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Interview

with Per Harald Kongelf, COO & Head of Operations Norway, Aker Solutions ASA

28.03.2013 / Energyboardroom

2012 witnessed a 90 percent rise in Aker Solutions’ share price. Do you see the company being able to justify similar increases in 2013, based on your performance projections?

We will have to let the stock market be the judge, but back in 2010 Aker Solutions launched an ambitious 5-year plan where we aimed to double our revenue and significantly increase our EBITDA performance by 2015. In 2013 we are on track to meet this objective and we believe the current market fundamentals will support this growth. Our performance should be of interest to the stock market in 2013 as well.

An Ernst & Young paper points to suppressed margins for the oil service industry throughout 2013. To what extent will Aker Solutions also be affected?

Our 2015 target implies a growth in our operating margins, and, as I said, we are still on track to meet that target. So far, we have not seen any evidence of a huge pressure on margins. In any case, the pressure on margins is no greater than we predicted when we formulated our targets three years ago.

Of course, growth in margins will have to come from a continuous focus on improving our performance. Gaining greater control over the key elements of our operation is a fundamentally important task for the company in 2013.

In 2012 Aker Solutions experienced 750 million NOK (USD 132 million) losses through mistakes/quality costs. If we manage to reduce these quality costs further we can significantly increase our financial performance. This quality cost figure was also based on a very tight definition of what constituted a quality cost. Therefore if we broaden the definition further we see plenty of scope for improvements in margins. Attacking this area will be a key strategy for Aker Solutions in 2013.

Personally I have worked for Aker Solutions for 25 years and the company has always been competitive over that time. Our greatest challenge is often internal and the solution is in optimizing the work we perform.

Aker Solutions is expanding aggressively with more than 3,000 employees being brought into the organization last year, 60 percent of whom were international. How do you see the conflict between rapid expansion and improving quality?

Of course, we are exposed. However, as with any risk the most important task is to understand the risk you are taking on. We are trying to mitigate the challenge brought about through this expansion as much as possible. The management team of Aker Solutions is highly focused on the onboarding and training of new people with the elimination of quality costs as a result of our expansion being a key motivation.

Following the divestment of Kvaerner, Aker Solutions has remained a close partner of the Norwegian fabricator in tenders. However, having lost a series of tenders in Q42012 how are you now reassessing your partnership with Norwegian fabricators?

Aker Solutions and Kvaerner have worked together for 40 years, and we will continue to cooperate with Kvaerner in the future. However, we would also like to have more flexibility regarding our bidding partners. This is because there are many parameters, which decide which particular company constellation will be successful in securing a project. Relying on one partner is not an effective strategy in this environment.
It is true to say that Norwegian fabricators as well as Aker Solutions need to work on competitiveness including our subcontracting strategies and relationships with suppliers. However, I am not that pessimistic with regard to Norwegian fabricators and their future. They will need to develop and rethink their assembly lines and facilities as well as their supply chain logistics, which I am sure they are doing. I think there is still a space for Norwegian fabricators in the market, as when it comes to advanced modification projects, it is hard to see the Koreans being able to compete. Before this happens foreign yards will also need to prove that they can deliver to the stringent Norwegian standards.

With regard to high-end technology in Norway, last year Aker Solutions carried out a cutting-edge project in subsea compression for Statoil on the Aasgard field. How do you see this niche developing for Aker Solutions?

First, I would say that Statoil has been brave in developing this project. It is a landmark project and the entire Norwegian oil and gas community is watching this project very carefully, as well as the Ormen Lange compression project undertaken by Shell. If subsea compression provides successful outcomes when it comes on stream in 2015, then I foresee a significant movement towards this type of project among oil and gas companies. This market will develop not just in Norway but other markets as well, such as Australia and Brazil.

Many Norwegian companies have tried to make a success of the Brazilian market, but many have struggled. Given Aker Solutions’ huge investments in the Macaé facilities last year, how will you make this market work?

Aker Solutions needs to take a broad and holistic approach to this market. We have been in Brazil for many years, back to the days of the paper mills in the 1970s. We constructed our subsea facility in Curitiba where we developed our service offerings in drilling and subsea – the mainstay of our business. This has been a good business for many years, but unfortunately we encountered a major challenge with the business growing out of its comfort zone a few years ago. The management of Aker Solutions at the time was not close enough to the ground to deal with this development. However, we quickly took action, restructured the business, brought in some of our best people to ensure knowledge transfer and focused on building a solid organization on the ground in Brazil.

I am confident that on the back of this restructuring it will become a strong business for us. Our facilities there are truly state-of-the-art. As part of our restructuring of subsea and the development of the drilling technologies business, we developed our local talent base, because of the importance of understanding the local regulatory frameworks. We have established a strong regional management team and the problems we encountered in the past should be fully resolved.

As Aker Solutions increases its share of international staff, as it localizes its management structures and as it continues to carry out a greater share of its business overseas, is it fair to say that the company is not really Norwegian anymore?

Aker Solutions would like to see itself as multinational company, however the major part of our company’s brain and heart derive from Norway. We would like to expand our Norwegian business culture and modus operandi to overseas markets and believe that this can be a strong competitive advantage. We will continue to apply our existing Norwegian management principles across all of our international markets.
Norway will remain a strong focus for the company even within this growth. From a revenue perspective roughly half of our business is generated from the Norwegian market, and in the 2015 plan to double the business, Norway will still represent about 50 percent of the business.

As we transfer our knowledge and expertise into other markets, Norway will continue to function as the corporate head quarter and a center of excellence for serving international markets. Most of our best practices have been developed in Norway. The NCS has provided a terrific training ground – a laboratory for testing advanced solutions – and we still see the potential to apply these solutions in international markets. Nonetheless we fully recognize that it will be local experts applying these Norwegian –generated practices in their regional contexts.

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