Welcome to Aker Solutions presentation of the fourth quarter and full year results for 2014. My name is Bunny Noerhadi , and I'm the Chief Communications Officer. With me here today are Luis Araujo , our CEO, and Svein Stoknes, our CFO. They will go through the developments in the quarter and the year. After that, we'll have time for some questions and for some brief interviews with the press. Before we start, I'd like to point to the nearest emergency exit, which is through the door on your right. Go straight forward and go through the glass doors. Please do note that we don't have any fire drills today. Luiz, why don't you take it from here?
Thanks, Bunny. Good morning, and thank you for joining us here today. As you all know, in September last year, Aker Solutions was split into two companies. The subsea umbilicals engineering and MMO businesses were spun off and listed on the Oslo Stock Exchange to become a new leaner and more focused Aker Solutions. The second company to emerge from the split is Akastor, an oil service investment company that presented its earnings Tuesday. The fourth quarter of 2014 was the first three-month period for the new Aker Solutions, and I'm pleased to be here today with Svein to go through the main developments, sum up the year, and provide our view of where we're going from here. Well, let's start with the big picture. Top-line growth was strong, rising 21% in the fourth quarter and 13% in the year.
Sales increased in all business areas. Our major engineering subsea projects progressed as planned. Profit margin strengthened in the year, helped in part by improvement programs across the business. We had a healthy order backlog at the end of the year as we won key contracts in Norway, Brazil, Angola, and U.K., to name a few. At the same time, oil companies scaled back spending in 2014 amid concern over capital and the steep oil price drop since the summer. We saw this particularly in the offshore maintenance modifications market in Norway, where we adjusted our workforce capacity because of low activity. This lower market affected our order intake, which was somewhat down from a record the year before.
Still, our robust order backlog puts us in a position of strength, and our main task now is to deliver through a continuous focus on operational excellence and a ceaseless effort to bring down costs and improve financial performance. Now to the main numbers. Both top-line and bottom-line earnings developed favorably in 2014 compared with the year before. Full year financial figures show that revenue grew to NOK 33 billion. EBIT increased to NOK 2 billion. The EBIT margin widened to 6.1%. Earnings per share rose to NOK 4.71. The order intake was NOK 37 billion, bringing the backlog to a strong NOK 48 billion. Finally, the board proposed paying NOK 1.45 a share as a cash dividend to shareholders. The fourth quarter numbers were also robust.
Revenue rose to NOK 9.2 billion, helped by strong progress on major projects from Angola to Brazil and Norway. EBIT climbed to NOK 557 million, and the EBIT margin was 6.1%. Excluding one-off items, the margin was 6.8%. The order intake was NOK 6.2 billion in the quarter, aided by a NOK 1.2 billion MMO contract for the U.K. Mariner project. We also last month announced another significant contract, win a five-year engineering procurement management assistance contract worth NOK 4.5 billion for the giant Johan Sverdrup oil field. The contract is part of a 10-year framework agreement with Statoil and came after the company exercised an option. A very good excellent start for 2015.
I'm pleased to see today that the partner has filed the PDO for this important field for us and for the Norwegian market. Of course, winning contracts is just one side of the coin. Delivering is the other. That's why Aker Solutions, more than ever before, is focused on operational excellence and cost control. We emerged from the split of the company last year as a leaner business, focused on our core strengths in subsea and deepwater segments and in field design and maintenance modifications where we are market leaders. Our simpler structure reduced complexity, enables us to realize deeper synergies. To this end, we last year reorganized functions to better utilize the expertise throughout the business to avoid duplication and at the same time strengthen processes. We intensified efforts to reduce costs in all parts of the company.
We, we renegotiated contract terms, suppliers, and contractors to adapt to changing market environment. We also continue a major push to improve quality and execution. This included starting initiative based on the Lean principles to test work methods and processes on key projects across the company. Successes are coming about and so that we can develop new best practice in going forward. The results are very encouraging, so much that we are expanding the program to gradually include more projects. We also focus on using our technology know-how to reduce costs and improve productivity to our customers. One example are the technology we developed to enhance recovery at oil and gas fields while also lowering costs.
Another example are the process we have put in place at our subsea plant in Ågotnes, Norway, that have enabled us to cut the average time spent upgrading a Christmas tree to our customer, Statoil, to 17 weeks from one year previously. It's all about creating value for our customers and shareholders to the right technology development, cost control, and quality and execution. Now to the future. It's no secret that these are difficult times for the industry, and many of our clients are reducing spending. There is still steady tendering on projects in our main markets, though there is a risk some will be delayed. Activity in North Sea, our largest regional market, is expected to be sluggish over the next one-two years, though key developments such as Johan Sverdrup oil field will support the business.
As I mentioned earlier, we adjusted our MMO workforce capacity in Norway last year, and we will continue to be vigilant about capacity in all areas as we face a more uncertain market short term. As we expand globally, we are well-positioned to capture growth in the deepwater and subsea segments through projects with major clients, our focus on lower contents, and our deepwater technology. Our MMO business is also gaining ground internationally in countries such as U.K. and Brunei, and there is a robust demand globally for engineering capabilities. In fact, about 2/3 of our order backlog came from operations outside Norway at the end of 2014, with Africa constituting the largest share at 37% compared with 30% for Norway.
By the end of last year, half of revenue was generated outside our home market, up from about 40% in 2013. Going forward, we expect this share to keep rising. Looking ahead to the medium term, the baseline is to grow with our key markets or at least maintain market share in our core subsea engineering MMO businesses. Long term, we are optimistic as Aker Solutions is primed to take advantage of the opportunities resulting from a shift towards more complex offshore resources. We have faced the current market environment from a position of strength with a robust order backlog and a continuous effort to strengthen operational and financial performance. Thank you for your attention, and I will now let Svein go through the numbers in more detail. Thank you. Svein?
Thank you, Luiz, and good morning. I will now take you through the key financial highlights of the fourth quarter and 2014, our divisional performance, and run through our medium-term financial guidance before we move on to Q&A. I would like to point out that all numbers mentioned are in Norwegian krone. Oh.
Took you two.
Okay, starting with income statement. Overall operating revenue for the fourth quarter was up 21% year-on-year, driven by high activity levels and good progress on a number of key projects. For 2014 overall, our revenues are up 13% compared to last year. Our reported fourth quarter EBITDA was 786 million. There was a net gain of 4 million from non-recurring items, adjusting for these, EBITDA was 782 million in Q4, equivalent to an EBITDA margin of 8.6%. On an equivalent basis, EBITDA was 661 million in the same period last year. Adjusting for the same items for the full year, our EBITDA margin was around 8.3% compared to around 7.2% last year.
Depreciation was higher than last year, reflecting recent years' investment levels, in particular in subsea, but also included are some 70 million of one-off charges related to write-offs of certain assets and technology following the demerger in September. Our underlying depreciation was 159 million in the fourth quarter. For your reference, these one-off charges are detailed on a divisional basis in our earnings report. Our fourth quarter EBIT was up slightly year-on-year to 557 million. Excluding all non-recurring items, the margin was 6.8% versus 6.4% last year. For the full year, our EBIT margin was 6.5% versus 5.4% a year earlier.
As can be seen from the slide, fluctuations in the fair value of hedging instruments that do not qualify for hedge accounting led to a fourth quarter unrealized gain of 24 million, consisting of a 91 million loss included in EBITDA and a 115 million gain in financial items. The unrealized loss for the full year was 35 million, comprising a 86 million loss included in EBITDA and a 51 million gain in financial items. Net finance, financial items of 197 million in the fourth quarter was impacted by currency effects of 105 million, mainly due to hedges of investments and dividends with no cash effect.
Our tax burden this quarter was equivalent to an overall rate of 24.5%, lower than that in the third quarter due to a number of year-end effects, primarily related to tax incentives. Our tax guidance, however, is unchanged. We still see average P&L tax rates in the low 30s range moving forward. All in all, we ended the quarter with an unadjusted net profit of 359 million, equivalent to an earnings per share of 1.3. Our proposed dividend payment for 2014 is 1.45 per share, equivalent to a payout of 30% of our net income, in line with our stated policy of targeting a payout ratio of between 30%-50%.
Please note that all comparative numbers other than Q3 2014 are selected combined carve-out financial information as in accordance with the listing prospectus from September 2014. Please also note there has been a slight restatement of the combined carve-out financial statements as further described in note 14 of the Q4 financial report. Now let's turn to our cash flow performance for the quarter. Our cash flow from operations in the fourth quarter was strong, helping us to end the year in a strong financial position. The expected increase of working capital linked to progress on major projects was offset by further project key milestone payments before year-end.
We continue to expect this favorable working capital position to unwind as our major projects progress through 2015. We continue to see a more normal level of working capital to be in the range of 1.5 billion- 2 billion. Our reported net current operating assets in NOK remains especially low, although I would note that our calculation of net current operating assets has been changed to exclude the impact of derivative hedging positions, but to include prepaid company tax and taxes payable. This is also reflected in the historical numbers provided and has been done to much better connect change in net current operating assets to our cash flow.
Our investing cash flows, mainly related to fixed assets and technology development, are on track with our earlier comments for a CapEx spend of between 500 million- 1 billion during the second half of 2014, totaliy 509 million in the fourth quarter, and is now at close 1.4 billion for the full year. The net effect of this operating and investing cash flows brought our net interest-bearing debt to 397 million at the end of the quarter. This brings us to our balance sheet position. As I mentioned, net interest-bearing debt fell to 397 million as our cash inflow increased by almost 2.3 billion from Q3.
Our leverage and gearing levels at the end of the quarter reflect our strong year-end financial position, with leverage falling to 0.15 times and gearing to 7%. These are well below our conservative balance sheet policy, which targets one times net debt to EBITDA and less than 50% gearing. Our total liquidity buffer remains robust at 7.3 billion. I would also like to highlight our return on average capital employed performance, where as of the fourth quarter, reached 18% versus 17% over the full year 2013. This increase versus last year reflects both our operational performance and also some effect of our low average working capital position. Let's move to our performance by business area.
For continuity, I will go through all four business areas here, rather than just our two primary reporting segments of subsea and field design. I would remind you that as of first quarter 2015, we will be rolling umbilicals into the subsea business area, so we will have just one subsea segment, including all of our subsea operations, and one field design segment, including engineering and MMO. We will, however, continue to report separate financials for engineering and MMO. First up is the subsea. Subsea saw a strong top-line performance with fourth-quarter revenues up 37% year-over-year, driven by good progress on a number of major projects. Our subsea margins increased versus last year, but were similar to those in Q3. The fourth quarter was impacted by high tender costs and some of the before mentioned one-offs.
Similar to Q3, a higher level of revenue from work where we are yet to recognize full profit due to the stage of project completion. We expect this revenue mix will normalize as we move through 2015 on these projects. High activity levels also continued within Lifecycle Services in the quarter, but progress on our major projects influenced the revenue mix and hence also the overall margin in the quarter. Our Subsea return on average capital employed reached 26% by the fourth quarter, a strong increase versus the level we saw last year. This reflected a number of factors, including underlying performance, but also the record low level of working capital in the Subsea business, which affects our calculation of capital employed. We expect this will normalize over 2015 as our working capital position sees an outflow on project progress.
I would note our medium-term target for Subsea remains for a return on average capital employed of between 20%-25%. Our Q4 order intake in Subsea was relatively soft, but was up 44% versus last year, and our backlog remains substantial at over 32 billion. This is equivalent to more than the last two years of Subsea revenue and gives us good visibility into 2015 and beyond. This visibility, plus our continuous emphasis on operational improvements, stands Subsea in good stead for the future. We do see some market headwinds that could offset some of our expected bottom-line improvements in the near term. We are keeping a close eye on utilization levels across our departments and sites and will adjust as needed. Our Umbilicals business reported flat revenue versus last year.
EBIT margins rose sharply, reflecting both good utilization in Norway and, in particular, in the U.S., an improved operational performance, with EBIT margins reaching 9.6% in the quarter. Reflecting this improved margin performance, our return on average capital employed in Umbilicals improved to 36%. By the fourth quarter, a strong improvement from the negative return it earned last year. This improved operational performance positions us well for the future, but near term, we do see some risks for lower order intake. Still, tendering activity in umbilical markets remains high for work in most offshore basins, but with no significant orders coming through in the fourth quarter, our backlog declined 43% year-on-year. As previously mentioned, this is the last quarter we will report separate financials for Umbilicals. From Q1 2015, we will report Umbilicals as part of our Subsea segment.
Due to a tough environment in the Norwegian market, MMO slightly decreased its revenues year-on-year. The slowdown in Norwegian MMO markets continued to be the dominant theme for the business, with margins lower year-on-year, although Q4 margins improved from the third quarter this year. One bright spot in a tough market was order intake, where MMO saw a book-to-bill of one times revenue for Q4, helped by some significant project wins. The MMO market in Norway remains challenging, we continue to expect little, if any, near-term recovery. This year in particular is likely to see the full effect of lower modification activity, we continue to see overall revenues for 2015 around 20% lower than last year.
In 2014, we undertook significant capacity adjustments to reflect lower business activity in MMO and have taken out around 1,000 people. Given these moves, we continue to expect MMO margins will gradually regain some ground and remain close to the mid-single digit EBITA margin level through this period and are positioned to recover further when the market improves. We continue to monitor the market closely and are prepared to make further adjustments if needed. Engineering showed strong top-line performance, with revenue up just over 50% from the same quarter in the previous year. Sorry, engineering. This was driven by good progress on all major projects. Importantly, our work on Johan Sverdrup is very much on track, and we were awarded the EPMA phase of Sverdrup, worth 4.5 billion, in January 2015.
This will provide a solid work base for our part of the engineering business for several years to come. Our margin performance reflected several important project milestone achievements during the quarter and much improved utilization of our engineering capacity, with EBITA margins reaching 14.9% versus 10.8% last year. Without the positive catch-up profit adjustments on some of the projects in the fourth quarter, margins would have been similar to the already strong levels we saw in Q3. This improved utilization is likely to continue for some regions through 2015 and beyond. As we said before, at Q3, in certain regions, we do see risks that lower order intake this year could cause lower near-term utilization until workload recovers. A good sign for the future was order intake.
This was quite robust, up 29% year-on-year to 1.1 billion, which kept book-to-bill around 0.9. I want to spend a few minutes on our order intake and backlog performance. Our group backlog at the end of Q4 was 48.3 billion, equivalent to almost 1.5x our last 12-month revenues. Our backlog is down slightly versus the 49 billion we reported at the end of Q3, it still remains at almost record levels, and it continues to give us very good visibility into 2015 and also quite good visibility in the medium term. I would also remind you that this end of 2014 backlog number does not capture the 4.5 billion Johan Sverdrup EPMA contract we were awarded in January.
Our order intake was lower this quarter, due partly to the high comparison base of strong order intake from the last quarter of 2013, but also due to no major awards in subsea or umbilicals. The overall order intake for Q4 was 32% lower than this time last year, but on an annual basis, our group order intake was 37.1 billion, 16% below the record 44.4 billion we won in 2013. As Luiz mentioned earlier, although we continue to see awards slide to the right in the current market environment, we do still see a number of significant projects on the horizon across our main lines of business. Finally, I would like again to run through our medium-term financial guidance. There has been no changes here since the communications around our de-merger and listing process.
Our three key medium-term guidance themes are 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. We expect continued robust margins in engineering and expect gradual recovery in MMO. We aim to improve our return on average capital employed in subsea to the level of 20%-25%. As a reminder, we did exceed this return on average capital employed level in Q4, but this was influenced by our record low level of net current operating assets and hence on our calculation of average capital employed. This will normalize as major projects progress through this year. Our other policies around topics like leverage, gearing, working capital, and dividends remain unchanged.
As I have already mentioned, our proposed dividend payment for 2014 is NOK 1.45 per share, equivalent to a payout ratio of 30% of net income. In conclusion, although the near-term picture is uncertain, our overall long-term view on the future of deep water remains positive, and we continue to see Aker Solutions as well-positioned to grow from the opportunities these markets will present in due course. Thank you. That was the end of my presentation.
Thank you, Svein. We have time for some questions now. Before we start, I'd just like to remind everybody that we, Aker Solutions and the Aker companies, will be holding a capital markets day in London on March 17th. We would love to see you there. We plan to end this session at 10. To reach that goal, we'd like to ask you to please limit your questions to one and one follow-up. We have a webcast audience, please do use the microphones and introduce yourself. Right. We'll open up for some questions. Here in the front, please. Yeah. Anne Ulriksen.
Anne Ulriksen, Nordea Markets. It sounded like you were guiding subsea margins up. Was that a correct take on your comments that you weren't booking profit on some of the larger projects yet?
I would say, we don't guide on margins. The 10.2% margin level in Q4 was, of course, impacted by the fact we still have revenue going through our P&L with no profit. SLS or Subsea Lifecycle Services activity were holding up healthy in the fourth quarter. We do of course, focus on driving the subsea margin up as we have communicated, closing in towards what we see some of our peers are operating at. I'm not specifically guiding the margin up.
10.2 for 2015 would disappoint. 10.2 for 2015 would disappoint, wouldn't it?
We're working hard to improve. That's what we told the market in the third quarter when we split. This is a stronger company. Of course, we are living more in certain markets now, as you know. Good part of our margins come out of services. They are holding steady, but we need to see what's going to happen going forward. We have a lot of components to install because we are delivering pretty strongly, so we will have some offshore service that will come regardless. Of course, we have to be, we don't like to guide on the margins, but we are working hard.
Follow-up to that, when you're taking umbilicals into subsea in the numbers, and we're not going to see those split out, and the umbilicals backlog is dropping quite considerably with no order intake. Assuming weak order intake in umbilicals going forward, when do you run into new capacity costs in umbilicals? How much would they potentially be?
Okay, I can start with that. You know, our U.S. plant is extremely busy, running at full capacity, and we have very strong backlog in U.S. operation. In Norway, we have some soft spots. The market is very competitive, but on the other hand, we have a lot of opportunities out there. As we mentioned during the presentation, we will manage capacity as it comes. If necessary to reduce capacity, we will. We can reduce shifts. We have a pretty large amount of contractors in the business. We'd like to keep that balance to be able to flex the workforce. As we mentioned, we are very vigilant and close to that. There are opportunities out there. Svein, you want to add anything on the.
No, we have already started, you know, adjusting capacity in our umbilicals business in Norway. As Luiz mentioned, contractors is of course the first adjusting flexibility. Tendering activity remains high, and we have secured orders already in the first quarter. The prospect base still is pretty healthy. Sliding to the right, but we're still pursuing.
We do have some opportunities to reduce shifts and so on, 'cause we are, we are working full blast in our plant still.
Thanks.
Next question, Turner.
Yeah. Hi, Turner Holm from RS Platou. I wonder if you guys could just talk a little bit about the near-term outlook for for order intake in in subsea, especially if you could comment on the Petrobras 2015 subsea tree awards that are supposed to come this year. Is it still reasonable to expect that within the year?
Okay. It's pretty clear that there is more uncertainty in the market. There's no question. The list of project is quite large, extent, like it has been for a while. Of course, with back to Brazil has the largest discoveries that it is in its head for the last 10 years. I guess 2/3 of those discoveries have been made in Brazil, by Petrobras and its partners. We know in the long term, there's a lot of work to come. There's no question that the Petrobras current turmoil is slowing down. Important to mention that our plant in Brazil this year has had record output. We never delivered so much on and on time for the client. If you look back where we were in 2011, that's a major step up.
It's a huge tribute to the management team in Brazil. We're very proud of they have to achieve. Our relationship with that client is good as ours, better than ever been, always been good, and we look into that. When those projects are going to materialize, that's a question mark. Of course, the oil price has fall, we follow this, and the clients are reviewing all those projects, so they might take longer to mature, but they won't go away. They won't disappear. The question is, how can we work with our clients to make those projects viable? I think it's clear to say that the industry now is a big change in the dialogue with the clients. We actually witnessed what Statoil said this week. Of course, we are working with them to reduce costs constantly.
There is now a big drive towards standardization, the use of new technology. Of course, it's not going to come from our margins. Let's be clear that there's no enough margin in the industry to just reduce. That we have to improve this efficiency like we're doing, but we also have to discuss with the clients how can they make those projects viable. We cannot guide the order intake at this moment, there are some prospects there that they're progressing. The project teams are in place and the clients, we have not seen we have not lost projects recently. That's another important data point. Very few data points as we talk here using the analyst jargon, right, David?
Okay. Sticking with subsea, I'm just wondering if you could kind of make some comments on maybe what some of your U.S. competitors have been saying this earning season. They've been talking about customers asking for pricing concessions on new projects. They've been talking about facing potential capacity issues. Also, there was a comment the other day about seeing actually the Subsea Lifecycle Services decline in the North Sea. Are you guys seeing that? If you could just give us any color on kind of how the current macro environment is sort of affecting pricing and capacity.
Okay. I think there's a lot of questions in one question.
Yeah.
Let me try to take it from the top. We have not seen clients come and ask for discount on existing projects. As I mentioned before, that's not how we're going to make those projects more viable, I would say. We have done that. Actually, we actually start ahead of the curve. If you remember, we split the company and we simplified. We've been talking about that exercise before. I think our backlog is, at my view, secure. The projects are very robust projects we are working on. Back to your question about even Petrobras. Now we are working the Pre-salt. That's a top priority for Petrobras.
In fact, I always like to remind the audience that 90% of the oil from the Pre-salt are flowing to all three. It's we have a very strong position on that play, which is the biggest focus and a big success. I don't think we see clients coming on that ground. We see clients coming to discuss what can be done in projects to improve? How can we share tooling? How can we standardize? How can we look at solutions? In your second question on services, we have to install this equipment, we have to produce the oil. We also remind you that we work in long-term projects, we don't work in short-term. Our activities are long to mature, long-term projects. I think we are.
The key question here, the key or the key answer is to work close to the clients as we're doing. You want to add anything else, Svein?
Yeah. Just to say we of course entered 2015, subsea-wise with an extremely strong backlog and very focused on delivering on that backlog, yeah, as planned. Prime concern for most of our clients is to reach schedule in terms of when to have first oil. Of course, this is our prime focus at the moment: deliver.
The gentleman at the back, Eirik Mathisen.
Hi. Eirik Mathisen, DNB Markets. A quick question on the subsea market on Norwegian Continental Shelf. First, can you remind us on how much of the subsea revenue in 2014 was generated from projects/work on the Norwegian Continental Shelf?
From the top of my head, I think I will have to come back to you. Subsea specifically, you're saying?
Subsea specifically, yes.
Overall revenues, for Aker Solutions in Norway was 50% in 2014. subsea specifically, I think I'd have to come back to you.
It's certainly that the North Sea is not very strong, the Norwegian North Sea is not very strong in terms of subsea deliveries. I mentioned earlier that our backlog now is 37% in Africa, and a strong backlog in Brazil. It is in terms of deliveries is, I guess, weaker than it used to be. There are opportunities out there with Johan Sverdrup, Johan Castberg when it comes and quite a lot of tiebacks that are being intended for available by Statoil.
I'm just trying to understand how the fact that Statoil is actually introducing dry, wells, solution instead of subsea solutions because of subsea costs, increasing too much, and also the Statoil fast track portfolio winding down. How will that affect subsea revenue in 15, in particular in 16?
Okay. I can take that. Our dialogue with Statoil has no indication they're going to move away from subsea. In fact, they still want to put more components subsea. That's the drive. I guess you might be referring to one data point, which is the platform they just announced or so-called Subsea on a stick. See how much subsea is on their mind. We haven't seen any indication they're going to move away from that. It's just, I guess, one particular time that the activity is slowing down. It's getting strong in other places, as we mentioned before.
You're confident that you will be able to offset lower subsea revenue on Norwegian Continental Shelf from other regions also in 2016 and 2017?
I think we are confident as we can be in the current uncertain markets. We have to remind you that we have actually three plants. We are very, very similar, so we share capacity around those plants. Actually, our Norwegian plant is extremely busy with the projects in Africa. A lot of the work's coming from here. We kinda balance the workload between these plants. They, into 2015, they are very, very, they have nicely loaded to say that.
Okay. Thank you.
Håkon Amundsen.
Yeah. Håkon Amundsen, ABG. Just a question on your backlog for 2015. You have close to 24 billion. Looks relatively high compared to revenue expectations in the market. Can you help us bridge how we can get to a 2015 expectation in terms of services and new orders, I mean, roughly?
I'm not going to go specifically on our volumes for 2015. As you're saying, about 50% of our current backlog is to be progressed through 2015. It's a very healthy in-hand situation to start the year at. The other components of course which is not reflected in the backlog is service revenues. Typically, we would have growth within existing contracts and call offs on the frame agreements. Other than to say, it's a very healthy in-hand situation going into a very uncertain period, I would say revenue-wise overall Aker Solutions, if I were to say, you know, flat from 2014.
Okay. Can I just follow up on that? Can you provide what the backlog for 2014 was in Q4 2013?
The backlog for 20 to be executed.
Just to have a comparable year-over-year.
It was lower. The in-hand situation was significantly lower. The exact percentage, I'd have to come back to you.
Okay. Thank you.
In the presentation.
It's.
Is it?
It's a stronger in-hand situation than we had at the same time last year.
Okay.
Definitely.
Thanks.
Okay. Any further questions? Okay. Frederik Lunde at DNB.
Thanks. Very good end of the year for you guys. I just wondering how do you see cash flow progressing in 2015? You mentioned normalization. This is going to be flushing Q1, or do you expect a more gradual build up in working capital?
We have guided on what we see as our normal working capital level. 1.5 billion- 2 billion is what we see as normal, 5%-7% of revenue. It will be a gradual, I don't foresee it will normalize up to that guiding range, you know, already by the end of 2015. It will go up. In terms of our CapEx spend, as previously communicated, we have several ongoing, significant investment programs. We have previously guided of between 1.5 billion- 2 billion in terms of CapEx spend in 2015. That's still a correct guidance. However, I should add we have a flexibility within that level.
can indicate that we have 35, 40% of that level still not committed or initiated. We definitely have some flexibility in terms of cash flow for 2015.
Just a follow-up on the CapEx. I mean, you're commenting on long-term outlook, which is quite encouraging still, but very challenging 2015 potentially for the industry. I mean, what's the trigger point for cutting CapEx sharply or going ahead with 1.5 billion- 2 billion?
The largest programs, as you're aware of, is our new greenfield facility in Brazil, and we have every intention to complete that program and finish that new technology center and manufacturing plant within this year. Other than that, of course, we have commitments related to our work in Angola, which will drive some CapEx. We have our ongoing R&D and technology portfolio, which, according to our strategy, is still a track we want to go down in terms of completing these programs. Then, of course, we have the flexibility in terms of when to initiate and whether to initiate some of the other fixed asset programs and R&D technology programs.
Of course, we have our regular maintenance CapEx needs, which, you know, typically will have to be done.
Yeah. Just adding up, we have flexibility on what we have not started. We can delay some of the projects if necessary to just for the cash flow. But of course, the facility in Brazil, and remind the audience that we're going to actually replace the existing facility with a better facility, not create a new facility and keeping both. Just to improve process, to have a better plant with more capacity. That we want to finish as soon as possible, of course, 'cause the longer it stays, the more money it would cost. We want to. We are very. It's progressing across to plan. We are very comfortable to get that facility started this year.
Right. We'd like to be able to open for some questions from our webcast audience. If there are no further questions in here, we will do that.
As a reminder, to ask a question, please press star one on your telephone keypad. We now take our first question from Phillip Langley from HSBC. Please go ahead. Your line is open.
Yeah. Hi. Good morning, everybody. Two questions, please. First one, on Subsea. In fact, they're both on Subsea. The first one of your peers, had some of their Brazilian backlog shifted into 2016 from 2015. Have you seen any rescheduling of your own backlog to date, or are you engaged in such conversations either in Brazil or elsewhere? That's the first question. The second question, again, on Subsea. We're hearing very little at the moment from Statoil about subsea factory. Of course, you know, you set up the business really to be a play on this longer term scene.
Now, I think Statoil's 2020 target looks a little bit ambitious anyway, but it does appear that Statoil may be de-emphasizing its plans somewhat, around the subsea factory. Do you agree with that sentiment based on your own conversations with the client?
Okay, thanks for the questions. They're very good, complex questions. Let me take the first one. With Petrobras, I mentioned that we had the record output from that plant, the old plant in 2014. We are in dialogue with Petrobras to move some of the backlog to 2016. This dialogue is progressing very well. In fact, it would be good for us. We see activity in our Brazilian plant, which was full capacity, all shifts, 100% utilization to remain in 2015. It would be good to move some of this backlog, in fact, to 2016. They'll give us more, a more balanced load capacity when we start a new plant. That's.
I also like to remind you that I think I have a kind of a guess who was the peer who mentioned that. We have a different backlog. Our backlog is almost all for the Pre-salt, which is a very good place to be, because the Pre-salt is full priority. I can assure you that every tree we have in our backlog has a tag number, has a location to go. We are very comfortable with backlog in Brazil. The question I think it was answered, what's the future? We see Petrobras working very hard on the with Total and Shell in the Libra field. There's no signs of slowing down that important play. There are some positives there.
Of course, we need to wait until the client stabilize after change of management to see them going back into activity. In the second part, I mean, Statoil is doing a lot still. Actually, I mentioned Statoil and Petrobras because they both awarded a contract to do some study in Brazil, a small contract, but to do some study on subsea separation in Brazil just this quarter. They're still progressing on the plans to develop that. As I mentioned, when we split the company, the subsea factory is not the bread and butter of this company. It's more to the future.
I think I compare when I've done the roadshow that the subsea factories was subsea was 30 years ago when I started, was kind of a niche market, now it's widely used. Subsea factory is the same. Statoil is still progressing. We are progressing very well with the Åsgard project that is going into installation this year. They're progressing the plans. I guess perhaps all the discussions around oil prices taking some of the discussions on technology, but technology is evolving, and that's where we're going to succeed as an industry, in my view, moving... Because the subsea factory, as we call it, and we're trying to move away from this name actually, because it's Advanced Production Systems, we call it now, because they go in several segments.
If you look, for example, the boosting segment, the pumping segment, that's very, very bullish these days. People are looking how to take more of the existing assets. We're developing some very interesting technology within our company and within the alliance, the SPA alliance with Baker Hughes. Some very interesting competence and technology can help the clients developing existing fields, improving productivity.
Okay. Just to follow up on the first question, the rescheduling of the backlog. Are those conversations strictly in Brazil right now, or do you see any risks of backlog rescheduling, you know, elsewhere?
Well, Brazil is, of course, the most obvious ones. It will be a possibility, but we don't see that right now. The projects, as I mentioned, those are long-term projects. Some of the projects we're working on now, let's take the Kaombo in Angola. They're going to produce oil in three years' time. We have actually to... That's why Svein talk about investments in Angola. That's where I was last week, making sure that we are progressing with the clients, both Sonangol and Total. That's progressing. We have to continue investing, we continue develop the projects, and we see no sign of any change at the present time.
Thanks very much.
Thank you. We will now take our next question from Christian Malek from Nomura. Please go ahead. Your line is open.
Hi. Good morning, gentlemen, and thank you for taking my question. Just, just in terms of your project pipeline, which contracts, would you sort of assign a fairly high probability of being sanctioned this year that you sort of suggested will help support your utilizations? I'm speaking specifically in Norway, West Africa and Brazil. Can you tell us what specific projects you're counting on to help support backlog and then to your margin for 2016, please?
Okay. The first question on orders, we usually don't guide on orders. We don't list projects. We don't give that kind of indication. I think I mentioned earlier that the it's pretty clear that there's uncertainty now. We not like to tell which project we're going to win and which ones we're going to land. Certainly the Johan Sverdrup is a fantastic project for us for engineering. As I mentioned, there are projects progressing, and we hope to materialize some of those during 2015, but very difficult to give any directions right now.
I'm sorry, just to be clear, do you believe Johan Sverdrup will be sanctioned this year? Is that part of your base case or you know, sort of view on your returns outlook?
Sorry, I didn't catch your... which project?
Do you believe Johan Sverdrup will be sanctioned this year?
Difficult to say. I think you have to ask this question to Total. Let's see. We can't guide you there.
Thank you very much.
Thank you. We will now take our next question from Rob Pulleyn from Morgan Stanley. Please go ahead. Your line is open.
Yeah. Thanks very much. Good morning, gentlemen. Just a couple of questions from myself. The first one, obviously, working capital seems like it's going to be volatile quarter by quarter. I know you've given that 5%-7% of revenue range, but would you be prepared to give sort of approximation of where we may end up at the end of this year, you know, for working capital or for net debt, whichever you prefer? Secondly, on the dividend, apologies if this has been asked, and I didn't quite catch the answer. Obviously this is towards the bottom also, I believe, of your guided range.
May I ask around the thinking as to why you paid this particular dividend, particularly given the strong backlog you have, the good cash position, the low debt position, you know, why you didn't opt to pay out more of earnings within the range you've guided? Thank you very much.
Yeah. I'll let Svein take that. Just briefly on the dividend, the board recommended, we're still in our band, the guidance we gave before. I think in the current uncertainty the board decided to be more prudent. I'll let Svein take the question on working capital and more flavor on the dividend.
Yeah. No, I think as I previously, a previous question I answered, regarding 5%-7% of revenue, I think towards the end of 2015, we will be close to that range, but not yet at the 5% level, but getting close.
Okay, thanks, Svein. Yeah, the dividend prudence makes sense.
Thank you.
Thank you. As a reminder to ask a question, please press star one. We will now take our next question from Daniel Robey from Handelsbanken. Please go ahead. Your line's open.
Yes, good morning. Most of my questions have actually been answered already. Just very briefly, I think when you look at the order intake for Q4, it appears that some 50% of that is for execution in 2015. Could you elaborate a little bit how we should think about sort of the timeframe of those more variation in scope orders? Is that for execution within one year, would you say? Or how? What's the sort of the average length of those smaller contracts that you're sort of adding on every quarter? Thank you.
Out of our 6.2 billion order intake in the fourth quarter, about 50% of that was related to new orders. The rest of it was related to growth and services. In terms of the phasing of the growth or variation component of that order intake, I would just guide you back to our overall phasing of our total backlog, which indicates about 50% of the backlog to be executed in 2015.
All right. Thank you. Just, sorry. Any sort of estimates of how much we should expect in terms of sort of variation and scope orders for the coming year and if sort of the big orders dry up?
No, I'm not going to guide on that. If you see back in time related to our quarterly order intake, numbers, there is always a component of variation or growth in our existing backlog. It's just the nature of the business. As I said, in Q4, there was somewhat more than what traditionally has been the case in terms of the growth component of our order intake, yeah, in the quarter.
All right. Thank you.
Thank you. We will now take our next question from Amy Wong from UBS. Please go ahead. Your line's open.
Hi. Just a couple of questions on your margins in your various divisions. On engineering, you talk about, it's a very strong margin in the fourth quarter, on, based on improved capacity utilization and milestone achievement. I mean, were there an exceptional amount of milestone achievements in the fourth quarter, and how should we think about the underlying margin in engineering? The second question would be on the subsea segment as well in terms of your margin there. Are your projects under construction right now, in progress right now, are they all in margin recognition phase already? Thanks.
Okay. On engineering, the margin level in if you look at the EBITDA margin level was unusually high and driven by some catch-up effects related to project adjustments. Some very positive milestone achievements that triggered that adjustment to take place in the fourth quarter. As I mentioned in my presentation, I think the margin level you saw for engineering in Q3 or the margin level you can see overall for 2014 for engineering, is more the sort of level we want to drive our engineering business at through this period. Of course it's a, it's a people business. It's a, it's a utilization-driven business.
We were fortunate to have very high utilization levels through the fourth quarter, and that has an immediate impact on our margin levels. Your question on subsea was?
My question on subsea was, are your large projects that are currently under construction already hitting the margin recognition phase? If not, can you split out the proportion of revenues that actually still don't have any margin recognition yet?
There is, you know, one particular project, a big one, without mentioning name, but the biggest one we have in our portfolio, that is still at an early stage of completion. As a policy, we don't start taking profit until the project baseline has been stable. Our estimate to complete is stable. Traditionally, that margin triggering element is around 20% complete. I'm not saying that we will wait until the project is 20% complete to start taking profit on that project, but it's a pretty sizable project and still in early stages. In terms of percent complete, it's still low. That's...
All right. That's very helpful. Thank you very much.
We do need to be rounding off the session soon, so, if we could take the final question.
Thank you. There are no further questions in the phone queue at this time.
Thank you.
Sure.
Thank you very much.
Well, fine. Thank you.