Good morning, everyone, and welcome to Aker's third quarter results presentation. My name is Per Kristian Reppe . I am Head of Investor Relations at Aker. We will start today's presentation with our President and CEO, Øyvind Eriksen, who will walk you through the main highlights of the quarter and the developments of the industrial holdings portfolio.
He will be followed by Aker's CFO, Frank Reite, who will go through the financial investments portfolio and the financial statements in more detail. The presentation will be followed by a Q&A session about Aker's third quarter results. After the third quarter presentation, we will have a separate Q&A session on today's announcement regarding Aker's involvement in the Norske Skog restructuring, where also Oceanwood will participate. Please note that this presentation and session will not be webcasted. Øyvind, the floor is yours.
Aker ASA third quarter 2017 presentation. Aker had strong tailwinds in the third quarter. Net asset value increased more than 20% to NOK 34.7 billion or NOK 467 per share. Aker's share price increased more than 19%, the cash and liquid fund investments ended at NOK 1.6 billion, while Aker's liquidity reserve stood at NOK 3.4 billion. In the quarter, Aker invested NOK 44 million for a 72% stake in Cognite and contributed NOK 120 million in Fornebuporten to partly finance the acquisition of land here at Fornebu from KLP. Aker BioMarine closed the transaction to acquire Neptune's krill oil business.
Subsequent to the quarter, Akastor announced a memorandum of understanding with Mitsui, whereby Akastor will sell 50% of its ownership in AKOFS Offshore to Mitsui, providing Akastor with net cash proceeds of $142 million. Aker BP entered into an agreement to acquire Hess Norge for a total cash consideration of $2 billion. As part of that transaction, Aker BP raised NOK 4.1 billion in new equity, where Aker subscribed for its 40% ownership stake.
Finally, today, Aker announced that we have been invited into an alternative restructuring of Norske Skog by Oceanwood Capital Management. As already mentioned, our net asset value increased 20.4% in the quarter. All our listed companies in our industrial holdings portfolio delivered positive returns in the quarter. However, most of the value gain was attributed to Aker BP and Ocean Yield, which combined posted approximately NOK 5.1 billion in positive value change. Aker Solutions, Akastor, and Kværner added in total close to another NOK 1 billion to our net asset value.
Aker's share price in the close the quarter up 19.3% or 7 percentage points higher than the reference index. As per the end of the quarter, Aker held NOK 41.6 billion in gross assets. Total liabilities was NOK 6.9 billion, value-adjusted equity ratio stood at 83%. The favorable development has continued in the fourth quarter, with the share price ending yesterday at NOK 375 per share and net asset value per share of NOK 557. There were no changes to our industrial portfolio composition in the third quarter. The financial investment portfolio had a few changes.
Cash was down, mainly as a result of debt repayments, investments in Cognite and Fornebuporten, loan draw under a credit facility provided to Aker BioMarine. In turn, this increased the value of our real estate holdings and all the financial investments as receivables rose. In terms of our gross asset value distribution, oil and gas accounted for 67% of our portfolio, up from 64% in the second quarter. E&P represents 50% of gross assets, while oil services accounts for 17%. Maritime assets represented 18% of gross assets, and seafood and marine biotech 6%, all in line with prior quarter.
At the end of the third quarter, Aker's cash and liquid fund investments amounted to NOK 1.6 billion. In addition, we had NOK 1.8 billion in undrawn credit facilities. Subsequent to the third quarter, we have obtained bank financing of $200 million to fund our participation in Aker BP's equity issue, and we upsized our revolving credit facility by NOK 500 million to NOK 1.5 billion. This brings our total liquidity reserves to NOK 3.9 billion after cash payments for settlement of the Aker BP shares.
In the third quarter, we received NOK 360 million in dividends from our portfolio companies. For the full year 2017, we expect to receive more than NOK 1.5 billion in upstream cash. Next year, we expect to receive even more, mainly due to the increased dividend from Aker BP post their acquisition of Hess Norge. Turning to each of our industrial holdings, starting with Aker BP. Aker BP reported a good third quarter, with production as planned, strong financials, and quarterly dividend of NOK 0.185 a share, of which Aker received NOK 199 million.
Organic growth by exploration and the optimization of existing fields remains a key priority in Aker BP. The company is on track to submit PDOs for several projects near-term. In addition, Aker BP continues to work on increasing its efficiency and productivity through new collaboration models and by applying new technologies with the ambition of reducing average production cost below $7/bbl , and sanctioning new projects at a break-even oil price of $35 or less.
Growth through M&A is another cornerstone for Aker BP. The agreement to acquire Hess Norge is in line with that strategy. As part of the transaction, Aker BP raised NOK 4.1 billion in an equity issue and obtained an indicative offer for a $1.5 billion bank facility, retaining the full flexibility of the current RBL. Aker BP is a prime example of how Aker ASA exercises active ownership. First, we put the basics in place. Thereafter, we focus on operational excellence and growth.
In the case of Aker BP, numerous transactions have taken us from a market cap of NOK 450 million when I joined the company back in January 2009, to a market cap of more than NOK 70 billion today. Aker has invested NOK 8.6 billion in the company during the same time period, and our annual return, including dividend, is almost 29%. That's a remarkable journey. Please keep in mind that we have just started. Aker Solutions reported solid results in the third quarter.
Their improvement program of delivering cost efficiency of 30% is almost completed, and the company has now raised the cost efficiency target by another 5% annually, next four years, or 50% in total, with 2015 as the reference year. The market is slowly improving, and several upcoming subsea projects are expected to be awarded shortly, of which a majority is in Norway and Brazil. Needless to say that Aker Solutions is fighting hard to win their fair share of those contracts, and that such contract awards will be crucial for the company going forward.
Akastor continues to deliver on its mandate of maximizing the value of its portfolio companies through transactions and operational improvement. Since November 2015, Akastor has completed transactions that combined have released NOK 4.8 billion in cash to the company. Subsequent to the third quarter, Akastor announced a memorandum of understanding with Mitsui to expand the current partnership, whereby Mitsui will acquire 50% of the shares in AKOFS Offshore. Akastor will receive $142 million in net proceeds, strengthening the balance sheet further. Akastor's main holding, MHWirth, is still operating in a challenging market.
However, the contract for delivery of one drilling package to the White Rose Extension Project and a 10-year service agreement with Transocean, were both important wins for the company subsequent to the third quarter. Kværner reported also a strong third quarter. Year-to-date, Kværner has delivered close to NOK 600 million in EBITDA, which is quite impressive when considering the lower revenue base. While the market has been challenging for several years, tender activity now seems to be improving, and several projects are expected to be sanctioned short to medium term. Kværner is obviously fighting hard to win their fair share of those contracts.
Next, Ocean Yield. Ocean Yield reported strong results in the quarter and continues to raise the dividend level this quarter by $0.001 a share. Aker's ownership agenda in Ocean Yield remains unchanged. Focus should be on accretive growth, diversification of backlog, optimization of capital structure, and reducing the cost of capital, in addition to managing the counterparty risks. In total, this ensure a sustainable long-term dividend growth in Ocean Yield.
Aker BioMarine reported an EBITDA of $8 million in the third quarter, down from $12 million in the same quarter last year. The results were impacted by higher operating expenses and lower gross margin on QRILL Aqua and Superba. In the quarter, the company announced the acquisition of Neptune's Krill Oil business for a total consideration of $34 million. The transaction was financed under the credit facility provided by Aker, of which $87 million was drawn at the end of the quarter. The transaction fits well with Aker's ownership agenda of creating a larger Aker BioMarine.
While not yet in our industrial holdings portfolio, I would like to say a few words about Cognite, a company incorporated by John Markus Lervik earlier this year with Aker as the main shareholder. Cognite has a dual mandate. Firstly, to support our portfolio companies in general and Aker BP in particular, in their strategies of developing and applying new digital technologies as a competitive advantage.
Secondly, and most importantly, to make Cognite a leading digitalization company with a diversified customer base and an attractive investment proposition to us and other shareholders. For Aker, Cognite is a long-term investment into a unique talent pool that drives change with associated synergies across our portfolio. Even though Cognite is not yet a year old, it has already positioned itself as one of the most innovative and fast-moving companies in our portfolio.
Watch out, because Cognite will undoubtedly be an important part of our future. Let me finish off with another exciting opportunity for Aker. The announcement this morning about Ocean Yield inviting Aker to team up with the aim to facilitate a sustainable industrial and financial solution for the operating businesses of Norske Skog ASA. Together, we will form a new company, 50/50, which will build in an auction process for Norske Skog's paper mills. Aker has followed Norske Skog for several years, but we have until recently not been able to identify an attractive entry point for us due to the complex debt structure and longstanding deadlock among various classes of creditors.
When Ocean Yield decided to invest more and consolidate secured debt, the picture changed. We believe that this new situation constitutes the opportunity that we have patiently been waiting for in order to invest and be part of a robust long-term industrial solution. We are looking forward to working with Ocean Yield to strengthen the competitiveness of the operating part of Norske Skog with new, active owners, restructured balance sheet, and focus on both operational excellence and, of course, increased profitability. We will have a separate session on Norske Skog after this third quarter presentation. Before that, I leave the floor to Frank, who will walk us through Aker's financial portfolio and Aker's financial performance in the third quarter in more detail.
Thank you, Øyvind, and good morning, everyone. I will spend some minutes on Aker's financial investments before I go through the third quarter accounts. The financial portfolio accounts for 14% of total assets, or NOK 5.6 billion. Cash and liquid fund investments stood at NOK 1.6 billion at the end of the quarter, and if we add undrawn credit facilities, we get to a liquidity reserve of NOK 3.4 billion. In the third quarter, Aker increased its real estate investments through Fornebuporten's acquisition of a residential land plot here at Fornebu.
We also participated in the equity issue in Cognite, giving Aker a direct ownership interest of 72%. Debt repayments in the third quarter was NOK 0.2 billion. Let's look into the details in the financial investment portfolio. Starting with cash and liquid fund investment. Combined, the two represent 4% of Aker's gross asset value, or NOK 1.6 billion. Of that, NOK 1.2 billion was cash, down NOK 462 million from the previous quarter. The main cash inflow in the quarter was NOK 360 million in dividends from Aker BP, Ocean Yield, and American Shipping Company.
Aker repaid debt of NOK 199 million. Other major cash outflows were a loan issue to Aker BioMarine of NOK 333 million, different investments with NOK 166 million, as well as NOK 124 million in operating expenses and net interest paid. Aker has this year chosen to repay debt with NOK 1.6 billion. That is one of the main reason why the year-to-date changes to our cash balance shows a decline of NOK 3.3 billion. In addition, we have paid dividend of NOK 1.2 billion, as well as issued loans and made investments of NOK 1.4 billion. The cash decline was partly offset by dividends received of NOK 1.1 billion year-to-date.
Our liquidity reserve is NOK 3.4 billion, including undrawn credit facilities of NOK 1.8 billion. We have also secured long-term bank financing for our $200 million participation in the Aker BP equity issue. In addition, to create flexibility, we increased our undrawn credit facility from NOK 1 billion- NOK 1.5 billion and extended the majority of the facility to 2021. The new financing leaves our cash balance unaffected while our liquidity reserve increases by another NOK 500 million, up to NOK 3.9 billion. Even if the cash balance is somewhat lower than what we have seen in the past, we have kept our financial flexibility, but at a lower carry cost.
Listed investments included in our financial portfolio represented 3% of Aker's total assets, or NOK 1.3 billion. The value of our combined investment in Philly Shipyard and American Shipping Company was basically unchanged in the quarter. We received NOK 90 million in dividends from American Shipping Company. The value of our investment in Solstad Farstad decreased by NOK 159 million during the third quarter. There is no quick fix to the challenging situation in the OSV industry. Solstad Farstad is now one of the largest OSV company and has taken a major role in the restructuring.
Solstad Farstad has a strong management, highly competent staff, a fleet of high-quality vessels, and a restructured balance sheet. These are all factors enabling the company to continue to play an active role in the restructuring of the industry. Solstad Farstad is a high-risk investment, but the upside potential is substantially larger than the downside. We continue to be optimistic to the company's ability to ride through the storm. Next, real estate and other financial investments. Combined, the two represents 6% of Aker's gross asset value, or NOK 2.7 billion.
The investment was up NOK 436 million during the third quarter, mainly from increased loan to Aker BioMarine of $42 million and increased investments in Fornebuporten of NOK 120 million. Aker also invested NOK 44 million in Cognite, providing us with a 72% ownership. In the quarter, our real estate team secured a land plot here at Fornebu for NOK 490 million, partly financed by a seller credit. They are participating in some late-stage residential projects. Last week, Fornebuporten enter into an agreement with OBOS to establish a joint venture to develop the residential land plot here at Fornebuporten.
Let's take a closer look at Fornebuporten's current portfolio. Aker's real estate investments has a book value of NOK 629 million, consisting of land, residential projects, and commercial real estate. The land plots has a total footprint of almost 140,000 sq m. These land plots can be developed both for commercial use and residential purposes. The land plots, which are displayed in gray, is the combined land of the new OBOS joint venture. The ongoing residential development projects consist of 189 units, totaling 10,700 sq m, of which 99% is already sold.
Finally, Fornebuporten owns one commercial real estate building at Fornebu with a total area of 9,500 sq m. I will now go through the third quarter financial highlights for Aker ASA and holding companies. Let me start with the balance sheet. The majority of our assets are investments. The book value of these assets increased slightly due to increased investments in Fornebuporten and Cognite, as well as reserved write-downs on the direct investments in Aker Solutions and Akastor. This was partly offset by write-downs of the investments in Solstad Farstad, American Shipping Company, and Sea Sense.
The fair value adjustment of our investments increased by NOK 5.6 billion, mainly explained by positive value change from Aker BP of NOK 4.1 billion and Ocean Yield of NOK 0.6 billion after dividend. Aker Solutions, Akastor, and Kværner also contributed positively with NOK 1 billion in total. Total book value of our assets was NOK 20.7 billion. In our accounts, we used the lowest of historic cost and market values for our investment. If we adjust for fair value on our listed assets, we get our gross asset value, which was NOK 41.6 billion at the end of the third quarter, up NOK 5.5 billion in the quarter.
Aker had liabilities of NOK 6.9 billion, of which our bonds represent NOK 5.5 billion, and the U.S. dollar bank loan represents $1.2 billion. The book equity was NOK 13.8 billion, up NOK 268 million from the previous quarter. This is mainly explained by the profit before tax in the quarter of NOK 229 million. If we adjust for fair value on our listed assets, we get our net asset value of NOK 34.7 billion at the end of the quarter, up NOK 5.9 billion from previous quarter. The net asset value per share was NOK 467, and the value-adjusted equity ratio was 83%.
Our total interest-bearing debt stood at NOK 6.6 billion, versus NOK 6.9 billion at end of the prior quarter. The reduction is explained by down payment on the bank loan in addition to currency effects. The average time to maturity of our debt portfolio is currently two point five years. As before, we have significant headrooms with regards to our loan covenants. We had a net interest-bearing debt of NOK 4.1 billion at the end of the third quarter, down from NOK 4.2 billion in the previous quarter.
As mentioned earlier, we have also obtained 100% financing of Aker's participation in the Aker BP equity issue. Then to the income statement. The operating expenses for the third quarter were NOK 51 million, down from NOK 54 million in the prior quarter. The net value change in the quarter was NOK -38 million, explained by write-downs of our investments in Solstad Farstad, American Shipping, and Sea Sense, partly offset by reversed write-downs of our direct investments in Aker Solutions and Akastor.
Other financial investments were NOK +321 million, mainly explained by dividends received of NOK 366 million and net foreign exchange gains of NOK 49 million. This was partly offset by value decrease on the American Shipping TRS agreements of NOK 38 million and net interest expenses of NOK 52 million. The profit before tax was NOK 229 million. With that, we open for questions.
Okay. I again reiterating that, can I ask you to have questions to Øyvind and Frank regarding the Q3 results, and then we'll have a separate Q&A session about Norske Skog afterwards.
Thank you. Morten from Nordea. If you could elaborate a little bit more around your thoughts on Aker Solutions. We have seen the industry shaping alliances. What's the pros and cons for Aker Solutions going forward? If you could say.
The direction of travel is basically unchanged. The main focus in Aker Solutions is all about enhanced operational excellence and competitiveness. As I said in my presentation, there are some highly important subsea tenders out in the market for the time being, and we expect the contracts to be awarded before the year-end.
That will basically be the first and most important test of how far Aker Solutions has actually reached with their improvement program. Talking about alliances, the picture is still quite fragmented, but as far as Aker Solutions concerns, their strategy has so far been to collaborate with both other oil service companies and to engage in alliance structures with customers and Aker BP in particular.
I'm personally overwhelmed by the results already achieved in the Aker BP, Aker Solutions collaboration. Just to pick one example the costs of a subsea tie-in on the Norwegian continental shelf has dropped with 25% compared to the current market price. That inspires us to explore further the concept of alliance models, not only with Aker BP but also with other customers.
In parallel, we have also stated, and as stated publicly, we have also been in the process of exploring alternative strategic solutions for not only Aker Solutions, but all the oil service companies in our portfolio. That's still an ongoing process, but it goes without saying that it's a very important decision for not only the companies involved, but for the entire group. Hence, we will spend the time needed in order to conclude also that strategic consideration and process.
If I could have a follow-up on that. If I remember correctly, I think it was in your annual report that you were quite vocal about that the underlying values of Aker Solutions wasn't necessarily reflected in the share price. Since then, a lot of things have happened in the industry. Are you able to comment regarding if you see that the interest from potential other companies, if it is still above the current share price, and if you have the same view as you had, let's say, nine months ago?
I can comment on my own view not a third party's opinions. My view is unchanged.
Yeah. A last question from me. Akastor has been a successful story. As you mentioned, the only company left there now is MHWirth. What is the strategy for Akastor now? I guess MHWirth is potentially ready to be divested if there is an industrial buyer. Should we expect Akastor to buy into new companies, continue as is, or could we potentially see that that company could be delisted within the next six to nine months? Thank you.
First question about MHWirth. The strategy and focus in MHWirth is and has been for several years, exactly the same as Aker Solutions. Focus on operational excellence, focus on adjustment of capacity, and focus on protecting the EBITDA margin in a scenario with low level activity, particularly in the new build sector for several years to come. The contract awards in the fourth quarter this year is actually a very encouraging evidence of the achievements in MHWirth during this down cycle.
Our initiative to explore strategic options for all the oil service companies in our portfolio is not about divestment only. Divestment could be one alternative, but different kinds of collaborations or mergers could be another scenario. That applies to MHWirth, as it does to all the other businesses. Your last question about the longer term ownership agenda for Aker in Akastor. The answer to that question is that we have no plans to take the company private as long as the most important part of the Akastor portfolio still is fully owned by Akastor. You should expect Akastor to continue as a public listed company going forward.
Haakon Amundsen from ABG. A follow-up on Aker Solutions and Kværner. It looked like when Kjell Inge Røkke, your main shareholder, stated that he hoped or expected that there could be some changes within 2017. You're saying you're taking some more time. Could you put some color on what makes this process more complex than you thought or what he thought?
No. It's nothing more difficult than what I have already said. This is a big and important decision for Aker ASA and for the companies involved. We will give ourselves the time we need to reach the best conclusion and the right conclusion for not only us, but also all the other Aker companies involved as stakeholders.
Okay, thank you. Finally on Aker BP. Your ownership stake in Aker BP, do you see that as a potential limitation to the growth opportunities of Aker BP? Could you consider lowering your stake in Aker BP? What should we think about that?
Our 40% shareholding will not limit the development of Aker BP on the Norwegian continental shelf. I will not speculate in a future dilution. So far, we have maintained a 40% shareholding, and we have no plans to dilute our shareholding in Aker BP. For us, it's all about what will create most value. We don't focus on that particular percentage, but rather on the value of our investments in Aker BP, dividend included.
Okay, thanks.
Marius Lorentzen from E24. You talked about the expected dividend income from your portfolio companies, and you referred to the expected increase from Aker BP next year. Do you also expect increased dividends from your other companies next year?
Yes, some, but not to the same extent as Aker BP.
Does that include all of the companies in the portfolio or?
No. Ocean Yield has paid an increasing dividend quarter-by-quarter, and that's the plan also going forward.
Morten from Nordea. First question, I don't know if you will answer it, anyway, why didn't you reward shareholders in Kværner with a dividend? What is the threshold for doing so? The second question is regarding the upcoming potential work for Kværner. There's a lot of tenders going on, as you said. Some on the Norwegian continental shelf. Last time, a couple of years back, Kværner wasn't competitive compared to its peer group. How do you see this now, and in the upcoming awards?
The first question about the dividend from Kværner. The explanation is the same today as it has been in the past. It's partly about the fact that EPC is a business associated with some significant risks. In this down cycle, our priority has been to maintain a very strong balance sheet in Aker Solutions in Kværner, for that reason. In addition to that, we have encouraged Kværner to explore opportunities to diversify their business.
One was geographically or by entering new industry segments. Kværner is today mainly dependent on the level of activity on the Norwegian continental shelf, which is the most attractive offshore region next few years. In the longer term, Kværner would benefit from a more diversified business and a diversified portfolio. Until that strategy process has been concluded, we will not reduce the investment capacity in Kværner.
Your next question was about new contracts and Kværner's competitiveness. The most important contracts awards next six months on the Norwegian continental shelf is, as most of us know, contracts related to the Johan Castberg development and Johan Sverdrup Phase II. To your last question about competitiveness.
I think some of the recent greenfield developments have also provided facts and figures about what's not only the initial tender cost, but what's the ultimate cost for greenfield development. The benchmarking between the cost level in Norway and the cost level in other parts of the world will be different today than when the contracts for ongoing greenfield developments were awarded.
Most importantly, I think the reason why I'm confident that Kværner will be competitive in the upcoming tenders is due to two main factors. First one is outstanding quality in project execution, and the second one is initiative takings to reduce cost and enhance efficiency also in that part of the Aker Group.
Thank you. A final question back to Aker Solutions. GE has publicly stated that they are in the process of evaluating if they wanted to divest some of their oil service business. You have been very successful in adding business or adding the portfolio for Aker BP. Is this something you consider? Are there potential things you can do and actually grow Aker Solutions as a larger Norwegian industrial player?
We have no plans to acquire neither GE nor Baker Hughes.
Part of it.
That could create opportunities. We know both GE Oil & Gas and Baker Hughes pretty well. They have some very strong capabilities, and the industrial fit between some of our businesses and some of theirs is pretty obvious. Short-term, I expect that GE will need to complete their integration process and the main shareholders' divestment process. Don't expect any announcement about a transaction with Baker Hughes/GE shortly.
Any last questions before we move on? Okay, I thank you all on the webcast for participating.