Aker Solutions Reduces Costs and Capital Spending
April 1, 2020 - Aker Solutions is implementing a number of measures to mitigate the effects of the slowdown in activity level triggered by the COVID-19 outbreak and the increased uncertainty following the decline in commodity prices and demand for oil and gas. The company has the resources, organization, competence and assets to maintain current and new activity levels initiated by clients.
"The first months of 2020 have been unlike anything we have previously experienced. The COVID-19 pandemic, coupled with the sharp drop in demand for oil and gas, has caused significant disruption to the global economy and left societies around the world grappling with new ways of working and living. The global energy sector has been hit particularly hard, and at Aker Solutions we are doing our utmost to mitigate the effects for employees, customers, shareholders and other stakeholders worldwide," said Luis Araujo, chief executive officer of Aker Solutions.
Operational Response to the COVID-19 Situation
Unprecedented measures have been implemented around the world to stop the spread of the virus, including travel restrictions and quarantine provisions. These measures cause challenges for both Aker Solutions and its customers' operations. This affects the entire value chain and has led to lower activity levels than planned. It is expected that the level of activity going forward will be reduced considerably and Aker Solutions' revenues will decline by a minimum of 20 percent compared to the outlook at end of 2019.
The company’s priority is to protect the safety and wellbeing of its employees, while also mitigating substantial operational disruptions. Measures implemented to date include:
- Following national health authorities' requirements for office and non-office locations, including temporarily close down of locations where applicable
- Demobilized about 3,000 people in Norway, including 700 non-Nordic contractors from Egersund and Sandnessjøen, to comply with new national and customer restrictions
- Submitted notice of potential need for temporary layoffs to up to 6,000 employees in Norway
- Temporary laid off 400 employees in Norway and 250 employees in UK, as per April 1
Protecting Balance Sheet and Financial Performance
Aker Solutions’ main financial priority is to protect the company's balance sheet and financial performance. The company has initiated measures to reduce the company's cost and investment level.
"While it is too early to predict the long-term impact on financial markets and industrial activity level, the current market situation is expected to have an adverse impact on both activity, financial performance and structure of Aker Solutions in 2020," said Araujo. "A large part of the planned project sanctioning activity in the oil industry will most likely be postponed or cancelled in 2020 unless governments are introducing significant fiscal stimulation to aid in the recovery."
Before the COVID-19 pandemic, the company had already introduced cost-saving initiatives in key segments, including subsea, in order to address the overall cost base. The company is now accelerating and deepening these efforts. The initiatives aim to reduce the company's fixed cost level by a total, of at least NOK 750 million on an annualized basis by:
- Consolidation of the subsea tree production to Brazil and Malaysia. This means the Tranby site outside Oslo, Norway will no longer produce subsea trees after 2020 – effectively removing market capacity of about 60 subsea tree equivalents per year.
- At the subsea plants in Port Klang (Malaysia) and Curitiba (Brazil), manning will be reduced to strengthen the plant’s competitive position and adapt to the forecasted demand
- A program for substantial reduction of overhead personnel and costs across all regions has been initiated
- Early retirement initiatives
- CEO, Executive and Senior Management: Salary freeze, and no variable pay scheme for 2020.
- General population: Salary freeze, and no variable pay schemes.
In addition, the investment level will be significantly reduced in 2020, from the original plan of about NOK 750 million to about NOK 500 million. Close to NOK 200 million of the NOK 500 million has already incurred to date, with the remainder committed. This equates to approximately a 45 percent reduction in the investment level for the remaining part of 2020.
The company will continue to assess the need for additional manning and capacity adjustments including potential closures of production and office locations, in close dialogue with customers, employee representatives, and relevant third parties.
One-off restructuring costs of about NOK 150 million and impairments of around NOK 500 million are expected to be booked in the first quarter of 2020 as a result of these initiatives. Further restructuring cost may occur in later quarters.
The company is currently scheduled to update investors with its first quarter 2020 results and an updated market view on April 30, 2020.
Ivar Simensen, mob: +47 464 02 317, email: firstname.lastname@example.org
Fredrik Berge, mob: +47 450 32 090, email: email@example.com
Aker Solutions helps the world meet its energy needs. We engineer the products, systems and services required to unlock energy. Our goal is to maximize recovery and efficiency of oil and gas assets, while using our expertise to develop the sustainable solutions of the future. Aker Solutions employs approximately 16,000 people in more than 20 countries.
This press release may include forward-looking information or statements and is subject to our disclaimer, see https://akersolutions.com
This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.