Aker Solutions: Focus on Quality of Operations, Returns Paying Off
The company will today at its capital markets day announce that all business areas are committed to improvement programmes that will start translating into double-digit profit margins for Aker Solutions and an improved return on equity. New investment criteria are being set, moving the hurdle rate up to 15 percent. This focus will mean challenging the business rationale for each investment and testing it against whether a share buyback would yield a better return for investors.
"While we will continue to build Aker Solutions, the focus on topline growth will be toned down and more attention will be paid to growing our profit and share price," Executive Chairman Øyvind Eriksen says. "We are going to reduce our investment levels so that we don't overinvest in capacity that could erode margins."
Aker Solutions' EBITDA margin widened to 9.8 percent in the third quarter of 2013 from 7.9 percent in the first half of the year, helped by improvement programmes in several areas and key deliveries.
The company experiences robust demand for its products and services in most markets even as some oil producers delay projects amid cashflow concerns, increasing uncertainty about future investments and the timing of contract awards to oil-services providers.
"We are optimistic about our market segments," Eriksen says. "So far this year, the order intake has grown by 20 percent and the order backlog by 33 percent, which is a decent development."
Aker Solutions is well positioned to capture growth in key markets such as subsea, the fastest-growing offshore-services segment, and regions including Brazil and Norway. The company recently announced several divestments and is now more streamlined to play to its strengths in the deepwater and subsea sectors, a strategy that will continue also next year.
"Aker Solutions will prioritize high-growth areas with significant barriers to entry and businesses that yield a high return on capital," says Eriksen.
Aker Solutions' return on average capital employed was 8.5 percent at the end of the third quarter, as measured on a 12-month rolling basis. The company has since then announced divestments of two business areas - well-intervention services and mooring and loading systems - and also plans to shed its oilfield services and marine assets business. Excluding these units, the return on capital employed is estimated to be about 15 percent for the 12 months ending 30 September.
The main pillars for growth will be supplying subsea factory products and solutions, designing offshore fields, providing drilling packages and helping producers with modifications that increase oil recovery and extend the life of fields.