Akastor Asa Asa

Good morning and welcome to AUK Solutions presentation of our fourth quarter and full year results. My name is Preben Ørbøk and I'm the Head of Investor Relations. With me here today is our CEO Kjetil Digre and our CFO Idar Eikrem. They will take you through the main developments of the quarter and the full year. After the presentation, as always, we have time for questions. Those of you who are following the webcast can submit your questions via the online platform. And with that, I leave the word to Kjetil Digge.

Thank you, Preben, and welcome to everyone tuning in. As we are putting 2024 behind us and are embarking on 2025, I wanted to start the presentation today, highlighting some of the achievements we have made since the merger between Aker Solutions and Kvarner back in 2020. At that time, we set ambitious targets for the new company, and I'm very proud to see that we have delivered over and beyond our targets, generating solid returns to our shareholders. I think these achievements are a clear testament to the competences and capabilities of the entire organization of AXSolutions. And to give you a few numbers. We are currently about 11,800 people in more than 15 countries. Out of this global workforce, I wanted to highlight our engineering organization, which today counts about 5,000 people. India is our second largest engineering hub after Norway, with about 1,000 highly skilled engineers. When it comes to the large EPC projects, both in oil and gas and renewables, India currently account for more than one third of our engineering hours. So our operations in India is very important for us as it enables us to deliver high quality engineering services at competitive prices across market segments and geographical regions. Another critical aspect of growing and developing our company is access to new talents. And I'm happy to see that our focused efforts seem to resonate well with both engineering students and professionals, rating us as the second most attractive employer in Norway for the second year in a row. Continuing our recruitment efforts in 2024, we have welcomed about 1,700 new employees to our company, bringing with them new ideas and ways of working across the energy space. We continue to invest in training and competence development, as well as implementing new digital tools and solutions, such as artificial intelligence. In this way, we are developing an organization around the common purpose of solving global energy challenges for future generations. As we are a people business, I'm very happy to see that these efforts are also reflected in our financial performance. Since 2020, our revenues have grown from about 20 billion to more than 50 billion. In 2024 alone, our revenues grew by almost 50%, driven by high activity across segments and locations. And equally important, our margins have also improved significantly over the period. In 2024, we delivered an EBITDA margin of 8.7% or 7.3%, excluding the net income from one subsidy. which is an increase of more than 500 basis points from 2020. We also secured several important new orders in 2024, with an order intake of about 40 billion during the year. In addition, some of you might have noticed that we had a flying start of 2025, with several new contracts signed so far this year. Our order backlog remains high and was about 61 billion at year end. And I like to stress that one thing is the size of the backlog, but much more important is the quality. More than half of our current backlog relates to the projects under the alliance model with Akron BP. This way of working isn't just about contracts, it's about partnership. By aligning our incentives, sharing risks and rewards, we create win-win situations that drive innovation and efficiency. This way of working closely together with our strategic partners helps us deliver high quality projects faster, which in turn means more energy to markets quickly and responsibly. We have already reached several important milestones on these projects during 2024, and we have made a little video to give you a feel of the scale of these projects. So please take a look. So as you can see, it's a comprehensive portfolio of projects with some spectacular operations and a portfolio where we have taken significant steps when it comes to development and the use of digital tools. This is in line with our key focus, which is to safeguard the delivery of our backlog while positioning the company for future opportunities. Speaking of the future, let's take a look at our tender pipeline, which has increased to about 86 billion at the end of 2024. Out of the tender profile you see here, we have already secured several new contracts during the first month of 2025, including the final notice to proceed on Norfolk, Vangard East and West, and the contract for the carbon capture and storage facilities at Hafslund Celsius waste to heat plant in Oslo. On the remaining tender pipeline, we continue to see a good mix of traditional oil and gas developments, decarbonization efforts and projects, and renewables opportunities. Within oil and gas, we are supporting our clients to mature the next wave of greenfield and brownfield projects. We are also in the process of renegotiating several long-term frame agreements for maintenance and modification services with strategic customers. And within renewables markets, we continue to see high activity, both in tendering and in early phase studies, and despite operators taking a more cautious approach to these new projects. We see that both in offshore wind and in CCS, there's a key focus on developing fabrication-friendly designs that enable serial production to drive down costs together. The recent award for the carbon capture and storage project at Klemensrud is a clear example where we will utilize SLB Kapturis Just Catch 400 modular technology to decarbonize one of the largest emitters in Oslo. I'd like to emphasize that when it comes to tendering, we continue to be very selective about which projects we go after. And as a result, the new contracts coming in have balanced risk reward profiles compared to our legacy renewables projects. These legacy projects were attended on a project by project basis on lump sum terms with immature designs and execution models. And we have been open about the challenges in these projects and have taken additional losses during the year. We are now in the final stages of execution of these projects, which will be delivered in 2025. And as we put these legacy projects behind us, there are clear improvements in commercial models for the second wave of projects coming in. In January this year, we announced that RWE had decided to proceed with the remaining scope on the two HVDCs for the Norfolk-Vanguard East and Vanguard West developments in UK, as I mentioned. And this with potentially three projects to be executed in sequence. The partners have a strong incentive to work closely together, focusing on standardization and industrialization to reduce overall costs of energy. Working together with our partners Siemens and Dry Dogs World in Dubai, we are already seeing the benefits of standardization in the execution of these projects. For instance, in the number of engineering hours from the first to the second topside. Looking back, standardization was one of the key success factors in improving our subsea business, and we are now applying these learnings into the new energy markets. We think these are important steps in the right direction for the renewables markets, and we will continue to develop such models and relationships across our market segments going forward. A key element in building these relationships is early access to customers. Back in May 2024, we launched ENTER, our new brand for our energy consultancy. This is an organization of over 300 dedicated employees drawing on the combined capacity and competencies of the wider Arca Solutions to give customers pragmatic advice based on our vast project experience. And I'm pleased to see that our services continue to be in high demand. For the second year in a row, our consulting revenues increased more than 50% with double digit margins. In 2024, we worked on more than 300 projects for a wide variety of customers with a good balance between renewables, transitional and low carbon solutions, and more the traditional oil and gas studies. I think one aspect that makes us stand out is our ability to bring learnings from real project execution to provide early phase advisory. That capability is deeply appreciated by our customers. For example, the Klemmetsrud waste to energy carbon capture project that I referred to earlier actually originated as an ENTER study where innovative layout design helped the economics of the project. All in all, I'm very happy to see the progress made by our energy consulting business, spearheading our efforts into emerging markets across the globe. This takes me to the general outlook for Aker Solutions. Firstly, we continue to have a solid order backlog of projects with balanced risk-reward profiles, where our key focus is to deliver predictable project execution. Secondly, our market outlook remains positive despite volatile energy prices and geopolitical instability. Our capabilities and services are in high demand, and we are working on several tender opportunities, some of which we have already secured in the beginning of 2025. We are seeing clear improvements in what we've previously referred to as the broken model in renewables, with new contract-based balanced risk-reward profiles and aligned incentives. Lastly, we continue to have a solid financial position after paying out about 11.5 billion to shareholders in 2024. This enables us to both develop the company and our people and deliver attractive returns to our shareholders. And with that, I hand the word over to Ida, who will take you through the numbers in more detail. Thank you.

I will now take you through the key financial highlights of the fourth quarter, the full year figures, our segment performance and run through our financial guidance. As always, all numbers mentioned are in Norwegian kronor. So let me start with the income statement. The fourth quarter revenue was 15.7 billion, up from 11 billion a year ago. This represents about 43% growth year on year. Full year revenues were 53.2 billion, a 47% increase from 2023. The underlying EBITDA in the quarter was 1.2 billion, up from 615 million a year ago, with a margin of 7.8%. This was driven by continued strong performance in our lifecycle segment, while negatively affected by additional losses in our legacy renewable portfolio. Net income from one subsea was $166 million in the quarter. EBITDA for the full year was 4.6 billion, with a margin of 8.7%, or 7.3% if you exclude the net income from one subsidy. The underlying EBIT in the quarter was 888 million, up from 393 million a year ago, with a margin of 5.7%. For the full year, the net income excluding special items increased to 3.2 billion up from 2.4 billion last year. The net income for the quarter was 837 million up from 385 million a year ago. Earnings per share for the full year was 6.62 kroner up from 5.2 kroner a year ago. and the Board of Directors has proposed to increase dividend per share to 3.30 kroner for 2024, up from 2 kroner per share in 2023. This represents approximately 50% of net income excluding special items in line with our ordinary dividend policy. Moving to our segment performance. For renewable and field development, the fourth quarter revenue was increased to 11.5 billion. This is up from 7.4 billion in the same period last year, representing a year-on-year growth of about 54%. Annual revenues were 38 billion, up from 22.5 billion on a year-on-year growth of about 70%. The underlying EBITDA in the quarter was 820 million, up from 362 million a year ago, and with a margin of 7.2%. As mentioned, the results were negatively affected by additional losses on legacy renewable projects in the quarter. This is mainly as a result of increased carryover work from one of our subcontractors. EBITDA for the full year was 3.1 billion, representing a margin of 8.1%. The secured backlog in this segment was 37.5 billion at year-end, with several new orders coming in during the start of 2025. Based on the secured revenue and backlog, we expect the revenue in this segment to remain relatively stable at a high level also in 2025. For the lifecycle segment, revenues in the fourth quarter were 3.8 billion, up from 3.5 billion in the same period last year. This was driven by continued high activity both in Norway and in our international hubs. Annual revenue was 13.2 billion, a slight increase from 2023. The underlying EBITDA was 277 million in the quarter, up from 197 million last year, representing a margin of 7.3%. This was enabled by continuous solid performance on ongoing modification projects and long-term frame agreements. EBITDA in 2024 was $920 million, with a margin of 6.9%. The order intake in the quarter was $3 billion, representing a book-to-bill of about 0.8 times. During the quarter, Lifecycle was awarded long-term frame agreements with both RKBP and War Energy. With War Energy, we have also signed a strategic partnership agreement in January with a potential duration up to 11 years, focused on close collaboration with Align incentives. The secured backlog at the end of the year was 22.5 billion, providing good visibility for future activity levels. This is a 9% increase compared to the start of 2024, reflecting the strong underlying market for our services in Norway and abroad. Based on the secured revenues and backlog, we now expect the lifecycle segment to grow by about 10% in 2025. Moving to our financial performance of 1 subsea, where we have a 20% stake. In the fourth quarter, one subsea delivered revenues of about 10.2 billion. For the full year, revenues were about 41 billion kroners. The underlying drivers for the subsea market remains positive, with spending forecasted by Rysta to grow by more than 10% annually between 2025 and 2027. OneSubsea has a very strong position in this market, with the largest installed base of subsea equipment and a leading technology portfolio. The expected growth in subsea activity will also positively impact Arca Solutions operations, both through our services to OneSubsea, but also through the work that we do to connect new subsea fields to existing infrastructure. In the fourth quarter, one subsea reported EBITDA of 1.8 billion, representing a margin of about 17%. This was driven by lower activity and higher one-off integration cost in the period. For the full year of 2024, the company delivered about 7.6 billion in EBITDA, representing a margin of about 18%. Going forward, the company is targeting annual synergies of about $100 million. Net income for the entity was around 900 million kroners before PPA adjustments. After these adjustments, Arca Solutions recognized 166 million for a 20% stake. Net income before PP&A for the full year was about 4.2 billion, of which Arcus Solutions recognized 789 million. The backlog for the entity is currently at 51 billion kroners, with several important awards in 2024. Alongside its Subsea Alliance partner, Subsea 7, OneSubsea signed a global frame agreement with BP to combine Subsea expertise across a portfolio of future projects. The collaboration covers all project stages from concept development to full lifecycle, supporting BP to achieve accelerated project delivery, standardization, and reduce total cost of ownership. As a proud co-owner, OneSubsee is an important contributor to Arca Solutions' financial performance and value creation. Since closing of the transaction in October 2023, the company has managed to build a solid net cash position of more than $500 million at the end of 2024. The company has an attractive dividend policy with ambition to distribute all excess cash to its shareholders. The first dividend to Arca Solutions of about 77 million kroner was received in the fourth quarter. Based on its strong financial performance and positive outlook, OneService targets to distribute more than $250 million to its shareholders in 2025. Based on a 20% ownership, Arca Solutions expect to receive a dividend of more than $50 million or more than half a billion Norwegian kroner at current exchange rate, which will be paid out quarterly during 2025. Let us now look at cash flow and financial position. Our financial position remains robust, with a net cash position of 2.9 billion at the year-end, after paying the 10 billion kroner extraordinary dividend in the fourth quarter. This includes a one-off effect of about 1.3 billion from cash in transit related to our joint venture in Dubai, which will be settled early 2025. CapEx in the period was 197 million, down from previous quarters as we have finalized our safeguard investment program. These investments, such as the Vardal production line, are critical for safeguarding the delivery of our backlog and will also improve our competitiveness for future opportunities. going forward we expect capex to be between one and one and a half percent of revenues annually the working capital decreased to negative 7.8 billion impacted by the mentioning cash in transit related to the joint venture in dubai going forward we continue to expect Working capital to normalize towards a level between negative 4 and negative 6 billion over time. Let us now look at the cash flow statement for the full year. In 2024, operational cash flow was 3.1 billion kroners. This was mainly driven by EBITDA contribution from our operational segments. CapEx for the full year was 1.4 billion, in line with our guiding. Proceed from mainly the subsidy transaction accounted for about 3.3 billion. And lastly, during the year, ArcaSolution distributed about 11.5 billion to shareholders through dividends and buybacks. So, to sum up. In 2024, we continue to deliver strong financial and operational performance despite the losses in our legacy renewable portfolio. Based on our secured backlog and market activity, 2025 revenues is expected to be between 50 and 55 billion. At this early stage, we expect the EBITDA margin to be between 7 and 7.5% for the full year, excluding net income from OneSubsea. In addition, OneSubsea has an ambition to distribute more than $250 million to its shareholders, which at the current exchange rate would imply a dividend to Arca Solutions of more than half a billion Norwegian kroner. As mentioned, working capital is expected to start to normalize to a level of between negative four and negative six billion over time. As we have completed our safeguarding investment program, we now expect capex to be between one and one and a half percent of revenues in 2025 and onwards. Based on our robust financial position and positive outlook, the Board is proposing a cash dividend of 3.3 kroner per share for 2024, pending approval in the annual general meeting to be held in April. Thank you for listening. That was the end of our presentation. In a few moments, we will open up for questions.

Welcome everyone to the Q&A session of today's presentation. We will start with a question from Jørgen Andreas Lande in Danske Bank. He says, good morning. From your solid announced order intake in the first quarter, can you provide a rough split of revenue, recognition and weight distribution in the coming years?

Yeah, I think he's spot on. It's been a very good start of 2025. And if I'm allowed to sort of zoom a little bit out and think about our strategy, we are at a very high activity level. We are focused on safeguarding that. But then in parallel, working on making sure that we are positioning the company for new tasks in the different segments, profitable opportunities being highly selective. And that's what's happening now. And these projects, they will actually sort of bolt on as we are then going down from the peak and now, first of all, on the engineering side. So this is starting to happen already in 25 and we'll pick up in 26.

i guess you also have a few comments yeah yeah now and and we are extremely happy to add more to our order book and order backlog and as we have spoken before about the important one is the quality of the order backlog and i'm happy to tell you that all of these new orders have a Good risk-reward balance, and the activity, as Kjetil mentioned, will stretch out and fit nicely in with the activity and capacity that we have, and will stretch into 26, 27, and until 28.

A follow-up from Jørgen Andreas Lande in Danske Bank. On your 2025 revenue guidance, can you discuss the driving factors between the relatively wide range? What happens if you end up at 50 billion versus 55?

Yeah, at this early stage it's normal to have a range and we are confident that we will end up in a level close to that one. And only based on the backlog that we had at the year end we would be at 40 and normally you will see increase during the year and the start of the year have also started nicely with new orders.

Moving on to a question from Kristoffer Møllerlöken in Sparbank 1 Markets. Is it possible to disclose the size of additional losses booked in the legacy renewables projects? And please remind us when you expect final delivery of these projects.

Perhaps I can start with the last part of that question. There are two main components. The jackets are being completed at Verdal. It will be delivered this year, installed this year in close collaboration with the client. And the two top sites are also now at Stord. They're also working closely with our two clients and in partnership with Siemens Energy, which has sort of the main completion activity with their products. with their key equipment and on the side of that we have one one activity which is actually about carrying out the carry over work that we have gotten from from one of our subcontractors so all of this is is something that we will are completing and will deliver during during 2025.

Just to add to the first part of the question as well, when it comes to our loss provision, we have increased our loss provision approximately 1 billion during 2024, of which 400 in the fourth quarter and 600 in the first half of the year.

Moving on to a question from Victoria McCulloch in RBC. There have been recently been headlines related to Rosebank and Jackdaw projects in the UK needing to reapply for government approvals. Do you expect this to delay or have any impact on the work?

Again, two excellent projects in the oil and gas segment with two key clients of ours where we are working very closely. If you look at the process in the UK, both Shell and Equinor have welcomed this court ruling. they're stating very clearly that they are continuing on the execution when they are in parallel working with regulators to deliver on these requirements. And towards us, we have full sort of unclear mandate to just continue the execution as planned as we are doing in close collaboration with the client again. And these two projects will be delivered this year.

Thank you. Moving to a question from Erik Aspen Fosso in Carnegie. How do you expect activity and earnings to develop into 2026 and 2027?

Yeah, I can start on that one. We are at a high activity level now in 2025 and also what we delivered in 24. We expect that to also go into 26, but of course the main activity level now is going to be delivered in 26. And therefore we are adding new orders and new work into 26 and 27. And remind everybody that we have a quite flexible setup and cost base. So we have the ability to flex up and down without costing that much because of the way we work with subcontractors, hydrians and quite flexible solutions.

Following up from Mr. Fosso, if you can give some indications on revenue and EBITDA levels for OneSubsea also going forward.

Yeah, I can do that. It's basically a company that is, of course, U.S.-based and reported in U.S. dollars. So the reporting from us is just a translation to Norwegian kroner. But as you will see, there's basically a business that is generating a top line of around... $4 billion and with healthy margins up at around 18%. We expect also that gradually now that synergies are going to come into the earnings. Another important part is that it's a strong cash conversion in that business. And they have already now, after slightly more than a year, been paying back all the sort of outstanding debt that was there initially to the two shareholders. And then they have built up a cash balance that is more than $500 million. And that's why also the board in One Subsea have... concluded that they are going to pay out a dividend of more than $250 to its shareholders in 2025 based on the 2024 earnings. More than 50 million US dollars are coming our way, which represents more than 500 million Norwegian kroner.

A third question from Mr. Fosso on how much losses or provisions did you recognize in the legacy renewables projects in the quarter?

That was what I referred to earlier on. So we increased our loss provision by 400 million. Yes.

Moving on to a question from Lucas Dowell in Arctic. In February last year reported order backlog for 26 of 11.6. Today it's 18.8, meaning that this year we only added 7 billion out of a 40 billion intake. What is now your backlog for execution in 26 and onwards?

Yeah, I will be happy to update you on the exact figures on that when we do our first quarter reporting. And as you have noticed already, we have during this first quarter announced new orders in the range of 15 to 20 billion. That will also then have impact for 26 and 27. So we'll come back with exact numbers later on. But we are building up the order backlog for execution in 26 and 27.

I'll move on to a question from Oskar Runov in Kepler Chevron. Regarding legacy projects, you mentioned the ongoing losses. Recently announced a strong order intake for HVDC projects with RWE. How does the risk profile in these projects compare to the legacy ones?

I can start again. If you look at the legacy projects, these were committed in 2018-19, I would say with not a very healthy split on the risk understanding and the balance of risk and sharing of it. So we are in a too much of a lump sum regime. We did have some first of a kind issues on the design side, meaning that we got some execution issues. And then we had activity level pushed by Ukraine, COVID, everything changing and then having subcontractors not really performing. So that's sort of the headlines of sort of the project explanation. And then into the new contract, as you mentioned, with RWE, that is completely different. We have negotiated the contract in parallel with maturing the design. So both having a design that has all the learnings from the first generation sort of embedded in it. And on the other side, the contract being more reimbursable. So that is one major item, you know, reimbursable contracts with some incentives. The next is sort of a cash positive payment schedule, which means that we are not sort of funding the initiative itself, but we have a healthy balance there. And then the starting point is both competitive margin. Meaning that we can allocate our good people on this because it's margins that is really helping us as a company and also with clear incentives throughout the deliveries. Third item, we are talking about two, it could be three, and we see the copy effect that I also talked about in the presentation that we really need to arrive at as an industry. lean, standardized products delivering in sequences so that we have full control over it. And that's that wave next generation RWE contract.

Yes, I'm full support on that one and also adding that some of the other contracts that we now have booked in first quarter of this year will have a similar type of risk-reward balance. So we are happy with the new orders that we have taken aboard it.

Thank you. Moving to a question from Mick Pickup in Barclays. Can you talk about the pipeline in renewables as many investors are revisiting their medium term ambitions in the space?

Yeah, I think there are many, many, many sort of parts of that answer. You know, what we see or sort of one headline for all of us is really to understand what happens in the US, you know, with the new political, let's call it leadership in that country, which clearly will affect particularly the wind side. We don't have a huge operation there. We have one project to be delivered, and we are in Canada. But obviously, that has been an area of interest. Our main focus is Europe. And what we've said in other settings is that, you know, the ambition level of Europe, Norway in Europe, is enormous. fairly high if you translate ambitions to actual deliveries. We are talking about 1,000 units a year on the windmill side, and the industry is not capable of handling that. So even if you sort of half the ambitions, that will still mean that we will see some bottlenecks in the industry. And then working on that together with operators and call it government and regulators, we can create a healthy pipeline of opportunities where we don't get extreme peaks, but have a sort of steady delivery of standardized components. So that's that's the wind side. I think, you know, we are we are heavily focused on Norway, obviously, and just looking at what the government and the operators did launching the longship project. Now the value chain is there. It's established with capture settings, with the logistics of bringing it to a terminal that we have built in the west coast of Norway, with then pipeline shipment out offshore and deposit in a reservoir at Utsira. That means that we can then start working on the Bolton initiative. The threshold of launching a CCS or a CC project, putting it into the CCS value chain that we have built is obviously a lot lower. So I'm also optimistic on our role there, both on the capture side together with SLB Captura and also on the terminal side that we have now repetitively worked on. And then obviously there are other categories. It's not the biggest part of Walker Solutions, but it's now a healthy part, and that's the hydropower business, where we are on the product side and the system side, with the Scandinavian focus, obviously, but also looking at where else we can be relevant.

Moving on to a question from Borde Roseff in Pareto. If you adjust for the lost provisions on renewables, you had above 9% EBITDA margin in 2024, while you are guiding at between 7% and 7.5% in 2025. Could you please explain what's driving the decline?

Yeah, that has to do with the portfolio. As you know, that the What we would like is also to have incentive into our contracts and deliver on those to cash in on the incentive mechanism. When you look at that portfolio for the time being, a large part of that portfolio will have delivery in 26 and partly into 27. So the upside potential on those contracts will then show up more in 26 and 27 and not in 25. So it's basically... the condition of the current portfolio and where we are. Normally, for a large EPC project, as you know, we don't take out any profit in the beginning until we have passed 20% progress. Then you will have a sort of normal uh profit in in the in the second year of of the execution and then in the third year normally it's three year then you will start cashing in on incentives and free up risk money so that's why yeah moving on thank you idar moving on to a question from daniel thompson in bmp you have proposed a very strong dividend payment for 2025 can you discuss the decision making process to return cash via dividend rather than share buybacks Yeah, we are happy to see that the board is fully supportive of paying out what in this case is 50% of our net income in 2024 for payout in 2025. um and we have uh this is in line with the ordinary dividend policy where we have committed to pay out between 40 and 60 percent of net earnings over time we did some buybacks last year of 500 million in addition to paying out 10 billion in extraordinary dividend and 1 billion in at ordinary dividend last year. So it's just in line with our dividend policy.

Thank you, Idar, and thank you, Kjetil. This was all we had time for today. I would like to thank everyone for tuning in from us. Wish you all a good day. Thank you.