Aker ASA

OSE:AKER

Earnings Call Transcript 2021-Q4

[Joachim Bjorni, Head of Investor Relations]

Hello, everyone, and good morning. Welcome to this presentation of Aker's fourth quarter and preliminary annual results for 2021. We'll start today's presentation with Aker's President and CEO, Øyvind Eriksen, who'll walk you through the highlights in the quarter and how the Industrial Holdings portfolio developed. Our CFO, Svein Oskar Stoknes, will then cover the Financial Investments portfolio and the fourth quarter accounts in more detail. There will be a Q&A session following the presentation. [Operator Instructions] And with that, I hand it over to Øyvind Eriksen.

[Oyvind Eriksen, President & CEO]

Thank you, Joachim, and good morning, everyone. The fourth quarter marks the end of an eventful and busy 2021. We divested businesses and reallocated capital to new industry segments. We strengthened balance sheets and secured long-term financing at attractive terms. We acquired and established new businesses. We hired outstanding leaders and top talents, and we paid attractive dividends to our shareholders. Each transaction stood at its own merits, but all had one strategic rationale in common. We prepared Aker for higher volatilities and market uncertainties driven by geopolitical tension, higher inflation, increasing interest rates and supply chain bottlenecks, just like what we are going through just now. The objectives behind the changes last year were basically twofold: one, prepare Aker for turning market uncertainties into value-accretive countercyclical investments; and two, strengthen even more the financial basis for a continued attractive dividend to our shareholders year after year. The fourth quarter last year contributed well to the sales strategy and objectives. Aker reallocated capital and strengthened the balance sheet through divestments of Ocean Yield and a 2.86% shareholding in Aker BP. Aker BP announced the acquisition of Lundin Energy's oil and gas-related activities, SalMar Aker Ocean was established and Aker Asset Management was launched with Yngve Slyngstad as Co-Founder and CEO. Aker continued to deliver good shareholder return in 2021, 52% year-on-year, including dividend paid to our shareholders. Today, we're announcing that the Aker Board has decided to propose another dividend of NOK 14.5 per share for the fiscal year 2021. In line with our policy, a second tranche will be considered by our Board in the second half of this year. For the full year, Aker's net asset value increased by 34% or NOK 18.2 billion, including dividend, driven by growth both in renewables, E&P and software. In the fourth quarter, Aker's net asset value decreased by NOK 1 billion to NOK 69.8 billion or NOK 939 per share. The value decrease was mainly driven by Aker BP, which was down 2.6%, adjusted for the divestment of a 2.86% stake and dividends paid by Aker BP. In addition, Aker paid NOK 873 million in dividend to our shareholders. Aker Solutions contributed positively in the quarter, favorably impacted by higher activity in the Norwegian oil and gas sector, driven by the temporary fiscal changes and the award of important international contracts with oil and gas and renewable energy. The Aker share increased 19% or 21% to dividend adjusted in the quarter to NOK 825 per share. This compares to a 3.3% increase in the Oslo Stock Exchange benchmark index. For the full year, shareholder return dividend adjusted was 52%. This compares to a 23% increase in the Oslo Stock Exchange benchmark index. Aker's value-adjusted equity ratio at the end of the period was 87%. Aker's liquidity reserves stood at NOK 7 billion, and cash amounted to NOK 4 billion. Aker's gross asset value decreased to NOK 80 billion in the fourth quarter with 81% in listed assets and cash. The Aker portfolio is highly liquid. Our Industrial Holdings portfolio accounted for 85% of our gross values. Aker BP remains the largest asset in our portfolio at NOK 36.3 billion and continues to be an important source of liquidity, providing valuable upstream cash as we continue to invest in and develop our energy transition, industrial software and seafood and marine biotech platforms. As you can see, Aker Horizons is Aker's second-largest asset at NOK 15.3 billion, and our seafood and marine biotech-related portfolio is growing with the addition of SalMar Aker Ocean. We have strong momentum for opportunities and growth in the new parts of our portfolio. In total, renewables, software, seafood and marine biotech now nearly make up 40% of Aker's gross asset value. Aker has growth platforms in multiple segments. While hydrocarbon-related industries still account for the majority of our Industrial Holdings, we are allocating more and more resources to renewables, industrial software, seafood and marine biotech. For Aker BP, the overall picture is that the company continues to develop according to plan. In the fourth quarter, the company delivered record high operating profits and is on track to deliver on its plan for profitable growth. The company is planning for high activity levels with a large CapEx program over the coming years, incentivized by the favorable temporary tax regime in Norway. The plan is to develop 700 million barrels of oil equivalents net to Aker BP, not including additional barrels from the transaction with Lundin Energy. These are highly profitable barrels with low breakeven prices and low emissions. The growth will enable Aker BP to pay increasing attractive dividends to Aker and our fellow shareholders. In December, Aker BP announced the transaction agreement with Lundin Energy to acquire Lundin Energy's oil and gas-related assets for a total consideration of USD 2.22 billion in cash and 271.9 million in new shares issued from Aker BP. The transaction is subject to approval by the shareholders of both companies at their respective general meetings and approval by relevant authorities. Closing of transaction is targeted in the second quarter of this year. After closing of the transaction, Aker will hold 21.2% ownership in a significantly larger Aker BP. It will remain Aker's largest asset and is an important part of our Industrial Holdings portfolio longer term. Aker has no plan or intention to divest more shares in Aker BP, and we appreciate that both BP and the Lundin family have expressed their excitement and commitment to the combined Aker BP and Lundin Energy. As part of the transaction announcement, Aker BP increased its dividends with 14% to $1.9 per share, effective as of January this year, providing Aker with more than USD 250 million in upstream cash and annualized in 2022. Aker Solutions has had an eventful period with several important contracts secured across its business segments. Based on the strong cash flow in 2021, the company announced a dividend of NOK 0.2 per share and reaffirmed its dividend policy to distribute 30% to 50% of net profit over time. The company is positioned to benefit from the temporary changes in the fiscal system in the oil and gas sector in Norway after securing FEED contracts for the majority of greenfield developments to come on the Norwegian Continental Shelf. Recent contract awards and the company's continued high tender pipeline illustrate a gradual change in Aker Solutions' exposure as the company tilts further towards renewable and low-carbon solutions with the target of reaching 1/3 of revenues from these segments by 2025. Moving on to Aker BioMarine. Harvesting throughout 2021 proved to be challenging due to low krill availability and ice. In the quarter, the company experienced increasing sales of krill oil, especially in the U.S., driven by the implementation of its new accelerated growth plan for Superba.The company continues to build its position in the U.S. consumer market. Sales in the Brands segment increased in the quarter as Kori was rolled out nationwide in Sam's Club and Costco. Aker BioMarine has an ongoing process to spin off Aion, expected to be concluded during the first half of 2022. Now on to Aker Horizons. The company strengthened its financial position during the quarter through a NOK 1 billion private placement and the sales of NOK 438 million worth of shares in REC Silicon to Hanwha Solutions as a part of an industrial partnership to explore a U.S. solar value chain expansion. During COP26, Aker Horizons joined the Net Zero Asset Managers Initiative, which is backed by investors with over USD 57 trillion under management with a shared commitment towards reaching net zero emissions by 2050. Aker Horizons continues to execute on its planet positive investment strategy regardless of the short-term market volatility that we have experienced recently. Now moving on to our main unlisted assets, starting with our industrial software portfolio. First, Cognite, the company secured a record number of new customers signing multiple engagements with some of the world's leading industrial companies, including a new agreement with Equinor to accelerate their digital ambitions using Cognite Data Fusion and Hydro REIN to accelerate the energy transition with industrial digital solutions. Cognite revenue grew 20% last year. That's below plan, but mainly due to timing of contract awards rather than lost sales. However, the expansion of existing customer base across industry verticals provides good visibility for accelerated revenue growth this year. After quarter end, Saudi Aramco acquired a 7.4% stake in Cognite from Aker BP. The transaction demonstrates confidence in Cognite and its high potential to transform industry through technology. Our other software company, ACE, specializes on application development for asset-intensive industries using Cognite's CDF technology. ACE main product is a digital work space that integrates and visualizes customers' internal and third-party data in a digital twin, improving work processes and collaboration both during project implementation and operations. The company is actively working on the NOAKA development alongside Cognite, Aker Solutions and Aker BP. We believe this can be a landmark project for the use of industrial software in asset-heavy industries at large. Aker Energy, our oil and gas company in Ghana, exercised the option with Ocean Yield to acquire the FPSO Dhirubhai-1 for the first phase of the Pecan development. The company is working towards submittal of a revised POD before the summer of 2022. During the quarter, Aker Energy secured further financing from Africa Finance Corporation of an additional USD 100 million in senior secured convertible bonds. Aker Energy is evaluating different strategic options for its position in Ghana. Lastly, SalMar Aker Ocean. The company was successfully established in the quarter, and Roy Reite was appointed CEO. SalMar and Aker combine domain expertise and leading competency from salmon farming, design and construction of offshore installations, industrial software and green technologies to develop SalMar Aker Ocean to become a global leader within sustainable offshore salmon farming, with the ambition to produce 150,000 tons of salmon annually by the end of this decade. So summing up, Aker has a strong balance sheet and a diversified portfolio which, in combination, provides with a unique basis for industry and value development. The oil price, measured in Norwegian kroner, is at an all-time high, and Aker BP has never delivered higher operating profits. Aker Solutions is experiencing positive developments with robust growth in their order backlog, and Cognite has already established itself in the premier league of digital solution suppliers to asset-heavy industries and is now prepared for accelerated growth. Further, Aker is entering swiftly and forcefully into rapidly growing industries with the likes of Aker Horizons, SalMar Aker Ocean and Aker Asset Management. McKinsey recently published a report, Norway of Tomorrow, that pointed at 10 industries where Norway has the potential to be a global frontrunner. Aker is already established in the majority of them. Three of the key industries mentioned in the report, offshore wind, hydrogen and offshore agriculture, all need regulatory clarifications from the Norwegian government. These are industry segments where Norway has the capabilities needed to succeed, industries that can create around 85,000 new jobs over the next 7 to 8 years. However, it will require swift action from the government. We, the industry, share the ambition and goals set out by the politicians, but the regulatory processes are not progressing at the pace we need to claim pole positions that we are aiming for. Time is of essence if we should realize the potential of the industry transformation assumed when the government took action to maintain competency and capacity in the oil service industry through the temporary changes in the petroleum tax system. So that concludes my portion of today's presentation. I now hand it over to Svein Oskar Stoknes, who will take you through the financials for the quarter.

[Svein Oskar Stoknes, Chief Financial Officer]

Thank you, Øyvind, and good morning. I will start out spending a few minutes on Aker's Financial Investments before I go through the fourth quarter in some more detail. The Financial Investment portfolio accounted for 15% of Aker's total assets or NOK 12 billion, which is up NOK 4 billion from the previous quarter. This is mainly due to increased cash holdings of NOK 3.3 billion in addition to investments in and loans issued to portfolio companies. As before, the main components under Financial Investments are cash, listed and non-listed financial investments, real estate investments and interest-bearing receivables, all of which I will now go through in some more detail. And starting with cash, our cash holdings represented 5% of Aker's gross asset value or NOK 4 billion. This is up NOK 3.3 billion from the previous quarter. The primary cash inflows were proceeds from the sale of shares in Ocean Yield of NOK 4.5 billion, including the sale of a 50% ownership in a joint venture. In addition, we had proceeds from the divestment of a 2.9% stake in Aker BP of NOK 3.2 billion. Other cash inflows were primarily dividends received from Aker BP, Ocean Yield and American Shipping Company of the equivalent to NOK 599 million. In addition, we had a NOK 61 million cash release from the rollover of the American Shipping Company total return swap agreements. The main cash outflows in the quarter were net debt repayment of NOK 2.5 billion, investment in SalMar Aker Ocean of NOK 645 million and investment in loans issued to other portfolio companies of, in total, NOK 779 million. We also paid a dividend of NOK 873 million in the quarter. Payments for operating expenses and net interest were NOK 238 million in the quarter. And our liquidity reserve was NOK 7 billion, including undrawn credit facilities of NOK 3 billion. Listed investments included in our financial portfolio represented about 1% of Aker's total assets at the end of the quarter or NOK 0.9 billion. There were only minor value changes in our positions in Philly Shipyard, Solstad Offshore and American Shipping Company during the quarter. The previously mentioned American Shipping Company TRS agreements were rolled forward in November with a cash release of NOK 61 million. In addition, Aker posted a total dividend income from American Shipping Company of NOK 32 million in the quarter. Next, real estate and other financial investments. Combined, the 2 represented 9% of Aker's gross asset value or NOK 7.1 billion in total. Aker's real estate holding, Aker Property Group, stood at a book value of NOK 908 million at the end of the quarter. Interest-bearing receivables totaled NOK 4.2 billion, including a NOK 2 billion loan and a NOK 1.2 billion convertible loan to Aker Horizons. Other equity investments totaled NOK 1.2 billion, of which the main components are related to our investments in the company's Seetee, Abelee, Clara, Just and ACE. Fixed and other interest-free assets totaled NOK 765 million. The value increase in the quarter is mainly explained by loan issued to Aker Property Group of NOK 200 million and Aker Energy of NOK 336 million. The additional loan issued to Aker Energy was mainly in connection with the purchase of the FPSO Dhirubhai-1 from Ocean Yield in November. We also invested NOK 180 million in our fintech data science company, Abelee, during the fourth quarter. Now let's move to the fourth quarter financial highlights for Aker ASA and holding companies, and let me start with the balance sheet. And please note that the figures on this slide are after a dividend allocation of NOK 14.5 per share. The book value of our investments decreased by NOK 1.9 billion in the quarter, and this is mainly explained by the divestment of Ocean Yield with a book value of NOK 2.9 billion and sale of shares in Aker BP with a book value of NOK 641 million. This was partly offset by investments in SalMar Aker Ocean and Abelee of, in total, NOK 825 million. In addition, we had reversed write-downs of Aker BioMarine of NOK 634 million and Aker Solutions of NOK 420 million. The book value of our assets was NOK 39.1 billion. And in our accounts, we use the lowest of historic costs and market values. The fair value adjustment showed in gray color on this slide decreased by NOK 5.5 billion in the quarter to NOK 40.9 billion, and this is mainly explained by the divestment of Ocean Yield and sale of shares and negative value adjustments in Aker BP. The gross asset value stood at NOK 80 billion at the end of the quarter, down from NOK 83.5 billion at the end of the third quarter. Aker's liabilities consisted of bond debt of NOK 5 billion, a U.S. dollar-denominated bank loan of NOK 3.1 billion, a Norwegian kroner-denominated bank loan of NOK 1 billion and a NOK 1 billion euro-denominated loan. The liabilities at year-end also included a NOK 1.1 billion dividend allocation for 2021 representing NOK 14.5 per share. The Board of Directors is also proposing that the Annual General Meeting authorizes the Board to pay a potential additional cash dividend during 2022 based on the 2021 annual accounts, in line with the practice the last 2 years. The book equity was NOK 27.8 billion, up NOK 3.4 billion, explained by profit before tax in the quarter of NOK 5.4 billion, less dividend paid of NOK 873 million and allocation of ordinary dividend for 2021 of NOK 1.1 billion. If we adjust for fair values of our listed assets and Cognite, we get a net asset value of NOK 68.7 billion at the end of the fourth quarter, down NOK 2.1 billion from the third quarter, again, after allocation of dividend. The net asset value per share was NOK 925 after dividend, and the value-adjusted equity ratio was 86%.Our total interest-bearing debt was NOK 10.1 billion, which is down NOK 2.5 billion from the previous quarter, following down payments in the quarter. The average debt maturity at the end of the quarter was 2.1 years. Our net interest-bearing debt at year-end was NOK 1.6 billion, and we have significant headroom with regards to our debt covenants. Then to the income statement. Operating revenues in the quarter were NOK 4.1 billion due to gains from the sale of shares in Ocean Yield of NOK 1.5 billion and Aker BP of NOK 2.5 billion. The operating expenses for the fourth quarter were NOK 141 million, and the increase compared to the previous quarter is due to a very high activity level in the period. The net value change in the quarter was positive NOK 915 million, mainly explained by reversed write-downs of the investment in Aker BioMarine of NOK 634 million and Aker Solutions of NOK 420 million. Our net other financial items were positive NOK 528 million, mainly explained by dividend income of NOK 599 million, partly offset by net interest cost of NOK 39 million. And the profit before tax was down NOK 5.4 billion in the quarter. Thank you. That was the end of today's presentation, and we will now move on to Q&A.

[Joachim Bjorni, Head of Investor Relations]

Thank you, Svein Oskar.

[Joachim Bjorni, Head of Investor Relations]

We have received some questions from the web. And first from [ Erik Tunstad ], for how long does the promise not to divest shares in Aker BP lasts?

[Oyvind Eriksen, President & CEO]

So Aker's strategy is to take advantage of some of the large global trajectory, one of which is the increasing consumption of demand for energy. Aker BP is uniquely positioned to take advantage of that global trajectory. And hence, Aker has a long-term commitment to the ownership in Aker BP. We will continue to play the role as the main shareholder. And in the Aker portfolio, both the value creation as well as the upstream cash flow from Aker BP is and will continue to be very important.

[Joachim Bjorni, Head of Investor Relations]

Thank you, Øyvind. A follow-up from [ Erik Tunstad ]. Can you give an update on the progress in establishing Aker Asset Management? And when do you expect the company to be operational?

[Oyvind Eriksen, President & CEO]

Yes. Yngve Slyngstad will start March 1, and so that will obviously trigger a new and increased level of activity. Meanwhile, we have continued to establish the different asset management platforms, and we're in the process of hiring top talents to the different asset management platforms and to Aker Asset Management itself. And we expect the first asset management platforms to be in operations during the second half of this year.

[Joachim Bjorni, Head of Investor Relations]

Thank you. From [ Tommy Ulseim ], the spin-off in Aker BioMarine, will it be dividended out to the shareholders in Aker BioMarine or will it be a sale?

[Oyvind Eriksen, President & CEO]

Aker BioMarine is in the process of exploring different transaction alternatives. As I see it today, an industrial transaction, divestment and/or partnership or merger will be more likely than a spin-off through distribution of shares as dividend.

[Joachim Bjorni, Head of Investor Relations]

Thank you. From Herman Lia in SEB, is it possible to give an indication on revenue growth in Cognite in 2022?

[Oyvind Eriksen, President & CEO]

Yes. So revenue growth in Cognite is partly an upsell with existing customers and partly sales to new customers in existing or new industry segments. And it's very important to notice that Cognite has hardly lost any customer so far. And rather the contrary, the upsell potential is over the approval, and the expectation is that it will continue going forward. And as far as winning new contracts with existing or new customers is concerned, we see also good progress both for Cognite stand-alone, but also the effects of the partnership with great partners like Accenture who helps us to enter with -- enter more forcefully into new industry segments like manufacturing. So the expectation is a significantly higher revenue growth 2022 than the 20% last year.

[Joachim Bjorni, Head of Investor Relations]

Yes. And a follow-up on Cognite from [ Ewing Gistober ], what is the road map to get Cognite listed on the stock exchange?

[Oyvind Eriksen, President & CEO]

We have no particular or fixed time line for that. So that will be a decision made on the basis of market development and Cognite's growth and development.

[Joachim Bjorni, Head of Investor Relations]

And last questions on Cognite. What is the status for the Cognite JV with Aramco? And does the Aramco share purchase in Cognite affect the start-up of the JV in any way?

[Oyvind Eriksen, President & CEO]

Yes. So Aramco and Cognite have already allocated people. We have a team in the Kingdom and working on the opportunities for the joint -- JV. And in parallel, we are about to finalize the formalities to set up also the legal structure for the JV. So I expect that everything will be concluded before we meet for the next quarterly presentation.

[Joachim Bjorni, Head of Investor Relations]

And the last questions for today is from Haakon Amundsen. Can you give some color on the status of the strategic considerations in Aker Energy?

[Oyvind Eriksen, President & CEO]

Sure. So the base case is to prepare for a filing of a PLD later this year. And in parallel, we have had and continue to have a dialogue with GNPC and our license partner, Lukoil, about different strategic alternatives. But Aker has a long-term commitment to also our E&P business in Ghana. So it's not a question about exit, it's more a question about some kind of adjustment of owners' interests, which could benefit the project and the development in Ghana longer term.

[Joachim Bjorni, Head of Investor Relations]

Thank you, Øyvind and Svein Oskar. And with that concludes the Q&A session, and thank you all for following along today. The fourth quarter webcast presentation and report are all available on our websites. Thank you.