Aker Solutions ASA

OSE:AKSO

Earnings Call Transcript 2019-Q4

[Tove Røskaft, Head of Communications & Investor Relations]

Good morning, and welcome to Aker Solutions Presentation of Fourth Quarter and Annual Results for 2019. As you have noticed, we will do our presentation today as an audio cast. My name is Tove Roskaft, and I am Head of Communications at Aker Solutions. With me here today is our Chief Executive Officer, Luis Araujo; and our Chief Financial Officer, Ole Martin Grimsrud. They will go through the main developments of the quarter and the full year. We will also have time for some questions after their presentations. Luis, I will now hand over to you.

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Thank you, Tove. Good morning, and thank you for joining us on this call today. Let me start, as usual, with the main developments in the quarter. Our execution remains strong. The Johan Sverdrup field went on stream in early October, and the production rate is now ramped up to more than 300,000 barrels per day, the lowest emissions of CO2 in the industry. This field generates about NOK 10 million in profits every hour according to Equinor. It's a good example of the kind of value we are creating for our clients. On the 17th of December, Aker BP celebrated first oil on the Valhall Flank West field in the North Sea. In this project, the wellhead platform alliance between Aker BP, Kvaerner, ABB and Aker Solutions delivered ahead of schedule and within budget, and very importantly, with the best safety record to date. This is truly a best-in-class project, proving that our alliance model is creating value for our clients.Our subsea alliance with Subsea 7, in Aker BP, also created a lot of value in the Phase 1 of the Aerfugl project. This was the main reason why the license holders decide to move forward Phase 2 of the project by 3 years. Our front-end capability remains one of our key differentiators, as we achieved another record year with 151 study awards in the period. I will come back with more details about the trends later in the presentation. Last October, we launched our 20/25/30 strategy, which states our ambition to generate 20% of revenue from renewables and 25% from low-carbon solutions by the year 2030. The feedback from our stakeholders has been very positive, as I'm pleased to see that we have secured new wins that show that we are on the right track. A great example is the FEED project we won from Equinor this month for electrification of the Troll B and C platforms. As Equinor stated yesterday, electrification of offshore assets will be a major enabler for their low-carbon energy transition. We are thrilled to play a major part in this journey. We also strength our position in offshore flow to wind where we see great potential. We increased our stake in Principle Power to 25%.Let me remind you, this is 1 of the 2 companies with a few proven technology concept for offshore floating wind. In December, the installation of the world's biggest flow to wind turbine, an impressive 8.4 megawatts, was completed offshore by Principle Power. The wind farm is already generating renewable clean energy for the Portuguese grid. When all 3 turbines are in place, the farm can supply energy to 60,000 users. These are our fourth quarter figures. Revenue of NOK 7.3 billion, EBITDA of NOK 434 million, which means an EBITDA margin of 5.9%. Excluding special items, the margin was 6.5%. We won NOK 5.6 billion in new orders and the backlog ended at NOK 25.4 billion. And here are the numbers for the full year 2019. Revenue was very strong at NOK 29.3 billion. It is up 16% from 2018 and up 30% over the last 2 years. EBITDA was NOK 2.2 billion and EBITDA margin of 7.7%. Excluding special items, the margin was 7.9% and EPS was NOK 1.54. We had an order intake of NOK 19.6 billion. Our finances were solid at the end of the year with a liquidity buffer of NOK 6.3 billion. Despite our positive results, the Board has proposed no dividend payment for 2019. It's still deeming it prudent to exercise caution and to position Aker Solutions for the energy transition. Afterwards, Ole Martin will take you through the numbers in more detail. Our order intake in the fourth quarter was NOK 5.6 billion. The highest number in more than 1 year, indicating increasing market activity. A key win included the Aerfugl Phase 2 for Aker BP. [indiscernible] came as a result of our strong performance in Phase 1. The subsea delivery will include wellheads, vertical subsidiaries, satellite structures, control systems and about 30 kilometers of umbilicals.Our deliveries to Aerfugl highlight the power of intelligent subsea as we utilize our integrated field design capabilities to accelerate field development and maximize performance. We also won a 3-year frame agreement for Var Energi for maintenance and modification services for the Norwegian Continental Shelf. Aker Solutions has delivered brownfield services for Var Energi's assets, Jotun, Balder and Ringhorne for 19 years, and we look forward to continue this partnership. Also on the NCS, we secured a 6-year contract with Equinor for inspection services on more than 15 assets. In Trinidad and Tobago, a new region for us, we won a FEED for [ a main ] platform for BP. The contract includes an option for an EPC project, and could be the first in a series of unmanned facilities for this client. Together with our partner, Jana Marine, we won a big frame agreement for Saudi Aramco. The scope of the agreement covers offshore brownfield work on a range of Saudi Aramco assets. So far, we have not booked any order intake for this agreement, but we expect to do so when the first call-offs take place during the course of this year. I'm pleased to have secured new contracts with key clients in new markets. This is in line with our strategic goal, to grow internationally, together with target customers. Also, 2020 started very strongly for our company with 2 important contract awards. The first one, in January, we announced a renewal of a major brownfield contract for an undisclosed client. The value is about NOK 3.5 billion for a 5-year contract. And we expect to have more information to share soon. Finally, we secured a FEED contract with Equinor for the electrification of the Troll B and C platforms. The contract comes with a sizable EPC option, which we hope will be executed when the FEED is completed later this year. We continue to see strong demand for our early phase front end work, not only here in Norway, but also globally. Out of the 40 new studies this quarter, more than 1/3 are for international projects, and several studies included a low-carbon solution. We won 151 front-end orders, another record year, and one more than in 2018. I would like to remind you that 2018 was also a record year for our front-end team. These numbers are a good indication that operators are willing to develop new projects. And we see this is a clear sign of a potential increase in sanctioning activity. As you can see on the slide, 29 studies turn into more detail FEED projects last year compared with 19 in the previous year. Some of this included options for EPC contracts, which put us in an excellent position for further work in the next phases of development. As already mentioned, we launched our updated strategy last quarter. We set out some ambitious targets for our business over the coming decade. Our goal is to generate 20% of our revenue for renewables by 2030. And we have positioned our company for growth in this segment by investing in offshore flow demand. As I mentioned, we have further increased our stake in Principle Power to 25%. Within this sector, we see a similar trend for the development of new projects as we are used to see in the oil and gas industry. Projects moved from concept and feasibility studies, through FEED, and finally, through execution. Through our ownership of Principle Power, we are already involved in early dialogues that could lead to more than 20 new studies for offshore floating wind. As we know from our front-end business, studies can be a good lead indicator of the future market activity. When we looked at our portfolio of low-carbon solutions, we see more near-term opportunities. We already worked on several projects for our customers that can reduce CO2 emissions significantly. And at the same time, generates revenue for our solutions already in 2020. Within carbon capture, utilization and storage, we are working on the first delivery of our first Just Catch unit. The unit is designed in modules, and is a perfect fit for a small to medium-sized industrial plants. This delivery to the Twence waste-to-energy plant in the Netherlands, will carry on through 2020 and be completed next year. Together with Heidelberg Cement, we plan to build the first full-scale carbon capture plant in the cement industry. And we expect this important project to be sanctioned later this year. Another major low-carbon project is the electrification of oil and gas platforms. We have already been part of electrification projects in [ Europe ] as well as Johan Sverdrup. Earlier in the presentation, I mentioned the Troll B and C FEED, which could lead to an EPC project this year. This project, as an example, has the potential to reduce CO2 emissions by 450,000 tons per year. This is the same as taking more than 200,000 cars off the road. We are currently working on several brownfield electrification studies, and we see a great potential for some of this to be materialized into projects in the near future. The FEED for the year's subsea gas compression project is in Australia is progressing well. Our client Chevron, with partner Shell and Exxon, should be in a position to move forward to the EPC phase later this year. Subsea gas compression requires less energy than a conventional platform solution, resulting in a lower CO2 footprint for the field. The Jansz project also includes an unmanned platform, which is part of our low-carbon portfolio. Demand for low or unmanned facilities is growing, as shown by the recent award from BP in Trinidad and Tobago. As you can see from these concrete examples, low-carbon solutions will generate a meaningful share of our revenue mix already in 2020. Now to the outlook. The offshore market remains active. This is supported by increased cost efficiency that are generating lower breakeven levels for shore fields. However, markets remain very competitive. We continue to deliver strong execution. We also enjoy repeat and new orders from key customers, especially in the brownfield segment and in international markets. Tendering and front-end activity remains high in our target markets, with current bid activity totaling about NOK 60 billion. Still, due to market volatility, contracts are taking longer to be awarded. However, we see a high probability for several of ongoing FEEDS and tenders to be converted into projects over the next 6 to 9 months. We have, during the year, strengthen our focus on the energy transition, and we have a firm commitment to grow our business in that area. All in all, I believe that Aker Solutions is well positioned to capture opportunities in both new and existing markets. So in summary, we closed another year with strong execution on our projects and services, solid financials and high tendering activity. Well, thank you for listening. And Ole Martin will now take you through the numbers in more detail.

[Ole Martin Grimsrud, Chief Financial Officer]

Thank you, Luis, and good morning. I will now take you through the key financial highlights of the fourth quarter, our segment performance and run through our financial guidance before we move to Q&A.As always, all numbers mentioned are in Norwegian Krone. So let's start with the income statement. For the fourth quarter, our operating revenue was NOK 7.3 billion, up 6% year-on-year, reflecting a continued high activity level in both projects and, in particular, services. For 2019, overall, we delivered our highest revenue in 4 years at NOK 29.3 billion, exceeding our previous guidance. This was a solid increase of 16% from the previous year and 30% over the 2 last years. Our reported fourth quarter EBITDA was NOK 434 million. Excluding special items, EBITDA was NOK 480 million, a slight decrease from NOK 495 million a year earlier. This was equal to an underlying margin of 6.5%, compared to 7.1% in the same period last year. Excluding the effects of IFRS 16, our underlying margins were down compared to the same period last year, mainly reflecting solid progress on our new backlog, won in a very competitive market as well as the effects of revenue mix with a continued high activity level within lower margin brownfield business. For 2019, overall, the underlying EBITDA increased to NOK 2.3 billion, with a margin of 7.9%, up from 7.2% a year earlier. Fourth quarter depreciation, including impairments, was up year-on-year at NOK 396 million. Excluding the effects of IFRS 16 and impairments, the depreciation was NOK 200 million, in line with our previous guidance. We continue to expect underlying depreciation, including the effects of IFRS 16, to be around NOK 1.2 billion per year. We have, in the fourth quarter, reorganized some of our office and manufacturing sites, which has resulted in an impairment charge on leased and fixed assets of NOK 81 million, with no cash impact. This is related to our improvement efforts to optimize our footprint and competitive position. Our reported fourth quarter EBIT or operating profit decreased year-on-year to NOK 37 million from NOK 287 million. Excluding special items, EBIT was NOK 165 million and the margin was 2.2% versus 4.4% in the previous year. Net financial items were negative NOK 215 million in the quarter, which included NOK 106 million of currency losses, related to the significant devaluation of the Angolan Kwanza from mid-October.Devaluation was related to the Central Bank's efforts to overhaul the country's currency regime. And they do not have the ability to hedge this exposure. However, we are in dialogue regarding a potential compensation of the currency loss with a possible recovery in first quarter of 2020.We continue to see our net financial items around NOK 100 million per quarter going forward, excluding the effect of currency and non-qualifying hedges. Over tax charge was equal to a rate of 16% in the fourth quarter related to the negative income before tax. Going forward, we continue to expect average P&L tax rates to be in the low-to-mid to 30% range. We ended the quarter with a net income of negative NOK 148 million. Excluding special items and currency losses, the net income was NOK 32 million and the earnings per share NOK 0.08, down from NOK 0.63 last year. And net income for the year, excluding special items, was NOK 460 million, and earnings per share ended at NOK 1.54, down from NOK 2.01 a year earlier. Now moving to our balance sheet and cash flow performance. Our working capital or net current operating assets improved in the fourth quarter to NOK 781 million, below our previous guidance. Going forward, working capital is now expected to trend around 3% to 4% of group revenue, as we have implemented measures to improve working capital performance. Our cash flow from operations in the fourth quarter was NOK 740 million, reflecting good progress on our backlog and strong cash collection. Our investing cash flow totaled a net negative NOK 317 million in the quarter. And we continue to expect overall CapEx and R&D at around 3% of annual revenue with flexibility. Excluding IFRS 16, we had the net interest-bearing debt of NOK 1.6 billion at the end of the fourth quarter, down from SEK 1.9 billion at the end of the third quarter.Our net interest-bearing debt-to-EBITDA ended at a solid 0.9x.During the quarter, we repaid the outstanding amount of the 2019 bond of about SEK 750 million. And we have drawn NOK 600 million on our revolving credit facility. We continue to have a strong financial position at the end of the fourth quarter with a total liquidity buffer at a healthy NOK 6.3 billion. This includes our revolving credit facility with leverage covenant at 3.5x net debt-to-EBITDA pre-IFRS 16. Our solid financial position continues to give us flexibility and good financial headroom moving forward. Now on to projects, where fourth quarter revenue was up 1% year-on-year, with a continued high activity level in Field Design as well as higher revenues within the Subsea sub -- segment. This resulted in an underlying projects EBITDA of NOK 372 million, with a margin of 6.6% for the quarter, up from 6.2% last year. EBIT, excluding special items, was NOK 159 million, with a margin of 2.8%, down from 3.9% last year. The margin in the fourth quarter reflect solid progress on our new backlog, one in a very competitive market as well as continued high share of lower-margin brownfield activity. Fourth quarter order intake in projects was NOK 4.4 billion with a book-to-bill at 0.8x. Now some further details for Subsea and Field Design within their projects reporting segment. Revenue from Subsea projects was up 13% from the same period last year driven by increased activity globally. Revenue from Field Design projects decreased 5% year-on-year, but still with a high brownfield activity in the fourth quarter. The Field Design revenue has increased about 50% over the 2 last years driven in particular by large modification and hookup jobs in the North Sea. However, this activity is expected to normalize in 2020. Fourth quarter order intake in projects overall was NOK 4.4 billion, with a NOK 1.7 billion in Subsea and NOK 2.7 billion in Field Design. The backlog in projects ended the quarter at NOK 15.9 billion. Despite competitive market, tendering activity remains very healthy, and we are now tendering for about NOK 50 billion of work overall in projects. And as Luis mentioned, we currently have a high FEED activity level, which should be a leading indicator for projects moving forward. The Services segment delivered solid growth and was up 24% year-on-year, reflecting our strategy to grow our Services business. This was the strongest quarterly revenue in Services in 4 years. During 2019, in particular, the production asset services sub-segment experienced significant international growth and accounted for about 60% of Services revenue for the year. Underlying EBITDA was NOK 169 million with a margin of 10.3%, down from 14.6% in the same quarter last year, driven primarily by an unusually high installation and commissioning activity in the fourth quarter of 2018, and the continued effect of revenue mix on our margin. EBIT was NOK 107 million, with a margin of 6.5% versus 11.6% a year ago. Fourth quarter order intake in Services was NOK 1.1 billion, mainly related to awards within production asset services. The backlog in Services ended the quarter at NOK 9.6 billion. And as a reminder, in addition, a part of the Services order intake is short-cycled or book-and-turn in nature. Despite a competitive market, tendering activity within Services is healthy, and we are currently tendering for around NOK 10 billion of Service work globally. Now over to the order intake and backlog performance for the Group overall. The fourth quarter order intake totaled NOK 5.6 billion equal to a book-to-bill of 0.8x in the quarter and 0.7x for 2019 overall. Our backlog was NOK 25.4 billion at the end of the fourth quarter, and the backlog for 2020 execution is NOK 15.1 billion, up from NOK 12 billion at the third quarter. Order intake continues to be somewhat uneven caused by large contracts and timing of sanctioning. And as mentioned by Luis, during 2019, we have experienced delays in project sanctioning. However, tender activity remains very high, and this year, high probability of several of our ongoing feeds and tenders to be concluded over the next 6 to 9 months. We are now engaged in tenders with an estimated sales value of, in total, NOK 60 billion, and a strong start of order intake in the first quarter of 2020 further improves our visibility going forward. Finally, over to our guidance. We delivered a very strong top line growth of 16% last year and 30% over the 2 last years. At this stage, we see overall 2020 revenue around 2018 levels, in particular, driven by normalization of the record high activity levels within Field Design. For EBITDA, we expect 2020 EBITDA margin to remain around underlying Q4 levels, likely phased towards the second half of the year. This reflects the delayed project sanctioning, continued progress on our new backlog, one in a very competitive market, as well as revenue mix with a higher share of lower-margin brownfield activity. The current industry environment implies our relentless focus on quality execution and cost discipline in 2020. And we currently expect to book around NOK 50 million to NOK 100 million in the first quarter related to restructuring measures to further improve our cost base and competitive position. In this market, our capital allocation priorities remain firm. We continue to prioritize a strong balance sheet with good liquidity. We also continue to invest in the business to further grow and position Aker Solutions for the future. This includes our 20/25/30 strategy, where we plan to increase our exposure within renewables and low-carbon solutions. Overall, CapEx and R&D for 2020 are still expected at around 3% of annual revenue with flexibility. As mentioned earlier, the Board has proposed no dividend payment for 2019 as we still are cautious and prioritizing a strong balance sheet. So to sum up, we ended the fourth quarter by continuing to deliver on our Projects and Services, and we see high probability for increased order intake over the next 6 to 9 months. We have a solid financial position, which continues to give us flexibility and financial headroom to position Aker Solutions for the future, both within our traditional markets, and within renewables and low-carbon solutions. Thank you for listening. That was the end of our presentation, and we will now open for Q&A.

[Tove Røskaft, Head of Communications & Investor Relations]

Thank you, Ole Martin. And operator, we will start with questions for the people who have called in.

[Operator]

[Operator Instructions] We will now take our first question from Michael Alsford from Citi.

[Michael J Alsford, Director]

I've got a couple, if I could, please. Just firstly, on the new energy strategy. Clearly, big ambitions to grow revenue to around 45% from low-carbon and renewables by 2030. I just think if you could quantify, how much from these areas would be revenue for 2020? And perhaps if you could give some progression. Do you think there's a linear progression from there to 2030? Or do you think it's sort of a quicker progression or slower progression from 2020 levels? And secondly, I just wondered if you could talk a little bit about where the NOK 5 billion of extra tendering activity is coming from. What type of projects and what regions would be really helpful? And then finally, just on the restructuring. Could you maybe talk a little bit about exactly what you're doing there? And how you're changing the business going forward into 2020?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Yes, thank you for the questions. I guess I will start with the first one. Again, we see actually, as described, huge opportunity and -- but quite frankly, things are changing. And I guess, changing in some locations faster than others. But we don't report yet our company to the renewables and low energy yet, as I said, but we probably will do in the future. And I can say that it comes to renewables, we are focusing on flow to wind. So there's a new market. And as I mentioned in the presentation, they are moving from -- most of projects moving from studies into FEED and then we push back to take a couple of years until we can see significant revenues in our books. But when it comes to the low energy, that's progressing faster. And you can see that we have 4 or 5 projects already in our backlog or in studies that [indiscernible] revenue is larger for us. So without going to too many sums, we have about 10%, I would expect in 2020 of renewals and low carbon. Of course, that excludes the revenues from Principle Powers if we do not consolidate those numbers in ours, because we are a 25% owner. So that's the first question. I hope I have answered. And in terms of speed, you said how long it's going to take long if it's linear. It's very hard to predict linearity when in a new market like that. I think it's the same way that it will be hard to predict the social pressure over CO2 reductions from last year to this year to year before and so forth. Certainly, things are speeding up. On the carbon capture, we see a lot of interest. But I think the CO2 taxes have to make sure that people are forced to do that. So it's a combination of all. So I think that you will accelerate, but it's very hard to predict. So when we've done the strategy last year, we had to base information we had. And quite frankly, our projections are actually more aggressive than what the market or i.e. and others were predicting. But as we know, nobody get it right. So things can be faster. And I think if it goes faster, it probably good for us because we have been investing for a long time. I guess, the second question, it was related to -- let me see, tendering activity, okay, good, yes. I think the NOK 60 billion is pretty much still related to the standard, what we call our traditional business, but includes everything from brownfield for subsea, as described by Ole Martin. It's a big spread. We have projects in Africa. And as you know, in some places in Africa moving in different directions. We see countries like Angola, we see good moves in Ghana, excellent changes in regulation so forth. And we see the opposite in other countries, as you know. So in Africa, there's activity and things are improving. We see activities in Brazil, we're well placed there, both in brownfield and greenfield. And we see, of course, our local market as you call home market in Norway, are with some opportunities, especially in brownfield with less opportunities in greenfield. So it's a good spread. And as also mentioned some of the FEEDs that will lead to some projects who are related to decarbonizing assets like electrifications and so forth. And the reasons, I think, as you probably -- I hope the audit has noted that we have landed 2 new regions with 2 basically new clients, Trinidad and Tobago and also Saudi Aramco, Saudi Arabia. So that support shows that our front-end was behind all those awards. And we can see that the clients are taking us into -- our key clients are taking us into different regions. So very pleased to see that. So it is a global activity on that sense. And the last one was about restructuring.

[Ole Martin Grimsrud, Chief Financial Officer]

Yes. As we said in the presentation, we now see a period with somewhat lower margins going forward on the back of the new backlog one in a very competitive market. And for us, this implies a continued focus on cost and capital discipline, as we now move into 2020. We have a cost reduction program ongoing. And for the first quarter, we estimate NOK 50 million to NOK 100 million in one-off charges, whereof restructuring of our subsea operation is one of the components.

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Yes, just put some more color on this. Spare capacity, I would say, there's overcapacity in subsea. We know some of our competitors took capacity out, so do we. But we still have 3 plans. So as we move forward, we are concentrating the large amount of subsea fabrication in our lower cost plants in Brazil, the larger plants as well, Brazil and the Malaysia, Port Klang. And we are transforming our facility in Norway more into a technology center, new products and also focus on pumps as well as work over some high technical stuff, and, of course, maintaining our project execution capability, which is unique here in Norway. So basically, we are changing our delivery model, as we've explained before and become more efficient and more competitive.

[Operator]

We will now take our next question from James Evans from Exane BNP Paribas.

[James Matthew Evans, Analyst of Oil and Gas]

My first one is around margins. I mean, I think this is at least the fourth margin downgrade in a row. Now look, you stated all along that the market is competitive or very competitive. So I'm kind of really what has surprised you so much? And then I guess more importantly, what do we need to see to see kind of stable guidance going forward?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Okay. I can start. Then Ole Martin can put more colors on the numbers. I think we have been guiding in -- where we are now for a while. There's no question that the market is competitive, as I just mentioned, especially subsea, we have a very strong competition there. I think that we have worked quite well in terms of guidance and stability for the last 5 years. So we're very proud of what have been achieving, but the market has changed. What's going to happen to in the market to improve and change is basically more activity. We are seeing more activity now, but then, of course, uncertainty, and there are quite a lot of volatility and as we know, our clients are also under pressure with the volatility the oil price for all sorts of reasons. So I think that what we need, this is more activity. We certainly delivering far more volume now than used to due to the prices being 30% to 40%, probably lower to several reasons, including efficiency. On the other hand, making offshore projects more competitive. And as you can see, the offshore activity is increasing in over shale in as well as other areas. So I think that we need more volume. And in terms of margins, Ole Martin, do you want to add anything else on the guidance?

[Ole Martin Grimsrud, Chief Financial Officer]

Yes, I would say, 3 drivers now for margins in 2020. Number one, we see a higher share of the new backlog, which I say is one in a very competitive market. Second driver is still the revenue mix effect of a continued high share of lower-margin brownfield activity. And the third driver in 2020 will also be, as we said, they will -- we have seen some major prospects being somewhat delayed, which can also impact the margin profile for the year. And then hence, we then guide on margin for 2020 around the current underlying level.

[James Matthew Evans, Analyst of Oil and Gas]

Okay, understood. Okay. A bit more positively, you sound a bit more optimistic on awards. So just how confident are you of returning to backlog growth in 2020?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Well, it was quite, I think, symptomatic last year that some of the awards slipped. There's a fact, and I mentioned that taking longer to be sanctioned. And actually, one of the ones was actually awarded on the 6th of January, just after the year-end, very important for us with the renewal of an existing large brownfield international project. And that just arrived. So -- and we also seen awards of front-end studies who have EPC as options. I will mention the one from BP, mention one from Equinor, and several those studies have options there. So we are confident that if those projects are economic, as we think they are due to all this we've been talking about in terms of improved efficiency and so on, they're going to be sanctioned this year. We also saw some important changes in, as I mentioned in the previous question on, for example, new legislation, more competitive in Ghana. So we have a pretty large project there that can become a prospect later this year. And we also see projects like Jansz in Australia who are going to the FEED and concluding FEED midyear. So all those indications shows that market activity will increase. Of course, we are not insulated and there are international factors. So as I would say, that is guaranteed. But our view from where we are, and especially because some of those projects are with key clients, we have some key differentiating position there. We expect that to happen in 2020, in the next 6 to 9 months. But as you know, market is volatile, and there are things that might change that. But right now, we are confident it will happen.

[Operator]

We now take our next question from David Farrell from Credit Suisse.

[David Richard Edward Farrell, Research Analyst]

It's a bit of a follow-up to Michael's original question. Could you give us a bit of a breakdown in terms of the $60 billion currently being tendered? What proportion of that fit into the renewables and low-carbon parts of the business, please?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Okay. Thank you for the question, David, and good to hear from you. I think that we are not dividing into at least reporting and guidance into low carbon yet to just mention the projects that involve that area. And I mentioned, quite a few. So the breakdown, I actually don't have it in my hand, but we can have a breakdown from subsea and brownfields and -- thank you very much we have that right now -- It's probably as you be 2/3 there and half and half. So I think, as I said, the spread. And we do see that, at least for the last few years, brownfield project progressing faster than new greenfield and apart from the tiebacks. So we have a mix of that. And we also see that clients are more prompt to get produced for existing facilities then to start new ones for obvious reasons. But certainly, this trend about moving to straight from FEED into sanctioning, it does reduce the project execution by about a year. And also the alliance model that we have, for example, with Aker BP, and now with potentially Aker Energy in Ghana, it shows that we go from finish straight to execution. So we kind of maturity the project already, which should take at least a year or more than people take into tendering and so forth. So we do believe that, that's going to start to increase going forward. But again, it's a widespread, and we should support both sides of the business.

[David Richard Edward Farrell, Research Analyst]

And just as a follow-up, in kind of this new well that you're heading in 2030. Is there anything in terms of the projects you're going to be executing, which would suggest that you don't -- you have a structurally lower margin inherent within the business or potentially structurally higher?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Yes, we don't expect that actually because some of these new technologies we're talking about, new areas, there -- we are differentiated there. There's no many people with the evolve technology, for example, in carbon captures as we do. And that's the same with what we've seen offshore in. We are focused on that area because we believe that there's more differentiation, and hence, should be better margins. Of course, on that particular market, we have to reduce the overall cost. And I think it will happen. And I just mentioned this 8-megawatt turbine, so as you know, the largest turbine, the more energy and the lower the cost. So we are working very hard on that. Also working very hard to industrialize the projects, the floated and so on to make sure that we can produce in large-scale because right now, most of the projects are pilots. So we believe to keep better margins there. What Ole Martin said previously that we are phasing out one brownfield work, which traditionally has lower margins than greenfield in tiebacks and so forth. But also be some of this work was won and the very strong competition back 2, 3 -- those are long cycle projects, 2, 3 years ago. So that's our view on that part.

[David Richard Edward Farrell, Research Analyst]

I mean just kind of as a final follow-up, please. Obviously, you talked about the strength of the competition. Some of your peers have replenished their backlog somewhat, I guess, 2016, 2017. Is there the level of competition less severe now than it was back then, and therefore, the margins are potentially better in other thing that you win now relative to what you're actually computing now?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

No, I think the competition has all been tough for the next few years. And I think it remain tough. That's the nature of the business. Where we note, of course, you should notice that those projects are lumpy. And also, we have to see who our key clients and some of our key clients, for example, Petrobras and Total has been quite -- and Equinor after the big spread of projects back 2, 3 years ago, they have been quite slower posting orders because they executing existing projects. But they are about to get back into more projects. We see that Total in Angola and so forth. You see Equinor coming with more projects like the [indiscernible] in some of the tiebacks in Norway. So I think we should have our share of the awards. Now I was being like that. If you look back, that's why folks less on market share than some of other people. Because it always lumpy, and then I can be here today be a 0 tomorrow. So I kind of look into overall thing. And I think we will replace our backlog in 2020.

[Operator]

We will now take our next question from Frederik Lunde from Carnegie.

[Chr. Frederik H. Lunde]

So you have a lot of sort of positive long-term outlook statements in your presentation, which is in contrast to the share price, which hits an all-time low today, and if they get a big discount to book value as well. Frankly, I mean, there seems to be a lack of sense of urgency here. And a vague disconnection in your expectations and what the equity market is saying. So I'm just wondering if you could comment sort of on the targets for return on capital employed, return on equity, if you're looking to do more dramatic changes to your CapEx this going forward? You're currently investing in growth, while you have not guaranteed and delivered any return on equity at least to cost of capital in recent years. But this is -- what's your plan for shareholder value generation? You talked about adding value for clients. But at the end of the day, when is a pay time for shareholders see it?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Okay. Let me start. Thank you, Fred, good to hear from you, and thank you for your question. First of all, I will not comment on share price because you know that I'm a shareholder, so I have my view on the share price. The question here is that I don't think the future is canceled. And I think this company has started well before the oil and gas, and we -- so we will be big this transition better than most that's my personal view. So we have to invest in the future. In terms of returning -- putting more value to the clients and to us, that's a fact. It is today has been in the last few years a biased market. And that should change the future because otherwise, it won't be supplied here to supply those clients. That's for me, I share that talking in terms of returning to shareholders. I think our board has been focused on what we can achieve going forward. And as I said, the future is not canceled, not for us, and we will continue investing on that. And for the existing business, we still need some investment in services and so forth. I can guarantee you that our company is probably demand for 3x more CapEx than we have indicated and we've been focused on that. So there is a sense of urgency. The same way we have shown sense of urgency to cut costs for the last 5 years, proved that by maintaining our margins stable. And actually, growing 30% in 2 years that I have not seen by doing it. But in terms of the market recognizing us, I guess, we'll tell the story. And also, as I do, some negative sentiments towards offshore and towards oil and gas, especially in Europe and Scandinavia. But I think we are showing that we can change. And I think entering more contracts, we are the ones that showing more action and not only words. So that's it. I don't know if Ole Martin wants to add anything else on the working capital?

[Ole Martin Grimsrud, Chief Financial Officer]

Let me add on the CapEx side, Frederik, we are a technology company, and we need to continue to invest in R&D, in digitalization to stay competitive. As we said at the previous quarterly presentation, around 2% of revenues is needed as a minimum going forward. But the additional 1% that we currently invest would be then needed in some periods in order to deliver on specific project-related investments or to then facilitate growth within specific areas, such as renewables and low-carbon solutions. At the moment, we invest in project-related rental tools to further grow our services business. As I said, we grew our services business now 24% year-over-year. And we also then invest in offshore floating wind and carbon capture. As I said, we also increased our ownership in the Principle Power during the quarter.

[Chr. Frederik H. Lunde]

But even technology companies need to return or generate returns on the capital. And do you have any quantifiable target for return on equity or return on capital employed? And also sort of a time frame for that?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

I think that it's pretty clear that the policy for dividends and so forth is still in place, and we hope to get back there. But we are focusing the -- what we think is important for us right now.

[Chr. Frederik H. Lunde]

Yes. But I mean, then you're ramping your CapEx this year and also last year. You must do some sort of present cost of capital and returns some of those investments. And is there any sort of tangible time frame for when we can expect to see returns on those investments? No, not cash back to shareholders, but the return on equity in your P&L?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

We don't want to guide as far as 2020. So I think we have provided guidance already.

[Chr. Frederik H. Lunde]

Great. And one last question before I let you go. Just on your investment in carbon capture and then offshore wind. And it seems like the equity markets are not really rewarding those investments into the legacy companies, while pure-play companies are getting fantastic valuations. Given [indiscernible], I realize it's probably a bit early from an industrial point of view, but from a valuation point of view, should be quite sort of a easy reward for shareholders if you were to do something on the shareholder side?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Okay. Now a good question. That's a positive question, and I like that one.

[Chr. Frederik H. Lunde]

[indiscernible].

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Yes, that's what we're working for. I think that -- I would say, we split the business now, and that's not in the plans that you're right, you actually hit on the spot that we -- it's too early for an industrial point of view. But certainly, I hope the market recognize going forward what we're doing because we're very bullish about this, as we've been saying. We are a company that we tend to deliver and then talk about it, like we just mentioned, some of the projects in Johan Sverdrup and so forth, new clients, international growth. But here, we are leaning forward because we do believe we have a differentiated position here as an industrial company. And we actually -- a lot of the competence that we're using to develop this is coming out of our, what we call, core business. So to split to be -- we have to split a couple of engineers, a couple of technicians and so forth in half, and that's not very, very possible. So -- but certainly, in the future, yes. And I think you'll hear probably hear more about us on that front in the future. Because, certainly, the market recognized some companies who does not have the same competence for as we do. So going forward, I think we're going tell the story better. And as the examples are being concrete, I just mentioned the investment we made in Principle Power and how much we're helping that company result and totalize the concept because they are a small company. And it's a kind of two-way street, where they're bringing us into a -- very fast into a growing market, and we track record. And for me, it was quite impressive to go to Portugal and Spain in December to step on those floats and to see how complex and how well-designed they are and how much ahead of anybody else we are. And we know that offshore floating wind, especially, deepwater is the future due to intentions and so forth. So I think we're moving quite well there. So in the future, you might hear something about it right now. This is part of Aker Solutions and there are other benefits of being part of Aker Solutions. And as I said, I hope the market recognize the strength of our story. But some people want to see it before it's done. So we are progressing and invest on it.

[Operator]

We will take our next question from Lillian Starke from Morgan Stanley.

[Lillian Starke, Research Associate]

The first question I had was a little bit of, if you could provide more color again on the pipeline? I was just wondering to what extent the project delays that you have seen within that pipeline have been maybe related to idiosyncrasies for the project or a tough market condition versus maybe these projects falling lower within the picking order of clients? And then the second question I had as well related to the pipeline is, if you could spread out of that NOK 60 billion, how much of that relates to FEED work with a conversion into EPCI?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Okay. So to take the first part. I think, usually, the reasons to deliver projects, there are several. And I think I mentioned that some countries had a pretty difficult commercial conditions, so they have been easing out recently. But I would say in general lines, I think the slowing down is the fact that people are uncertain. And as you know, any [indiscernible] with drop oil price by [ 10 ], and people get very certain about all these factors and so forth. Even though, we see -- because we work very close with the clients on the front end, then we actually see what the breakeven of the projects are. We help them to lower those breakeven costs, like it happened even on [indiscernible] which were actually sanction at breakevens over 3x higher than they're coming to on stream now. So that has -- the projects are solid, but the people are more cautious. And I think the uncertainty is making people take I step back. And it's important to also realize that some of our clients are also putting like ourselves, putting some investment into the digitization. So there's all kinds of reasons. But in general terms, the things to do a lot with the uncertainty and people trying to make absolutely sure that those products will be economical. And again, we are offshore company, which is showing actually good progress now by all indicators, but those are long term, long cycle projects. So people tend to be more cautious to such. And as I said, I see more brownfield and tiebacks being essentially quicker than actually, those large greenfields. I think second question was about how much of the projects coming from straight from FEED into sanctioning. Well, I don't have that data actually. I know that there's a big share information. I think the table that we have on the presentation actually shows that we do have -- we have increased the number of projects that move from became full feeds so that's indicated that things are progressing, as I said, faster, there is more optimism, I guess, with the client side. But it's fair to make, I guess, because the projects are actually at FEED that we know we want to win, probably anywhere between 30%, 50% of the current tendering.

[Operator]

We will now take our next question from Haakon Amundsen from ABG.

[Haakon Amundsen, Lead Analyst]

Just a follow-up on the margin questions. When we look at kind of the new level that you expect for 2020. How does actually this component that has negatively impacted you in 2020? How do you expect them to evolve going forward? What I'm trying to think about is the is, if this is kind of a new level as we go into 2021 and 2022 with respect to -- as the pricing environment appears to have not improved? And how does, for example, the mix and your cost base look when we look a little bit further ahead, please?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Okay. I'll let Ole Martin take that one, but I hope the margins will improve. They will not be the -- as 2020 is not 2021 to '22. Otherwise, if that's the case, I won't have talking with Frederik with his return of capital. So we need to improve that business. There's no question. But Ole Martin?

[Ole Martin Grimsrud, Chief Financial Officer]

Okay. I would -- we're not guiding on 2021 yet, however, pending successful order intake in 2020. If we are able then to grow backlog, grow revenues into 2021, we should expect more scale and FX also impacting margins then into 2021.

[Haakon Amundsen, Lead Analyst]

Okay. That's pretty clear. And then just a question on your 2020 revenue guidance. You have now lowered it to be similar to 2018. But if you look at the coverage you have with the NOK 15 billion, you're still a bit short compared to what you traditionally add on top of your Q4 backlog. So I'm just wondered why we kind of should believe that you will reach this guidance, given your -- given the backlog in place? Is there any particular issues regarding the near-term contracts or the service markets that makes you more optimistic than what we have seen in the past?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Yes. I think on -- we landed some contracts already in the year that should add to the backlog. And we actually were the incumbent on that particular. We are the incumbent for many years on that particular project. So that was already true in our provision. But now the number are going to be there. We also see that some of the projects that we are, as I said, in FEEDS, they are about to be sanctioned. And there's also a service component. So we are to set a stance because we always have to win. There's no question about that, and we are very -- I would be very clear on that. But we are confident that we will win these contracts that we need for 2020 and 2021. As I said, we hope to recover the backlog this year. And there are several large orders there that I would say they're mature or ripe.

[Operator]

We will now take our next question from Mick Pickup from Barclays.

[Michael Brennan Pickup, MD & Senior European Oilfield Services Analyst]

A couple of questions, if I may. Just firstly, on the FEED side, you keep referring to it, and obviously, a number of projects are going through our convertible side. Are there any pressures on your free capabilities at this stage? Or any indications that pricing on that work is going in the right direction?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

So I think, as we all know, the front end and the feed, it is a big -- it's mostly a tool to win more work. And that's -- they're doing the job that we expect them to do. And we have the resources. We have lately, this is to be -- just to highlight the important, strategic importance of this, this was mainly in the old days, almost a Norwegian business. But now we have front end in almost all the regions have a strong front end in London, who just helped us immensely to win the BP Trinidad and Tobago project, so we are doing FEEDS. Therefore winter [indiscernible], so forth, very strong front-end there. Have front end in [ KOP ] in [indiscernible] in Brazil and in Houston. So it's become international business, and we have very good capability and good people there. So there's no pressures in terms of resources, if that's your question, but we do have high utilization, which was good.

[Michael Brennan Pickup, MD & Senior European Oilfield Services Analyst]

Okay. And then next question. Obviously, another year on, when we look at the subsea market, that integrated model or there's a coming on about seems to be taking increasing amounts of market share, and you're still, let's say, some way behind the pack? What are your thoughts at this point in time?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Yes, I think there are several reasons for that. And we are tendering, we have quite a lot of tenders out there together with Saipem. Of course, when it comes to the NCS, we do work with Subsea 7 and we have quite a few projects to show in the alliance. And we -- there's another one in Africa that we are working together. So -- but in terms of global projects, we have quite a few with Saipem. We have shown to clients that this is a very capable especially to technology and execution group. So I think it's just a matter of time. And we have not prioritized to win contracts, integrated contracts with negative margins and poor cash flow just for the sake of it. Just to put a track record, and we won't do that since we have not done that either on the subsea scope. So that's both a Saipem in all direction. But I think is a matter of time, and the company has worked very well together, there are quite a few out there. As I said, on -- sorry.

[Michael Brennan Pickup, MD & Senior European Oilfield Services Analyst]

And finally, just -- and I should know the answer to this one. On your 2025, '30 program, what sort of scale of business are you thinking about as an overall company?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Well, that's actually a good question because some people -- a lot of people I spoke through the roadshow last time when we launch the strategy was thinking that they're going to take, for example, that -- some people were thinking that the traditional business going to shrink or the -- and then this is going to increase. No, we believe the company, as a whole, we're going to increase. This is a new area. This is a new revenue incomes in a way. So we don't -- as I said, we don't make predictions for the future, but we expect to grow. So that's what I can say. It's very tough.

[Operator]

We will now take our next question from Amy Wong from UBS.

[Amy Wong]

A couple of questions from me. I'll start with the first one. Right now, it seems like we've heard from some of your international peers are now actually talking about margin improvement in their capital equipment supply businesses, and it's a reflection of there are cost savings coming through and the mix of their product is improving as well, whereas this is the time that we saw you guys had a lot of success a couple of years ago, but then we're seeing margins somewhat go backwards and as you're guiding. So help us understand how much of this is down to maybe Aker Solutions? Do you guys need to rightsize yourself again, you think about the root and branch look as you did with the journey back then to look at structural -- what structural changes you need to do with your business to restore kind of a more -- to improve the margins? Or how much of this is down to maybe geographical exposure? So that's my first question.

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Okay. Thanks, Amy, good to hear from you. I think your question is several questions inside your question. So let me start by saying that we also expect the margins to go up. I've been saying that all along. And what's happening right now. We are phasing out, just like our competitors, some of the projects we've won and this is a long-cycle business, as we know, the subsea, the same way that helped us in the other direction when we started back in 2014. So we do that. I'm very actually very pleased to see that some of my competitors who are actually also heavily exposed to shale, I start to talk about offshore now. And we made a decision back then to divest all the surface stuff and focus on offshore. So we do believe that where we're going to win. So that's a positive for us. So in terms of rightsizing, I mean, we have been rightsizing the company and its management and everything else footprint since 2014. And to be honest, that's not something we stop doing. And the journey is still on. As you say, the project that we call the journey is still ongoing, and we're still looking for ways of cutting costs. And I mentioned a few. One of them, myself and remarks just mentioned one, which is to how we're going to deliver projects before were for each plant. And so the manufacturing footprint is something that we've been looking at, and we have changed it recently. So yes, we need to continue looking for ways of being competitive. I hope I have answered your question. And we're going to continue to do that. But we do expect with more activity, more volume that -- and also with the capacity reduced by the whole industry that things are going to improve in terms of margins, it has to.

[Amy Wong]

Okay. And then actually, one question on the near term, which is just on the disruption that we're seeing in China at the moment. I mean, you're executing on a couple of projects that are in China. And also, you had previously talked about how that was one growth area for you guys with some of your customers there as well. So if you guys -- I appreciate the situation that is changing quite quickly. But just to give us your thoughts on kind of your assessment of the situation? And what do we think about, is there any risk to delays and then pushing out projects and also the pipeline as well?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Okay, good. And it's a good question. And you're right, it's too early. We are working very close with our client CNOOC at the moment. And we have a limited work in-country when it comes to China. We have, of course, building many fold there in [indiscernible]. But that's progressing. We have not seen any stoppage, but things are slowing down, as we know, because of people trying to stay home and they stand in the hall and so forth. Our Country Manager has direct line to MIT. So we've been talk to them all the time. We had very few people in country. Right now, we have one expert there, who should be coming home in the next week or so at base in [indiscernible]. In terms of Singapore, that's we have more activity there, especially on the whole of Johan Castberg, we have actually stopped sending people there. We brought our people back. But we, at the moment, it's too early to see if we'd been any effect on the delivery date, especially those projects were, in a way, on track. So that's where we are right now. So we are monitoring, nobody knows what's the next, but we stop, of course, at sending our employees there for obvious reasons. And we are quite connected with CNOOC.

[Operator]

We will now take our final question from James Thompson from JPMorgan.

[James Thompson, Analyst]

Yes, a couple of questions from me. Firstly, just following up there on Amy's question. In terms of the cost reduction program, obviously, previously, that was NOK 9 million of 30% cost reduction. And then you had a further 20% target. I just wondered whether that 20% target had been hit? And whether you're going to come up with a new one now that we have the situation you outlined in 2020?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Yes. We -- as I said, we are progressing in the same direction. And I think we have -- last time we report, it was about 40%. So the first initial 30% was obtained in 2017, and we've got another 10% for the last 2 years. So we own target. But I guess, if we have to continue working very hard. And I think we mentioned a few things we're doing in terms of footprint as well as in terms of a reorganization that should continue to give in that direction. Ole Martin, do you want to add to that?

[James Thompson, Analyst]

Yes. Okay. And then just on the outlook, actually, I mean, you sign this electrification project on Troll. And obviously, we've seen a surge of the [ zeroing ] electrified. Is there -- are there any kind of field studies outside of Norway at all? Are you getting any incoming on an education on a more global basis?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Yes. Of course, Norway is a particular place, and there's a huge drive here, which is good because that for us, as I say, home market, and we are the ones we started some of that, and we have a lot of good ideas is being included in the new fields, by the way, there's some studies on the new fields were taking renewables or electrification not only for shore, but also from floating wind farms, and so forth that I think you'll be present in the future. Now but we see some projects outside of [indiscernible]. We also see projects in U.K., pretty large ones that we be considered there. But when it comes to the low Carbon solutions, I just mentioned, projects in Netherlands. We talk about products in Germany and other places for carbon capture. That can become interesting. And when it comes to subsea compression, in the whole gas few years ago that we've been doing subsea gas compression in Australia to 1,000 meters water depth, and be close to sanctioning. So our main facility. So we see those solutions that. We are a company who embrace that because I think that's the right thing to do, and there's no way back in my view. So the quicker you embrace that, and there's an opportunity to make good returns there. So we have absolutely committed to this.

[James Thompson, Analyst]

Okay, fair. I mean, obviously, we were talking about Jansz for a long time now, if that does hit, if you see in the middle of this year. But is there another one in the pipeline after that? It feels like you're ahead of the pack when it comes to subsea gas compression. So what follows Jansz?

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Yes. Basically, as you know, we live in such a conservative industry, right? And I think the success of Asgard in Norway, which has been producing for almost 4 years now with amazing time, close to 100% in a way, 98% or whatever it is, fantastic returns for the clients there, which were Equinor and that's making people have more faith, and that's what was the main driver for Jansz. But there are other projects, and we've done a few studies in different places. And one of those projects, for example, shows that you need basically 60% less energy to operate the system such that you need in the platform. And consider the CO2 and the pressure that are over the clients right now. This is amazing. Plus, of course, you stop flying those main facilities and subsea compression. You stop flying people back and forth is proven that if you have no assets to it, we have less maintenance. So and also plays to our electrification as well as our automation and digitalization strategy. So they will be investing on. So I think that it's only positive, I would say. And we see more activity outside the NCS but as I said, people are conservative, that's a fact.

[Tove Røskaft, Head of Communications & Investor Relations]

Okay. Thank you. That was the last call. I believe all the answers on the written questions have been answered. If not, we're going to reply in e-mail, and we will end the call now. Thank you.

[Luis Antonio Gomes Araujo, Chief Executive Officer]

Thank you.