Aker Solutions ASA: Third-Quarter Results 2014
Aker Solutions revenue rose 22 percent to NOK 8.3 billion in the third quarter of 2014, boosted by increased work at major subsea projects in Norway and West Africa, higher activity at the U.S. umbilicals plant and rising engineering sales.
• Sales of NOK 8.3 billion in 3Q 2014 vs NOK 6.8 billion in 3Q 2013
• Earnings before interest and taxes (EBIT) of NOK 460 million vs NOK 451 million a year earlier
• EBIT margin of 5.6% vs 6.6% year earlier
• EBIT margin excluding demerger costs of NOK 43 million was 6.1% versus 6.6% a year earlier
• Earnings per share (EPS) of NOK 0.97 vs NOK 1.29 a year earlier
• Order intake of NOK 3.6 billion vs NOK 5.2 billion a year earlier
• Order backlog was NOK 49 billion vs NOK 39.4 billion a year earlier
Earnings before interest and taxes (EBIT) climbed to NOK 460 million from NOK 451 million a year earlier. The EBIT margin in the same period narrowed to 5.6 percent from 6.6 percent.
Margins were held back by overcapacity caused by a steep drop in activity in the maintenance, modifications and operations market in Norway, as well as a major subsea project that had not yet started to recognize profit.
This was somewhat offset by stronger project execution at umbilicals plants in the U.S. and Norway and improved capacity utilization in the engineering business.
The order intake was NOK 3.6 billion in the quarter, bringing the backlog to NOK 49 billion kroner.
“We made good progress in the quarter on major subsea and engineering projects and had a near-record backlog after significant contract wins earlier this year in Angola and Brazil,” said Luis Araujo, chief executive officer of Aker Solutions. “This puts us in a strong position to tackle a slowdown in some market segments as oil companies delay projects amid concerns over capital.”
After a split in September, Aker Solutions now has two reporting segments: Subsea, consisting of the subsea and umbilicals businesses, and Field Design, comprising the engineering and maintenance, modifications and operations (MMO) units. Subsea’s EBIT margin narrowed to 7.9 percent in the quarter from 8.5 percent a year earlier, while Field Design’s margin declined to 4.5 percent from 6.3 percent.
“We’re now a leaner and more focused company with strong positions in the deepwater and subsea markets,” Araujo said. “A top priority is to create value for our shareholders and customers through a ceaseless focus on operational excellence, cost control and financial performance.”
Aker Solutions in the quarter intensified efforts to lower costs while pursuing deeper synergies across the business. Functions including supply chain management, construction management and technology were reorganized to avoid duplication and strengthen processes. Savings programs were also initiated in the engineering and MMO units. Aker Solutions approached suppliers and contractors to renegotiate contract terms amid changing market conditions. The company is in a major push to improve quality in execution and initiated several pilot projects to test work methods and processes in key projects and develop best practices.
Aker Solutions also in the quarter adjusted capacity in its MMO workforce in Norway to counter a slowdown in the Norwegian market for offshore maintenance and modifications.
Tendering remains high in Aker Solutions main markets and a number of significant offshore projects in Africa, Brazil and Asia are likely to be awarded in the coming quarters. Aker Solutions sees a risk of delays as oil companies scale back some investments. The company anticipates this focus on capital discipline to continue over the next one to two years.
Activity is expected to be lower next year in the North Sea, Aker Solutions’ largest regional market, before picking up in 2016. Business should prove more resilient in markets such as sub-Saharan Africa and those exposed to national oil company investment trends, such as Brazil, Asia, and the Middle East. Aker Solutions’ growth over this period will likely be driven mainly by Brazil and Africa, where the company is well-positioned in the deepwater and subsea segments.