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Aker Solutions won the most orders in almost four years in the fourth quarter of 2017 amid signs of a market recovery and as an improvement program helped margins.
The company delivered strong execution on major projects globally and saw record demand for front-end engineering services. Aker Solutions completed a two-year program of becoming at least 30 percent more cost efficient across the business by year-end. It is now targeting an additional improvement of minimum 20 percent by the end of 2021, compared with 2015 costs and work volumes.
"We're seeing increasing signs of recovery as break-even costs come down and more projects are sanctioned, particularly offshore Norway where we are well-positioned," said Aker Solutions Chief Executive Officer Luis Araujo. "Our strong execution and continuous improvement efforts are supporting margins."
Orders in the quarter were NOK 13.4 billion, bringing the backlog to NOK 34.6 billion. Most were for projects in Norway, including about NOK 4 billion from Statoil to supply the subsea system and the design of the floating production, storage and offloading (FPSO) vessel for the Johan Castberg field, the largest oil discovery in the Norwegian Barents Sea. The company was also contracted to design the Johan Castberg FPSO's living quarters. It won a five-year subsea services framework agreement from Statoil in Norway that may be extended by as many as 20 years. The company also secured the world's largest umbilicals system order - for the Zohr gas field offshore Egypt.
Aker Solutions in the quarter was awarded 27 front-end engineering orders, bringing the full-year number to an all-time high of 124 awards. That's up from a record 81 contracts the previous year.
"There is a surge in demand for our front-end engineering capabilities, which is where we see the greatest potential to optimize the value of a field development," said Araujo. "Early involvement also puts us in a strong position to win more work at a project, such as at the Johan Castberg field where our close and early collaboration with the customer helped halve the development costs."
Revenue rose to NOK 6.4 billion in the quarter from NOK 6.1 billion a year earlier, driven by increased modifications activity offshore Norway and growth from acquisitions. Earnings before interest, taxes, depreciation and amortization (EBITDA) were NOK 458 million, compared with NOK 380 million a year earlier. The EBITDA margin was 7.1 percent versus 6.2 percent a year earlier. Excluding special items, the margin was 7.5 percent compared with 8.8 percent a year earlier.
Aker Solutions has two reporting segments: Projects and Services. Revenue in Projects rose to NOK 5.2 billion in the quarter from NOK 5.1 billion a year earlier, driven by increased modifications activity offshore Norway and work secured through the acquisition of Reinertsen last year. The EBITDA margin widened to 8 percent in the quarter from 7 percent a year earlier. Revenue in Services rose to NOK 1.2 billion in the quarter from NOK 1.1 billion a year earlier, helped by growth from the acquisition of C.S.E. Mecânica e Instrumentação in Brazil in December 2016. The EBITDA margin was 12.9 percent in the quarter versus 15.3 percent a year earlier.
While finances were solid, with a liquidity buffer of NOK 5.7 billion at the end of the year, the board proposes that no dividend payment be made for 2017, considering it prudent to exercise caution and conserve cash amid continued uncertainty about the market outlook. The company maintains its policy of paying a dividend of between 30 and 50 percent of net profit over time.
The outlook for oil services remains challenging as projects continue to be postponed and there is pressure on pricing. Still, there are increasing signs of a recovery, particularly offshore Norway where there is a pickup in activity and in the brownfield segment where oil companies are focusing on optimizing output from existing fields. Industry efficiency improvements are bringing down break-even costs on developments, which is spurring more project sanctions.
Tendering is steady and Aker Solutions is bidding for contracts totaling about NOK 50 billion. About two-thirds of these are in the subsea area, where the company anticipates several key projects to be awarded in the next six months, particularly in Norway, Brazil and Asia Pacific. Aker Solutions sees overall revenue somewhat up in 2018 from 2017, helped by the recent new orders and improving activity in the maintenance and modifications markets. Underlying 2018 EBITDA margins are expected to remain around full-year 2017 levels, supported by increased volumes, solid execution and the company's global improvement program.
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 14,000 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.