Aker ASA

OSE:AKER

Earnings Call Analysis

Earnings Call Transcript 2024-Q3

[Fredrik Berge, executive]

Hi, everyone, and welcome to the presentation of Aker's Third 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, Øyvind 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 our prepared Q&A session. And in case you have further questions or feedback, please do not hesitate to get in contact after the presentation.

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

[Øyvind Eriksen, executive]

Thank you, Fredrik, and good morning, everyone. Let me start by revisiting Aker's 3 main strategic priorities: one, increased cash flow with a focus on increased dividends, both received and paid; two, a more focused portfolio investments over time, prioritizing fewer companies with potential for secular growth, good profitability and cash flow generation; and three, net asset value, where our objective is to achieve an annual growth of at least 10% on average over the years.

Aker ended the third quarter with a more streamlined and cash-generative investment portfolio, in line with our commitment to deliver value to shareholders. We announced this morning that our Board has proposed to pay an additional NOK 35.5 per share in cash dividend and to enhance our dividend policy to 4% to 6% of net asset value annually.

The dividend announced today comes in addition to the NOK 15.5 per share paid in the second quarter. In total, we are distributing NOK 3.8 billion or NOK 51 per share in cash dividend to our shareholders this year. Despite a decrease in our net asset value this quarter, primarily due to lower oil prices, these actions reflect how Aker plays to its strengths, including active ownership and transactional capabilities to drive value creation. I will get back to this in a moment, but I first want to mention a few recent transactions in the portfolio that highlight how this is yielding results.

First off, Aker BioMarine distributing an extraordinary dividend of NOK 3.9 billion following the closing of the Feed Ingredients transaction with American Industrial Partners, or AIP.

Next, Aker Solutions Board has proposed NOK 10 billion of extraordinary dividends to shareholders after seeing strong operations over time and receiving all proceeds from the OneSubsea JV transaction with SLB. Aker will receive NOK 4.1 billion in upstream cash from the extraordinary dividend payment.

And lastly, Solstad Maritime announcing it will start paying quarterly dividend to shareholders, starting with NOK 233 million for the third quarter. As a result of this American shipping company has also increased its quarterly dividend to NOK 0.6 per share in total, NOK 22 million to Aker.

In sum, these transactions as well as steady dividends from Aker BP means that upstream cash to Aker is estimated to be north of NOK 11 billion this year, a strong increase from NOK 4.4 billion last year, NOK 2.8 billion in 2022 and a negative cash from where we started back in 2009.

Now back to this morning's announcement on a new dividend policy of 4% to 6% of net asset value, up from 2% to 4%. Aker's objective of 10% annual net asset value growth implies growing dividends with growing net asset value.

As you can see from the graph, Aker has a strong track record of dividend distributions. Today's announced decision is rooted in a commitment to a balanced approach to capital allocation, ensuring continued investment in growth opportunities, maintaining a solid, transparent and liquid balance sheet while delivering consistent returns to our shareholders.

Furthermore, the recommendation aims to balance dividend payments, operational costs and net finance expenses with upstream dividends to sustain and enhance Aker's credit profile. This strategy reflects our objective to offer an attractive dividend to shareholders while preserving financial flexibility, investment capacity and maintaining Aker's investment-grade rating.

Moving on to the share price development. In the third quarter, the energy sector was negatively impacted by the 15.3% decrease in the Brent oil price. We felt the effects of this in our portfolio. And the Aker share decreased by 10.9% in the quarter to NOK 548, in the same period, the Oslo Stock Exchange benchmark index decreased by 0.4%.

While the graph on this slide shows the impact of market volatilities and external factors, including fluctuating Brent prices on our share price over the last 3 years. It's worth highlighting that including today's announced cash dividend, Aker has distributed an accumulated dividend of NOK 122 per share in the same period.

Aker's value-adjusted equity ratio was 86% at the end of the period. Since Aker's relisting in 2004, shareholders have enjoyed an annual return of 24%. For the third quarter, our net asset value ended at NOK 57 billion down from NOK 63.9 billion last quarter. The decrease was mainly driven by Aker BP, our largest investments being impacted by the mentioned decline in the Brent oil price.

Year-to-date, the net asset value has decreased from NOK 63.2 billion to NOK 57 billion after dividends paid, again, largely driven by our investment in Aker BP, which decreased by NOK 6.7 billion in the period. This was somewhat offset by a value increase in Aker BioMarine during the period of NOK 3.3 billion.

Now taking a closer look at Aker's gross asset value, which stood at NOK 66.2 billion at the end of the quarter. The Industrial Holdings portfolio valued at NOK 55 billion accounted for 83% of the total, while financial investments and cash valued at NOK 11 billion, accounted for 17% of the total.

With 70% of our gross asset value in listed assets and cash, our portfolio remains liquid. Our ownership agenda is centered around value creation, backed by a strong track record in distribution of dividends to shareholders. Recent transactions and announcements, as previously mentioned, clearly demonstrates our commitment to this strategy despite short-term fluctuations in value. Aker BP remains a cornerstone of our portfolio, making up nearly half of our gross asset value.

The company continues to demonstrate strong operational performance. As the graphs on this slide demonstrates, Aker BP has improved its production efficiency, lowered production costs and emissions, matured resources to reserves and added new resources to its portfolio. The field development projects are progressing as planned, and the Tyrving field was successfully put on production 5 months ahead of schedule.

Moreover, the great Johan Sverdrup field in which Aker BP holds 31.6% stake continues to outperform expectations. With a 95% production efficiency, among the highest in the world, CO2 emissions of just 0.67 kilos per barrel, nearly 90% below the global average, and a production cost of approximately USD 2 per barrel. The field has been a highlight in European oil industry and continues to be a key contributor to delivering secure and reliable energy to Europe. Aker BP expects the field to produce at peak levels well into 2025.

All in all, based on its solid track record, both in production and exploration, coupled with its clear growth path, Aker BP will continue to be a significant value driver in Aker's portfolio.

Now let's take a closer look at some of our unlisted assets, starting with aquaculture and SalMar Aker Ocean. The fish farming industry has experienced low supply growth driven by biological challenges, environmental concerns and regulatory constraints. At the same time, global demand has increased strongly driven by population growth and increasing preference for healthy food and sustainable protein sources. This imbalance in supply and demand is projected to continue moving forward.

SalMar Aker Ocean is addressing several of the challenges related to traditional fish farming with its innovative semi offshore and offshore technologies. With its 3 existing production facilities, the current harvesting capacity is 13,000 tons of salmon. The company's second-generation semi-offshore facility is already in the FEED phase, targeting 8,000 tons of additional capacity in the medium term.

The company has successfully completed 4 production cycles in total, delivering impressive results, including 4x lower mortality rates than traditional salmon farming with 9x fewer lice-treatments. The growth out period is also significantly faster compared to traditional farming. This means improved fish welfare, which again will result in high value, and we are confident in continued growth and expansion both for offshore and semi offshore operations.

Additionally, the results bolster plans for a future IPO, aimed at further driving SalMar Ocean's ambitious growth strategies. Aker appreciates the fact that SalMar has left with SalMar Aker Ocean, the opportunity to pursue this exciting future for the fish farming industry.

Next, Cognite. The company's strong commercial development continued in the third quarter with revenue up 23% compared to the same period last year. More importantly, annual recurring revenue or ARR for short, marked a new all-time high by increasing to USD 92 million. Comparing this to the same period last year, ARR is up by as much as 44%.

Given that this important metrics indicates what lies ahead, it means we expect revenue and profitability to increase moving forward with the growing share of software-as-a-service contracts in the revenue mix. Furthermore, the company is enjoying increased demand for its AI product offering, Atlas AI in the market.

I have previously discussed how AI is nothing short of a game changer for Cognite. By Leveraging AI technologies, companies can improve decision-making processes, reduce costs and increase productivity, which is why as companies evolve, the next generation of operations must prioritize accessible, usable and valuable data beyond traditional closed ecosystems.

I have also mentioned the investments made to expand Cognite's presence in North America. And the company recently decided to move its headquarters to the U.S. Needless to say, the U.S. is the global epicenter for the tech industry. The U.S. market offers strategic advantages in terms of access to customers, partners, talent, innovation and in driving economies of scale. We believe this will be a significant strength for Cognite and boost long-term performance.

In conclusion, as we navigate complexities of global markets, our commitment to growth, innovation and generating shareholder value remains unwavering. We are used to managing volatilities, including those inherent to other industries.

Moving forward, the key words are focused, optimized portfolio investments, evaluating strategic alternatives using our transactional capabilities and industrial network, increasing dividend and net asset value growth, which all supports our target of delivering attractive shareholder value creation.

We are distributing NOK 35.5 per share in cash, bringing the total dividend paid in 2024 to NOK 51 per share or NOK 3.8 billion in total. Additionally, we are increasing our dividend policy for the first time since 2004 to 4% to 6% annually of net asset value.

Looking ahead, we will continue to build on our strong foundation, delivering long-term value for our shareholders and contributing positively to the industries and communities we serve.

That concludes my portion of today's presentation. I now hand it over to our CFO, Svein Oskar, who will take you through the third quarter financials.

[Svein Stoknes, executive]

Thank you, Øyvind, and good morning. I will start out spending a few minutes on Aker's financial investments before I go through the third quarter results in some more detail. The financial investments portfolio accounted for 17% of Aker's total assets or NOK 11.3 billion, down NOK 908 million from the previous quarter.

As before, the main components on the financial investments are cash, listed financial investments, other equity investments, real estate, interest-bearing receivables and noninterest-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 625 million. This was up NOK 167 million from the previous quarter. The cash inflows were dividends received of NOK 4 billion, of which NOK 3.1 billion from Aker BioMarine, NOK 894 million from Aker BP and NOK 14 million from AMSC.

The main cash outflows in the quarter included debt repayment of NOK 1.9 billion, in addition to net investments in portfolio companies totaling NOK 1.5 billion, largely due to our investment in Feed Ingredients. Additionally, there were net loans to portfolio companies of NOK 108 million, 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 3% of Aker's total assets at the end of the quarter or NOK 2.1 billion. This was down NOK 389 million from the previous quarter, driven by value decreases on all our listed financial investments. And as a reminder, our investment in Solstad Offshore is reported as part of Industrial Holdings from the first quarter 2024, and the comparative figures have been represented.

Next, other financial investments that combined represented 13% of Aker's gross asset value or NOK 8.6 billion in total. Interest-bearing receivables totaled NOK 4.2 billion, down from NOK 4.4 billion in the previous quarter and include a NOK 2 billion loan and a NOK 1.3 billion convertible loan to Aker Horizons.

The net decrease in the quarter was mainly due to an impairment of receivable from a noncore asset. Other equity investments totaled NOK 1.7 billion, down from NOK 2.1 billion in the previous quarter. The decrease was mainly due to a negative value adjustment of our investment in ICP of NOK 234 million in the quarter.

Noninterest-bearing assets totaled NOK 0.6 billion, down from NOK 0.9 billion last quarter, primarily due to a negative value adjustment of NOK 137 million on the AMSC's total return swaps and the conversion of NOK 119 million noninterest bearing receivable in real estate to equity investments.

Then let's move to the third quarter financial highlights for Aker ASA and holding companies. And I will start with the balance sheet. As a reminder, in our accounts, we use the lowest of historic costs and market values. And as previously mentioned, we have received NOK 3.1 billion in dividends from Aker BioMarine in the quarter. This dividend is partly booked as financial income with NOK 1.3 billion recorded in the income statement, and partly as a repayment of capital, reducing the book value of our investment in Aker BioMarine by NOK 1.8 billion.

At quarter end, the book value of our investments amounted to NOK 27.9 billion, a decrease of NOK 386 million during the quarter. This reduction is primarily explained by the mentioned NOK 1.8 billion repayment of capital from Aker BioMarine, in addition to negative value adjustments of our investments in Akastor by NOK 280 million, Solstad Offshore by NOK 264 million and in ICP by NOK 234 million. This reduction is partly offset by the reinvestment in Feed Ingredients of NOK 1.6 billion.

In addition, an interest-bearing receivable of NOK 0.7 billion has been converted to equity related to real estate. The book value of our equity was NOK 24.7 billion at quarter end, up NOK 580 million, explained by profit before tax in the quarter. The fair value adjusted assets or gross asset value totaled NOK 66.2 billion. Subtracting for debt, the net asset value was NOK 57 billion at the end of the quarter. This equaled NOK 767 per share, and the value-adjusted equity ratio was 86%.

Aker had liabilities of NOK 9.2 billion at the end of the quarter. That mainly consisted of bond debt and bank loans totaling NOK 8.9 billion. Aker's financial position remains robust with a total liquidity buffer of NOK 7.9 billion, including undrawn credit facilities and liquid funds.

The net interest-bearing debt was NOK 4.1 billion at the end of the quarter, down from NOK 5.2 billion in the previous quarter. Our loan-to-value was 13% and 70% of our gross asset value is in listed assets and cash.

In terms of our debt maturity profile, the weighted average debt maturity was 3.2 years at the end of the quarter. During the quarter, we have repaid bank loans of NOK 1.9 billion, and the Aker 15 bond will be repaid on maturity later this month. Taking available credit lines and the extension options on the bank loans into consideration, the implicit maturity of our total loan portfolio would be more than 5 years. And Aker's BBB- investment grade rating was reaffirmed by scope in August.

Then to the income statement. The operating expenses in the third quarter were NOK 106 million. During the quarter, Aker booked a total dividend income from Aker BioMarine, Aker BP and AMSC of NOK 2.2 billion. As already mentioned, the total cash dividend from Aker BioMarine is partly booked as financial income with NOK 1.3 billion and partly as repayment of capital reducing the book value of our investment in Aker BioMarine by NOK 1.8 billion.

The net value change in the quarter was a negative of NOK 974 million, mainly explained by value decreases in Akastor of NOK 280 million, Solstad Offshore of NOK 264 million and ICP of NOK 234 million. Our net other financial items were negative of NOK 494 million, mainly explained by impairment charges of noncore assets of NOK 221 million and negative value adjustment on the AMSC TRS agreements of NOK 150 million. And the profit before tax was then NOK 577 million 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]

Thank you, gentlemen. So Øyvind, starting off with your largest asset, Aker BP, the Johan Sverdrup field continues to deliver impressive production levels. What would you reflect on -- regarding the field's development so far and moving forward?

[Øyvind Eriksen, executive]

Well, Johan Sverdrup is probably the most attractive offshore oil field in the world and a great asset in the Aker BP portfolio. Johan Sverdrup continues to outperform expectations and plans, and we expect the current production levels to go far into next year.

And more importantly, it's a field with the lowest cost and the lowest CO2 emission per barrel produced in the world. So we are grateful about the fact that Aker BP owns 31.6% of Johan Sverdrup.

[Fredrik Berge, executive]

Then over to Aker Solutions, with the exciting NOK 10 billion dividend announced last week. It seems like an impressive conclusion to the transformative OneSubsea transaction. Any reflections to share?

[Øyvind Eriksen, executive]

Well, the OneSubsea transaction was important to Aker Solutions and Aker Solutions streamlining and focus on the new core business. But even more importantly, together with SLB, we created what I believe is by far the best subsea production system company in the world. And Aker Solutions kept a 20% shareholding in the OneSubsea joint venture.

So we are now even more focused on how OneSubsea continues to develop and how we expect the value on the Aker Solutions 20% stake to perform in the years to come. So a great transaction, but also a very, very exciting OneSubsea company created through -- together with our good partners at SLB.

[Fredrik Berge, executive]

All right. Thank you. And over to Aker Carbon Capture. The company stated it is in the process of determining its future strategy and structure, including the conclusion for the use of proceeds from the SLB transaction. What is Aker's view on the use of proceeds?

[Øyvind Eriksen, executive]

Well, we appreciate that the Aker Carbon Capture Board is prudently considering the balance sheet and their strategy going forward. And reading media, it sometimes looks like investors expect us to empty ASC and move on with a 20% stake only. But we should keep in mind that we have a responsibility as a 20% shareholder to support the company also going forward. So I appreciate that ASC has guided the market as they have done so far. But it's also important that they take the time needed in order to make the right decisions.

[Fredrik Berge, executive]

Right. Speaking of dividends, you announced today a significant dividend of NOK 35.5 per share. And at the same time, you are increasing Aker's dividend policy. Anything to share on the background for this exciting news?

[Øyvind Eriksen, executive]

Well, that's a consequence of the strategy pursued in the last period of time to focus on fewer larger and dividend paying and portfolio companies going forward. And we have a target to generate 10% growth in our net asset value year-over-year. So that combined with an even more attractive dividend policy, payment of dividend in the range between 4% to 6% of NAV annually, makes the value proposition by Aker to shareholders even more attractive going forward.

[Fredrik Berge, executive]

Definitely. On the topic of strategy, in your CEO letter today, you discussed Aker's strategic priorities. What are your main focus areas moving forward?

[Øyvind Eriksen, executive]

Well, this is in line with what we have talked about in the past. And so basically nothing changed other than the fact that we're executing on our strategy to streamline the portfolio, focusing on larger, fewer and dividend-paying holdings, which enables us to pay an even more attractive dividend to Aker ASA shareholders.

[Fredrik Berge, executive]

And the final question around SalMar Aker Ocean, which has delivered impressive results from its production cycles so far. In your presentation, you mentioned an IPO could be an option for the future. Anything you could say about potential timing on this?

[Øyvind Eriksen, executive]

Well, first and foremost, I think it's very exciting to see how SalMar Aker Ocean develops and how we have already proven that the efficiency of fish farming and offshore and semi offshore is competitive compared to conventional fish farming with far better results also measured by fish health and pollution.

As far as IPO is concerned, the mindset is the same in SalMar Aker Ocean as it is throughout the Aker portfolio. For us, it's important to make our portfolio companies IPO ready, and then the market will decide on timing.

[Fredrik Berge, executive]

All right. Thank you very much. So that was the end of our presentation today. So thank you all for listening in.