Odfjell Technology Ltd

Good morning and welcome to Fjell Technology's Q2 presentation. My name is Gaf Laugland. I'm the SVP for Finance and Investor Relations in Fjell Technology. I'm joined by our CEO, Simon Leung, and our CFO, Erin Knudsen. Today's presentation is available on our website. Please take notice of the disclaimer on page two. Simon will now cover the key highlights, the market outlook, the backlog, and our capital allocation update. You can submit your questions through the webcast portal or by using the dial-in numbers. I now hand it over to Simon.

Thank you, Gert. Welcome to this call. First of all, I would like to say I'm very happy to say that we have record quarterly earnings this quarter. We have earned 243 million EBITDA, a margin of 17.4% compared to 14.8% from previous quarter. It's also the first full quarter with KCM Eraser contributing with 35 million to EBITDA and with adjusted EBITDA excluding acquisitions still up 8% from previous quarters. These are the main drivers for the improvement. That's the KSM Racer contribution. As I said before, we are running an improvement and performance program focusing on performance and cost discipline and OTL in general also has improved over the last quarter. Regarding the market, we signed with Adura Energy, which is a JV between Equinor and Shell, taking care of the assets in the UK offshore sector. We signed an LOI extending one of the largest integrated operations on the Mariner platform. was extended to November 28 with a further two-year option added. This is an extremely important achievement because that's one of the platforms we are really showing the integrated operation and the synergies between the different divisions in OCL and showing that these are building together a value creation for the client. We have a strong order intake of 1.1 billion, that's including the said Adura LOI. But we also see a notable, as we say, service wins in Kuwait, UK, Spain, and Malaysia. I will come back to the market later to share with you how we see the market going to the next half and onwards, but I'll come back to that. We had a strong cash flow during the quarter, about 1 billion NOK in liquidity with a leverage ratio of 1.33 with the debt to EBITDA and somewhat down from the previous quarters. So the order backlog is about 11.5 billion NOK. The market share thinks about their Somewhat similar to what we said last quarter, North Sea is stable. We see a lot of increased tendering. One of the major KPIs we see globally, not only for the North Sea, is the rig count. Around the world we operate, as you all know, in more than 30 countries. We have a huge number of clients out there, and we see that the rig count in general are coming up. We also see finally an improvement in the deepwater market, which also is an indication of increased activity from the big majors and similars. And that is in general an important observation that we are seeing here. And we also see the tendering activity in general is coming heavy up. Middle East is always of the lead. As you all know, the war in the Middle East has caused disruption in our business. We have increased costs for evacuation of people. especially from Kuwait and then in the Emirates. However, we have to say that the impact is not good, relatively limited. It could have been much worse. We have seen around us that there are other companies being hit harder, but over, I would say, impact is significant compared to the numbers. but in general it could have been much worse. That is also impacting the performance especially within Wales services and the day Middle East get more into normal mode around it we think that's going to be picked up. We have quite good dialogue with the clients down there As you all know, especially within the acquisition with Razor, we see we are building up their presence in Saudi and we also build up their presence in the US market, Gulf of Mexico. So in general, that's what to say there. was also quite interesting and which is a trend clearly that we operate here up in the north UK Norway with quite mature fields also in the Gulf of Mexico we see a more activity building up demand on plug abandonment and in that respect it's important to say that over acquisition of Razor Casium together with our alliance with Halliburton in Norway puts us in a well position for capturing our share of the market in that future. Just an example is what we have won on EcoFisk already and the other projects we are following up in the UK and the Norwegian sector. We see an increased demand for that in that respect. Regarding our growth profile or initiatives, as I said, we are pushing hard to grow more in the Middle East. I mentioned Saudi Arabia and America's US Gulf, also partly South America. We are now gradually seeing the synergies by using our will serve as an international network for providing tools and equipment, safe services around the world. So we have already employed people from Razor into the Americas and into the Middle East, especially with the focus on Saudi Arabia. We expect now, and we see now the gradually starting the synergies by combining Razor and Casium into our own network that will be beneficial for the growth into the future. The reason we acquired KSM and RACI, we are looking for more technology-led differentiation. So those acquisitions absolutely bring us into that category. And we also see more demand on the power wide drill pipe with RealWell. And we are currently running several operations for Vor Energy here in Norway, testing out the full fledge of that equipment. And so far, the results are promising. We come back to over-capital discipline because, as I said, our improvement and performance program focus on performance improvements and cost discipline, and that's why we also We'll come back to that and Eirik will share with you some more of those details somewhat later in the presentation. A little back to the order backlog. I think the good thing is that in this quarter we have increased the fixed part of the backlog from 6.7 and last year to 7.2 billion resulting in the full backlog including most of the options in operations to 11.4 billion NOC which is stable as you see go backwards We keep that level 11 to 12, 13 and that's okay for us as long as we can add on the profitable backlog into the portfolio. Most of the backlog is oriented again towards operations, significant also within web services. Just to remind you of the way we tool backlog and report backlog in web services. for operations is clearly the length of the projects we run, drilling and operations on platforms. Within Whale Services there are more frame agreements and things are more kind of not that fixed. normally bring in just 60% or 50-60% of the potential backlog, but what we report. So in theory, there are more in there, but we are also always being on the conservative side regarding weather services backlog, but the theory is much higher. P&E has, of course, by the nature of the business, smaller backlog, but still quite significant compared to or linked to what they actually are doing, the business in process engineering. The backlog is spread between supermajors and very, very small. You see there's a quite huge number of orders coming in and they are spread all over the world. I think we have something like If you count clients out there, I think we are close to 300 clients. Different sizes, of course, spread all over the regions we are working. But it's stable and good, and we think the quality of the backlog is absolutely acceptable. Operations, platform operations. You see here the platforms we operate. It's about 15 in total. Two of them are not active. but to show you here is that to show you the dark blue is the fixed part, the green are our options. Why do we show them? Because we also put the options into the backlog except for EcoFIS because they're so long. The last win we did there was five and a half year fixed and the options were up to 10 years, two times five years, not showing here on the scale but that's up to in about 2040 plus. So we don't report those options into the backlog because they are so kind of long, so that's very different from the other type of options. The reason we also want to show these options is that these are, we say, not necessarily 100% right, but we say it's very much ours to lose. These options are, as long as we perform well efficiency, HSE wise and so forth, statistically 85-90% of these options are declared. So it's relevant to put them into the backlog, absolutely, because they're much more likely to win them than to lose them. So it kind of indicates the total work we are going to execute. So that's why we report normally the options as part of the backlog, except from the long two times five year options on EcoFISC over the last 10 years after the first five is an eternity. All right, next step is to talk a little about the capital allocation. We said last time that we will repost dividend for up to two quarters. We are not intending to pay any dividend this quarter either, but after next quarter we are paying dividend. That's our absolute ambition. And why? Because we found it right, 100% supported by our board. So administration and board said very clearly that we want to be careful and build up the acquisitions to realize the synergies, to make sure we have capacity to do things when it comes up. We see a lot of interesting investment cases coming. And I just remind you, we are building up a network for Razor and Kaser into our kind of a network, a business network. We are pushing the tools and equipment from those two companies into those markets. So we are also investing in presence in those markets. First shot will be scale up in the US and secondly we see a potential scale up already this year in Saudi Arabia. So our intention, as I say, is to show discipline in this aspect. It's absolutely our intention to come back to what we did from the very beginning of the company's history, to pay dividends, but also to be clear to invest into very interesting opportunities that we are seeing and getting. Again, remind our investors and potential shareholders that Oddfield Technology is a company in a growth situation, but at the same time we have to handle all the different uncertainties in the market. I mentioned the Middle East. The Middle East is a super important area for us. Currently, there are a lot of uncertainties. We have to bear over with them. We have to handle them. So that's why we also decide to go more safe than sorry and be disciplined and allocate the capacity we have in the right pockets. So that's the reason. I hope we can come back to the next quarter and say that we are back on track on dividends, and I actually think that's going to happen. So, Eirik, the floor is yours.

Eirik Stamberg Yeah. Thank you, Simon. I will now go through the group financials. Revenue grew 1.5% both year-on-year and quarter-on-quarter to close 1.4 billion NOK with activity held steady across all the three business areas. As Sima mentioned, NBDR reached 243 this quarter. That's an increase of 19% from Q1 and also lifting the margin to 17.4% from 14.8%. This was also the full quarter with KSM Racer, which contributed with 35 million NOK. The business excluding the acquisition also grew with adjusted EBITDA up 2% year-on-year and 8% on the first quarter. Free cash flow turned positive at 46 million NOK, a marked improvement I would say from negative 64 million in the first quarter and negative 73 million a year ago. And this was driven by the EBITDA growth together with an improvement in working capital and it reflects progress on converting a greater share of EBITDA into free cash flow. So to sum up for the group financials, steady revenue, a clear step up in earnings and we have the free cash flow back in positive territory. And then we can move over to the segments and starting with wealth services. Revenue grew 11% quarter-on-quarter and 25% year-on-year to 583 million, driven by Ketam Racer, which contributed 70 million of revenue in their first full quarter. The legacy business was fairly unlevel. Epathea grew 18% quarter-on-quarter and 26% year-on-year to 182 million, with a margin at 31%. In general, I would say the quarter has been satisfactory. We have managed to successfully integrate Casement Racer and we expect the synergies to further improve in the period ahead as we are mobilizing to new regions within the World Services Network. Additionally, Norway had a strong performance within rental and TRS equipment, which was partly offset by lower activity in Africa. On the CAPEX side it was 86 million compared to 108 million in similar quarter last year. The level of CAPEX is below from last year and we continue with our high focus on CAPEX this month. And then we continue with operations. Revenue declined 9% year-on-year and 7% quarter-on-quarter to 597 million. The reduction was driven by scheduled maintenance on Grane for two months of the quarter and by Yme returning to maintenance mode. Despite that, EBITDA grew 9% year-on-year to 49 million, with a margin at 8.2%, the strongest for the past three quarters. The improvement came from better cross-utilization of staff across the portfolio and an improved bonus scheme. in line with our performance improvement program. On the right-hand side, you see that the rig count active plus maintenance grew from 14 to 13 a year ago, and the shift within the quarter from active to maintenance reflects the move of EU MEDA that I just mentioned. And then over to projects and engineering. Revenue was 154 million NOK, down 22% year-on-year from a quarter that included high SPS activities, but up 8% quarter-on-quarter. And this is the second consecutive quarter of improvements. The EBITDA was fairly stable at 60 million NOK, with a margin of 10.5% against 11.5% in the first quarter, as the revenue growth came at a lower average margin. The chart on the right shows revenue by asset type. And I'm happy to say that the mix is broadening. The semi-submersible are down 15% year on year to 38%. And production units, FPSOs and fixed platforms now make up close to a third of the total. And this reduces our dependency of a single asset class and shows the result of our effort to sell our services to new customers. and we expect more of this diversification going forward. And then over to the cash flow for the quarter. And rather than reading the waterfall line by line, let me give you some commentary around the figures. This quarter the cash flow of the earnings, the operating cash flow was positive with 139 million NOK. compared to a small negative in the first quarter and this was driven by a bit the air improvement and also less buildup of working capital the buildup of working capital was also significantly lower than same quarter last year as many of you will know our working capital is seasonal we build normally in the first half and then we release in the second and usually with the largest release in the last quarter of the second half On the capex side, the spending was high this quarter of NOK 93 million in total. However, this is due to periodization effects and we continue to maintain a disciplined capex focus going forward. Lastly, the line called other investments that is approximately 48 million NOK and is related to growth spans. These are not recurring outflows. They are investments behind the growth strategy that Simon earlier described, building our well intervention and P&A platform and our technology position. Putting these together, the free cash flow came in at positive 46 million against a negative 73 million in the same quarter last year. That is a swing of almost 120 million NOK. and it's the direction we're working towards converting more of MBTA into cash. We ended the quarter with available liquidity of 1 billion NOK and a leverage at approximately 1.3 and we are of course comfortable with both of these. Then over to the next slide. This shows the development in revenue and MBTA and I would just like to to pinpoint a step up in earnings based on the same revenue base, which is a strong signal that we are improving our entity and margin. And then over to our performance improvement program. And it continues to deliver results in 2026. As mentioned before, in 2025, this resulted in savings of approximately 100 million. And you can also see the numbers are working in this quarter. Operations is a clear example. Improved cross-utilization of staff was one of the contributors that lifted the margin to north of 8%, the strongest over the last three quarters. And P&E is another example where the capacity is held disciplined through a period where we have lower SPS activities. Going forward, the priority is cash conversion. We are targeting title working capital and capex discipline and with clear targets and accountability. The ambition is to convert a greater share of the EBITDA into free cash flow while accelerating earnings growth and strengthening the balance sheets. So to summarize, let me close with three main points to take away from today. The first is the earnings. We stepped up this quarter to a record of 243 million and with a margin of 17.5%. The second is the visibility. NOC 7.2 billion of firm backlog means that the earnings is based on contract with customers we have worked with for many years. Third, at the balance sheets. We have a strong balance sheet now with 1 billion NOC of available liquidity. that gives us the flexibility to both invest and also return capital to our shareholders going forward. We are happy with the development and our focus is to improve further by converting more of our earnings into cash and continuing the performance improvements you have seen this quarter. And this concludes the presentation and we open for Q&A. Thank you.

As a reminder if you wish to ask a question please press star 1 1 on your telephone keypad and wait for your name to be announced. If you wish to ask a question please press star 1 and 1 again. If you wish to ask a question via the webcast please use the Q&A box available on the webcast link at any time. Once again if you would like to ask a question over the phone please press star 1 1. And now we're going to take our first question. Your line is open, please ask a question.

Thank you. Good morning, Stephen. Good morning, Arik. A question on CapEx. If you go back a few years, you were running CapEx in the 200s. Now you're in the 300s to 400s. As you think about growth and your ambitions, particularly within World Services, Is the current level, I know you don't guide, but say 300 to 400, is that a, call it sustainable level, or does it need to grow further for you to reach the ambitions that you're targeting right now?

Hi, Truls, thanks for the question. I think in general, the maintenance level of the well services should be somewhere between behind 20-25% of the EBITDA as a rule of thumb. And you see now the second quarter is influenced by perdization. It's a little bit higher this quarter. But if you take the first half as a guiding point, I think that also is a good mark for the second half. But I think 20-25% on the maintenance part on the capex side is a good estimate. And then when we are considering growth capex for well services, we are quite strict on the return criteria. We want to see payback in fairly decent terms. and that's kind of a very strict discipline going forward so that we spend money wisely. We spend it on the product lines that creates a solid return and that we discipline on the maintenance graphics.

Okay, good. So you talk a lot about converting EBITDA to cash, which basically ties into your working capital improvements. Are there other means and ways that you can improve your EBITDA, except obviously growing it?

Yeah, I would like to mention three things. Of course, it's to improve the EBITDA by having focus on costs and to improve the general performance. The second is, of course, to improve the working capital and the tied-up working capital. We see that we are building up working capital strongly in the first half. We know it's going to be released in the second half. We're continuously working into how we can improve this going forward. And the third element is, of course, the capex that I just mentioned. So I think if we add up those three things, that will... that will imply a greater share of the EBITDA being converted to cash. That's kind of to sum up the main priorities from our side going forward.

Thank you. A final one for me and that relates to to the Middle East. Is it possible to quantify the impact on the rail services down there this quarter and how do you think about that in the second half of the year?

I think of course we can quantify. We have done that. The impact was very much in the beginning where we had to evacuate everybody from Dubai into Malaysia. They relocated there, the whole management, plus families. We had to stop a lot of operations in the region because we just follow clients when there are, you know, drones, missiles, debris falling from the sky, especially in Kuwait. A lot of the operations stopped. So if we just, and we still have platforms also in Saudi where operations have been paused. But we mitigate it differently. We try to find other things and other work for the people. So a number could be for rail services, I would say, if you sum up, it's not necessarily 100% right, but I guess it's with some 7, 8, 9, 10 million impact on the direct bottom line effect. And it's not over, but we expect now that if things calm down, and I think everybody will dream about that, this will come back to normal. So it has been an impact, but as I said, relatively moderate compared to the worst case we saw in the beginning, but that was really bad. but significant impact anyway. So that's also part of the lack of margin improvements or EBITDA improvements in the rail services area. You have to remember that. It's still war down there. We have 200 people in the region, so all of this has to be taken care of and made safe and evacuated when necessary. So there are absolutely costs there. So, in the normal world this number would have been significantly better.

Understood. Difficult to guess on peace and war and all that in the Middle East it appears though, but hopefully things, but there are, has been some improvement in activity on the broader basis and let's keep our fingers crossed.

Okay, thank you guys. Yeah, I do it very much and as I said we are ramping up we are moving equipment people down to Saudi now to scale up Razor because we already see a lot of potential increase there and that's one of the synergies we certainly see by buying Razor especially Razor in this case their service side is to complete our services in the region and Saudi is going to be big so that's where we see the upside alright thanks thank you

Dear speaker, for the questions on the audio line, please kindly proceed with any written questions.

Yes, we have a question from Jörgen Lande. He is asking if just on the working capital for the remainder of 2026, should we expect it to continue to be developed along the lines in Q2?

As mentioned in the previous question, we expect the working capital to release in the second half and particularly in the fourth quarter. That was the trend last year. We definitely expect that trend also to be applicable for this year. Last year we saw a small build-up in the third quarter and then a massive release in the fourth quarter. but we generally believe that in some it will be a strong relief for the second half.

I think we have a few questions today and I think we'll just conclude the Q&A session there. Thank everyone for calling in.

Excuse me Gert, we have just one more question come through on the audio line. Are you happy to take? Of course, not a problem, just give us a moment. And now we're going to take another question from Truls Olsson from Furnace Security. If your line is open, please ask a question.

Hi guys, since you didn't have too many questions, I thought I had a couple more actually. Simon, thinking about the growth ambitions that you've outlaid for a while now, In the US we have employed two persons now from Racer.

We are not going to be, in the US, we're going to be very disciplined. We are not there to do a lot of type of work that creates a lot of crewing. We are there to rent out equipment. We are there to sell equipment if necessary, but we're not building up a huge portfolio of, for example, running huge TRS campaigns offshore, having, you know, typical 10, 15 people per operation. That's not going to happen. We don't see that as relevant for us. We have already sent equipment to the US base in the Gulf of Mexico, US side. And we actually hope and expect those equipment will be engaged quite soon. And then we will see work and we'll see results from those operations. So from Razor side, I guess that one of the things, one of the reasons we took Razor or was successful to do the acquisition together with the administration there is that their own desire was there to employ their equipment also in the US and I mentioned also Middle East. So I'm not guiding numbers but I'm guessing that second half we'll see good contribution on bottom line on EBITDA and a very good and nice cash conversion from that side. That's what to expect already this second half.

Perfect. That was what I wanted to hear. Thank you.

Thank you, Kjus. And there are no further questions.

Okay. Then we conclude the Q&A session and thank everyone for calling in today. Thank you. Thank you. Thank you.

This concludes today's conference call. Thank you for participating in Manel or Disconnect. Have a nice day.