Aker ASA

OSE:AKER

Earnings Call Transcript 2020-Q4

[Christina Glenn, Head of Investor Relations]

Hello, everyone, and good morning. Welcome to this presentation of Aker's fourth quarter results for 2020.We will start today's presentation with Aker's President and CEO, Oyvind Eriksen. He will walk you through the highlights in the quarter and our Industrial Holdings Portfolio's development. Aker's CEO -- our CFO, Svein Oskar Stoknes, will then go through the financial investments portfolio and the fourth quarter accounts in more detail. [Operator Instructions]And with that, I hand it over to Oyvind.

[Oyvind Eriksen, President & CEO]

So good morning, everyone, and welcome to this presentation of Aker's fourth quarter 2020 results. It's been another busy and exciting quarter at Aker. As you can see from the list of highlights, there has been no shortage of activities in the last few months, especially in our software and new renewables portfolios. We're now looking at a solid and prosperous industrial foundation which resulted in the largest quarterly value increase ever recorded. But before we get into development in the portfolio, let's take a look at how Aker's net asset value development was in the quarter.In the fourth quarter, Aker's net asset value increased by a record NOK 22.4 billion to NOK 53.4 billion or NOK 718 per share. The underlying results paint the picture. Aker Solutions and Aker BP were hard hit by the pandemic and the oil price collapse, but relentless work to protect jobs and ensure strong operations through volatile times paid off.In the fourth quarter, the company's value contribution to Aker increased nearly 78% and 50%, respectively. Simultaneously, our new renewables investment platform, Aker Horizons, contributed NOK 7.6 billion to Aker's net asset value from its establishment to year-end and is today Aker's second largest asset. In addition, the value of our shareholding in Cognite increased to NOK 2.8 billion, justified by the transaction with Accel. In other words, organic growth, combined with M&A continues to be our recipe for creating value to shareholders in all parts of Aker.The Aker share price increased to -- or by 42% adjusted for dividend to NOK 560 by the end of the fourth quarter. This compares to a 14% increase in the Oslo Stock Exchange Benchmark Index. Shortly, after the end of the quarter, the stock price hit an all-time high.Aker's value adjusted equity ratio as per the end of the fourth quarter was 83% and 89% of our gross values were -- in our industry and holdings portfolio. Our liquidity reserves stood at NOK 4.3 billion, of which cash amounted to NOK 1.3 billion. With the addition of Aker Horizons and the merger between Aker Solutions and Kvaerner, Aker's industry -- holdings portfolio now consists of 8 assets.Note that in this overview, Aker Horizons portfolio mainly consists of Aker Carbon Capture and Aker Offshore Wind, both listed on Euronext Growth and Aker Horizons was, therefore, counted as a listed asset at year-end. The company carried out its own IPO after the quarter end, being listed on Euronext Growth as per February 1.Aker Energy and Cognite are currently Aker's only remaining assets in the Industrial Holdings portfolio that are not listed. And at quarter end, 87% of the gross asset value was in listed entities, meaning we have significantly increased the transparency of the values in the portfolio.The largest segment in our portfolio is still E&P, followed by the rapidly growing investments in renewables and green technologies. We'll now take a closer look at the portfolio.The actions taken in the last few months have positioned Aker with growth platform 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, primarily by allocating more resources to renewables, green technology and industrial software.Aker BP remains Aker's largest asset. As an E&P company, it's faced with the challenge of bridging continued demand for its product with a world in a climate crisis. Aker BP is rising to the occasion. Its future-oriented strategy has it producing smarter, more efficiently and more sustainably than ever before. It's leveraging partnerships and deploying technology to understand how to reduce the footprint of its product and its industry. Strong organic growth at low-cost and low emissions, coupled with a strong upstream cash contribution of nearly NOK 1.6 billion to Aker in 2020, means Aker BP remains an important value and liquid investment in Aker's portfolio as we carve out the path forward in the energy transition.As proven in the last few months, the ability to continuously adapt is in Aker's DNA. Coupled with our portfolio company's ability to leverage the deep domain expertise across the Aker ecosystem, we are now looking at the most solid foundation in our industrial history.Just 7 months ago, we made a step-change in our portfolio, diversifying and claiming a position in renewable energy and green technology, digitalization and other global megatrends that have seen an accelerated flow of resources and capital. You have probably heard us say that we build on the shoulders of existing capabilities. The establishment of Aker Horizons exemplifies this strategy. Capabilities and opportunities identified in Aker Solutions form the first 2 building blocks with Aker Carbon Capture and Aker Offshore Wind, companies that have seen a significant value increase since their listing.During the quarter, Aker Solutions completed its merger with Kvaerner. Looking ahead, Aker Solutions sees opportunities from the accelerating pace of the energy transition. The targets are to have 1/3 of its revenue come from renewable projects by the end of 2025 and 2/3 by the end of 2030.Now let's take a closer look at Aker Horizons' development during the quarter and into the new year. Aker Horizons, Aker's investment platform within renewables and green technology has been capturing opportunities and headlines in the last few months. The portfolio composition, coupled with active deployment of industrial software and technology, it's what sets Aker Horizons apart. It started with Aker Carbon Capture and Aker Offshore Wind. And a few weeks ago, Aker Horizons entered into an agreement to acquire 75% of Mainstream Renewable Power, a pioneer in renewable energy markets for onshore and offshore wind and solar, and a company that emulates the same kind of entrepreneurial spirit that has brought Aker to where Aker is today.Mainstream further accelerates Aker Horizons' ambition to position itself within the growing market for hybrid projects with different renewable technologies, like wind, solar, hydro power and hydrogen are combined. Such hybrid projects are becoming increasingly commercialized as there is a growing need to stabilize the grid for reliable and continuous electricity supply around the world.The appeal is that compared to stand-alone renewable projects, hybrid solutions offer better use of transmission, more flexibility, improve demand matching and reduced costs.Aker Horizons recently announced its entry into hydropower with the acquisition of the Norwegian company, Rainpower, as an entry point. Aker's history in hydropower traces back to the very start of the industry when [indiscernible] developed the first-ever Norwegian turbine and formed the basis for an entire Norwegian supplier industry, including Rainpower. Fast forward to 2021, and the story comes full circle.Aker Horizons will use Rainpower as a platform to build a next-generation technology company to optimize hydropower developments and operations. In true Aker spirit, we are identifying opportunities to build on our track record and capabilities to drive value creation.Another signifier of being a part of the Aker family is Aker Horizons having actively worked to identify strong partnerships for growth. Partnerships are already an integral part of the way we do business. For decades, we have leveraged on a combination of transactions and strategically collaborative efforts to grow and create value. Finding solid, long-term partners with complementary capabilities is a cornerstone of our strategy going forward.Shortly after the end of the quarter, Aker Horizons announced a collaboration with the Norwegian industry heavy-hitter, Statkraft, the biggest renewable energy company in Europe and a company that has been making clean energy possible for over a century. Together with Aker Offshore Wind, Aker Horizons will collaborate with Statkraft for offshore wind projects in Norway, where coupling Europe's largest renewable energy producer with Aker's 180-year track record and industrial experience, especially on the Norwegian Continental Shelf, has the potential to redefine Norway as an energy nation.Norway's leading offshore industry, including a strong supplier industry, means we have already have the building blocks and capabilities in place to be at the forefront of the offshore wind industry in Norway. Later this week, we will also be sharing news on Aker Horizons' news portfolio company, Aker Clean Hydrogen. We hope you will join us for a presentation this coming Friday when we share more about the hydrogen ambitions going forward.Now over to our portfolio on non-listed Industrial Holdings, starting with Cognite. In just 4 years. Cognite has assembled a world-class team that has worked feverishly to create, test and verify the cognitive diffusion or CDF technology. Despite all the challenges last year, Cognite grew both its revenue and workforce by more than 60%, and the company is expanding rapidly into new geographies and industries. During the fourth quarter, Cognite started its partnership with Microsoft to further capitalize the full-scale digital transformation of industries, a very exciting partnership and natural fit of the 2 companies with a shared mission.Secondly, Cognite announced an important partnership with Accel, a leading global venture capital firm with deep domain expertise and experience in building world-class software companies. Accel became minority shareholder in Cognite through a Series A round investment. The investment round, which brings Cognite's post-money valuation to USD 550 million, marked its first round of external growth financing. The timing 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.Our other software company, ACE, was established following Aker Solutions' shift to a pure-play supplier role and the sale of its own software house, ix3. ix3 formed the basis for ACE, which was established to leverage the competency and experience in digitalizing capital-intensive projects in the EPC value chain. ACE specializes on application development for asset-intensive industries using Cognite's CDF technology. ACE software application operate on top of CDF to integrate and manage information related to projects and operations. ACE now counts 120 employees and has hit the ground running with an increasing customer base.Just as Cognite and Aker BP have worked together to create 2 best-in-class companies, Cognite and Ace will be working closely with and create a competitive advantage for the Aker Horizons companies both in project development and in the operations phase.And lastly, Aker Energy. Following the initial postponement due to COVID-19, Aker Energy has matured a simplified solution to develop resources in its contract area. The company is now in dialogue with potential partners and Ghanaian government authorities about next steps.This year marks Aker's 180th year of building industrial frontrunners. Through the years, we have secured an industrial edge through alliances on technology, products and project management. We have identified operational and technical synergies from the Aker sphere to create a strong and capable ecosystem. The numbers speak for themselves.Aker has delivered over 26% annual return to shareholders since its listing in 2004. Behind these results are decades of dedicated organizations, strong management teams and a relentless drive to improve. Our newest listing, Aker Horizons, will be no different. It will draw on the collective capabilities of the group, securing an industrial edge for its entire portfolio of renewables and green technology players.So to sum it up, in the midst of a pandemic and an industrial energy transition, where the world is moving towards more sustainable energy production, Aker is continuing its commitment to create shareholder value by taking part in a more sustainable and prosperous future.Now I hand the word over to our CFO, Svein Oskar, who will take you through the fourth quarter financials in a greater level of details.

[Svein Oskar Stoknes, Chief Financial Officer]

Thank you, Oyvind, and good morning. I will start out spending a few minutes on Aker's financial investments before I go through the fourth quarter results in some more detail.The financial portfolio accounted for 11% of Aker's total assets or NOK 7.2 billion, which is up NOK 1.2 billion from the previous quarter. This was mainly due to the value increase of the REC Silicon investment and increased receivables towards portfolio companies, partly offset by a reduction of our cash holdings.As before, the main components under financial investments are cash, listed financial investments, real estate investments and interest-bearing receivables, all of which I will now go through in some more detail. Then starting with cash. Our cash holdings represented 2% of Aker's gross asset value or NOK 1.3 billion. This is down NOK 1.1 billion from the previous quarter. The main cash inflows were dividends from Aker BP, Aker Property Group, Ocean Yield and American Shipping Company of the equivalent to NOK 580 million and debt repayments received from mainly Aker Property Group of NOK 215 million in total.The main cash outflows in the quarter were the dividend payment of NOK 873 million to Aker's shareholders, NOK 519 million in new share investments, mainly in REC Silicon and Aker Solutions and NOK 248 million in an increased receivable position mainly towards Aker Horizons. Payments for operating expenses and net interest were NOK 122 million in the quarter. And our liquidity reserve was NOK 4.3 billion, including undrawn credit facilities of NOK 3 billion.Listed investments included in our financial portfolio represented about 4% of Aker's total assets at the end of the quarter or NOK 2.4 billion.In the fourth quarter, REC Silicon announced 2 important partnership agreements and the 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.Including this equity participation, the value of our investment increased by NOK 1.2 billion in the fourth quarter, and in January, the investment was transferred to Aker Horizons.Solstad Offshore completed the financial restructuring of the company during the fourth quarter. This included a reduced debt burden of approximately NOK 11 billion, debt facilities combined into a fleet loan with harmonized terms and financing of additional liquidity.The industrial shareholders, which includes Aker, injected approximately NOK 70 million in new equity capital. In addition, the corporate structure was streamlined, significantly reducing complexity and costs. Including the equity participation and a share purchase, the value of Aker's investment increased by NOK 150 million.The value of the investment in Philly Shipyard decreased by NOK 52 million in the quarter. The construction of the 2 vessels awarded in the second quarter last year is progressing in accordance with plan. And subsequent to the quarter, options for an additional 2 vessels were exercised. And the contract includes an option for 1 vessel in addition to the 2 already under construction and the 2 recently exercised.Next, real estate and other financial investments. Combined, the 2 represented 5% of Aker's gross asset value or NOK 3.5 billion in total. In the quarter, Aker Property Group divested its residential real estate investment at Fornebu in Norway, freeing up NOK 530 million to the company. Of this, NOK 244 million were distributed to Aker as dividend, while NOK 213 million was distributed as repayment of debt and accrued interest to Aker.In the quarter, the ownership in Aker Carbon Capture and Aker Offshore Wind was reorganized fully under Aker Horizons, and Aker also provided ongoing funding to Aker Horizons. And the reorganization and funding increased Aker's receivable towards Aker Horizons with NOK 1.2 billion in the quarter.Then let's move to the fourth quarter financial highlights for Aker ASA and holding companies. Let me start with the balance sheet.Please note that the figures on this slide are after dividend allocation of NOK 11.75 per share. The book value of our investments increased by NOK 2.6 billion in the quarter, and this is explained mainly by reversed impairments for Aker Solutions, Akastor and Ocean Yield and the increased investments in REC Silicon and Aker Solutions.In addition, there were positive book value effects from the transfer at fair value of ownership in Aker Carbon Capture and Aker Offshore Wind into Aker Horizons. The total book value of our assets was NOK 28.8 billion. And in our accounts, we use the lowest of historic costs and market values.The fair value adjustments, showed in gray color on this slide, increased by NOK 19.5 billion in the quarter to NOK 35.2 billion. This is mainly explained by the value increases of the investments in Aker BP, Aker Horizons, Aker BioMarine and REC Silicon.In addition, we have reflected our investment in Cognite at the value observed in the transaction with Accel in Q4. And this increased the net asset value of Cognite by NOK 2.8 billion.The gross asset value stood at NOK 63.9 billion at the end of the quarter, up from NOK 42.2 billion at the end of the third quarter.Aker's liabilities mainly consisted of bond debt of NOK 4.5 billion, a U.S. dollar-denominated bank loan of NOK 3.8 billion, a Norwegian kroner-denominated bank loan of NOK 1 billion and NOK 1 billion euro-denominated loan. The liabilities at year-end also included an NOK 873 million dividend allocation for 2020, representing NOK 11.75 per share.The Board of Directors also proposes that the Annual General Meeting authorizes the Board to pay a potential additional cash dividend during 2021 based on the 2020 annual accounts in line with the practice established last year.The book equity was NOK 17.3 billion, up NOK 2.9 billion, explained by the profit before tax in the quarter, partly offset by the NOK 873 million distributed as dividend in November and the NOK 873 million dividend allocation at year-end.If we adjust for fair value of our listed assets and Cognite, we get our net asset value of NOK 52.5 billion at the end of the fourth quarter, up NOK 21.5 billion from the third quarter after allocation of dividend.The net asset value per share was NOK 707 after dividend, and the value adjusted equity ratio increased to 82%.Our total interest-bearing debt was NOK 10.4 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 2.7 years, and we still have significant headroom with regards to our debt covenants.Then finally, to the income statement. The operating expenses for the fourth quarter were NOK 80 million. The net value change in the quarter was positive NOK 3.1 billion. Our net other financial items were positive NOK 846 million, mainly explained by dividend income of NOK 580 million and foreign exchange adjustments. And the profit before tax was then NOK 3.8 billion in the quarter.Thank you. That was the end of today's presentation, and we will now move on to Q&A.

[Christina Glenn, Head of Investor Relations]

Thank you, Svein Oskar. We have received a few questions on the web chat. The first one is about Cognite. It says quite a step-change in Cognite revenues for the quarter. How should we think about this going forward? Does Q4 mark a run rate level for 2021? Or should we expect further growth?

[Oyvind Eriksen, President & CEO]

We should definitely expect Cognite to continue to grow. And the quarterly growth is hard to predict because -- due to timing of contracts but the trajectory is crystal clear. So this year, we expect revenue growth which exceeds the growth last year.

[Christina Glenn, Head of Investor Relations]

That was from Haakon Amundsen, and he has another question.In light of the oil price recovering to the mid-60s, where does this put Aker Energy and the Ghana development on the map? As far as I can recall, the breakeven on that project was in the mid-30s rate.

[Oyvind Eriksen, President & CEO]

Sure. Of course, the increased oil price is beneficial. But even more importantly, we have an investment and the breakeven oil price. Because what we have learned the hard way is the importance of low-cost and low-emission in order to prepare our E&P businesses for oil price volatility.And if memory serves me correctly, the Pecan development was ranked by Goldman Sachs as a top quartile greenfield development globally even before the pandemic, and helped by the great work in Aker Energy and during the course of the last 12 months, which has simplified the concept and reduced the cost. And it's fair to indicate that the project is even more attractive today.

[Christina Glenn, Head of Investor Relations]

Thank you. The next question is from [ Sindler Humbay ]. He asks what can you say about REC and the developments there?

[Oyvind Eriksen, President & CEO]

Well, as you probably saw, our main shareholder took the role as Chairman a few days ago. And he did that because we would like to be deeply involved in the strategic development of REC going forward, both in REC's existing business segment, but potentially also new attractive business segments in the fast-moving energy transition like batteries.

[Christina Glenn, Head of Investor Relations]

Okay. The next question is from Magnus Olsvik. He asks, will you be looking into the shipping side of offshore wind and renewables? For example, wind turbine installation vessels, et cetera?

[Oyvind Eriksen, President & CEO]

Sure. We are, as you know, already a shareholder in Solstad, and Solstad operates in an offshore wind installation as we speak. And my expectation is that Aker Horizons' growth into offshore wind should also create more opportunities for Solstad and for the group and the installation space. How we can structure that is an ongoing dialogue. So it's too early to announce any change. But at least Solstad will continue to operate in the offshore wind installation business segment going forward and see a growth potential and partly due to the market and partly due to Aker in that particular space.

[Christina Glenn, Head of Investor Relations]

The next question is from Martin Karlsen. Will Clean Hydrogen come from Aker Solutions like Aker Carbon Capture and Aker Offshore Wind?

[Oyvind Eriksen, President & CEO]

No, Aker Solutions does not have an existing hydrogen business like carbon capture or offshore wind. So this will be a start-up rather than a spin-off.

[Christina Glenn, Head of Investor Relations]

And then a question from Frederik Lunde. Could you offer some insight on the size of Accel's investment in Cognite?

[Oyvind Eriksen, President & CEO]

I think we made an announcement. Svein Oskar can help me about that, but...

[Svein Oskar Stoknes, Chief Financial Officer]

What we have said is the investment by Accel prices the company at $550 million post money, so we have not been explicit as it relates to the actual amount injected by Accel and the ownership percentage that we will end up with following the injection of capital by Accel. But I think it's going to be evident from the next quarter's financial statements what the end shareholdings are going to be.

[Christina Glenn, Head of Investor Relations]

Okay. The next question is from [indiscernible]. Operating expenses in Aker ASA was NOK 80 million this quarter, somewhat higher than levels seen historically. Is this a new applicable run rate? Or will it normalize to levels more in line with historical levels?

[Oyvind Eriksen, President & CEO]

The OpEx last quarter was in the high end simply due to the high-level activity reflected in the value creation. And so hopefully, we can create a lot of value going forward. And we will not impose cost limitations in order to do that, but my expectation is that the NOK 80 million is in the high end and that the normalized OpEx will be lower.

[Christina Glenn, Head of Investor Relations]

And there are no further questions on the web. So that concludes today's presentation. I thank you for following, and have a great day.