AKER ASA Aker's course charted towards long-term industrial development remains firm, albeit with greater focus; concentrated on fewer and bigger portfolio companies, prioritizing investments that provide current returns and upstream cash. Not only does it increase our ability to seize investment opportunities, but also ensures continued reliable dividends for shareholders in the years to come.
This year marks 20 years since Aker was re-listed on the Oslo Stock Exchange, and 15 years since Kjell Inge made his comeback as Board Chair and I stepped into the role as CEO. The period can be summarized as follows: booming business activity and significant shareholder value created. The share price opened at NOK 61 on September 8, 2004, and ended 2023 at NOK 666. During the same period, Aker paid a dividend of NOK 299.50 per share. In other words, an initial investment of NOK 61 has grown nearly 16-fold to NOK 965.50. On average, shareholders have received a 25 percent annual return on their investment, measured as a combination of share price development and dividend. By comparison, the Oslo Stock Exchange's main index, OSEBX, has delivered an average annual return of 10 percent. Aker's active ownership generates an excess return. However, the progression is not linear. Some years will witness an upswing, others a downturn Since 2004, we have experienced 14 years of positive return and six years of decline. Two of the latter were 2022 and 2023. Last year, the Aker share, including dividend, generated a negative return of 3.3 percent. Net asset value decreased from NOK 66.9 billion to NOK 63.2 billion, after NOK 2.2 billion of dividends were paid. Over the long term and through cycles, Aker is at its best. This has been proven through history and it is, of course, also the ambition for the future. In 2009, we charted a new course for Aker, transitioning from a parent company in an integrated industrial group to an industrial investment company focused on portfolio companies and active ownership. The starting point was a share price at NOK 137. Over the course of 15 years, it's increased to NOK 908, including dividends of NOK 242 per share. Value-adjusted assets under Aker's active ownership have increased from NOK 20.7 billion on December 31, 2008, to NOK 72.2 billion, while Aker has paid out a total dividend of NOK 18 billion during the same 15-year period. The numbers tell a story of a far higher return than with investments in an index fund. The table below shows Aker's average annual return - share price plus dividend - compared to the OSEBX from January 1, 2009, to January 1, 2024.
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Aker's industrial core is the same today as it was 15 years ago, but the content has evolved and the portfolio has become more diversified. Around 70 percent of Aker's assets are companies that were non-existent in 2009. At the same time, Aker's portfolio has become more liquid, with listed shares and cash making up almost 80 percent.
The portfolio is still heavily tilted towards oil and gas. However, measured in value, the center of gravity has shifted from Aker Solutions to Aker BP. Oil service accounted for just over half of Aker's values at the start of 2009, compared to 13 percent as of January 1, 2024. Oil and gas production has grown from practically zero to 55 percent. Aker Solutions remains the industrial foundation. Without Aker Solutions, it is unlikely there would be any Aker BP. The combination of Aker, Aker Solutions, and Aker BP has been important for the establishment of Cognite, Aker Horizons, Aize, and Industry Capital Partners.
Aker's upstream cash, in the form of dividends from portfolio companies and capital freed up from selling shares and businesses, is the cash flow that contributes to industrial development, renewal, and dividends to shareholders. Aker's dividend income is a crucial management instrument.
In 2009, the total dividends to Aker from the portfolio companies was NOK 137 million. In 2023, the total dividend flow to Aker reached NOK 4.4 billion, up 60 percent from the year before. In the period 2009-2023, the portfolio companies have paid a total of NOK 24 billion in dividends to Aker.
Aker BP stands out as a major dividend generator. Since its established in 2016, Aker BP has contributed NOK 14.1 billion in dividends to Aker. Last year alone, Aker received NOK 3.1 billion from Aker BP. And more is in the pipeline. In February this year, Aker BP announced that it would increase its dividend for 2024 by approximately 9 percent, to USD 2.4 per share.
This year, Aker Solutions will double its dividend. The company's dividend policy has been adjusted upwards, from a target of paying annual dividends of 30-50 percent of adjusted net profit to 40-60 percent going forward. The company has also implemented a share buyback program of up to NOK 500 million.
Solstad Maritime, which is a newcomer to Aker's industrial portfolio following the refinancing earlier this year, is also expected to be a solid contributor of dividend income to Aker from the second half of the year onwards. The combined dividend from Solstad Maritime, Aker Solutions, and Aker BP, compensates for the fact that American Shipping Company (AMSC) will not be paying Aker an extraordinary dividend in the billion kroner class this year, as it did in 2023.
Going forward, cash will become an even more important component in Aker's value creation. When allocating capital, we will give priority to investments that also generate a running return in the form of dividends or interest income. The objective going forward is to achieve an annual growth in value-adjusted equity of at least 10 percent. The policy of paying shareholders a dividend corresponding to 2-4 percent of value-adjusted equity each year will be upheld. The ambition is for net interest-bearing debt to move steadily closer to zero in 2027.
Instead of spreading our efforts across multiple sectors and companies, we will devote more time and resources to established portfolio companies, where Aker's industrial system can make a difference and continue to generate value. Aker companies are notably well-positioned in international growth markets in the energy security, energy efficiency, and energy transition sectors. Spearheading this endeavor will be Aker Solutions and Aker BP. Aker Horizons is focused on renewable energy and green technology.
ICP is narrowing its focus to investing in listed companies and in infrastructure projects relating to green energy and green industry. Cognite, Aize, and Omny are industrial software companies with leading companies in the energy sector already on the customer lists, and each with significant potential. A new contributor this year is Solstad Maritime, which owns and operates a modern fleet of offshore vessels and which is growing within offshore wind and renewables.
Within marine biotechnology and seafood, we will assess strategic alternatives and transaction opportunities for both Aker BioMarine and SalMar Aker Ocean. The same applies to our portfolio of financial investments - whether they are listed companies or more recent startups in which Aker has invested venture capital.
Aker has an ownership agenda for each portfolio company, where topics relating to environmental, social and governance (ESG) issues are an integral part. The ownership agendas contain priorities and initiatives that are adjusted in response to market developments, unexpected incidents, or opportunities that may arise. At Aker, we implement measures and make adjustments that we can directly influence and control. The backdrop is continued macroeconomic uncertainty. External factors are still affected by Russia's war on Ukraine, war in the Middle East, geopolitical instability, volatile oil prices, inflation, high interest rates, and fear of recession.
Aker BP and Aker Solutions will persist as two pillars underpinning Aker's value creation and sources of capital for dividend payments. The two companies account for two-thirds of Aker's value-adjusted equity and will represent an even larger share of Aker's dividend income in the coming years.
For both Aker and Aker BP, the main priority currently is to ensure that development projects of approximately NOK 200 billion until 2027 are carried out according to plan, within budget, and in a safe and secure manner. At the same time, Aker Solutions has to execute and deliver top quality and with financially satisfactory margins on its NOK 73 billion order reserve at the start of 2024.
For Aker, the oil and gas industry will remain an important driver for value creation in the years to come. Aker Solutions is growing in the field of low-emission technology and renewable energy. Aker BP remains a pure-play oil and gas company on the Norwegian Continental Shelf (NCS), with the lowest costs and emissions per barrel. Globally, Aker BP is a top-tier player when it comes to low cost, low emissions oil and gas production.
The world needs oil and gas, and because it is vital to produce these commodities while keeping emission levels as low as possible, the world needs more companies like Aker BP. The transition to renewable energy takes time, yet the world's energy demand is rising in line with population growth and increased prosperity. Too little is still being invested in offshore wind power, onshore wind power, upgrading existing hydropower, solar energy, and nuclear energy. Oil and gas will continue to be a significant part of the energy mix for decades to come, and it is becoming increasingly important to minimize both emissions and costs of production.
At the same time, we have to live with increasing pressure on the oil and gas industry. The pressure comes from environmental and non-governmental organizations (NGOs) and parts of public opinion, and the wave of sentiment is impacting both Norwegian and international politics. The few short years until 2030, when the Paris Agreement's ambitious goals are due to be met, are flashing by.
In my view, there is a gap between what the global community aims to achieve with regard to climate change - and reality. Emissions deriving from economic activity, the speed of the energy transition, and the actual changes occurring to the climate do not always align with the goals we are collectively striving to achieve. At a time of geopolitical uncertainty, it is also important to understand the significance of energy security and stable prices.
A natural consequence is that realistic short-term climate targets should be adjusted in line with the transition that is actually unfolding. Regrettably, the energy transition is happening more slowly than we would like. The transition has to happen, but it will take longer than predicted just a few years ago. Harsher measures lie ahead if we are to resolve the world's climate and environmental challenges. At Aker and Aker-owned companies, we are working together - and individually - to be part of the solutions.
For the first time ever, Aker is producing an integrated annual and sustainability report. The objective is to communicate a holistic picture of our financial results and report on sustainability development, as well as highlight how Aker works with ESG-related issues and manages risk. Creating value for society and our shareholders, strengthening the competitiveness of our portfolio companies, and taking care of people and the planet are an integral part of Aker's strategies and business development.
The EU's Corporate Sustainability Reporting Directive (CSRD) outlines new requirements for how companies in the future should report their endeavors in the field of ESG. Compliance in practice is the moment of truth.
At Aker and our portfolio companies, we have prioritized and invested in sustainability-related efforts for many years. Boards and managements have become more knowledgeable, and we have established a network of specialists who are driving the effort to integrate sustainability and financial reporting. Digital tools are used effectively to process data and provide valuable insights and comparable information about Aker companies. Although much remains to be done to comply with any future new requirements, I am confident that the foundation that has been laid provides Aker and portfolio companies with a solid starting point.
Sustainability is about more than just environmental concerns. This becomes particularly evident in challenging times, like those we are currently navigating - marked by war, geopolitical conflict, heartrending destruction and polarization. Authoritarian regimes are gaining ground in several countries, often at the expense of democratic ideals and human rights. It is a continuous struggle to ensure and safeguard equal rights and equality for all.
For business enterprises, this can pose significant challenging. Aker-owned companies encounter business partners from countries where human rights are under pressure. This requires thorough risk assessments, as well as robust guidelines, operating procedures and employee training. We have to be clear about the values and rules that apply to our businesses, and we have to be prepared that human rights issues may affect business relationships in future.
Increased regulatory and standardized reporting requirements will hopefully contribute to people, the environment, and nature being better taken care of globally - without this resulting in significantly reduced value creation or lost competitiveness for European and Norwegian enterprises. It is, thus, worth reflecting on whether companies in the future can expect similar value creation as what the oil age and globalization of the last decades have afforded us.
The global economy has relied on fossil energy for decades, and companies have exploited nature and the environment in ways that are unsustainable. People, businesses, and technology must restore balance to the planet. This will probably make it more expensive for companies to pollute and exploit society's shared resources. Protecting, preserving, and restoring nature and the climate comes at a cost.
The profitability of the oil and gas industry will likely be difficult to recreate in other sectors. Digitalization and artificial intelligence (AI) working together with people may, on the other hand, lead to increased value creation in the industry going forward. Technology makes companies more efficient, profitable, robust, and data-driven, and empowers people to better care for our planet.
Aker is well-positioned to create significant value for our shareholders and the societies of which we are a part. Our portfolio companies are in growth industries and have consistently strong operations. Increased dividend income for Aker ensures predictable and attractive dividends for our shareholders, while also increasing Aker's investment capacity.
After 15 years at the helm of Aker, I look forward to what lies ahead. I would like to extend my gratitude to the thousands of people at Aker and Aker-owned companies, who work hard every day to deliver, change, improve, and renew.
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Aker ASA published this content on 15 April 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 April 2024 10:02:03 UTC.
