Earnings Transcript for AKER.OL - Q2 Fiscal Year 2024

Fredrik Berge: Hi, everyone, and welcome to the presentation of Aker's Second Quarter Results 2024. My name is Fredrik Berge, and I am Head of Investor Relations. We will start today's presentation with Aker's President and CEO, Oyvind Eriksen, who will take you through the quarterly highlights and recent developments in the portfolio. Our CFO, Svein Oskar Stoknes, will then take you through the quarterly financials in more detail. After the presentation, we will host our prepared Q&A session. And in case you have further questions or feedback, please do not hesitate to get in contact after the presentation. And with that, I hand it over to Oyvind Eriksen.

Oyvind Eriksen: Thank you, Fredrik, and good morning, everyone. The first-half of 2024 was marked by high activity across the Aker portfolio, and we continue to progress on the strategy to focus and streamline our portfolio of investments. We also returned value to our shareholders in the form of NOK1.2 billion of dividends paid during the second quarter. Several important transactions and partnerships were announced during the first-half. Some of the main developments included the completion of the refinancing of Solstad and the establishment of Solstad Maritime, creating value through the formation of a global carbon capture player in the JV between Aker Carbon Capture and SLB and realizing value through the agreement to sell Philly Shipyard to Hanwha, with expected closing in the fourth quarter. Furthermore, Aker BP delivered solid production and increased its production guidance for the full-year. Aker Solutions secured order intake of NOK15 billion and increased its full-year revenue guidance to grow 40% from last year. And Cognite continue to accelerate its solid commercial development with both annual recurring revenues and monthly active users reaching record highs in the period. After quarter end, Aker BioMarine announced the agreement to sell its ownership position in the Feed Ingredients business area to American Industrial Partners with Aker as a minority shareholder. Following the sale, the company estimates to pay an extraordinary dividend of between NOK35 and NOK45 per share, corresponding to around half the Aker BioMarine's market value at the time of announcement. As 78% shareholder, Aker will receive a corresponding proportion of the dividend paid. For Aker Horizons, the main development in the period was the mentioned JV between Aker Carbon Capture and SLB, which I will come back to in more detail. On the less prosperous side, Aker Horizons continue to face the negative sentiment in renewable sector that is ripe for further consolidation and where larger entities and balance sheets are likely to be a competitive advantage moving forward. Moving on to the share price development. In the second quarter, the Aker share decreased by 1.4% to NOK615. However, including dividends paid, the shareholder return was 1.1%. This compares to a 7.1% increase in the Oslo Stock Exchange Benchmark Index and a 2.4% decrease in the Brent oil price. Aker's value-adjusted equity ratio was 85% at the end of the period. Aker's net asset value ended the second quarter at NOK63.9 billion after a NOK1.2 billion paid in dividend. This was up from NOK60.4 billion last quarter. The increase was mainly driven by our investments in Aker Solutions, Aker BioMarine, Aker BP and our listed financial investments. Year-to-date, the net asset value increased from NOK63.2 billion to NOK63.9 billion after dividends paid. This was mainly driven by our investment in Aker BioMarine, which increased NOK2.6 billion in the period. This was somewhat offset by a value reduction in Aker BP of NOK1.4 billion. Now taking a closer look at Aker's gross asset value, which increased to NOK75.1 billion at the end of the quarter. The Industrial Holdings portfolio, valued at NOK63 billion, accounted for 84% of the total gross asset value, while Financial Investments and cash, valued at NOK12 billion, accounted for 16% of the total. With 75% of our gross asset value in listed assets and cash, our portfolio remains liquid. As announced last quarter, we are working to streamline Aker with a stronger focus on larger-portfolio companies and cash-yielding investments. As part of that strategy, A key objective is to increase and diversify our upstream dividends. And recent transactions, including Solstad, Aker Carbon Capture, Philly Shipyard and Aker BioMarine, demonstrates that we are delivering on our more focused approach. But we will not stop here. We will continue to build on this momentum to further focus and streamline Aker with a relentless focus on shareholder value creation also moving forward. Over to Aker BP, which, in our opinion, has had an undeserved negative share price development year-to-date, performing worse than peers. In our view, Aker BP is not only the most compelling returns-focused exploration and production company on the Norwegian Continental Shelf, but also one of the most innovative and efficient independent offshore E&P companies globally. Let me start with Johan Sverdrup, which makes up 50% of Aker BP's total production. It has been a true pleasure to see how well that field keeps on performing with increased production again in the second quarter. This giant field was originally designed for gross oil capacity of 660,000 barrels per day. Last year, this was increased to 755,000 barrels per day. Including natural gas, the field has the capacity to deliver close to 800,000 barrels of oil equivalents per day, which is by far the largest production of any field on the Norwegian Continental Shelf. In fact, this single field accounts for 30% of all daily oil production in Norway. Ongoing drilling activity will help to maintain the elevated plateau at Sverdrup until late 2024 or early 2025. And we are also approaching a concept select for Phase 3, which will involve new subsea wells, with production start-up targeted from late 2027. And the performance has been nothing, but remarkable. With high production efficiency, very low production cost of around $2 per barrel and with probably the lowest emission intensity in the industry of less than 1 kilogram of CO2 per barrel. The investment proposition that Aker BP offers can be described along three main themes

Svein Oskar Stoknes: Thank you, Oyvind, and good morning. I will start out spending a few minutes on Aker's Financial Investments before I go through the second quarter results in some more detail. The Financial Investments portfolio accounted for 16% of Aker's total assets or NOK12.2 billion, up NOK668 million from the previous quarter. As before, the main components under Financial Investments are cash, listed financial investments, other equity investments, real estate, interest-bearing receivables and non-interest-bearing assets, all of which I will now go through in some more detail. Then as usual, starting with cash. Our cash holdings represented 1% of Aker's gross asset value, or NOK459 million. This was down NOK240 million from the previous quarter. The cash inflows were dividends received of NOK1.3 billion, of which NOK878 million from Aker BP, NOK388 million from Aker Solutions and NOK14 million from AMSC, and a repayment of loan from Akastor of NOK181 million. The main cash outflows in the quarter were primarily payment of dividend of NOK1.2 billion and loans and investments in portfolio companies of NOK144 million, of which NOK60 million in Solstad Maritime. The change in net debt was related to repayment of a bank debt of NOK596 million, offset by the issuance of a new NOK500 million Norwegian kroner-denominated bond. And cash outflow for operating expenses and net interest were NOK296 million in the quarter. Listed investments included in our financial portfolio represented about 3% of Aker's total assets at the end of the quarter or NOK2.5 billion. This was an increase of NOK0.8 billion from the previous quarter, driven by value increases of all our investments within listed financial investments. And as a reminder, our investment in Solstad Offshore is reported as part of Industrial Holdings from the first quarter 2024, and the comparative figures have been represented. Next, other financial investments that, combined, represented 12% of Aker's gross asset value or NOK9.2 billion in total. Interest-bearing receivables totaled NOK4.4 billion, down from NOK4.6 billion in the previous quarter. The decrease was mainly driven by the repayment of a loan from Akastor of NOK181 million. The total amount of interest-bearing receivables include a NOK2 billion loan and a NOK1.3 billion convertible loan to Aker Horizons. Non-interest-bearing assets totaled NOK0.9 billion, up from NOK0.7 billion in the previous quarter. The increase was mainly driven by a positive value adjustment on the total return swaps in AMSC of NOK129 million. Then let's move to the second quarter financial highlights for Aker ASA and holding companies. And let me start with the balance sheet. The book value of our assets totaled NOK35.2 billion, up NOK1 billion in the quarter, partly explained by value increases in Aker BioMarine of NOK634 million and Akastor of NOK499 million. This was partly offset by a value decrease in Aker Horizons of NOK135 million. And in our accounts, we use the lowest of historic cost and market values. The book value of our equity was NOK24.1 billion, up NOK2.3 billion, explained by profit before tax in the quarter. The fair value adjusted assets or gross asset value totaled NOK75.1 billion. Subtracting for debt, the net asset value was NOK64 billion at the end of the quarter. This equaled NOK860 per share, and the value-adjusted equity ratio was 85%. Aker had liabilities of NOK11.1 billion at the end of the quarter that mainly consisted of bond debt and bank loans totaling NOK10.8 billion. And noninterest-bearing debt is down NOK1.2 billion in the quarter, mainly due to dividends paid. Aker's financial position remains robust with a total liquidity buffer of NOK5.8 billion, including undrawn credit facilities. The net interest-bearing debt was NOK5.2 billion at the end of the quarter, up from NOK5 billion in the previous quarter. Our loan-to-value was 14%, and 75% of our gross asset value is in listed assets and cash. In terms of our debt maturity profile, the weighted average debt maturity was 3.3 years at the end of the quarter. During the quarter, we have successfully issued a new NOK500 million senior unsecured bond maturing in 2031 at competitive terms. We have also repaid bank loans in the quarter, resulting in a net reduction in debt of NOK123 million. Taking available credit lines and the extension options on the bank loans into consideration, the implicit maturity of our total loan portfolio would be more than five years. Then to the income statement. The operating expenses in the second quarter were NOK104 million. During the quarter, Aker booked a total dividend income from Aker BP, Aker Solutions and AMSC of NOK1.3 billion. The net value change in the quarter was positive NOK1.1 billion, mainly explained by value increases in Aker BioMarine of NOK634 million and Akastor of NOK499 million. This was partly offset by value decreases in Aker Horizons of NOK135 million. Our net other financial items were positive NOK15 million, and the profit before tax was then NOK2.3 billion in the quarter. Thank you. That was the end of today's presentation, and we can then move on to Q&A.

A - Fredrik Berge: Thank you, gentlemen. And perhaps to start things off, Oyvind, in your letter today, you mentioned partnerships. Has any of your partnerships developed differently than you expected?

Oyvind Eriksen: Well, partnerships have been a great value driver for Aker in recent years. And a tipping point was the transaction with BP back in June 2016. And the collaboration with BP remains to be excellent without any friction whatsoever. And when Lundin joined us as a fellow shareholder, they actually just strengthened the very positive collaboration and drive from the main shareholders in Aker BP. And the numbers are speaking for themselves. But also Cognite and other parts of the group have enjoyed the benefits of joining forces with global leaders in their respective developments. Then it goes without saying that we're ending up with some discussions, some differences of opinions, but the strength of a great partnership will always -- not only be tested but also proven by how it's resolved. And looking back, I think we only have one failed partnership. But then we also took action and moved on.

Fredrik Berge: Thank you. The next question is about also JVs and that you have several cash holdings in the portfolio currently in various companies. What is the overall plan regarding this moving forward? And is there anything you can share on how you are working with this topic?

Oyvind Eriksen: Well, that's a question to be answered by the Board of each of the relevant portfolio companies. So Aker's role is basically to engage with each of the companies and express our expectations, but also our recommendations to the respective Boards. And I see it only as an opportunity. I can tell you the other financial position, the opposite position is much worse than having some deep pockets of capital around in the group.

Fredrik Berge: Clearly. Switching to Aker BP, you talked a bit about the company today in the presentation. You mentioned the share price performance. Do you think the market has misinterpreted certain aspects of the company's investment proposition?

Oyvind Eriksen: Well, we should never second-guess the market. But we should also be clear about the questions raised by the market and respond proactively. And in my presentation earlier today, I shared with you all Aker's perspectives on some of the questions raised like Johan Sverdrup and the production profile and the high amount of greenfield development projects. And I'm continued to be impressed by Aker BP every single day. The way they're working with their assets in order to enhance production from existing fields including, Johan Sverdrup operated by Equinor. But also, how they're engaging with suppliers in order to safeguard successful execution of the all-time high greenfield development project portfolio on the Norwegian Continental Shelf makes me very, very confident that Aker BP is not only one of the most attractive E&P investments offshore today, but it will continue to be so for several years to come.

Fredrik Berge: Yes. Given the large declines in market values in the renewable sector, is the sector ripe for consolidation, do you think? And if so, could it involve Aker in some shape or form?

Oyvind Eriksen: So transactions and consolidations will definitely happen also in the renewable industry globally. And our mindset in renewable is not nothing different from our mindset in any other industry segment Aker operates in. So yes, consolidations will happen. Yes, and Aker will do whatever, we believe, is in the best interest of our shareholders. And the only thing in mind is to create shareholder value also in the renewables space, which has been very difficult short-term, but there is no doubt about the longer-term trajectory. The amount of investment in renewable continues to grow year-on-year. And that creates opportunities for Aker, both to develop new industries, new companies but also to pursue M&A transactions when we see value-accretive opportunities to do so.

Fredrik Berge: Thank you. And switching gears to digitalization. You talked about Cognite's impressive commercial development in your presentation today. You also mentioned the center of gravity for the company is shifting to the U.S. Any comments you can add on the way forward?

Oyvind Eriksen: Well, that's by design. When we established Cognite back in 2017, we established internally. But in order to succeed in building a world-class software company, you need a strong presence and success in North America. So when we recruited Girish as the new CEO, we only looked for CEOs in the North American market. And fortunately, Girish, the best candidate available, accepted the job and opportunity. And now we will continue to develop and grow, and the Cognite office is all around the world

Fredrik Berge: All right. The next question is about Solstad. The refinancing has been completed, and it looks like a positive market outlook for the industry. What is next? Will the companies be merged? And will Solstad Maritime be listed?

Oyvind Eriksen: Well, there's nothing new under the sun. When we announced the refinancing of Solstad, we also expressed an expectation for Solstad Maritime starting to pay dividend during the course of the second half of this year. And we also expressed an intention to list Solstad Maritime within the next 12 months. So nothing new. And as far as merger is concerned, the Maximus claim is still an issue. So I do not see any opportunity to merge the two Solstad companies unless that claim has been settled or solved by the court.

Fredrik Berge: Thank you. And to round things off, you announced a plan for a more focused Aker, and you have been very active in the first-half related to that this year. What should we expect to see from Aker in the second-half?

Oyvind Eriksen: Well, I almost became a bit tired by listening to myself listing all the transactions completed since we met the last time. But it's fair to assume that we will continue to streamline Aker along the lines we have communicated to the market. Larger cash dividend-paying entities will be the focus area, but how to get there will depend partly on the work conducted by ourselves but also third parties and their willingness to engage. So it's very hard to predict exactly, at least quarter-by-quarter, what will happen when, but we are working day and night to deliver on the strategy and basically create even more shareholder value.

Fredrik Berge: Thank you very much, Oyvind. That was our final question today. So thank you to the audience for listening in and see you the next time.