Annual Letter 2021: A future-oriented Aker
Aker is changing. 2021 was probably the most active year in Aker’s 180-year history. Measured in billions of kroner, we have never generated greater value for our shareholders. Now, the most important thing is to implement and deliver through action for continued value creation.
In 2021, shareholder value – the change in the share price plus dividend paid – increased by NOK 21.4 billion. Aker’s Net Asset Value (NAV), including dividends, rose by NOK 18.2 billion to a record NOK 69.8 billion at year-end. This corresponds to a 52 per cent growth in shareholder value, and a 34 per cent rise in NAV in 2021. Only three times since Aker was relisted on the Oslo Stock Exchange in 2004 has the percentage increase been higher: in 2005, 2006 and 2016. Measured in billions of kroner, however, our value creation has never been higher than in the year we have now put behind us.
At the same time, developments in the first few weeks of 2022 show that what goes up must come down. The start of the year has been affected by geopolitical tensions and nervous capital markets. The situation escalated with Russia’s invasion of Ukraine on 24 February. This is a serious setback for global democratic and economic development. At the time of writing, there is no way of predicting with any certainty how the international crisis will play out.
One thing is clear, however. There is a great deal of uncertainty, and both share prices and oil prices are volatile. In some periods, they fluctuate more than in others, and geopolitical crises cause the pendulum to swing even more strongly. This is the nature of the oil and stock markets, but does not change Aker’s long-term industrial development.
The start of 2022 illustrates how important it is for Aker to have a portfolio with different characteristics and operations that are well positioned in relation to global megatrends. Aker’s investments in the green transition have been made possible by dividends from Aker BP. Oil and gas-producing companies are experiencing substantial earnings, primarily because demand for oil and gas has risen faster than most people expected after society’s gradual post-pandemic reopening. Many believed that consumption would never return to its pre-pandemic level.
That this prediction was way off base has come as no surprise to Aker. The level of investment in the oil and gas industry has fallen steadily over the past few years, while OPEC has withheld production from the market. Output has therefore been lower than demand for many months. In the past year, this resulted in historically high withdrawals from both oil and gas inventions. At the same time, Russia’s military invasion of Ukraine is the largest human and geopolitical crisis in Europe for decades. As a consequence, oil and gas exports from Russia may be cut off. Russia is the largest exporter of gas to Europe, and is the world’s second largest exporter of oil – after Saudi Arabia.
At a time when the value of “green companies” has fallen on global stock markets, oil and gas companies have earned more than ever before as a result of oil prices in excess of USD 100 per barrel at times and a gas price per barrel of oil equivalents produced of more than twice that figure. In this present decade, there will probably be substantial fluctuations in global energy prices. However, Aker is well positioned to meet uncertain times, thanks to its portfolio of companies in the oil and gas market, renewable energy, green technologies, industrial software and active asset management.
A more future-oriented Aker
In the past two years, Aker has worked quickly to evolve its portfolio of industrial companies. The result is a more future- oriented Aker. The portfolio has become even more diversified. The figures and actions bear witness to a whirlwind transformation:
- At the start of the transitional year 2020, oil and gas accounted for 75 per cent of Aker’s gross asset value, industrial software accounted for 0.1 per cent and renewable energy stood at zero.
- At the close of 2021, oil and gas accounted for 53 per cent of gross asset value, renewable energy and green technology companies have surged to 23 per cent, while industrial software has grown to 9 per cent.
- Aker plays a key role in the development of Aker BP. The oil and gas company is growing, as is the dividend payout. And we aim to achieve the industry’s lowest emissions and costs per barrel of oil equivalent produced.
- Aker Solutions is back on track for growth, both within the oil service sector and new focus areas. At the start of 2022, renewable energy and low-emission solutions accounted for approx. 30 per cent of its order book. The temporary changes in Norway’s petroleum tax regime have triggered important projects and secured both the competence and capacity to accelerate the transition to green and renewable industries.
- Aker Horizons has created a solid financial foundation for industrial investments in renewable energy and green technology companies. The company is a driver for decarbonisation and environmental improvements.
- Cognite has gained international star status. Two of the world’s most well- reputed technology investors, Accel and TCV, and the world’s largest oil company, Saudi Aramco, are co- owners and industrial partners. On the technology and market side, the company partners globally with Microsoft and Accenture.
- The focus on seafood and marine biotechnology has been expanded through Aker’s partnership with SalMar, one of the world’s leading producers of farmed salmon. Together, we have established the offshore aquaculture company SalMar Aker Ocean.
- Active asset management has been established as a new business area, on an equal footing with our industrial investments. Aker Asset Management (AAM) has three target areas: green energy, green industry and green cities.
- Aker’s financial muscles have become even stronger after the divestment of Ocean Yield and the sale of a tranche of shares in Aker BP. These transactions have released NOK 7.7 billion of cash
Asset value has surged and the composition of the portfolio has changed. In the next few years, more than 90 per cent of Aker’s cash flow, in the form of dividends from portfolio companies, will come from Aker BP. Aker will channel this income into new and green investments, and secure an attractive and predictable dividend for Aker’s shareholders.
We have established a firm foundation on which to build Aker’s future. Aker and our portfolio companies have strengthened their position and will play an active role in solving challenges and creating value linked to three megatrends: rising demand for energy, industrial digitalisation and health/nutrition.
Rising demand for energy
The world’s need for energy is rising fast, while emissions must be reduced. Oil and gas will be an important part of the energy mix for decades to come. At the same time, we have only seen the start of the transition to significantly more renewable energy. Here, Aker and Aker- owned companies will help to make a difference.
Powerful forces are pulling the world in the direction of sustainable societies based on renewable and green energy. This is a positive and necessary development. Through Aker Horizons, Aker Solutions and AAM, we are seizing new opportunities. Our partner, and the CEO of AAM, Yngve Slyngstad, aims to raise EUR 100 billion to infrastructure funds that will help towards the energy transition and green restructuring.
The figure equals just 0.1 per cent of the amount that Mark Carney, the former governor of the Bank of England, told the COP26 climate change conference would be needed to finance the green transition.
Although industry’s need for software and digital solutions is accelerating fast, it has barely left the starting gate. The consumer market is decades ahead of industry in the use of technology to streamline and rationalise its day-to-day operations.
Cognite’s flagship – Cognite Data Fusion – gathers, processes and presents vast amounts of data to industrial companies. The data is shared in real time to optimise and monitor production, warn of irregularities, reduce energy consumption, limit emissions and plan maintenance activities, etc.
Aize is a newcomer to Aker’s industrial portfolio. The company develops applications that accelerate industry’s digital transition. Aize works with a groundbreaking technology product that will be used on the upcoming NOAKA development on the Norwegian continental shelf. It will give developers and licence partners considerable time and cost savings in areas such as engineering services, procurement and fabrication.
We have just seen the start of industry’s digitalisation process. For tomorrow’s competitive companies and supply chains, there is no avoiding the utilisation of technologies that people understand and that contribute to the efficient performance of work tasks.
More food from the ocean
So to the third megatrend. The focus on health and healthy food is increasing in line with population growth and an expanding middle class. Sustainable food production will be an important part of the green transition.
Aker has core competences with respect to the ocean and marine proteins – both as an industrial player and as one of the co-founders of the environmental and marine technology centre HUB Ocean (formerly C4IR Ocean), in partnership with the World Economic Forum. Almost 70 per cent of the globe is covered in ocean, but less than 5 per cent of what we eat comes from the sea. This percentage must rise to meet the world’s growing demand for food.
Aker BioMarine possesses fisheries- related competence. The company develops, produces and sells krill-based ingredients for fish feed and petfood, as well as products for the consumer market. These are growing market segments.
With the newly established SalMar Aker Ocean, we are taking a position in a global growth market. SalMar and Aker combine industry expertise and state-of- the-art competence in the fields of salmon farming, the design and construction of offshore installations, industrial software and environmental technology. Our ambition is to build an internationally leading company which, by the close of 2030, sustainably produces an annual volume of 150,000 tonnes of salmon at offshore fish farms.
Value creation through action
Our course is set, and we have made changes to the portfolio that will affect Aker in the years ahead. We have paved the way for us to realise the potential of what we have started. Aker strives constantly to improve what we already own, and it is well known that transactions are part of our DNA.
In 2022, there are five items on my list of main priorities:
- Complete the announced transaction between Aker BP and Lundin Energy. Complete the successful merger of these two businesses into one powerful corporate culture. Further develop one of the world’s most efficient oil and gas companies to achieve ever lower costs and emissions per barrel produced. Ensure the NOAKA development stays on track in terms of time and budget. Continue assessing transaction opportunities on the Norwegian continental shelf.
- Reinforce the Cognite team for further growth. In impressive fashion, John Markus Lervik has built the company together with Aker from zero to “unicorn” status, with a market value of over USD 1 billion prior to listing on the stock exchange. Cognite is entering a new era. Together with partners like Accel, TCV and Saudi Aramco on the ownership side, and partnerships with Microsoft and Accenture on the market side, we will take steps to further strengthen Cognite.
- Establish AAM by recruiting the best asset managers and launching the first fund management operations. Tie capital more closely to industry. Together, AAM and Aker’s industrial operations have the opportunity to create something unique, which can realise, accelerate and finance important projects that help develop climate-friendly solutions and contribute to the green transition.
- Develop Aker Solutions by maintaining a high level of activity in its core business of oil and gas, while simultaneously growing in new, green industrial segments.
- Build SalMar Aker Ocean, in conjunction with our partner SalMar, to become a leading player in offshore aquaculture, which represents a new, exciting and sustainable era for the salmon farming industry. The plan is to start up production in 2023. Investment decisions for a further two offshore fish farming facilities are being prepared. In eight years, our ambition is for SalMar Aker Ocean to produce as much as SalMar does today.
To sum up: ambitious plans will be converted into actions, results and continued high returns for our shareholders.