Aker Solutions ASA (AKSO) Earnings Call Transcript & Summary

Good morning, and welcome to Aker Solutions presentation of our second quarter and half year results. My name is Preben Ørbeck, and I'm the Head of Investor Relations. With me today is our CEO, Kjetel Digre; and our CFO, Idar Eikrem. They will take you through the main developments of the quarter and the first half of 2026. After the presentation, 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 give the floor to Kjetel Digre.

Thank you, Preben, and welcome to everyone tuning in this morning. As always, let me start the presentation with the main messages for today. First and foremost, I'm pleased to see that we continue to deliver solid financial results following the peak activity period in 2025. The second quarter revenue was NOK 13.1 billion with an EBITDA margin of 9.2% or 7.9% excluding net profit from SLB OneSubsea. Strong results over time also means we can serve our shareholders well. During the second quarter, we paid cash dividends of NOK 4.2 billion or NOK 8.6 per share. Operationally, we have made good progress on our project portfolio, meeting key milestones in the Aker BP projects. On the tender side, we secured another long-term frame agreement for our life cycle segment this time with Cenovus in Canada. We're also maturing opportunities across other industry verticals, such as carbon capture and storage, hydropower and small modular reactors. Finally, we are revising our guidance for the full year. We now expect revenue to be between NOK 50 billion and NOK 55 billion with EBITDA margins of around 7.5%, excluding net profit from SLB OneSubsea. And as you know, SLB OneSubsea is an important contributor to value creation in Aker Solutions. We expect dividends from SLB OneSubsea to increase in the second half of 2026 supporting full year distributions broadly in line with 2025 levels. Next, let me go deeper into some of the operational highlights of the quarter. A natural place to start is the Aker BP portfolio. We are currently in the final period of assembly at Stord for the 2 large topsides, Hugin A and Valhall PWP. Both the smaller platform topsides Hugin B and Fenris have now left our yard in Verdal for the offshore installation and commissioning phase. The same yard has also delivered all 4 substructures for the Aker BP portfolio. In total, more than 3,500 man years have been involved in these projects at Verdal. This includes 130 apprentices something we are particularly proud of as they represent the future of our industry. Another project I'd like to highlight is the Skarv Satellites. This project comprises 3 separate subsea fields that will be tied back to the Skarv FPSO. SLB OneSubsea has delivered the subsea production systems for these developments while our responsibility has been to modify the FPSO to enable the tiebacks. Supported by strong offshore performance, the projects are on track to deliver first-gas in the second half of 2026. Now I think an important part of the story is not just what we deliver, but how. Because together with Aker BP and the other alliance partners, we set out to radically change how to deliver a capital project. And the achievements in these projects are proof that we are doing just that. The drive for change is also highly relevant in our life cycle segment. where we continued on our winning streak in the second quarter with the award of the 5-year frame agreement with Cenovus Energy in Canada. The scope includes engineering, maintenance and operations support for the new West White Rose platform as well as the SeaRose FPSO. With this award, we have successfully renewed all 5 frame agreements that we have tendered for over the past 12 months. And not only have we won but our scope has increased and we are now taking responsibility for several new assets, both onshore and offshore. So what is the winning ingredient? When you break it down, I believe it's the combination of our deep technical expertise, our cultural collaboration as well as our improvement mindset that sets us apart. In Aker Solutions, we focus on developing next-level solutions. And this is next level life cycle, where our ambition is clear, a 50% improvement in cost and delivery times. So how do we achieve it? We do it through 3 main levers: co-creation, increased efficiency and reducing costs. Firstly, for us, co-creation means making an early impact. We start early and work closer with our customers to shape better concepts from the beginning. We simplify the solutions, define the right level of standardization and reduce complexity before the project enters execution. This has a significant impact further down the line. Next, we increase efficiency in execution. We challenge requirements, digitalize and automate our processes and adopt more agile ways of working, supported by artificial intelligence. And lastly, we reduce costs. We remove what does not add value, standardize how and what we buy and we reuse solutions that work rather than reinventing the wheel. At the same time, we leverage new technology to improve information flow and enable more remote and autonomous operations. All of this is not about doing more. It's about doing things smarter, simpler and together and proving the value for our customers every step of the way. Next, I wanted to say a few words about how we are maturing the different versions of ourselves in other industry verticals. Carbon capture and storage is a market where Aker Solutions have been present since the early 1990s. Norway is one of the front runners in this market, supporting the development of a complete CCS value chain through the Longship project. Here, Aker Solutions has been the main contractor for delivering both the carbon capture facility at Heidelberg Cement plant in Brevik, and the Northern Lights storage facility on the West Coast of Norway. Now we are executing the second generation of CCS projects in Norway. And in the second quarter, we celebrated the construction start twice at Stord. One was for the modules to the carbon capture and storage project at Hafslund Celsio waste-to-energy plant in Oslo. And the other for the capacity expansion of the Northern Lights storage terminal. We believe the market outlook for CCS is positive, and we are positioning for several upcoming opportunities in different geographies through ongoing tenders, early phase studies and strategic alliances. Another example is hydropower. Hydropower is the backbone of the energy system in Norway, representing about 90% of electricity supply. And its importance is growing both due to rising energy demand and role in balancing variable energy sources such as wind and solar. Now hydropower is not something new to Aker Solutions. In fact, we trace our history in this market back to the 1850s where the Norwegian hydropower competence was developed by our predecessor [indiscernible]. With the acquisition of Rainpower in 2022, Hydropower was again a part of our energy offering. And since the acquisition, we have transformed the entity into a robust growth business with solid underlying margins. Recently, we were awarded the contract to supply all electromechanical equipment for the Tussa II hydro power plant in Norway. -- special about this project is that we have been able to bring an alliance inspired model into hydropower. This means working closely together with Tussa Energi from the early phase of the project. Through this collaboration, we've been able to develop smarter and more efficient solutions, something we hope will set a new benchmark for hydro power going forward. Strategic collaboration also plays an important role in our engagement into the emerging market for small modular reactors or SMR for short. In late April, Aker Solutions signed a memorandum of understanding with Rolls-Royce SMR, a leading player in this market. Through this partnership, we will apply our expertise in design, project management and modular construction to develop nonnuclear parts for these power plants. Rolls-Royce SMR has now been selected for several projects in the United Kingdom, the Czech Republic and most recently in Sweden. All projects are backed by state governments. And in Sweden, the government recently acquired 60% of Videberg Kraft, which will be the developer and operator of 3 SMR units with a total capacity of 1.5 gigawatts. The active involvement of governments in Sweden, the U.K. and the Czech Republic highlights the growing confidence in the SMR technology as such and its role in Europe's future energy mix. In fact, these 3 countries have publicly announced ambitions of building more than 15 SMR units. And meeting these ambitions will require a coordinated effort by the European industrial base. And we are quite proud of being selected by Rolls-Royce alongside other robust partners to deliver on these ambitions. So where are we now? As part of the MOU, we are working closely with Rolls-Royce SMR to mature the module scope, to finalize the first binding contracts for engineering and design services. And a bit further down the line, we expect start-up of larger construction scopes by early 2029. This takes me to the tender pipeline, which is currently at about NOK 77 billion. The reduction from the first quarter mainly relates to the loss of an offshore wind project in Europe, where the developer selected a local competitor for execution. However, we continue to see a good mix of opportunities across oil and gas, renewables and adjacent markets, which we believe will create activity in the years to come. And with that, I leave the word to Idar, who will take you through the financials of the quarter.

Thank you, Digre. I will now take you through the key financial highlights of the quarter and the first half year of 2026. As always, all numbers mentioned are in Norwegian kroner. So let me start with the income statement. The second quarter revenue was NOK 13.1 billion, a decrease of about 14% compared to the same period last year. The underlying EBITDA for the quarter was NOK 1.2 billion with a margin of 9.2%. If we exclude the net profit from SLB OneSubsea, our underlying margin was 7.9%. And for the first half of the year, the EBITDA margin, excluding net profit from SLB OneSubsea was 7.8%. The underlying EBIT in the quarter was NOK 819 million with a margin of 6.3%. The underlying net profit was NOK 659 million in the quarter, and NOK 1.3 billion for the first half of 2026. Lastly, earnings per share was NOK 1.37 for the quarter and NOK 2.67 for the first half 2026. Let us take a look at the performance of our operating segments. For renewables and field development, the second quarter revenue was NOK 9 billion. The underlying EBITDA was NOK 846 million with a margin of 9.4%. This was driven by solid operational performance as well as profit recognition from 2 second-generation renewable projects in period. Order intake in the quarter was NOK 5.5 billion or 0.6x book-to-bill. This mainly relates to the contract for a steel substructure for our European HVDC project as well as growth in our existing portfolio. The secured backlog was NOK 32.6 billion at the end of the quarter. And based on the backlog and market activity, we now expect revenue in this segment to be between NOK 35 billion and NOK 40 billion in 2026. For the Life cycle segment, the second quarter revenue was NOK 3.6 billion, down 8% compared to the same period last year. This was mainly driven by lower hookup and commissioning activity in Norway compared to the first half of 2025. The underlying EBITDA in the quarter was NOK 267 million with a margin of 7.4%. Order intake was NOK 3.6 billion or 1x book-to-bill. This was mainly driven by the mentioned frame agreement in Canada as well as growth in our existing portfolio. The backlog continues to be highly robust at NOK 42.4 billion, providing good visibility on activity levels for several years ahead. If you also include the estimated value of the option period for our frame agreements, the backlog will increase to about NOK 80 billion. And based on secured backlog and market activity, we continue to expect revenue in this segment to be around NOK 15 billion for 2026. Next, we will look at the cash flow development in the quarter. Our financial position remains robust with a net cash of NOK 4.3 billion including investments in liquid funds. Operational cash flow in the quarter was negative NOK 195 million, this includes the expected cash outflow from our working capital reversal of NOK 1.2 billion in the period. Capex in the period was NOK 73 million or 0.6% of revenues. The quarterly dividends received from our 20% stake in SLB OneSubsea was NOK 138 million, in line with the same period last year. Based on SLB's OneSubsea strong financial position, we expect dividend distribution to increase in the second half of 2026 supporting full year distribution broadly in line with 2025 levels. Last, but not least, we paid out about NOK 4.2 billion in ordinary and extraordinary dividends to our shareholders in late April. I will now hand the presentation back to Kjetel to summarize the key developments of the quarter and present our updated guidance for 2026.

Thank you, Idar. So to summarize, I'm pleased to see that we continue to deliver solid financial performance following peak activity levels in 2025. I'm also encouraged to see that we continue meeting critical milestones on ongoing projects and that we are maturing future opportunities together with our strategic partners. Next to our revised guidance for 2026. Based on secured backlog and market activity, we now expect revenue to be between NOK 50 million and NOK 55 billion. EBITDA margins, excluding net profit from SLB OneSubsea are now expected to be around 7.5% for the full year. CapEx is currently expected to be between 0.5% and 1% of revenue in 2026. And we continue to expect working capital to normalize over time to a level of between negative NOK 4 billion and negative NOK 6 billion. Finally, SLB OneSubsea is an important contributor to value creation in Aker Solutions. And as mentioned, we expect dividends from SLB OneSubsea to increase in the second half of 2026, supporting full year distributions broadly in line with 2025 levels. Thank you for listening. That was the end of our presentation. And in a few moments, we will open for questions.

Okay. The first question comes from Victoria McCulloch in RBC. In terms of renewable field development, can you give any color on the trajectory in the second half of the year and how we should think about activity levels? And is the increased guidance a reflection of the acceleration in the Aker BP projects?

Yes. I think in general, we have a high activity level in all segments, and these are sort of year-round activities that will continue. But the dominant activity is, obviously, the huge projects that is currently at Stord. And they mean the way that we are handling them means that the second half will be as high activity as the first half, but we will see a shift from onshore to offshore. The first projects have already been installed offshore, and we are following them and completing them out at sea, I would say, and then both Valhall and then eventually Hugin A will also follow. So throughout second half of 2026, we will move from onshore to offshore. It's also a very clear, I would say, sort of a Norwegian way of handling these projects that we are focused on being predictable on the sort of the start-up part of this. So we will -- in the alliance with Aker BP, make sure that these projects start up as planned in 2027.

Yes. In terms of numbers, we -- as you probably have seen from our report, we have adjusted our guidance for 2026 full year and increased revenue guidance and also margins. For Renewable and Field Development segment, we have said that the margin -- the revenue will be in a range of NOK 35 billion to NOK 40 billion. That should indicate a similar type of level in the second half of 2026 as in the first half.

Following up from Victoria on the year ahead projection with a lower backlog, how much should we extrapolate our expectation? And are there any awards in the second half that could materially move the needle in 2027?

Yes. It's too early to sort of come with an updated guidance, but we are working on several projects that could have impact both in '27 and '28, providing that we are successful on the bidding.

Moving then to a question from Lukas Daul in Arctic. If you can provide an update on the legacy projects and the provisions taken so far in 2026?

Perhaps first of all, just mention that these projects are now currently in the offshore phase where we are working on completion and commissioning and towards the start-up of these projects.

Yes. And in parallel, as we have spoken about before, there are commercial dialogues going on on the legacy lump sum projects. And in terms of provisions, there is no change in second quarter, there was some change in the estimates during the first half, and that was taken in the first quarter.

Moving then to a question from Mick Pickup in Barclays. that he says that there's a big focus on the renewables and clean energy. And if you can talk a bit about the first generation to the second generation, especially in CCS and what the main differences are and what you have learned?

Yes. Going into renewables and also CCS, this is a change journey, transformation journey for the whole industry. And both on the operator side and us as a main contractor, we need to sort of understand how to sort of create a new version of ourselves or to be precise and lean enough to make sure that these business cases are flying that we all create a win-win situation and earn money. And the first generation where I think we, particularly in Norway, we're sort of slightly polluted by the oil and gas tradition. We know on specifications on the way of collaborating. And now in this second generation, it's really sort of remarkable to see how we're working on in a way challenging and in a way, positively cannibalizing in all the way that we are handling this. And in my mind, we really sort of moving the needle and particularly on the CCS side, where we see that we have a completely different way of handling it. So creating new versions of ourselves that in one end, can then serve this sort of leaner different kind of industrial market, but then also up the game, and we are looking at the likes of SMR and defense.

Maybe then a follow-up to Idar on the -- what is the opportunity set in terms of revenues and margins in the markets, CCS, hydropower SMR.

Yes. All in all, it's a very interesting market, and there are great opportunities. We will have to come back and put some numbers behind it. But -- the reason why we are positioning ourselves in these markets is that we see that this can be quite interesting. And for some of it, it could even develop into separate segment down the road if you have a long term view on it.