Odfjell Technology (Oslo:OTL) Q3 2026 Earnings Call

0:00 Good day and welcome to the Oddfield Technologies Q3 Report 2026. All participants are in listening only mode. After the speaker's presentation, there will be a question and answer session. To ask questions on the phone, you'll need to press star 11 on your telephone keypad and you should hear an automated message advising you that your hand is raised. To withdraw your questions, please press star 11 again. Alternatively, you may submit questions via the webcast. Please be advised that today's conference is being recorded, and I will now hand you over to Erik Knudsen. Please go ahead.

0:41 Thank you, and good morning, and welcome to Autofjell Technology's results for this third quarter of 2026. My name is Erik Knudsen, the CFO, and together with me, I have Simon Leung, CEO. The presentation is also on our website. Simon will cover the first part the market the backlog and also the dividend and then I will go through the financials and finally we close out with questions and then I'll leave the word to you Simon.

1:16 Thank you Erik and welcome to the call I'm going to go through the as usual through the top lines and the headlines and development of the quarter. Q3 confirms for us a step up in the earnings level. EBITDA was 241 million, NOC up 90% from the same quarter as last year, with a margin of 17.2%. We're quite pleased to see that we have been able to keep that 17 level and that has been a target for us to increase the margins and in this of course then the acquisition of Kaisman Racer played a role.

2:04 They contributed by 34 million NOK in that quarter. We have said many times we have a strong cash flow focus operating cost cash flow was 200 million a free cash flow 108 million of the CAPEX and lease payments our cash balance increased by approximately a little less than 100 million in the quarter I'm happy to say that we have resumed the quarterly dividend payments we gave a warning or information about that some quarters ago that we would pause it and now we are back on track and we are distributing 1.52 NOK per share, being 60 million in total, the same level as it was before we posted the dividend.

2:59 Well, of course, we were extremely happy that we finally won the O4K tax case that finally concluded in our favor. 6th of October, just after the Q3 cutoff, we received 149 million NOC, which is now on top of the cash we are actually presenting. The leverage ratio continues to be reduced, it's now 1.2 times, and the order backlog stands at 11.5 billion, including the options on platform drilling. I'll come a little back to that. Regarding market, there's no change in our view on the market since the last quarter. 26 is a stable market. We certainly see that the dynamics around us will give a stronger market in general within hydrocarbons, gas, oil in 27 and onwards.

4:01 So our priorities have not changed. We never guide numbers, but we can say that we are quite optimistic about what we see around us. Of course, there's a lot of certainties. There are, as you all know, dynamics back and forth with the conflicts and ups and downs on the oil price and speculations east, west, east, left and center. But we feel that we have a steady course. we see significant ramp up in the deep water market in 27. That's confirmed by the main drillers. The deep water market is a very good indicator for how the oil companies are prioritizing their spend. So we see, I would guess overview at least is that we see which is an important KPI for us is the number of rigs active in the market.

4:59 and we certainly see that coming up. North Sea is stable and strong. We see now, heard from the oil companies, the majors in the North Sea, they are working together on exploration activities and it's a very stable and trustful source of energy to Europe, which has been recognized by everybody. and the plans are clearly from those that operate in that segment to increase and maintain production. Middle East, we have knock wood. I always do that. So far, we have, of course, seen some slowdown in the region, meaning Kuwait, Saudi Arabia, because of the uncertainties and the conflicts.

5:54 So far, we haven't seen the big impact. on over activity, but still there are some slowdowns and less, I would say, activity in some areas. So we have had some impact on what our expectations, but when this thing are hopefully in the future come down, we certainly see that the Middle East, including Saudi here, will be in a significant area for ramping up more activities within a type of will services intervention activities. Plug abandonment is something that will come. It's part of our structural story. We have clearly focusing on positioning ourselves by technologies, corporations with companies to position us also for plug abandonment.

6:50 But at the same time, we see, as I said, a massive focus from clients to also increase and maintain production. So plug abandonment will be a part of it. We think it's going to be a much stronger element in the development of the oil and gas sector, especially on mature fields, due to several things. Requirements for closing down old fields, to do more environmental cleanup of wells that are leaking. So governments are now pushing quite clearly in that direction. but it will be a combination with plug abandonment, slot recoveries and production. So we kind of see that we balance our efforts into that picture and kind of not saying that we are going to do only plug abandonment, we're going to do plug abandonment also on top of the regular services. I said many times that we won't step into those new activities without knowing that we actually are earning money.

7:53 We will not go for the volume. We will go for the margin and the healthy projects. So for the market future, I think I can say that we have finally now been able to establish a trustworthy organization in Houston to serve Gulf of Mexico and South America, meaning Ghana, Suriname and Brazil. So the organization there are established. We have moved equipment over to the Gulf and especially within the racer. We hope and believe that we'll pick up more activity late this year and of course into 27. We see that as a clearly growth area and the US market for those kind of tools are quite promising.

8:42 So if you flip to the slide number six in the presentation, the order backlog is stable at 11.5 billion NOK. 6.4 is firm. It's nothing really more to say about that, only that we feel that that's a very comfortable element. The most of the backlog is within operations, platform, drilling and associates. I said last time, I think I said it every time, that within wealth services we take a very conservative number from the potential backlog we have, because that's very much activities that is run by call-offs and not that kind of a firm term contract, but are more linked to activity level. So there are more rigs in operation, more activity within Wales services, but now the rig count goes up.

9:40 So we believe that the number you see here on the backlog from Wales services is relatively conservative. So we think that's okay because we don't want to say more than we can deliver. I'm quite confident that the level we are presenting here is absolute within the 80% accuracy. So the backlog is okay. The clients are stable. We feel that the market is responding to our tenders over wins. it's not everything we report into the market so there's a lot of small wins that we just build backlog on but we don't necessarily report them as contracts that's the nature of the business so within operations you see there there's these bars blue and green shows fixed contracts and options we have taken options into their backlog because very often these options are cleared and I'm saying that it's in a way I say sometimes it's ours to lose if we operate well if we do our job well we do the HSE performance well if we do okay and better performance efficiency very often clients are just calling the options and will be a part of the firm backlog that's why we kind of show this With the ConocoPhillips,

11:15 we have not taken about the options in because there are five plus five years options. So it's actually a 15 year contract we want potentially, but the five plus five year options we have not taken in because that's in a way too far into the horizon. So let's see what happens when the options are, when you approach the time for calling the options. Again, I'm quite happy to say that we are now back in the dividend picture. We said we would resume it for good reasons. KSM Racer was good reasons. They have contributed very well. And maybe there was to be safe before.

12:02 Sorry, we waited. We paused the dividend because there's always risk to buy companies, to integrate companies, to make sure that they are that we can deliver on the synergies we have estimated which is actually happening and that's why we we believe that we can know and the board approved that we could go back to the same level of dividend as we did before the pause so if you kind of just say that This so far this year KSM and Racer the reason for posting their dividend has actually contributed with close to 80 million of EBITDA with this very strong rate of conversion to free cash which is part of the story we want to tell it's very quite important to make sure that we are that we are generating free cash and by that we will be able to distribute to shareholders and to do future also investments like future M&As and other things we have planned for and we'll comment more on that.

13:08 But that will come in due time before we do it. So that's the story, overall story from my side and then I switch over to Erik who's going to take the finance updates. Thank you.

13:21 Thank you, Simon. I will then start with the group financials on slide number nine. The revenue for the quarter was approximately 1.4 billion, slightly up from the second quarter this year and 2% below the same quarter last year. Well services, they grew close to 30% on last year. However, this was offset by lower revenue in both operations and project and engineering. On the IPDR side, we arrived at 241 million this quarter, with a margin of 17.2%, approximately the same level as in Q2.

14:07 In this quarter, we had no one-offs. The free cash flow was 108 million NOK, up from 31 million in the second quarter. explained by higher operating cash flow and lower capex. On a 12-month basis the cash conversion rose to 40% of the EBITDA from 25% and I'll get back to more details later on. If we then switch to the next slide and we move into the well services segment The revenue was not five hundred ninety six million up two percent on the second quarter and twenty nine percent on last year Excluding case and racer revenue grew by fourteen percent year-on-year Yeah, but there was not 192 million a record for the segment actually with a margin at thirty two point three percent Excluding rate case human racer there, but there grew with seven percent The growth came mainly from the UK, Malaysia and Kuwait, and also with some improvement in Saudi.

15:18 Africa, Western Europe and Thailand were however somewhat lower. KSM Eraser, they delivered 69 million in revenue and 34 million in EBITDA, approximately the same as in Q2. The integration of those two companies is on track. We have now hired our first resources in the US and also we have hired more people in Saudi Arabia and Malaysia. CapEx for the quarter was NOK 71 million, down 17% on the second quarter and 46% on last year. confirming our strict CAPEX discipline that we have emphasized earlier.

16:06 And then we can move on to operations. On slide 11, revenue was not 660 million, up 3% on the second quarter, however below the 758 million of last year. The main reason was that a large settlement from the Brunei contract that was cancelled which we received in the third quarter in 2025. Maintenance mode on the ConocoPhillips platforms and also lower rig inspection volumes contributed to this. The EBITDA arrived at 53 million and the margin rose to 8.7% from 8.2% in the second quarter.

16:54 and we were happy with the development in operations. The Equinor portfolio and the better use of people across the rigs drove this margin. As mentioned, rig inspection volumes, some bonus timing and also the maintenance mode on the Conoco contract pulled it the other way. For this quarter, we had 14 rigs in operations and up from 13 a year ago. Then moving to P&E on next slide. Project and engineering had a normal seasonal third quarter. Revenue was 128 million down from 154 million in Q2.

17:40 And this is basically explained by the summer holidays in July. Engineering activity on the odd-field drilling portfolio was also lower and partly offset by more work in the UK. Last year, the third quarter looked different. We were completing SPS projects and to meet the deadlines, many of our people worked overtime and moved their holidays. That kept the revenue up through the summer. EBITDA was 11 million in this quarter, down from 16 million in Q2 on the lower activity. Compared with last year, the margin improved from 6 to close to 9%. and we have adjusted our cost base to the activity level and a higher share of our hours is now invoiced.

18:25 On the right hand side you see the revenue mix by asset type. SPSO, SSUs and fixed platforms now account for close to 50% of the revenue. That makes the business less dependent on the drilling rigs and on the timing of the SPS campaigns. Near-term activity is expected to be softer reflecting the lower SPS scope and our clients focus on cost and we will of course continue to match capacity to activity going forward as well. And then moving on to slide 13 I want to just walk you through the cash flow development in the quarter and we're very pleased to see that we are improving our working capital position with the release of 38 million this quarter compared to 55 million build up in the second quarter.

19:22 And furthermore, we see that the CapEx is continuing to be disciplined. We arrived at 73 million this quarter. And summing up these things, we had a positive build up of cash in the quarter of close to 100 million. and EBITDA to cash conversion over the last 12 months of 40% and we're really happy with the development on the cash conversion side and we will continue to monitor and have focus on converting as much as we can of the EBITDA to cash. So we believe that the 40% is a strong figure for the last 12 months. And then I'll quickly go to the performance improvement program.

20:13 And that's just a reflection from what we've seen now on the cash conversion. We continue to have focus on our performance improvement program. And it's basically into three elements. We, of course, have our focus to grow the EBITDA, both on commercial activities, but also on cost initiatives to always have the correct focus on how we are to develop and grow the EBITDA both on commercial side and on cost side. As mentioned, we have a strict focus on cash and cash discipline in terms of CapEx and how we are approving new CapEx initiatives going forward. And this is shown also in this quarter with the 72 million that the CapEx And finally, to convert as much of the EBITDA into free cash flow will always be the end measure. So this will be a continuous focus going forward and also into next year that we are retaining as much of the EBITDA as we can.

21:24 I think then we can move on to the last slide in the presentation, the summary. And to summarize, firstly, the earnings. The EBITDA, they arrived at the 241 million with a 17% margin. Our second quarter now above 17%, which is, we're very pleased with that. Casem and Razor and Wealth Services, they carry the higher level. Secondly, the cash, as just mentioned, the operating cash flow of 200 million and free cash flow of more than 100 million this quarter, helped us to provide a 40% EBITDA to cash over the last 12 months. And on top of that, and as Simon also mentioned in the beginning, we were successful in the offshore tax court and we received the settlement or the tax refund in the beginning of October.

22:28 So we just missed that for this quarter. but we received approximately 150 million on top of these figures in the beginning of October. And finally, we are resuming the dividends and now the dividend is back at 1.52 NOK per share as we also said in August. The leverage is comfortable at 1.2 times and the available liquidity including the unused revolving facility is now at 1.1 billion. So all in all a stable 2026 and with a market set for a stronger 2027. So I guess that concludes our presentation and we are open for Q&A.

23:19 Thank you. So at this time, we'll conduct a question and answer session. As a reminder, to ask a question via the phone, you'll need to press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again. If you wish to ask a question to the web, please do so now.

23:45 Okay, there's one question here that I can comment on and that's related to the tax case that we have in the UK. And that was mentioned in the note number 14. And as you know, this has been a process ongoing for a long time. There's still no feedback from the hearing that was conducted in July. We're waiting for that. but we are confident that this court case will go in our favor at the end but we admit it's unfortunate that this takes so long time we think that the final outcome of this will even take longer time than the current hearing that we are waiting for as there can be further appeals dependent on how this will turn out So we don't expect the final outcome of this before perhaps maybe into the beginning of 2028 when all the court instances have been finalized.

24:54 But we're confident on the outcome of the tax case. And there's a question from Lucas Dahl on the phone. Okay, yeah, so I'm just patching Lukas in. So Lukas Dahl from Arctic, your line is open.

25:18 Thank you.

25:20 Good morning. Good morning. I mean, given your constructive outlook on the 2027, I mean, if you decompose that across the three main divisions that you have, where do you see the biggest potential for growing the pipeline? and where do you sort of see the biggest potential for margin operation going forward?

25:48 If you could sort of elaborate a bit more on that. If I had a little weak line here, but Lukas, I think we believe that the increased activity level in which we see in 27 is primarily based on the fact that clients are no more focused to maintain or increase production. You see that in all markets. I do have contacts with colleagues in the deepwater market and I think that's a very clear indication that clients are now preparing for major developments in deepwater. And that means that those spendings are higher than just kind of a in a way tiebacks and things like that these are new fields and of course they believe in the future and that's a good sign normally it's a very good sign so I think that we'll see we have expectations to see especially well services coming up within all areas within what we do with rentals with casing running TRS and of course also with intervention meaning that we are Focusing more on the development and create the synergies from from from having a quiet occasion and racist type of thing We also believe we have some investments and we guess that's also going to be the materialized hopefully

27:18 in our in 20 more in 27 is the code that's our investments in in powered by drill pipe with real well where we have some Investments to both in the company and and in power strings So these are technologies that we believe will meet a very creative and fruitful future. I think we'll still see that project engineering will be preparing for, as Erik said, different market areas with asset integrity. and FBSOs. We have already doing contact with other rig holders owners and so I guess that the P&E will be developing better but still don't have the same rush of activity that is over during the waves of SPSs.

28:18 So that's a very important part of the company actually because it actually is an enabler for all the technologies and all the things we are doing to kind of qualify and move the company into a new area so that those 350 plus engineers are extremely important to maintain and it's very difficult to if lost is difficult to build up again so these are very high-skilled engineers with marine competencies and asset integrity competencies where we are probably number one in the market operations. That's the typical area we are running in the North Sea, both UK and Norway. We have got some new winds in the UK. We see more tenders coming up, but not in a big extent. There are some platforms that will go into maintenance mode next year. So we guess that we're going to probably keep the level more or less as if we are looking after the margins. We like to see high single-digit margins up to 10%. So if you can maintain that with the cash flow, we are quite happy. So that's the market outlook within the different business areas, Lukas.

29:36 Okay, thank you.

29:37 And I mean, you reinstated the dividend. Your leverage is coming down. You're going to be generating a decent free cash flow. so obviously in the context of that there should be room for increasing the dividend but how do you think about that going forward?

30:01 Well I think you're right I think that we will create room for dividend and we have discussed it very thoroughly with the board of directors and there's no unwillingness to look at a potential increase. At the same time, we are a company that still are in the growth mode. So I hope I will not pause in the future, but I will say we will. The balance sheet we have now will give us potentially also both dividend capacity and future M&A. So we do have some targets where we actually are looking at. Nothing that's going to happen tomorrow. but we do have things we like to follow and which will hopefully will be for the right reasons again.

30:49 I do not expect us to pause dividends but we might in the future increase it. Okay, thank you very much. Okay, so there's no more questions in the phone conference, but we have some questions from the web. So I'll hand over to Siemen and Eric to read them out.

31:24 Yeah.

31:25 Okay, I will read up one question regarding what's your main learnings of KSM and Razor acquisition and integration so far going forward? Would you say KSM Razor acquisition is sweet spot for you? or would you rather go smaller slash larger?

31:42 Simen here, I think, yes, thank you. Both. Queso Racer we followed for quite a while. We like the two companies very much. We have spent quite good, a lot of time to make sure we are balancing over different cultures. We think that's very, very important. We need the people in both of the companies. They are extremely professional. and they have clearly delivered over time and and with the support from us I think we can make one plus one plus one plus one more than three much more than three so so so I will not I don't like your sweet spot but you think it's a good acquisition and it needs to be proven that we are able to to nurse it to be as great as we as we hope for we have This is a relatively small acquisition in numbers, but for us it was a big acquisition.

32:41 It's always critical, and we got hold of new technologies, which proved to be very attractive in the market. So for us that is small, big, it's equally important. But I will say we will not buy companies bigger than ourselves. We will not do that, at least for now. maybe never but we will we will make sure we have great bolt-ons we might look at new structures we do have a very pragmatic board of directors and a very pragmatic main shareholder so I think for more good reasons we can do quite a lot with it regarding that kind of flexibility it doesn't also

33:28 And then we can take a final question that's related to the cash conversion and you stated that you were pleased with the last 12 months cash conversion going forward and given your focus on this, is it fair to expect that this conversion rate to grow further or should we assume a 2027 growth market to keep this somewhat flat? I think we are very happy with what we see now on the cash coercion side and we're focusing strongly on this as I mentioned. It's always difficult to give you any guidance on where we should expect this going forward but I think the last 12 months represent at least a level that we should target to have. There will be some seasonal changes dips, as you all know, when we're building up working capital in the spring and then release it in the fall.

34:22 That's the nature of our business. But we will continue to monitor this on a 12-month basis. And with the focus that we have now on cash discipline and to further grow there, but there is a level I think we should expect to be at. If we can manage to to deliver 30-40% on cash conversion that would be very positive I think that concludes the questions so then also concludes this call so I would just like to thank you all for participating and for providing good questions as always and if there's anything else you want to ask us about please reach out to Gap and we will feedback as soon as possible. Thank you.

35:16 Thank you very much. Okay, thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.