Good morning. Welcome to Aker Solutions presentation of Q4 results for 2015. We will also go through the figures for the full year. My name is Bunny Nooryani, I'm the Chief Communications Officer at Aker Solutions. With me here today are Luis Araujo, our CEO, Svein Stoknes, our CFO. They will go through the developments in the quarter as well as the year. We will have time for some questions, one-on-one interviews with the media at the end of the presentation today. Before we get started, I'd just like to point to the nearest emergency exit, which is through the door on your right. Keep going straight. I'd also like to point out that we don't have any fire drills planned for today. Thank you very much.
Thanks, Bunny. Good morning, and thank you for joining us here today. Our results for the Q4 sum up the year, and provide our view of where we are going from here. We put a challenging year behind us. Low oil price and capital constraints have reduced investment and activity levels in our industry. We also had significant achievements with milestone deliveries. This included the world's first subsea gas compression system to stat oil in September, equipment to enable first oil subsea equipment to Petrobras in Brazil. We are making every effort to deliver projects on time, on budget, and with the highest quality. I want to emphasize the consistently strong execution Aker Solutions has shown over the last year. We have made good progress on major projects in Africa, Norway, and Brazil.
We continue our push to improve operations and bring down costs across the company, and we are seeing the benefits. Yet, the quarter also saw a continuation of the market slowdown that affected the entire industry with a weakening of both our top and bottom line. Our revenue decreased 14% in the quarter and 3% in the year compared with a year earlier as oil companies reduced spending. Margins also weakened amid low activity, particularly in the regional markets for maintenance, modifications, and operations, as well as Subsea services. We also saw some decrease in activity in our engineering business in Malaysia. In response, we reduced our global workforce by 15% last year to adjust for overcapacity. In January, we announced further reductions in the Norwegian MMO workforce. As many as 900 positions may be affected depending on future work volumes.
This would bring total workforce reductions since the summer of 2014 to about 25% of our workforce. About three-quarters of this are in the MMO and Subsea business in Norway. We are also taking necessary steps to streamline both our MMO and Subsea businesses to enhance competitiveness. In MMO in Norway, we are moving to 1 region unit from 4 previously. We are also shutting down MMO operations in Tromsø and Sandnessjøen. I hope I pronounced that properly. This will give us a more focused business that can be built on these key strengths, particularly in our more complex modification projects. In Subsea, we are restructuring the business globally to strengthen operations through leaner process and a focus on core areas. We expect these measures to yield annual savings of NOK 600 million.
The immediate impact of our Q4 results was a cost of NOK 373 million for restructuring and reducing capacity. We also took a provision of NOK 140 million to cover lease costs on vacated office space in Norway, the U.K., and Asia. The order intake was slightly higher in the quarter than a year earlier, helped by new MMO contracts in Norway and the U.K. We continue to see strong interest in our front-end capabilities. We won 35 study awards in the quarter, including projects in Norway, Australia, Canada, U.S., and Africa. This is a strong indication of our abilities to early-own in projects. Really makes a difference in driving down development costs for our customers. We ended the quarter with a healthy order backlog of NOK 40 billion.
The largest share of 33% was for work in West Africa, where we have grown over the past year. In sum, we are underpinned by a solid backlog for ourselves and our customers. We have a robust financial position with a liquidity buffer of NOK 9 billion at the end of the year. This give us good flexibility going forward. Finally, the board proposed zero dividend for 2015. While Aker Solutions had a solid financial position at the end of 2015, the board deems it prudent to exercise caution and booster our already strong balance sheet as the market outlook for the next 1-2 years remains uncertain. By conserving additional cash, we will increase our flexibility to manage the company through the challenging market conditions and help ensure we are strongly positioned for recovery.
We still maintain our policy of paying a dividend of between 30% and 50% of net profit over time. Now for the main numbers. Full year figures show revenue of NOK 31.9 billion, EBIT of NOK 1 billion, an EBIT margin of 3%. Excluding special items, the margin was 6%. Earnings per share were NOK 1.44. The order intake was NOK 22.8 billion, bringing the backlog to NOK 40 billion. In the Q4 , revenue was NOK 7.9 billion. We had an EBIT loss of NOK 155 million and an EBIT margin of minus 2%. Excluding special items, the margin was 6.1% and there was a loss per share of NOK 0.83.
As mentioned, our order intake was NOK 6.4 billion in the quarter. This includes a 5-year maintenance modification framework agreement with BP in Norway. The contract may be extended by as many as 4 years. Our MMO business also secured a framework contract for another international oil and gas operator to provide engineering and construction services for several offshore facilities in the U.K. North Sea. This agreement has a fixed period of 5 years. An option to be extended by as many years. In December, we were awarded a framework competition contract by Statoil, where we may be asked to bid on standalone MMO assignments. It's difficult to anticipate work volumes under this contract. It seems likely that assignments will involve standardized tasks carried out by the same team at multiple locations, as well as more complex modification projects.
This last is where our expertise give us a particular advantage. We also signed a contract in December with the City of Oslo to start a 5-month test program to capture carbon emissions from the country's largest waste-to-energy plant in Klemetsrud. The project is the first of its kind globally, and testing began last month. This is pioneering work with significant potential as the world focus on finding ways to limit carbon emissions. Finally, I am very pleased that we have been able to announce some key contracts wins after the quarter. This included a framework agreement to become ConocoPhillips' main supplier of maintenance and modification work offshore Norway, covering all work in all installations at the Ekofisk and Eldfisk fields. We also got a contract to compete for work on large and complex modification projects at the same fields.
In January, we secure a strategic important order from Statoil to provide a concept study for an FPSO for Johan Castberg oil field developed in the Barents Sea. I was also very pleased to announce early this week that we have secured another concept study for future phases of major Johan Sverdrup oil field developed offshore Norway. It was a promising start of the year for Aker Solutions. We take safety very seriously at Aker Solutions and spare no effort to safeguard our employees. It was with deep sadness that we learned of a death of one of our employees during a severe storm offshore Norway in December.
He was on board of the COSL Innovator rig. We are now working with the rig owner and operator to investigate the incident, to determine the cause of death, and to learn what, if anything, could have been done to prevent it. The safety of our employees, customers, and partners is our top priority at all times. We work systematically and continuously to make sure we are doing our utmost to ensure this. In recent years, we have seen a shift from life-threatening and disabling injuries to minor ones such as bone fractures, twisted ankles, and smaller cuts. We pay close attention to near misses and high-risk observations. Last year, Aker Solutions had 52 recordable injuries across all operations and 19 result in lost time on operations. Most injuries were handling equipment, cuts, and minor falls.
In 2015, the lost time injury frequency was 0.5 versus 0.3 in 2014. Our goal is to be below 1.6. The total recordable injury frequency score was 1.3 versus 1.2 the year before, and the goal is to be below 1.7. We always work for our best year ever injury record. The ultimate goal is 0 incidents per year. As part of our HSC work for 2016, we are focused on the subcontractors' HSC performance and improving HSC tools, process, and systems. Improvement is, in fact, a key focus throughout our business. We made steady progress in the quarter and the year in our efforts to improve operations and reduce costs in all parts of the business on project with customers.
Last quarter, we incorporated these improvement initiatives into one global program named The Journey. The program has a key target to improve cost efficiency across business by at least 30% and ensure a step change in our competitiveness. This means simplifying our work methods, our organizational setup, our geographical footprint, and our products and services. This will give us a leaner and more efficient processes that will enable us to reduce the overall cost of our projects and our products while improving quality. Underpinning these efforts is a relentless drive to build a culture of continuous improvement. Let me give you some examples what that means in practice. We are simplifying our products and services, and this includes simplifying technical requirements as part of a push to establish a standardized technology platform for our products.
We have identified a cost reduction potential of up to 40% on material subcontracting costs across our product portfolio. This will reduce manufacturing costs by as much as 20%. We are simplifying our geographic footprint. As mentioned earlier, we are closing down MMO operations at some locations in Norway. We also consider other ways to improve our efficiency through three business areas, Subsea, engineering, MMO. As said earlier, we expect this to reduce overall costs by as much as NOK 600 million per year. We are also simplifying how we work. I have previously talked about how we are implementing lean operations principles across the whole Aker Solutions, giving some fantastic examples of what can be achieved through simplifying our work processes. Simplifying our products, footprint, delivery model, and structure will drive process efficiency.
As an example, MMO engineering are on track to achieving a target to reduce the cost of services by 30%. Subsea is working to reduce the number of project management engineering man-hours in projects by as much as 45%. We are also looking at our Subsea lifecycle service businesses, and we have set specific targets for reducing working capital and improving efficiency. The bottom line is a more competitive business that creates value for our customers and shareholders. In addition to these efforts, we are also working externally with our customers to achieve operational and and cost-saving improvements at projects. I'm very pleased to see that our clients recognize and value these efforts.
As an example, the Aker Solutions team that works on maintenance modifications for Statoil in Norway has, in the last 3 quarters, been named the best contractor in Statoil customer satisfaction survey of its suppliers. We have also played a key role in reducing break-even costs for major developments such as Johan Sverdrup and Johan Castberg in Norway. Now let's look ahead. These are challenging times for our industry. The steep and sustained decline in oil prices and oil companies' capital constraints are having a significant impact. They still steady, tethering in our main markets, and we are currently bidding for contracts totaling about NOK 50 billion, with about two-thirds in Subsea. Projects continue to be postponed and commercial discussions are tough, with increasing pressure to bring down prices further in our industry.
We are now seeing signs that cost-cutting across the industry is starting to have an effect. Break-even costs are coming down. This may enable some projects to be sanctioned, such as Johan Castberg in the Barents Sea. Activity offshore Norway, our largest regional market, is expected to remain sluggish over the next year. This is being somewhat offset by the Johan Sverdrup development, where we have an engineering framework agreement for as many as 10 years. As I said earlier, we have adjusted our workforce capacity. We will continue to keep a close eye on market developments and make further adjustments, if necessary, while protecting our core competence. Our biggest growth potential is outside Norway, where we have been expanding. About 65% of our revenue comes from outside Norway, up from last half in 2013.
This is partially thanks to major Subsea projects in West Africa and growing interest in our MMO capabilities in countries such as U.K., Brunei, and Canada. Longer term, we are positive. Field developments are becoming more complex. We have the capabilities needed for our customers to cope with these challenges. Forecast global energy needs support a positive long-term outlook for offshore and deepwater oil and gas developments, where we are well-positioned through our technology projects and strong customer relationships. We are prepared for a lower-for-longer oil price environment. Current investments are not sufficient over time to ensure enough reserves are produced to meet forecast global demand. We are preparing for market recovery and taking the necessary steps to emerge stronger when that time comes. Thank you for listening. Eystein will take you through the numbers from here.
Thank you, Luis. Good morning. I will now take you through the key financial highlights of the Q4 and 2015, our divisional performance, and run through our financial guidance before we move on to Q&A. Again, I would like to point out that all numbers mentioned are in the Norwegian krone, and that alongside the Subsea that Q3, we are now reporting Field Design and not MMO and engineering separately. As usual, let's start with the income statement. Overall operating revenues for the Q4 was down 14% primarily in our North Sea-exposed activities, partly offset by high activity levels and good progress on a number of key projects. For 2015 overall, despite an increasingly challenging market, our full-year revenue was down only 3% from 2014.
Our reported Q4 EBITDA was NOK 182 million. This included a number of special items, including a restructuring cost of NOK 373 million, mainly related to the simplification and streamlining of Field Design and Subsea. It also included a cost of NOK 114 million for onerous leases as a result of capacity adjustments in Norway, Malaysia, and the U.K. Fifteen million loss related to non-qualifying currency hedges and a cost of NOK 11 million related to separation of IT systems following the demerger. Hence, our EBITDA, excluding all special items, was NOK 695 million, equivalent to a margin of 8.9%. On an equivalent basis in the same period last year, EBITDA was NOK 873 million, with a margin of 9.6%.
For the full year, EBITDA, excluding special items, totaled NOK 2.6 billion, equivalent to a margin of 8.3% versus 8.6% for the full year 2014. For your reference, we have set out a table in the appendix that shows all these special items by quarter and also year to date. Depreciation in the Q4 was higher than last year and included NOK 123 million of impairments, primarily related to Subsea technology. For 2016, we expect depreciation to be between NOK 850 million and NOK 900 million, reflecting our recent investments in technology development and to support our workload in Brazil and in Angola in particular.
Our reported Q4 EBIT was down year-on-year to a loss of NOK 155 million, and excluding all non-recurring items, EBIT was NOK 481 million, and the margin was 6.1% versus 7.9% last year. For the full year, EBIT, excluding special items, totaled NOK 1.9 billion, equivalent to a margin of 6% versus 6.8% last year. Excluding an unrealized hedging loss of NOK 21 million, net financial items totaled NOK 102 million, which included some currency translation effects. Excluding these, our net financial items were in line with our previously guided range of NOK 60 million–NOK 70 million per quarter. For 2016, we see net financial items in the range of NOK 70 million–NOK 80 million per quarter due to our working capital normalizing through the year.
With a reported loss before tax in the quarter, our tax charge was equivalent to a favorable rate of 10.1% and was hence 44.1% for the full year. Going forward, we continue to see average P&L tax rates to be in the mid-30% range. All in all, we ended the quarter with an unadjusted net loss of NOK 250 million, equivalent to an earnings per share of negative NOK 0.83. Normalizing for all special items, our underlying EPS was NOK 0.96 in Q4 and NOK 3.94 for 2015. Now moving to our balance sheet and cash flow performance. Helped primarily by working capital initiatives and solid project execution, we ended the year with a net cash position of NOK 301 million. Our year-end leverage and gearing levels reflect this very robust financial position.
Our medium-term balance sheet policy remains conservative, targeting around 1 time net debt to EBITDA and less than 50% gearing. We expect our currently very favorable working capital position to normalize over the next 12-18 months, and we expect to end this year at around 1 time net debt to EBITDA. Our total liquidity buffer is robust at NOK 9 billion. This also includes our undrawn NOK 5 billion revolving credit facility, which was amended in Q4 with an increase of NOK 1 billion and the leverage covenant lifted to 3.5 times. This position continues to give us good financial headroom going forward. The credit facility is secured at very favorable terms with margins starting below 1%. As of the Q4, our return on average capital employed for the group overall reached 8% versus 18% in the year earlier period.
This decrease versus last year reflects the impact of our restructuring costs and other special items as well as our recent capital investment levels. Our group capital employed was NOK 8 billion at the end of Q4, and of this, around NOK 2 billion was linked to facilities and technologies that are yet to contribute to earnings. Our cash flow from operations in the Q4 was NOK 1.6 billion, helped by a positive move in working capital. Our net current operating assets remain low, but as I said previously, we continue to expect this low working capital position to unwind as our major projects progress over the next 12-18 months. We continue to see a more normal level of working capital to be in the range of NOK 1.5 billion–NOK 2 billion or equivalent to 5%–7% of revenue.
Our investing cash flows totaled NOK 392 million in Q4 and around NOK 1.3 billion for the full year 2015, mainly related to fixed assets and technology development. We therefore ended the year slightly below the low end of our previous guidance due to our tight control on capital and some phasing of spend into 2016. As our current key investment programs comes to an end through this year, we see CapEx spend in 2016 below NOK 1 billion. Now on to Subsea, where Q4 revenues were down 13% year-over-year due to lower activity levels in some areas, such as the North Sea and lower volumes from Subsea Services.
Excluding NOK 134 million of restructuring costs and NOK 108 million of technology-related impairments, our underlying Subsea EBIT margin reached 6.6%, similar to that of the previous. Our full-year Subsea EBIT, excluding special items, reached NOK 1.4 billion, equivalent to a margin of 7.1% versus 8.1% in the previous year. Most importantly, our major projects are progressing to plan, and we continue to see benefits from our improvement programs. We do continue to face market headwinds in addition to the expected effect of higher depreciation. Due to these headwinds, in particular a challenging market in the North Sea, over the last year we have had to adjust our workforce by almost 20% overall and around 15% for permanent employees.
In terms of our outlook for Subsea in 2016, we see continued market headwinds and expect revenues to be down around 15% versus 2015, with roughly 25% of revenues coming from after-market services versus around 20% in 2015. We see underlying EBITDA margins around 2015 levels, with market headwinds largely offset by our own internal self-help. Our Subsea return on average capital employed reached 15% in the quarter. This reflected a number of factors, including our performance, restructuring costs, and the level of working capital. I would note our medium-term target for Subsea remains for a return on average capital employed of between 20%–25%. In terms of order intake, our Q4 book-to-bill was down versus last year at 0.3 times, but our backlog remains substantial at NOK 22.5 billion.
This is equivalent to around 14 months of Subsea revenue and gives us good visibility into 2016 and also quite good visibility in the medium term. The current market remains active. In Subsea, we are currently tendering for roughly NOK 30 billion of work, and the number of new invitations to tender or ITTs in recent months is at a good level. On to Field Design. Revenues were down 14% year-on-year, due in particular to the ongoing tough environment in the Norwegian MMO market that was only partially offset by international growth. Margins in Field Design were impacted by NOK 239 million of restructuring costs in the quarter.
Adjusted for this, our underlying EBITDA was NOK 238 million, with a margin of 7.5% versus 6% in the Q3 and 7.5% a year earlier. Our EBIT, also adjusted for restructuring costs, was NOK 204 million with a margin of 6.4%. Most of these restructuring costs were within MMO Norway. Our full-year Field Design EBIT, excluding special items, reached NOK 672 million, equivalent to a margin of 5.2% versus 5.5% a year earlier. Order intake for the quarter was strong at NOK 5.1 billion, equivalent to a book-to-bill of 1.6 times, mainly driven by projects in Norway and in the U.K. Despite the tough market, tendering activity is high, with a total volume of work for tender between NOK 15 billion and NOK 20 billion.
This reflects international work, as well as potential new MMO frame agreements in Norway and the U.K., and a significant volume of modification work on the Norwegian Continental Shelf. In terms of our outlook for this year, we expect tough market conditions to continue, especially within the MMO segment in the North Sea. We see overall revenues for Field Design down around 15% for 2016 compared to last year, with underlying margins slightly lower year-on-year due to an ongoing tough MMO environment. We recently announced further capacity adjustments in Field Design, most notably within our MMO Norway business. Versus our position halfway through 2014, our Field Design business globally has seen around a 30% decrease in both permanent and overall employees from ongoing or completed capacity adjustments. To the order intake and backlog performance for the group as a whole.
Our group backlog at the end of Q4 was close to NOK 40 billion, equivalent to around 1.2 times our annual revenues. Our backlog remains at quite high levels, helped by decent order intake in the quarter in Field Design. This continues to give us good visibility for 2016 and also quite good visibility in the medium term. At NOK 6.4 billion, the overall Q4 order intake was up compared to this time last year and equivalent to a book-to-bill of 0.8 times. It's also worth noting that despite the current tough market conditions, our book-to-bill for all of 2015 was 0.7 times. Tendering activity for the group continues to be awards continue to be common.
Just to give you a rough picture, the group overall is now engaged in around NOK 50 billion worth of tenders and is looking at over twice this value in terms of opportunities. You will also note our Q4, backlog phasing chart is slightly different from that at Q3. The totals for 2016 and 2017 are slightly higher, reflecting both new work and project rephasing. As we did in Q3, we indicate the split between Subsea and Field Design. As a reminder, our backlog does not include the majority of service business or potential growth or options on existing contracts. Finally, I would like to again summarize our medium-term financial guidance.
As Luis mentioned on dividends, while having a healthy backlog, reasonable visibility, and a solid financial position entering 2016, given the current market circumstances, we consider it prudent to maintain our financial position by conserving additional cash. This give us increased flexibility to manage the company through difficult market conditions and to position ourselves for the eventual recovery. To be clear, dividends are an important part of the company's long-term financial strategy, and the long-term policy remains an aim to pay between 30%–50% of net profit over time, either as cash or through share buybacks. Our three key medium-term guidance themes remain as follows. We aim to at least keep our market share in our core Field Design and Subsea markets. We aim to move towards peer group margin levels in our Subsea segment, and we expect a gradual recovery in Field Design.
We aim to improve our return on average capital employed in Subsea to the level of 20%–25%. Our other financial policies all remain unchanged. That was the end of our presentation today, and we'll now move on to Q&A.
Thank you, Svein. As Svein said, we do have time for some questions now, and we will be aiming to end this session at 10:00. We will start with some questions in this room, and then we will move on to our webcast audience. I would ask you to please limit your questions to one and one follow-up. For those in the webcast audience, you can either call in, or you can send your questions via the actual webcast system by email. Let's start with the first question from this room. Thank you.
Frederik Lunde, Carnegie. Just on CapEx, do you expect CapEx to come down further in 2017 given the market outlook?
We have guided consistently that the normal level of CapEx for Aker Solutions should be around 3% of revenue, as it relates to maintenance CapEx and R&D. For 2016, as I've said, we have been able to phase some of our spend from 2015 into 2016. Still I'm guiding below NOK 1 billion in terms of spend. 2017 should be down from 2016 levels again.
Just on the restructuring charges, do you see the downsizing now as completed, or should we expect further charges in 2016?
Oh, sorry.
I can start.
Yeah
Because, you know, there are two sides. One is the downsizing because we see some reduction in activity. It is also the streamlining. We try to differentiate that because the streamlining means that that's how the company will look like when we go forward, actually protecting our company in 2016 and also improving our results when the market returns. That's what we see it. I think we have established this at the end of the year, we get prepared for 2016, anticipating the activity in 2016. That's very hard to always guarantee there won't be any more reductions, but we have adjusted the company to the size. In terms of one-off charges, you wanna add something else?
No. I mean, there are three categories of it. It's restructuring related to downsizing and, you know, organizational redesign. We have, as we said, provided for what we see needed in terms of capacity adjustments. Attached to that, of course, office space is freed up and we have provided for that cost. In addition, we have a continuous process of testing all our assets related to potential impairment indicators or triggers. For Q4, you saw the consequence of some of the some Subsea technology where the assets being impaired in the quarter. Of course, we closed 2015, impairing what we saw needed given what we see as the scenarios moving forward.
No indications or anything further needed.
Thank you.
Next question. To the back. Eirik Mathiassen from DNB.
Yeah. Eirik Mathiassen at DNB. The first question is on the Subsea backlog. You have now secured slightly more than NOK 19 billion in revenue for 2016 and 2017. How much of that is related to Petrobras work?
Okay. I think that we have not won any Petrobras work in the last quarter, so we have been delivering. If I remember well, our backlog in Petrobras is less than 8% right now. It's all related to pre-sal t, so it is quite good. As you know, we are bringing a new plant in Brazil in April. It's basically almost complete. Just, guys are waiting for carnival to finish so they can just do the opening. They plan to just finalize the administration building, so we're gonna close the other plant and move to the new plant. Actually, our backlog has been actually spread between 17 and 18. Brazil looks fine in the short term.
Of course, long term, we hope that there will be more activity down there.
It's 8% of total backlog, not of the Subsea backlog, right?
Total, yeah. Total backlog. Correct.
How much have you pushed back the deliveries to Petrobras over the past year?
Well, as I think I'm not sure if I mentioned it, but we have record deliveries to Petrobras last year, which is interesting to observe, you know. We delivered about 32 equivalent systems to Petrobras. Every year we've been increasing deliveries, and we expect to be, you know, stable now and next year, kind of flat in 2017. We have agreed with Petrobras how to move the backlog. I would like to emphasize that our backlog is pressed out and all the platforms are arriving, they are there. What we did was just to adjust according to what the client needs. Of course, we work in dialogue with Petrobras all the time to see how they end. What we see today is what.
To give an exact estimate, but you cannot give us a rough estimate of how much of the backlog you have secured is actually from Petrobras for 2016 and 2017?
You wanna know how much in terms of percentage of?
Yeah, of the NOK 19 billion in work you have secured for 2016 and 2017-
Do you have that number?
in the Subsea division.
Exactly.
About just a very rough estimate. How much of that is work related to Petrobras?
I think if you look into 8% of NOK 19 billion, you'll get the number, don't you?
I think, let me say, capacity-wise, you know, we, you know, well into 2018, before we see any issue related to.
Brazil capacity.
Brazil. You know, where we are at the moment, you know, we have faced some of the deliveries out in time. We've taken easy measures like, you know, cutting night shifts. Still, this facility, the new facility that we are moving into, is running at good capacity. I shouldn't say at technical maximum capacity.
Probably was technical capacity last year because it was in the old plant. We are moving to the new plant now as we speak, which was actually quite good to have the phase out because we could have some more time to maintain the record deliveries and move to new plant. As Svein said, until we have backlog in Brazil for 16 and 17 at very high activity, we're just curtailing the night shift, which actually should improve the cost base.
Okay. Thank you.
Thank you. Next question. No? Okay. Here we go. Terje Fatnes.
Terje Fatnes, SEB. Can you explain a little bit of the movements in the work and you ended down NOK 2 billion. What exactly happened there?
It's related to flawless project execution, exactly as according to plan, delivering on all milestones, triggering all milestone related payments on all our key projects. It's also related to continuous focus and effort on working capital initiatives, in particular within our Subsea lifecycle services business, which is the only area of Aker Solutions business that by nature should tie up some working capital and where we have had a negative trend for some time, but, you know, has not been apparent due to the project side of our business, having a significantly negative working capital position. You know, peeling that onion, we have been successful on driving down the working capital levels in the part of the business where we by nature should have working capital.
On the project side, we have delivered as exactly as according to plan.
Can you provide an update on when is the last delivery for the Moho Nord project?
You're into, 2017.
It goes until 2017. We have We achieved first oil when we have a plan to deliver some trees this year and next year. It go up to next year. With, of course, Kaombo has more activity now this year than, and start to go up. The deliveries in Kaombo in Moho goes until next year.
Okay, thank you.
Of course, service is ongoing, right? We have quite a few people in Congo working with the client to install the components and so on.
Same phone caller.
Are there any additional questions? We have Haakon Amundsen in front.
Haakon Amundsen in ABG. You're guiding for flat Subsea margins in 16, and I guess you have a certain backlog protection there. I was wondering if you could give some color on how we should think about 17 when you have more impact from the pricing environment. If you also could give some similar color on Field Design, just directionally.
I'll let Svein talk. Of course, 17 is uncertain for the whole industry. We see, we have. Actually, it's quite interesting to see that our service business remain with some exceptions, as we mentioned, Norway and U.K. We have seen it maintaining and actually growing some areas, such as West Africa, as we're installing more components in Brazil and U.S. Some good activity there. I think that we hope that. In terms of new projects, and I think we all follow the market and this project being, you know, as we mentioned, it's a lot of being tendered. We are working very close to clients to discussing all the time how to reduce.
We see a very good movement on clients' side to reduce gold plating, people looking for new solutions. That's why our front end is so busy these days, looking for new field layouts, new concepts, and how to standardize the components. All that good stuff is happening. They have some cash constraints, as we know. If our clients is stressed, then the market is stressed. It's difficult to predict. We are actually seeing what the cost can come down in projects, the break-even in some projects mentioned by clients, is actually encouraged that we have more activity coming forward. The time is also difficult to predict. If you want to talk more about the margins and.
I should just say, as you've seen, underlying through 2015, you've seen the Subsea margins stable, above, you know, the 10% level. Significant traction from the improvement initiatives being run within the Subsea area and then offset by headwinds and the capacity adjustments coming the other way. That is what we expect to continue through 2016, that the detraction and momentum from the ongoing improvement initiatives will offset the headwinds the other way. What we're saying, underlying, you should continue to see Subsea margins around 2015 levels through this period. For 2017, too early to say. You know, we'll have to come back. Field Design-wise, you know, it's a combination of MMO and engineering.
We have moved to report Field Design for MMO. Of course, as you've seen, we've taken out considerable capacity. As a consequence of that, we do expect margins to, you know, gradually improve. Engineering delivering consistently and it's a utilization-driven business and have proven, you know, consistent performance with double-digit margins, and we expect it to keep at that level. Combined, we're saying slight, slightly down from 15 levels for Field Design.
Okay. Thank you.
Thank you. All right. If there are no further questions here, we should go to our webcast audience. I'd like to ask the operator if there are any questions.
Certainly. Just as a reminder, if you'd like to ask a question via the audio, please press star one. We can take our first question now from Mukul Garg from Citi. Please go ahead.
Hi, Mukul Garg here, Citi. Just on Subsea, two questions. How do you think the per-tree awards directionally for this, for the new projects, you know, talk about downsizing and cost work? Compared to, let's say, 2013, 2014 levels, how much deflation are you seeing on a per-tree basis?
Not sure if I got the whole question, but, let me confirm. Are you asking question about the cost reduction of Subsea equipment and, deflation and so on? Is that the question?
Yeah, yeah. For a given project, let's say that that's gone, I think it works such a much smaller the Subsea scope would be if these projects were to go ahead with the new design.
Okay. I mean, we have to think about the Subsea usually in general terms. The Subsea spend in a project, an offshore project, is between 15%–20%. There are far other levers to pull rather than the Subsea equipment pricing. That's the first part of the question. There, we are looking for the whole field, how to reduce the actually the technical requirements. As I mentioned, the industry is looking how to reduce the gold plating of projects. At the same time to Subsea. There's a lot of discussions in not how to reduce the amount of scope and also the deflation's a normal thing. Everything we spoke about here today, deflation is one component that's not included in our drive to improve efficiency.
Efficiency comes from, you know, because you want the efficiency to stay forever. That's why our improvement program is called The Journey, because you want to maintain. That's what this industry needs. I don't think we have applied industries. There is a lot of effort to look into the components and see, okay, how can we stop redesigning this? How can you stop, you know, reinventing the wheel? How can you apply our knowledge for new technologies? That's not only Kaombo, that's across the whole industry. We see that there's a big push, of course, there's a big change in mentality, and that, of course, takes time. We see that every quarter, the clients start to understand that that's the only way to make this offshores and deepwater industry competitive going forward.
I like, not like to use the Kaombo example, but we do see a big reduction, not driven only. Of course, there are deflation in the markets, in supply chain and in other areas such as drilling, even more, of course, than the than Subsea. There are also improvements in efficiency. That's what we're looking for, because it will come back, and when it comes back, we need to maintain these efficiencies.
Luis, sorry to labor this point, you've talked about materials costs coming down, your manufacturing costs 20% lower. You're talking about gold plating being removed. I mean, are we talking about maybe 40%, 50% reduction in award sizes? Is that not fair?
Yeah, no, you're right to insist on the point, because that's a very important point we ask ourselves all the time. That depends on just making sure that the manufacturing cycles we're talking about, we're looking to the product and looking, okay, how can we make this cheaper? That's what we are changing in our company is the mentality, how can you do this faster and cheaper? That's what we need to do. Basically, we're looking for manufacturing efficiencies there and the material deflation but very important to realize that, before you put a tag in the savings, you have to work with your clients because standardization has several areas. You can standardize it in components and then have a system that give you flexibility since your components are standardized, and you have to standardize all requirements.
If you think about what you used to put in requirements, every client had a different specification for forges, for special forges, for X-rays, and you know, why? I mean, they're all going to the same place for the same planets, the same water there. That kind of standardization depends on the clients. Of course, we can provide them, and we can show the path for them. We're doing that. It's a very big dialogue, but it's a combined effort.
When you improve, and again, I like to remind, one of my employees was interesting, made a comment to me that, "Well, boss, to improve, you have to get projects to improve on it." My answer to him was, "Of course, but if you improve now, then have a lower cost to win more projects." That's what you get from The Journey by being more efficient, is to making sure that there'll be more projects, more project sanction. It's a long answer to a short question.
Thank you. Thank you very much.
Thank you. We can take another question over the phone if you wish from Rob Pulleyn from Morgan Stanley. Please go ahead, sir.
Hi. Good morning, gentlemen. Just 2 questions from me. The first one, if I may, can I ask about working capital again? I didn't quite hear the answer to, I think, what was the question earlier. I understand the sort of the medium-term proportion of working capital to sales you're talking about. How should we think about that progression through 2016 as a movement from your current position to where working capital might be normalized? The 2nd one, could you give us a little bit of a steer as to where D&A could be for 2016? Thank you.
Starting with the D&A, NOK 850–NOK 900 was what I mentioned in the presentation as guidance for this year. To working capital, what I responded to the question, what's driving the currently on execution. We have delivered on all our major projects as according to the agreed payment milestones. We have successfully been able to drive internal improvement projects related to areas of Aker Solutions that capital, which is the Subsea lifecycle services business. We have been able to turn a trend and drive that working capital level down. All that being said, there should be no doubt that the current working capital level is unusually low. It will normalize and trend up.
We are indicating that we see a leverage or gearing at a level towards the end of this year at around 1 times net debt to EBITDA. Depending on how you do your calculation, that would give you know, a working capital level. We also said, a normal level of working capital for Aker Solutions should be between NOK 1.5 billion–NOK 2 billion. We see that we're gonna normalize back to that level.
Sorry for going through that again. As I said, I couldn't quite hear the answer earlier. There's no sort of first half, second half split in how that normalization of working capital will happen? It just sort of trends through over the next 12, 18 months is kind of what I was getting at.
It's part of the nature of this business is that, you know, working capital levels, you know, they do swing quarter by quarter due to milestone payments on projects. You know, there will be swings, but, you know, the trend is up towards the level I've guided on.
Okay, thank you.
Thank you. We can take a further question if you wish.
We can take one more question from the people calling in, and then we have to have one on from the people who have sent them in written.
Perfect. Our next question then is James Evans from Exane BNP Paribas.
Hi, thanks for taking my question. It's just on the cost saving. Obviously, 30% is a big number. Just wondered what the timeframe on this. How much we've seen in 2015, how much you think is gonna come through over the next couple of years? I guess just related to that in MMO and engineering, I guess it's fair to say it's already passed on to clients in the short term. In Subsea where there's been a margin gap historically, should we just assume the first 10% is just to catch up with the competitors, and thereafter you'll start to see more of the benefits coming through? Thanks.
Okay. Yeah, 30%'s a big number, but I think there is potential, and we have to, we have to give our employees the ambition and what they want them to achieve, not now, but I guess through the whole Journey forever. We see actual potential larger than 30% in some areas. I think I gave some examples about, you know, engineering in project managing projects. Again, sometimes that needs the clients to work with us to reduce requirements and so on, but also around the process and try to limit the amount of documentation, limit, increase standardization so we can standardize the components and so on. That goes. By the way, that's not only for Subsea, that goes across the whole chain.
We're looking, for example, MMO, we showed to the clients that we actually tender projects now with a lot of improvements into it, because the clients need that. You know, we have to reduce the flow, improve the efficiency offshore and so on. There's a lot of interaction and new ideas across the whole, the whole company. I think that is a big number, but we see that the potential is there, and we're gonna continue moving there. Of course, second part of your question, when you ask if we're trying to get to level of the competitors, the peers, I don't think we are that far. We have improved. If you look into the line operations, we have improved.
Of course, we are facing a uncertain market, and we have to adjust capacity, and the one-offs have offset that. Also, as I mentioned, during the presentation, that a lot of the savings we achieved, to the so-called Journey have been offset by headwinds. I'm glad that we as a management team, we decide to put operation improvements and not only for the savings, for the improvement also to the margin erosion projects in flawless execution, as we like to say. We put that very high up in our agenda when we split the company. If it wasn't for that, of course, our margin would be stable, the line margin would not be as stable as it is right now. I'm confident that.
As I said, we need projects to improve on and, as more projects are coming in, and we had a good start of the year, especially MMO, where we got a large contract from Conoco, which was something that was very important for our operation, especially in Stavanger. We have projects to work on that, and our employees are very motivated to do that. Actually, it's a good time for me to say how proud I am for my workforce. Incredible how people are delivering, and we have probably the best execution of the company in recent history. That's, I was in Angola last week. I could hear that from the client, and that's what matters. Not hear from me, but from hear from the clients, how hard my people working down there and how we're achieving their goals.
That's another long answer for a short question.
Thank you.
Thank you very much. We'll move on then to our final question, which is from Morten Nystrøm, Nordea. His question is, Subsea margins in line with 2015. What does this mean given the non-recurring item seen in 2015? Could you please quantify the EBITDA margin range in Subsea and Field Design for 2016?
What I did say was underlying margins for 2016 should be in line with 2015 levels. If you take a look at what we have delivered Subsea margin-wise for 2015, it's right north of 10%, and we are indicating that we should be able to deliver margins in that range underlying in 2016. For Field Design, we're seeing a gradual decline, not material decline from 2015 levels.
Okay. Thank you very much. Thank you for joining us here today, and have a good day.
Thank you.