Tgs Asa S/Adr

Good morning and welcome to TGS Q3 2025 presentation. My name is Baris Denberg, Vice President, Investor Relations and Business Intelligence in TGS. Today's presentation will be given by CEO Christian Johansen and CFO Sven-Better Larsen. Before we start, I would like to draw your attention to the questionnaire statement showing on the screen and available in today's earnings release and presentation. For those of you on the webcast, you can start typing in questions during the presentation, and we will address those after management's concluding remarks. So with that, I give the word to you, Christian.

Thank you, Bård, and welcome, everyone. So I'll start with the Q3 highlights. And before I go through the numbers, I just want to say I'm very pleased that we have a solid recovery after a very weak Q2. And I want to thank all our employees for pursuing sales opportunities aggressively in a challenging market and at the same time being extremely focused on our cost base, which you will see from the numbers that we have a solid beat on EBITDA and EBIT due to lower cost of the quarter. So starting with the numbers on the top line, we had revenues of $388 million. That's compares to 308 in the second quarter of this year. So sequentially, that's a 26% increase. As I said, our EBITDA was strong at $242 million. That's a 62% profit margin. And again, driven by a very strong cost focus of the organization. We had a Q3 EBIT of $105 million. So it's the first time in several quarters that we're over $100 million in EBITs and that represents a 27% profit margin. We had an order inflow of $436 million, and that takes our total order backlog of $473 million at the end of Q3. Our cash flow was strong and that means that with a free cash flow of 81 million dollars and 30 million dollars dividend payment we managed to reduce a net debt from 432 million dollars or down to 432 million dollars and this compares to 479 million dollars in Q2 of 2025. maintaining our dividend of 0.155 per share and we have also adjusted our capex guidance down so that's been reduced to 110 million dollars versus previously 135 million dollars so overall uh strong numbers and uh strong slightly stronger than we expected for q3 which is always good after as i said a very disappointing q2 Well, the business update, and I'm not going to cover all the projects that we had in the quarter, but what you can see here is that Q3 is usually dominated by a strong North Sea season. So we have almost half of our assets working in the North Sea during the summer season and into Q3. You see we had two vessels in Brazil, and we're probably going to keep vessels in Brazil for the time being due to strong interest for data acquisition and even our existing data library. We also have OBN operations, so two OBN operations in the US Gulf. And then you see we have one vessel in Egypt and one vessel in India during Q3 of 2025. I also covered the business units, so starting with multi-client. We had multi-client sales of $226 million in the quarter. That compares to $277 million in Q3 of 2024. And the difference there is pretty much explained by higher transfer fees in Q3 last year than we had in Q3 this year. Multi-client investments of 86 this quarter compared to 129 in the same quarter of last year. And again, that corresponds to a sales to investment for the last 12 months of 2.1. That's similar to what we had last year. But again, it's above the historical average of about 1.9. So very pleased about continued strong sales to investments of our multi-client data. terms of new awards and key projects that we were executing in q3 we had palma phase two offshore brazil this is a streamer survey in the equatorial margin area and then we had another project in the same area called megabar extension phase one and it was it was a pleasure for us and for tgs petrobras and brazil to see that petrobras finally got environmental approval to start drilling in this area. And this is an area where TGS has been acquiring lots of data over the past 12 to 18 months. So again, extremely excited to see that things are moving on. And for those of you who remember the last lease sale in Brazil, you also saw companies such as Chevron and Exxon picking up blocks in that area. So this is probably one of the last frontiers and one of the most exciting frontiers in Brazil, for sure. So great interest from clients on those surveys that we've been carrying out for yeah over the past 18 months then last but not least we had a project called amendment west one in the gulf of america in the quarter so this is an ultra long offset obn survey over legacy streaming data and this is a tgs only project with no partners we move on to the historical multi-client performance just to put the quarter in the perspective and this looks at last 12 months sale is a light blue and then dark blue is the investment and then the line there the great gray line is last 12 months sales over investments and you see it's coming up from about 1.9 in the previous quarter to about 2.1 now so really where we want to be in terms of of profitability of our multi-client business, which historically has been yielding returns of somewhere between 1.9 and 2.0. Our internal goal when we start a new multi-client project is always around two. Marine data acquisition, relatively weak quarter as we expected, and we guided the market after Q2 that Q3 would be relatively low in terms of activity level. And then we came in slightly above what we expected. We had contract revenues for OBM of $87 million versus $127 million last year. Our streamer contract revenues in the quarter were 127 and we had total gross revenues of 215. And as you see, a strong EBITDA margin of about 36% for our assets in Q3. In terms of new awards and key projects executed during the quarter, we were awarded a streamer contract in the Mediterranean, as you all know, commenced acquisition of that in Q3. And then we have secured a large streamer contract offshore Indonesia in the quarter. This is scheduled to start in Q4. has a duration of eight months. It's a big contract. And again, it's mostly 3D, but the last month of the eight months is going to be a 4D over some existing production. We've also been awarded a streamer acquisition contract in Africa. So this is a Q4 start, and it has a duration of about 50 days with some options to extend. And then we have an OBN contract in the Gulf of America. This is also due to commence in Q4, and it has a duration of four and a half months, a quite large contract for our OBN crew in the Gulf of America. In terms of our new energy solutions business, we had contract revenues of $18 million. It's up from 16 in the same quarter of last year. Multi-client revenues of five versus three last year. So total revenues of 23, which is up from 19 in Q3 of 2024. And again, as with the other business units, a stronger EBITDA margin year on year as compared to Q3 of 2024. We've been awarded a UHR 3D contract offshore Norway. This commenced acquisition in early July, and we were acquiring that data going into Q3. We acquired also a CCS contract offshore Norway, and then we continue our collaboration with Equinor through our subsidiary Predictor, through something called Predictor Data Gateway Solution, and this is delivered to Equinor's Empire Wind project. Also happy to see that imaging and technology continues the strong growth with good margins. So on the gross imaging revenues were 32 versus 26 last year. But if you look at the external imaging revenues, they're about 20. It's a doubling of revenues compared to last year. And you've seen that we've been on that kind of growth track for quite some time. We have a Yeah, $20 million this quarter. We're going to be slightly short of 80 for the year. And again, next year, our goal is for imaging to be above $100 million in external revenues with strong EBITDA margins. So we continue to take market share in the imaging and technology space. And part of the reason for that is a strong strategic focus on the external market. TGS used to be more focused on the internal market and processing of multi-client projects. But now we made a strategic choice that we're going to go after the external imaging market and you see the results of that with significant growth and good margins. We see a significant reduction of HPC cost from added scale. So TGS is a big customer of the big cloud compute providers such as Google, AWS, etc. And we see obviously great benefits and synergies from the combination of TGS and PGS in that regard. So again, as I said, we expect continued growth in external imaging revenues, and you've already seen a substantial margin improvement on the imaging side. With that, I'm going to hand it over to Sven Börre, and then I will be back talking about the outlook shortly. Thank you very much.

Thank you, Christian. Good morning, everyone. It's always a pleasure to report strong financial numbers. So although... The revenue numbers are not that strong in a historical perspective, highlighting the upside potential in the longer term. They are quite strong in a relative perspective and relative to where we've been, particularly in Q2, of course. But more importantly, we have very strong performance on all other parameters, including cost and cash flow parameters. So we are very, very pleased about that. Let me take you quickly through the numbers. On the revenue side, we came in at $388 million. That consisted of $217 million of multi-client revenues. and $171 million of contract revenues. The multi-client revenues were particularly strong in the quarter, mainly driven by strong sales from the vintage library. The pre-funding of new projects were actually lower this quarter than we have seen in some of the previous quarters. So library sales very strong in the quarter. Then going to net operating expenses, I'll go into more detail on that on a later page here. So let me just mention that the net operating expenses were $147 million versus $221 million in the same quarter of last year. So a significant reduction there, of course. Depreciation and amortization. Depreciation 61 million dollars continues to be reasonably stable around plus minus 60 million dollars as you can see on a quarterly basis. Amortization was quite low in the quarter. The straight line amortization is stable whereas the The accelerated amortization is quite low in the quarter. That's partially explained by the lower pre-funding rate, as I talked about, and also, of course, explained by the mix of the different types of projects that we have in the portfolio right now. This gave us an EBIT of 105 million dollars in this quarter, corresponding to an EBIT margin of 27%, slightly ahead of the operating result in the same quarter of last year, despite having significantly higher revenues last year. As I promised, I'll go in more detail through the cost base and how the cost has developed during the quarter and how it is likely to develop going forward. On the chart here on the left hand side you see Q3 specifically, this Q3 compared to the Q3 of 2024. So as you can see on the left hand bar in both those two charts you see the gross operating expenses and you can see it's at 217 million dollars is significantly down compared to the 289 we had last year. The decline is particularly visible obviously on cost of sales and it has to do with several factors first of all of course we have gone through as we have talked about in in previous presentations as well we've gone through quite a bit of efficiency uh efficiency projects internally and we have realized a lot of cost synergies of course and and also also after the integration project has been more or less completed we have continued to look at different efficiency gains and we've been quite successful in that. But I also have to admit it's also of course partially related to lower activity, particularly on the OBN side where utilization of the crews that we got is a bit lower in this Q3 relative to the Q3 of last year. And finally, there is also some call it non-recurring items in the quarter, which reduce the cost of sales by a little bit more than $10 million. It's not genuinely non-recurring items. They are non-recurring in this quarter, but most of it is a reversal of costs that have been expensed previously. So over time, it's not a non-recurring cost, but in this particular quarter, it is non-recurring. And as you can see, if you compare to the same parameters of last year, we are significantly down, even when adjusting for the one-off costs we had related to the merger integration process in last year. So you see that last year we had $162 million of cost of sales. There were no merger integration costs in that number. On personnel costs, we had $95 million where we had $11 million approximately of merger integration related costs. So the underlying cost in that quarter were $84 million, still well above the 69 we have in this quarter. And on other operating costs, we had approximately $5 million or $6 million of merger integration related costs. So the underlying cost there was 25 in the previous quarter. So we're actually a little bit up this quarter compared to last quarter on an underlying basis. And that has to do with compute. We're using more high performance compute resources now than we did last year. And that obviously has to do with higher imaging activity and more use of AI and machine learning and algorithms that require more high performance computing. And that's a deliberate development, of course. If you look at the right hand chart or the right hand side of the page, you see a chart showing the cost development on a last 12 month basis over time here. And as you can see, the last 12 months as of end of Q3, we had $982 million of gross cost. Our guidance remained firm at around $950 million for a year. uh as a whole so you see the trend there we have come significantly down and we expect to come further down in when we report uh when we report q3 q q4 in fact we we if anything we expect to be below 950 and and and not above so we're quite happy with the development on the cost side and it can also see the evolution of our guidance through the air on on the right hand side of the of the chart there with the dark where we've done basically $100 million relative to the original gross cost guidance. So we've done a lot on the cost side, which is obviously helping us quite a bit in terms of delivering a strong EBITDA in this quarter. Looking at the profit and loss statement, we had 388 million dollars of total revenues consisting of 217 million dollars of multi-client revenues and 171 of contract revenues. I've talked about cost of sales, personnel cost and other operating costs, which already this gave us an EBITDA of 242 compared to 280 in the same quarter of last year. Straight line amortization was $60.5 million, where it's roughly where it has been on the previous quarters. As I mentioned, accelerated amortization quite low this quarter. related to the mix of projects we were doing and a lower pre-funding rate we had a small impairment on one of the multi-client projects that we do that's not not uncommon as you can see we had something similar in the in the in the same quarter of last year And depreciation of 61, which gave us this operating profit of $105 million. We had financial income of 4.3, same level as last year. We had financial expenses of 19.4, which is slightly above last year, which may surprise people because we did the refinancing that reduced the interest costs quite significantly in Q4 of last year. However, bear in mind that we took a lot of that interest saving in the PPA. So we wrote up the PGS debt in the PPA, which reduced the interest charge in the PNL already ahead of the refinancing. So that's the main explanation for that, call it not so intuitive development. And this gave us a result before taxes of $85 million compared to $97 million in the same quarter of last year. Cash flow, as Christian alluded to, quite strong in the quarter. We had cash flow from operations of 242 in the quarter. Almost the same level as the 265 we had last year when you subtract the multi-client investment and capex and adjust for timing and working capital movements. We had cash flow from investment activities negative by 94. million dollars compared to 59 million dollars in the same quarter of last year and then if you then subtract Cash flow items related to financing of $97 million. We end up with a net change in cash and cash equivalents of $50 million in this quarter compared to $83 million in the same quarter of last year. So looking at cash flow in a slightly different way, looking at the evolution of our net debt, You can see that we reduced that quite significantly in this quarter. So the cash flow before dividend, which is a key measure that we are looking at internally, was $77 million in this quarter. We paid the dividend of 30, which helped us reduce net debt from 479 to 432 at the end of the quarter. This is to be compared with a net debt target of 250 to 350 million dollars. That's the range we're aiming at and we're getting down there. It takes a little bit longer time than we initially planned for and that has to do with a market development but we're still firm in our belief that we will get there in in due course let me also mention that in q4 you should expect uh somewhat negative development in in networking capital items so it's uh it's a seasonal thing and and so you you shouldn't expect the the cash flow after after networking capital adjustments to be as strong in in in q4 Balance sheet, not many significant developments worth mentioning here. The only thing I'm going to mention is the goodwill. You can see that it's down by $4 million. That has to do with PPA adjustments that we did. So when you do an acquisition, as we did with PGS, you can do PPA adjustments up until 12 months after the acquisition closed. And what we have done here is that we have increased our long-term receivables by 4 million and reduced the goodwill by a corresponding number. And apart from that, the balance sheet, of course, remains very strong and even stronger than it was at the end of Q2, given the net debt development. This allows us to continue to pay a dividend of 15 and a half US cent per share, corresponding to 1.56 crowns per share in this quarter. The X date is one week from now on the 30th of October, and we will pay the dividend to the shareholders on the 13th of November. So by that, I'll hand the word back to you, Christian.