Aker Solutions mitigating effects of market slowdown with temporary layoffs, salary freeze for execs
Norwegian oilfield services company Aker Solutions has revealed a package of measures with an aim to mitigate the effects of the coronavirus and sharp oil price decline, including layoffs, reductions in cost and investment levels, and salary freeze for executives as well as general population.
Aker Solutions said on Wednesday it 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.
Luis Araujo, chief executive officer of Aker Solutions, said: “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.”
Revenue decline ahead
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.
Aker Solutions’ measures implemented so far include following national health authorities’ requirements for office and non-office locations, including temporarily close down of locations where applicable and demobilization of about 3,000 people in Norway, including 700 non-Nordic contractors from Egersund and Sandnessjøen, to comply with new national and customer restrictions.
Aker Solutions also submitted notice of potential need for temporary layoffs to up to 6,000 employees in Norway and temporary laid off 400 employees in Norway and 250 employees in UK, as per April 1.
Protecting balance sheet & financial performance
Aker Solutions said that its 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.
Furthermore, 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 as well as early retirement initiatives.
Also, the company announced salary freeze, and no variable pay scheme for 2020 for CEO, Executive and Senior Management, and for the general population salary freeze and no variable pay schemes.
Investment level reduced
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 said it 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.
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