Aker ASA

OSE:AKER

Earnings Call Transcript 2024-Q1

[Fredrik Berge, executive]

Hi, everyone, and welcome to the Presentation of Aker's First Quarter Results 2024. My name is Fredrik Berge, and I'm Head of Investor Relations. We will start today's presentation with Aker's President and CEO, Oyvind Eriksen, who will take you through the quarterly highlights and recent developments in the portfolio. Our CFO, Svein Oskar Stoknes, will then take you through the quarterly financials in more detail. After the presentation, we will host a Q&A session, and you can submit your questions via the online platform during or after the presentation.And with that, I hand it over to Oyvind Eriksen.

[Øyvind Eriksen, executive]

Thank you, Fredrik, and good morning, everyone. Aker closed the first quarter with high activity across the portfolio and with continued momentum for growth. Important strategic initiatives are progressing as part of our active ownership agenda for long-term value creation. Two of the main events during the quarter were the completion of the refinancing of Solstad and the agreement between Aker Carbon Capture and SLB to combine their respective carbon capture businesses in a new and stronger joint venture. I'll come back with more details around this on separate slides.During the quarter, Aker BP continued to deliver strong oil and gas production, coupled with industry-leading low emissions and low production costs. The company's field development projects are progressing well, and construction activity is ramping up at multiple sites in Norway and abroad. As part of Aker BP's largest-ever field development program, the Hanz project has been completed and production started in April this year. The field development program will significantly lift Aker BP's production levels as the projects continue to start up over the coming years.Moving on to Aker Solutions. In the first quarter, the company delivered high revenue growth and improved profitability as several of its ongoing projects reached progress milestones. With an increasing activity level, solid order backlog and high tendering activity, the company has better visibility on activity in the next few years than ever before.Over to Aker BioMarine, which continued its positive development, delivering both increased revenues and margins in the first quarter, as well as increased krill production volumes. In February, Aker BioMarine announced that it has initiated a process to explore strategic alternatives for the business area, Feed Ingredients, which is the world's largest krill harvester and producer of krill meal. This is in line with Aker's ownership agenda of maximizing shareholder value creation over time.Aker Horizons is facing continued negative capital market sentiment for the renewable sector. However, during the first quarter, the company advanced on several projects. Mainstream Renewable Power is currently progressing the construction of several projects across countries, including Chile, South Africa, and the Philippines. Mainstream's cost improvement program has also started to yield positive results, showing around 30% improvement year-over-year. In total, Aker Horizons portfolio of development projects increased by 3.4 gigawatts during the quarter to 22.6 gigawatts with 10 gigawatts of these having the greatest potential for near-term value creation.And after quarter-end, Akastor received a positive arbitration settlement of USD 108 million, including reimbursement of legal costs related to a dispute with Jurong Shipyard. The amount excludes interest payments, which will be resolved in due course. We also had another exciting announcement last week with the appointment of Christian Rynning-Tonnesen as new Senior Partner and CEO of ICP Infrastructure. Over the last 14 years, Christian has held the role as CEO of Statkraft, Europe's largest producer of renewable energy and a leading player in global energy markets. I've had the privilege of knowing and collaborating with Christian for many years, and he brings with him a unique network, solid knowledge and a proven track record that ICP will benefit greatly from moving forward.In sum, Aker experienced strong operations and high activity across the portfolio during the quarter. And we demonstrated continued progress on our strategic objectives, including further deepening of our partnership with SLB through the joint venture in Carbon Capture, which I will come back to. Aker's commitment to long-term industrial development and shareholder value creation remains firm. Moving forward, our approach will be even more focused. We will concentrate on larger portfolio companies within key global megatrends that has the potential for secular growth, good profitability and cash flow generation. Instead of spreading our effort across multiple sectors and companies, we will devote more time and resources to companies where Aker's industrial ecosystem can make a difference and continue to generate value.When allocating capital, we will give priority to cash-yielding investments that also generate a running return in the form of dividends or interest income, contributing meaningfully to our objective of increased and diversified upstream cash. Our method of work will include assessing strategic alternatives, divestments and reinvestment opportunities, both within our listed portfolio and within more recent start-ups in which Aker has invested early-stage capital. The aim is both to increase our ability to seize value-adding investment opportunities and to ensure continued predictable dividends to shareholders in the years to come. Our objective is to achieve an annual growth in net asset value of at least 10% after dividends and to pay 2% to 4% of the net asset value in our annual dividends to shareholders. At the same time, we also have the ambition to reduce our net interest-bearing debt from today up to 2027 from around NOK 5 billion.Let me share 2 recent events that illustrate our more focused approach. During the quarter, we continued to further strengthen our collaboration with SLB by forming a joint venture between Aker Carbon Capture and SLB. This transaction marks another important step to Aker and SLBs existing partnerships, within subsea with Aker Solutions and within digitalization with Cognite. Aker Carbon Capture and SLB will benefit from having highly complementary technology portfolios and a broader geographical presence. This transaction will accelerate international expansion, growth and help bringing carbon capture solutions to market more quickly and more economically. The combined company will be owned 80% by SLB and 20% by Aker Carbon Capture. At closing, SLB will pay NOK 4.12 billion in cash to Aker Carbon Capture for the 80% ownership. In addition, Aker Carbon Capture will retain NOK 400 million in cash and will, in addition, be entitled to performance-based payments of up to NOK 1.36 billion, subject to certain milestones.Then to Solstad. NOK 11.4 billion of bank debt was refinanced in January this year and a total of NOK 3.25 billion of new equity has been injected, of which Aker contributed NOK 2.25 billion and AMSC, NOK 1 billion. The next step is NOK 750 million share issue in Solstad Maritime planned in June guaranteed by Aker, where all shareholders in Solstad Offshore outside Aker will be able to invest in Solstad Maritime on the same terms as Aker. Following the share issue, the intention is to list Solstad Maritime at the latest within the following 12 months. With one of the industry's most modern fleets of high-end vessels, a healthy balance sheet and backed by the Aker Group's substantial industrial competence, Solstad Maritime is well positioned for growth. With the strong offshore market as the backdrop, the company's ambition is to initiate quarterly dividend payments during the second half of this year.Now, taking a closer look at Aker's gross asset value, which stood at NOK 71.7 billion at the end of the quarter. The Industrial Holdings portfolio valued at NOK 60 billion, accounted for 84% of the total gross asset value, while Financial Investments and cash valued at NOK 12 billion, accounted for 16% of the total. From the first quarter onwards, our investments in Solstad is part of Aker's Industrial Holdings segment. As previously stated, a key strategic objective for Aker remains to continue to increase and diversify upstream dividends over time. As part of this and backed by a positive market outlook, Solstad is well positioned to provide valuable upstream cash to Aker moving forward. With 74% of our gross asset value in listed assets and cash of portfolio remains liquid.Moving on to the development in Aker's net asset value, which ended the quarter at NOK 60.4 billion. This was down from NOK 63.2 billion last quarter. The reduction was mainly driven by our investment in Aker BP with a value reduction of NOK 2.6 billion in the period. This was partly offset by a positive value change for our investment in Aker BioMarine by NOK 1.2 billion.Next, the share price development. In the first quarter, Aker share price decreased by 6.4% to NOK 623.5. This compares to a 1.6% increase in the Oslo Stock Exchange Benchmark Index and a 12.7% increase in the Brent oil price. Aker's value-adjusted equity ratio was 84% at the end of the period.In summary, Aker started the year with high activity across the portfolio. Although Aker's strategy and commitment to long-term industrial development stays firm, our approach will be more focused moving forward. The keywords are larger portfolio companies, prioritizing cash-yielding investments, evaluating strategic alternatives, and increasing and diversifying upstream cash. Our method of work will remain active ownership and capital allocation, including mergers and acquisitions. Some of our main priorities continues to be supporting Aker BP and Aker Solutions' execution of the record large field development projects, supporting continued development and growth in our software portfolio, and continue to pursue strategic initiatives that will drive value across our portfolio.In sum, this all support of a target of increased sales to value creation moving forward.That concludes my portion of today's presentation. I now hand it over to Svein Oskar Stoknes, who will take you through the quarterly financials.

[Svein Stoknes, executive]

Thank you, Oyvind, and good morning. I will start off spending a few minutes on Aker's Financial Investments before I go through the first quarter results in some more detail. And as Oyvind mentioned, please note that our investments in Solstad have been moved from the Financial Investments segment to Industrial Holdings and historical numbers have been represented.The Financial Investments portfolio accounted for 16% of Aker's total assets, or NOK 11.6 billion, up NOK 712 million from the previous quarter. As before, the main components under Financial Investments are cash listed financial investments, other equity investments, real estate, interest-bearing receivables and non-interest-bearing assets, all of which I will now go through in some more detail.Then, as usual, starting with cash. Our cash holdings represented 1% of Aker's gross asset value, or NOK 699 million. This was down NOK 75 million from the previous quarter. The cash inflows were primarily a change in net debt of NOK 2.2 billion and dividends received of NOK 855 million, of which NOK 842 million from Aker BP and NOK 13 million from AMSC. The change in net debt was related to the issuance of the new NOK 1.25 billion denominated bond and a draw on credit facilities of NOK 2.6 billion. This was offset by a NOK 0.5 billion down payment on the AKER15 bond and a full repayment of the Schuldschein loan of NOK 1.2 billion. The main cash outflows in the quarter were primarily investments in portfolio companies of NOK 2.4 billion, of which NOK 2.25 billion in Solstad Maritime and loans to portfolio companies of NOK 449 million, of which NOK 276 billion to Cognite and NOK 95 million to Akastor. And cash outflow for operating expenses and net interest were NOK 286 million in the quarter.Listed investments included in our financial portfolio represented about 2% of Aker's total assets at the end of the quarter or NOK 1.7 billion. This was a decrease of NOK 199 million from the previous quarter, mainly driven by our investment in Philly Shipyard. And again, as a reminder, our investment in Solstad Offshore is now reported as part of Industrial Holdings and the comparative figures have been represented.Next, other Financial Investments that combined represented 13% of Aker's gross asset value or NOK 9.1 billion in total. Aker's real estate holding, Aker Property Group stood at a book value of NOK 1.4 billion at the end of the quarter, up from NOK 1.3 billion in the previous quarter. The increase was driven by a loan issued to Aker Property Group of NOK 40 million in the quarter. Interest-bearing receivables totaled NOK 4.6 billion, up from NOK 4.1 billion in the previous quarter. The increase was mainly driven by a loan issued to Cognite of NOK 276 million in addition to a loan of NOK 95 million to Akastor. The total amount of interest-bearing receivables include a NOK 2 billion loan and a NOK 1.3 billion convertible loan to Aker Horizons. Other equity investments totaled NOK 2.1 billion, up from NOK 1.6 billion in the previous quarter. The increase was mainly driven by an increased investment in ICP of NOK 159 million and value increase of our investment in Seetee of NOK 124 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. The book value of our assets totaled NOK 34.2 billion, up NOK 3.8 billion in the quarter, partly explained by the investment in Solstad Maritime of NOK 2.25 billion and value increase in Aker BioMarine of NOK 1.2 billion. This was partly offset by a value decrease in Aker Horizons of NOK 583 million. And in our accounts, we use the lowest of historic cost and market values. The book value of our equity was NOK 21.8 billion, up NOK 1.4 billion, explained by profit before tax in the quarter. The fair value adjusted assets or gross asset value totaled NOK 71.7 billion. And subtracting for debt, the net asset value was NOK 59.3 billion at the end of the quarter. This equaled NOK 798 per share after allocation for dividend and the value-adjusted equity ratio was 83%.Aker had liabilities of NOK 12.4 billion at the end of the quarter, that mainly consisted of bond debt and bank loans totaling NOK 10.9 billion. The liabilities at quarter end also includes the NOK 1.2 billion dividend allocation for 2023, representing NOK 15.5 per share, and this dividend was distributed end of April. Aker's financial position remains robust with a total liquidity buffer of NOK 5.5 billion, including undrawn credit facilities. The net interest-bearing debt was NOK 5 billion at the end of the quarter, up from NOK 3.1 billion in the previous quarter, mainly due to the investment in Solstad Maritime. Our loan-to-value was 14% and 74% of our gross asset value is in listed assets and cash.In terms of our debt maturity profile, the weighted average debt maturity was 3.1 years at the end of the quarter. During the quarter, we have successfully issued a new NOK 1.25 billion senior unsecured bond maturing in 2029 at competitive terms. In conjunction with the bond issue, we also bought back a nominal amount of NOK 0.5 billion of the NOK 2 billion AKER15 bond maturing in November this year. In addition, we have repaid the EUR 100 million Schuldschein loan at maturity in the quarter. We have also established another NOK 2 billion RCF with a key relationship bank in the quarter, with half of it maturing in 2027 and the other half in 2029. This increases our total RCF capacity up to NOK 10 billion. We have drawn NOK 2.6 billion from our total credit facilities during the quarter. And at quarter end, we had NOK 5.7 billion of bonds outstanding and bank loans of NOK 5.2 billion. In April, we successfully issued a new 7-year bond of NOK 500 million, repurchased another NOK 75 million of the AKER15 bond, extending the maturity on the other 2 bank loans and added new extension options. Taking these subsequent changes into consideration combined with available credit lines and the extension options on the bank loans, the implicit maturity of our total loan portfolio would be more than 5 years.Then to the income statement. The operating expenses in the first quarter were NOK 106 million. During the quarter, Aker booked a total dividend income from Aker BP and AMSC of NOK 859 million. The net value change in the quarter was positive NOK 800 million, mainly explained by value increases in Aker BioMarine of NOK 1.2 billion and Seetee of NOK 124 million. This was partly offset by value decreases in Aker Horizons of NOK 583 million and Akastor of NOK 72 million. Our net other financial items were negative NOK 145 million, and the profit before tax was then NOK 1.4 billion in the quarter.Thank you. That was the end of today's presentation, and we can then move on to Q&A.

[Fredrik Berge, executive]

We are now open for questions from the webcast solution. And perhaps to start things off, Oyvind, you talked about Aker being more focused moving forward. Could you add some more color on what you mean by that? And what you're thinking about your current portfolio composition?

[Øyvind Eriksen, executive]

Well, the basic investment strategy is the same. We're investing in global megatrends with a long-term expected growth. And we are prioritizing companies and investments, which can contribute to a positive development both in our net asset value and our upstream cash flow. At the same time, it's just a fact that a large difference between the different Aker portfolio company when it comes to size. And we have some smaller and medium-sized companies in the portfolio with a great potential, but we could double or triple value. And ultimately, it will not make that big difference when it comes to Aker's net asset value and upstream cash.So this is not about attractiveness. It's more about how to compose a portfolio, which is fit for purpose, and a portfolio that can drive net asset value and upstream cash longer term. And we have some very good examples looking back. Ocean Yield started with Aker floating production and ended up as one of our biggest holdings before we divested to KKR. And the last example is Solstad, relatively small shareholding in the portfolio a year ago. But we saw an opportunity to increase capital allocation to the supply sector and help Solstad to refinance its debt a few months ago. And today, Solstad belongs to our industrial portfolio with -- as we see it, a growth potential, both relevant to net asset value and upstream cash flow.

[Fredrik Berge, executive]

Next question is about the renewable space. In relation to the more focused approach, do you view the potential or perhaps need for consolidation in the sector? And if so, could it involve Aker in some shape or form?

[Øyvind Eriksen, executive]

Well, renewable is quite interesting here and now because the capital market sentiment has been negative for more than a year, and we have learned that the hard way in Aker Horizons. At the same time, as [ COO ], one of our main colleagues and competitors and describe the demand for renewable as probably the best market environment for investments in the renewable projects ever. So how do we position the Aker Group in general and a company like Aker Horizons in particular, in that rather different landscape? And to stick to the longer-term strategy is consistent with Aker DNA. But -- so we don't change Aker Horizons strategy due to capital market volatility. But at the same time, we need to both restructure part of Aker Horizons, mainstream was restructured last summer, and we show the underlying value in Aker Carbon Capture by announcing the SLB transaction a few months ago.Going forward, we will both pursue opportunities to raise capital in the structure so that we can facilitate the growth. And in Aker Horizons, as in any other Aker company, we are always open-minded to some kind of transaction, consolidation or the kind of transaction, if that could even more visualize and generate shareholder value.

[Fredrik Berge, executive]

And the next question, perhaps for you, Svein. It's about the 2 new bonds that you issued so far this year. Could you shed some light on what you mean by at competitive terms?

[Svein Stoknes, executive]

Sure. So we did 1 bond in January, a 5-year senior unsecured NOK 1.25 billion in size. That one was priced at a margin of 187 basis points above Nibor. And then we did the subsequent senior unsecured in April of this year, NOK 0.5 billion that was priced at 180 basis points. So clearly, illustrating the effects of our investment-grade rating and the proceeds used to settle our Schuldschein loan, EUR 100 million we did in Q1, and then we have repurchased NOK 575 million of the November AKER15 maturity coming up later this year.

[Fredrik Berge, executive]

Switching to Aker BP. Oyvind, the company has delivered high production volumes lately where the large Johan Sverdrup field has been a main contributor. How do you see the development moving forward? And has Johan Sverdrup reached plateau production?

[Øyvind Eriksen, executive]

Well, there's a dual answer to that question. It's partly about Aker BP production overall, and it's partly about Johan Sverdrup. Starting with Aker BP portfolio. I think we have proven over and over again that we managed to increase rather than decrease the production, partly by discoveries and partly by development of discoveries like the ongoing greenfield development project and program in which Aker BP invests more than ever before, USD 20 billion between now and 2027 and partly through M&A, both acquisition of assets and the corporate transactions. So that will not change. And we have a strategy to grow rather than decrease the Aker BP production overall.Then Johan Sverdrup, and I'm reading a lot of speculations about plateau production and the lower term production profile. Let me start by stating the [ obvious ]. It's the nature of any oilfield, onshore as well as offshore all around the world, and that it will have a declining production profile over time. At the same time, it's a fact that Johan Sverdrup as in recent months overperformed also as a matter of production compared to plan. And then, it's a more generic lesson learned that great operators like Equinor and license partners like Aker BP and -- tend to find a way to maintain production and extend the lifetime of field. It's a saying in this industry that large fields tend to become bigger. And how Equinor, Aker BP and the license partners will manage this in the case of Johan Sverdrup is something to explain in more detail by the parties involved. But I'm confident that Johan Sverdrup will surprise us also in the future. And it's probably one of the greatest assets you can ever own in offshore oil and gas with the lowest emissions per barrel and the lowest production cost per barrel and globally. Then I think our final question is about ICP. So you've earlier talked about the intention to raise capital during the first half of this year. Could you shed some light on the current status and plans moving forward? Well, we're focusing on 2 vehicles initially, ICP Asset Management, investing primarily in listed equity and ICP Infrastructure. As far as ICP Asset Management is concerned, we combine ICP with Norron. So it's already a live business. And the ICP Asset Management team is now on the road discussing fundraising with investors in parallel with sorting out the final regulatory approvals. So fundraising will continue in the next weeks and months.Moving on to ICP Infrastructure. The most important thing from my perspective, since we missed last is the announcement about Christian Rynning-Tonnesen joining us as CEO for that part of ICP. I don't need to explain Christian's background. But for me, he is by far the best person we could get for the job. And then it's also encouraging to see that ICP Infrastructure has already engaged in dialogues, both with potential developers and transaction partners, generating investment opportunities and with some investors, primarily the largest investors and financial sponsors in the world. So -- but what's particular about Infrastructure, renewable projects and clean tech projects, it's a little bit chicken and egg. You have to show investors the actual investment opportunity and business case in order to raise capital from investors. So I sincerely believe that the amount of activity will continue to pick up under Christian's leadership. I hope and believe that we will be able to make the first investments this year, not a promise, but a strong hope and belief, but the most important thing is that, the underlying market is good. And then it's all about picking the right first investments.

[Fredrik Berge, executive]

And we received one final question about the digitalization. So you mentioned in your presentation that there has been a positive commercial development continued at Cognite. Do you have any more color on this?

[Øyvind Eriksen, executive]

Well, we have Cognite, Omny and Aize, but your question was about Cognite. First quarter, all-time high booking. First quarter continued good growth in Software-as-a-Service recurring revenue. First quarter and strong increase in active users of the technology. And the first quarter also introduced us to new customers and new market segments in addition to the new rule of a number of contracts with existing customers. So, I am really pleased about what Cognite achieved last quarter. And I think the company continues to develop and grow according to plan. And I often asked a question about when will the company become profitable? And as I've said before, it's basically up to us to decide.

[Fredrik Berge, executive]

Thank you. So that was our last question today. And thank you, everyone, for listening in, and we look forward to seeing you next time.