Release Date: July 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Aker Solutions ASA (AKRTF, Financial) reported a strong second quarter revenue of NOK12.8 billion, up from NOK8.8 billion a year ago, representing a 45% year-on-year growth.
- The company achieved an EBITDA margin of 9.5%, significantly higher than the previous year's margin.
- Order intake for the quarter was robust at NOK15.5 billion, with a book-to-bill ratio of 1.2, indicating strong future activity levels.
- Aker Solutions ASA (AKRTF) has a solid net cash position of about NOK11 billion, including investments in liquid funds.
- The company has a record high backlog of NOK71.4 billion, providing good visibility on future activity levels and supporting a positive outlook.
Negative Points
- The results were negatively impacted by a legacy renewable project, which is expected to be delivered in 2025.
- Net financial items were negatively affected by the development in SLB share price and associated exchange rate in the period.
- Working capital is expected to normalize, representing a cash outflow of around NOK3 billion in the second half of 2024.
- CapEx in the second quarter was around NOK400 million, mainly related to planned investments to safeguard the execution of large oil and gas projects.
- The company faces geopolitical tensions impacting markets and supply chains, which could pose risks to future operations.
Q & A Highlights
Highlights from Aker Solutions ASA (AKRTF) Q2 2024 Earnings Call
Q: Can you give us some color on what type of projects have been added to your tender pipeline that has seen it increased so materially since Q1? Is there an estimated timeline for when the pipeline projects are expected to be awarded?
A: We see good opportunities in all areas where we are relevant and well-positioned. We remain highly selective on which terms we enter into, which regions we are present in, and who we work with on the client side. The tender pipeline is dominated by Norway and Europe, with projects in traditional oil and gas, decarbonization, offshore wind, and CCS. The timeline for tenders ranges from 6 to 12 months, with actual awards happening continuously over the next couple of years. (Kjetel Digre, CEO)
Q: You mentioned the order intake in renewables and field development reflects largely growth in existing projects. Can you explain a bit more about what type of work this is?
A: This is normal in most projects where we have regular updates and baseline updates. In the second quarter, we had significant updates on some projects, particularly in the Aker BP portfolio. A large portion of this is also related to currency impacts on procurement. (Idar Eikrem, CFO)
Q: You have 97% revenue coverage for 2024 versus your guidance. Do you think your revenue guidance is therefore still too conservative?
A: We are confident with the 40% increase from the 2023 level that we have provided. (Idar Eikrem, CFO)
Q: With NOK33 billion in backlog for 2025 and a high tendering pipeline, how do you expect revenues to develop in 2025? Do you also expect future margins beyond 2024 to be within the 6% to 7% range?
A: We are planning for high activity levels in 2025 with healthy margins. The 6% to 7% margin range is sustainable going forward. For 2024, we have increased our forecast to around 7.5% due to positive one-offs. (Idar Eikrem, CFO)
Q: Can you provide a breakdown for remaining proceeds and timing from the JV in the cash balances, the working capital, and the vendor note?
A: We received approximately NOK1.9 billion in the second quarter, mainly from Subsea 7. The remaining proceeds, including the working capital and vendor note, are expected to be paid within the next 6 to 12 months, totaling NOK1.3 billion. (Idar Eikrem, CFO)
Q: Could you update on the free cash flow generation guidance given in Q4 last year?
A: We haven't updated the forecast for that period yet. However, we have significant and stronger cash generation both behind us and coming. Further guidance will be provided later. (Idar Eikrem, CFO)
Q: Can you say something about the normalization of working capital also into 2025?
A: We expect working capital to normalize starting in the second half of 2024 and into 2025. The indicative range for working capital after 2024 is between minus NOK6 billion and minus NOK4 billion. (Idar Eikrem, CFO)
Q: How much of the tender pipeline is related to carbon capture and storage (CCS)? Are margins for the current CCS portfolio in line with the average of the renewables and field development division?
A: Around 16% of our activities are linked to renewables and energy transition projects, including CCS. We are disciplined in securing orders with healthy margins, and you should expect healthy margins from these projects. (Kjetel Digre, CEO; Idar Eikrem, CFO)
Q: Are the alliance partners with Aker BP running ahead of planned execution? Or does the revenue growth reflect more the increasing contract escalation?
A: A lot has to do with market updates and escalation, including currency impacts. (Idar Eikrem, CFO)
Q: Could you help us understand the currency impact on the backlog?
A: The currency impact is linked to baseline updates on projects, covering a much longer period, sometimes since the award of the project back in 2022. (Idar Eikrem, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
