* Has to reduce focus on top line growth
* Oil investment increasingly uncertain
* Still targets 30-50 pct dividend payout
(Adds detail, executive quotes, valuations)
By Balazs Koranyi and Henrik Stolen
OSLO, Dec 4 Norwegian oil services firm Aker
Solutions ditched its longer-term growth targets,
saying it needed to focus on its profit and share price as the
industry faces rising costs and weakening demand from its
The decision shines a light on the challenges facing oil
services companies. They are grappling with rising costs for
labour and equipment at a time when the oil firms they service
are reining in capital spending after a decade of heavy
investment growth left them with a negative cash flow, forcing
them to raise debt or sell assets to pay dividends.
Aker Solutions, controlled by billionaire Kjell Inge Roekke,
said it would sell some low-margin businesses and raise its
investment criteria to improve profitability.
"The focus on topline growth will be toned down and more
attention will be paid to growing our profit and share price,"
Executive Chairman Oeyvind Eriksen told investors on Wednesday.
"We are going to reduce our investment levels so that we don't
over-invest in capacity that could erode margins."
Aker Solutions had targeted doubling revenue between 2010
and 2015, and raising its earnings before interest, tax,
depreciation and amortisation (EBITDA) margin to 15 percent by
2017, but has now scrapped those targets.
"I think we have the potential to grow in line with what we
have guided before. But that is not we should be measured on,"
Aker Solutions has struggled to boost its own profitability
and its 8.5 percent EBITDA margin in the first nine months was
well behind top rival Technip's 11.8 percent.
The firm is expected to return around 12 percent on average
capital employed in 2014, according to the average forecast in a
poll of analysts, well below its European peers' average rate of
14 percent - an indication that it is making low returns on its
"We will avoid overinvesting in capacity that could erode
margins if market growth does not meet projections," Eriksen
said. "To this end, we have tightened our investment criteria,
moving our hurdle rate up to 15 percent."
The firm sold its well-intervention services and mooring and
loading systems in a $654 million deal in November and is
looking to shed its oilfield services and marine assets
Aker Solutions acknowledged the short-term volatility in the
sector as oil companies delay or cancel projects but said
long-term prospects were intact and it expected its market to
expand by 8-10 percent per year as the offshore sector,
particularly the ultradeep and ultraharsh segments are
resilient. It did not specify a timeframe, however.
It also said that Statoil's Johan Sverdrup
development, the biggest oil find in the North Sea in decades,
could be a make-or-break contract for its engineering unit.
"In the case of the Aker Solutions engineering business, one
project stands out: Johan Sverdrup," Eriksen said. "That project
alone will define our capacity and our competence in the decade
to come. Johan Sverdrup is set to be awarded before Christmas."
The firm also maintained its previous target of paying out
30 to 50 percent of its profits through a combination of
dividends and share buybacks.
Investors considered the strategy update neutral and in line
with the consensus. The stock rose 0.2 percent by 0937,
outperforming a 0.2 percent fall by the Oslo bourse.
(Editing by Pravin Char)