Aker Solutions ASA

OSE:AKSO

Earnings Call Transcript 2021-Q4

[Marianne Hagen]

Hello, and a warm welcome to Aker Solutions and the presentation of the fourth quarter and annual results for 2021. My name is Marianne Hagen. I head up Sustainability, HSSE and Communications. With me here today is our CEO, Kjetel Digre; and our CFO, Idar Eikrem. They will take you through the main developments of the quarter. Our presentation today is a live audiocast. And you can download the slides from our web page. The audiocast will later today be made available for replay. After the presentation, we do have time for some questions. [Operator Instructions] And with that, I leave the floor to you, Kjetel.

[Kjetel Rokseth Digre, Chief Executive Officer]

Thank you, Marianne, and a warm welcome to everyone. Let me take you through the highlights of the quarter. The overall message is that we delivered another quarter of solid performance, and we continue to deliver on our strategy. Firstly, our financial results demonstrate that we are on track with reaching our targets. Our fourth quarter revenue was NOK 8.7 billion and EBITDA was NOK 593 million, excluding special items, with a margin of 6.8%. This means that we delivered on our financial targets for the year, and we exceeded the guidance we had at the start of the year. And I'm really proud of this, and I would like to thank all our employees for making this great achievement possible. Secondly, we delivered yet another quarter of solid order intake at NOK 9.3 billion. This means we have now delivered 7 consecutive quarters of more than 1x book-to-bill, which is another strong achievement. Our backlog is now NOK 49 billion, which is a solid foundation for our targeted revenue growth moving forward. Thirdly, our transition journey is accelerating. And I'm excited to share that we will further enhance our engineering offering by establishing an engineering consultancy business. This supports our ambition to create a leading engineering powerhouse driving the energy transition. And as a first building block in this strategy, we have agreed to buy Unitech Power Systems, a leading electrical power systems consultant. The acquisition will significantly enhance our capabilities and offering related to high-voltage electrical power systems and will unlock large opportunities for further growth with new energy verticals. I will come back to this in a later slide. During the quarter, we also won an important carbon capture FEED contract for Net Zero Teesside in the U.K. from BP. This was awarded through our consortium with Doosan Babcock and Siemens Energy. The scope is EPC of a very large carbon capture facility at the gas-fired power station, which will be a world first. And the facility is planned with a capacity to capture about 2 million tons of CO2 per year. Another highlight is that we have formed the Windstaller Alliance with DeepOcean and Solstad Offshore. This alliance delivers a cost-efficient and flexible service offering for the growing offshore wind market. In our operations, we delivered another quarter of solid project execution. During the quarter, a great achievement was made on Johan Castberg, where the first 4 standardized subsea trees were successfully installed without incidents and well ahead of schedule. At the offshore wind project, Hywind Tampen, we have now completed the concrete casting of 9 of the 11 floating foundations for the wind turbines. And I'm also happy to share that we have started the fabrication for the Tommeliten project for ConocoPhillips at our Egersund yard. So let's now have a look at our full year results. And I'm pleased with our financial performance in 2021. Our key figures increased from the year before and we delivered on our financial targets. We took several steps in 2021 to accelerate our strategy and position the company for the future. The year was successful on many fronts, delivering improved profitability, strong order intake and the key commercial developments related to our transition journey. And our main numbers for 2021 were revenue of NOK 29 billion and EBITDA, excluding special items, of NOK 1.9 billion, or 6.4%, with earnings per share of NOK 0.65. We delivered a strong order intake of NOK 40 billion, equal to a book-to-bill of 1.4x. This included several key wins across segments, both in our oil and gas business and within renewables and transitional solutions. Our order backlog was NOK 49 billion at year-end, which is an increase of 29% from the year before. And the Board has decided on a dividend policy, which Idar will come back to later in the presentation. Given the solid financial position and positive outlook, the Board has proposed a dividend per share of NOK 0.20 for 2021. So now let's move over to the order intake. During the quarter, we continued to win important contracts and FEEDs that we expected will convert to significant order intake in 2022. To start off with the main FEED awards, at Wisting, we won the FEED for the FPSO from Equinor. It includes an EPCI option, which could represent a contract value of around NOK 10 billion, subject to FID at the end of this year. At Valhall, we won FEED contracts from Aker BP for the topside processing platform and the unmanned platform for the King Lear discovery as well as the umbilicals to tie back King Lear to the Valhall field center. This could represent a contract value of more than NOK 5 billion, also subject to FID at the end of this year. And as already mentioned, we are -- we were awarded an important carbon capture FEED for Net Zero Teesside by BP in the U.K. In addition to the FEEDs, we secured several important contracts during the quarter. From Petrobras, we won the Mero 4 subsea production system offshore Brazil. And this is a deepwater project, where we will deliver 13 vertical subsea trees that are designed and standardized for Brazil's large pre-salt area. And as you know, we are one of the companies with the longest track record in delivering trees for Brazil's deepwater pre-salt fields. From Chevron, we won 2 subsea umbilical contracts. One was medium-voltage power cables for the Jansz subsea gas compression project in Australia and the other was dynamic subsea umbilicals for the Ballymore project in the U.S. Gulf of Mexico. And just to add some additional color, the type of power cables we delivered to Jansz can also be used for offshoring projects. From Heerema, we won the Heimdal and Veslefrikk decommissioning and recycling contract. This was the largest decommissioning contract awarded in Europe in 2021. And we will recycle about 98% of the steel and materials from this infrastructure, which is an important part of our contribution to the circular economy. And together with our client, Equinor, we will now handle more of the scope on the Johan Castberg project in Norway. The turret was delivered at our Stord yard in the end of January and the hull is planned to arrive in April. Our work will mainly be to install and hook up topside modules that we have constructed and also to install the turret and other transferred work on the hull. During the quarter, we also signed a 5-year frame agreement with Wintershall DEA for delivering subsea production systems in Norway. This contract is call-off-based and therefore have no order intake value in the quarter itself. But it provides interesting opportunities related to our standardized subsea catalog for the NCS moving forward. Now let's move to the tender pipeline and outlook. The overall comment is that our tendering activity remains high across all segments. Our tender value is currently NOK 81 billion. And about 20% of this is related to energy transition business. The values on this slide shows current tenders that could potentially be awarded in the market over the next 12 to 18 months. And to repeat myself, even though there are a lot of opportunities, we continue to be disciplined in terms of projects we onboard and how we do it. We focus on projects where we can create value for both customers and our shareholders. We look at projects that support our strategy. We work with aligned incentive mechanisms to enable shared upsides by delivering solid quality and execution. And we also base our tenders on standardized products and repeat effects, where this is possible and relevant. And we are also proactive with a strong focus on monitoring the supply chain situation and by discussing with customers to secure that our contracts handle this accordingly. In most cases, we secure raw material prices at signing. Another emerging topic is how tenders are now incorporating sustainability benchmarks and initiatives to an increasing degree. One recent example was a tender where the customer defined that sustainability could potentially account for up to 30% of the bid evaluation. This is really innovative ways of thinking. And given our sustainability focus and our solid track record in delivering lower emission solutions, we really welcome this development. It shows that the solid sustainability agenda and competence will be a key differentiator in winning new work. In relation to the outlook for 2022, I now want to just quickly highlight some large projects we are well positioned for. This slide shows the selection of projects, where we have recently announced that we have won FEED contracts as a single supplier. These FEEDs typically take 10 to 12 months to complete and have the potential to be converted to more than NOK 40 billion of order intake at midpoint estimates if sanctioned later this year. This gives us a very good visibility at this early point of the year and supports the potential for record-high order intake in 2022. An important factor related to this is capacity and timing. We are doing our tender work in a planned and controlled way. And we continuously monitor our utilization levels and we plan ahead. And we are also increasingly working with partners in consortiums, alliances and otherwise to manage capacity efficiently. So the key focus areas for us is all about standardization, collaboration and taking a portfolio approach to plan ahead. And related to the Norwegian continental shelf. I just want to clarify to avoid potential misunderstandings. A large number of the projects are expected to be sanctioned by the end of 2022, related to the operators' deadline for the temporary tax incentives. Even though the operators need to submit their PDO by year-end, this does not mean that the construction phase has to start immediately and at the same time on all projects. They have a portfolio approach and plan ahead. And we are, therefore, discussing timelines and prioritization with customers and planning accordingly. And we anticipate that these type of projects will support activity levels towards at least 2027 for companies like us. This will be important since we, at the same time, will continue to accelerate our transition journey and increasingly grow into new energy verticals. And we are already well underway in delivering on these expectations from the policymakers. And this includes both lower carbon solutions and also being more innovative through digitalization. And to continue on this point, let me now tell you more about how we are accelerating our transition journey by establishing an engineering consultancy service business. The energy transition will unlock large investments across multiple industries. Building on the shoulders of our oil and gas business, Aker Solutions has capabilities and solutions that are transferable into these new offerings and markets. The engineering consultancy business builds on our growth strategy and will further accelerate our transformation into new energy verticals. Our ambition is to create a leading engineering powerhouse driving the energy transition. And through early engagement in emerging industries, we will gain new market insight, new customers and valuable competence development. This will position Aker Solutions for growth opportunities within the energy transition. To succeed, we will build on our strong existing early phase project management and engineering competence. But we also need to develop new skills and capabilities. And we will do this through recruitment, partnering and also by investigating the potential for value-adding growth opportunities, as illustrated by our bolt-on acquisition of Unitech. There's a huge demand on these emerging and rapidly growing industries for support in order to design, evaluate, measure, quality assure and bring holistic solutions, both from existing and new customers, including policymakers and government organizations. Our aim is to support our clients in making safe, profitable and sustainable business decisions. And what we will bring to the table is our deep technological understanding across energy value chains and our ability to find integrated holistic solutions in shaping, designing and optimizing the next-generation energy value chains and low-carbon solutions. And we are already engaging in new markets with a broader set of scopes. For example, with techno-economic and carbon footprint-type of evaluations of both stand-alone and area developments for electrification, hydrogen, carbon capture and storage, offshore wind and combinations of these in new integrated energy systems. Overall, our strategy is to grow the consultancy business in a step-wise approach to ensure learning and the ability to adapt to a rapidly changing market environment. So now let's have a look at where we are with our targets. On the back of what we delivered in 2021, I'm happy to confirm that our transition journey is on track and well underway. The long-term direction we set out when we announced the merger in July 2020 remains firm. We are on track with our target to grow revenue by 10% annually on average towards 2025 with an increasing share from renewables and low-carbon solutions for oil and gas production. We are also on track with our target to gradually increase our margins over this period while taking on the right projects, leveraged scale effects and by delivering solid and predictable execution. In fact, it looks like we can achieve the original target for 2023 1 year earlier. And that is what we have reflected in this updated graph. And our increased backlog and high FEED and tendering activity provides a solid foundation for our growth targets moving forward. We have also set ourselves an ambitious target for 1/3 of revenues in 2025 to be related to renewables and transitional solutions. In 2021, we started to see more pronounced commercial successes from our energy transition efforts as we won about NOK 16 billion of new orders related to these solutions. This was primarily in the areas of electrification with the main award being Troll West; low-carbon solutions with the main award being Jansz; in offshore wind with Sunrise Wind as the largest award; and carbon capture, where we started execution on the Norcem and Northern Lights projects in Norway. These solutions already represents 32% of our backlog, a strong increase from 11% last year, which demonstrates that we are on track also with this target. And we remain confident in our ability to grow this business over the next decade to reach 2/3 of our revenue already by 2030. We see a lot of interesting opportunities ahead to continue our exciting transition journey. Now let's have a look at the bigger picture before I sum up. As we look ahead, we have increased confidence in our view of robust multiyear market growth with increased activity across areas where we are relevant. We believe the continuing broader macro recovery will translate into rising energy demand in 2022 with oil demand likely recovering to pre-pandemic levels by the end of the year or into next year. A tight supply and demand balance is projected to result in an attractive investment environment for our customers, supported by greater confidence in the oil and gas prices. This is projected to lead to a substantial step-up in capital spending. This demand and growth in capital spending could set the foundation for a strong multiyear upcycle. And there are signs that this scenario is already being established as the number of FIDs increases and multiyear capacity expansion plans have started on the back of underinvestment in recent years.Trends in the subsea and offshore markets are anticipated to continue to improve in 2022 after gaining modest traction during last year. In the subsea tree market, we expect the industry awards to take another step higher in 2022 but likely remain below pre-pandemic levels. Outside of the tree market, we continue to see a strong pipeline of opportunities, continued momentum in the global gas markets in 2022, building on a strong 2021. The spike in gas prices last year highlighted a fragile global energy system as the world transitions to net zero. And our positive long-term view could be further supported by the recent improvements in policy sentiment towards natural gas' role, combined with CCS within the energy transition. Although there are clear signs of improvement, the energy markets and our customers' budgets continue to evolve over time. As a result, we remain committed to our strategy and transition journey with the ambition to create a leading engineering powerhouse driving the energy transition.One recent evidence of how the energy transition is accelerating was the leasing round of Scotland, where the Scottish government approved 17 offshore wind areas with a combined capacity of a massive 25 gigawatts. This really demonstrates how this market is accelerating at great pace. It confirms our view of the large potential that offshore wind can represent for companies like Aker Solutions. With our proven technology, system capabilities and partnerships, we are confident that we will play an important role to industrialize this growing energy segment and contribute to accelerate commercial-scale offshore wind globally. Now to summarize. We delivered another strong quarter, and I'm really pleased with our performance in 2021, both in terms of our operational and safety performance and our financial results. It demonstrates that we are delivering on our strategy. And above all, and I'm most proud of our people with their unique ability to mobilize and execute operations across the world throughout numerous pandemic constraints, adapting to new ways of working and setting new performance benchmarks, all of which have earned the recognition of our customers.I would like to thank the entire team for delivering a great year for Aker Solutions and for creating excellent momentum as we enter into 2022. The outlook remains positive. And Aker Solutions is well placed to capitalize on both near-term recovery and for the longer-term structural change in the energy markets. We expect increased project sanctioning this year in regions and segments where we have a strong position. And our high front end and tendering activity supports the potential for record-high order intake in 2022. And with that, I will hand it over to Idar, who will take you through the numbers in more detail. Thank you.

[Idar Eikrem, Chief Financial Officer]

Thank you, Kjetel. I will now take you through the key financial highlights of the fourth quarter, our segment performance and run through our financial guidance. As always, all numbers mentioned are in Norwegian kroner. So let me start with the income statement. The fourth quarter revenue was NOK 8.7 billion, up from NOK 6.8 billion a year ago. This was driven by Subsea and the EMM segments as we continue to progress on our project portfolio. The underlying EBITDA was NOK 593 million, up from NOK 121 million a year ago, and the margin increased to 6.8%. The underlying EBIT was NOK 303 million, up from minus NOK 182 million a year ago. We ended the quarter with a net income, excluding special items, of NOK 112 million and earnings per share of NOK 0.23. For the year overall, we delivered revenue of NOK 29.5 billion with an underlying EBITDA margin of 6.4% and earnings per share of NOK 0.65. And as Kjetel mentioned, the Board has proposed a dividend per share of NOK 0.20 for 2021. Now moving to our balance sheet and cash flow. We ended the quarter with a very favorable working capital development. It improved by NOK 1.1 billion during the quarter. The main driver for the improvement was increased progress on some of our larger projects triggering milestone payments as well as some prepayments from our customers. Cash flow from operation was NOK 1.5 billion in the quarter. In addition to EBITDA, this was positively impacted by the improvement in working capital. And while cash flow can fluctuate considerably related to the progress in our project portfolio, this normally evens out over time of these projects. Our cash flow from investment was minus NOK 111 million in the quarter. We ended the quarter with a solid financial position. We had a net cash position of NOK 2.2 billion and a leverage ratio of minus 1.7x. And our total liquidity buffer was NOK 9.6 billion, where NOK 4.6 billion was cash.Now over to the segments. For Renewables and Field Development, the fourth quarter revenue was NOK 2.7 billion, quite similar to the same period last year. The underlying EBITDA was NOK 108 million with a margin of 4% as several projects are in early phase of execution without profit recognition. As a reminder, 2 of the historical quarters you see on the graph had positive one-off effects. The order intake was very strong at NOK 5.2 billion or almost 2x book-to-bill. This includes significant growth on the Johan Castberg project and several important large FEED contracts. The revenue in this segment is expected to increase in 2022 as we gradually increase progress on recent awards. The tendering activity is high, both related to the Norwegian continental shelf and related to renewable projects internationally. For the EMM segment, the fourth quarter revenue increased to NOK 2.6 billion from NOK 2.1 billion a year ago, driven by continued good progress on ongoing work. The underlying EBITDA was NOK 92 million with a margin of 3.6%, up from minus 6.1% a year earlier. The order intake was NOK 1.4 billion or 0.6x book-to-bill. And the backlog remains strong at NOK 17.6 billion. The revenue in this segment is expected to increase slightly in 2022, in line with current activity levels.In the Subsea segment, the fourth quarter revenue increased to NOK 3.4 billion from NOK 1.9 billion a year ago, driven by increased progress on recent awards. The underlying EBITDA was strong at NOK 512 million with a margin of 15.2%. This was driven by solid performance on ongoing projects, where we see positive effects from our portfolio approach in the execution with a strong focus on standardization. We continue to see margins in the 12% to 15% range moving forward. And this is in line with what we delivered for the full year, which was 12.8%. The order intake was at NOK 2.7 billion or 0.8x book-to-bill. And the backlog in Subsea remained strong at NOK 17.8 billion after a successful year of winning new work. The revenue in Subsea is expected to increase in 2022 as the current activity level is expected to continue into 2022 on the back of progressing recently awarded work. The Subsea segment continues to experience high demand and high tendering activity, in particular on the Norwegian continental shelf, in Brazil and with a focused approach in other active regions globally.Now over to order intake and backlog. We had another quarter of good order intake at NOK 9.3 billion. This means we have delivered 7 consecutive quarters with a book-to-bill above 1x. And for the full year 2021, we delivered 1.4x. Our backlog is now at NOK 49.2 billion, an increase by 29% during the year. This provides a solid foundation as we enter 2022. We are also delivering on our strategy to grow the share of our business from renewable and energy transition. The order book from this work is increasing and is now at 32% of our total order backlog, up from 11% last year and 7% the year before. It clearly demonstrates that our transition journey is on track.Now over to dividend policy and financial priorities. The Board has decided on a dividend policy targeting an annual distribution of 30% to 50% of adjusted net profit over time. In terms of financial priorities, we will continue to keep financial robustness and a solid financial position. We will invest in value-enhancing growth opportunities aligned with our strategy based on strict principles for allocation of capital. The increased activity going forward related to our targets will require some investment to enable this growth. And we estimate CapEx to remain in the range of around 1.5% to 2% of revenue moving forward. And we will return value creation to shareholders. We have a strong ambition for cash flow generation moving forward. And we will remain committed to our overall target to deliver shareholder value. Now to sum up. In the fourth quarter, we continued to deliver a solid financial and operational performance. And we are on track with our targets for revenue growth and cash generation. Based on our secured backlog and the expected market activity, we increased our full year guidance and see revenue in 2022, up by more than 20% from 2021. And EBITDA margin is, at this stage, expected to continue to gradually improve. The outlook for project sanction is very positive, and Aker Solution is in a good position to take advantage of these opportunities in 2022. Thank you for listening. That was the end of our presentation. We will now open up for questions.

[Marianne Hagen]

Thank you, Kjetel and Idar. We have received a few questions. The first one is from James Winchester. What are the main moving parts in both EBITDA margins and working capital for 2022? What is implied in your 2022 revenue guidance? You have NOK 29 billion in hand, so at least NOK 6 billion book and turn? What order intake is this on?

[Idar Eikrem, Chief Financial Officer]

Yes, I can start on this one. When we come to our new guidance on revenue, we have increased that to 20%-plus compared to 2021. And the segments that are experienced the highest growth is the Subsea segment and then Renewables and the Field Development segment. The EMM segment is expected also to grow slightly but more continue at the level that we saw in the fourth quarter. So that is sort of the breakdown of that. And we have started on our journey to gradually improve margins. And that is also what we are seeing for 2022, that it will be a gradually slight increase in margin as we go along.

[Marianne Hagen]

The next question is from Marius Lorentzen, Finansavisen. Could you elaborate on what the growth in scope on Johan Castberg implies in terms of work and additional revenue for Aker Solutions?

[Kjetel Rokseth Digre, Chief Executive Officer]

I think to start with the project and topics around Castberg, the main sort of scope that we have had from the very beginning is to integrate all these modules that we have fabricated ourselves on to the FPSO that is coming from Singapore. That is a major and an important part of our scope. And then Equinor has transferred part of the scope from Singapore. Typically, that is about installing and then also completing the hookup of the turret system.And then secondly, there are some work that naturally comes after those kind of initiatives that is also transferred from Singapore to ourselves. And it's going to be more work on -- at Stord. We are working very closely with Equinor in an integrated way to handle that last leg of that project before it enters into operation in the Barents Sea. And we are really also then focusing on having a predictable schedule for that completion that it sort of doesn't interfere with any of the other projects that are in the starting phase.

[Marianne Hagen]

The next question is from Mick Pickup. Your aim is to increase transition work. But if I heard correctly, 20% of pipeline in this area. Will you be selective on projects if needed to hit the target? You want to build -- you can start with this one. I'll take the second one after.

[Kjetel Rokseth Digre, Chief Executive Officer]

Can you repeat the question, please?

[Marianne Hagen]

Mick says your aim is to increase transition work. But if I heard correctly, 20% of pipeline in this area -- says only 20% pipeline in this area. Will you be selective on projects if needed to hit the target?

[Kjetel Rokseth Digre, Chief Executive Officer]

Yes. I think that's a good question because when you see the activity increases now in the traditional segments that we are in, oil and gas and operation and maintenance and also these new energy verticals, it's so important that we are growing in a controlled way and are really focused on having a healthy utilization of all our parts in the organization on the assets and factories. So I think being selective is about prioritizing. And we are continuously looking at how we onboard projects and how we sort of move forward with an optimized portfolio of projects. And we will be selective not only on the scale and volume on it, but also the regions that we are in so that we are -- feel that we are taking step-outs into -- in a controlled way also in that sense.

[Idar Eikrem, Chief Financial Officer]

Just to add to that one, the 20% is probably viewed as lower now than what we have seen before. But that is due to the fact that the portfolio just now, when it comes to tender activity, is dominating by the activity package that was introduced in Norway. And therefore, the transitional sort of solutions are a bit lower at this point in time. But when it comes to the order backlog that we have of NOK 49 billion, approximately 32% is within the energy transition area.

[Marianne Hagen]

And then to the second question from Mick, which is you want to build the leading consultancy business. Given there are established firms out there, how will you measure leading? And what ambitions of scale do you have? Also given multiples paid for businesses in this space and private equity in the market, how do you ensure value?

[Kjetel Rokseth Digre, Chief Executive Officer]

I think scale and pace and things like that, we will obviously return to. We are continuously looking at opportunities to grow it and find the natural position for Aker Solutions in that segment. And also, I would like to say that being leading is about many things. It could be scale. But in my mind, it starts with being, I guess, competent and perhaps the most competent and preferred for the right kind of tasks. I don't know if you have anything to add, Idar?

[Idar Eikrem, Chief Financial Officer]

No, I think that is -- and it's a journey that we have started. So being preferred more than the size is where we are.

[Kjetel Rokseth Digre, Chief Executive Officer]

Yes. I think the energy consultancy will also be a slightly different role to take in some instances. But it will really be tied back to the sort of huge engineering capacity and competence we already have and the operations we are running. So that will be not integrated but very well connected.

[Marianne Hagen]

Tommy Johannessen asks would it be possible to provide some color to the acquisition of Unitech, like financials and price paid?

[Kjetel Rokseth Digre, Chief Executive Officer]

Price paid, I think you know well that is for you, excellent guys, to assess. It's, I would say, call it, normal and predictable. But back to putting some color to it, this is a highly competent consultancy environment, not the largest one but really an integrated organization handling again complicated tasks within an area, which is growing in importance and which is sort of tapping in a very well way into the Aker Solutions that we already are. So this is, in my mind, an excellent add-on and something to learn from and something that we will keep without integrating to make sure that we are growing on top of what they already are and what they know. So that is the starting point.

[Marianne Hagen]

Tommy also has a second question. When do you expect to start booking margin at Jansz?

[Kjetel Rokseth Digre, Chief Executive Officer]

Idar?

[Idar Eikrem, Chief Financial Officer]

Yes. No, we are not commenting on when we start booking margins on the various projects. But we have a large project portfolio. And as we presented in this presentation today, we expect also a high order intake for 2022. And therefore, there will be many new projects. And as you all know, it will take some time before we start booking profit from some of that for some of those projects. And normally, we say that we need to have at least 20% progress before we start booking profit on that. That is why also profit can fluctuate quite some from 1 quarter to another. And that's why I've always said, don't look too much at 1 quarter but look at more longer period, at least minimum 1 year and maybe longer.

[Marianne Hagen]

Thank you. And now Haakon Amundsen has two questions on margins. The first one is can you give some color on the margin trajectory during 2022 and any seasonality? And the second one is, is the historic adjusted margin level a sensible expectation medium term? Or should we expect a more modest improvement from the 2021 level?

[Idar Eikrem, Chief Financial Officer]

Yes. I think it's fair to say we are not sort of taking big steps. It's gradually improvement and step-by-step approach in the margins, so more sort of on slight increase on the margin in total. And as I said, this can also be impacted when we start booking profit on some of the key projects going forward. And therefore, it will fluctuate from 1 quarter to another.

[Marianne Hagen]

Next question is from James Thompson. What can you tell us about utilization in the various businesses? Do you think you are at full capacity anywhere such as yard space in Norway? I think this is particularly irrelevant in the context of the potential for large order intake in 2022. Does the commentary mean that any new projects in Norway awarded after the '22 windfall are unlikely to be worked on much before '27, '28?

[Kjetel Rokseth Digre, Chief Executive Officer]

I'll just start with the first question. I think when you listen to Idar and myself, you hear that we are very focused on controlling the core business. And when we onboard projects is about understanding the risk in those individually but also the totality. And where we are now, we are entering into a period with high activity. And one of the key activities internally is both to learn from phases that we have harnessed in the history of oil and gas at our yards and in our factories and then transfer that to sensible activity levels, where we have sort of, what we say, risk capacity to handle any changes and growth throughout the project that we are onboarding. And the key factors there, as the question, is the yards and factories and key parts of the organization. And we are handling that, in my mind, in a good way. Obviously, the high activity period is going to also become work at different partners and some contracted yards. And we are well connected there with all the, in my mind, good options there, both in Norway, in Europe and elsewhere. And we are working closely with our known partners on that area. And then the second question again, perhaps?

[Marianne Hagen]

The second question was does the -- your comments, previous comments, mean that any new projects in Norway awarded after the '22 windfall are unlikely to be worked on much before '27 or '28?

[Kjetel Rokseth Digre, Chief Executive Officer]

Well, I said during the presentation that the customers are looking at when they take the FIDs and then how they're going to execute projects. I think with all the major clients we have, we are discussing possible both standardization of things but also sequencing or things so that we're getting sort of sensible activity levels and a continuation from one project to another. So I think those kind of discussions is ongoing in a very good way. And we are part of that based on experience we have of running portfolio projects with our key clients.

[Marianne Hagen]

We have one related question from Lukas Daul. We have recently seen service companies experiencing difficulties in executing their backlog with regard to delays, cost inflation, et cetera. What are the key items for you to focus on? And how are you eliminating these potential risks?

[Kjetel Rokseth Digre, Chief Executive Officer]

Yes, I think, again it's back to what we've been talking about also today that this is a key focus obviously for us. Without having a good control over the core, there is no point in growing on top of it. And I guess, try to list up the main items, it's about having the competence to understand the complexity of a project and getting the good plans before we start executing. It's about integrating well with the customers so that we understand each other and can collaborate in an integrated way and we are executing. It's about doing it both with our own assets, yards and factories in organization, and in cooperation with the subcontractors without sort of peaking out on capacity level because then you have no flexibility to handle any surprises. And then it's also about following it closely, making it your most important task in the organization to actually control that totality.

[Idar Eikrem, Chief Financial Officer]

I just want to add to that one that probably a vital part of having a good control of that one starts in the tender phase, and that we already in the tender phase are locking in the prices on raw materials and whatnot in the early phases. And that is what we do. We are in good dialogue with the customer, and we decide on who is taking the risk on the various elements. And whatever risk we are taking on, we try to lock in immediately at signing or even in the tender phase with confirmed prices from our suppliers. That goes for raw materials. But it's also in case we have any currency exposure, we also hedge that at the time of signing on those contracts. And then as Kjetel mentioned, throughout the execution, tight following-up also on the logistics part of the supply chain is key.

[Kjetel Rokseth Digre, Chief Executive Officer]

I think also to add two topics from our sort of transformational strategy, which is important in this sense. One is the way that we are well positioned and experienced to work differently and more effective in alliances, integrated with our clients. That takes down time. It takes down pressure on the organization. And it's a really efficient way of working. And then the second topic is digitalization, which is obviously about what we build, but also how we do things together. We've learned a lot in the COVID times, and we have a lot of initiatives ongoing to grow our toolbox on digital to make the total work with projects with clients even more efficient.

[Marianne Hagen]

Lukas has a second question. Can you provide some color on the income tax rate in the fourth quarter and what should be expected going forward?

[Idar Eikrem, Chief Financial Officer]

Income tax rate can fluctuate, of course. And when you are -- when we are now increasing our top line growth and also our earnings, you will be less, let's say, vulnerable to fluctuation in the income tax rate. But in general, we are operating in countries where the income tax rate is in the sort of mid-20s. And that's where we, over time, would like to expect to see the income tax for us. However, it could be a fluctuation from 1 quarter to another. And it also could be impacted by some withholding tax related to dividends and that like, yes.

[Marianne Hagen]

Next question is from [indiscernible]. You implicitly guided on CapEx of around NOK 600 million. Does that include the acquisition announced yesterday?

[Idar Eikrem, Chief Financial Officer]

No. The acquisition will be on top of our CapEx figures that we have announced.

[Marianne Hagen]

His second question, should we expect lease payments to continue to run at a level in fourth quarter of NOK 200 million and NOK 800 million for 2022?

[Idar Eikrem, Chief Financial Officer]

Yes. The lease payment on our office leases are about the same level as you saw in the fourth quarter also going forward, slightly less than what you referred to but in that line, yes.

[Marianne Hagen]

And we are getting near the end of the line of questions. But this one is from Martin Karlsen. And it reads after Aker Solutions-Kvaerner combination, long-term CapEx was expected to be in NOK 400 million. Can you elaborate on this in context of CapEx now being 1.5% to 2% of revenues? This implies almost 2x higher CapEx than NOK 400 million.

[Idar Eikrem, Chief Financial Officer]

Yes, I can comment on that one as well. I think where we are is that we delivered 2021 with, let's say, very low CapEx level. We see that the growth that we are entering into will require some CapEx. And this also come with, as I mentioned earlier on, increased activity level in the segments. For instance, as an example, when we now increase the activity level in Subsea, in some of those contracts, we also require some CapEx. And the CapEx will be provided with service income going forward. So that is one of the elements. And then this will fluctuate over time. But we are below 2%. And that is still quite low for our sector and with the peers that we compare to.

[Marianne Hagen]

Okay. Next question is from Jonas Shum. Are you seeing any pressure on available engineering competence in Norway or globally? Do you see rising wages as a threat to your positive margin trajectory?

[Kjetel Rokseth Digre, Chief Executive Officer]

Well, there's a sort of general activity upturn and inflation to handle. And we are aware of it and are taking that into account, and we are forecasting and planning. So that is one element. We are growing across the board. We are in a global recruitment campaign, where we're going to build on where we are and the organization set that we have. Roughly, I would say, about 2/3 of that growth will be internationally, where, I would say, the access and availability of the right resources are okay. And the numbers we are looking at is between 1,800 and 2,000-plus people.Obviously, in Norway, we are lucky, as a nation, I would say, to have both a stable and growing businesses and new type of challenges to take on together. And there, we have said, others and Aker Solutions as well said that there's a slight war on talent. I think that is sort of driving also a good version of ourselves, where we are really trying to sort of compete for the right ones. And my feeling now is that is turning in the right direction. I feel and I mean that we are an attractive place to be and grow as individuals. And we start seeing that in the interest we get when we are recruiting.

[Marianne Hagen]

Thank you. Then we'll round off with a final question from Mick. Looking at backlog for 2022, it stands at more than 80% of guided revenues. We have limited history of the new AKSO. So is this the typical level that you would expect? And then as it seems very good coverage versus what I think of as normal for the industry.

[Idar Eikrem, Chief Financial Officer]

I think we can say that we agree to his view on that one. But we -- it also depends on the book and turn activity and the growth in the existing contracts. And that is where we are a bit more cautious going into 2022.

[Marianne Hagen]

Thank you again, Kjetel and Idar. And thank you all for joining us this morning. Bye-bye.