Good morning, welcome to an exciting day for the Aker family. My name is Tove Røskaft, and I'm heading up communication at Aker Solutions. Before we start the program today, I have to take a little HSSE moment. As you all are aware, it's the coronavirus situation, so the seats are separated with the proper distance, and there will be no hand-hold microphones after the meeting. If you have a question for the Q&A session, please use the mics that's been placed out in the room. There are no fire drills planned for today, so in case of an alarm, we have to evacuate. The emergency exits are to the side, left and right, left and right of me and behind you. The muster area is through that door at the end of the building.
It's an exciting day and to set the scene today, we have a short movie. After the movie, the first presenter of the day, President and CEO of Aker ASA and Chairman of Aker Solutions, will start the presentation. Øyvind Eriksen will go on stage just after the movie. Enjoy.
Now we are doing it again. For almost 200 years, we have changed the world. The world has changed us. We are joining forces to help accelerate the transition to sustainable energy production. We enable low-carbon production for the oil and gas industry. At the same time, our expertise in renewable energy will put wind in the sails of new industries. We create value for our customers and society through digital solutions and new technology. Our ambitions are high. By 2030, renewable energy and low-carbon solutions will be our biggest business. Today, we stand on the shoulders of those who came before us. Tomorrow, we go to work for future generations.
Good morning. This is usually the quietest week in the year, with many people on summer holiday. We are in typical Aker fashion, moving full speed ahead with some of the most transformative changes since we created Aker BP and Cognite. Whether you are with us here at Fornebu or joining us remotely, welcome. We're pleased to have you with us as we walk through today's news about the establishment of two new spin-off companies from Aker Solutions and the subsequent merger between Aker Solutions and Kværner. I'm joined here today by a number of important colleagues, including Atle Røynesdal, Valborg Lundegaard, Kjetel Digre, and Leif-Arne Langøy. They will present different aspects of the story later on in this session. Let me put the announcements today into some perspectives.
Aker has created and has developed its business interaction with Norwegian society. Through 180 years, we have harvested lessons about industrial pioneering and about structural moves that ensure profitable operations, unlock shareholder value and benefit societies. We are also founded on the Norwegian cooperation model, meaning we have a long tradition of open dialogue with authorities, our employees, and society at large. In June this year, we saw this play out. The industry worked together to avoid large and permanent reductions in capacity and competency in the important Norwegian oil service sector. The temporary changes to the petroleum tax was the result of strong industry collaboration, dialogue with politicians, local communities and thousands of impacted industry workers. The impact is already being seen with major development projects being sanctioned, giving work to thousands of oil service workers.
Perhaps even more importantly, the legislation allows companies like Aker to carry out the kind of structured transitions we need to maintain capabilities in Norway's world-class supplier industry, and in parallel, to position ourselves for a low-carbon future. It's to a large extent on the shoulders of today's skilled oil service workers and engineers that we will succeed in making a green energy transition. With the political framework in place, we can seize the opportunity to make bold changes to that position us for the future. Starting with the decision to spin off two business segments from Aker Solutions, namely the Offshore Wind business and the Carbon Capture business. The reason for this is that it has become increasingly clear that Aker Solutions sits on technology and solutions that represent value creation opportunities in a world transitioning to green solutions at an accelerated speed.
Offshore Wind and Carbon Capture are business opportunities that will require capital and focus to take to the next level and unlock value. They have both grown out of existing resources and competencies in Aker Solutions, but with even more potential as standalone companies rather than as integrated parts of an oil services business. Renewable energy industries and green technology solutions have entirely different value chains, customers, investor bases, and sources of funding. Recapitalizing and spinning off the Offshore Wind and Carbon Capture business areas from Aker Solutions presents an opportunity for growth and value creation. In order to secure sufficient funding for the next phase of development, both companies are in the process to prepare private placements. Both private placements will be guaranteed by Aker and executed prior to the listing of the companies on Merkur Markets here in Norway.
The intention is to distribute the Aker Solutions shares in the two companies known as Aker Offshore Wind and Aker Carbon Capture to the Aker Solutions shareholders as dividend, while Aker maintains the role as both majority shareholder and a driving force in the further development of the two companies. Earlier this morning, Aker announced a new dedicated group called Aker Horizons to lead this work in building strong companies within renewable and green technology industry segments. Our majority shareholding in Aker Offshore Wind and Aker Carbon Capture will form the basis for the Aker Horizons portfolio. The Norwegian government has approved the spin-off transactions and reserved its right to participate in the private placements through Aker Kværner Holding.
Aker has also reached an agreement with the government to subsequently dissolve Aker Kværner Holding, whereby its indirect ownerships in Aker Solutions, Kværner, and Akastor are converted into corresponding direct ownership stakes in those three companies. The dissolution of Aker Kværner Holding is subject to parliamentary approval this fall. By spinning off these two business segments, we are left with a more focused and streamlined Aker Solutions that will then merge with Kværner. The merged company will take the name Aker Solutions, though the offshore yards will continue to trade under the brand Kværner.
Bringing the companies together forms a stronger supplier company with an extended portfolio that can focus on radically improving efficiencies and cost deflation in oil and gas deliveries by also better leveraging the potential from application of industrial software solutions and automation technologies provided by third-party suppliers rather than developed in-house. A key element in the strategy of the merged company is also to streamline, focus, and accelerate the role as supplier to the renewable and green technologies industries. Overall, these measures will strengthen the combined supplier capabilities, allowing both companies to better focus on core competencies, project execution, and strong product deliveries, both to the existing oil and gas industry, as well as into emerging energy segments.
Before we move on to more details on the two spin-offs and the merger, I want to take a moment to thank you, Luis, who today announced that you will step down. Luis, a good friend, has led Aker Solutions through the last six years and probably through some of the most challenging times in our industry. I would like to thank you, Luis, for your stewardship and achievements over the years. You will not leave us because after a well-deserved holiday, you will come back and continue the collaboration in your new role as advisor to me and the entire Aker group. From Aker shareholder perspective, this is a big day for future value creation. Core capabilities within oil service form our backbone.
Digitalization and innovation unlock new growth opportunities, we are claiming our position in the transition to renewable energy technologies. We will now hear a bit more about the two spinoff companies. I'm pleased to welcome on stage the new CEOs of Aker Offshore Wind and Aker Carbon Capture, Astrid Onsum and Valborg Lundegaard. Astrid is the new CEO of Aker Offshore Wind. She's currently the head of Offshore Wind Power at Aker Solutions, a role she took back in September 2018. She is responsible for developing Aker Solutions' floating wind under an ambitious strategy. Astrid has more than 20 years experience from the energy sector and a strong technical knowledge base developed through large and complex projects. She has been overseeing the delivery of some of the most complex offshore projects in the world. Valborg will head the new spinoff company, Aker Carbon Capture.
She's currently with Aker Solutions executive management team as head of customer management. Valborg is a chemical engineer and has more than 20 years of oil and gas industry experience, including as president of Aker Engineering and Technology and as head of Aker Solutions' engineering business area. They will now give you a brief introduction to each of the two spinoff companies.
We believe deep water wind energy will be the next revolution in renewable energy, following solar, onshore wind, and shallow water wind. IEA has forecasted Offshore Wind to be a $1 trillion industry over the next two decades. Offshore wind investments will in many geographies be larger than oil and gas. Aker Solutions currently has a development portfolio in Offshore Wind projects in Asia, North America, and Europe. The focus for the new company is Offshore Wind developments deeper than 60 meters, where we believe we have competitive differentiation. Floating wind can be deployed with flexibility in the location of wind farms, with less footprint and independent of water depth limitations. 80% of Offshore Wind resources are in waters deeper than 60 meters.
The effectiveness of energy production from deep water wind is superior to other renewables, sources, and capacity factors for wind onshore are at 30%-40%, whilst for wind far offshore, 50%-60%. Technologies are mature enough to be scaled with the needed experience in place. We further recognize that for the industry to accelerate, the cost needs to be driven down. Aker is firm in its belief that floating Offshore Wind will see the same reduction in Levelized Cost of Energy as observed for bottom-fixed Offshore Wind. We should remember that 70% of the costs are the same across bottom-fixed and floating systems, and it only took bottom-fixed 10 years to get to a price level without fiscal government support.
We also know that it was the early movers that created the most value, and this is the role we're now taking in deep water wind. The Offshore Wind market is a truly global market. We're currently working on developing a project in California, which could be a flagship for the state, where 150 MW of floating wind, depending on political processes, can be commissioned 2025. In parallel, we're developing a project in South Korea, which has the potential for 1,500 MW and electricity production from 2025 to 2026. In these projects, we have an excellent partnership with EDPR. The Norwegian continental shelf holds promise to become a key home market for Aker Offshore Wind, particularly when seen in combination with a drive for electrification and decarbonization of the oil and gas activities on the NCS.
Aker BP is a natural collaboration partner for Aker Offshore Wind. For Norway, we have two projects on the drawing board, one floating at 500 MW and a deep water bottom-fixed at 1.2 GW. Across the North Sea, Scotland is a home market for Aker, and we are positioning for development there as well. In addition to these opportunities, we're developing a pipeline of other prospects globally. Also, Aker Offshore Wind will have ownership in Principle Power. Principle Power's floating foundation design is one out of two bankable designs globally, and constitutes a strong technology brand in the floating Offshore Wind industry. The investment in Principle Power is part of the spin-off scope, and will continue to serve as an important channel for market differentiation and sourcing of prospects. The new company has an ambition to both develop and operate Offshore Wind assets.
It will build on the experience from Aker Solutions, including expertise within floaters, jackets, sub-sea power systems, project execution, and maintenance. In parallel, Aker Solutions and Kværner can develop into industry-leading suppliers of solutions and products. Several agreements between the wind development company and Aker Solutions will form a part of the transaction. Offshore wind development projects are large industrial projects that by nature requires time and capital. The capital intensity is why private placement to secure sufficient funding for the next phase will be carried out ahead of the spin-off from Aker Solutions. The private placement will be followed by admission to trading of the shares on the Merkur Market. To ensure long-term industrial ownership in a successful transaction, Aker fully guarantees for the private placement and becomes a majority shareholder post the transaction. We are excited about the progress to date.
We are early movers in an emerging industry. Just in the last two years, we have seen an overwhelming increase in deep water prospects. Market forecasts continue to point to exponential growth for this segment. We are now creating the needed platform to take a leading role in developing deep water Offshore Wind. Thank you.
Good morning. We believe the timing is right for launching a standalone Carbon Capture business, Aker Carbon Capture. The Paris Agreement targets are driving national policy developments, and have increased focus on ESG factors from investors as well as society. Over the last 12 months, we have been contacted by a large number of companies looking for technology to reduce their carbon footprint. In this period, the Carbon Capture sales pipeline has grown from NOK 5 billion-NOK 16 billion in identified opportunities. We are already directly involved in conceptual studies and testing on many of these. We have a wide range of customers, including cement and steel producers, refineries, waste-to-energy companies, and energy companies in general.
Aker Solutions has been a frontrunner in the Carbon Capture field, and is one of the very few companies globally that are involved in the entire Carbon Capture utilization and storage value chain. Since the development started 20 years ago, we have registered a number of patents, including a patented amine solvent developed with a strong focus on environmental characteristics. In 2008, we built our mobile test unit. Since then, we have gained substantial Carbon Capture operational experience from various plants in Europe and U.S. The mobile test unit is currently used to conduct a hydrogen flue gas capture test at Preem, Sweden's largest fuel company. Our technology is proven through more than 50,000 hours of operation from the mobile test unit and test center Mongstad.
We have secured a frame agreement with Norcem, a subsidiary of Heidelberg Materials, a firm step towards the EPC delivery of a Carbon Capture plant at their cement factory in Brevik, Norway. The plant is part of the Norwegian Carbon Capture Demonstration Project to be funded by the Norwegian government. Parliament is expected to take the final decision to realize the full-scale project in the national budget for 2021. The plant, capturing 400,000 tons CO2 per year, would become the world's first large-scale capture plant at a cement producer. In April 2019, Twence in the Netherlands awarded a Carbon Capture plant at their waste-to-energy plant. The selected concept, named Just Catch, is a modular Carbon Capture solution developed by Aker Solutions to be simple, low cost, and environmentally friendly. Aker Solutions will be the preferred execution muscle for Aker Carbon Capture.
This will ensure flexibility and continuous improvement. The new company, Aker Carbon Capture, will have a dedicated management team focused on development of the Carbon Capture business and wide range of customers. Our core team of technical specialists, several with PhDs, will continue to innovate and develop the low-carbon solutions. A standalone business can be evaluated on future decarbonization business potential and core technology, and also have access to ESG funding and low financing costs. We believe that the spin-off will create shareholder value, both to shareholder participation in the spin-off and through Aker Solutions being a leading supplier to Aker Carbon Capture going forward. Accordingly, the plan is to carry out a private placement to secure funding for the next phase of the development before a spin-off of the Carbon Capture business into a separate entity.
The private placement will be followed by admission to trading of the shares at the Merkur Market during August 2020, where the intention is to distribute Aker Solutions' share in Aker Carbon Capture to the shareholder as dividend or return of paid-in capital, while Aker guarantees for the private placement and becomes the majority shareholder post the transition. Aker Carbon Capture will be organized under Aker Horizons. Several supplier agreements will be entered into between Aker Solutions and the Aker Carbon Capture before spin-off. We have to take advantage of our unique technology position and the momentum in the market. We must continue to drive down costs through industrialization, digitalization, and maturing the supply chain. We must accelerate further technology development. To do this, we need access to growth funding. Therefore, it is the right time to spin off Aker Carbon Capture.
Thank you so much, Astrid and Valborg. After listening to you probably understand why I'm so excited about the value proposition of Aker Carbon Capture and Aker Offshore Wind under your respective leadership. It will be great fun to follow going forward. Now, it's time to move on to another exciting transaction, the proposed merger between Aker Solutions and Kværner. This morning, Aker Solutions announced that Kjetel Digre will be the new CEO for Aker Solutions, and upon completion of the merger for the combined company. Kjetel joined Aker BP in 2019 after a period of time with our industrial software company, Cognite.
Before that, several years with Equinor, where Kjetel was responsible for some of the most complex offshore projects on the Norwegian continental shelf, including projects like Åsgard, subsea gas compression, and Johan Sverdrup, both with excellent suppliers like Aker Solutions and Kværner. I've experienced myself Kjetel's excellent ability to bring together people and organizations to foster strong collaboration. I'm confident that Kjetel will do a great job leading Aker Solutions and the merged company in the days and years to come. In Aker, there is no resting on our laurels. While Kjetel will not officially step into his new role until August the first, he is here with us today to present the vision and the future of the merged company.
Thank you for that introduction, Øyvind. Let me begin with some topics that are important to me, having seen these companies from the outside for many, many years. I have a background, as Øyvind said, from Statoil and Equinor, and I spent most of my 25 years within the area of field development and projects. In many of our main achievements, like technology breakthroughs on Åsgard subsea compression and in large projects with record deliveries in projects like Johan Sverdrup, Kværner and Aker Solutions, with its technology experts and welders, with the engineers and planners, and with the dedicated leadership, played key roles for us as a customer. In Equinor and later in Cognite, I worked on digitalizing both operations and project execution, again, closely together with these companies.
This continued into my latest role as head of operations in Aker BP, where we also shared common improvement ambitions through close collaboration in all of our different alliances. From the outside, it has been easy to see that these companies are in the forefront on several of the most important areas of today: integrated execution, continuous improvement, digitalization, and new collaborative models. I really look forward to lead and develop the company into the next exciting chapter of its history. The oil and gas industry has been through a challenging period, where the oil service industry is holding too much spare capacity. A merger strengthens the size and resilience to create a leading execution partner for both the existing and emerging energy industries.
As Øyvind said, there's a clear intention for the merged company to create a strong supplier with an extended portfolio, focusing on radically improving efficiency in the oil and gas deliveries by also better leveraging the potential from industrial software and digital technology. A key element of the strategy moving forward is to also accelerate the transition to renewables and green technology industries by building on complementary capabilities. The merged company will be a key supplier to the new spin-off companies, as already mentioned. The merger is designed to unlock shareholder value by improving cash conversion through reduced CapEx, optimized footprint, and by harvesting synergies through a lean organizational structure. Creating the new Aker Solutions is a response to the dual challenge we are facing today, the need for more energy with a significant lower carbon footprint.
Bringing, you know, two of the really industry veterans with more than 50 years of oil and gas experience together shall accelerate the transition to more sustainable energy production. That means on one side, enabling low carbon oil and gas production, and on the other side, delivering products and integrated solutions to renewable energy industries. Following the spin-off of the Wind and CCUS businesses, the company will be a streamlined and dedicated engineering and execution partner to operators of energy assets and in industrial plants. It will continue to be focused on collaboration and building true alliances. The companies have complementary execution capabilities that will be strengthened and further developed through industrial software and digital technology. How will the merged companies form a supplier that is well-positioned for growth, both in oil and gas, and in the transition into renewables?
Oil and gas operators have reduced their investment plans by 20% to 30% this year. Øyvind was alluding to the crisis that we've been in. That was all as a response to the COVID-19 pandemic and sharply lower oil prices. However, one topic remains high on everyone's agenda, and that is the decarbonization of oil and gas production. A top priority for Aker Solutions will be to drive the decarbonization agenda and be part of the solution for our customers to reduce their CO2 footprint in all of their operations and all of their designs. We have the engineering and execution capacity to deliver the whole project to the customer. Meaning first, we have the front-end expertise to design the field solutions with the lowest carbon footprint.
Second, we have the products and the technology from unmanned platforms, in one end to subsea compression units in the other. Third, we contribute through digitalized energy optimizational systems linked to operation and production. The Norwegian Continental Shelf is really our home market, and also at the forefront of this global trend. I think the market potential to take these solutions from the NCS and bring it out to the international market is huge.
When we talk about solutions like this, you know, we have to touch upon one of the recent field developments on the NCS, which I know a little bit about, and that is the Johan Sverdrup field, which is all about five platforms powered from shore, eventually producing close to 700,000 barrels a day in 2022, and it has some of the lowest carbon emissions in the offshore industry globally. It's also built as a stepping stone for further brown field electrification or platform installations in the Utsira area. What this slide also shows you is the wide range of complementary capabilities between Aker Solutions and Kværner.
From the early concept phase, we were the main architect defining the optimal field solutions closely together with Equinor and the other license partners at Johan Sverdrup. We delivered the FEED, detailed engineering, procurement, and construction, in addition to hookup and commissioning for several of the topsides, substructures. In addition to having complementary capabilities and strengths, I saw firsthand the value created by the seamless cooperation between the companies and the customer, how we agreed on standardization across deliveries based on really deep engineering insight, and how key people from our companies were crucial for these achievements. The Sverdrup experience highlights how our new company can take on larger responsibilities, integrating across the project areas and deliveries in all phases of the field development. This can, of course, also include subsea products and systems as well.
It shows also how we all were committed to work on continuous improvement and take our project synergies, all for the benefit of our customer, also for developing an even more competitive delivery model of our own. Sverdrup is an extremely interesting topic, I can talk all day about it. I think it's an extremely important learning case, the fact is that it's still ongoing today, where we are delivering to Equinor with phase two. That is just one example among several joint projects where the two companies engage the engineering and execution expertise of both organizations. This shows how well these two companies can work together already. We also know how this can be even further improved, and that is something that we will start with immediately.
Current projects include the riser platform modification for the second phase of Johan Sverdrup, the Njord upgrade for Equinor at Stord, and the recently restarted Hod project for Aker BP. Our international footprint is primarily driven by our subsea and brownfield businesses. We currently have major frame agreements for maintenance and modification work in North America, the North Sea, Asia-Pacific, and West Africa. Our international brownfield clients include BP, Saudi Aramco, ExxonMobil, and Total, to name a few. Our subsea project portfolio includes major developments like Equinor's Breidablik, Lingxi in the South China Sea, and Mero-1 for Petrobras in Brazil. The combined company will have an order backlog of NOK 36 billion and a strong and broad foundation to grow further as sanctioning activity seems to pick up around the world.
This is particularly true for the NCS, where the temporary government tax relief have boosted activity levels. Our customers are rethinking their portfolio plans, which in turn creates activity for suppliers like us. At the moment, we are quite balanced, workload-wise at our yards, and with more activity, like the Hod development, we will, for instance, have a second look at prolonging activity in Sandnessjøen in Norway. We are working on important signature projects in so many areas, and we are doing so building on almost 200 years of industry competence. Our delivery models and execution processes have matured over several decades in the oil and gas industry. Many renewable industries are a lot less mature. Our core capabilities are exactly what is needed in the emerging industries, and Aker Solutions will contribute in shaping the future of these.
As one company, we will integrate products and suppliers in all phases of development to provide an optimized balance between technical system solutions, constructability, and operability. We will build a full value chain for execution by collaborating with technical and fabrication partners and establishing local and regional production lines. We will set new standards for collaboration, taking advantage of a fully integrated digital delivery model, which we are developing in oil and gas today. I believe we can make a big difference by bringing our proven project management and execution expertise to the customers, adjust it for the task at hand, and deliver it with the same HSSE focus, innovative spirit, and predictability we are known for in the oil and gas industry. Excuse me.
As a supplier, our portfolio of products and expertise is also well suited to serve a fast-growing market within renewables, Carbon Capture, and other low-carbon markets. We intend to establish alliances and global frame agreements for the sale of products and construction services as a preferred supplier to Aker Offshore Wind, as already mentioned. This will cover power cables, substations, and connectors, as well as construction services for floating foundations, jackets, and substations. Aker Solutions will also be in position to take on both system integration and balance of plant work. Current projects include Equinor's Hywind Tampen project and the FEED for the Empire Wind project in the U.S. Aker Solutions will also be an execution partner to Aker Carbon Capture, fully or partly covering project management, system engineering, design, and construction of large-scale CCUS facilities.
For large-scale projects, the major part of the scope will still be carried out by Aker Solutions. Looking a little bit further into the future, we see a lot of potential in the market for hydrogen production, with or without Carbon Capture. This will be further explored in the combined company through, for instance, the established relationship with the Norwegian hydrogen company, NEL, as well as working on other early-phase initiatives. As frequently mentioned today, the importance of industrial software. I believe that the coming energy transition will be enabled and accelerated through better and more open use of data. Leveraging software to address operational inefficiencies, transform our industry processes, and potentially adjust some of our roles when we are executing tasks together, will be the key to delivering on the promise of a more sustainable industrial future.
You know, working for an operator for most of my career, I've seen the efficiency gains and cost improvements that can be achieved when digital tools are applied the right way. We need to have focus on both creating new methodology and insight on one side and be first users and take out value in the sharp end. Just about this, we now have a unique opportunity to radically change the way we are developing greenfields through the implementation of standardized, integrated, and digitally native supplier ecosystems. I believe we have the right initiatives going. I know we have the right people on the job, and we are linked up with the customers that are ready to take this to the next level, for instance, on NOAKA. How will this all look? We have identified five segments for an optimized portfolio.
It includes front-end engineering where system design and digital solutions will ensure efficient engineering processes. Second, we will be a key supplier in renewables and CCUS. The company is a leading supplier in topside and facilities, offering flexible delivery models for oil and gas facilities, including floating production units, topsides and substructures. Excuse me. The merged company will supply electrification, maintenance, and modification of existing oil and gas infrastructure with asset integrity services and solutions. Aker Solutions will also have a broad and leading portfolio in the competitive subsea market. This includes production systems, processing, boosting and compression, power distribution and more. All in all, we will form a focused and stronger, more resilient supplier company with an optimized portfolio.
To sum up this first session from my side, I see a lot of good opportunities and a great potential in the combination of Aker Solutions and Kværner. It's an enormous possibility to create the strongest supplier company for oil and gas and renewable industries. you know, so far in my years outside, a few days closer to the companies, I'm so impressed with what I'm seeing. both when it comes to people, when it comes to competence, when it comes to solution orientation, willingness to collaborate, and drive to improve. I'm extremely excited to get started in only a few days. now I'm pleased to hand over to Idar Eikrem, CFO of Aker Solutions from the first of August. Thank you.
Thank you, Kjetel. The merger between Kværner and Aker Solutions will strengthen the size and the resilience of the company in creating a leading execution partner for both the existing and emerging energy industries. The company had combined revenues of 38 billion NOK in 2019, falling below 30 billion NOK this year. We have a current backlog combined of 36 billion NOK for execution in 2020 and beyond, which provide a solid foundation for future activity levels. Our ambition is to grow the revenue by approximately 10% on average up to 2025. Oil and gas volume are expected to be relatively stable, with 40%-50% of the revenues coming from aftermarket services like MMO and subsea lifecycle services. Renewables and low carbon solution is expected to grow and represent approximately 1/3 of the revenues in 2025.
Annual CapEx is expected to decline by 60% from 2019 to 2023. Both Kværner and Aker Solutions have completed several large investments since 2018, including the Stord Yard development, subsea technology developments and tooling portfolio, and several digital initiatives. Going forward, we will leverage on these investments for future growth and team up with specialist technology companies to develop the solutions for the future. We target a reduction in total combined overhead of approximately NOK 1.5 billion from 2019 to 2021. These figures include approximately NOK 500 million in attributable cost closely related to the reduction in activity levels in the companies.
In light of the market downturn, both companies have initiated cost savings programs to scale the organization and cost bases to the expected activity levels going forward. Majority of these cost reductions are ongoing and will be completed by most of it by year-end. Furthermore, additional cost synergies are to be realized from reduction of overlapping functions, use of best practice tools and methods, and through enhanced collaboration with sub-suppliers and business partners. All in all, the combination of all this will reduce our cost base on the overhead cost base by NOK 1.5 billion. The new company will have a solid balance sheet with a net interest bearing debt of approximately NOK 400 million by the end of the second quarter this year. If you adjust for some short-term underlying fluctuation in working capital, the net debt was close to zero.
We expect to deliver on average, more than NOK 1 billion in free cash flow per year, driven by solid profitability from our projects, a lean and scalable cost base, strong CapEx and working capital discipline, and reduced financing costs. With that, it's my pleasure to introduce the next speaker, Leif- Arne Langøy, Chairman of Kværner and proposed chairman for the new company.
Thank you, Idar, and good morning, everybody. I'm very pleased to stand here today and be a part of the announcing of the merger of Aker Solutions and Kværner. I strongly believe that this a very good business rationale to do that. As Kjetel has explained you, it will give us a lot of opportunities in the future that can grow the company. I'm 100% sure that this will also create value for the shareholders, and would also be a very good solution for rest of the stakeholders to the companies. The nomination committee of Aker Solutions, that is the company that will go forward, has proposed the new board, as you see here.
All these board members, they have been board members either in Aker Solutions or in Kværner. I am also very pleased that we already today could announce Kjetel as the new CEO and Idar as the new EVP and CFO of the new company. You have also seen from the announcement today that the CEO and President of Kværner, Karl-Petter Løken, will also join the new executive management team. I'm sure that we will have a lot of opportunities later to thank him for a very good job in Kværner. I will say that I'm very pleased with the excellent job he has done in Kværner so far, and there are still some months before the merger. I'm looking forward to cooperate with him also in the new team with Kjetel.
In addition to Kjetel, Idar, Karl-Petter, Egil Bøyum will also join the new executive team of the new group. He is also today EVP in Aker Solutions. I will also look forward to cooperate with you, Egil. Rest of the positions in the top management will be announced later. I think Kjetel and some of us have some ideas, but that we will come back to. The exchange ratio will be based on 1 month value-weighted average price, measured over a period of 30 days after the spin-off from Aker Solutions of Aker Offshore Wind and Aker Carbon Capture. The exchange rate will be based on a range with a plus to minus 5%. The middle of the range is set to be 52%-48% to Aker Solutions and Kværner respectively.
The end result is that Aker Solutions shareholders may have maximum 57% and minimum 47% of the shares in the merged company. Kværner shareholders may have maximum 53% and minimum 43% of the shares in the merged company. Here is the high level timeline. The brief points for the merger timeline is to have extraordinary shareholder meeting in the two companies during September. As I said, we strongly believe this is a strong business rationale behind this, and as you also heard from Kjetel. The shareholders, they will have the opportunity to support this merger in the extraordinary shareholder meeting in September. I think I will close my presentation then. I will ask Tove to take care of the Q&A. Thank you.
Thank you, Leif- Arne. As we said before, we started today, we can now facilitate a Q&A session. I can ask the presenters to come up here with the proper social distancing. We also have an online audience today that are able to ask questions. After the Q&A session, there will be time with a one-on-one with the press, both in this room and the room next door. I remind the people here in the audience that to use the microphones when you ask a question. It will be good if you state your name and address the person you would like to answer your question.
Can smile.
Yeah. Yes.
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Okay. Question. It's vacation time, so
Yeah. Any online questions?
This one.
Oh, this?
Marius Lorentzen from E24. I was wondering, can you say a little bit more about the capital requirements in Aker Offshore Wind and Carbon Capture? You both allude to a quite intensive capital need in the years to come. Can you talk about that, and also the expected profitability in the years to come, how long it takes before you expect profitability?
Well, if I start with the Aker Carbon Capture, I would say it's too early to give any numbers at this point in time. As I presented, we already have key projects in the pipeline with the award of the Norcem contract, pending governmental approval, and similar for Twence in the Netherlands. Of course, that gives a flying start for the company.
If I may add to what Valborg just said, what's particular about both Offshore Wind and Carbon Capture is the fact that you have to distinguish the funding need for the company itself and funding of the project. To a large extent, capital will be raised project by project. We have different levels to raise capital. The new Aker Horizons will be set up with some of the best treasury resources we have available because your second question about how to generate an attractive profit is partly about project execution, but equally importantly about how we structure the funding of individual projects.
I think it's also important to realize that our key focus now is market entry and market creation. Deepwater wind, deepwater floating wind is at the very beginning of its journey. Developing a deepwater wind project takes five to seven years from you start thinking about it till you're turning on electricity. We're in that very start of the journey. The capital intensity obviously reflects that as well.
Thank you. Any further questions? Any online questions?
Ladies and gentlemen on the conference call, if you have a question for the speakers, please press five star on your telephone keypad now. We will just have a brief pause while questions are being registered. The first question is from Haakon Amundsen . Please go ahead. Your line will now be unmuted.
Yes. Hello, guys. This is Haakon Amundsen from ABG. Congratulations with a very exciting transaction. Two questions from me, please. The first one, I guess maybe is for Idar. I just wondered how much of the announced cost reductions, you mentioned NOK 1.5 billion, are already been executed basically by the cost initiatives that you have done so far in Aker Solutions and Kværner? I.e. how much of the NOK 1.5 billion is left post Q2, Q3, in a way? That's my first question. My second question may be for Øyvind from Aker as a main shareholder. Seems to be significant cost reductions, low CapEx, and also spin out of capital-intensive unit with high free cash flow generation.
Can you give some color on the potential dividend policy or how the free cash flow will actually be allocated given that CapEx will be lowered so much? Thank you.
Okay. I can start with the question on the cost reductions. As I said in my presentation, combined it's NOK 1.5 billion. NOK 500 million is the attributable cost. The initiatives that both companies have is implementing as we speak and have been implemented as well, consist of the basically, the roughly, the remaining. Yeah, you refer to the Aker Solutions cost reduction is close to NOK 1 billion. Including in that is the NOK 500 million that I mentioned, and in addition, you have the additional cost reductions adding up together with Kværner's cost reduction to NOK 1.5 billion. That include also the synergies that we assume to be able to realize when we do the merger.
Exact, the timing for it, we will have to come back to, but in combination, you will have NOK 1.5 billion lower cost level.
Okay, just to follow up on that. From my side, I think it, I should give a lot of credit to the management teams in Aker Solutions and Kværner for the actions already taken to adjust to new market realities and to take down the cost base. There should be, as Idar just described, potential for more. That's a value trigger for the combined company too. As far as the dividend is concerned, you'll have noticed that we have both in Kværner and in Aker Solutions taken a cautious approach in recent years. Protection of balance sheet and reinvestment in the respective businesses have been main priorities.
As far as Kværner is concerning in more detail, we have also been cautious simply due to the fact that we have seen the need for a broader portfolio and industrial base. That's to a large extent achieved through the merger today, so we can tick off that strategic priority. What about dividend going forward? This will definitely be an important topic for the new board to build bottom-up an even more detailed business case and including priorities, additional transactions and how to what extent we need more investments.
Overall, the Aker would like to see a company being able to pay an effective dividend, then it will be a matter of priority with what amount and at what point in time. We should park the more specific answer and leave with the new board to define more precisely the dividend policy. In addition to what I've already said, it's important to keep in mind that this is a highly volatile industry, so strong balance sheets will always be a competitive advantage and a main priority also for Aker.
All right. Thank you, guys. That's it for me.
Just as a reminder, if you have a question, please press five star on your telephone keypad now. Our next question is from the line of Ms. Beer. Please go ahead. Your line will now be unmuted. Ms. Beer? The next question is from the line of [inaudible] . Please go ahead. Your line will now be unmuted.
Good morning, everybody, well done on the deal. A couple of questions, if I may. I'm just looking at the chart you've given. You've given a 2023 target for renewables. Obviously, it's NOK 5 billion on a pretty short timeframe. Can you just talk about how you expect that to be built up rapidly? Secondly, just looking at the underlying on that same chart, the oil and gas business, your ambition for 2025 basically says there's no recovery in the oil and gas business. Is that now your thinking at this point in time?
Yeah, I can start with the renewables. Both companies have in their business plan to grow, of course, substantially in renewables. Combined, I think we will be able to do even more. We in Kværner, in this case, had approximately NOK 20 billion-25 billion value of projects that we are positioning ourselves for. We expect that we see important milestones that will be passed this year and next year when it comes to decision for investment. Hopefully we can then come back to you and report about order intakes from that type of portfolio. Similarly, Aker Solutions have also similar opportunities. Combined, as I said, we will be able to harvest on that broad portfolio of opportunities.
I think the second question was about oil and gas recovery.
Yeah.
Oil and gas is still the largest industry segment in the Aker portfolio. It goes without saying that we as Aker believe in a gradual recovery. The main task in hand for the new board and management team in the merged company is to prepare for that. I learned from a very experienced oil and gas leader several years ago that in a volatile industry like oil and gas, the guiding principle for more or less all decisions you take is to help yourself and your customers to drive cost per barrel down. If you acknowledge the fact that oil price will go up and down, the activity will also be fluctuate.
The only thing you can control yourself is your own efficiency and cost base and competitiveness. As we have explained repeatedly today, and we have already taken a number of actions to improve competitiveness and efficiency, and we will continue to do so with the overall target to help oil and gas customers to produce their products at the lowest cost per barrel possible.
Okay. Can I ask a follow-up question on the Carbon Capture business? Can you just talk about the business model there? Is this gonna be a licensing of technology business, or is it gonna be a developer of projects and potentially an investor in those projects?
We see that we have a technology that will open up the market for us, and we see there are opportunities to be a large EPC contractor with, together, with Aker Solutions as a key supplier. Also there could be other models. The main thing for us here really is to ensure the execution capability from Aker Solutions, and we will set up a number of frame agreements between the companies for EPC, for fabrication, for technical services, and just hiring of personnel because this will be a lean organization as such.
As we all know, CCUS is a young and immature market, so we have to be flexible also with respect to business models. What's important to remind ourselves about while considering Aker Carbon Capture as an investment opportunity is that, to the best of my knowledge, Aker Carbon Capture is the only company in the world with a proven technology. It will, when we list it will be the only pure play Carbon Capture investment opportunity globally.
It will be very interesting to follow, but We as Aker will take a long perspective to the development because technology has to be further developed, and business model the same, but it doesn't hurt to be the front runner already.
Okay. Thank you. Good luck.
As a final reminder, if you have a question, please press five star on your telephone keypad now. As there are no more questions from the conference call, I will hand it back to the speakers.
Okay. Do we have any written questions? Okay, I'll come and take them. I guess this one goes either to Leif- Arne or Øyvind. How will the spin-off affect the merger exchange ratio?
As I said in my presentation, that we have set a range of the value of the share, different shares in Aker Solutions and Kværner. We are fully aware that there will be some movement in the share prices after the announcement. It's very hard to understand how much of the value of Aker Solutions is included in the wind business and in the carbon business. The value of the Aker Solutions shares will be after that the wind business and carbon business has been paved out. We are understand that there will be some movement, and that's why we have this corridor.
As Leif-Arne said, we leave the market to the side, within a range. It's also important to keep in mind that, as just said, we do this in two steps. Spin-offs first, merger thereafter. The 30 days time period applicable to the exchange, the calculational exchange ratio will start after Aker Carbon Capture and Aker Offshore Wind have been listed.
Thank you. Next question is what regulatory and antitrust approvals will be required for the spin-offs of Aker Offshore Wind and Aker Carbon Capture, if any, and for the merger with Kværner?
Maybe it's my time to practice some law. Even though I left the profession 12 years ago. Very few. We don't consider that to be a risk at all.
For the next question, I guess this one could be for you, Idar. Is gas compression projects related revenues included into your renewable revenue forecast? Gas compression projects.
I think when it comes to. Then you're probably also referring to how we will report on this going forward, I guess, is one of the underlying questions there. That is a segment structure that we will have to come back to. As I mentioned here, is that renewables, including low carbon solutions, is the aim to grow that to one-third by 2025.
Next question is also for you, Idar. Your medium-term guidance on cash generation for the combined group of NOK 3 billion between third quarter 2020 and 2023. Can you confirm what the ongoing lease costs will be, as I assume this is not included in this number?
The cash flow is a net cash flow after tax and financing, and all cash elements are included, including cost in connection with leases.
Okay. Kjetel, I guess this one is for you. I understand there will still be renewable business exposure left in Aker Solutions Kværner as a supplier to both the new companies. What is the strategy with regards to this business?
Well, I don't know all the elements of that as of today. I think I would touched upon a few of the most important elements of it. The first one is really to make sure that we make our sort of competence and capabilities even more seamless. Again, we have an execution capability, we have engineering and technical experts, which should be possible to then shift over towards the new areas. I think that the way we have technical expertise, execution models, and the way we collaborate in oil and gas area should be transferred over to the other areas.
I think as Even alluded to that, you know, the way we work with these companies and really look at increasing efficiency and productivity in the core of our deliveries is extremely important. That's down to improvement, pure procurement, you know, improvement initiatives and also digitalization. The way we do that within oil and gas needs to also be transferred over to the renewables area.
I guess this one you can answer too, Kjetel. I believe you touched this in your presentation. There is a question of how the new team see the HSSE level and main benefits of combining these two companies for the safety going forward.
I've worked with these companies for years, as I said when I presented. I've actually taken on some of the challenges you've seen inside the company. I think we defined that we have an HSSE challenge very early in these companies. Even though we have serious incidents, it's really to react as soon as things starts to happen. The way that, for instance, one example, we handled a trend which was going the wrong way in the Verdal, for instance, and the way the organization and management took that together to turn it around. Working both the cultural side of things and also the more operational side was, I think, a world-class example of doing just that.
I don't know the numbers again as of today in these two businesses. The way I think it's strengthened is that the resulting operations where the HSSE risk is really highest, is always the sum of all sort of preparatory work, planning, the right people have looked at it, and set up for the operations to follow. You know, the complementary properties of these two working even more together across this sort of delivery aspect is going to also strengthen our sort of control over these operations. Yeah, I think this is properties and strengths within the companies. It's going to be even better putting them together.
Thank you. Idar, Amy Wong wants to go back and ask another question about new growth slide you showed on slide 22. The implied growth in renewables from 2023 to 2025 is significantly. Will that be achieved all organically?
The current business plan is that we will do it organically. As I mentioned, we have not started on the journey on renewables today. We have started long time ago, and we have been positioning ourself for a lot of interesting opportunities, and we see that important milestones are coming faster and faster. Therefore, we will see the outcome of some of that positioning, as we said, over the next few months and quarters. As I also mentioned, just within the Kværner portfolio, we have approximately NOK 25 billion in potential projects that we will see outcome over the next couple of years.
Thank you. The next question. When the two new companies are listed, how much of the shares will Aker Solutions aim to hold? Will Aker Solutions aim to always hold a majority? I think that needs to be clarified.
Yes, of course. The answer is zero. All shares will be distributed to the Aker Solutions shareholders. Aker ASA through Aker Horizons will end up as the main shareholder.
Thank you, Øyvind. The next question is related to the spin-offs again. Have you placed a value on the spin-off Offshore Wind company and the Carbon Capture company?
That's a part of the ongoing preparation for a private placement. We have excellent advisors, working on the private placement as we speak
I believe we have answered all the questions online. There are, I think in the answers you have given, you have captured the remaining questions. Any further questions in the audience? Marius?
I have two questions regarding the combined Aker Solutions and Kværner. In your material you say that the staffing will be reduced from about 18,800 to 15,000 in the combined company. Does that include any new initiatives of staff reductions and other than the ones already implemented? Secondly, Kjetel talked about how you might prolong the Sandnessjøen facility. Can you talk about any other planned changes in your locations and the yards in the new company?
Yeah. I can start with manning reductions. There are of course part of the cost reduction initiatives. It's also implementing and taking out some of the manning in various places in our organization. What's come on top of those is the sort of synergies that we will do when the two companies will be combined and that involve mostly, let's say, overhead functions and we will see that coming through when we do the closing of the merger.
To the two locations and yard capacities, I think, you know, the location for, from the organization itself will obviously be looked at as part of the merger because we have two different type of organization. Again, basically sort of complementary, but that will be part of that. I think the overall aspect of the yards is that we need to make sure that we have size and not running with huge overcapacity. As I said, now we have a sound balance on these yards. Projects that are coming in and projects to handle really. I think the Sandnessjøen example is the conclusions that we have made as part of the crisis and the negative development.
Along the way, we see that things are changing with the tax relief this spring. Obviously, we are looking for opportunities. We have excellent operations up there already, and then to see how us that are now on board in the two companies can be placed around on these different yards is something that we will look into, and we are discussing with our customers.
Okay. If there are no further questions, I think I thank you all, both online and here in the audience for joining us today. There will be some time for the press after. Thank you.