Aker Solutions ASA

OSE:AKSO

Earnings Call Transcript 2017-Q4

[Bunny Nooryani, Chief Communications Officer]

Good morning. Welcome to Aker Solutions' presentation of fourth quarter and full year results for 2017. My name is Bunny Nooryani and I head communications and investor relations at the company. And with me here today are Luis Araujo, our CEO and Svein Stoknes, our CFO. They'll go through the main developments in the period. After that we'll have time for a Q&A, as well as some brief media interviews.Before we get started today, I'd just like to point to the nearest emergency exit, which is on your left-hand side out through the glass doors and I'd also like to point out that we don't have any fire drills planned for today.And with that, I'll ask Luis to please take the floor.

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Thanks, Bunny and good morning to all. Thank you for being present here today. [ A special ] compete with our main client Statoil for audience, so I'm glad to see so many of you here. So I'm pleased to be here with Svein today to go through our results for the fourth quarter. We're going to also sum up the year and provide you our view where we think we're going from here.As usual, let's start with the main developments. We are now emerging from the deepest slowdown ever in the global oil and gas industry. Market conditions remain challenging, but we are seeing increasing positive signs in the industry. Breakeven costs are continuing to come down and more projects are being sanctioned, particularly at our home market of Norway. In fact, we won more than NOK 13 billion in new orders in the quarter. That's the highest level since the second quarter of 2014. So we strengthened both our top line and bottom lines compared with a year earlier. And we delivered another period of strong execution, as our major projects progressed as planned globally.To give you some examples, we delivered the umbilical system for the first phase of the major Zohr gas field, offshore Egypt. And this has helped the operator ENI achieve its ambitious target of starting production from this field still in December.In Congo-Brazzaville, we completed our work for Total on the landmark Moho Nord subsea development. We also continued to make steady progress on the giant Kaombo development offshore Angola, where 1/3 of our 65 subsea trees and [ protection ] wellhead jumpers are now installed.In Brazil, we delivered 3 of the 8 water and gas alternate injection manifolds, first for the pre-salt fields operated by Petrobras in the Santos Basin. Last month, 2 of those manifolds were installed very successfully at water depth of more than 2,222 meters.We also have been at -- hard working in our home market in Norway, delivering subsea trees for the [ boat ] tieback to Alvheim as part of our alliance with Aker BP and Subsea 7.We also, thankfully, started our work on the subsea production system in the FPSO for the landmark Johan Castberg development in the Barents Sea. If you recall, we won about NOK 4 billion order in the quarter to help Statoil to develop this project, which is of major importance to further develop northern Norway as an oil and gas region.Of course, delivering on time and on budget must never be at the expense of health and safety. Aker Solutions continues to work to achieve our goal of 0 incidents. Last year, we reduced the number of serious incidents to 9 from 34 in 2016. So a very successful year for our efforts in HSE.We also continue to make good progress in improving operations and reducing costs within the company. I'm pleased to say that we have achieved our target to increase cost efficiency across the company by 30% at the end of 2017. This improvement effort supported our margins, which were steady compared with a year ago.Now, for the main numbers. Our fourth quarter financial figures were; revenue of NOK 6.4 billion, EBITDA of NOK 458 million with EBITDA margin of 7.1%. Excluding special items, the margin was 7.5% and EPS was NOK 0.55. We had an order intake of NOK 13.4 billion, bringing the backlog to a healthy NOK 34.6 billion.For the full year the main numbers were; revenue of NOK 22.5 billion, EBITDA of NOK 1.5 billion and EBITDA margin of 6.8%. Excluding special items, the margin was 7.4% and EPS was NOK 1.54. We had a total order intake in the year of NOK 23.5 billion and about 3/4 of this was for projects in Norway, where we have seen the strongest pickup in activity. Our finance was solid at the end of the year with a liquidity buffer of NOK 5.7 billion. Even so, the board has proposed no dividend payments for 2017. They need prudence to conserve cash in the current market environment.Now to my favorite slides. Let me provide some details of our fourth quarter order intake that included contracts totaling about NOK 4 billion to supply the subsea production system and the detailed design for the FPSO of the Johan Castberg field. This is the largest discovery in the Norwegian Barents Sea and I'm pleased to say that we also won a contract from Sembcorp Marine to design FPSO's living quarters.Additionally, in Norway, we secured a framework agreement to provide subsea services for Statoil-operated fields. The contract has a fixed period of 5 years with an estimated value of NOK 3 billion. It may be extended by as many as 20 years. We also secured orders from Statoil for umbilicals for [ Zohr ], Johan Sverdrup, Utgard and Bauge developments offshore Norway. And we won subsea orders for Aker BP for 3 developments in Norway. I'm so glad to have to pronounce these names again. This work will be carried out as part of our subsea alliance with Aker BP and Subsea 7.We also secured a topside modifications contract from Maersk Drilling for the Yme redevelopment. But there's no -- then the work is not all in Norway. So we won also the world's largest order for umbilical system for the second phase of the Zohr gas development offshore Egypt. This order from Petrobel entails delivering 250 kilometers of steel tube umbilicals. It follows our delivery last year of 180 kilometers of umbilicals for the development, so we've beaten that record. And that actually, as I said earlier, has achieved first gas in this field in record time. Very proud to be part of the development with ENI, BP and partners.But that's not all. As you may have seen, we have had more good news at the start of this year. Last month, we secured contracts from Statoil to provide subsea production systems and services for the Troll Phase 3 in Askeladd gas developments offshore Norway. We expect to generate significant synergies at these projects by building on our work on Johan Castberg. So a strong start of the year as our customers show confidence in our ability to deliver.Well, importantly, we have seen a surge in the month for our early-phase capabilities from feasibility and contract studies to front-end engineering design. We won 27 awards in the quarter, leading to an all-time record of 124 studies in the year. That compares with our previous record of 81 study awards in 2016. So we beat the record by a long way. About 3/4 of these studies are for projects in Norway, 3/4; 1/4 globally, where we are seeing the -- in [ all ], we are seeing the biggest pickup in activity. About 1/3 of the awards were won with our alliance partners, and this included work within subsea compression, as well as field electrification.I have said this before, but I think it is worth highlighting again. The earlier we get involved in a field, the greater the potential to significantly optimize the overall project. That's because we can look holistically at the entire development and apply our expertise to the life of the field, to really create value for the customers. Early involvement puts us in a strong position to secure work in the next phases of the development. In fact, we saw a strong increase last year in the number of early-phase studies that led to more work at a project. Give you some data. 26 of our concept studies led to full FEEDs in 2017. That's up from 10 the year before. And 12 of our FEEDs led to fully fledged projects, and that compares with 6 at the year earlier.So I guess we have to give an example on that. So I think we have a good example for you. It is a very recent example. The Johan Castberg development really highlights what we can achieve through our early engagement. At Johan Castberg, we have worked closely with our customer Statoil from day 1. We began with an early concept study and concept development before moving to pre-FEED and FEED. And finally now to the full project phase. During this time, we helped Statoil to halve the costs of the development, enabling the project to move forward. So as you can see, our front-end engineering capabilities are a clear advantage in today's competitive landscape, both for our customers and for our ability to win more work.As I said earlier, we last year achieved our target to improve cost efficiency by 30%, or NOK 9 billion in annualized cost savings, compared with our 2015 cost and work volumes. But we're not stopping there. As previously announced, we are now also targeting an additional cost efficiency improvement of at least 5% per year, or 20% in total by the end of 2021. We have made these improvements by simplifying our work methods, our organizational setup in our geographic footprint. We are also standardizing our products and services and boosting efficiency through innovation and digital technologies. These efforts has become a way of life for Aker Solutions. It is a continuous improvement -- a continuous journey to keep improving the company.Well, reducing the costs and drive efficiency are essential for our industry to have a sustainable development. But at Aker Solutions we are also pursuing energy solutions that minimize the environmental footprint and promote the shift to a low-carbon energy future. This is good business and makes a lot of sense. Today, we announced our entry into the market for offshore floating wind where we see great potential. We have invested and formed a partnership with Principle Power, a company that has developed WindFloat. This is an innovative floating foundation for offshore wind turbines. It allows turbines to be placed offshore at any water depth to capture the greatest wind resources. This technology also lowers risk, cost and environmental impact of installing, operating and maintaining floating wind turbines. We will help bring WindFloat to a broader market by harnessing our extensive offshore experience, including our expertise in floating facilities. Offshore wind demand is growing and we predict our skills and technology will help spur even further growth.At the same time, we are also strengthening our capability in natural gas, which is widely regarded as a transition of fuel to a low-carbon environment. As an example, our subsea gas compression technology improves recovery rates, cut costs and leaves a smaller environmental footprint than traditional platform compressors, and we're seeing great interest globally on this technology.We are also working on electrification of offshore equipment installations, another key step in minimizing environmental footprint. And we're continuing to perfect and develop our carbon capture, utilization and storage technology, an essential tool in helping to meet emissions targets. We just launched a standardized and modular unit to capture carbon dioxide. I believe that Aker Solutions is walking the walk when it comes to our commitment to sustainability.Now let's look ahead. While the outlook for oil services remains challenging, there are increasing signs of recovery. Improvement measures across the industry have an effect. We are seeing more projects being sanctioned. There is steady tendering in our -- activity in our main markets and we're currently bidding for contracts totaling about NOK 50 billion, even after the awards. About 2/3 of this in the subsea area and we expect to see some key projects to be sanctioned over the next 6 months, particularly in Norway, South America, Asia-Pacific and some countries in Africa. Long term, we are positive. We are upbeat that demand for energy in whatever form will increase globally. That is where our push for sustainable energy solutions will truly start paying off.So as I round off today's presentation, let me quickly recap the main points of my presentation. We started the year with a strong order intake, continued solid execution and major cost efficiency improvements. They are supporting margins, as we see increasing signs of a market recovery. We are also looking further ahead to new opportunities as we build our capabilities in delivering sustainable energy solutions.Thank you for listening. And Svein will now go through the numbers in more details and we'll come back for some Q&A. Svein?

[Svein Oskar Stoknes, Chief Financial Officer]

Thank you, Luis, and good morning. So I will now take you through the key financial highlights of the fourth quarter and 2017, our divisional performance, and run through our financial guidance before we move on to Q&A. And as always , all numbers mentioned are in Norwegian kroner. And as usual, let's start with the income statement.Overall operating revenues for the fourth quarter was NOK 6.4 billion, up 5% year-on-year. In our Projects reporting segment, a higher activity level in field design was offset by lower subsea revenues. Our Services segment saw double-digit growth, primarily due to the acquisition of C.S.E. in Brazil that was closed at the very end of the previous year. Excluding this acquisition, Services revenues year-over-year was flat.Our reported fourth quarter EBITDA was NOK 458 million. This included some special items, including a gain of NOK 6 million related to non-qualifying hedges, as well as a net loss from restructuring costs and onerous leases of NOK 31 million. These are mainly related to the optimization of a manufacturing footprint in the U.S. as communicated in our Q3 update.Excluding special items, EBITDA was NOK 482 million compared with NOK 539 million a year earlier. This was equal to an underlying margin of 7.5% in the fourth quarter, down from 8.8% in the same period last year. We continue to deliver sequential stable underlying margins as a result of strong execution and good momentum on our continuous efficiency improvement program.Fourth quarter depreciation was down from last year at NOK 353 million. Depreciation was impacted by noncash-related impairments and write-downs of technology and fixed assets of NOK 148 million. Underlying depreciation was slightly up from last year at NOK 205 million. We ended the year with underlying depreciation of NOK 790 million. Looking ahead, we continue to expect our underlying depreciation to be around NOK 750 million to NOK 800 million per year.Our reported fourth quarter EBIT or operating profit was up year-on-year to NOK 105 million. Excluding special items, EBIT was NOK 277 million and the margin was 4.3% versus 5.6% last year. This is in line with our underlying EBITDA development. The mentioned restructuring and related one-off costs in the fourth quarter slightly exceeded what we indicated at the third quarter update. Of the NOK 172 million, NOK 24 million impacted our reported EBITDA and NOK 148 million were non-cash-related impairments and write-offs. For your reference, we have, as usual, set out a table in the appendix that further specifies these special items.Excluding an unrealized hedging gain of NOK 3 million, net financial items were minus NOK 34 million in the quarter, positively impacted by currency effects and other financial items. We continue to see net financial items on an annual basis in the range of NOK 60 million to NOK 70 million per quarter. This excludes the effect of currency and non-qualifying hedges.Our tax charge was equivalent to a rate of 74% in the quarter. This was primarily due to the special items impacting earnings before tax, withholding taxes and revaluation of tax positions. In particular, in the U.S., following the recent changes to the U.S. tax system. Looking ahead, our view is still for average P&L tax rates to be in the low to mid-30% range going forward. We ended the quarter with unadjusted net income of NOK 19 million, or earnings per share of NOK 0.09, or excluding special items, NOK 0.55.For 2017 overall, our main financial figures were; revenues of NOK 22.5 billion, down 12% from NOK 25.6 billion the previous year. And for 2017, an underlying EBITDA of NOK 1.7 billion with a margin of 7.4% for the full year.Now moving to our balance sheet and cash flow performance. Our net current operating assets or working capital ended the fourth quarter very strong at minus NOK 844 million. This was an improvement from NOK 15 million at the end of Q3 as a result of ongoing initiatives to optimize cash flows and strong cash collection during the last quarter of the year. We still expect to gradually trend towards a more normalized level of working capital over the next 12 to 18 months of around NOK 1 billion to NOK 1.5 billion, equal to about 5% to 7% of revenue.We had net interest bearing items or net debt of NOK 1 billion at the end of the quarter, down from NOK 2 billion at Q3, reflecting good capital discipline and strong cash collection. Our net debt-to-EBITDA ended the quarter at a solid 0.7x, in line with our previous guidance. We still expect to exceed our conservative target level of 1x net debt-to-EBITDA through 2018. We had a solid financial position at the end of the year with a total liquidity buffer at a healthy NOK 5.7 billion. This includes our revolving credit facility.Following year-end, we have successfully issued a NOK 1.5 billion senior NOK-denominated bond. The bond was significantly over-subscribed at a margin of 315 basis points above NIBOR. We have also agreed with a syndicate of banks to renew our NOK 5 billion multi-currency revolving credit facility for another 5 years, until 2023. Still at competitive terms with the same amount, tenure and leverage covenants as the existing revolver at 3.5x net debt-to-EBITDA. This position continues to give us flexibility and good financial headroom going forward.At the end of the fourth quarter, our reported return on average capital employed was 5.4%, which was unchanged from a year ago. At the end of the fourth quarter, our group capital employed was NOK 8.2 billion. This includes about NOK 800 million linked to facilities and technologies that were not yet contributing to earnings.Our cash flow from operations in the fourth quarter was strong at NOK 1.2 billion, reflecting good progress on our backlog and strong cash collection. Our investing cash flows totaled a negative NOK 96 million in the quarter. Our total 2017 CapEx and R&D spend was NOK 361 million or 1.6% of revenue, down from 2.7% of revenue in 2016. We continue to see overall CapEx and R&D at roughly 2% of revenues going forward with flexibility. Cash flow from financing was minus NOK 680 million in the quarter, mainly related to reduced utilization of our revolving credit facility.Now on to projects, where fourth quarter revenue was up 2% year-on-year. Increased activity within field design more than offset the lower year-on-year subsea revenues. This resulted in an underlying projects EBITDA margin of 7.8% in the quarter versus 7.6% last year. The EBIT margin excluding special items was 5.3%, an increase from 4.5% a year earlier. We continue to realize significant benefits from the improvement programs in our Projects portfolio. Coupled with our solid operational performance, this helped offset the market headwinds during the quarter.We had a very strong order intake in Projects overall, mainly from subsea awards and our fourth quarter book-to-bill ended at 1.9x versus 0.7x last year. Our Projects backlog is healthy and increased to NOK 25 billion at the end of the quarter. This is equal to about 17 months of Projects' revenue.Now, let's take a look at the key figures for subsea and field design within this reporting segment. Revenue from subsea projects was down 8% year-on-year due to lower activity in some markets and as some projects neared completion. However, up from previous quarters in 2017. Revenue from field design projects was up 15% year-on-year, mainly driven by North Sea modification work awarded over the last 12 months and the acquisition of the Reinertsen in Norway in Q2 last year.In terms of order intake, subsea projects delivered a very strong 2.3x book-to-bill and field design a solid 1.4x book-to-bill. Despite the tough market, tendering activity is still healthy and we are currently tendering for around NOK 40 billion of work overall in Projects with the majority in subsea.Our Services revenue increased 11% year-on-year. This was supported by growth within our production asset services sub segment, partly due to the acquisition of C.S.E. in Brazil in December of 2016, but also from good activity levels in some of our regions. As of the fourth quarter, subsea lifecycle services accounted for about 53% of Services revenues, somewhat down from the same period last year.Underlying EBITDA was NOK 151 million with a margin of 12.9%, in line sequentially, but down from an unusually high 15.9% in the same quarter last year. EBIT was NOK 98 million with a margin of 8.4%, down from 12.6% a year ago. The lower margins are primarily due to unusually high installation and commissioning activity in Q4 of 2016, lower subsea activity in some of our markets and a slightly different revenue mix between our 2 Services segments.Fourth quarter order intake increased year-on-year and totaled NOK 3.6 billion for Services overall, resulting in a fourth quarter book-to-bill of 3.1x. This was mainly related to the award of a 5-year frame agreement, plus options for Statoil in Norway within subsea lifecycle services. I would like to remind you that the significant part of Services order intake is short cycled, or book and turn in nature. Despite the tough market, tendering activity is good and we are currently tendering for around NOK 10 billion of work globally.Now over to the order intake and backlog performance for the group as a whole. Overall, fourth quarter order intake was very strong at NOK 13.4 billion. This is equivalent to book-to-bill of 2.1x, significantly up from the same quarter last year. Our backlog totaled NOK 34.6 billion at the end of the quarter. This is equivalent to around 1.5x our revenues over the last 12 months.As mentioned earlier, tendering activity is still good and several key projects are likely to be sanctioned over the next 6 to 12 months. We are currently engaged in tenders with an estimated sales value of around NOK 50 billion. With the recent strong order intake, visibility has improved. And as a reminder, our backlog does not include a significant part of our Services business or potential growth or options on existing contracts.Then finally, we keep our guidance largely unchanged from that of Q3. As Luis mentioned, there are some signs of a pickup in activity levels. On the back of a strong Q4 order intake and continued good momentum on securing new work so far in 2018, we see our top line somewhat up year-on-year. We see improved activity levels in both Projects and Services and across all sub-segments. We have some regions that would benefit from improved order intake, but we also see indications of an uptick in activity levels in these regions. And we will leverage our front-end capabilities to capture opportunities and engage with our customers at an early stage.So at this point, we continue to see our underlying margins remaining around 2017 levels, also as new orders are entering our backlog. This would have to be supported by continued solid project execution and our relentless focus on continuous efficiency improvement efforts. Important now, as we see activity levels picking up, will be to harvest scale effects from a very fit and streamlined organization and asset base.We have a relatively healthy backlog, improved visibility and a good financial position. Despite the indications of increased activity ahead, market conditions are challenging. And we also this year consider it prudent to maintain our financial position by conserving additional cash. As Luis mentioned, because of this, the board has proposed 0 dividend for 2017. This gives us increased flexibility and financial headroom in this market and is positioning Aker Solutions to fully take advantage of a recovery. We still maintain our policy of paying a dividend of between 30% and 50% of net profit over time, either through cash or through share buybacks.So to sum up, as we face continued market challenges, we ended the fourth quarter of 2017 by continuing to deliver strong project execution, with good underlying financial performance and by securing a strong order intake that has considerably improved our visibility moving forward.Thank you. That was the end of our presentation here today, and we will now move on to Q&A.

[Bunny Nooryani, Chief Communications Officer]

Thanks. And we are ready for a Q&A. We do aim to end the session today by 10. So I would ask that for those who ask questions, please ask 1 question and follow up with 1, and please don't exceed that. We will start with some Q&A in this room and then we will move on to our webcast audience. So for the sake of good order, please do introduce yourselves. First questions in here, Terje Fatnes, in the back row there.

[Terje Fatnes, Analyst]

With the market now picking up and also we see that supported by an increase in the E&P spending budgets, do you see any signs of customers trying to lock in projects and activity longer into the future now than a year ago?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

A good question. I don't think we are there yet. I think we see signs of improvement, but we are still far away from the norm in terms of -- as you know, from FID. So we had more -- over 20 -- 24, if I member well, in '17 versus less than 20 of '16, the year before. So it is moving. I think some clients are doing that actually. Some clients realize that this is a good time to draw projects, because there's capacity, the A teams are there, right, available. [indiscernible] kept all the [ workers ] needed, knowing that the market will come back. So some clients are doing that. Some clients are still curtailing investment to save cash and recover their balance sheets. So we see a mix. Some of the clients are actually moving ahead, and we see some of the awards in greenfields on that trend. You see in the brownfield, yes, because people know that cash will come quick, and so the brownfield -- that's why brownfield is showing more -- I guess more resilience in an uptick there.

[Terje Fatnes, Analyst]

Second is on Brazil. You have mentioned that's a front-runner for 2 projects, they are both in MMO and on the Libra. Any updates on that?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Yes. I mean, hopefully soon. But things are moving slowly even in Brazil for what they've been through the last few years. But we see Brazil with very positive eyes. I think our company in Brazil, [indiscernible] they're not -- day-to-day. We bought this company in Brazil, C.S.E. They're performing quite well [ relative again ] to Aker Solutions. Our plants are still quiet. We see Brazil, as I said, with positive signs. Now, with the new clients coming in, luckily they are all our key clients globally as well; Statoil, Total. And we actually won a small service contract for Total already, but it's not announced because of the size, because Total is the first company to operate in the pre-salt in Brazil with the Lapa field that they acquired from Petrobras. And we're doing service, because they've trees in their field that belongs -- been manufactured by Aker Solutions. So we see that hopefully things are going to progress fast with Petrobras. And we are actually confident to announce something quite soon.

[Terje Fatnes, Analyst]

And the final one is for Svein. With all the restructuring costs and provisions you have made in recent years, what will be the impact on cash relative to EBITDA in 2018, approximately?

[Svein Oskar Stoknes, Chief Financial Officer]

Related to restructuring, or...

[Terje Fatnes, Analyst]

Yes, so the provisions you have made. I guess some of that will have a cash impact and not P&L impact in 2018. Can you quantify approximately how much that would be?

[Svein Oskar Stoknes, Chief Financial Officer]

Yes. So about 2/3 of the provisions or write-downs we took now in Q4 were noncash related. So we took some additional restructuring charges, primarily related to the steps we're taking in the U.S. to optimize our manufacturing setup there. So the NOK 24 million you saw impacting our EBITDA were the cash-related items from the one-offs.

[Bunny Nooryani, Chief Communications Officer]

Christian Olsen in Pareto.

[Per Christian Olsen]

Just wondering how now having firmed up the guidance and backed it with orders, which is great, how do you feel about your sort of the global manufacturing model that you now right sized? Are we sort of where you see 2018 moving in terms of capacity and utilization?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Very good question. Very well supported question, I guess, for your knowledge. But it is -- I would say that one thing we'll have to keep in mind that the volumes you see now are actually larger than in 2014. So the capacity that we occupied in -- different than some of the competitors [ relative ] capacity. Our plants in Brazil in Port Klang and in Tranby to a certain extent remain -- they're open and they remain without any reductions. We reduced actually shifts, so we kind of trimmed down to be able to cope with the volumes. As Svein said, as the market picks up, we're going to start to take quite a lot of leverage from that. So I think -- I would say that we're getting to good utilization levels and we expect that to help us with the scale. I mentioned today during the presentation about the Troll in Askeladd. Interesting to highlight that the trees are similar, identical, to actually Johan Castberg. And not by coincidence also, very close and almost identical to the trees we are providing to formally called [indiscernible], I think this is right. So we have a lot of -- trying to get synergies. We know how that works in Brazil. In [ Kaombo ] -- we see that the [ hours are similar to ] Kaombo, is [ halved ], which is to be the first one, the first unit. So get those efficiencies. So I think the plants are occupied to a good level.

[Per Christian Olsen]

And are you seeing traction with all of your, or most of your key customers at this point in terms of using your globally -- your global delivery capabilities, so not as locked to regions where you will deliver projects first?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Yes. Another good question. Just to make sure the following question, we still have space, we still have capacity for more work. Yes. I'll give an example on both -- these projects I mentioned for Statoil; Johan Castberg, Troll and Askeladd. The controls will be made in Brazil -- in a Brazilian plant, which is actually the most modern plant in the world and the controls area there is actually 4x bigger than what we had as a global supply center in Aberdeen before. So lots of capacity there, so the volumes are going there. So we're making controls in Brazil, we are making the trees in Tranby and we are using some engineering resource in India. So this is a global model to be able to support the clients. And that's a good point also for the clients, because for example, in Brazil, Statoil gets credit for low content by providing equipment from Brazil to Norway, so it's a win-win and of course, you get better costs.

[Bunny Nooryani, Chief Communications Officer]

A question there, gentlemen in the middle row.

[Tord Aasen Augestad, Equity Analyst]

Tord Aasen from Arctic Securities. In terms of -- it's actually a follow-up from a previous question. On your NOK 50 billion [ tendering work ], how -- could you sort of split that into regions?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Yes. I can give you a little flavor, because we usually don't name projects, but we see activity picking up in Asia-Pacific, China and other places. So it is -- for us, it will be a new market and we are tendering there. We see activity in South America, I would say, it's Brazil as we mentioned. We see activity more under tiebacks and brownfield, there's a few to be awarded. So it's global. And of course, Africa is starting to move. We cannot qualify Africa as one country, it's several countries, some countries are moving faster than others. We see positive signs, for example, in Angola that some fields will move forward, despite all the trouble and the restriction they have in the country. So it's kind of -- it's global, but we see that activity is good in our main -- where we are well positioned, which is good for us.

[Tord Aasen Augestad, Equity Analyst]

[indiscernible] a bit differently, majority of your tender work is in Norway or is it sort of more equal split?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Well, I think now after the awards, as you notice, most of the awards were in Norway, 2/3, so now it's, I guess, more international.

[Tord Aasen Augestad, Equity Analyst]

And then also in terms of your financial flexibility and bolstering you for taking advantage of this current down cycle as it were. I mean, M&A is obviously always attached to Aker Solutions, one way or the other. But I guess [ your NOK 5.7 million ] is supposed to be used on something. So could you sort of give us any ideas on how you're thinking about sort of bolt-on acquisitions or otherwise, how to continue to grow and develop the company?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Okay. We don't give that many details usually, but it's true that we always -- there is always a lot of rumors around acquisition and so forth. We have been acquiring a few companies actually very successfully during the downturns, as you say it. And now -- we just made an investment now in this wind technology. So may consider more. So it's good to have flexibility and the opportunities will arise in this market. Not everybody is doing as well as we're doing. So we can still -- getting close to the opportunities. So we think about -- we can -- always when you see something that can plug our -- as I said since the beginning, we are very broad company, have a lot of knowledge, a lot of potential for growth organically. Internationally, since we have this presence and also the portfolio from greenfield to brownfield. So -- but really, if we see gaps or opportunities, then we tend to plug them. And now we are seeing the renewables are there that we might invest for in the future. And any comments, Svein?

[Svein Oskar Stoknes, Chief Financial Officer]

No, we will of course continue to take advantage of depressed valuations and pick up businesses that we see would add to our own strategy. And then, of course, another need of cash moving forward is the guidance I'm giving you on normalization of our working capital level. So of course, we need that flexibility and we're going to continue looking for opportunities on the buy side.

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Yes. I have to say that we are very pleased to see the enthusiasm of the markets towards our company during the Bonus roadshow. So it's good to see that the market trusts our -- I guess our management and our acquisitions well.

[Bunny Nooryani, Chief Communications Officer]

Are there any further questions in the room here? If not, then we do have some questions from our webcast audience. So I'll start with a question from Lillian Starke at Morgan Stanley. My first question is, if you could provide some detail around the working capital move this quarter, which seems largely driven by payables. Should we expect a reversal of this effect in 2018?

[Svein Oskar Stoknes, Chief Financial Officer]

Yes. I will just repeat my guidance that we see a more normal level of working capital for Aker Solutions to be between NOK 1 billion and NOK 1.5 billion, 5% to 7% of revenue. We see that normalization taking place over the next 12 to 18 months. So we do expect during 2018 that this balance will increase.

[Bunny Nooryani, Chief Communications Officer]

And the second question from Lillian Starke is regarding the time it takes for the conversion of concept studies into projects. With Johan Castberg, you mentioned the concept study started in 2012, with the project awarded 5 years later in 2017. Are you seeing the same time frame between concept and project award or do you believe the time to be shorter in the concept studies you are undertaking?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

It's a very good question. And I would say that we see a shorter cycle on the front end. I think we mentioned that lot of companies are moving straight from front end to execution. In fact, some of the -- actually some of the competition for the real project is starting now in the front end, so that is an integrated front end with some of our alliance partners. So yes, I think the clients realize that they have to shorten the cycle to get cash quicker. Of course, the project that she mentioned, Castberg, was a very different particular project. We are very pleased to see that how much cost we have cut on that field to make that viable, because the project 5 years ago were not commercially viable and now it's a success story. And again -- so I think people are trying -- they need less time to mature now, especially when they use [ external ] technologies. And then I think there is a huge improvement for the client's cash flow to move faster from front end into execution.

[Bunny Nooryani, Chief Communications Officer]

There is also a question from Mick Pickup at Barclays. Over recent months, 2 of your competitors have heralded step changes in subsea equipment, which is lighter, cheaper, easier to install. How do you see your offering versus these new solutions?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Good question. Thanks for it Mick. It is interesting, because I think -- I fortunately haven't seen anything new and as you can imagine, I follow this very closely. What our competitors are talking about is, in general, our electric systems, we are very advanced on that. In fact, Åsgard is the only all-electric system installed subsea. So there's no hydraulics there, and that's been 2 years in operation. There is also a challenge to get clients to change, but I think it's going to come. So I think our offer, we are par, if not above in some areas to our competitors. I just mentioned subsea compression, which is something we believe a lot. We're doing actually 3 stages at the moment in global terms for companies who are actually considering moving from platforms -- large platforms to subsea compression, so they can cut the costs, they can have more flexibility, improve recovery and of course, the footprint -- I mean, the footprint of the project. So in that one, of course, we are clear leaders comparing to the other guys. I just mentioned the all-electric systems. We have developed new umbilical systems, which would have direct hydraulic and fiber-optics. We are doing a lot of new stuff. Maybe we just have to do a bit more marketing than we are doing right now. But the clients -- it is important that the clients know which technology they have in Aker Solutions.

[Bunny Nooryani, Chief Communications Officer]

And a question from [indiscernible]. You expect underlying margins to be around 2017 levels in 2018. Related to this, how do you view the competitive pressure from international players? Do you expect this to increase going forward?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Bunny, can you repeat that again?

[Bunny Nooryani, Chief Communications Officer]

This is a question on our margins. You expect underlying margins to be around 2017 levels in 2018. Related to this, how do you view the competitive pressure from international players? Do you expect this pressure to increase going forward?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Well, I mean I like to see that -- if you talk about international players or competitors in Norway, I mean, it will be very tough to compete with us, because we're good. We're good, we have the good people, we are well positioned, we have the best footprint in terms of delivery. So I don't worry about the competition -- external competition here. Actually, competition is good, they make us in our toes. Globally, yes, I mean, everything we have won, we have won in very tough competition, we haven't got anything for free. So we are competing across the industry, and I am very pleased to say that we are winning, and of course, we'll continue pushing the cost base down to, in the long term, improve our margins. But yes, it's competitive, but I think as a company, we are very well prepared and I trust that my people will be working very hard. We started that journey 3 years ago, even before the downturn, and I'd like to see the enthusiasm to reduce cost in the company, something that -- it became, as I mentioned in the presentation, a way of life in Aker Solutions. And it's also fun.

[Bunny Nooryani, Chief Communications Officer]

A question from Jorgen Lande at Clarksons. Does your 2018 revenue and EBITDA guidance include potential revenue from your partnership with Principle Power?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Well, not really. It is a new venture. This is something that made -- it's not a very large investment, but these are good investments, it's more a partnership. So we see this is going to be a long-term investment. The wind market is, according to AE, the biggest growth for renewables in the future, and especially offshore, where you have more wind than onshore. And also very few areas in the world have possibility to put [ supportive ] structures. I guess this is only -- we don't think about that, because you see the North Sea, so the North Sea is a special place. Most of the region that needs renewables are actually deepwater and they don't have the same shelf that we have here. So -- but we are investing if the market is developing. We see a lot of capability of the company that is going to be applied on that, including our partners that we have technology alliances. Those guys that really evolve on that part as we know. So I think these are long term. So there is -- we have not considered any revenues in 2018 from that venture.

[Bunny Nooryani, Chief Communications Officer]

And a question from Morten Nystrom at Nordea. Are there any signals that your under-suppliers are starting to increase prices, or are you still able to push prices favorably? And does it make sense to consolidate the SPS markets?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Okay, there are 2 questions there. One, we hear a lot about the pressures for price increases. He has not seen -- we have not seen any yet. I think we're working closely with suppliers in long-term partnerships. We're very careful in a down cycle to make sure that we keep those guys healthy. It's important for us to have supplier and good suppliers and healthy suppliers. So we have not seen that uptick yet. But of course, if the order accelerates, it might be pressures, but we are monitoring them very quickly -- very closely and we have not seen any indications at the moment. In terms of -- your second part of the question was about consolidation of SPS. Well, I have been saying that for a long time. Of course, we have today [ 4, or 4.5 ] players in subsea market. I'm sure that the market will be a better market with only 3. But then we still, I guess, got any money to buy [indiscernible]. But it is of course that -- something that will benefit the market for sure.

[Bunny Nooryani, Chief Communications Officer]

That was the final question from our webcast audience, unless there are any further questions in this room.

[Sondre Dale Stormyr, Senior Analyst of Oil Service]

Sondre Stormyr from Danske Bank. You mentioned the shortening cycle offshore as well. Could you give some comment on the NOK 50 billion tendering portfolio and the average lead time or kind of split of timing on those projects? Would it be largely '19, '20, beyond, could you give some comment on that?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

No. We actually see some projects -- we expect to see some projects move in the next 6 months. So there's stuff that's been up there and has been in clarification. So we believe the work will be awarded to the industry. So hopefully get a share of that. We see a natural tendency now of brownfield moving very quickly. And that's something that we try to educate people, because people get surprised, because sometimes you announce a contract for FEED and then we have an option for EPC. Usually the FEED is the smallest part of -- and then the award is going to be much larger. We have quite a few of those being done right now in brownfield, because the client sees that just to start with, when it comes to Norway, some of those facilities were actually designed by Aker Solutions and built by Aker in the past. So we know that facility very well. So they just want to make sure the project is economical. So we're doing those studies. They are looking to actually quick cash flow and so brownfield moves faster than greenfield. We see today that some people start to get more courageous. We saw quite a few greenfields awarded, a few at the end of the year in Guyana, we saw some in Norway and so on, and Brazil with Libra. But we see clients very -- still very cautious about jumping to greenfield. What's different in brownfield? The instructions are there. The infrastructure is in place, they can produce quick. So I think this cycle was probably half of the cycle. And we also see interesting -- I'll give you an example of Aker BP, in the alliance. They realize that they cut cost of a tieback -- the time and cost of tieback -- cost by 30% and time by 6 months for a normal tieback by working in alliance, from moving straight from external components into execution. So that kind of attitude or behavior or contracting model can reduce the cycle. What's the most important thing, you have to remember that we are competing against Shell. We see every day, I think, more into the -- their rigs in U.S. You see the people can turn up very quickly. So we have to be able to compete and cope with that kind of cycle.

[Sondre Dale Stormyr, Senior Analyst of Oil Service]

And secondly on the Services part and the bid, book and turn nature of projects, which typically don't get into the backlog. Could you give some comment on '18, '19 trend versus where we were in '17? What you expect in terms of activity improvement?

[Svein Oskar Stoknes, Chief Financial Officer]

We see increased activity level moving ahead, both within subsea lifecycle services, as well as within production asset services. We see a lot of new opportunities for us within production asset services, in particular, in some new regions of the world for us that we see plenty of opportunities where we try to leverage the combined competence and portfolio. We have to penetrate new Services markets. So we have [ about NOK 10 billion ] Services backlog. If you look historically, you can see there is a good churn of book and turn or unannounced intake on the services space. In terms of giving any guidance related to effectivity moving forward, it would be -- I don't want to go into -- so I think I would rather look at historical levels related to unannounced and then try to read something out of that.

[Sondre Dale Stormyr, Senior Analyst of Oil Service]

And finally on the offshore wind -- floating offshore wind. The pioneer in that segment has been your key client Statoil with their own Hywind concept. Are you going to be a potential supplier to them? Will you be a competitor to them? How does your sort of engagement here overlap or correspond with what Statoil is doing in that field?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

We certainly expect to be a supplier to Statoil. Those are our key clients and we don't tend to compete with our clients. But we have different technologies. I think the Hywind is a different kind of technology, which relies on -- it's a spire concept and relies on a lot of heavy lifting. The concept that we're working together is for power, is something you can assemble at the dockside, reduce the cost immensely of offshore installation. So of course, that we have -- they have done prototypes. Actually, a whole project operated this concept offshore Portugal for several months. So the idea is to come with something new and also to be the integrator. We believe that our knowledge of engineering, as I said, floater technology, offshore technology, will be a great support for clients like Statoil, BP, Total and Shell that actually our key clients will move in that direction. So we want to be an integrator of these projects, rather than compete with the clients.

[Bunny Nooryani, Chief Communications Officer]

Are there any further questions here? In that case, we have time now for some media interviews. Both Svein and Luis are available. And for those who wish to speak with Svein, please reach out Christina, sitting over there in the corner. And Luis, then you can reach out to me. Thank you very much for joining us here today.

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Thanks for coming.

[Svein Oskar Stoknes, Chief Financial Officer]

Thank you.