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Aker Solutions delivered on major projects globally in the second quarter as operational improvements supported margins amid a slowdown for the oil and gas industry.
The company won NOK 3.4 billion in orders in the period, including a contract of more than NOK 1 billion to deliver its longest-ever umbilicals system at the Zohr gas field offshore Egypt and an order from Idemitsu Oil and Gas for front end engineering design at the Sao Vang and Dai Nguyet developments offshore Vietnam. In Norway, the company secured an engineering framework agreement with Lundin and MMO contracts with Statoil and Kvaerner. Aker Solutions saw continued interest in its front end engineering capabilities, receiving 29 study awards for projects in Norway, Australia, Asia Pacific and West Africa.
The order backlog was NOK 35 billion at the end of the quarter, of which almost two-thirds were for projects outside Norway. Finances were robust, with a liquidity buffer of 7.9 billion kroner at the end of the period. Net debt fell to NOK 1.3 billion from NOK 1.8 billion a year earlier.
There was good progress on a goal to boost cost-efficiency across the business by at least 30 percent amid a broader effort to streamline operations and strengthen competitiveness. The plan is to achieve annual cost savings of minimum NOK 9 billion by the end of next year, based on the 2015 cost base and work volumes. The company expects a quarter of this target to be achieved this year and for improvements to accelerate next year.
"In the shadow of extensive industry challenges, we continued to deliver on operational improvements and our streamlining process," said Luis Araujo, chief executive officer of Aker Solutions. "We have maintained steady margins and delivered strong execution. Our healthy backlog and solid finances will stand us well now and when the market recovers."
Revenue fell to NOK 7 billion in the quarter from NOK 8 billion a year earlier as the oil-services market slowed and some projects neared completion. Earnings before interest and taxes (EBIT) were NOK 319 million compared with NOK 376 million a year earlier. The EBIT margin was 4.6 percent versus 4.7 percent a year earlier. The company had NOK 77 million in special items, mainly from costs of restructuring and impairments. The margin excluding special items was 5.7 percent.
Aker Solutions has two reporting segments: Subsea and Field Design. Subsea revenue fell to NOK 4.3 billion in the quarter from NOK 4.8 billion a year earlier. The EBIT margin narrowed to 4.6 percent from 7.1 percent, impacted by higher depreciation and lower subsea services demand. The margin excluding special items was 6 percent.
Revenue in Field Design, which consists of MMO and Engineering, dropped to NOK 2.7 billion in the quarter from NOK 3.3 billion a year earlier. The decline was led by MMO, where some major projects neared completion and volumes contributing to revenue were small from other projects still in their start-up phase. The EBIT margin widened to 5.5 percent in the quarter from 4.9 percent a year earlier, helped by good progress on projects. The margin excluding special items was 6.1 percent.
The markets are challenging and projects are being postponed across the industry. But cost cuts are driving down break-even costs, which may allow some major developments to be sanctioned in the next 12-18 months. While offshore Norway is largely expected to remain subdued, there are signs that the region may start to see a gradual recovery from 2017. Aker Solutions' greatest growth potential is outside of Norway, where the company has been expanding. Tendering activity remains steady and totals about NOK 35 billion.
Aker Solutions is well-placed in key growth regions of the global deepwater and subsea markets to provide the capabilities and technology to tackle the challenges of lowering costs and improving recovery rates.
In Subsea, Aker Solutions targets a move over time toward peer-group margins and a return on average capital employed (ROACE) of 20-25 percent in the medium term. The ROACE in the second quarter was 10 percent and 15 percent excluding special items. Margins in Field Design are expected to gradually improve, with the biggest movement in MMO. The company expects to at least maintain its market share in all business areas.
Aker Solutions is a global provider of products, systems and services to the oil and gas industry. Its engineering, design and technology bring discoveries into production and maximize recovery. The company employs approximately 13,000 people in about 20 countries. Go to http://akersolutions.com for more information on our business, people and values.
This press release may include forward-looking information or statements and is subject to our disclaimer, see http://akersolutions.com
This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.