Aker Solutions Hldg Asa

Hello everyone and welcome to Oxlutions presentation of our first quarter results. My name is Preben Ørbøk and I am the head of investor relations. Today our CEO Kjetil Digre and our CFO Idar Eikrem will give you an update of the main highlights of the quarter. Afterwards we have time for questions. If you are on the audio cast you can ask your questions using the online platform. So with that over to you Kjetil for the presentation.

Thank you very much, Preben, and a warm welcome to those of you who are following us online. We appreciate you dialing in. Let me start on the business update and the key highlights of the quarter. First of all, we keep up our positive development with increased revenues and improved profitability. Our first quarter revenue, excluding special items, was 11.5 billion kroner, which is a 61% increase from the same quarter last year. Our underlying EBITDA was 987 million, with a margin of 8.6%. Our order intake was 7 billion, and our backlog ended at about 69 billion. More than half of our current backlog are projects under the Aker BP Alliance, with balanced risk-reward profiles and upside potential through shared incentives. In April, the Annual General Meeting approved the dividends for the fiscal year of 2023, as well as extended the mandate for the announced buyback program. In 2024, the total shareholder distribution will be around 1.5 billion, or 60% of the adjusted net income, in line with our dividend policy. Second, we are progressing well on our project portfolio, with high activity across our locations. I am proud to see that Akersolutions is engaged in some of the most interesting energy projects around, focused on solving energy challenges for future generations. This leads to a continued positive outlook for Akersolutions. Our large order backlog gives 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. So a key message today is that we are in a good place as a company, which Ida and I will elaborate on in the following slides. Next, let me briefly take you through some of our operational highlights this quarter. As mentioned, we are progressing well on our project portfolio. For the Aker BP projects, activity levels at the yards are picking up. The projects are at the forefront of using new technologies within digitalization and robotization. For example, in Verdal, our fully robotic production line has completed the first sections of the Huginn substructure, which forms part of the Yggdrasil development. The production line is one of the investments we are doing to safeguard the delivery of these projects, improving efficiency, quality and safety in execution. On Equinor's Johan Casper project, activity levels at Stord remain high, preparing the FBSO for sea trials. We are also working on three other FPSO projects at the moment, namely Rosebank for Altera and Equinor, the Skarv upgrade for Aker BP, and life extension of the SeaRose FPSO for Senovus. SeaRose started operating in Newfoundland, Canada almost two decades ago. Currently, the platform is docked at the Harland & Wolff shipyard in Belfast, undergoing modifications to extend its life on the White Rose field to 2038. For this project, Aker Solutions is responsible for providing engineering and maintenance services as part of the long-term frame agreement with Senovus. Johan Sverdrup has been an important project for Aker Solutions and the wider Aker family for more than a decade. From 2012 and onwards, Aker Solutions has played a key role in the design and execution of this development. In the first quarter this year, we completed the hookup and commissioning of phase two of the project, and our involvement continues in the operations phase with our contract for maintenance and modification services to Equinor. In offshore wind, we are working on several HVDC projects for customers in the UK and North America. For the Norfolk Vanguard West project, fabrication has started at our partner yard in Dubai. This is the first of potentially three units for the development, creating opportunities for standardization and industrialization. Finally, I also want to mention our achievements in the CCS portfolio. Together with Aker Carbon Capture, we continued our deliveries towards Heidelberg Materials' Breivik project. This is the cement industry's first full-scale CO2 capture plant, and will capture about 400,000 tons of CO2 yearly. During first quarter, we delivered several key modules and the desorber, and completed a second heavy lift campaign at the Breivik site. The CCS plant forms part of the Norwegian government's longship program, which aims to demonstrate the capture, transport, and safe storage of CO2 from industrial sources. Let us now look at the order intake in the period. In the renewables and field development segment, we booked an order intake of 4 billion in the first quarter. This mainly came from growth in existing projects, but also high activity in our energy consultancy business. In the lifecycle segment, we recorded about 2.6 billion in order intake. This was also mainly from growth in existing contracts and call-offs in frame agreements. In the first quarter, we have won several important feed contracts and consulting service projects. This proves that our competencies and capabilities are relevant in emerging industries. Particularly in our energy consultancy, we are facing high demand for our services. In the first quarter of 2024, we have worked on more than 170 projects compared to around 300 projects for the entire year of 2023, and about 150 projects in all of 2022. This is the result of a focused growth strategy where customers appreciate our broad energy capabilities, our project experience, and our holistic understanding of the value chains across several market verticals. Industrial decarbonization is a main concern for both policymakers and asset owners globally, and we have a key role to play. Arca Solutions is currently engaged in several studies to help design and integrate various technologies to reduce carbon footprint within power generation and refineries. We are also experiencing high demand for our specialist offshore design and marine engineering capabilities. One example is the 1 gigawatt Havori floating offshore wind project, currently under development by Copenhagen Infrastructure Partners. Together with floating foundation specialist Principal Power and our own marine engineering and execution provider, Windstaller, we are supporting the client in achieving this innovative floating wind development in South Korea. At the end of the quarter, our tender pipeline was about 58 billion. Norway and Europe are still our biggest markets with around 70% of the pipeline. We see a good mix between traditional oil and gas developments, decarbonisation projects and renewables opportunities in the pipeline. We remain highly selective on which projects to target. We only focus on projects with the right risk-reward balance, and therefore we target customers and strategic partners who see the value of working closely together over time with aligned incentives. We work in geographical regions we know well and where we have established relationships with local stakeholders. And lastly, we are focused on identifying scopes of work where we can contribute with the full breadth of our capabilities. This takes me to the general outlook for Aker Solutions. I am pleased that we keep meeting our financial targets while positioning the company for profitable growth. We have a large order backlog, mostly from projects with Aker BP under the proven alliance model. Together with our partners, we focus on delivering predictable project execution in balanced risk-reward models that have shared incentives. We are active in tendering across segments, which allows us to choose carefully the opportunities we pursue. Finally, our financial situation is robust, and this gives us a strong foundation to grow the company and generate stable and solid returns for our shareholders. And now I will pass the word to Idar, who will go over the numbers in more detail. Thank you.

Thank you, Kjetil. I will now take you through the key financial highlights of the first quarter, 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 first quarter revenue was 11.5 billion, up from 7.1 billion a year ago. This represents about 60% growth year on year. The underlying EBITDA was 987 million, up from 247 million a year ago. The EBITDA margin was 8.6%. This was driven by good progress on our project portfolio, as well as oil and gas projects reaching profit recognition milestones in the quarter. In addition, our share in one subsea contributed with 195 million in the quarter. The underlying EBIT was $723 million, up from $98 million a year ago. Net income, excluding special items, increased to $690 million from $452 million a year ago, positively impacted by the increase in SLB share price during the quarter. Earnings per share was 1.40 kronor, up from 0.92 kronor a year ago. In April, we paid out dividend of 2 kronor per share. In addition, we have continued with our share buyback program, having acquired about one third of the announced volume at the end of the first quarter. Let us now look at our financial position. We start with our working capital, which at the end of the quarter stood at minus 8.8 billion. As stated before, we expect working capital to normalize as we execute on the large order backlog, which is forecasted as a cash outflow of around 4 billion in 2024. CapEx in the first quarter was around 600 million. This mainly relates to the planned investment to safeguard execution of the large oil and gas projects. We continue to have a solid net cash position of about 9.4 billion. This includes about 6 billion kroner of financial investments in liquid funds, which is not treated as cash under IFRS. Let us now look deeper into our cash flow development in the quarter. Operational cash flow in the period was 1 billion, mainly driven by the EBITDA in the quarter. CapEx was, as mentioned, 583 million, in line with our guiding. During the quarter, we made financial investment in liquid funds of another 3 billion kroner. Financial payments was negative 373 million kronor. This includes 152 million in acquisition of treasury shares related to our buyback program. Lastly, we have also had a positive exchange effect of about 153 million during the quarter. Now over to our segments. For renewables and field development, the first quarter revenue increased to 8 billion, up from 4.1 billion last year. The underlying EBITDA in the quarter was 617 million, up from 171 million a year ago, with a margin of 7.7%. This was positively impacted by projects reaching profit recognition milestones in the quarter. However, underlying margins are still negatively affected by projects yet to reach profit recognition and legacy renewable projects. The order intake in the quarter was 4 billion or 0.5 times book to bill. This was mainly driven by growth in scopes on assisting projects. The secured backlog remains high at 47.5 billion. Based on the secured backlog and market activity, we now expect the revenue in this segment to increase by about 50% in 2024 from 2023 levels. For the lifecycle segment, the first quarter revenue was 3 billion, which is slightly above the same period last year. The underlying EBITDA in the quarter was 195 million, up from 161 million a year ago, and with a margin of 6.4%. Order intake in the period was 2.6 billion, or 0.9 times book-to-bill. The backlog remains solid at 20.3 billion, dominated by long-term frame agreements and reimbursable modification projects with long-term customers. We expect the lifecycle segment to continue at close to 2023 levels also in 2024. The one subsea entity reported revenues of NOK 9.8 billion with an EBITDA margin of around 18% in the first quarter. Net income for the entity was about NOK 1 billion before PPA adjustments. After these adjustments, Arcus Solutions recognized 195 million as our 20% share in the net income from the entity. One subsea has a solid backlog of about 47 billion Norwegian kroner at the end of the quarter. Now over to order intake and backlog. Our backlog remains high at almost 70 billion, providing good visibility on future activity levels. More than half relates to the project to be executed in the well-proven alliance model with ArkeBP. This is a very good position to be in, and as Kjetil mentioned, our focus is to continue delivering predictable and solid execution to harvest upside potential and incentives. Now to sum up. In the first quarter, we continue to deliver strong financial and operational performance. Based on a secure backlog and market activity, 2024 revenues is now expected to grow about 30% in 2024 compared to 2023. EBITDA margins are expected to be between 6% and 7% in 2024. In addition, one subsea will contribute to our financial performance through our 20% ownership. The CAPEX for 2024 is estimated to be between 2.5% and 3% of revenues as we execute on our ongoing investment program to safeguard the large oil and gas projects in Norway, enabling us to utilize new technologies and digital solutions to enhance efficiency, quality, and safety. 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 4 billion during the year. And the outlook for the company and for our industry is very positive, and Arket's solution is in an excellent position to take advantage of the opportunities ahead. Thank you for listening. That was the end of our presentation. We will now open up for questions.

The first question today comes from Kate Somerville in JP Morgan. Given that more than 50% of your backlog is from AKBP, where should we expect to see future order intake being driven from? Do you have a good visibility from AKBP in the medium term and where else do you see growth?

Yeah, first of all, you know, Aker BP as our sister company, we have a very close interaction with long term frame agreements with the alliance set up and we are running a huge and interesting portfolio together with them now. So and then the visibility with Aker BP as a forward leaning operator with focus on the Norwegian continental shelf is similar to the development of the overall direction for the Norwegian continental shelf. a lot of sort of lifetime extension kind of projects that will be part of our lifecycle segment tasks and also an increased activity around subset tiebacks where we are also then handling the topside modifications and in that we are working very very closely with RKBP. And then to where we are seeing opportunities in addition is obviously across our segments. You know, it's a balanced opportunity set. We have close to 60 billion knock in our tender pipeline. And beyond that, we're also working on a lot of prospects in all segments, which not yet shows up in our tender volume. And I think some headlines to the kind of projects that we have on the opportunity radar is classical oil and gas projects. they are they are some in norway and also elsewhere where we are globally present uh on particularly in norway and and also now growing in uk the electrification projects which will be a huge portfolio type tiebacks that i mentioned and lifetime extensions And then also in our lifecycle segment, we see long-term frame agreements with our key clients that are up for renewal, which is really looking many years ahead. And then within the renewables, you know, offshore wind is moving and we are highly selective on which kind of projects and which clients we work with. A lot of opportunities there, not only then isolated around offshore wind, but also in connection with electrification initiatives for oil and gas projects. So all in all, a very balanced, interesting set of opportunities across our segments and across our global setup. And again, just to repeat, we are very selective on which projects that we take on.

That takes me to the next question from Martin Carlsen in DNB. The total value of tenders is down around 20% compared to last quarter, with a 40% reduction in the North Sea. Would you provide some background on the reduction of value of outstanding tenders?

Yeah, you win some and you lose some. So that is the direct explanation to that. You know, we were engaged in the net zero T side feed, but that was won by Technip. So those forecasts are out of our number. But then if you look at how we define, you know, our tender pipeline, some of the bigger and interesting prospects that we are working on in close collaboration with potential clients are not yet showing up in the tender number.

Moving on to two questions from Victoria McCulloch in RBC. Within the tender pipeline, what is the rough split between oil and gas and renewables? And has this mix changed? And the second one, renewable fuel development, EBTA margins increase materially in one queue. What do you expect to see from this margin for the remaining quarters based on the current backlog?

Yeah, if I can just start with one comment, you know how this has changed. We are mainly stable within the proportion of renewables and energy transition projects. But lately then, our oil and gas projects have increased. So that has shifted the split somewhat. But again, Ida, you can give me some of the numbers.

Yeah, it will vary from one quarter to another depending on which one comes in and which one goes out. And I think the most important one is also that it shows that we are demonstrating our ability to be selective on what to take on board and what not to take on board. When it comes to the second part of this and the margins going forward for the renewable and field development, You see uptake in the margin in the quarter. It's positively impacted by the fact that we have now started profit recognition of a project within the Aker BP Alliance. There are four projects and two are still to come when it comes to margin recognition. So we are happy with the underlying performance in the quarter. And as I said, the margins is positively impacted by a positive one-time effect in this quarter. However, it's also lower than sort of a full run rate on all these projects due to the fact that some of the project has not started recognizing profit yet and as well our legacy renewable project is a drag on the margin.

yeah maybe following up with a question for martine kvarna first say congratulations on the results i think you've already answered the question the first part of that question need that on elaborating on the margin developing in renewable field development but there's also the question on the life cycle which had an improvement in margin if there's any extraordinary elements affecting the margins

I think the answer to that is that within Lifecycle, we work with key clients year on year, and we are now focused on making sure that there is a good and solid margin level in the frame agreements as a basis. And then many of these projects are also linked to performance-based incentives. And this segment in Arc Solutions is really known for delivering and more and more we are actually achieving these incentives. I think that's a way of working that we like because we want to work closely with clients. We want to understand all the risks and also upsides. And the risks and upsides that we handle, we can actually have incentives and achieve that through well executed projects.

And just to add that there is no single sort of one time positive effect. It's demonstrate continuous improvement in this segment that we have been working over time and the margin have been sort of between five and six percent. And now we see six percent plus in the segments, which we are very happy of.

Moving on to a question from Kristoffer Mølleløken in Sparbank and Markets. You upped your revenue guidance for 2024 today. Would you say it's a reflection of expected work in 2025 and 2026 moving forward, or is it more of a reflection of planned 2024 work increasing in scope?

It's a combination of that and as you see we have announced order intake of 7 billion mainly coming from growth in the existing portfolio and as well as some adjustment in the forecast year of execution.

Then I think a follow-up there in a similar topic from Kim Uggedal in SEB. How much of the increased 2024 revenue guidance will you say is projects moving forward from previously anticipated 2025 execution?

It's mainly growth in existing one for 2024.

Just to be more specific, this is not projects that are accelerated from 2025 to 2024. It's growth in tasks planned for 2024.

Moving to a question from Mick Pickup in Barclays. What has changed in your view for the renewable field development revenues, taking it from 25% to a 50% increase in the guiding for 2024?

Yeah, it's when we see the activity level and update our forecast, we see that based on both growth that you have seen this quarter and what we see coming in the pipeline then and maybe combined with slightly conservative estimate at the year end, we now see and more confident that this will be at a 50% growth level compared to 2023.

Moving on to a question from Daniel Thompson in BNP. Are there still one-off integration costs included in the 195 million one subsea contribution? And should we expect the same level of margin and pass through from one subsea EBTA?

Yeah, they are still in the early phase. So some sort of startup and integration cost is to be expected in the numbers in the first few quarters.

moving next question thank you from russell sarank in upstream 170 projects in arc solutions engineering consultancy what's the geographic spread the type of work and are they mostly oil and gas

Well, this is a reference to the activity within engineering consultancy. And there we have a very good balanced activity across the different energy verticals. And I would say more and more into the into the segments like hydrogen carbon capture and storage offshore wind and the likes but then also core activities within classical oil and gas gas projects the geographical spread follows the the strategy of Aker Solutions where we are focused on obviously a whole market in Norway but also the hubs we have globally where we have good presence and good control over a long time being then UK, Canada etc.

Next question comes from Lucas Daul in Arctic. If you can describe more in detail scope of activities within carbon capture and how will the JV between Aki Carbon Capture and SLB impact you?

Well, we have a close relationship with Aker Carbon Capture, obviously through the projects we are executing in Breivik and now have started at Klemmetsru in Oslo. So that's sort of a main collaborative partner. We are in, for instance, consultancy also looking at tasks where we are handling other technology providers. So as we are technology agnostic, but a close relationship with ACC. Our task in these projects is to integrate that technology into a larger industry setup. So when for instance we do that for an existing cement factory, it's about bringing the carbon capture technology from ACC into that plant and integrate it with both process systems and utility systems so that they have control of the totality. So really having an integrator and system provide a role in this. And then to the agreement between ACC and SLB, we have had good discussions with the new quality stakeholders and our plan and strategy together with them is to continue this good cooperation and look for growth opportunities.

Next question comes from Eric Aspen Fosso in Carnegie. A few questions there. You lift the guidance for 2024. Do you expect to continue growing into 2025 and 2026? Second part of that, can you explain the decline in EBITDA for one subsea? And what is a fair quarterly EBITDA level expected going forward? If you can start with those, Idar.

Yeah, take the one Sabsi first. I think detailed questions about their performance you need to address to SLB. We see that revenue-wise close to 10 billion each quarter and a margin that is slightly lower than 20%. happy with that type of performance and they have also good growth possibilities going forward. Then it was the guidance for 2024, and if we expect to continue growing it into 2025 and 2026, based on what we are working on, etc., and when we conclude both the tender pipeline and update of revised forecasts going forward, we'll be happy to come back and provide that, but we are confident that The guidance that we have now lifted the top line from a 15% growth to a 30% growth is well within reach.

Moving to a question from Oscar in Kepler. Given the increase in revenue guidance with CapEx guidance remaining unchanged at 2.5% to 3% of revenues, this implicitly expected CapEx spending has gone up. Please elaborate on the reasons behind the increase.

I don't think you should read it in that way. There is a range of 2.5% to 3% of revenue. And based on the increased top line, you should rather see that we are coming in closer to the lower level of the range.

um one question here from daniel thompson on the uh from bmp if you can please update us on the formation of the financial vehicle mentioned in the fourth quarter provide us any further color on the timing of the return to shareholders uh of the uh three billion in transaction proceeds and receivables from the one subsidy jv

There are a couple of other questions related to the same topic. It's about capital allocation. We revised our dividend policy and communicated that last quarter. 2024 is a year where we are going to collect most of the money from the subsidy deal. Only 621 was on our balance sheet at year end, and the rest is coming in now over the next 12 to 18 months. So we will collect those. We will handle the working capital reversal and the cash outflow related to that and we will complete our investment program and then we will come back to you and everybody else when it comes to dividend and dividend policy update and capital allocation at year-end. This entity that we announced at year end, I think some of you and maybe us put too much into it. It's not a permanent setup where we are going to be a capital sort of entity for the long run. So happy to come back and update you with the forecast next time we are discussing dividend policy and capital allocation.

Then a question from Emil Watneu. What are your thoughts on the world macro at the moment? Energy prices and conflict in the Middle East could lead to interest rates being higher and longer, and you could see a decline in demand. How would such a scenario impact our solutions?

Well, if you zoom out, it's obviously a really high degree of volatility. And secondly, if you add that to the energy trilemma that we are working on, all of us, it obviously is quite a lot to handle for all of us. But then if you zoom or translate that to our solutions and which topics that is for us, first of all, It means that our strategy and tactics of being very selective on what we do, with whom and where, that really fits that volatility. Secondly, we have a strong global system around things like supply chain and an awareness of which kind of contracts we are entering into and how they sort of honor the volatility through indexes and the likes. And then thirdly, we are a solution provider. We are not producing any of these products. So our solutions fit several energy verticals. And when we are now moving forward, we are present in most of the energy mix. And that gives us an optionality. It gives us relevance. And it's an excellent sort of starting point for selective and controlled growth.

A question from Russell Seranki at Upstream. If you can comment on the outlook for the FPSO market and do you see new builds coming up or will it be more redeployment?

Well, the split there is obviously a bit difficult to predict, but we see it coming in all parts of the FBSO market and different geographical locations. And we are involved in redeployments through our engineering capabilities at the different locations and in our partnerships with with yards like the ones we have in Dubai, but also looking at new build tasks, which we are more sort of known for through the big projects like Kasberg and the likes. So this is a market we are following closely and we have different ways of entering into it, depending on whether it's redeployment or new build.

That concludes the Q&A session and today's presentation. Thank you all for listening in and from all of us, we wish you a good day.