Aker ASA

OSE:AKER

Earnings Call Transcript 2022-Q1

[Joachim Bjorni, executive]

Hi, everyone, and good morning. Welcome to this presentation of Aker's First Quarter Results for 2020.

We'll start today's presentation with Aker's President & CEO, Oyvind Eriksen, we'll walk you through the highlights in the quarter and how the Industrial Holdings portfolio developed.

Our CFO, Svein Stoknes will then cover the Financial Investments portfolio in the first quarter accounts in more detail. There will be a Q&A session following the presentation. [Operator Instructions]

With that, I hand it over to Oyvind Eriksen.

[Øyvind Eriksen, executive]

Thank you, Joachim, and then good morning, everyone. As we stand here today, the world order has been upended by Russia's invasion in Ukraine. Amid such a brutal and senseless conflict, the significance of a single company's first quarter results pales.

The war has triggered a fundamental transformation of energy markets. The surge in oil and gas prices has unveiled vulnerability of entire energy systems, still too dependent on imported fossil fuels. The key focus, especially in Europe, is now on energy security and energy transition, and how future energy demand can be supplied without being dependent on imported oil and gas, particularly from Russia.

While it's impossible to predict the long-lasting impact of the ongoing war in Ukraine, it appears likely that the war will speed up the energy transition as well. With Aker BP and Aker Horizons, Aker is positioned to contribute to both European energy security and to the energy transition at large.

Energy security, energy efficiency and energy transition are also increasingly matters of digitalization and cybersecurity. How to ensure and guarantee that energy is produced and distributed safely and how to operate most efficiently to ensure supply of energy, are all issues for which Aker companies like Cognite, Aize and our new venture with Telenor, Omny, can play a critical role.

It's during times like this, that we clearly see the strengths we have built across the entire Aker portfolio and encouraged by Aker's results in the quarter and the development across our portfolio which reflects the high activity and industrial development taking place.

In the first quarter, Aker's net asset value increased by NOK 4.9 billion to NOK 74.7 billion or NOK 1,006 per share. The highest net asset value per share on the record. The value increase was mainly driven by Aker BP, favorably impacted by increasing oil and gas prices, which was up 23.3%, including dividends paid by Aker BP, and Aker Solutions, which was up 30.4% in the quarter.

The Aker share decreased 1.8% in the quarter to NOK 810 per share. This compares to a 5% increase in the Oslo Stock Exchange benchmark index.

Aker's value adjusted equity ratio at the end of the period was 88% and our liquidity reserves to that NOK 7.4 billion or which cash amounted to NOK 4.4 billion.

Aker's gross asset value increased to NOK 84.9 in the first quarter. And with 82% in listed assets and cash, the Aker portfolio is highly liquid. Our Industrial Holdings portfolio accounted for 84% of our gross values.

Aker BP remains the largest asset in our portfolio at NOK 44.2 billion and continues to be an important source of liquidity, providing valuable upstream cash as we continue to invest in and develop our energy transition in industrial software, seafood, marine biotech, and last but not least, asset management platforms.

As you can see, Aker Horizons is Aker's largest asset at NOK 10.5 billion. And our industrial software related portfolio is growing with the addition of Omny. In total, renewables, software, seafood and marine biotech made up around 30% of Aker's gross asset value in the first quarter.

Aker has growth platforms in multiple segments, while hydrocarbon related industries still account for the majority of our Industrial Holdings, we are allocating more and more resources to renewables, industrial software, seafood, marine biotech, and going forward, asset management.

For Aker BP, the overall picture is that the company continues to develop according to plan. In the first quarter, the company delivered record high operating profits driven by the high oil and gas prices.

The company is on track to deliver on its plan for profitable growth, and planning for high activity levels with a large CapEx program over the coming years, incentivized by the favorable temporary tax regime in Norway. The growth will be -- it will enable Aker BP to pay increasing attractive dividends to Aker and our fellow shareholders.

The transaction where Aker BP will acquire Lundin Energy's oil and gas related assets, has now been approved by the shareholders of both companies, and all necessary approvals from the relevant authorities have now been obtained. Closing of the transaction is expected to take place on 30th of June, 2022.

Aker Solutions experienced another positive quarter, securing important contract extensions for its MMO business in Norway and announcing 2 strategic acquisitions, strengthening the company's offering towards the energy transition.

The acquisition of Unitech Power Systems is part of the company's new focus area, engineering consultancy, and provides expertise within the power grid engineering. The acquisition of Rainpower from Aker Horizons is part of the company's ambitions to grow and strengthen its offering within renewables.

Moving on to Aker BioMarine. In the quarter, the company experienced increased sales in Qrill Aqua, driven by strong demand in the aquaculture segment. Sales in the brand segment increased with 32% from last year, driven by increased sales of both Kori krill oil and other non-krill products from Lang.

Now on to Aker Horizons. The company had a busy end to the quarter, divesting its remaining holdings in REC Silicon to Hanwha Solutions for NOK 1.4 billion, onboarding Mitsui as a long-term strategic investor in Mainstream with an investment of EUR 575 million, valuing Mainstream at EUR 2.1 billion post-money, and announcing merger plans with Aker Offshore Wind and Aker Clean Hydrogen, repositioning the 2 as privately held subsidiaries of Aker Horizons.

Mitsui's entry as a strategic co-owner in Mainstream will strengthen Mainstream's transformation to a renewable energy major and accelerating the growth of Mainstream's renewable energy portfolio.

The merger plans with Aker Offshore Winds and Aker Clean Hydrogen has the intention to reposition Aker Clean Hydrogen as a privately held subsidiary of Aker Horizons. And to combine Aker Offshore Wind with Mainstream Renewable Power to utilize synergies between the 2. The merger plans are subject to shareholder approval at Annual General Meetings of Aker Offshore Wind and Aker Clean Hydrogen taking place today.

After closing of the transactions, Aker will hold 67.25% of the shares in Aker Horizons. Following completion of the transactions, Aker Horizons portfolio will consist of renewable energy and decarbonization companies and an asset development arm.

The asset development arm will consist of the current Aker Clean Hydrogen projects and the technical resources, combined with Aker Horizons projects and business development resources.

The aim is to be a developer of green energy and green industry projects at large scale. A prime example of this is the Narvik green industrial hub, where Aker Horizons plan to convert renewable energy into green hydrogen and sustainable export industries, such as green iron.

Moving on to our main unlisted assets, starting with our industrial software portfolio. First, Cognite. Saudi Aramco acquired 7.4% stake in Cognite from Aker BP. The transaction demonstrates confidence in Cognite and its high potential to transform industry through technology. The company announced global enterprise software and technology leader Girish Rishi as the new CEO.

Cognite, Co-Founder, John Markus Lervik, who has been pivotal in building Cognite to be Norway's first Unicorn and establish the company with a leading position in the transforming industrial software market, will continue as Chief Strategy & Development Officer.

Our other software company, Aize is an industrial software company enabling businesses to visualize, navigate, collaborate and work on digital representation of an asset through Aize digital workspace.

The company signed a 5-year contract with Chevron, to implement Aize's integrity and inspection offering on all Chevron's subsea facilities globally. Further, Aize is actively working on the NOAKA development alongside Cognite, Aker Solutions and Aker BP. We believe that this can be a landmark project for the use of industrial software in the asset heavy industries at large.

Aker Energy, our oil and gas company in Ghana, is working towards submittal of a revised Plan of Development before the summer of 2022. Lukoil is a licensed partner in Ghana, and the company is closely monitoring the development of the international sanctions as a consequence of the ongoing war in Ukraine and its potential impact on the timeline and project execution of the Pecan development. Further, Aker Energy continues to evaluate different strategic options for its position in Ghana.

Lastly, SalMar Aker Ocean. The company is sizing up its organization to support its growth ambition with the CEO, Roy Reite and CFO, Trine Saether Romuld, now firmly in place. Ocean Farm 1, the world's first offshore salmon farming unit is currently at Aker Solutions yard in Verdal to perform maintenance and upgrade scope.

The next production cycle is planned to commence in spring 2023. The company has submitted their response to the public hearing note for the proposed regulatory framework for offshore farming in Norway, and is committed to investments in additional offshore salmon farming units as soon as a regulatory framework is in place.

The company's ambition is to achieve an annual production of 150,000 tons of salmon by 2030, which would make the company one of the world's largest salmon farmers.

Digitalization of industry is exposing physical systems to cyber risk. Aker, Cognite, and Telenor launched Omny Monday this week. An industrial software company focusing on operational technology security software. Omny represents the natural continuation of Aker's investments in the industrial software companies, which very much constitutes a growth area and is another example of how Aker's industrial portfolio and ecosystem creates new opportunities built on existing portfolio companies and domain expertise.

Omny combines Aker's industrial track record and experience with Telenor's IT and infrastructure security experience as well, as go-to-market power and capabilities and Cognite's expertise in software development and data contextualization.

The software will be powered by the Cognite Data Fusion platform and developed in close partnership with pilot customers in the industrial sector. We have high aspirations for Omny and look forward to work closely together with Telenor and Cognite to develop an OT security software company for the future.

That concludes my presentation this morning. I now hand it over to Svein Stoknes, who will take you through the financials for the quarter in more detail.

[Svein Stoknes, executive]

Thank you, Oyvind and Good morning. I will start out spending a few minutes on Aker's Financial Investments before I go through the first quarter results in some more detail.

The Financial Investments portfolio accounted for 16% of Aker's total assets or NOK 13.4 billion, which is up NOK 949 million from the previous quarter. This is mainly due to value increases for our listed Financial Investments of NOK 532 million in addition to increased cash holdings of NOK 380 million.

As before, the main components on Financial Investments are cash, listed and non-listed financial investments, real estate investments and interest bearing receivables, all of which I will now go through in some more details.

I'm starting with cash. Our cash holdings represented 5% of Aker's gross asset value or NOK 4.4 billion. This is up NOK 380 million from the previous quarter. The primary cash inflows were primarily dividends received from Aker BP, Lundin and American Shipping Company of the equivalent to NOK 598 million and NOK 135 million in loan repayments to Aker in the quarter.

The main cash outflows in the quarter were equity investments of NOK 53 million and NOK 109 million in increased receivables. Payments for operating expenses and net interest were NOK 168 million in the quarter, and our liquidity reserve was NOK 7.4 billion, including undrawn credit facilities of NOK 3 billion.

Listed investments included in our financial portfolio represented about 2% of Aker's total assets at the end of the quarter or NOK 1.9 billion. Akastor is now reported as part of our Financial Investments portfolio as of 2022, and the comparative figures have been restated correspondingly.

There were positive value changes in all our positions within listed Financial Investments during the quarter and the value of our investment in Akastor increased by NOK 286 million and in Solstad Offshore by NOK 227 million.

The equity investment and American Shipping Company had a value increase of NOK 3 million in the quarter, and the total return swap agreements related to the same company increased in value with NOK 11 million. In addition, Aker posted a dividend income from American Shipping Company of NOK 32 million in total.

Next, real estate and other financial investments. Combined, the 2 represented 8% of Aker's gross asset value or NOK 7.1 billion in total. Aker's real estate holding, Aker Property Group, stood at the book value of NOK 958 million at the end of the quarter. Interest bearing receivables totaled NOK 4.1 billion, including a NOK 2 billion loan and a NOK 1.2 billion convertible loan to Aker Horizons.

Other equity investments totaled NOK 1.2 billion of which the main components are related to the investments in the company's Seetee, Abelee and Clara. Fixed and other interest free assets total NOK 825 million.

The value increase in real estate and the quarter is explained by loan issued to Aker Property Group of NOK 50 million. The decrease in interest bearing receivables, is mainly explained by loan repayment from Aker Energy of NOK 135 million.

Then, let's move to the first quarter financial highlights for Aker ASA on holding companies and let me start with the balance sheet. Please note that the figures on this slide are after a dividend allocation of NOK 14.5 per share.

The book value of our investments increased by NOK 242 million in the quarter and this is mainly explained by positive value changes in Akastor of NOK 286 million and Solstad Offshore of NOK 227 million. And this is partly offset by value reduction of the investment in Aker BioMarine of NOK 303 million. The total book value of our assets was NOK 39.8 billion and in our accounts, we use the lowest of historic cost and market values.

The fair value adjustment showed in gray color on this slide increased by NOK 4.3 billion in the quarter to NOK 45.2 billion. This is mainly explained by positive value adjustments in Aker Solutions of NOK 1.2 billion and Aker BP of NOK 7.9 billion. And this was partly offset by negative value adjustment in Aker Horizons of NOK 4.8 billion. The gross asset value stood at NOK 84.9 billion at the end of the quarter up from NOK 80 billion at the end of the fourth quarter in 2021.

Aker's liabilities mainly consisted of bond debt of NOK 5 billion, the U.S. dollar denominated bank loan of NOK 3.1 billion and Norwegian krone denominated bank loan of NOK 1 billion, in addition to a NOK 1 billion euro denominated loan.

The liabilities at quarter end also included a NOK 1.1 billion dividend allocation for 2021, representing NOK 14.5 per share. This dividend was approved by the AGM on the 22nd of April. And AGM also provided the Board of Directors with the authority to pay a potential additional cash dividends during 2022, based on the 2021 annual accounts. Again, in line with the practice the in last 2 years.

The book equity was NOK 28.5 billion up NOK 0.7 billion explained by the profit before tax in the quarter. If we adjust for fair values of our listed assets in Cognite, we get our net asset value of NOK 73.7 billion at the end of the first quarter, up NOK 4.9 billion from the fourth quarter after allocation of dividend. The net asset value per share was NOK 991 after dividend and the value adjusted equity ratio was at 87%.

Our total interest bearing debt was NOK 10 billion, which is down NOK 49 million from the previous quarter due to foreign exchange effects. The average debt maturity at the end of the quarter was 1.8 years. And we still have significant headroom, with regards to our debt covenants.

However in April, we have refinanced our revolving credit facility at Aker ASA and or to secure bank loans at Aker Capital on favorable terms. The new structure has 2 unsecured multi-currency RCFs of NOK 4 billion each, both now at Aker ASA level.

A total of USD 100 million was repaid upon closing, so that the NOK equivalent of about NOK 3.3 billion of bank loans is currently outstanding, approximately NOK 4.7 billion available to draw. Maturity of the new bank facilities or 3 years with 1 year extension options for NOK 4 billion and 5 years for the remaining NOK 4 billion.

Taking into account available credit lines and extension options on the bank loans, the implicit maturity of the entire loan portfolio is then 4.8 years.

Then to the income statement. There were no operating revenues in the quarter compared to NOK 4.1 billion in the previous quarter. When we booked the gains from the sale of shares in Ocean Yield and Aker BP last quarter. The operating expenses for the first quarter were NOK 108 million, still reflecting a high activity level.

The net value changed in the quarter was positive NOK 188 million, mainly explained by reverse write-downs of the investment in Akastor of NOK 286 million and Solstad Offshore NOK 224 million. And this was partly offset by value reduction in Aker BioMarine of NOK 303 million.

Our net other financial items were positive NOK 625 million, mainly explained by dividend income of NOK 611 million. And the profit before tax was done NOK 697 million in the quarter.

Thank you. That was the end of today's presentation and we will now move on to Q&A.

[Joachim Bjorni, executive]

Thank you, Svein Oskar. I've got couple of questions on the web. Regarding Aker Asset Management, do you expect similar size of capital pool in the 4 different asset classes or any of the 4 to be significantly bigger than the other?

[Øyvind Eriksen, executive]

So the working assumption is that infrastructure and the transition and investment will account for and roughly 80% of assets under management longer term, and 20% will be in startup venture capital and private equity.

[Joachim Bjorni, executive]

Follow-up question.

In the public equity fund, what will be your mandate?

[Øyvind Eriksen, executive]

Well of course, the Aker Asset Management portfolio, 3 headlines, our investments in green energy, green industry and green cities and that's the framework for more detailed mandates for each asset management platform.

[Joachim Bjorni, executive]

Next question.

You have increased your ownership in Aker Solutions, but now the scene is Akastor as a financial investment. Can you explain how you view -- your view on these assets has changed?

[Øyvind Eriksen, executive]

So we have entered into a contract with Convecto to help us managing a certain parts of the assets in the Aker portfolio, including in Akastor. And the change in the reporting is a consequence of the fact that's going forward. Convecto will help us exercising the active ownership and Akastor and a few other companies.

[Joachim Bjorni, executive]

Thank you, Oyvind and Svein Oskar, there's no further questions. And thank you all for following us today.