AKAAF - Aker ASA (AKAAF) Q4 2022 Earnings Call Transcript
Aker ASA (AKAAF)
Q4 2022 Earnings Conference Call
February 17, 2023, 03:00 AM ET
Company Participants
Fredrik Berge - Head of Investor Relations
Oyvind Eriksen - President and CEO
Svein Oskar Stoknes - CFO
Conference Call Participants
Presentation
Fredrik Berge
Hi, everyone, and welcome to the Presentation of Aker's Fourth Quarter Results 2022.
My name is Fredrik Berge, and I am Head of Investor Relations. We will start the presentation with Aker's President and CEO, Oyvind Eriksen, who will take you through the highlights of 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. You may submit your questions via the chat function on the webcast.
And with that I hand it over to Oyvind Eriksen.
Oyvind Eriksen
Thank you, Fredrik, and good morning, everyone.
We are putting 2022 behind us, leaving a year that will be remembered as a particularly disruptive period in human history. The war in Europe is first and foremost a tragedy for the people of Ukraine, but it has also been a reminder of the vulnerability of both the world order in general and the energy system in particular. Gone is the sentiment over the last few decades, marked by political stability, free trade, cheap energy and liberalization, a time where business has trimmed politics, instead politics is now trumping business.
Aker is actively considering the long-term impact of a new world order. We cautiously observe the results of increased protectionism, leading to significant regional differences and investment plans and we are forced to make strategic decisions under unprecedented unpredictability. We do not know what the future holds.
At times like this we turn to three steadfast pillars. One, Aker's method of work playing to our strengths and acting countercyclically for long-term value creation. Two, fostering collaborations and partnerships for growth. And three, protecting our strong balance sheet, which enables Aker to maintain a steady course through periods of market volatility.
I continue to be impressed by the engagement and desire to harness the power of collaboration and drive positive change across Aker's portfolio companies. I'll get back to some of the key events in the quarter in just a moment. Overall, the sentiment as we close of 2022 is renewed optimism despite the turbulent times.
Today, we are also announcing that the Aker Board has decided to propose a dividend for the fiscal year 2022, this tranche being set at NOK15 per share, in line with our policy. A second tranche will be considered by the Board in the second half of this year. If the additional cash dividend equals the proposed dividend for 2022, the total dividend paid during 2023 will be NOK30 per share at 4.2% yield to the share price and a 3.3% of net asset value at the close of 2022.
For the full year Aker's net asset value decreased 4.2% or NOK2.9 billion including dividends. The value decrease was mainly driven by a drop in Aker Horizons, which was down NOK9.4 billion. This was offset by value increases in both Aker BP and Aker Solutions of around NOK7 billion and NOK2.6 billion, respectively. In the fourth quarter, Aker's net asset value decreased 3.1% to NOK66.9 billion, largely due to moderate decreases in Aker BioMarine, Aker Horizons and Aker BP. The per share net asset value amounted to NOK900.
In the quarter, the Aker share increased by 4% adjusted for dividend to NOK719.5. This compares to a 7.8% increase in the Oslo Stock Exchange Benchmark Index. For the full year, dividend adjusted shareholder return was minus 9.3% compared to a 1% decrease of the benchmark index. Aker's value adjusted equity ratio at the end of the period was 88%, Aker's liquidity reserve stood at NOK6.4 billion at the end of the year, which included NOK1.3 billion in cash.
Aker's gross asset value decrease to NOK76.1 billion in the fourth quarter, and with more than 79% of listed assets and cash, the portfolio remains highly liquid. Our Industrial Holdings account for 85% of our gross values. Aker BP remains the largest asset in our portfolio at NOK40.7 billion and continues to be an important source of liquidity, providing valuable upstream cash as we continue to invest in and develop our portfolio along macroeconomic trends.
Aker has growth platforms in multiple segments. Energy continues to be our largest industry segment with portfolio companies positioned to provide energy security short and medium term and drive longer-term energy transition. In parallel, we continue to build a portfolio of investments in other segments like industrial software, seafood and marine biotech.
The fourth quarter marked the end of a transformational year for Aker BP. The company is now fully integrated with Lundin, a merger which doubled its production and created a stronger and even more financially robust company.
Highlights in the quarter include: Johan Sverdrup Phase 2 starting production contribution to new record levels of production for Aker BP of 432,000 barrels of oil equivalents per day; and the submission of a record number of field development plans that represent investments of more than NOK200 billion. The plans underscore the company's ambition to create the oil and gas company of the future, with low cost, low emissions, profitable growth, attractive returns and increased export of both oil and gas to Europe.
Next is Aker Solutions, which delivered strong results both operationally and financially. The company delivered substantial revenue growth in 2022, increased profitability and ended the year with a record high order backlog of close to NOK100 billion, of which 60% is related to the activity package for the Norwegian Continental Shelf. The subsea joint venture with SLB and Subsea 7 is progressing as planned and the transaction is expected to close during the second half of this year pending regulatory approvals. Overall Aker Solutions is positioned itself to capitalize on both near-term market growth and for longer-term structural changes in energy markets.
Moving on to Aker Horizons. 2022 was a turbulent year for renewables stocks and Aker Horizons felt the effects of high volatility. We established Aker Horizons' current structure in different capital market. As the current energy crisis underscores, the energy transition is urgent, but it will take time and require enormous investments. Aker and Aker Horizons is responding to the shifting market challenges through careful strategic considerations to ensure a more robust Aker Horizons. Overall, the company's strategy remains unchanged with growth platform positioned for a long-term trajectories towards a low-carbon economy.
Next is Aker BioMarine. Offshore production volumes in 2022 to have improved compared to previous years and the total krill meal volumes for the full year 2022 were 19% above 2021 levels. Sales across all segments, including Ingredients and Brands in the fourth quarter were in line with the same period last year. During the quarter, Aker BioMarine initiated an improvement program with the aim to streamline operations and improve profitability to increase robustness for future growth.
Moving on to our main unlisted assets, starting with our Industrial Software portfolio. First, Cognite. The company made good progress also in 2022 with Software-as-a-Service, or SaaS, revenue increasing by 85% from the year before, driven by rapidly growing global customer base across various industrial verticals.
Through Cognite's strategic partnership with SLB, Aker is deepening the collaboration with SLB to provide customers in the global energy sector access to data on an unprecedented scale. This partnership is a recognition of Cognite's global potential and is another example that some of the biggest players in oil and gas sector like SLB and Aramco are choosing Cognite Data Fusion as the architecture for their respective digital tools and offering for production optimization in the oil and gas industry.
The company has worked closely with SLB through the fourth quarter and into the new year to develop this unique partnership, through which customers can integrate data from reservoirs, wells and facilities in a single open platform and leverage embedded artificial intelligence and advanced analytics tools to optimize production, reduce costs and decrease operational and environmental footprint.
In the fourth quarter, the company also formed a strategic partnership with Rockwell Automation, the world's largest company dedicated to industrial automation and digital transformation. This partnership will further unlock the value of manufacturing data and accelerate technological change for the industry. Through its partnership, the parties will develop a unified edge-to-cloud industrial data hub for the manufacturing industry.
Our other software company, Aize, is an industrial application software company enabling businesses to visualize, navigate, collaborate and work on the digital representation of an asset. In the period, Aize signed a one-year SaaS agreement with a global oil major for seven assets across the U.K. and West Africa. Additionally, a continuation of the strategic partnership agreement between Aker BP, Aker Solutions and Aize was signed, securing development funding towards Aize's core product moving forward.
Aker Energy, our oil and gas company in Ghana, has completed FEED and prepared a revised plan of development for the Pecan field project. However, the POD submission has been delayed due to the uncertainties and the risks mainly caused by the war in Ukraine as well as supply chain disruptions and inflation. The company continues to explore strategic alternatives in response to these challenges. The current POD deadline has been extended to April 2023.
Lastly, SalMar Aker Ocean. The company is working towards a final investment decision on a new semi-offshore unit named Ocean Farm 2. There is also an ongoing process for design of the Smart Fish Farm offshore unit. Both project timelines have been delayed as a consequence of the proposed resource rent tax or grunnrenteskatt in Norwegian, as well as other topics to be clarified by the authorities in Norway.
In conjunction with Aker's direct investments in Gaia Salmon during the quarter. SalMar Aker Ocean has signed a non-binding agreement with Gaia for the delivery of post-smolt for the offshore salmon farming. The strategic cooperation will improve SalMar Aker Ocean's access to post-smolt, which is an enabler for scaling offshore farming operations.
SalMar Aker Ocean continues its collaboration with Norwegian authorities and the agricultural industry and other interested parties for the establishment of regulatory frameworks for offshore and semi-offshore salmon farming, including the effects related to the proposed new tax system. SalMar Aker Ocean is committed to new offshore investments as soon as an overall regulatory framework is in place.
That concludes my part of today's presentation. I now hand it over to Svein Oskar, who will take you through the financials in the quarter in a greater level of detail.
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 fourth quarter results in some more detail.
The Financial Investments portfolio accounted for 15% of Aker's total assets or NOK11.2 billion, down NOK685 million from the previous quarter. This is mainly due to a decrease in cash holdings of NOK1.2 billion, partly offset by a value increase for our listed financial investments of NOK589 million. As before, the main components under Financial Investments are cash, listed financial investments, real estate and interest-bearing receivables, all of which I will now go through in some more detail.
Then as usual, starting with cash. Our cash holdings represented 2% of Aker's gross asset value or NOK1.3 billion. This is down NOK1.2 billion from the previous quarter. Cash inflows were primarily NOK1 billion from the issuance of two new unsecured green bonds and dividends received from Aker BP and AMSC of the equivalent to NOK752 million.
Cash inflows also included NOK309 million cash release from the renewal of the total return swaps relating to AMSC. The main cash outflows in the quarter were primarily debt repayment of NOK1.6 billion and dividend payment of NOK1.1 billion.
Other cash outflows were loans to and equity investments in portfolio companies of NOK316 million, of which NOK155 million equity investment in Gaia Salmon. Payments for operating expenses and net interest were NOK194 million in the quarter and our liquidity reserve was a solid NOK6.4 billion, including undrawn credit facilities of NOK5 billion.
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. The total value of this portfolio increased by NOK589 million in the fourth quarter, mainly explained by value increases of our positions in Solstad Offshore of NOK347 million and in AMSC. The equity investment in AMSC had a value increase of NOK193 million in the quarter. In addition, Aker posted a total dividend income from the company of NOK43 million. And as already mentioned, the TRS-agreements related to AMSC were rolled forward in November with the cash release of NOK309 million.
Next, Real estate and other financial investments. And combined the two represented 10% of Aker's gross asset value or NOK7.4 billion in total. Aker's Real estate holding, Aker Property Group, stood at the book value of NOK973 million at the end of the quarter. Interest-bearing receivables totaled NOK4.2 billion, including a NOK2 billion loan and a NOK1.2 billion convertible loan to Aker Horizons.
Other equity investments totaled NOK1.4 billion, of which the main components are related to our investments in the company's Industry Capital Partners Abelee, Seetee, Gaia Salmon and Clara Ventures. The decrease in other equity investments is mainly explained by negative value development in Abelee of NOK170 million and in Seetee of NOK68 million, partly offset by investment in Gaia Salmon of NOK155 million. Fixed and other interest-free assets totaled NOK883 million.
Then, let's move to the fourth quarter financial highlights for Aker ASA and holding companies. And let me start with the balance sheet. Please note that the figures on this slide are after dividend allocation of NOK15 per share. The book value of our investments is down NOK430 million in the quarter. This is mainly explained by negative value changes in Aker BioMarine of NOK463 million, Aker Horizons of NOK411 million and Abelee of NOK170 million. This is partly offset by the value increase in Solstad Offshore of NOK347 million and an equity investment in Gaia Salmon of NOK155 million.
The total book value of our assets was NOK34.1 billion and, in our accounts, we use the lowest of historic cost and market values. The fair value adjustment illustrated in gray color on this slide was down in the quarter to NOK42.1 billion from NOK43.2 billion in the third quarter. This is mainly explained by a negative value adjustment in Aker BP of NOK1.1 billion and Aker Solutions of NOK144 million. This was partly offset by a positive value adjustment in AMSC of NOK116 million.
The gross asset value stood at NOK76.1 billion at the end of the quarter, down from NOK79 billion at the end of the third quarter. Aker's liabilities consisted of bond debt of NOK5 billion, of which two new green bonds of in total NOK1 billion, in addition to a US dollar denominated bank loan of NOK1.9 billion and Norwegian kroner denominated bank loan of NOK1 billion and NOK1.1 billion euro denominated loan. The liabilities at year end also included NOK1.1 billion dividend allocation for 2022, representing NOK15 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 2023 based on the 2022 annual accounts, and this is in line with last year's practice. The book equity was NOK23.7 billion, down NOK2.1 billion, explained by dividend paid of NOK1.1 billion and allocation of ordinary dividend for 2022 of NOK1.1 billion. This was partly offset by a profit before tax in the quarter of NOK121 million.
If we adjust for fair values of our listed assets and Cognite, we get our net asset value of NOK65.7 billion at the end of the fourth quarter after allocation of dividend. Net asset value per share was NOK885 after dividend and the value adjusted equity ratio was 86%.
Our gross interest-bearing debt was NOK9 billion, which is down NOK784 million from the previous quarter due to net debt repayments. Net interest-bearing debt was NOK3.2 billion. We issued new unsecured green bonds totaling NOK1 billion in November and subsequently exercised the call option on the remaining NOK1.6 billion of the AKER14 bond. This means we have NOK5 billion of bonds and the NOK equivalent of about NOK3 billion of bank loans currently outstanding with approximately NOK5 billion available to draw on the credit facilities.
The average debt maturity at the end of the quarter was 3.3 years. Maturity of the bank facilities are three years with two one-year extension options for NOK4 billion and five-years maturity for the remaining NOK4 billion. Taking into account available credit lines and extension options on the bank loans, the implicit maturity of the entire loan portfolio is down 4.9 years.
Then to the income statement. The operating expenses for the fourth quarter were NOK85 million. The net value change in the quarter was negative NOK711 million, mainly explained by value reductions in Aker BioMarine of NOK463 million and Aker Horizons of NOK411 million, partly offset by a value increase in Solstad Offshore of NOK347 million. Our net other financial items were positive NOK926 million, mainly explained by dividend income of NOK772 million and gain on the AMSC total return swap of NOK180 million. And the profit before tax was then NOK121 million in the quarter.
Thank you. That was the end of today's presentation and we can then move on to questions.
Question-and-Answer Session
A - Fredrik Berge
And your first question comes from Christopher Mollerlokken at Sparebank 1 Markets.
The higher interest environment has caused the volume of IPOs of IT companies to come significantly down in 2022. Could you share your view of your plans regarding the future ownership of Cognite and an IPO on NASDAQ as previously has been considered?
Oyvind Eriksen
Well, our main focus and quite frankly our only focus for the time being is the development and growth Cognite. And as I mentioned in my presentation, the performance continued to be great, with a year-over-year revenue growth of more than 50% and even more importantly, the software-as-a-service revenue proportion year-over-year grew 85%. The underlying market for Cognite is also good, and it doesn't reflect at all the drop in the financial market and including the venture capital market for software companies.
So, what -- how do we think about IPO longer term? And the plan is exactly the same as before and the longer-term target is to list Cognite most likely in the United States. It will not happen this year. We take a long-term perspective to the development, but ultimately that's the goal, also anchored with our fellow shareholders. In parallel, we are obviously open-minded to other kinds of transactions.
Fredrik Berge
Okay. A follow-up question from Christopher.
Last year the aquaculture industry in Norway was hit by a new resource rent tax, as you mentioned in your presentation. Your partner SalMar has been vocal that increased tax will impact their investment plans. Could you please give some thoughts regarding the planned future investment in SalMar Aker Ocean?
Oyvind Eriksen
Sure. We continue to develop SalMar Aker Ocean jointly with the management of that company as well as SalMar according to plan, which somewhat delayed for reasons I have already explained. And the tax system will obviously impact the business case. And as the tax proposal has not yet been concluded, that's a question mark for all of us. So, we will hold back investment decision until we have more clarity on the tax system and the tax level for the business longer term.
Fredrik Berge
Thank you. The next question comes from Ola Eikanger at SEB.
Good morning, and thank you for the presentation. With the geopolitical backdrop and European energy crunch in mind, we have recently seen European oil majors more muted on the green investment plans to pursue investments in oil and gas. So, I'm wondering if anything has changed associated to how you think about capital allocation? And if directing more capital towards oil and gas investments is something that is higher on the agenda now versus one or two years ago?
Oyvind Eriksen
So, as you know, we are investing a lot in new oil and gas capacity on the Norwegian Continental Shelf, and with the high level of greenfield developments in Aker BP. Those investments were triggered by the temporary changes in the petroleum tax system rather than the geopolitical environment.
As far as an allocation of resources to renewables is concerned, we continue to develop our existing businesses, Aker Horizons as an operator, Aker Solutions as a supplier, and going forward, Industrial Capital Partners as an investor in the renewable and cleantech projects. It is, however, a fact that it's more difficult to find good the investment opportunities in renewable and cleantech than what it is for the time being in oil and gas. So that will not change our strategy, but we will be more cautious in the green industries and acknowledge the fact that most likely it will take more time not only for us, but for the world to complete the ongoing energy transition.
Fredrik Berge
Thank you. The next question comes from Erik Aspen Fossa from Carnegie.
Could you please elaborate some more on the progress with ICP? Have you started to market your funds?
Oyvind Eriksen
Well, the establishment of ICP in general and the different investment vehicles in particular are progressing according to plan, with license, obtaining licenses hiring team and engaging with both investors as well as future project partners. So, we expect to launch the first funds during the course of this year and subsequent to that start investing.
Fredrik Berge
His follow-up question is, what strategic alternatives are you considering for Aker Energy?
Oyvind Eriksen
Well, Aker Energy is still a very complex matter. But the ongoing dialog is partly about how to resolve the issues related to Lukoil as Russian license partner, and partly exploration of the opportunity to join -- to engage other industrial or financial partners in the project.
Fredrik Berge
The next question comes from Haakon Amundsen at ABG.
Good morning. Is it possible to give some color on how you can optimize the structure in Aker Horizons?
Oyvind Eriksen
Well, we have already done a lot by simplifying the structure and through the transactions with the hydrogen and the wind business last year. And in addition to that, Aker Horizons is in the process of streamlining business, focusing the business, reducing the cost base. So -- and now it's more about how to execute on the existing product portfolio and how to succeed with the partnerships and in particular, partnership with Statkraft.
Fredrik Berge
The next question from the web is about your CEO letter. In your CEO letter you discussed the increased focus on energy security, regional differences that might impact cross border collaboration. How do you see this could influence Aker strategic direction moving forward?
Oyvind Eriksen
So, I think, it's a very interesting global energy landscape for the time being with significant changes, which will impact a longer-term strategy of companies like the Aker Group. It's a partly about the balance between established sources of energy, like oil and gas, and how to gradually transition into new and greener sources of energy.
I think I've already mentioned how Aker will think about that transition. We continue to invest in oil and gas. We believe in oil and gas as an attractive investment short and longer -- medium term. And in parallel with pursuing selectively and with discipline new green opportunities.
But it is also a very, very interesting shift and development in different regions. We all follow with great interest and the consequences of Inflation Reduction Act in the U.S., which has already triggered allocation of resources and initiatives to North America, and now it will be interesting to see how Europe response, and as a part of that, how Norway would like to consistent -- to position itself in order to leverage our great and unique natural resources.
Fredrik Berge
Thank you. And the final question is about partnerships. Congratulations on Cognite strategic partnerships with Rockwell and SLB. Do you have any color around your work with partnerships in Aker? And how they might contribute to growth moving forward?
Oyvind Eriksen
Well, partnerships have become a very important part of our development. And the tipping point was the transaction with BP back in June, 2016. The collaboration with BP has not only created a lot of value, but it has also been a very, very good experience for us with a seamless and very constructive collaboration from day one. So that has inspired Aker to pursue partnerships in other parts of the business. Why? Simply because that enables us to scale and grow beyond our existing capabilities.
On the software side, we often mentioned about Microsoft, Accenture, Aramco and recently SLB and Rockwell. It's quite interesting to notice that the company which hardly existed seven years ago, is now on the radar screen of some of the most ambitious energy companies and software companies in the world, but we also apply the same method of work to our growth in Aker Horizons.
And I'm personally very excited by the collaboration with Statkraft, both on the Norwegian Continental Shelf and Offshore Wind opportunities, we are pursuing there, but also potentially in other green industries. It's early days, but a great fit with complementary capabilities and a shared vision, not only to build individual companies, but to build green industries in Norway.
Fredrik Berge
All right. Thank you, gentlemen, and thank you to the audience. That was the end of our webcast today. So, we wish you a nice Friday. Take care.
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Aker ASA (AKAAF) Q4 2022 Earnings Call Transcript