Engineering firm Aker Solutions is taking measures to mitigate the effects of activity slowdown due to the COVID-19 outbreak and plummet in oil price, involving temporary layoffs, freezing salaries on all levels, accelerating cost-saving initiatives, and significantly reducing investments.
The company said it expects its revenues will decline by a minimum of 20 percent compared to the outlook at end of 2019.
Aker Solutions has demobilized about 3,000 people in Norway, including 700 non-Nordic contractors from Egersund and Sandnessjøen; submitted notice of potential need for temporary layoffs to up to 6,000 employees in Norway; and also temporary laid off 400 employees in Norway and 250 employees in UK, as per April 1.
“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.
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 cut 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.
“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.”
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.
The company will continue to assess the need for additional manning and capacity adjustments including potential closures of production and office locations.
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.