at subsea plug abandonment together with ODL, meaning that subsea plug abandonment will be kind of a natural operation for us. It used to be one company. We know we operate on all the ODL rigs already. We know how to integrate smart operations and very efficient integrated operations. So that will be just extracted more into the plug abandonment world. But still, the plug abandonment are still on an early stage, but we foresee that OTL as a whole will benefit from that market, but we also like to look at tools and equipment that could make more disruptive solutions compared to the regular way of doing it. So I think that illuminates one of them. OSP is a strategic partnership in the Gulf. There we decided to go with a partnership, not straight M&A. What happens in the future? Nobody knows. But we are carefully looking at the Gulf of America. And Brazil, typical, we see quite many interesting, very interesting leads over there. And time will show how we generate it. But we expect the first revenue from that region, Americas, later this year, late this year. That's what to expect.

Okay. So that means four quarters then, basically. But anyway, it's good to hear that things are moving in. It's good to hear that things are moving in the US Gulf and in South America. Thank you guys.

Just to say another comment. What we do over there will be tools, equipment, technologies. We will not provide in a way, personal services in the Gulf of Mexico. That will be based on rentals of drilling tools and equipment for downhill operations and others regarding drilling, well intervention and similar. So that's where we kind of attach the OSP into the portfolio, which is very, very, I would say, complementary to our own package or storage of tools and technologies. Just to say that. Come on.

Just as a small follow-up on that, in terms of tariffs, will that have an impact on your call it US and expansion of such?

What? I didn't hear. Sorry, the tariff. No, no, no, no. Sorry, I didn't hear you. No, we don't see the tariff being hit for us. If there are requirements for new tools, technologies, the smartness with OSP, that will be produced in the US. So they still have a manufacturing center over there, but the equipment we have today, that will not be tariffed as we see it. Potentially new tools equipment could be manufactured in manufacturing centers already established in the US.

Okay, that's good. Thank you.

Thank you. There are no further questions on the audio. I would like to hand over for webcast questions.

Yes, we have a few written questions that we'll take. And one question here from is, there is a reduction in headcount. Is it a signal of lower activity level and possibly revenue going forward? Jonas?

Yes. No. The reduction is a combination of indirect position, which means overhead positions, and direct positions. We do not see any reduction, quite opposite, we see an increase, and the reason for this is that we will have a more efficient workforce and we will increase utilization for employees.

There is a question from Lukas, on the projected earnings impact on Viadryl pipe in 26 versus 25. And I think we could say that they would be fairly similar, but with some improvements in 26, and of course with some potential if our fourth string could be put into use. But it will be a little up from 25.

I guess you're right about that.

And he's also asking if there's any early thoughts on 26 in light of your market comments pointing for softening markets.

I think it's maybe been covered, but you... I guess, well, you know, see, if we look at our competitor and we look at the market around us, it has been so much slower over the last period, which we also have indicated earlier that, you know, the So not too many around us are forecasting high growth over the next half year. Quite the opposite, flat around there. But we see now that the activity level within the oil company is based on the fact that They expect reduction in the global production, both in most of all markets. We are very much into the production part of that market, and the production will maintain. demand for oil are still quite high. So based on, we just count up the leads we see ahead of us. We just talk to our clients and see what they are doing. The only thing that, again, are uncertain, we have to trust the clients and their schedules, and we do that, but sometimes they postpone activity. The only uncertainty I can say that we do not control is the client's time schedule for spending money. If it's today, as we see today, we are still positive to increase activity and earnings over the second half and into 26. That's how we see it.

Yeah. There is one question on, is it important to become a one-stop shop within P&A, or can you compete with the right technology and quality of service?

I think they are not necessarily important to be a one-stop shop. What we see, and I guess that we have spent now two years to analyze that market significant, that we are not we are not in a hurry to enter P&A market because we see now that we like to find our way of doing it and achieve decent results. P&A will always be, I would say, a cost for clients, no income, but P&A combined with slot recovery might be of interest. But what we see now is that Every P&A campaign are different from each other. There's not one size fits all at all. There are different fields. There are different challenges. There are different reservoirs. There are different age. There are different this and that. So everything is kind of different. Like you build a new field development, P&A is equally different from the other P&A activities. You can't just say that one size fits all. So there will always be some tailor-made. And what we find is what we can call a partly one-stop shop. is that we will have basic tools, equipment, and ownership, and maybe also partnership with some clients, and then add on what's necessary to make the disruptive difference to win that P&L campaign. So we are not there to make a one-stop O2L shop. We are there to make a stop O2L shop in a way, but together with others. And the smart investments we have talked about, it could be some M&A we are doing, but it will also be a partnership with key players. Maybe different from case to case, but with some stability in the bottom. Maybe a little vague answer, but they are not a clean answer here.

Yeah. There is one question on working capital buildup in Q2. We did see a build-up through Q1 and Q2. It is a seasonal effect. It's something we see every single year. And then we see an unwind in Q3 and mainly Q4. We're expecting the same this year. And I think with both the capex drop in Q4 and the working capital improvements, we should see a positive cash effect before year-end. I think most of the questions here have been covered. And we are, I think we'll conclude the Q&A session today. And I'd like to thank everyone for joining the call. And please reach out to me if you have any follow-up questions. Thank you.