Good morning, welcome to Aker Solutions presentation of third quarter results of 2019. My name is Tove Røskaft, and I'm Head of Communications at Aker Solutions. With me here today, I have our Chief Executive Officer, Luis Araujo, and our new Chief Financial Officer, Ole Martin Grimsrud. They will go through the main developments of the quarter. We will also have some time for questions and one-on-one interviews with the press after their presentations. Please note that we have no fire drills scheduled for today, in case of an alarm, I would like to point out the nearest emergency exits, which is behind you and through the door to the left. Luis, I will now hand over to you.
Thank you, Tove. Good morning, and thank you for joining us here today. I'm happy to say that the third quarter of 2019 was another period of strong execution, very strong execution, strong financial performance, and high tendering activity. Let me start with the main developments in the quarter that's populated with a great number of achievements, so hold on to your seats. The biggest achievement in the third quarter was the opening of the Johan Sverdrup field, which happened on the fifth of October. Two months ahead of schedule and NOK 40 billion below the original budget. This is a major milestone for our key clients, Equinor and Aker BP, as well as their partners, but also a major milestone for Aker Solutions.
We were the main architect of Johan Sverdrup, involved from an early stage, develop and designing the field solution together with our clients. During the project execution, we took the role as EPMA contractor. We had 1,500 people working on the Sverdrup Phase One. Following the project from concept development to FEEDs, fabrication, construction, engineering, installation, and finally, hookup. You might know the facts, I have to mention a few important ones. Johan Sverdrup will, at peak, be responsible for 30% of the total oil production for Norwegian Continental Shelf. It has the lowest CO₂ emission offshore to date. At 0.67 kilos per, of CO₂ per barrel, this is less than 5% of the old average of 18 kilos per barrel. Importantly, a break-even of less than $20 per barrel.
This is truly an offshore oil field of the future in terms of cost, quality, and CO₂ emissions. On a linked subject, some of you may have heard about the list of Norwegian government about recent cost developments in the project on the NCS. We are proud to say that we are involved in all eight projects that are currently under budget. This shows that the operational efficiency improvements we have been talking about since 2015 are coming through to our clients. Sverdrup was not the only big achievement in the third quarter. We also made good progress on key projects. We celebrated the first oil on Equinor Mariner field in the U.K. in early August. We also celebrated first oil on Utgard, also for Equinor, in September.
We completed the deliveries of Ærfugl and Skogul in Norway for Aker BP under the Subsea Alliance ahead of schedule. In China, we celebrated together with CNOOC the start of the fabrication for Lingshui Subsea Project. The manifolds for Equinor Troll and Askeladd fields were successfully installed. Also, the first subsea template for Equinor Northern Lights project was also installed. To remind you, this is a groundbreaking project for subsea CO₂ storage. Together with Petrobras, we recently celebrated the delivery of a Subsea Tree number 100 to the Brazilian Pre-Salt fields, an important milestone for Aker Solutions in Brazil. Last but not least, we delivered the first Vectus Subsea Controls module to Wintershall Nova project. As a reminder, the Vectus subsea electronic module technology provides reliability, field layout flexibility, and better communication capacity.
This is an enabler for our intelligent subsea offering, which we launch early this quarter, and which you'll hear a lot about more in the future. We deliver another period of solid financial performance. This thanks to our relentless focus on timely delivery and efficiency improvements despite the challenging pricing environment seen in recent years. These are the third quarter figures. Revenue of NOK 7.1 billion, EBITDA of NOK 553 million, and EBITDA margin of 7.8%. Excluding special items, the margin was 8% and EPS was NOK 0.33. We won NOK 4.7 billion in new orders, the backlog ended at NOK 27.4 billion. Afterwards, Ole Martin will take you through the numbers in more details.
On my previous slide, I mentioned that we won NOK 4.7 billion in new orders during the quarter. We announced a contract from ADNOC to deliver more than 100 kilometers of subsea umbilicals for the Dalma gas development in the Middle East. This is our first subsea award in the region and a great opportunity to demonstrate our capabilities. In Norway, we booked a frame agreement for brownfield services for an undisclosed client. We also won an EPC contract for a new subsea compression module on the Åsgard field. The pressure in the field reservoir is on a natural decline, and it's now time to increase the capacity to enhance production. The module will be delivered in late 2021. The remaining order intake was primarily driven by smaller awards and growth on existing contracts.
After the quarter was announced, a new consortium with EDP Renewables, with the ambition to develop a 500 megawatts floating offshore wind farm off the coast of South Korea was announced. This is in line with our updated strategy, which I will talk more about in the next slides. After the end of the quarter, we announced that we are the lowest bidder for a large subsea project. The tender comprise delivery of a significant number of manifolds for a deepwater field. We are unable to name the client or project at this stage, but we hope to be able to confirm a significant award during the first half of next year. We continue to see a strong demand for early phase front-end work, not only here in Norway, but also globally.
Out of the 37 new studies won this quarter, one-third will be executed from our offices in London, Kuala Lumpur, and Houston. This year, we have won 111 front-end orders, slightly higher than last year, which I would like to remind you was a record year. This is a good indication that operators are willing to develop new projects, and we see this as a clear sign for potential increase in sanctioning activity. As you can see on this slide, 22 studies have turned into more detailed FEED projects, compared with 16 for all of 2018. This puts us in an excellent position to further work in the next phases of these developments. Excuse me. The world will continue to see rising energy demand fueled by the emerging economies and growing middle class.
The challenge for our industry is the needs to deliver this with significant lower carbon footprint. Recently, we also see a big shift in public sentiment, and investors are reacting to climate risk, asking how companies like Aker Solutions are prepared for the energy transition. The same goes for recruitment. How attractive is the oil and gas business for both new and experienced engineers? The industry must change, and Aker Solutions needs to be at the forefront of innovation also in terms of carbon efficiency. We have addressed this in our updated enterprise strategy, and we have some clear long-term targets for our company. The new goal we call 20/25/30. It means we will generate 20% of our revenue from renewables and 25% of our revenue from low-carbon solutions by the year 2030. Let me share a few more details.
Renewable energy will play a big part in our future. We see great potential for growth in offshore floating wind, and we address this market in two ways. First, we are building on existing internal competency within floating structures, power umbilicals, subsea power stations, and subsea infrastructure. Second, we are investing in proven technology through Principal Power. Third, we aim to develop floating wind parks together with established partners in the renewable energy market. We have taken ownership stakes in big projects in California and South Korea, positioning Aker Solutions well in a fast-growing market.
On the next 10 years, we will invest and build this part of our business. Our ambition is for renewables to account for 20% of our revenue by 2030. In terms of low-carbon solutions, there is a lot we can do to help our customers decrease their carbon footprint through technology. Here are a few examples from a long list of solutions we can offer to our clients. Electrification on site. As an example, the supply of power from shore via your shredder result in fuel gas savings and a reduction of CO₂ emissions equivalent to 150,000 cars a year. Other solutions include, for example, use of unmanned production facilities and subsea gas compression. Both enable low CO₂ emissions than traditional solutions. Finally, carbon capture.
Both oil and gas installations, as well as industrial facilities, has a lot of potential to reduce with carbon capture. I will come back to this in the next slide. Our goal is to generate 25% of revenue from these low carbon offerings by 2030. We believe oil and gas will continue to be our largest revenue contributor, also in 10 years' time. This is why we will continue to work with our clients to reduce cost and carbon footprint for all developments around the world. By combining our competence in oil and gas, CCUS, and offshore floating wi nd, we can really make a difference in leading a sustainable energy future. Aker Solutions has been a frontrunner within carbon capture utilization and storage since 1996. You may even say that we started too early for this market.
In 2012, we delivered a large test plant for the CO₂ technology center at Mongstad. Currently, we are delivering a modularized Just Catch plant, capturing CO₂ from waste-to-energy plant in the Netherlands. This is a growing market in Europe and across the world, and we are in dialogue with 50 potential customers about new opportunities. As you can see on the slide, Aker Solutions can offer services, products and technical solutions throughout the whole CCUS value chain. Capturing CO₂ is essential, but we also need somewhere to store CO₂. We use our subsea expertise to enable the groundbreaking Northern Lights project. Succeeding in these projects will open new opportunities for Aker Solutions in the future. We are well-positioned to realize the first carbon capture facility at a cement plant with Heidelberg in Norway. We have completed the FEED and are ready for the next step.
This will be a significant contract for us, and, as we know, the cement industry accounts for more than 5% of manmade CO₂ emissions, and there are more than 1,000 cement plants in the planet. We are working hard to make carbon capture plants cost-efficient by using industry standards and modular solutions. At the same time, the price of carbon emissions quotas is rising. As the price of CCS solutions move towards the cost of emitting CO₂, we will see the commercialization of CCUS market take off. Now back to the third quarter presentation and to the outlook. Despite the competitive and volatile market, the outlook for offshore markets looks promising. We continue to deliver strong execution and enjoy repeat orders for key clients. Tendering and front-end activity remains high in our target markets, with current bid activity totaling about NOK 55 billion.
Contracts are taking longer to be awarded than we expected earlier this year. With a good balance between regions and segments, we anticipate some key projects to be awarded in the next six months. We have a strengthened focus on low carbon activities and a firm commitment to grow our business in that area. All in all, I believe that Aker Solutions is well-positioned to capture opportunities in both new and existing markets. In summary, we closed the third quarter with continued revenue growth, strong execution on projects and services, and high tender activity. These elements are supporting stable and healthy financial performance of our company. Thank you for listening. Ole Martin will go through the numbers in more detail.
Thank you, Luis, and good morning. I'll now take you through the key financial highlights of the third quarter, our segment performance, and run through our financial guidance before moving to Q&A. As always, all numbers are in Norwegian kroner. Let's start with the income statement. Overall operating revenues for the third quarter was NOK 7.1 billion, up 9% year-on-year, reflecting a high activity level within field design and increased activity within subsea on the back of work won over the last 18 months. As a result, our projects reporting segment was up 8% year-on-year. The services segment also delivered solid growth and was up 21% year-on-year, primarily driven by the production asset services sub-segment. Our reported third quarter EBITDA was NOK 553 million.
This included net NOK 16 million of special items, while the IFRS 16 leasing standard increased our reported EBITDA by NOK 141 million. Excluding special items, EBITDA was NOK 570 million, an increase from NOK 492 million a year earlier. This was equal to an underlying margin of 8% compared to 7.5% in the same quarter last year. Excluding the effects of IFRS 16, our underlying margins were slightly down compared to the same period last year. However, this should be viewed as a solid achievement, as we are currently progressing on our new backlog, one in a very competitive market. This is an evidence of continued strong execution and good momentum on our cost improvement programs.
Compared to the same period last year, we also see the effects of a different revenue mix on our margin, with a higher share of lower margin production asset services and field design activity. Third quarter depreciation was up year-on-year at NOK 308 million. Excluding effects of IFRS 16, the depreciation was NOK 193 million, in line with our previous guidance. We continue to expect underlying depreciation, including the effects of IFRS 16, to be around NOK 1.2 billion per year. Our reported third quarter EBIT or operating profit decreased year-on-year to NOK 245 million from NOK 282 million. Excluding special items, EBIT was NOK 262 million, and the margin was 3.7% versus 4.8% in the previous year.
Net financial items were -NOK 111 million in the quarter, excluding a minor unrealized hedging gain of NOK 6 million. We continue to see our net financial items around this level per quarter going forward, excluding the effects of currency and non-qualifying hedges. Our tax charge was equal to a rate of 34% in the third quarter. Going forward, we continue to expect average P&L tax rates to be in the low to mid-30% range. We ended the quarter with a net income of NOK 93 million, or earnings per share at NOK 0.30. Excluding special items, earnings per share were NOK 0.33, down from NOK 0.60 last year. Moving to our balance sheet and cash flow performance.
Our working capital or net current operating assets have continued to normalize and ended the third quarter at NOK 1.3 billion, in line with our previous guidance. Excluding the effects of IFRS 16, it ended at NOK 828 million. Working capital is expected to trend around 4% of group revenue. Our cash flow from operations in the third quarter was -NOK 173 million, as the working capital continued to normalize. Our investing cash flow totaled a net negative -NOK 248 million in the quarter, mainly driven by investments in offshore floating wind, rental tools, R&D, and digitalization. We continue to expect overall CapEx and R&D at around 3% of annual revenue with flexibility.
Excluding IFRS 16, we have net interest-bearing debt of NOK 1.9 billion at end of Q3, up from NOK 1.4 billion at Q2, reflecting the working capital outflow. Our net debt to EBITDA ended at a solid 1x. At the end of Q3, we continued to have a strong financial position, with total liquidity buffer at a healthy NOK 6.8 billion. This includes our revolving credit facility with a leverage covenant of 3.5x net debt to EBITDA. As a reminder, our RCF and latest bond covenants are both based on pre-IFRS 16 GAAP. Our solid financial position continues to give us flexibility and good financial headroom going forward.
On to projects, where third quarter revenue was up 8% year-on-year, mainly driven by high activity level in the field design sub-segment compared to the same period last year. This resulted in an underlying project EBITDA of NOK 455 million, with a margin of 8.1% for the quarter, up from 7.2% last year. EBIT, excluding special items, was NOK 250 million, with a margin of 4.4%, down from 4.9% last year. We had yet another quarter of solid operational performance in the project portfolio, as we still are in early stages of execution of the new backlog, one in a very competitive market. It's important that we continue to realize significant benefits from improvement programs in order to maintain underlying margins in this segment.
Some further details for subsea and field design within the projects reporting segment. Revenue from field design projects increased 9% year-on-year, driven by strong activity on several modification and hookup jobs versus same period last year. In the third quarter, field design accounted for 61% of projects revenue. Revenue from a subsea project was up 4% from the same period last year, driven by increased activity level globally. Third quarter ordering take in projects was overall NOK 3.3 billion, with NOK 1.4 billion in subsea and NOK 1.9 billion in field design. The backlog in projects ended the quarter at NOK 17.3 billion. Despite the competitive market, tendering activity remains very healthy, and we are still turning for about NOK 45 billion of work overall in projects with a substantial part within subsea. We have experienced some delays in project sanctioning.
However, there is a high probability of several of these ongoing tenders to be concluded over the next 6 months. Our services revenue increased 21% year-on-year, mainly driven by international growth in our production asset services sub-segment, which accounted for 59% of services revenue. Underlying EBITDA was NOK 174 million, with a margin of 11.2%, a decrease from 14.9% in the same quarter last year, driven primarily by the effect of a different revenue mix on our margin. EBIT was NOK 112 million, with a margin of 7.2% versus 11.6% a year ago. Third quarter order intake in services was NOK 1.4 billion, mainly related to awards within production asset services. The backlog in services ended the quarter at NOK 10.3 billion.
Despite the competitive market, tendering activity within services is healthy, and we're currently tendering for around NOK 10 billion of service work globally. As a reminder, an additional part of services order intake is short cycle or book and turn in nature. Over to the order intake and backlog performance for the group overall. The third quarter order intake was in total NOK 4.7 billion, with a healthy level of unannounced or awards in several key regions globally. The order intake was equal to book-to-bill of 0.7 times in the quarter. Our backlog totaled NOK 27.4 billion at end of third quarter, which is equal to around 1.1 times 2018 revenue. The backlog for 2020 execution is about NOK 12 billion versus NOK 17 billion at the same time last year, and NOK 12 billion at the same time in 2017.
The high tendering activity and several ongoing significant FEEDs gives us reasonable visibility going forward. The order intake continues to be somewhat uneven, caused by large contract and timing of project sanctioning. As mentioned earlier, tendering activity remains high, with some key projects likely to be sanctioned over the next 6 months. We are still engaged in tenders with an estimated sales value of, in total, NOK 55 billion. Finally, over to our guidance. We delivered a solid top line growth of 12% last year, and we still see our overall 2019 revenue up around the same rate this year, in particular driven by the high activity levels in field design and production asset services, with Q4 margins slightly below Q3 level.
The phasing of our secure backlog, combined with a healthy FEED and tendering activity at this stage indicate that top line for 2020 slightly down versus this year. For 2020 overall, we currently expect a slightly lower EBITDA margin, as we are phasing in the new backlog, one in a very competitive market and as a consequence of delayed sanctioning of some major projects. This industry challenge implies a continued focus on quality, execution, and the cost discipline as we move into 2020. In this market, our capital allocation priorities remain firm. We continue to prioritize a strong balance sheet with good liquidity. We also continue to invest in the business to further position Aker Solutions for the future. Overall, CapEx and R&D are expected at around 3% of annual revenue, with flexibility.
Our dividend policy remains 30%-50% of net profit should over time be returned to our shareholders. To sum up, we ended the third quarter by continuing to deliver strong project execution with good underlying financial performance.
We see good opportunities for increased order intake over the next six months. We have a solid financial position, which continues to give us the flexibility and financial headroom to position Aker Solutions for the future, both within our traditional markets and within renewables and low carbon solutions. Thank you for listening. That was the end of our presentation here today, and we will now open for Q&A.
Thank you. I think, as always, we have an online audience, as well as the people in the room. We can start with the people in the room. It would be good if you could state your name and who you represent. If you online could do the same, that would make it a little bit easier for us to share the questions.
Tarjei Vatne from SEB. A question on the announcement on Friday on the wind farm project in Korea. Can you talk a little bit about timing of the different milestone you have on that project? At what time will you have to allocate capital for the project?
Sorry, I think the Norwegian autumn is getting to this old Brazilian. Yeah, it was an important milestone for us just to start, you know. That's the second project we work close with EDPR. This is important partnership with EDPR now together with Engie. Early stages now, we have right now, for example, we are installing the buoys locally to measure wind, and that's gonna be the first phase. Then we're gonna go into an engineering phase. I think we are probably gonna start to ramp up the project in around 2021, 2022. In terms of capital allocation, any further details?
The phase is limited and, well, we will see in later phases how much we need to allocate to that project.
Yeah. Very, as I said, interesting place to be, you know. Good incentives for new energy. The government of South Korea has ambitious plans to move into renewables. I think it's 30 gigawatts they want within a decade. It's a good place to be. I think there are more opportunities there. That's very pleased with the new opportunity.
Just to follow up on that. You will be then the operator on that project and at what time do you see it most likely that you will farm down? Because you will not be a utility company.
Yeah. I can say we are the operator. We are part of the developer. We are actually what we're trying to do, this is a new industry. We believe that we can position our company quite well to produce systems and get some direct awards and provide, as long as we have the right costing and the right technology, I think, we think we do, we can help to develop the industry. But we're not a utility company, have no intention to be a utility company. Just we wanna make the project happen, and then we see how we take forward. Still a long way to go.
Okay, thank you.
Yeah, thank you. Haakon Amundsen from ABG. Just to follow up on that. Should we expect that the, within your long-term renewable targets or low carbon targets, and also this project that you will remain within the kind of 3% of revenues, with respect to your long-term CapEx outlook?
We think we have already invested into low-carbon solutions. Example could be carbon capture and subsea gas compression. Renewable offshore wind is likely to require somewhat more investments. However, we expect to be within the long-term guidance of 2%-3% of revenue.
Yeah.
I think we have to be very clear that, of course, those are large projects, depending of the percentage you're gonna remain during the ramp up. We know the beginning is normal, not capital intensive, when you start to ramp up, those projects can take anywhere between $1.5 billion and $2 billion. Of course, you're gonna have to find ways of raising that capital. It's still a long way, and until we get there, we can well do that within our financial means.
Your own CapEx versus revenues will be below the 3%. That's understood, right? Okay, just on your guidance for 2020. You're obviously dependent on some success on some near-term tendering. Given your backlog coverage, do you feel this is sensitive in the fourth quarter that you need to book some of these large awards already in the fourth quarter? I'm just trying to see how sensitive the kind of 2020 guidance is versus short-term contracting.
Okay. No, it's pretty clear that we have to win more work. You know, I think everybody does.
Yeah.
We announced a few after the quarter ended that will be important for our plans next year. I think as we mentioned, there are several projects were quite lumpy, as you know. That's the nature of the subsea industry. Of course, we need those projects to be sanctioned, not specifically in Q4, but in the next 2 quarters for sure, to be able to have an effect next year. There's also we also always have growth on projects. We have services that in the nature book-to-bill. Yeah, we need to win work, but we're confident we can achieve that. If you look back to the position we are now, and we are a bit lower than last year, that's easy to see it.
You guys run the spreadsheets as well as we do, so you know that. We've been like that in 2017. If you look back, that was pretty much the situation.
Mm.
We've been there before. We are working those studies and so on, so we are closer to the action.
All right. Thank you.
Glenn Lodden with Nordea. You mentioned production asset services seeing increased activity. Could you shed some light as to what's driving that?
Yeah, absolutely. This is gonna be record year for us in brownfield, you know, in terms of revenues and activity. I think in activities even higher, because can you imagine the price from, I would say 30% lower, the cost overall develops comparing to 2014 when at peak. The main activity driving this is actually the fact that clients are trying to get oil for, you know, faster. We're trying to produce more from existing facilities and trying to cope with this shorter cycle that they have to compete in other place, like for example, the shale.
I think that's been the norm to the downturn, people trying to produce more from existing facilities and reduce the CapEx that is required for long cycle greenfields. That's the main driver. Things will continue actually, which is good for us, since we've been involved with the facilities for so long, and we have designed most of them in the North Sea and constructed, so we are well positioned to take more work.
In production asset services, we see a particularly strong growth international, also on the back of the acquisition of the CSE in Brazil, where we completed acquisition of the remaining 30% now, earlier in the year.
Excellent. A good point. You pay attention. No, excellent. That's true. I know.
Yeah.
Part of the growth is coming from Brazil.
Yeah.
We have strong position in Brunei.
Mm-hmm.
Strong position in Canada. That's the global trend. As we become more international, there'll be more opportunities.
Also just a follow-up on in terms of increased work. The amount of feeds that became contracts was 5 during the quarter, and for the first half of 2019 it was 2. Should we read into that as something is inflicting or changing, or is that normal variation?
Yeah, we like to believe that this is better times and people are, those projects are maturing and people start to produce oil. And we see more green fields start to move. Yeah, I hope, I hope it's a, it's a trend, but you just more and more data for you to analyze. And we keep looking and hoping that we are in, into a different nature. As you know, oil prices continue to be cycle and people still taking time to decide. A lot of activity, disruption is taking lower. There are other implications. In some of the markets, we have political changes, you have some place in Africa, West Africa start to move, yeah, all the things counter that, so.
We'll keep looking at the data. Thank you.
Yeah, absolutely. Data is everything.
Jennifer, there's a gentleman in the back.
Frederik Lunde, Carnegie. Just a question on CapEx. You're investing 3% of sales for a secndnd year in a row now. Your return on equity is in single digits. When do you expect to reap the benefits of these investments and reach sort of cost of capital, which I guess would be around 10% next year or so?
Yeah. I can start. Everything that we announce here for the future is being, it takes capital. You know, we invested on Principal Power, took ownership, we increased our ownership. We are developing new technology, investing a lot on digitalization, that we believe that's gonna help us in the future. That's happening now to reduce cost and help our clients reduce cost. I'm very, actually it was nice to see all this data about all the projects going down and then not seeing them on cost. That's coming from us, and that takes investment. I think in the long run, which. Also, important point for you, Frederik, and that's a good question, everybody's thinking about that.
Some of the projects that we are winning, we're planning to win, they're gonna require new tooling. There's a few changes that happen in the market. Some clients, for example, instead of buying the tooling, they actually are turning to lease. That's a big change, for example, in Brazil for Petrobras. This takes CapEx. Of course, you're gonna capture better margins going forward, and you prepare for more work in the press out in Brazil. We have to take that into consideration going forward.
Eskild.
Maybe add, you know, we are a technology company, and we need to invest in R&D and facilities and digitalization, you know, to remain competitive. I would say going forward, you know, to shed some more light on the CapEx, as I would say, as you know, 2% of annual revenue is needed as a minimum, while let's say the remaining 1% is needed to, could be project-specific investments like Luis mentioned rental tools, or to facilitate growth within specific areas such as, for instance, renewables, so.
Okay, great. On carbon capture, you have a quite unique position in the market. It's been very quiet for give or take 10 years now. Now we're seeing a lot of movement. Would you expect to win the first contracts say, next year, or is that too early? Is it dependent on subsidies? Can you talk a bit on the market?
Yeah. I think I mentioned that the whole, we're in the whole chain. You're right, not 10 years, actually more than 2 decades. I actually just recently wrote a blog to my employees talking about the value of persevering, which is true, and company persevere now, we think we need that. There are some challenges in the CCUS, for example, the storage. And Norway has this important project that's gonna be unique in the world. Hopefully there'll be more projects like that in the future. As I said, in terms of, for example, the Johan Sverdrup, we finished the FEED. They're ready to start execution. Of course you need some subsidies to begin with.
As I keep saying to everybody, nothing's cheaper than just put CO₂ in the atmosphere, right? But we cannot do that forever. I think that Norway is setting a great example. I participated in the European high level conference last month here in Oslo, and you can see the pressure's on, and I think there's a lot of intention, especially in Europe, to set an example. We need, of course, the CO₂ taxes so forth to match. That's what I said during the presentation. We hope... We have some projects now. I said that there's some revenues coming out of, for example, the Northern Lights. We installed the templates, and we expect to start delivering the subsea equipment in the future. They're in the drilling phase now.
I think that hopefully those, the Johan Sverdrup for example, will move. Yeah, I think we're gonna have revenues next year. I think. We're hoping.
Thank you.
Okay. Maybe we should take a couple of questions from the online audience. I'll start with two questions from Michael Alsford at Citi. The first question is regarding the tendering activity. What are the key reasons for the delays on the new awards?
Okay. I don't think that's one reason. There are several. I think it's the fact that people are taking longer to mature. You know, some of those projects, they are gonna produce oil in even now that we're doing faster, they'll produce oil in two, three years' time, so people are being a bit more cautious about the CapEx. Having said that, the oil companies net had so much cash, as you probably know. They do have the means to invest. Some of them invest in also renewables, which is good for us 'cause we're gonna be suppliers to them and in some case, partners. I think there's several reasons. I think it's more about volatility is one of them of the oil prices.
Concerns about, of course, future demand. Some of the oil companies, I guess replenishing the balance sheets, and some of them, returning capital to the shareholders, after some time. That's a mix of reasons, but no technical reasons. I think, looking into at least where we look for the portfolio, the large majority of the projects are economical at current oil prices and profitable. There are no technical reasons not to do them. People just, some case refining the concept, in some other cases, just waiting for the moment. Some of them just take a bit longer.
The second question from Michael is related to recent press reports talk about workforce reductions in the U.K. Is this a new cost-saving restructuring plan or part of the ongoing plan?
I think it's more part of day-to-day business. You know, there's no question the industry has too much capacity. We used to produce controls. It was the case there in several locations. We have a different mix these days. We're looking for low cost productions. We have quite a lot of capacity in low cost manufacturing centers like Malaysia and Brazil. There was a normal reduction capacity to cope with less demand, especially for the, for the old legacy control systems, as we bring the new Vectus control to the market. Quite successful, actually.
Okay. There's a question from David Farrell at Credit Suisse. What percentage of concept studies being won are related to renewable and low carbon solutions?
I don't think we have. Actually, I'll have to tell you a bit later about the right numbers, because I don't think we have this data. I know that some of them actually are mixed because you have some studies that are looking, for example, for wind for oil, or you're trying to power existing brownfield facilities with wind, which will be a great way to reduce CO2, even better than electrification from shore. I don't have this number actually, unfortunately. It's not a large proportion, but it's some of them.
Okay. We have James Evans from Exane BNP Paribas. He also have two questions. On your new target set out today, roughly how much of your revenue in 2019 is from renewables and low carbon solutions?
Yeah. We, again, we are not reporting the way we presented the strategy. You know, we still have both the projects, service and so on. In terms of renewables, it's very early days, not a large amount of revenues from there. There are some tenders out there for cables and so on, quite small now. In terms of low carbon solutions, we're doing several studies. We are deep into the, for example, the FEED for Jansz-Io in Australia subsea compression project. We're not, as I said, don't give any percentage now for this, nor how we are, we organize or how we are reporting.
Yeah. His second question is in the same sort of level on the R&D. How much of the R&D spend today is on renewable or low carbon solutions?
Yeah. We do not, you know, decompose that and guide on that level. However, we said, we are looking into our capital expenditures now for Q3. We invested in offshore floating wind and R&D of course is a significant part also within those growth areas for us.
Yeah. It's pretty clear that we are a company full of ideas. Actually we have ideas for at least four times more than we are spending now, but that's what Mark was talking about. We don't want our competitors to know how much we invest in either.
Okay. Any more questions in the audience? All is crystal clear. Okay. I think we can say thank you for all of us listening in today, we'll have some time with the press after.
Thank you.