Aker ASA

OSE:AKER

Earnings Call Transcript 2020-Q3

[Christina Glenn, Head of Investor Relations]

Good morning, everyone, and welcome to Aker's third quarter presentation. I'm here with the CEO, Øyvind Eriksen; and our CFO, Svein Oskar Stoknes, who will take you through the presentation today. After the conclusion of their presentation, we'll open up for questions. [Operator Instructions]Now I welcome Øyvind Eriksen to the stage.

[Oyvind Eriksen, President & CEO]

Thank you, Christina, and good morning, everyone. We're getting accustomed to tuning in digitally. Third quarter presentation today finds you well from wherever you are joining us this morning. 2020 has seemingly provided a glimpse into a future world, one in which oil producers are getting increasing pressure to operate at the lowest cost possible and exposed to even more volatile market fluctuations, where renewables and green technologies hold an even bigger proportion of the energy mix, digital solutions are an integral part of every aspects of our lives and businesses and, lastly, where human health is increasingly personalized and digitalized.At Aker, the actions taken in the last few months have positioned us for growth platforms in all these trajectories. As you can see from the list of highlights, it has been a very eventful period. But before we get into the development in the portfolio, let's take a look at how Aker's net asset value development was at the last 4 quarters. In the quarter, Aker's net asset value ended at NOK 31 billion or NOK 417 per share, down 9.6% from the second quarter. The value decrease is mainly explained by value reductions in Aker BP and Aker BioMarine, offset by value increases following the establishment of Aker Horizons and the listing of its 2 portfolio companies, Aker Carbon Capture and Aker Offshore Wind, which were spun out from Aker Solutions and listed on Merkur Market in August. In July, our Board concluded a dividend of NOK 11.75 per share or a total of NOK 873 million paid out to Aker shareholders. Today, the Board concluded on this year's second cash dividend of NOK 11.75 per share to be paid later on this month.The Aker share increased by 18%, adjusted for dividend, in the third quarter to NOK 402.8. This compares to an 8% increase in the Oslo Stock Exchange Benchmark Index. Aker's value-adjusted equity ratio as per the end of the third quarter was a strong 73%, and 86% of our gross values were in our Industrial Holdings portfolio. Our liquidity reserve stood at NOK 5.4 billion, of which cash amounted to NOK 2.4 billion.With the addition of Aker Horizons, Aker's Industrial Holdings portfolio now consists of 9 assets, all of which are listed on Oslo Stock Exchange. 86% of the gross asset value is thus in listed entities, meaning we have significantly increased the transparency and liquidity of the values in the portfolio during the course this year.Note that Aker Horizons portfolio currently mainly consists of Aker Carbon Capture and Aker Offshore Wind, both listed on Oslo Stock Exchange's Merkur Market, and Aker Horizons is therefore counted as a listed asset in the overview seen here. Aker Energy and Cognite are currently Aker's only remaining assets in the Industrial Holdings portfolio that are not listed. The largest asset is still our ownership in Aker BP, with the second largest being Aker BioMarine, which completed its Merkur IPO early July. Overall, the third quarter was marked by a diversification of Aker's portfolio. E&P and oil service companies have now been bundled into a joint category called oil and gas-related industries, which makes up 57% of the portfolio. The new segment, renewables and green technologies, was added in the quarter following the establishment of Aker Horizons and currently makes up 9% of the total portfolio. We'll now take a closer look at the portfolio. At Aker, the actions taken in the last few months have positioned us with growth platforms in multiple global trajectories. While oil and gas-related industries still make up the majority of our Industrial Holdings, we are simultaneously pivoting to diversify our portfolio and protect long-term shareholder value. This endeavor was largely made possible by the upstream cash flow from Aker BP, which we believe will continue for years to come. The reason is that Aker BP is a well-funded E&P company with a future-oriented strategy focused on producing smarter, more efficiently and more sustainably. Aker BP has emissions of less than 5 kilograms CO2 per barrel of oil compared to a global average of 18 kilograms per barrel, low cost of approximately USD 7 per barrel and an investment-grade rating and is increasingly deploying digital technologies to improve efficiency. With NOK 1.3 billion contributed to Aker so far this year, Aker BP enables us to future-proof our portfolio well beyond peak oil. The third quarter put the company well on track to deliver on production guidance, development projects are progressing as planned, and it's uniquely positioned to benefit from the improved investment conditions following the temporary tax changes here in Norway implemented in June. As we see from this overview, Aker has also made a step change into renewable energy and green technologies by establishing Aker Horizons and, in parallel, bringing values in Aker Solutions into light by spinning off Aker Offshore Wind and Aker Carbon Capture to us and other shareholders. The diversification marks an acceleration of our long-term strategy to diversify our portfolio of investments. We have been building the competency and industrial expertise for a long time. But the new shift lies in that the timing is right for a more dedicated capital and resource allocation to these new segments in our portfolio. Renewables and green industries are seeing the opposite trend of oil and gas. Cost of capital is going down. And with plummeting cost levels that rapidly improve competitiveness, investors see huge opportunities for value creation, exemplified by the performance of Aker Carbon Capture and Aker Offshore Wind during the first quarter as listed companies. Organic growth, combined with M&A, continues to be our recipe of creating value to shareholders in all parts of Aker. Next week, Aker Solutions and Kvaerner will have their first day as a merged company. Aker Solutions shareholders have not only seen strong returns on the shares in the spin-off companies, but the merger with Kvaerner forms a stronger, more robust supplier company well positioned in both the oil and gas industry as well as in an accelerated energy transition. As part of Aker Solutions' shift to a pure-play supplier role, a subsequent strategic decision was made to sell its own software house, ix3, to Aize, a new Aker software company established to leverage the ix3 competency and experience in digitalizing capital-intensive projects in the EPC value chain. Aize will specialize on app development for asset-intensive industries using Cognite's CDF technology, not unlike how specialized user applications are developed on top of Apple's iOS in the App Store or how Google has liberated data from apps like Uber. Using CDF, Aize software applications will work to integrate and manage the information related to field development and enable seamless exchange of data through the value chain and life cycle of fields. It's still early days for Aize, but ix3's around 90 employees have already hit the ground running as part of the new company. Last thing I want to touch on this morning is Aker BioMarine, which also represents a diversification of our portfolio. The company was created based on a strong belief in the positive effects of krill. And today, more than a decade later, Aker BioMarine is the world leader in krill harvesting and processing with a strong focus on transparency from ocean to end customer. The company took a big step during the quarter with its listing on Merkur Market. Aker has all along considered Aker BioMarine as a positive value trigger in the industrial portfolio and believe it has a strong basis for profitable and sustainable long-term growth.Aker BioMarine is today the second largest contributor to Aker's net asset value. It represents an important diversification of our portfolio within a fast-growing market, but it's also an example of a company that is taking a strong position within sustainability. Using machine learning, technology for fishery management and efficient operational setup, Aker BioMarine has minimized its environmental impact and its Antarctic krill fishery is among the most sustainable fisheries in the world. Now let me finish off by taking a look at our 2 non-listed companies. First, Aker Energy. After the initial postponement due to COVID-19, the strategy has shifted from a centralized FPSO approach to a phased development of the resources in its contract area. Aker Energy continues to mature this development solution where the intent is to substantially reduce the CapEx and breakeven cost of the project. Operational costs have also been cut through rightsizing of the organization. These efforts will enable the company to proceed in a lower and more uncertain oil price environment. And last but not least, Cognite. In just 4 years, Cognite has assembled a world-class team that has worked feverishly to create, test and verify the Cognite Data Fusion or CDF technology. The company has had expeditious growth and is today attracting leading global customers and rapidly expanding into new geographies and industries.Last week, Cognite had 2 major announcements, starting with this partnership with Microsoft to further capitalize the full-scale digital transformation of industries, a very exciting partnership and natural fit of 2 companies with a shared mission.Secondly, we were very pleased to announce the partnership with Accel, a leading global venture capital firm with deep domain expertise and experience in building world-class software companies. Accel will become a minority shareholder in Cognite through a Series A round investment according to conditions to be cleared by Accel and Cognite jointly. The investment round, which brings Cognite's post-money valuation to USD 550 million, marks its first round of external growth financing, has been right to bring in a partner that can help scale and further commercialize CDF, and Accel's insight and expertise in scaling best-in-class software companies globally marries perfectly with Aker's deep industrial knowledge. We look forward to working together to further scale and commercialize Cognite's industrial software platform for the global market. And with that, I hand it over to Svein Oskar, who will take us through the Financial Investments portfolio and the financials for the third quarter in more detail.

[Svein Oskar Stoknes, Chief Financial Officer]

Thank you, Øyvind, and good morning. I will start on spending a few minutes on Aker's Financial Investments before I go through the third quarter results in some more detail. The financial portfolio accounted for 14% of Aker's total assets or NOK 5.9 billion, which is down NOK 1.6 billion from the previous quarter. This was mainly due to debt repayments received from Aker BioMarine and a decrease in cash holdings in the quarter. As before, the main components on the Financial Investments are cash, listed financial investments, real estate investments and other interest-bearing receivables, all of which I will now go through in some more detail. And starting with cash. Our cash holdings represented 6% of Aker's gross asset value or NOK 2.4 billion. This is down NOK 0.4 billion from the previous quarter. The main cash inflows were dividends from Aker BP, Ocean Yield and American Shipping Company of the equivalent to [ NOK 324 million ] and debt repayments [ from ] Aker BioMarine of NOK 1.1 billion in total. The main cash outflows in the quarter were the dividend payment of NOK 873 million to Aker's shareholders and the NOK 772 million total cash investments in Aker Horizons. Payments for operating expenses and net interest were NOK 163 million in the quarter. And our liquidity reserve was NOK 5.4 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 1.1 billion. The value of the investment in Philly Shipyard decreased by NOK 85 million in the quarter. The construction of the 2 vessels awarded in the second quarter this year is progressing in accordance with plan. And the contract includes options for 3 vessels in addition to the 2 already under construction.The value of the equity investment in American Shipping Company increased by NOK 36 million in the quarter. In addition, the total return swap agreements related to American Shipping Company had a positive value development of NOK 62 million in the quarter. And Aker posted a dividend income of NOK 27 million from American Shipping Company in the third quarter.Our investment in REC Silicon increased by NOK 65 million in the third quarter. And subsequent to quarter end, the company announced 2 important partnership agreements and the planned restart of its plant in Moses Lake. The company also completed a private placement of approximately NOK 1 billion, in which Aker participated with NOK 300 million. The REC share is currently trading around NOK 11 per share compared to NOK 3.86 per share at the end of the third quarter. Also subsequent to the quarter, Solstad completed the financial restructuring of the company. This includes that the company's debt burden is reduced by approximately NOK 11 billion. Debt facilities have been combined to a fleet loan with harmonized terms, and financing of additional liquidity is in place. The industrial shareholders, which includes Aker, have injected approximately NOK 70 million in new equity capital. And in addition, the corporate structure has been streamlined, significantly reducing complexity and costs. Next, real estate and other financial investments. Combined, the 2 represented 6% of Aker's gross asset value or NOK 2.4 billion in total. In the quarter, Aker BioMarine repaid its debt to Aker with NOK 1.1 billion, including interest. This was part of the private placement and listing process of the company completed at the beginning of the quarter. Aker also sold 1 of its 2 airplanes with proceeds approximately at book value. Subsequent to the quarter, Aker Property Group, formerly known as FP Eiendom, is divesting its residential real estate investment at Fornebu. The sale will free up approximately NOK 530 million to the company. Now let's move to the third quarter financial highlights for Aker ASA and holding companies. And let me start with the balance sheet. The book value of our investments increased by NOK 2.1 billion in the quarter, and this is explained mainly by the establishment of Aker Horizons, including the spin-off, private placement and listing of Aker Carbon Capture and Aker Offshore Wind and the participation in the equity issues in the 2 companies. In addition, there were positive impacts from the reversal of impairments related to investments in Aker Solutions, Akastor, Kvaerner and Ocean Yield.Total book value of our assets was NOK 26.5 billion. And in our accounts, we used the lowest of historic costs and market values. The fair value adjustments, showed in gray color on this slide, decreased by NOK 4.1 billion in the quarter. This is mainly explained by value decreases of the investments in Aker BP and Aker BioMarine, partly [ offset ] by value increases of Aker Carbon Capture and Aker Offshore Wind. The gross asset value stood at NOK 42.2 billion at the end of the quarter, down from NOK 45.7 billion at the end of the second quarter. Aker's liabilities mainly consisted of bond debt of NOK 4.5 billion, a U.S. dollar-denominated bank loan of NOK 4.3 billion, a NOK-denominated bank loan of NOK 1 billion and a NOK 1.1 billion euro-denominated loan. The book equity was NOK 15.3 billion, up NOK 1.6 billion, explained by the profit before tax in the quarter. If we adjust for fair value of our listed assets, we get our net asset value of NOK 31 billion at the end of the third quarter, down NOK 2.4 billion from the second quarter, adjusted for dividend. The net asset value per share was NOK 417, and the value adjusted equity ratio was 73%. Our total interest-bearing debt was NOK 10.8 billion, which is slightly down from the previous quarter due to foreign exchange effects. The average debt maturity at the end of the quarter was 3 years, and we still have significant headroom with regards to our debt covenants. And finally, to the income statement. The operating expenses for the third quarter were NOK 49 million. The net value change in the quarter was positive NOK 1.2 billion. Net other financial items were positive NOK 451 million, mainly explained by dividend income of NOK 387 million. And the profit before tax was then NOK 1.6 billion in the quarter. Thank you. That was the end of our presentation here today, and we will now open up for Q&A.

[Christina Glenn, Head of Investor Relations]

Thank you, Svein Oskar and Øyvind. Operator, we'll now open up the audio line for questions.

[Operator]

[Operator Instructions] Since there are no questions at this moment, I'll hand it back to the speakers.

[Christina Glenn, Head of Investor Relations]

Okay. Thank you. We'll now take some questions that have come in through the web. The first one is from [ Erik Tusa ]. He says, I assume that the value you set for Cognite as USD 550 million is on a 100% basis. So as Aker owns 64%, the value to Aker is 64% times USD 550 million, so USD 352 million, NOK 3.3 billion.

[Oyvind Eriksen, President & CEO]

Well, it's correct that the USD 550 million is on a 100% basis. As far as Aker and ownership percentage is concerned, it will obviously be somewhat diluted due to subscription of a minority shareholding. But Aker will maintain a controlling ownership stake in Cognite also after the transaction. So the numbers you referred has to be addressed somewhat for a smaller dilution in the Aker stake.

[Christina Glenn, Head of Investor Relations]

Thank you. Then the next question is from Haakon Amundsen. He says, can you please give an update on the planned onshore wind investment in Aker Horizons? We have several on this, so we'll just do it as one to give an update on NBT.

[Oyvind Eriksen, President & CEO]

Yes, sure. The question relates to the announcement some months ago about the conditional agreement signed for the acquisition of NBT. And it has taken more time to conduct the due diligence, sort out the different conditions. That's still work in progress. We maintain a good dialogue with the company, and we will come back to the market with an announcement when that process has been concluded.

[Christina Glenn, Head of Investor Relations]

Great. Next question is, can you please share some insight regarding upcoming M&A activity?

[Oyvind Eriksen, President & CEO]

Well, a high level of activity both in the market in general and in Aker in particular. And we continue to assess and pursue different opportunities, which is, by the way, core business at Aker. Shorter term, we have experienced a significantly high deal flow or possible deal flow within the renewable and green technology space, triggered by the fact that Aker made a step change into those segments by establishing Aker Horizons. So in different parts of the group, we have -- we continue to have M&A on -- high on the agenda, but Aker Horizons has been particularly busy in recent weeks and months.

[Christina Glenn, Head of Investor Relations]

All right. And then we have a question from [ Pete Rone ], who says -- or asks, can you please say something about your future plans for your financial position in REC Silicon?

[Oyvind Eriksen, President & CEO]

Well, we're very pleased by the investment in REC. And as -- and we have considered it as a financial investment, though pretty successful, as I just said, due to the share price performance after we made the acquisition. And going forward, we will consider to move the shareholding from our portfolio of Financial Investments and into the Aker Horizons portfolio. That decision has not yet been made, but due to the development of REC and due to the nature of the business, we believe that the REC shareholding will fit even better in the Horizon portfolio than in the Aker Financial Investments portfolio.

[Christina Glenn, Head of Investor Relations]

Great. Then the next question is, congratulations on the Cognite announcements last week. Can you give a bit more flavor on how you will work with Accel as a partner and say something about what plans you have for an IPO?

[Oyvind Eriksen, President & CEO]

Sure. Some of you will remember what I said -- what Aker said when we established Cognite, which was basically that when the timing is right, well, Aker would like to invite one or more software investors with a proven track record into the ownership structure to help us further developing Cognite to its full potential.So the fact that Accel, one of the world's most successful software investors, knocked on our door and initiated that dialogue, not only about an investment, but more importantly, about how Aker and Accel jointly can help Cognite to develop and grow was entirely in line with our ambitions and our strategy from day 1. So the contribution from Accel as a co-shareholder has been far more important to Aker and has been a much bigger topic in the dialogue between Aker and Accel before the announcement than the commercial terms and conditions of the deal. My expectation to Accel is that they will bring their entire network and their deep experience and competency into the dialogue and help Cognite to develop and scale. My expectation is that Accel can probably help Cognite more on the commercial side than on the tech side. With their footprint in the States, I particularly expect Cognite to fast track their development in that important market, helped by Accel as a co-shareholder.

[Christina Glenn, Head of Investor Relations]

Okay. And then the next one is on Aker BioMarine. Given the performance since listing, are you still planning on taking the company to the main list? And if so, what plans do you have for selling down to reach the free float requirement?

[Oyvind Eriksen, President & CEO]

Well, Aker BioMarine communicated already during the Merkur Market listing process and IPO the plan to list Aker BioMarine on the Oslo Stock Exchange main list. So that plan is unchanged. How and when that will happen more specifically is an ongoing consideration in the Aker BioMarine management and Board of Directors. And Aker will respond to whatever proposal Aker BioMarine itself will make to that effect.But it's only a small -- a few percentage points needed to fulfill the free float listing requirement. I think Aker BioMarine has a number of alternative ways to fulfill that requirement. But as I said, Aker BioMarine has to come up with a proposal. And Aker will be supportive, as we always are, to the development of companies like Aker BioMarine.

[Christina Glenn, Head of Investor Relations]

I just had a message about there being some issues on the telephone line of people asking questions. I just want to open it up again. Operator, can you please open up the audio for questions.

[Operator]

[Operator Instructions] There are no questions at this moment, so I will hand it back to the speakers.

[Christina Glenn, Head of Investor Relations]

Okay. Thank you. That marks the conclusion of today's presentation. Thank you all for tuning in, and I wish you all a great day.

[Oyvind Eriksen, President & CEO]

Thank you.

[Svein Oskar Stoknes, Chief Financial Officer]

Thank you.