Aker ASA

OSE:AKER

Earnings Call Transcript 2019-Q1

[Operator]

Good day, and welcome to the Aker ASA Q1 conference call. At this time, I would like to turn the conference over to Mr. Per Kristian Reppe. Please go ahead, sir.

[Per Kristian Reppe, Investment Manager & Head of Investor Relations]

Hello, everyone, and good morning. Welcome to our first quarter 2019 results presentation. We will start today's presentation with Aker's President and CEO, Øyvind Eriksen, who will walk you through the highlights in the quarter and the development of the Industrial Holdings portfolio. Aker's CFO, Frank Reite, will then go through the Financial Investments portfolio and the Q1 accounts in more detail. After the presentation, we'll open up for Q&A.And with that, I hand over to Øyvind.

[Øyvind Eriksen, President & CEO]

Thank you, Per Kristian, and good morning, everyone. Let me start with the highlights in the first quarter as it shows here on Slide 2. Aker's net asset value was up 34.7% to NOK 56.2 billion. Our share price rose 42.4%. Aker's liquidity reserves stood at NOK 6.4 billion, including NOK 3.2 billion in cash. And a few days ago, we had distributed a NOK 22.5 per share dividend to our shareholders, equal to 4% of net asset value and a 4.9% direct yield as per closing values of 2018. First quarter was also another active period of time for us. Aker BP announced a new dividend policy, increasing dividends to $750 million in 2019 with USD 100 million in annual step-ups through 2023. Aker Energy submitted the plan for operations and development, and completed a successful drilling operation of the Pecan 4-A well in Ghana. Kvaerner declared a NOK 1 per share cash dividend. And Ocean Yield and Aker Energy entered into an option agreement for the FPSO vessel Dhirubhai-1. Subsequent to the quarter end, Aker strengthened its liquidity buffer by increasing existing credit facilities. Aker Energy completed the drilling operations of another 2 appraisal wells. And Ocean Yield made a new investment in 2 vessels on long-term charters. On Slide 3, you see that Aker's net asset value rose to NOK 56.2 billion in the first quarter, representing a 34.7% value increase. All our listed Industrial Holdings contributed positively in the quarter, of which Aker BP added NOK 13.5 billion following an improved sentiment in the oil and gas markets after a weak end to 2018 where oil prices fell 35% in the 3 months onward. If adding in the turmoil now in the second quarter with the values down, we are repeatedly reminded about the volatility in oil and gas. In such industries, it's the longer-term trajectory that matters, and that's how we are devoting and creating values at Aker. Turning to the first quarter here at Slide 4. Aker share price rose 42.4% in the quarter, which compares to the reference index of 8%. Our balance sheet continues to remain robust with NOK 66.6 billion in gross assets and net value adjusted equity ratio of 84%. Slide 5. Aker Energy and Cognite were included in Aker's Industrial Holdings portfolio in the first quarter. Both companies are considered to be value triggers in the Aker portfolio, and we believe there's significant upside to be realized over time.Aker Energy represents our international growth ambition within E&P, while Cognite is our fast-growing software company that enables its customers to digitalize their operations by leveraging its software. As per quarter end, E&P accounted for 67% of our values; oil services stood at 10%; maritime assets, 10%; and seafood and marine biotech, 5%. Slide 6. Aker's liquidity reserves stood at NOK 6.4 billion at the end of the quarter, of which cash amounted to NOK 3.2 billion. Subsequent to the quarter end, Aker increased 2 credit facilities with NOK 500 million and $100 million, respectively. And in May, we distributed NOK 1.7 billion in dividends to our shareholders. Adjusted for these 2 effects, Aker's liquidity reserve stood at NOK 6.1 billion. Aker's dividend income was NOK 915 million in the quarter, and we remain on track to reach in excess of NOK 3 billion in upstream cash this year. Moving on to our Industrial Holdings portfolio starting with Aker BP here on Slide 7. In the first quarter, Aker BP produced 158,700 barrels per day, slightly up from prior quarter; reported an EBITDAX of $629 million; and now, its new dividend policy implying that Aker will receive another $120 million in upstream cash from Aker BP in 2019 compared to 2018. Aker BP announced the award of 20 new production licenses on the Norwegian Continental Shelf, of which 11 as operator, and the company paid a quarterly dividend, of which Aker received NOK 647 million. Our ownership agenda in Aker BP remains unchanged. Focus is to drive down costs while, at the same time, building the growth in dividends and production, organically and through transactions. Slide 8. Aker Energy reached a milestone in the first quarter by submitting an integrated PDO for the Deepwater Tano / Cape Three Points block to Ghanaian authorities on the 28th of March. The phased development will start with the Pecan field as a firm Phase 1, the largest of several discoveries in the area. Total reserves from the Pecan field are estimated to 334 million barrels of oil. In addition, the area holds discovered resources of 110 million to 210 million barrels of oil equivalent. Gross investments for Phase 1 are estimated to USD 4.4 billion, excluding the charter rate for a leased FPSO. Subsequent to quarter end, Aker Energy received feedback from the authorities on the PDO document as part of the process. Aker Energy is in the process of updating the PDO with an expected approval time over the summer. Following the PDO submission, Aker Energy announced the results of its drilling campaign. The Pecan-4A appraisal well confirmed the existing volume base, while it is estimated that the Pecan South well holds another 5 million to 15 million barrels of oil. The Pecan South East well encountered oil, and Aker Energy is evaluating whether the accumulation could be tied into the Pecan field. I'm impressed by the development and the effort done by all the employees in Aker Energy. Our ambition is to build a substantial E&P business in Ghana over time. Aker Energy offers growth through its existing discoveries. In addition, the neighboring block owned by our main shareholder, through AGM, is another part of the growth opportunity. No wells has been drilled in that license yet, but it's regarded as a very promising area. We have been transparent about the possibility of developing Aker Energy and Aker -- and AGM under one umbrella. And any integration between the said companies will be carried out in an orderly, transparent and verifiable manner. Slide 9. Aker Solutions reported a good second quarter with an order intake of NOK 5.5 billion and an EBITDA of NOK 634 million. The company continues to win important contracts. This quarter, the FEED for the Jansz-Io subsea compression project for Chevron in Australia and an extension of the subsea service agreement with Petrobras in Brazil, a key market for Aker Solutions.The market outlook is showing signs of improvement that remains highly competitive, and continuing to increase efficiency is necessary in order to earn a decent margin also in the future. That's why I'm pleased to see that the company is on track on its cost efficiency program, a critical component to strengthen competitiveness even more. Slide 10. Akastor is making good progress with its portfolio companies. The most important company, MHWirth, reported a 24% increase in the revenues year-on-year and an order intake of NOK 1 billion. The rig markets remain challenging. However, MHWirth continues to win the few drilling equipment contracts handed, demonstrating that company's competitiveness. Our shared ambition with Akastor is to grow MHWirth organically and through transactions. Pete Miller as the new Executive Chairman of MHWirth and Eirik Bergsvik as the new CEO will be important contributors to development of our rig business, targeting a stand-alone IPO within 5 years. Turning to Kvaerner on Slide 11. Kvaerner delivered also a solid first quarter, reporting an adjusted EBITDA of NOK 137 million and an order intake of NOK 1.7 billion. Good progress is made on executing the projects in the backlog and expanding further into growth segments. For the fiscal year 2018, Kvaerner distributed a dividend of NOK 1 per share, which Aker recognized NOK 67 million.Slide 12. Ocean Yield's first results were -- first quarter results were impacted by no -- revenues from FPSO Dhirubhai-1. Re-contracting this FPSO remains a top priority for management. And in the quarter, an option agreement with Aker Energy was entered into for a potential long-term lease. Aker Energy continues to evaluate the use of the FPSO as a fast-track project to first oil in Ghana. The EBITDA backlog ended at $3.5 billion with an average contract duration of 10.9 years. Aker received NOK 161 million in dividends from Ocean Yield in the quarter. Slide 13. Aker BioMarine had an eventful quarter with delivery of its new krill harvesting vessel in the U.S. Revenues came in at $39 million in the quarter. Increasing profitability is a key priority in Aker's value agenda for Aker BioMarine. The new vessel will partly drive improvement in profitability, while revenue growth from entering into new markets and geographies represents another important contributor. Aker continues to support Aker BioMarine in order to create a larger and more robust company.And finally, Cognite here on Slide 14. Cognite recorded NOK 73 million in the first quarter, a pretty strong growth year-on-year. Focus is on expanding the customer base into oil and gas and other asset-heavy industries. To facilitate further growth, Cognite established a new office in the United States, and the ambition is to continue international expansion through Japan later this year.Good progress is made, customer projects are on track and the pipeline remains solid. The ambition this year is to double revenues, reaching an annual run rate between NOK 400 million and NOK 500 million by the end of this year, not bad for our company which was established 2.5 years ago.Now that marks the end of my presentation this morning. And I will leave the word to you, Frank.

[Frank Ove Reite, Chief Financial Officer]

Thank you, Øyvind, and good morning, everyone. I will spend some minutes on Aker's Financial Investments before I continue the first quarter accounts.Let's go to Slide #16. The financial portfolio accounted for 10% of Aker's total assets or NOK 6.5 billion. This is up NOK 1.4 billion from the previous quarter, mainly explained by increased cash position. The main components on the Financial Investments are cash, listed investments, real estate investments and interest-bearing receivables. Let's look into the detail of the Financial Investment portfolio, starting with cash on Slide #17. Our cash holding represented 5% of Aker's gross asset value or NOK 3.2 billion. This is up NOK 1.2 billion from the previous quarter. The main cash inflows were the NOK 974 million from a new EUR 100 million bank loan issued in the German Schuldschein market and NOK 851 million in dividend from mainly Aker BP and Ocean Yield. We also received NOK 126 million in repayment of receivables. The main cash outflows in the quarter were the NOK 251 million investment in Aker Energy, NOK 149 million prepayment for a new airplane and we paid NOK 122 million in operating expenses and net interest. The remaining change in cash is other cash movements with a total outflow of NOK 188 million, including an investment in a fintech company, I believe, with NOK 75 million and foreign exchange translation effect of minus NOK 47 million.Our liquidity reserve at the end of the first quarter was up NOK 1.2 billion from the previous quarter to NOK 6.4 billion, including undrawn credit facilities of NOK 3.2 billion. Subsequent to quarter end, these undrawn facilities have been increased by an additional NOK 1.4 billion. Slide #18. Listed investments included in our financial portfolio represented 1% of Aker's total assets or NOK 749 million. The net value increase in the quarter was NOK 48 million, explained by the value increase of Philly Shipyard of NOK 76 million partly offset by value reduction for share investment in American Shipping Company and Solstad Offshore. The total exposure towards American Shipping Company also included -- includes the 2 TRS agreements. The total value of these agreements was negative with NOK 55 million at the end of the quarter and it's presented as part of interest-free liability. We posted a dividend income from American Shipping Company of NOK 21 million in the quarter.Next, real estate and other financial investments on Slide #19. Combined, the 2 represented 4% of Aker's gross asset value or NOK 2.6 billion. On the first quarter, the shared investment in Aker Energy and Cognite have been reclassified to Industrial Holdings. Please note that we have restated the comparative figures to reflect this change. Other changes are mainly the NOK 75 million investment in Abelee, a net reduction of NOK 84 million in receivables against portfolio companies and the prepayment of a new airplane of NOK 149 million. I would now go through the first quarter financial highlights for Aker ASA and holdings companies. Let me start with the balance sheet on Slide 21. Please note that the figures on this slide are after dividend allocation of NOK 22.50 per share. The book value of our investment was up with NOK 452 million in the quarter, mainly explained by the increased investment in Aker Energy of NOK 251 million. Total book value of our assets was NOK 25.4 billion. In our accounts, we used the lowest of historic cost and the market values. Following the rough fourth quarter in 2018, we experienced a rebound in values this quarter, bringing the fair value adjustment up to NOK 41.2 billion, an increase of NOK 13.7 billion. The gross asset value increased correspondingly to NOK 66.6 billion.Aker's liabilities mainly consisted of bond debt of NOK 6.1 billion, U.S. dollar-denominated bank loans of NOK 3.0 billion and EUR 100 million Schuldschein loan as well as dividend allocation of NOK 1.7 billion for 2018. The book equity was NOK 13.3 billion, up NOK 780 million from year-end, explained by the net profit before tax for the first quarter. If we adjust for fair value on our listed assets, we get our net asset value of NOK 54.5 billion at the end of the first quarter, up NOK 14.5 billion from year-end 2018. The net asset value per share was NOK 734 after dividend allocation, and the value-adjusted equity ratio was 82%.Let's go to Slide 22. Our total interest-bearing debt stood at NOK 10.0 billion, which is up by NOK 0.9 billion from the previous quarter due to the new Schuldschein loan of EUR 100 million. As before, we have significant headroom with regards to our loan covenants. We had a net interest-bearing debt of NOK 6 billion at the end of the first quarter, down from NOK 6.2 billion in the previous quarter.Then to the income statement on Slide #23. The operating expenses for the first quarter were NOK 66 million. The net value change in the quarter was positive NOK 51 million mainly explained by the reversed write-downs on a direct investment in Aker Solutions. Other financial items were positive NOK 797 million mainly explained by dividend income of NOK 950 million partly offset by net interest expenses of NOK 80 million. The profit before tax was NOK 777 million in the quarter.And with that, we will open for questions.

[Operator]

[Operator Instructions] We will now take our first question from Magnus from Kepler.

[Magnus Olsvik, Equity Research Analyst]

Just a question here on Aker Energy first. You now have the Pecan field at 334 million barrels. Just wondering what are the -- in terms of going forward now, since you have closed the drilling program, what are your plans to develop or mature the 2C reserves or resources of 110 million to 210 million barrels?

[Øyvind Eriksen, President & CEO]

As we speak, the priorities are to complete the dialogue with the authorities in Ghana regarding the PDO and have that up to -- after the summer. And in parallel, we are in the middle of analyzing the results from the 2 appraisal wells drilled during the course of the first quarter or in the second quarter. Those analyses will also provide an important input to the next drilling campaign on the Aker Energy block.

[Magnus Olsvik, Equity Research Analyst]

Okay. Just a quick follow-up. Do you foresee any more drilling to be commenced in 2019?

[Øyvind Eriksen, President & CEO]

Short term, the rig has moved on to the southern block, and we'll now drill a well for AGM. As I will often rule out, new wells to be drilled at the Aker Energy block later this year, but we have not yet made that decision.

[Operator]

[Operator Instructions] We do not see any questions at the moment.

[Per Kristian Reppe, Investment Manager & Head of Investor Relations]

Okay. If there's no further questions, we'll conclude our presentation today. And we say thank you for all of those who attended this morning, and we wish you all a good day. Thank you.