Aker Solutions ASA

OSE:AKSO

Earnings Call Analysis

Aker Solutions Reports Strong Growth and Transformation

Aker Solutions experienced significant growth in Q4 and full-year 2023, with Q4 revenue and annual revenue up 33% and 31% respectively. The firm's focus on the oil and gas market, renewables, and technological innovations like subsea power distribution positions it for future industry demands. Q4's underlying EBITDA improved to NOK 615 million at a margin of 5.6%, while order intake reached NOK 14.6 billion, maintaining a solid backlog of NOK 73 billion. The company's strategy includes a new dividend policy, aiming to return 40% to 60% of adjusted net income to shareholders.

Aker Solutions maintains solid growth and prepares for future value creation

Aker Solutions, under the leadership of CEO Kjetel Digre, demonstrated strong performance in the fourth quarter with a 33% growth in revenue compared to the same period last year. The significant 31% revenue increase for the full year 2023 indicates a positive company trajectory. They achieved a 2023 revenue of NOK 36 billion, up from NOK 27 billion in 2022, while EBITDA improved from NOK 670 million to NOK 1.3 billion. The company's order intake remained robust at NOK 35 billion for the year. A new dividend policy aims to distribute 40-60% of adjusted net income in dividends and share buybacks, with a proposed dividend of NOK 2 per share and a share buyback of up to NOK 500 million for 2024.

Strategic positioning and transition to emerging markets drive revenue growth

Aker Solutions has made significant progress with their strategic and transformational initiatives. They reported nearly a 50% rise in revenues in their energy consultancy business in 2023. The OneSubsea joint venture, formed in partnership with SLB and Subsea 7, has started strongly, indicating successful integration efforts. The forward-looking strategy and expansion into emerging markets such as energy consultancy indicate a sharp focus on high-demand services, promising continued growth in the future.

Positive future outlook backed by strong order backlog and demand across sectors

The outlook remains optimistic with the company's large order backlog providing a clear vision of future activity levels. Their services are in high demand, and they possess a robust pipeline of tender opportunities in both oil and gas and renewables. With a selective approach to projects, Aker Solutions is geared toward delivering high-quality work while managing risks effectively.

Balanced backlog and operational highlights signal strong project execution

Aker Solutions has a balanced and high-quality backlog, mostly consisting of projects with Aker BP that present a well-defined risk-reward profile. On the operational front, the company actively progresses on significant industrial projects throughout Norway and Europe. They continue to perform well on various large platform projects and are nearing completion of projects in carbon capture and storage.

Industry outlook and tender pipeline suggest robust growth and expansion

The industry maintains a positive posture with projected growth across different market verticals. Aker Solutions, with its diversified tender pipeline exceeding NOK 70 billion, is well-positioned to capitalize on this momentum, especially in Europe, where there is heightened interest in offshore asset electrification. Their involvement in tenders and pioneering technology development across energy verticals, such as offshore wind, carbon capture, and hydrogen projects, underpins their long-term growth strategy.

Financial performance and capital allocation strategy affirm financial health

The strong financial performance is demonstrated by a net income increase to NOK 2.4 billion for the year, with expectations to grow revenue by about 15% in 2024. The EBITDA margin is projected to significantly increase to between 6% and 7% next year. Looking ahead, CapEx is anticipated to be 2.5-3% of revenues, mainly covering ongoing investments in large oil and gas projects. A new fully-owned entity will manage industrial holdings and financial assets, focusing on generating healthy after-tax returns. Moreover, continued robustness in the balance sheet highlights Aker Solutions' foresight in maintaining financial flexibility and competitive positioning.

Earnings Call Transcript 2023-Q4

[Preben Ørbeck, executive]

Good morning and welcome to Aker Solutions Presentation of our Fourth Quarter and Full Year Results. My name is Preben Orbeck and I am the Head of Investor Relations. With me today is our CEO, Kjetel Digre; and our CFO Idar Eikrem. They will take you through the main developments of the quarter. [Operator Instructions] And with that, I leave the floor to Kjetel Digre.

[Kjetel Digre, executive]

Thank you, Preben, and welcome everyone. Let me take you through the highlights of the quarter. Firstly, we continue our positive development with increased top and bottom lines in the quarter compared to the same period last year. Our fourth quarter revenue excluding special items was NOK 11 billion, representing a growth of 33% compared to the same quarter last year.Our underlying EBITDA was NOK 615 million, with a margin of 5.6%. The numbers also include our share of the net income from the OneSubsea joint venture. We delivered NOK 14.6 billion of order intake or 1.4x book to bill and our backlog ended at about NOK 73 billion. More than half our current backlog or projects are Aker BP Alliance, it balanced risk/reward profiles and upside potential through shared incentives.Based on our financial position and outlook, we have revised our dividend policy with a new target of distributing 40% to 60% of adjusted net income to our shareholders in the form of dividends and share buybacks over time. For the fiscal year of 2023 with payment in 2024, the Board will propose a dividend of NOK 2 per share and implement a share buyback program of up to NOK 500 million for 2024.Secondly, we are making good progress on our strategy and transformation. We completed a Subsea transaction with SLB and Subsea 7 at the start of the quarter, forming the OneSubsea joint venture. And I would like to thank all the people involved in the merger and integration work giving the new entity a great start in the market.Our energy consultancy business which is an important spearhead for Aker Solutions into emerging markets is experiencing high demand for their services with revenues growing almost 50% in 2023. Drawing on the breadth of capabilities across our organization, we are currently engaged in some of the most interesting and challenging energy projects around the world.Aker Solutions has always been a front runner in bringing unique technologies and solutions to the market. We recently announced our first pilot project for our Subsea power distribution solutions to the offshore wind market, helping customers to reduce both CapEx, OpEx and environmental footprint.Digitalization has become a vital part of how we are executing our projects, improving efficiency, safety and collaboration. And we are achieving significant savings in ongoing projects within engineering, construction and in operations for customers, such as Aker BP and ExxonMobil.Thirdly, the outlook for Aker Solutions remains positive. Our large order backlog gives us a clear view of future activity levels. Our services are in high demand and we have a strong pipeline of tender opportunities across our market segments. This applies to both oil and gas and renewables markets. And we continue to be very selective about which projects we take on.Let us now look at our figures for the full year. Our 2023 key figures improved significantly from the year before. Our revenue was NOK 36 billion, up from NOK 27 billion in 2022. This is a growth of more than 31%. EBITDA excluding special items was NOK 1.3 billion, or 3.6%, up from around NOK 670 million the year before.We also achieved an order intake of NOK 35 billion during the year or about 1x book to bill. This included several important wins across segments both in our oil and gas business and within renewables and transitional energy solutions.And finally, our order backlog continues to be around NOK 73 billion at year-end. One thing is the size of the backlog, but much more importantly is the quality. This is a chart that breaks down our current backlog. More than half relates to projects under the well proven Alliance model with Aker BP with balanced risk/reward profile and upside potential through shared incentives.Our main lump sum exposure relates to legacy renewables projects awarded back in 2021, which are less than 7.5% of our order backlog today. The remaining backlog is mainly made up of oil and gas projects with reimbursable or cost plus contracting models with long-term customers.Now let me show you some of the operational highlights this quarter. Overall, we are seeing high activity and good progress across our project portfolio which includes some of Norway and Europe's most significant industrial projects. For the Aker BP portfolio, we are progressing well with activities across our locations and from the large platform projects, fabrication is well underway at Stolt, Verdal, [indiscernible] and at several of our partner yards in Norway and abroad.Our life cycle segment is carrying out more than 50 projects with Aker BP, including work to enable time so new [indiscernible] to existing platforms. In the Rosebank project, a steel cutting ceremony was held in Dubai in December to mark the start of the construction phase of the project. This is an EPC contract we are executing in a joint venture with drydocks word for Altera with Equinor as the end client. Within offshore wind, we are currently executing two HVDC projects for Erstad and ScottishPower Renewables. The sunrise HVDC topside is at our storage yard for Aktivitets while the jacket is being constructed at our Verdal yard.Within carbon capture and storage, we are nearing the end of execution for both [indiscernible] carbon capture plant in Brevik and the Northern Lights storage terminal on the west coast of Norway. Once completed, the Brevik carbon capture plant will capture about 400,000 tonnes of CO2 annually.In the life cycle segment, we have a large and well diversified portfolio on long term frame agreements and modification projects. Decarbonization is high on the agenda and Aker Solutions is currently executing 3 electrification projects in Norway, with the combined potential to reduce 700,000 tonnes of CO2 emissions annually.For the Troll West Project, power from shore was established from [indiscernible] via the Troll B Platform in the quarter. In Canada, we are continuing our long term relationship with ExxonMobil on the Hebron project. [ Klaner ] was the lead contractor on the GBS structure before Aker Solutions was awarded the frame agreement for maintenance and modifications back in 2015. This is a good example of how we work with clients over time, leveraging on our combined experience across the lifetime of the asset.Let's now have a look at order intake in the period. In the Renewables and Field Development segment, we booked an order intake of almost NOK 12 billion in the fourth quarter. The largest orders were related to Vattenfall's Norfolk development where Aker Solutions won contracts for 2 HVDC units subject to regulatory approval and final investment decision.In line with our policy, we have only booked an order intake value for the work that is committed until these specific milestones are reached. The quarter also had high activity in early phase studies as well as growth in existing contracts. In the lifecycle segment, we recorded about NOK 2.6 billion in order intake in the quarter. This was mostly driven by growth in existing contracts and call-offs in frame agreements.Next, let us move on to the general outlook for the industry, which remains positive with growing activity across the different market verticals. Aker Solutions stands firmly in the oil and gas market, where we expect high investments levels in the coming years both in Norway and abroad. Our main focus within oil and gas is ensuring the delivery of our current backlog.For Renewables, investments are expected to grow substantially in the coming years. We remain very selective and we only target projects that have balanced risk/reward profiles and we work with customers who see collaborative long-term relationships. This brings me to the recent awards announced within offshore wind. I referred earlier to our legacy renewables projects, which were tendered on a project-by-project basis on lump sum terms. This is part of the broken model in offshore wind and we have been clear that we will not accept such terms on future projects. As mentioned, we announced 2 new orders for HVDC substations for Vattenfall in the fourth quarter.These projects have a more balanced risk/reward profile, mainly on reimbursable terms. With potentially 3 projects to be done in sequence, the partners have a strong motivation to cooperate closely, focusing on standardization and industrialization to reduce overall cost of energy. This is also an example of policymakers supporting the development of the offshore wind industry by improving the commercial framework conditions on the upcoming Contracts for Difference round in the U.K. All in all, we think this is an important step in the right direction for the Renewables industry and we continue to develop these relationships across our market segments going forward.And that takes us to our tender pipeline, which has grown to over NOK 70 billion or 2x yearly revenues. The tender pipeline is actually larger now than what we had before the record high order intake in December of 2022. And as you can see, most of our tender activity is in Europe. In oil and gas, we continue to see strong interest from regulators and operators for electrifying offshore assets.This is an area where Aker Solutions has a strong track record and a wide range of offerings to support the decarbonization of oil and gas production. We are also in the early stages to position for new greenfield projects in the regions as well as extensions of frame agreements with key clients.In Renewables, we are actively involved in tenders, technology developments, feeds and early phase studies across a range of energy verticals. In offshore wind, we are seeing high demand for our services, especially within power distribution and foundations as well as marine services. In carbon capture and storage, we recently announced the feed study for the Celsio waste to heat plant in Oslo, Norway. Once completed, the plant is expected to capture about 400,000 tonnes of CO2 every year, supporting both local and national emissions reduction targets.Lastly in hydrogen we are currently working on several early phase studies in Europe as well as a feed study for a green ammonia plant in India. We're actively working with selecting customers starting at the very start of a project's life cycle. We are positioning Aker Solutions for long term growth. Early involvement with clients is very important where our energy consultancy plays a key role as our entry point into emerging markets. Our ambition is to position Aker Solutions consultancy business as a leading advisory and engineering force for driving the energy transition.So what's our achievements so far? In 2023, we achieved almost 50% increase in energy consulting revenues. The demand is coming from both existing and new customers as well as from policymakers and government organizations. Almost half of the work relates to the studies in Renewables and transitional energy solutions.Our consultancy business is entering new markets and has a wide range of scopes, for example, in areas such as electrification, hydrogen, carbon capture and storage, offshore wind as well as in combinations of these in new integrated energy systems. By engaging early in these emerging industries, we are building new customer relationships, deepening our market insights and growing our market position.This is in addition to a continued high activity within oil and gas, where many operators are reevaluating their existing hub strategies, looking to increase the value of existing assets and decarbonize operations. A good example of our transition work is the Mongstad industrial transformation project for Equinor. Aker Solutions will carry out a feasibility study to find solutions for reducing CO2 emissions from the refinery, including the potential for hydrogen and sustainable fuel production at the site.This is a strategic study where we combine our greenfield, brownfield technology and integration skills. We will keep growing our consultancy business in a stepwise approach to ensure learning and the ability to adapt to a fast-changing market environment.Technology development is an important part of our history and DNA. Using our learnings from oil and gas, where Aker Solutions has pioneered the use of Subsea technology, we are developing new solutions that reduces both CapEx and OpEx for our customers. One of our ongoing initiatives is within Subsea power distribution for electrification and offshore wind.So what are some of the advantages of using subsea technology for these markets? By collecting what is known as array cables in a collector hub, we reduce the size and number of cables on the seabed and reduce the risk of cable failure. By using dynamic cables, we can improve fatigue and lower OpEx. And finally, by putting the collector station on the seabed, we reduce the size and weight of equipment. We are lowering costs and environmental footprint while mitigating the risks of supply chain bottlenecks.Recently we announced our first feed study to pilot a Subsea collector station at the marine energy test center off the southwest coast of Norway. This is a very interesting opportunity for Aker Solutions to demonstrate our capabilities and solutions to these emerging markets.I want to end the strategy section with some comments on how digital solutions has become a key enabler and differentiator for us in delivering products and services to our customers. In engineering, we start our journey in the common data platform using industrial software tools that improve efficiency and reduce risk of human error.One example is the Aker BP for portfolio, where we are achieving significant savings in the ongoing engineering phase. We are also extending these solutions to be used for new projects such as the HVDCs for offshore wind. For the construction phase, we have developed digitally enabled processes and tools ensuring safe and efficient execution of large capital projects. One example is the [ Re ] series, which is a suite of applications that is being rolled out across our yards supporting our people with updated digital information available in the field.In addition, Aker Solutions is investing in a fully robotic production line at our Verdal facility to safeguard the delivery of our projects. Having the common data foundation and digital toolbox is also very important in the operational phase. Aker Solutions has recently facilitated the implementation of Asus digital twin on ExxonMobil's Hebron platform in Canada, where Aker Solutions has been contracted for maintenance and modifications services since 2015.We have supported activities like data cleanup, use case development and process improvement as well as assisted ExxonMobil employees in adapting the tool for their workflows. The platform has been in production for over a year creating significant value for both Asus supplier and for our clients. Across our operations, we see clear value from artificial intelligence to increase productivity and develop our offerings. Together with our partners, Microsoft, Cognite and Accenture, we work to adopt and apply the technology where we find good value pools.And I'm confident that digital solutions is one of the key enablers to improve energy efficiency and affordability in the years to come. And together with our partners we are making significant progress in this journey.Now to sum up, I'm pleased to report that we continue to deliver on our financial targets, preparing Aker Solutions for long-term growth and continued value creation for our shareholders. Since the merger between Aker Solutions and Kvaener in 2020, one of our key priorities have been to build a stronger financial position.Financial robustness is increasingly becoming a requirement, but also a competitive differentiator in the energy market. Next with our large order backlog mostly consisting of projects under the well established Alliance model with Aker BP, we have good visibility for our activity levels in the coming years. Our focus is to deliver predictable project execution across our project portfolio.And as mentioned, our legacy renewables projects are challenging and will remain a drag on margins until deliveries in 2024 and 2025. For now I'm very happy to see that we as an organization is progressing well on our transformation journey. We see that our competencies, capabilities and solutions are in high demand across the energy market, positioning the company for long-term profitable growth.And with that I give the word to Idar who will take you through the numbers in more detail. Thank you.

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Thank you, Kjetel. I will now take you through the key financial highlights of the fourth quarter, full year figures, our segment performance and run through our financial guidance. As always, all numbers mentioned are in Norwegian kroner. So let me start with the income statement.The fourth quarter revenue was NOK 11 billion, up from NOK 8.3 billion a year ago. This represents about 33% growth year-on-year. Full year revenues landed at NOK 36.1 billion, a 31% increase from 2022. The underlying EBITDA for the quarter was NOK 615 million, up from NOK 229 million a year ago, representing an EBITDA margin of 5.6%.This includes net income of NOK 197 million from equity accounted investees of which NOK 172 million relates to the OneSubsea joint venture. Full year EBITDA was around NOK 1.3 billion with a margin of 3.6%. The underlying EBIT in the quarter was NOK 393 million, up from NOK 86 million a year ago and with a margin of 3.6%.For the full year, the net income, excluding special items, increased to NOK 2.4 billion, up from NOK 1.2 billion a year ago. Net income in the quarter was NOK 385 million. Earnings per share for the full year was NOK 5.2, which is more than twice as high as in 2022.This was driven primarily by strong performance in our Subsea segment in the first 3 quarters prior to closing the Subsea transaction. The Board will propose to increase dividend per share to NOK 2 for 2023, up from NOK 1 per share in 2022. In addition, we will implement a share buyback program up to NOK 500 million for 2024.With this, we are upgrading our dividend policy with a target to distribute 40% to 60% of adjusted net income over time through dividends and share buybacks over time.Let us now look at the order intake and backlog development. In the fourth quarter, we booked an order intake of NOK 14.6 billion, which is the second strongest quarter since the merger between Aker Solutions and Kvaener in 2020. Our backlog remains solid at about NOK 73 billion, of which more than half relates to projects under the alliance with Aker BP. This is a very good position to be in. And as Kjetel mentioned, our focus is to continue to deliver predictable and solid execution to harvest upside potential and incentives. Let us now look at our segment performance in the quarter.For Renewables and Field Development, the fourth quarter revenue increased to NOK 7.1 billion, up from NOK 4.6 billion in the same period last year. Full year revenues was NOK 22.1 billion, up almost 50% from 2022. The underlying EBITDA in the quarter was NOK 362 million, up from NOK 185 million a year ago and with a margin of 5.1%.Full year EBITDA was NOK 979 million with a margin of 4.4%. The margins in 2023 continue to be affected by project in early phases of execution without margin recognition as well as negative impact related to the legacy renewable projects in the portfolio. We expect margins to significantly pick up in 2024 as the large oil and gas project will start reaching profit recognition.The secured backlog remains high at more than NOK 51 billion dominated by project under the well-proven Aker BP Alliance. Based on the secured revenues and backlog, we expect the revenues in this segment to increase by another 25% in 2024.For the life cycle segment, the fourth quarter revenue was NOK 3.5 billion, which is at a similar level as the same period last year. Full year revenues was NOK 13.1 billion, representing a 7% growth year-on-year. The underlying EBITDA in the quarter was NOK 197 million, up from NOK 188 million last year and with a margin of 5.6%.EBITDA for the full year was NOK 686 million or a margin of 5.2%. The backlog remains very solid at NOK 20.6 billion, dominated by long-term frame agreements and reimbursable modification projects with long-term customers. We expect the life cycle segment to continue at close to 2023 levels also in 2024.This is the first quarter where we report Subsea as a equity accounted investee. In its first quarter as a new entity, OneSubsea reported revenues of NOK 10.7 billion with an EBITDA margin of 19%. Net income for the entity was about NOK 1.1 billion before purchase price allocation adjustments. After these adjustments, Aker Solutions recognized NOK 172 million as a 20% share of the net income from the joint venture. The joint venture has a solid backlog of more than NOK 50 billion at year-end.Let us now look at the cash flow and financial position. We start with our working capital, which at end of the quarter stood at a record level of minus NOK 8.5 billion. As stated before, we expect working capital to normalize as we execute on the large order backlog with a forecasted cash outflow of about NOK 4 billion in 2024.CapEx in the quarter was around NOK 600 million. This mainly relates to the planned investment to safeguard execution of the large oil and gas project, which will largely be covered by these projects. We have a solid net cash position of NOK 9 billion. This include about NOK 3 billion of financial investment in liquid funds, which is not treated as cash under IFRS.Let us now look at our cash flow development for the full year. Operational cash flow in the period was NOK 6.2 billion, of which NOK 4.2 billion was EBITDA and changes in our working capital accounted for about EUR 4.5 billion. CapEx for the full year was NOK 2.2 billion, in line with previous guidance.In order to increase return on our cash, we have during the year, made financial investments in liquid funds of about NOK 3 billion. Annualized returns on these investments have been between 5% and 7%. Sale of subsidiaries accounted for a net positive cash impact of NOK 621 million from our Subsea transaction. This includes the first installment from Subsea 7 netted against loans and other cash outlays related to the transaction.Interest and sublease income for the year was NOK 453 million. Financing cost was negative around NOK 2 billion. This include NOK 1 billion repayment of our last outstanding bonds, making Aker Solutions free of interest-bearing debt at year-end. Lastly, we also had a slight positive exchange rate effect of about NOK 248 million during the year.I would like to conclude with some words on our capital allocation strategy. Our key focus is to continue to deliver strong operational performance through predictable and efficient project execution and position the company for future profitable growth. Having a strong balance sheet is becoming increasingly important in the energy industry as projects are becoming larger in value and are often entered into in partnership with other companies.In 2024, we are anticipating a normalization of working capital with a cash outflow of NOK 4 billion. In addition, we will, during 2024 complete our safeguarding investment program with a total CapEx of around NOK 1 billion. On the other hand, we expect a solid cash inflow from our operational segments and through the remaining proceeds from the Subsea transaction. This will strengthen our cash position in 2024 and 2025.To ensure a more rightsized capital structure in our operations, we will establish a new entity, 100% owned by Aker Solutions with a lean management, transparent setup and clear investment mandate within fixed income securities, its core focus will be to generate healthy after-tax returns from the industrial holdings and the financial assets. This will enable us to maintain our financial capacity and flexibility while creating stable and solid returns to our shareholders over time.Now to sum up. In the fourth quarter, we continued to deliver strong financial and operational performance. Based on our secured backlog and market activity, 2024 revenues is expected to grow about 15% in 2024 compared to 2023. EBITDA margin are expected to increase significantly to between 6% and 7% in 2024 as we reach profit recognition milestones on the large oil and gas projects.In addition, the OneSubsea joint venture will contribute to our financial performance through our 20% ownership. Total CapEx for 2024 is estimated to be between 2.5% and 3% of revenues, mainly related to our ongoing investment program for the large oil and gas project in Norway, which will be covered by the ongoing projects.Over time, CapEx is expected to be around 1.5% of revenues. Working capital is expected to normalize in 2024 with a forecasted negative cash impact of about NOK 4 billion during the year. To ensure a more rightsized capital structure in our operations, we will establish a new fully-owned entity to manage industrial holdings and financial assets with a clear target to deliver healthy after-tax returns.Finally, we are revising our dividend policy with a new target to distribute between 40% and 60% of net profit to our shareholders using a combination of dividends and buybacks. The outlook for the company and for our industry is very positive and Aker Solutions is in a excellent position to take advantage of these opportunities ahead.Thank you for listening. That was the end of our presentation. We will now open up for questions.

[Preben Ørbeck, executive]

Thank you, Idar. The first question today comes from Jorgen Lande in Danske Bank. Are you establishing a new financial entity that will manage financial assets and industrial holdings? Please elaborate around what the rationale is for creating this entity. Is this a first step for creating a new and perhaps industrial growth platform?

[Kjetel Digre, executive]

Well, perhaps I should start on this and back to how we presented it in the presentation. On one side, we have a high-quality portfolio of operations and projects dominated by the alliance projects with Aker BP. And we also see a really high demand and interest for our services in all the different segments, really described by the record high tender level, which is actually higher than the record high order intake back in '22.So then entering in and onboarding new projects on one side with the right risk/reward is our key focus and we are growing then a robust company further. Then as pointed out again in the presentation, a robust financial position is then obviously important and preferred. And then if compared to others, it's always done also that this is a competitive differentiator. And again, it creates a broader set of opportunities to create value for shareholders.

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Yes. If I just add to that one that then the financial assets and the money will be kept in this new entity and we will take good care and look after and safeguard the investment and we are not taking any high risk on the investment profile of the money in this entity going forward. But it will be a vehicle that could create good shareholder value in a tax-efficient way for ourselves and the shareholders of Aker Solutions.

[Preben Ørbeck, executive]

Moving on to a question from Erik Aspen Fossa in Carnegie. Even with NOK 500 million share buyback, your balance sheet still appears heavily overcapitalized. What is a long-term healthy balance sheet? And also, maybe to include the second question, which is what do you plan to do with the SLB shares?

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Thank you, Erik. And to start with the buyback program, I think it's a important event and also worth noticing that this is the first buyback program for Aker Solutions for at least in our history in Aker Solutions, and that is a good signal. And it's also to find a tax-efficient way to handle our shareholders in the various jurisdictions. Buyback program is preferred amongst our U.S. shareholders and they will also get heavily -- more heavily taxed on dividends.So we've been trying to listening to our shareholders. The level of buyback program is also depending on the liquidity of Aker Solutions in the market and we are starting off with a NOK 500 million buyback program. And as you also have seen this morning, we have adjusted our dividend policy upward and left 30% to 50% of net income and we'll now distribute and target to distribute 40% to 60% over time in a combination of cash dividend and buyback.When it comes to our SLB shares, we are a happy shareholder of the SLB shares and there is no immediate plan on those. But those are -- those shares will also be transferred to the new entity that we are establishing.

[Preben Ørbeck, executive]

Third question also from Erik Aspen Fossa goes to the working capital. Working capital will come down quite significantly in 2024. Is the year-end level in 2024 sustainable longer term?

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Yes. First of all, I think you have noticed that we came in stronger in cash generation and cash position at year-end and that was driven by a favorable development in working capital. And therefore, the reversal of the working capital is expected to be somewhat higher than what we have previously guided on and we are now talking about the NOK 4 billion level of reversal in 2024.That's also one that is important to take into account when we are talking about robustness in our financial position. And future level, we will come back to, but we have our sort of all-time high or low depending on how you see it in terms of a negative working capital of NOK 8.5 billion at the end of the year and we expect that to be more at a normalized level at the end of the year.And therefore, saying a reversal of NOK 4 billion is the best estimate that we have for the time being. Then of course, depending on future levels, as Kjetel mentioned, there is a high activity in the tender phase and there is also interest opportunities that is not in the tender that we are looking at. And of course, we will be strong in our negotiation and also to try to secure healthy payment terms going forward and that will be updated when we are landing new contracts and communicate that to you.

[Preben Ørbeck, executive]

Keeping on the topic of the working capital question from [ Joey Sharoy ] in Bank of America. Can you please help us understand the quarterly phasing of the expected NOK 4 billion working capital cash outflow in 2024?

[Kjetel Digre, executive]

Yes. Exact phasing is probably not what you will get. But in order to give you a flavor of this one, of course, one of the reasons why the working capital is that much negative, which is positive, of course, is that we have yet not taken out any contribution from the large portfolio of Aker BP project, a large project there. And that we expect to start now in 2024. And therefore, I think you will see a profile that out of the NOK 4 billion more will be coming as a reversal in the first half than in the second half, but there are some elements that will spread out throughout the year.

[Preben Ørbeck, executive]

Moving to a question from Jorgen Lande in Danske Bank related to the JV, you received only 15.5% of the Subsea JV in Q4 and not the 20% communicated earlier. What is the reason behind this? And can we expect this cash flow to approach 20% in the future? Or is it more a permanent adjustment?

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Thank you, Jorgen. I think, first of all, to make it clear, there is accounting effects and cash effects. And the starting point is and remind everybody that SLB and OneSubsea JV is a company under that is following U.S. GAAP. We are following IFRS as accounting language for us.And in -- the main difference is that in U.S. GAAP, all R&D costs are expensed, part of the R&D cost was capitalized in Aker Solutions. That is one element. And there is no IFRS 16 uplift effect in their EBITDA. So that is important to remember. Another is that this is the first quarter for the new JV. And as normal for our first quarter in a new setup, there will be integration costs.That is also included in the results and the net income, as you see. And then, of course, there was a communication around synergies and we expect significant synergies to be harvested in the new JV. And then at the time of announcement, this was estimated to be around NOK 100 million annually. That synergy is, of course, not there from day 1.And then it's important to underline that when you look at the result, the relevant one is -- for accounting purposes is after PPA adjustments. And that is what is this, the NOK 172 million. If you then add back the PPA, you get 1 to the NOK 1.1 billion. And in the NOK 1.1 billion, you have, as I said, one-off costs charged to it, integration costs, et cetera and no synergies effect.So in total, we are very happy with the underlying performance that OneSubsea is producing in this first quarter. And cash-wise, it's -- the underlying cash when you adjust for the PPA and other one-off cost is then a good underlying result and a good proxy for the cash flow going forward.

[Preben Ørbeck, executive]

Moving on to a question from [ Taranga Helbar ]. You discussed performance numbers excluding special items. Which items are categorized as special items and also why those special items are not included in the whole performance calculation for the company?

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Yes. I think when it comes -- this is a quarter with quite a lot of special items and some very large one. To start with the largest one, we have, as previously communicated, closed the transaction in this quarter. That produced a accounting gain of close to NOK 10 billion. So that is one of the special items. And there is also other that we have treated as special items like that is linked to the subsea transaction including the SLB shares and the value development of the SLB shares during the quarter have also been treated as a special item.

[Preben Ørbeck, executive]

Moving on to a few questions from Martine Kverne in Nordea, but I think we'll focus on the last -- the third question there. Was there any specific milestones affecting the results in the OneSubsea joint venture for the quarter? What is a normalized EBITDA level for the OneSubsea JV?

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Yes. As you hopefully understand this is 20% ownership of a company that is fully consolidated in SLB. And I think the -- what I mentioned earlier on is the important one that normalized level, you will see more when you are getting into a bit further down the road, when you start seeing the one-off in terms of integration cost is already done behind us. And when we start capturing the integration costs. So upside potential compared to the starting point is probably the short comment on that.

[Preben Ørbeck, executive]

Moving on to a question from Mike Pickup in Barclays. The first question, can you talk about the transparent structure for holding? What goes in this? Do you have further ambitions to add new bolt-on investments?

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Yes. When it comes to the new entity, the plan is to transfer our holdings in the OneSubsea JV and manage that from that entity as well as all the remaining outstanding amounts related to that transaction. And as you see from our figures at year-end, only NOK 621 million out of the USD 700 million element that the transaction created for us in cash effect is included in the quarter.So the remaining one will be transferred here and collected from the new entity. In addition, there will be a surplus cash that is coming out of our operational part of the business and that will be transferred to this and invested in a healthy tax-efficient decent returns for our shareholders.

[Preben Ørbeck, executive]

Second question from Mike Pickup. You talked about taking the Norwegian experience internationally. Has there been any progress? The pipeline is still very much domestic.

[Kjetel Digre, executive]

Yes. As we say, we have a lot of interest from the surroundings on all our offerings and segments. And part of being international for a company like us is to actually use our international delivery model with different engineering hubs, more satellites in some countries, but then also running projects with project management from Oslo, for instance, using either our own yards or partnering yards to deliver products to international projects.So that's one way of being international and then also growing our business around well-established organizational hubs like the one we have in Canada [indiscernible] for offshore services there is also a natural track and a low-risk way of growing our business. And then thirdly, we can then carefully also look at possibilities onshore in the different regions that we are pressing for instance, onshore U.K., which is working a lot on combined energy projects where energy on one side, but then also, for instance, carbon capture facilities on the other is part of the task that we are then handling potentially together with some partner companies.

[Preben Ørbeck, executive]

Third question from Mike goes on the Vanguard platforms. And what percentage has been booked already? And what is the expected timing of approvals?

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Yes. When it comes to the Vanguard platform, the final investment decision has not been taken yet by the client, but we have been awarded quite significant scope under that contract. However, that is not -- that is in the early phase and included in the order intake for the quarter.

[Preben Ørbeck, executive]

Moving on to the fourth question from Mike, margin recognition is expected to increase in 2024. Is there a specific quarter when it is expected to kick in?

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Yes. Again, referring back to my comments on the working capital. Of course, a large portion of this is related to the Aker BP project and the large project in the Aker BP portfolio. We have not recognized any contribution from those yet and that will be done now in the first part of 2024.

[Preben Ørbeck, executive]

Moving on to a question from Victoria McCulloch in RBC. Can you provide some more detail on why share buyback was chosen to return cash to shareholders? Do you think the current renewables environment that there is a risk of more customers looking to engage in lump sum contracts? And the third question, do you think this is a risk to your growth ambitions?

[Kjetel Digre, executive]

I start with the middle one there, and you can add on, Idar. I think what we see is that there's a high demand means that we can look at clients, look at their, call it, attitude towards just lump sum and terms and conditions and then be more selective. So that's one of our main drivers here. And there's a lot of opportunity to find the right partners and clients with that kind of approach.And we also see that there's an understanding there in the business that this needs to sort of loosen up and be handled differently for all parties in the cluster around these energy projects, which is a huge pipeline of opportunities if handled correctly by the likes of us. And I think we've said it quite a few times during the presentation that we are highly selective and we see clients that are interested in talking our language around this.

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Yes. And to be crystal clear on this one, we are not a company that will take onboard 100% lump sum contract in Renewables going forward and for that matter, also in other industries. And we are clear on that one. And I think we are in a good dialogue with many of our clients finding the right approach and the right risk/reward balance for doing more work.And due to our strong order backlog, we are not in a desperate need to fill up our order book. And therefore, we can be selective and we will continue to be selective and make sure that we are ending up in a right sort of risk/reward balance and some of the recent examples that we have announced is exactly that.And then the first -- back to the first -- why was the share buyback chosen as a way to return cash to shareholders versus alternative. We are listening to our shareholder base and trying to find the right mix between cash dividend for those that are preferring that one and also for share buybacks. And as mentioned earlier in the call, dividends are more heavily taxed in the -- for our U.S. shareholders than a buyback program, and we try to do a combination of both and that's why we have also introduced a share buyback for the first time in New Aker Solutions and we'll continue to see us going forward in a combination of share buybacks and cash dividend and with a new policy of staying within 40% to 60% of net income. And for what we are announcing today, that will exactly be at the 60% mark in the new policy when you combine the NOK 500 million share buyback with NOK 2 per share in cash dividend.

[Preben Ørbeck, executive]

Moving on to a few questions from [ Kim Ugdal ] in SEB. We can start with the first one. Is the guidance on NOK 800 million in average free cash flow for '24, '27 still valid? I would assume a significant part of that would come from returns on the financial investments.

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Yes. We will come back to that one. But from our operational part that we have communicated earlier on, excluding the dividends coming in from the OneSubsea JV, we have previously said NOK 800 million and you can use that as a good proxy also going forward.

[Preben Ørbeck, executive]

Moving then on to the dividend. Second question from Kim Ugdal. What should we expect in terms of dividend distribution from the Subsea JV?

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Yes. As previously communicated, there is agreement that all surplus cash from the OneSubsea JV should be distributed back to the 3 shareholders. And this, as you've seen from the numbers that was announced today from us is a healthy business with good margins and with a solid performance from OneSubsea. We expect to see a dividend coming in after they have sort of built up their necessary funding for handling working capital, et cetera. So significant dividends is expected going forward. The level we'll have to come back to.

[Preben Ørbeck, executive]

Also a question on the JV, is -- question. Is it correct that you have provided additional NOK 900 million or so loan to the JV on top of the initial vendor financing and what are the terms and maturities?

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Yes. No, that we have provided sort of a working capital loan from the 2 shareholders, SLB and ourselves and that was to have that in the start-up phase. That will soon be returned back to us and them as shareholders. And then there are other elements in the transaction linked up to the closing that will be taken care of in the final closing account of the transaction that will come now in the first part of this year, entity that was transferred to the new joint venture with cash elements in. And since the deal is on a debt and cash-free basis, those cash balances will be returned back to us when that is completed.

[Preben Ørbeck, executive]

Can you comment on the increase in provisions in the quarter? It's also from Kim.

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Yes. The -- included in the Subsea deal is the accounting gain of $1 billion, approximately $1 billion or NOK 10 billion. We have made provision for certain elements linked up to the Subsea transaction. It has to do with warranty provisions for projects that we handle in our ownership time of Subsea. It has to do with some of the office leases and idle capacity on those. And it also has to do with some other elements in there. All in all, the provision for all of this is approximately NOK 1.6 billion. That is included in the net gain of $1 billion or close to then NOK 10 billion.

[Preben Ørbeck, executive]

Moving on to a question from Lukas Daul. Does your 2024 revenue guidance include the OneSubsea JV contribution?

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Now the effect of the OneSubsea JV comes on top of our revenue guidance. The revenue guidance is done for our sort of operational segments and the totality for the operations.

[Preben Ørbeck, executive]

A question from Christopher Mollerlokken in Sparebank 1 Markets. Why do you establish a new entity to invest in fixed income instead of paying extra cash as extraordinary dividend?

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Yes. Short version of that one is safeguarding and robustness is key for us, but at the same time, find a tax-efficient way to return money to shareholders over time.

[Preben Ørbeck, executive]

Moving on to a question from Haakon Amundsen in ABG. Is the new entity established to manage your financial assets intended as a permanent part of the company structure?

[Idar Eikrem;Executive VP & CFO of Kværner ASA, executive]

Yes, it's permanent as when we establish and we, of course, in a environment that we are living in, of course, we keep all options available, but it's a entity that is going to be 100% owned by Aker Solutions and will be established with immediate effect.

[Preben Ørbeck, executive]

Thank you, Idar and Kjetel. That concludes today's presentation. From all of us here, we would like to thank you for listening in and wish you all a good day. Thank you very much.