Aker ASA

OSE:AKER

Earnings Call Transcript 2023-Q1

[Fredrik Berge, Head of Investor Relations]

Hi, everyone, and welcome to the presentation of Aker's First Quarter Results 2023. My name is Fredrik Berge, and I'm Head of Investor Relations. Please note the following change to our quarterly earnings material moving forward. For Q1, Q3 and Q4, Aker will not publish a separate quarterly report. We will instead continue to provide the CEO letter and the presentation, including comprehensive financial tables. We are now also including more extensive historical data in these tables. In addition, we are publishing this data in XL format for an improved user experience. For the half year and annual reporting, we will, of course, continue to publish a separate half year and annual report as previously. For feedback or questions, please do not hesitate to get in contact.

Now we will start today's presentation with Aker's President and CEO, Oeyvind Eriksen, who will take you through the highlights of the quarter and recent developments. Our CFO, Svein Stoknes will then take you through the financials for the quarter in more detail.

And with that, I hand it over to Oeyvind Eriksen.

[Oyvind Eriksen, President and CEO]

Thank you, Fredrik, and good morning, everyone. Aker closed the first quarter of 2023 with high activity across the portfolio, both within conventional energy, renewables and other segments. Oil and gas production reached a record level, coupled with industry-leading and record low emissions intensity.

Key developments include the decision to sell Aker Energy to Africa Finance Corporation, or AFC, a transaction that closed shortly after the quarter end. The plan of development was subsequently submitted by AFC, a positive milestone towards achieving the project's goals and significantly contributing value to the Ghanaian economy. The sale follows an earn-out model based on potential future sales and/or production proceeds from the Pecan project. Aker and TRG will receive, in total, 70% of proceeds following repayment of debt and liabilities, while AFC is to retain 30%.

Aker BP, which has doubled its production and created a stronger and even more financially robust company following the merger with Lundin is full speed ahead on its project portfolio, which is progressing well. Furthermore, the company is evaluating CO2 storage opportunities on the Norwegian Continental Shelf as a potential new business opportunity and a potential decarbonization lever for Aker BP in the longer term. The award of the Poseidon license represents the first milestone to assess and achieve CO2 storage resources in support of the deployment of CCS within Northwest Europe. Aker BP has the necessary in-depth expertise in the reservoir management, drilling and wells and logistics of offshore Norway.

Looking ahead, Aker's active ownership priorities in 2023 are on executing on growth projects, especially the portfolio in Aker BP with Aker Solutions as a main supplier, while simultaneously driving progress towards sustainable energy production through predictable project execution, strong partnerships and deployment of innovative digital solutions.

Now moving on to our financial performance in the quarter. The high activity across Aker's portfolio is not reflected in the quarterly net asset value, which declined 10.8% in the period. The result is largely due to realized liquid prices declining nearly 9% on natural gas prices being down 34%, negatively impacting Aker BP's value contribution, as well as moderate decrease in Aker Horizons.

The Aker share decreased 6.7% in the quarter to NOK672 per share. This compares to an 8.1% decrease in the Brent price and a 0.4% increase in the Oslo Stock Exchange Benchmark Index. Aker's value adjusted equity ratio at the end of the period was 87%, and our liquidity reserves stood at NOK6.6 billion, of which, cash amounted to NOK1.2 billion. Aker's gross asset value stood at NOK68.6 billion in the first quarter. And with close to 80% in listed assets and cash, the Aker portfolio remains highly liquid. Our industry and holdings portfolio accounted for 81.6% of our gross values. Aker BP remains the largest asset in our portfolio at NOK34.3 billion.

Aker's portfolio is positioned along several global megatrends. Energy continues to be our largest industry segment with portfolio companies positioned to provide energy security in the short and medium term with strong oil and gas production, while simultaneously playing a role in the longer-term energy transition. Through Aker Solutions, we are positioned to be an important supplier both -- in both segments based on our engineering and project execution capabilities, thus capitalizing on both near-term market growth and for longer-term structural changes in energy markets.

Aker Horizons is responding to the shifting in market challenges through careful strategic considerations to ensure a more robust company. Despite the current market situation in Chile, its strategy remains unchanged with growth platforms, positioned for both long-term trajectories towards a low carbon economy. As the energy industry develops, it will also have to couple existing domain expertise with digital solutions and artificial intelligence, AI. Aker is positioned to rapidly growing companies in the industrial software space, including Cognite, ACE and Omny. AI is a potential game changer for these and other Aker companies which are spending an increasing amount of time and resources to understand it. Our focus is twofold: one, determine how we can and should use AI as a powerful tool to enhance existing businesses; and two, identify new business opportunities helped by new technology.

Data, software and automation already play a significant role in our portfolio. However, AI exceeds the capabilities of the current efforts and with enormous economic value, whether renewable power generation and demand forecasting, grid's operation and optimization, management of energy demand and distributed resources or materials discovery and innovation; AI has a role to play.

Our strategy and business opportunities within this area continues to develop, but the underlying assumption is clear. AI and digital technology will be an essential enabler for the energy transition and to meet the challenge and goal of a lower carbon future.

The sustainable protein space, including offshore fish farming is another growing segment in our portfolio. Within 2030, the world needs to produce 70% more food with less resources and with a minimal environmental footprint. Oceans cover more than two-third of the world's surface. However, only the 2% of the food energy for human consumption comes from the sea. SalMar Aker Ocean aims to sustainably produce 150,000 tons of salmon per year at fish farms far out to sea. Achievement of its production targets in 2030 will make it one of the world's largest producers of farm salmon. The industry is currently evaluating the impact of changes after we launched SalMar Aker Ocean, like cost inflation and the regulatory framework, including the tax regime.

Lastly, managed assets, including Industry Capital Partner or ICP. ICP is diving head first into what has been the biggest investment challenge in modern times. To reach net zero emissions by 2050, we face an investment challenge of $150 trillion according to BP's Statistical Review of World Energy and [indiscernible] Energy, where fundamental energy systems need to be both recalibrated and reestablished. ICP brings decades of industrial experience in Aker and Norway closer to the capital needed to meet this challenge, while simultaneously recognizing that the net zero transition is a significant energy security challenge, matching energy import and export needs in an increasingly complicated geopolitical landscape.

With Norway and Aker as its home base, the ICP asset management structure not only sits close to decades of domain expertise and natural resources, but also leverages the strong position Norway has built as an investor and a world-class model for public-private collaboration. Renewable infrastructure projects will require close collaboration between the public and the private sector. And ICP is optimally positioned to identify opportunities to maximize both economic and environmental impact to use policy as an enabler, consider flexible partnerships, balance risk and returns and approach data as a collaborative tool. ICP is already working closely with companies across the Aker portfolio, including Aker Solutions, Aker Horizons and Aker Carbon Capture as well as building relationships with key industrial partners in Norway and abroad. The ICP structure consists of different fund companies under the parent company, ICP, each targeting different opportunity areas within the net zero opportunity.

Green Energy and Green Industry are two main initiatives measured by targeted assets under management. Green Energy will invest in the build-out of renewable energy infrastructure with a focus on offshore wind projects and adjacent energy infrastructure by partnering with leading renewable developers on selected projects where ICP can add value through the unique combination of financial capital and industrial expertise. Green Energy will work to leverage the competency in Aker to identify, develop and manage project portfolios and the 40-plus years of experience in delivering structures and solutions for the offshore sector. It's targeting the launch of its first fund in 2023.

Green Industry is an infrastructure and fund manager with a mission to decarbonize industry through electrification, conversion to low emission fuels and process improvements. Aker has a demonstrated track record across green industries key themes, including through Aker Solutions electrification projects offshore, the Northern Lights projects, subsea compression deliveries as well as Aker Carbon Capture, which is constructing the world's first full-scale carbon capture facility in Brevik, Norway. Green Industry is in the process of exploring investment opportunities along the value chain for carbon capture and storage from capture to transportation and storage, where Norway is emerging as a storage partner for Continental Europe.

Atoma and Axis are fund managers focused on venture capital investment. Atoma is setting up a pure-play clean tech fund manager with a mission to reduce greenhouse gas emissions by making net zero enabling technologies for industrial use commercially available. Atoma is focused on the scaling of early-stage industrial technology in Europe. Axis, which is still under developmental scheduled to launch in 2024, we'll target early-stage investments in industrial software.

Momentic is a fund manager primarily focused on listed equities, also in the pre-IPO and IPO segments and is still under development. Like other companies in Aker's portfolio, ICP is exposed to current market volatilities, which may impact progress, including investment opportunities and fundraising. Overall, the company plays a key role in Aker's approach to the energy transition. This includes finding ways to collaborate across the portfolio to bring capital and industry closer together, leveraging excellent industrial partnerships, utilizing decades of leading engineering and project execution expertise and using our network of agility to identify and seize new business opportunities.

Well, that concludes my portion of today's presentation. I now hand it over to our CFO, Svein Stoknes, who will take you through the financials for the quarter.

[Svein Stoknes, CFO]

Thank you, Oeyvind, 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 18% of Aker's total assets or NOK12.6 billion, up NOK388 million from the previous quarter. This is mainly due to an increase in listed financial investments of NOK102 million and other equity investments of NOK231 million, partly offset by a decrease in our cash holdings.

Aker Energy and the future potential earn out value from the sale will be reported as part of other financial investments as of 2023, and the comparative figures have been represented correspondingly. As before, the main components under financial investments are cash, listed financial investments, real estate and interest-bearing receivables, all of which I will now go through in some more detail.

Then as usual, starting with cash. Our cash holdings represented 2% of Aker's gross asset value or NOK1.2 billion. This is down NOK128 million from the previous quarter. The cash inflows were primarily dividends received from Aker BP and AMSC of the equivalent to NOK790 million. The main cash outflows in the quarter were primarily debt repayment of NOK495 million and launched to and equity investments in portfolio companies of NOK238 million, of which NOK139 million equity investment in industry Capital Partners, or ICP. Payments for operating expenses and net interest were NOK205 million in the quarter.

Listed investments included in our financial portfolio represented about 4% of Aker's total assets at the end of the quarter or NOK2.6 billion. The total value of this portfolio increased by NOK102 million in the first quarter, mainly explained by value increases of our positions in Akastor of NOK221 million, partly offset by a value decrease in Solstad Offshore of NOK80 million. During the quarter, Aker posted a total dividend income from AMSC of NOK45 million.

Next, real estate and other financial investments. Combined, the two represented 13% of Aker's gross asset value or NOK8.8 billion in total. Aker's real estate holding, Aker Property Group stood at a book value of NOK993 million at the end of the quarter. Interest-bearing receivables totaled NOK4.3 billion, including a NOK2 billion loan and a NOK1.2 billion convertible loan to Aker Horizons. Other equity investments totaled NOK2.6 billion, up from NOK2.4 billion last quarter. The increase is mainly explained by the investment in ICP of NOK139 million and positive value development in Seetee of NOK81 million. Fixed and other interest-free assets totaled NOK921 million.

Then let's move to the first quarter financial highlights for Aker ASA and holding companies. And let me start with the balance sheet. Please note that the Q1 figures on this slide are after a dividend allocation of NOK15 per share. The book value of our assets totaled NOK32.9 billion. And in our accounts, we used the lowest of historic costs and market values. This was down NOK1.2 billion in the quarter, mainly explained by a negative value change in Aker Horizons of NOK1.7 billion. And the book value of our equity was NOK22.8 billion, down NOK910 million, explained by loss before tax in the quarter.

The fair value adjusted assets or gross asset value totaled NOK68.6 billion. This was down NOK7.5 billion in the quarter, mainly explained by the negative value development in Aker BP of net NOK5.6 billion and in Aker Horizons as already mentioned. Subtracting for debt, the net asset value was NOK58.5 billion at the end of the quarter after a dividend allocation. This equaled NOK788 per share, and the value-adjusted equity ratio was 85%.

Aker had total liabilities of NOK10.1 billion at the end of the quarter and mainly consisted of bond debt and bank loans totaling NOK8.7 billion. It also included a NOK1.1 billion dividend allocation for 2022, representing NOK15 per share. The AGM also authorized the Board of Directors to pay a potential additional cash dividend during 2023 based on the 2022 annual accounts, in line with the practice from last year.

Aker's financial position remains robust with a total liquidity buffer of NOK6.6 billion, including undrawn credit facilities. Our net interest-bearing debt was NOK2.9 billion at the end of the quarter, down from NOK3.2 billion in the previous quarter due to debt repayments. Our loan-to-value was 11% and close to 80% of our gross asset value is in listed assets and cash.

In terms of our debt maturity profile, the average debt maturity at the end of the quarter was 3.4 years. We currently have NOK5 billion of bonds outstanding and our bank loans of NOK3.7 billion consists of a U.S. dollar-denominated loan of NOK1.6 billion, a Norwegian kroner denominated loan of NOK1 billion and a NOK1.1 billion euro denominated Schuldschein loan. Taking into account available credit lines and extension options on the bank loans, the implicit maturity of the total loan portfolio is 4.7 years.

Then to the income statement. The operating expenses for the first quarter were NOK105 million. The net value change in the quarter was negative NOK1.4 billion, mainly explained by value reductions in Aker Horizons of NOK1.7 billion, partly offset by a value increase in Akastor of NOK221 million and Seetee of NOK81 million.

During the quarter, Aker booked a total dividend income from Aker BP and AMSC of NOK796 million. Our net other financial items were negative NOK221 million, mainly explained by a net foreign exchange loss of NOK103 million. And the loss before tax was then NOK914 million in the quarter.

Thank you. That was the end of today's presentation, and we can then move on to questions.

[Fredrik Berge, Head of Investor Relations]

All right. We have received a few questions. And the first one is regarding offshore wind and the recent developments in Norway. The recent competitive application rounds that has been announced by the government for Sorlige Nordsjo II and Utsira Nord, what is Aker's take on the government's recent announcements?

[Oyvind Eriksen, President and CEO]

Well, as we all know, Norway has been a slow mover in the offshore wind so far. Hence, we're pleased by the fact that the government has clarified the level of ambition and both the 30 gigawatt development followed by an announcement of proposed acreage to be made available for development and even more specifically by the auction processes for Utsira and Sorlige Nordsjo II, respectively, which will happen later this year.

The Aker Group is positioned together with strong partners like Statkraft, BP and Ocean Winds to compete for the two first projects, but even more importantly, we sincerely hope that the longer-term opportunities on the Norwegian Continental Shelf will enable us to build up capacity, technology and competency in order to compete for offshore wind projects domestically and globally for decades to come.

[Fredrik Berge, Head of Investor Relations]

Thank you. The next question is regarding Aker Energy. So the POD has now been submitted to the authorities. And the question is, what are the upcoming milestones for this field development project moving forward?

[Oyvind Eriksen, President and CEO]

Well, the most important milestone for Aker was, obviously, the agreement with Africa Finance Corporation, AFC, and to divest our shareholding in Aker Energy. As I said in my presentation, the compensation is primarily structured as an earn-out. So for us, the first milestone is, obviously, the fact that the plan for development and operation has been filed by AFC. The mix milestone will be the feedback from the authorities in Ghana, hopefully, and the approval of the PoD. And thereafter, AFC with license partners will make, hopefully, an investment decision, do the construction and ultimately commence operation and production. So it's a traditional field development step-by-step process, with the milestones clearly defined, which will trigger an earn-out payment to Aker and TRG well and if achieved.

[Fredrik Berge, Head of Investor Relations]

Thank you. Next question is about SalMar Aker Ocean. What is the status? And have there been any developments regarding the regulatory framework in Norway, including the tax regime?

[Oyvind Eriksen, President and CEO]

Well, the regulatory framework is still a work in progress. So we're engaging directly with our authorities but also through industry organizations and provide input and advice about what kind of regulatory framework, which will trigger a new phase for Norwegian offshore salmon fish farming. As far as SalMar Aker Ocean is concerned, the first facility Ocean Farm 1 and has now been maintained. And the next production cycle is planned to start in this second quarter of 2023.

And in parallel, SalMar Aker Ocean is in the process of redesigning the smart fish farm facility. And as soon as the sign has been completed and cost estimate has been established together with partners and suppliers. We will discuss a possible investment decision. So in the bigger picture, SalMar Aker Ocean is progressing according to plan. However, timing will, to a large extent also depend upon the regulatory framework, which has not yet been concluded.

[Fredrik Berge, Head of Investor Relations]

Thank you. Next question is regarding Cognite. It looks like the positive development in SaaS revenue is continuing. Do you have any update on the status and plans forward for Cognite?

[Oyvind Eriksen, President and CEO]

Sure. So Cognite is progressing also according to plan, not only measured by growth in SaaS revenue, but also measured by a number of customers, industry verticals and geographies. In addition to that, it's very exciting to see that the Cognite Technology, CDF, is highly relevant and attractive in the ongoing artificial intelligence space, which has really taken off since we had our last quarterly presentation. It's still early stage, but the value of our artificial intelligence will, obviously, depend on the quality of data. And that's exactly the kind of technology and Cognite has developed CDF, which liberates data from all different and relevant data sources in an industrial facility and makes the data available in a structured way so that applications like AI can be deployed and provide the end user with real value.

[Fredrik Berge, Head of Investor Relations]

Thank you very much. That sounds very exciting indeed. So that was our final question for today and concludes our presentation. And we would like to thank everyone for listening, and wish you all a nice Friday.