Fourth quarter 2021: Investing along global megatrends
Aker has gone through a year, and fourth quarter especially, with remarkably high activity. Aker and its portfolio companies used 2021 to prepare ourselves for the kind of market volatility we have gone through this year and strengthen the foundation for industry and value development through the cycles.
In the fourth quarter, Aker’s Net Asset Value ended at NOK 69.8 billion, adjusted for dividend. Aker’s share price ended the year at NOK 825, the highest quarter and year-end in Aker’s history. The discount to NAV decreased to 12 per cent and the total return to shareholders in the quarter was 21 per cent, including dividend paid, compared to 3.3 per cent return for the benchmark index.
Aker’s liquidity reserves stood at NOK 7 billion, an increase of NOK 5 billion compared to third quarter, driven by the NOK 4.5 billion sale of Ocean Yield and a divestment of 2.86 per cent in Aker BP for NOK 3.2 billion. This has strengthened Aker’s liquidity and balance sheet and positioned Aker for future market turmoil where we can utilize our abilities to act countercyclically and grow our portfolio through acquisitions, as we have evidenced during previous market corrections. The strategic rationale behind the divestments was to prepare Aker for the kind of market volatility that we have experienced recently, triggered by increasing geopolitical tension, increasing inflation and interest rates.
Global energy demand is recovering from Covid effects, and oil and gas prices are trading at high levels as demand has outpaced supply. This happens at the same time as cost inflation keeps activity below pre-covid levels. Focus on low cost and low carbon footprint is, and will continue to be, an important aspect within the oil and gas sector in the coming years. Aker BP is positioned to take advantage of this market sentiment with a clear future-oriented strategy. It is a strategy that has been in place since the company was founded in 2016 when we created Aker BP together with BP by combining Det norske and BP Norge. Fast forward to today, and we’ve had over five years of excellent collaboration with BP that has provided us with opportunities to position Aker in new areas, like digitalization, offshore wind, and build an oil and gas company of the future.
Rooted in Aker BP’s core strengths – an excellent workforce, low production cost, low emissions, high growth, a strong balance sheet, and an attractive dividend policy – the company will continue its investments in profitable growth, benefiting from the temporary changes in the Norwegian petroleum tax system, and continue its contribution to a lower emissions future. Upstream dividends from the company, which are set to increase, will be an important source of capital for Aker going forward. This can in turn be used to grow and diversify our portfolio, mainly within global megatrends, as the energy transition, industrial digitalization, and health and nutrition, and secure an attractive dividend to our own shareholders.
In December, Aker BP announced a transaction agreement with Lundin Energy AB, pursuant to which Aker BP will take over all of Lundin Energy's oil and gas related assets for a total consideration of USD 2.22 billion in cash and 271.91 million in new shares issued from Aker BP. The transaction is subject to approval by the shareholders of both companies at their respective general meetings, and approval by relevant authorities. After the completion of the merger, Aker will hold a 21.2 per cent ownership in Aker BP. It will remain Aker’s largest asset and is an important part of our Industrial Holdings portfolio long term. Aker has no plan or intention to divest more shares in Aker BP and we appreciate that both BP and the Lundin family have expressed their excitement for, and commitment to, the combined Aker BP and Lundin Energy.
The forces driving global industry and the economy towards a greener and more sustainable future are not just impacting the oil and gas sector. We have in 2021 witnessed a fundamental reallocation of capital from carbon intensive investments to green initiatives. The number of projects and capital required to reach the net zero ambition of the Paris Agreement is tremendous. The estimated investment needed to ramp up adaptation of clean energy and other sustainable infrastructure fast enough to avoid the worst impacts of climate change, made by the Glasgow Financial Alliance for Net Zero during COP26, is in the ballpark of USD 100 trillion. In direct response to this development, Aker established Aker Asset Management (“AAM”) during the quarter. AAM will be headed by Yngve Slyngstad, former CEO of Norges Bank Investment Management (“NBIM”). Yngve will lead the development of the company with his ambition to establish funds totalling EUR 100 billion that will invest in profitable climate solutions that create value focusing on green energy, green industry, and green cities. AAM and Aker Horizons, together with the Aker ecosystem are positioned to play an active and important part in the green shift and the energy transition growth market.
The reason Aker is taking such bold steps is because we firmly believe that we – the industry – are the ones that need to step up to the plate. Governments and companies are making their pledges, but we are the ones that will need to execute. We are the ones with the experience, capabilities, innovation, and technologies to transform global energy systems and put the world on a pathway to Net Zero. We are the ones that need to rethink how we can massively and rapidly step up our shift to a more sustainable trajectory. We only have about 10 000 days until 2050 and there is a long way to go. If all commitments already made are fulfilled in their entirety – global CO2 emissions will only be reduced by 35 per cent. Which is why we at Aker also are such firm believers that digitalization and other new technologies need to be at the core of the solutions.
Cognite has shown us how industrial software products both can help existing businesses to reduce emissions and enhance efficiency – and how the same technologies also can play a vital role in the effort to develop affordable green energy at large scale. The confidence in Cognite and its high potential to transform industry through technology is exemplified by the fact that we recently welcomed Saudi Aramco, Cognite’s digitalization Joint Venture partner in the Middle East, as a fellow shareholder in Cognite, having acquired a 7.4 per cent stake in Cognite from Aker BP. We are thus not only working alongside global technology investors Accel and TCV but are now also joined by the world’s largest oil and gas company. As co-owners and industrial partners we see a bright future for Cognite to shape the digitalization agenda for global industries.
Lastly, I want to mention a third megatrend receiving increasing attention in our investment universe, namely sustainable food production as a vital part of a greener future. Aker has positioned itself for growth in this area through the investment in Aker BioMarine, which promotes human and planetary health by supplying the world with krill, the natural source of nutrients and omega-3. With the establishment of SalMar Aker Ocean we have further strengthened our position. SalMar and Aker combines domain expertise and leading competency from salmon farming, design and construction of offshore installations, industrial software, and green technologies to develop SalMar Aker Ocean to become a global leader within sustainable offshore salmon farming, with the ambition to produce 150 000 tons of salmon annually by the end of this decade. By moving salmon farming offshore, a new era is triggered within the industry with positive effects for product quality and for the environment.
Norwegian authorities are currently developing the regulatory framework for offshore wind, hydrogen, and offshore fish farming, all rapidly growing industry segments in which Norway has a potential to take a pole position globally, partly due to the capabilities in our oil service industry. The competition is, however, already fierce and time is of essence if we should realize the potential of the industrial transformation assumed when the government took action, through the temporary changes in the Petroleum tax system, to maintain competency and capacity in the oil service industry.
Aker delivered significant annual return to shareholders in 2021, with a value creation of 52 per cent, including dividends. Securing attractive dividends to our shareholders is a priority for Aker. Based on the 2021 accounts, Aker’s Board of Directors proposes a dividend of NOK 14.5 per share, and in line with Aker’s policy, a second tranche will be considered by our board in the second half of 2022.
2021 was our year of acceleration, but we do not rest on our laurels. 2022 will be the year of execution in a more turbulent market environment, with increasing geopolitical tension, increasing inflation and interest rates. However, as spring nears, we are attentive gardeners, tending to the parts in our portfolio in full bloom as much as our green shoots. Some more rain near term may positively impact harvesting long term. Aker’s commitment to making a meaningful contribution to a greener and more sustainable future remains unchanged, and the establishment of AAM adds yet another exciting chapter to that strategy.