Morning, ladies and gentlemen, and welcome to Aker Solutions presentation of second quarter results for 2018. My name is Tove Røysland, and I'm heading up Communications and Investor Relations at Aker Solutions. With me here today, I have our Chief Executive Officer, Luis Araujo, and our Chief Financial Officer, Svein Stoknes. They will go through the main developments in the quarter. We will also have time for some questions and one-on-one with the press after their presentations. Please note that we have no fire drills scheduled today. In case of an alarm, I would like to point you to your nearest emergency exit, which is behind you and to the left through the glass door. Luis, I will now hand the stage over to you.
Thank you, Tove. Good morning, and thank you for joining us here today. I'm pleased to be here today with Svein to go through our results for the second quarter, which was another period of strong execution and solid order intake. As usual, we'll start with the main developments in the quarter. While the market remains very competitive, activity is picking up. More projects are being sanctioned amid lower break-even costs, and we won NOK 5.7 billion in new orders in the quarter. That's almost double the same quarter last year. We delivered yet another period of strong execution, making good progress in key projects globally.
To give you a flavor, in Norway, Equinor's Johan Castberg, Troll, and Askeladd projects are moving forward, and we have started prefabrication of the templates, and we have mobilized teams in Brazil, U. K., Malaysia, and Norway. At Johan Sverdrup, the drilling platform, the riser platform, and the connecting bridge have been installed offshore. Work has started ahead of schedule on the hookup of the riser platform. At Aker BP, Valhall Flank West, the engineering for the platform is on track. This work is being carried out under our wellhead platform alliance with Aker BP, Kværner, and ABB. Also in Norway, we delivered the first two subsea trees for Ærfugl and Skogul. We did this ahead of schedule, thanks to a strong collaboration with our alliance partners, Aker BP and Subsea 7.
At this, the Valhall Gas project, we have installed the subsea template and deliver the wellhead systems. Well, outside of Norway, we also make good progress. In Brazil, we install the third deepwater manifold for Petrobras at Pre-Salt fields in the Santos Basin. We also delivered the manifold number four out of eight this fourth quarter. This fourth manifold actually will be installed later this month. We delivered three more subsea trees to Petrobras. This brings the total trees delivered to 37 out of 60 planned subsea trees for the Pre-Salt. In Angola, offshore commissioning is on track in the Kaombo Norte. The manifolds and trees are installed and about to be commissioned ahead of the first oil this year, which a major milestone for this large project.
In the quarter, we continue to make good progress improving operations and reducing costs throughout the company. This includes deploying several digital initiatives to boost efficiency as we continue to improve how we work. This effort helps support margins compared with a year earlier. Finally, and actually more importantly, we strengthened both our top and bottom lines in the period. Now, for the main numbers, our second quarter financial figures were revenue of NOK 6.3 billion, EBITDA of NOK 439 million, an EBITDA margin of 7%. Excluding special items, the margin was 7.1%, and EPS was NOK 0.48. We had another good period of order intake that accounted for NOK 5.7 billion, bringing the backlog to a healthy NOK 37 billion.
I'm pleased to say that our order intake in the last quarter almost doubled compared period last year. The new orders included a contract for Equinor phase II of Johan Sverdrup. The contract for modification of the riser platform and field center is worth NOK 3.4 billion, and it will be split with Kværner, our partner in this project. Equinor also orders EPCI contract for the Mongstad terminal. We secure, also secure work for Equinor to deliver a module for the Troll A platform to help increase output at the field. This NOK 1 billion contract is our latest award at the phase III of Troll. It comes in addition to work to provide the subsea production systems and services for the same field.
We are delighted to extend our work at Troll, a field that helps Norway remain a major gas exporter for decades to come. Outside Norway, two key customers returned to us for more work. In Angola, Total awarded a contract to deliver five subsea trees for phase III of the Dalia project. We have already delivered subsea systems and equipment for previous phases of Dalia, and we are pleased to continue our work at this field. In the U.K., we secured a three-year contract extension from Perenco for operations and maintenance services at its southern North Sea assets. We have supported Perenco at this asset since 2003, and we are very pleased they select us again. Last month, the government approved funding for the engineering and design of a carbon capture plant at the Norcem Cement Factory in Brevik.
This is great news, and we have already started the FEED for this important project. Norcem and all the carbon capture plants will be crucial to achieve the Paris climate goals. In the front end, demand is continuing to grow for our early phase work. Last year, we had many small FEEDs for tie-ins in the Norwegian shelf. This year, we are seeing that the studies and FEEDs are for larger and more complex projects, including some outside Norway. In the quarter, we won 35 front end orders, and this give us a total of 73 for the first half of the year, slightly ahead of last year. Almost a third of these orders in the first half are for projects outside Norway. I have said it before, but it's worth repeating. Early involvement put us in a strong position to secure more work.
In the first half of the year, six of our project concept studies led to FEEDs, and eight of the FEEDs led to full projects. This includes work at Troll phase III, one of our new orders for this quarter. In the quarter, we continued to deploy digital tools initiatives to make our process, our systems, and our business more efficient. This helps drive value for our customers and for our company. For example, last month, we began to move our SAP applications to their cloud-based platform. This move will save about 20% on software costs for software license costs for our company. In another example, we are using robotic automation to increase efficiency internally in areas such as HR, finance, and supply chain.
We are using a software robot named Jenkins to build and test our software for our electrical module vectors. Last quarter, I talked about what we're doing to digitalize projects and project execution. That included examples like software app, engineers, engineering assistant. This is a digital tool to provide easy access to data and documentation from projects we have already delivered. It makes easier for our engineers to find and reuse good solutions. I would like to give you a quick overview of how we are digitalizing our subsea products. We are equipping the subsea products with software and connectivity to make them more intelligent. This creates a system with real-time insight into the performance and condition of subsea equipment. Enhanced sensors on equipment and increased connectivity enable vectors to proactively monitor subsea infrastructure.
As well as remotely configuring subsea equipment, vectors can also provide diagnostics. That insight enables our customers to make the best decisions in terms of concepts, investment, safety, performance, and predictive maintenance. Vectors will be a standard delivery at many projects, including the Dvalin, Wintershall Nova, and Equinor's Johan Castberg. Making existing products and equipment smaller and lighter is one way we have already reduced costs in the equipment that we provide. Our standardized vessel subsea tree for the North Sea, for Norwegian shelf is a good example of that. Actually, these trees are being used in several current projects, as I mentioned previously. Of course, we haven't stopped there, as we need new technology to move our industry forward.
We just signed a Joint Industry Project, a JIP, with Total, Equinor, Lundin, and Aker BP to develop our next-generation all-electric subsea system. We have combined our advances in standardizing equipment with sensor technology and data capture into an all-electric subsea production system. This marks a step change in the capabilities of our subsea system and equipment that will help drive reliability in our industry. Our electric subsea system has many benefits. One, removing hydraulics can reduce topside, umbilical and subsea infrastructure, helping to lower costs. Tiebacks can be longer, so fields further out can be developed. It can also cut costs of ultra-deepwater developments. Actually, this could be the technology leap we need to reduce to compensate for cost inflation that could come as market recovers.
It enables real-time insight on energy assets, applying the analysis to this insight can reduce inspection and facilitate predictive maintenance. Our subsea gas compression system for Equinor Åsgard field is a good example of an all-electric system that can increase reliability for our customers. This complex subsea system has been in operation for over two years, Equinor says it runs like a Swiss watch. I guess with two Swiss partners, ABB and MAN on this project, this joke never gets old. Now let's look ahead. While the outlook for oil services remains competitive, there are increasing signs of a recovery. Improvement measures across the industry are lowering break-even costs. Oil prices are higher, we are seeing more projects being sanctioned. Going forward, we expect increased activity.
Tender activity is high in our main markets. We are currently bidding for contracts totaling about NOK 50 billion. About two-thirds of this is in the subsea area. We expect some key projects to be awarded over the next six to twelve months. We are well-placed to take advantage of an upturn in the market. Long term, we are optimistic. Demand for energy in whatever form will increase globally. This year, our push for sustainable solutions will truly start paying off. As I round off my part of the presentation today, let me quickly recap the main points. We closed the first half of the year with a strong order intake, high tender activity, and continued solid execution of our projects and services. These are supporting margins amid increasing signs of a market recovery.
We are well-positioned in major markets globally. We are actually pursuing new opportunities as we build our capabilities in delivering sustainable energy solutions. Thank you for listening. Svein will go through this in more details. Svein?
Thank you, Luis, good morning. As usual, I will now take you through the key financial highlights of the second quarter, our divisional performance, run through our financial guidance before we move on to the usual Q&A. As always, all numbers mentioned are in the Norwegian Kroner. As usual, let's start with the income statement. Overall operating revenue for the second quarter was NOK 6.3 billion, up 15% year-on-year, supported by continued good progress on a number of key projects. In our projects reporting segment, both field design and subsea increased the revenue from same period last year. Overall, projects was also up 15% year-on-year. Our services segment was up 16% year-on-year, reflecting our strategy to grow our world-class services business. This was primarily driven by the PAS sub-segment or Production Asset Services.
Our reported second quarter EBITDA was NOK 439 million. This included net NOK 2 million of special items. For your reference, we have, as usual, set out a table in the appendix that further specifies the special items. Excluding special items, EBITDA was NOK 441 million, an increase of 10% year-on-year from NOK 400 million a year earlier. This was equal to an underlying margin of 7.1% compared to 7.4% in the same period last year. We continue to deliver stable underlying margins, a solid achievement as newly awarded work is in early phases of execution. This is a clear evidence of our continued strong execution and good momentum on our continuous efficiency improvement program. We saw the same development for the first half of 2018. Volumes were up year-on-year by 11% to NOK 11.7 billion.
We delivered an underlying EBITDA of NOK 825 million with a margin of 7.1% versus 7.2% in the same period last year. Second quarter depreciation was slightly down year-on-year at NOK 185 million. This is in line with our guidance, and we continue to expect underlying depreciation to be around NOK 750 million-NOK 800 million per year. Our reported second quarter EBIT or operating profit increased year-on-year to NOK 254 million from NOK 99 million. Excluding special items, EBIT was NOK 256 million, and the margin was 4.1%, up from 3.7% last year. Excluding an unrealized hedging loss of NOK 18 million, net financial items were - NOK 63 million in the quarter, including a minor net negative impact from currency effects and other financial items.
We continue to see net financial items on an annual basis in the range of NOK 60 million-NOK 70 million per quarter. This excludes the effect of currency and non-qualifying hedges. Our tax charge was equivalent to a rate of 33% in the 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 unadjusted net income of NOK 117 million, or earnings per share of NOK 0.42. Excluding special items, the earnings per share were NOK 0.48. Now moving to our balance sheet and cash flow performance. On net current operating assets or working capital remained stable, and under the second quarter, very strong at -NOK 1.4 billion.
This came as a result of continued solid project execution, ongoing initiatives to optimize cash flows, and timing of some milestone payments. Working capital is likely to fluctuate around large project work, and we still expect the level to gradually trend toward 2%-4% of group revenue over the next 9-12 months. Again, as a result of the strong momentum on the initiatives to minimize our working capital needs. We had net interest-bearing items or net debt of NOK 247 million at the end of the quarter, down from NOK 475 million at Q1, reflecting good capital discipline and strong cash collection. Our net debt to EBITDA ended the quarter at a very solid 0.2 x.
As previously communicated, we still expect to be closer to our targeted level of net debt to EBITDA of about one x towards the end of 2018. Our financial position remained strong at the end of the quarter, with a total liquidity buffer at a healthy NOK 7.4 billion. This includes our revolving credit facility with leverage covenant at 3.5 x net debt to EBITDA. Our solid financial position continues to give us flexibility and good financial headroom going forward. Our cash flow from operations in the second quarter was NOK 318 million, reflecting good progress on our backlog and strong cash collection. Our investing cash flows totaled a - NOK 102 million in the quarter, and we continued to see overall CapEx and R&D at roughly 2% of revenue going forward with flexibility.
Cash flow from financing was - NOK 387 million in the quarter due to repayment of debt in Brazil with maturities in 2018. Now on to projects, where second quarter revenue was up 15% year-over-year, with growth in both field design and in subsea. This resulted in an underlying projects EBITDA margin of 6.7% in the quarter versus 7% last year. The EBIT margin, excluding special items, was 4.2%, an increase from 3.8% a year earlier. While newly awarded work is in an early phase of execution, we continue to realize significant benefits from improvement programs in our projects portfolio, coupled with solid operational performance during the quarter. First half projects revenue increased 10% to NOK 9.1 billion, and we achieved an underlying EBITDA of NOK 650 million.
This was equivalent to a margin of 7.1% versus 6.8% in the first half of 2017. Again, thanks to our continuous improvement efforts, cost reductions, and strong execution. Order intake in projects was solid in the second quarter, and book-to-bill ended at 1 x versus 0.6 x a year earlier. The book-to-bill for the first half of the year was at 1.3 x. The backlog in projects ended the quarter at a healthy NOK 27.3 billion. This is equal to about 18 months of projects revenue. Now let's take a look at the key figures for subsea and field design within this reporting segment. Revenue from subsea projects increased 11% from the same period last year on the back of our recent strong order intake.
Revenue from field design projects was up 19% year-on-year, mainly driven by several ongoing North Sea modification and hookup jobs. Solid order intake in projects was mainly driven by field design with a book-to-bill of 1.4 x, both for the quarter and for the first half. The subsea order intake is impacted by the timing of major awards, but ended the first half at a solid 1x book-to-bill. Despite the challenging market, tendering activity is still healthy, and we are currently tendering for around NOK 40 billion of work overall in projects with the majority in subsea. Our services revenue increased 16% year-on-year. This was driven by international growth in our Production Asset Services sub-segment. As of the second quarter, Production Asset Services accounted for about 50% of services revenues, up from 40% in the same period last year.
Underlying EBITDA was NOK 173 million with a margin of 13%, an increase from 12.7% in the same quarter last year. EBIT was NOK 132 million with a margin of 9.9%, up from 8.8% a year ago. The higher margins were due to increased activity levels versus last year, and good momentum on our continuous improvement program. For the first half of 2018, services revenue increased 12% from last year to NOK 2.5 billion. We achieved an underlying EBITDA of NOK 309 million, equivalent to a margin of 12.4% versus 13.4% in 2017, mainly related to changed activity mix and an unusually high inflation and commissioning activity in the first half of last year.
Second quarter order intake in services increased to NOK 0.7 billion from NOK 0.4 billion a year earlier, resulting in a second quarter book-to-bill of 0.5x. The book-to-bill for the first half of the year was 1.2x. I would like to remind you that a part of services order intake is short cycle or book-and-turn in nature. Despite the tough market, tendering activity is good, and we are currently tendering for around NOK 10 billion of work in services work globally. Over to the order intake and backlog performance for the group as a whole. Overall, second quarter order intake was solid at NOK 5.7 billion, with a good combination of greenfield, brownfield, services, and growth on existing contracts and frame agreements.
This is equivalent to book-to-bill of 0.9 x, and year to date, we have a strong book-to-bill of 1.2 x. Our backlog totaled NOK 37 billion at the end of the second quarter, which is equivalent to around 1.6 x our 2017 revenue and is up from NOK 31 billion a year ago. With the recent strong order intake, visibility has significantly improved. Order intake continued to be somewhat uneven, caused by large contracts. As mentioned earlier, tendering activity is still good, with several key projects likely to be sanctioned over the next 6-12 months. We are currently engaged in tenders with an estimated sales value of around NOK 50 billion. As a reminder, our backlog does not include a good part of our services business or potential growth or options on existing contracts. Finally, over to our guidance.
As Luis mentioned, we see an uptick in activity levels. On the back of our strong order intake in the first half of the year and continued high tendering activity, we continue to see our overall top line up close to 10% in 2018 versus a year earlier. We see revenue growth in both projects and services and across sub-segments. While some of our regions would benefit from improved order intake, we also see signs of an uptick in activity levels in these regions. We will continue to leverage the differentiating front-end capabilities to capture opportunities and engage with our customers at an early stage. At this point, we still expect our underlying EBITDA margin for the group overall to remain around current levels, even as newly priced orders enter our backlog and as new awards are in early phases of execution.
This achievement is supported by continued solid execution, and a relentless focus on continuous improvements. As activity levels are picking up, it will be important to harvest scale effects from our very fit and streamlined organization and asset base. We have a healthy backlog, improved visibility, and a solid financial position. This continues to give us increased flexibility and financial headroom to position Aker Solutions to fully take advantage of the recovery. To sum up, again, we ended the quarter continuing to deliver strong project execution with good underlying financial performance, and by securing a solid order intake, that further improves our visibility moving forward. Thank you for listening. That was the end of our presentation here today, and we will now move on to Q&A.
As Svein said, we now have time for questions. We have a webcast audience with us today, but we will start with question with the audience in this room. For the sake of good order and for the sake of the people on the webcast, can you please introduce yourself with your name and where you work? I think we have time for a question and a follow-up question from each.
Before I go into that, to make, I would like to make clear that as a Brazilian, absolutely clear, there's no question about the World Cup. No one's going to be asking. It's off the agenda. Not till 2022.
Yes, gentleman.
Yeah. Hi, guys. Håkon from ABG. Just a question on the cost pressures you're seeing, given that you're running at around 7% margin when you are recognizing, I guess, cautiously on the newly started projects. As these projects proceed, and you execute well, do you expect these cost pressures to then absorb that improving margin on those projects? Is that what you're seeing? Or do you think that's manageable?
I can start. Yeah, we are watching, of course, supply chain very closely. I think some of the changes we made or some of the efforts we put to the, to the cycle by standardizing components, as I think I mentioned, we're using the same tree in right now in the, in the Norwegian shelf for three different clients and five different projects. That same tree, that help us to also organize our supply chain in a way that they have some predictability, right? We don't change all the time, and also gonna improve the economies of scale. Of course, we all have pushed the supply chain quite hard, and that from the clients to us down the chain, and there's a limit to what you can do.
We can see that there might be some headwinds. We have not seen that yet. We see, of course, headwinds on salary demands as we get busier. Of course, we have held the salaries down for quite some time, so but it's been quite good discussion with the unions, for example, in Aura and other places, and we don't see huge pressures. We're actually hoping that we're gonna continue driving those solutions down, you know, to the shops and making sure that we take more waste to compensate for those pressures. There's also risk, and any industry has inflation, so. We have not seen still quite a lot of capacity available. That's my point.
Should probably add that we have a very strong track record now over the last four years during the downturn to improve on our sold margin levels. You know, we concluded the first phase of the journey at the end of 2017. We launched on the next phase of the journey, the next 20% we're pursuing. Of course, that is a key element of us, for us to drive our absolute margins to the level they need to be at in order to sustain margins at today's level short term. Of course, as I said, scale effects is gonna be a key element of margin expansion for us as activity levels is picking up further.
I guess like everybody else, we appreciate better prices, but, you know, we're in no way counting on that, especially because we want to make more and more projects viable like we've been doing, lowering the breakeven costs. We don't want to break that the chain now.
All right. Thanks.
Gentleman in the back.
Yeah. Hi, Tore Johansen from SpareBank 1 Markets. On the contract opportunities pipeline, you have now removed Norway from the short term contract list, as many of contracts has been awarded. Do you see more competition going forward on contract awards given that you now are mentioning more international opportunities?
I think competition is everywhere. No, as I mentioned, the industry still has quite a lot of capacity in global terms, plants, less on people maybe now. We protect our workforce, but as an industry in general, I think, quite a lot of people have exit. We need to start bringing this, some of those young guys back in. Yeah, I think there could also be competition. I think in terms of Norway, yes, we don't see a lot of new greenfield projects, with a few exceptions. I think Noaka being one of them. It's quite a lot of brownfield work, a lot of tiebacks. Actually, it's a norm now.
We see some, as I mentioned in presentation, we see some more large projects coming on now, which is good, but they're not the same scale and size as we saw in 2014. I think the companies have still been very cautious about sanctioning large projects, especially ones taking a long time to produce. We see a mix between tiebacks. That's gonna be a lot of the new fields are gonna be tiebacks like we saw Dalia now with five trees. There is next phase of Kaombo, for example, in Angola, there's some Nigerian projects, a lot of tiebacks coming in. We see a combination of both. It's, you know, but also gonna be competitive, there's no question about that.
You also mentioned Africa specifically now, which you didn't mention in Q1. Is that mainly then, and in Nigeria?
Well, I think we saw some countries moving, especially when it talks about gas and so on, you see LNG, some products moving, Senegal, new areas, Senegal, Mozambique start to move. Also the more established, I would say, Ghana, for example, there's activity there now. We also see activity in Angola finally moving forward. Of course, those countries were shocked with the oil price, and they were left with very expensive fields to develop, you know, in terms of taxes, and they're putting in place new structures, take time, have to go through to government approval. We see that they have eased out in some of those terms.
Of course, production is declining because one thing that you are sure that the declining curve never sleeps, right? It's how it goes down. We need, they start to need to replace, you know, this production. We see more movements in these places. It's actually encouraging to see that in deeper water things are start to move again.
Thank you.
Marius Olsvik, Kepler Cheuvreux. Just given that you have now more than 70% of your backlog in Norway, do you have the capacity to execute that backlog, or would you need to add capacity over the coming years? If so, do you see that capacity available or are there pressure on that capacity?
Okay. You talk about specifically Norway?
Yes.
Okay. Yeah, no, we did, you know, as we said during the course of the downturn that we are protecting capacity. We could have been far more brutal, of course, taking all four cells, but we know how much we invest in these people. We see that we're pretty occupied in the West Coast right now, that's true. There's still capacity in Oslo. Some of the large green fields have start to, you start them to demand probably in the next 12 months. We have capacity. We are hiring new people, actually focusing some specific capabilities we need to bring more people in. Also want to bring some of the more youngsters back to the industry.
We work very hard to our clients to make sure that people understand this industry has a long time span. There's a lot of new stuff to work on. I just showed today these electrical systems. It's exciting new technology to be developed, so it's a lot of good work for the young guys out there that are looking for starting their working life. Yes, we are hiring people back to capacity. You know, interesting, we got some contractors, quite a lot of contractors back for the last 12 months. Most of these people have worked for us before, which is quite good for the continuity of the systems. I think we've done some survey.
About 90% of the contractors we got to the West Coast have worked for us before. There is people out there.
I'll add to that, you know, one of the key things we have done during this downturn is to develop our global execution model. You know, despite a lot of activity North Sea-wise, we're able to execute on that work by leveraging the workforce and the sites we have globally. On a Johan Castberg project, for example, you have Norway involved, you have U.K. involved, you have Brazil involved, you have Malaysia involved. On the engineering side, we have 1,200 people, 1,600 people, strong workforce in Mumbai in India. We have just a key element of our, you know, work share globally. We have built that flexibility into our system, are able to cope with that pressure in a completely different way than we were four years ago.
That's a very important point, actually, because the work scope will vary in regions. There are some regions now they still need work. We need to work in KL, for example, need to work in London. We have demanding people in U.K. as we speak, in London. We have done some restructure there, but we keep the core business or the core group competent, so we can add contractors and also start to leverage this workforce across the globe. It's a very good point.
Thanks.
Okay. If there's any more questions from the audience in this room. I think we have one question from the webcast audience. It's from Lars Mouen Johansen in Global Assets. The EBITDA margin is lower in Q2 than in Q1. How do you see the margin development going forward?
Yeah, I think we made it clear in our in our presentation that we expect our EBITDA margin to remain around current levels. We leave it at that.
That's what we have.
We are ready to wrap up. Luis, any last words?
No, thank you for being here. I'd like to say pleased to see so many of you here in this beautiful day in Norway. I wish you a good summer. Of course, if you are in the northern hemisphere. If you are in Brazil and in Australia, good winter. Thank you.
Okay. Thank you.