Good morning. Welcome to Aker Solutions presentation of first quarter results for 2018. My name is Bunny Nooryani, I head Investor Relations and Communications. With me here today are Luis Araujo, our CEO, and Svein Stoknes, our CFO. They will go through the main developments in the quarter. We will have time for a Q&A and for some brief interviews with the media. Before we get started, I'd like to point to the nearest emergency exit which is through the glass doors on your left-hand side. Please also note that we don't have any fire drills planned today. Thank you. Luis.
Thanks Bunny. Good morning to you all, thank you for joining us here today. I'm pleased to be here with Svein to go through our results for the first quarter which was another period of strong execution and solid order intake. Let's start with the main developments. Market conditions remains challenging we are seeing increasing positive signs. Breakeven costs are continuing to come down, more projects are being sanctioned. We won nearly NOK 9 billion in new orders in the quarter almost doubling from a year earlier. We deliver another period of strong execution, making good progress on major projects globally. To give you a flavor, last month, the third and final module for the Johan Sverdrup riser platform was sailed away from the yard in South Korea.
It was installed just this week, a few days ahead of schedule at this giant North Sea field. We also moved forward with all the work on the development. Together with Samsung, we finished about 90% of the engineering and construction of the field's processing platform. We recently completed the civil works at the Mongstad terminal where the Johan Sverdrup pipeline will come ashore. We did this six weeks ahead of schedule. Also in Norway, we deliver the template for the subsea production system for the DEA Dvalin gas field. Outside of Norway, we are also making good progress. In Angola, more than a third of the 65 trees and almost half of the production well jumpers are now installed at Total giant Kaombo development.
In Brazil, we installed two water and gas alternate injection manifolds for Petrobras at the Pre-salt fields in the Santos Basin over 2,200 meters deep. We also delivered two more subsea trees for the fields, bringing the total to 34 out of 60 planned trees. We are also making good progress with our newest venture, floating offshore wind. Early this month, we were selected with partners to pursue the development of an offshore wind farm off the coast of California. This is a major step forward in building one of the first commercial-scale floating offshore wind projects in the USA. It's also a big achievement for Aker Solutions since we entered the floating offshore wind market just four months ago. The quarter saw a continuation of the good progress we have made in improving operations and reducing costs throughout the company.
This included deploying several digital initiatives to boost efficiency as we continuously strive to improve how we work. These efforts helped support margins which improved in the quarter compared with a year earlier. Finally, and importantly, we strengthened both our top and bottom lines in the period. Now, for the main numbers. Our first quarter financial figures were: revenue of NOK 5.5 billion, EBITDA of NOK 425 million, an EBITDA margin of 7.8%. Excluding special items the margin was 7.1%, and EPS was NOK 0.31. We had an order intake of NOK 8.6 billion, and this brings the backlog to about NOK 38 billion a healthy level. The last quarter was the second in a row that we have boosted our order intake.
New orders included contracts worth between NOK 1.5 billion-NOK 2 billion from Statoil to provide the subsea production systems for the Troll Phase Three and Åsgard gas production offshore Norway. We also won an order to deliver modules for the FPSO of Johan Castberg developments in the Barents Sea. This work is valued at about NOK 450 million and brings the total value of orders we have for Johan Castberg to NOK 4.5 billion. In Norway, we secure a major order from Wintershall to provide the subsea production systems, umbilical and services for the Nova field. Outside of Norway, we won contract value at about NOK 800 million from Petrobras in Brazil. This involves maintenance and modifications of the FPSO on three fields in the Campos Basin.
The work will be carried out by CSE, the Brazilian service company that we acquired in 2016. This ties very well with our strategy to grow our international service business. That's not all. We had more good news after the quarter's end. Early this month, we secured work for Phase 2 of Johan Sverdrup. It involves modifications of the riser platform and field center. The contract is worth NOK 3.4 billion and will be split equally between Aker Solutions and Kværner, our partner in the work. We are delighted to have secured more work at this project where we have worked closely with Statoil since the early phase to reduce costs and boost efficiency. In fact, the earlier we get involved in a field development, the greater the potential to optimize overall value. I don't get tired of repeating that phrase.
Our customers see the benefit of this. This is evidenced in a surge in demand for our early-phase capabilities from feasibility and concept studies to front-end engineering and design. Last quarter, we won 38 front-end orders. That's the highest number ever in a single quarter and compares with a record of 124 awards for all of last year. 1/3 of the orders are for projects outside Norway, and eight are for orders where we had our alliance partners with us. Early involvement put us in a strong position to secure more work at the development. In the first quarter, two of our concept studies led to full FEEDs, and seven of our FEEDs led to fully fledged projects. This includes work at the Johan Sverdrup development, which I will describe in more detail in the next slide.
Johan Sverdrup is a giant project we have been working on since the very beginning, we know it well. Far, we have more than NOK 8 billion of work at this North Sea project. We have worked closely with our customer, Statoil, from day one to help reduce the cost of the field by about 50%. We began with an early feasibility and concept study, then we moved to FEED work, and finally onto the full project for phase one, and now also phase two. During this time, we helped the Johan Sverdrup partnership put together an economically attractive project and the break-even cost is now below $20 a barrel. As you can see, our front-end capabilities are clear advantage in today's competitive landscape, both for our customers and for our ability to win more work.
Everything we are doing now as an industry is being shaped by the power and potential of digitalization. We took key steps in the first quarter to further develop our capabilities in this area. In February, we agreed on a long-term collaboration with software company Cognite. We use Cognite's industrial data platform to collect and analyze large volumes of data from offshore energy installations. Based on this, we will provide solutions that enable customers to make informed decisions about their energy assets at any stage of its lifetime. This will reduce costs, lower risks, and improve performance for our clients. There's more. We also recently formed Software House, which is developing software products to drive efficiencies through the life of our energy assets.
Software House incorporates the Push program, a digital initiative to improve efficiency in field developments and maintenance projects. A key objective is to accelerate the development of field concepts to reduce costs and optimize solutions for the total life of field. One of the first applications to come out of Push is Engineering Assistant. Our internal nickname for it is Google for Engineers. I find it very suitable. The application is built on the Google technology and provides easy access to data and documentation from projects that we have delivered over the years. This makes it easy to find and reuse the good solutions we have previously utilized. It also promotes faster learning and improves efficiency in projects. We also have other digital initiatives we are working on through Push which we will reveal in due time.
As you can see, we are not just talking about digitalization, so common in the industry these days. We are already actively using digital tools to enhance our existing capabilities. Now, let's look ahead. While the outlook for oil services remains uncertain, there are increasing signs of recovery. Improvement measures across the industry continue to have an effect. Oil prices are higher, and we are seeing more projects being sanctioned or about to be sanctioned. Going forward, we expect increased activity as operators need to make up for three long years of significant underinvestment in global E&P spending. There is a steady tail in our main markets and we are currently bidding for contracts totaling about NOK 50 billion. About 2/3 of this is in the subsea area and we expect some key projects to be sanctioned this year.
We see particular potential in Norway, Brazil, Asia-Pacific, and Africa, where we are well-placed to take advantage of an upturn. Long term, we are beat. Demand for energy in whatever form will increase globally. This is where our Push for sustainable energy solution will truly start paying off. As I round off my part of today's presentation, let me quickly recap the main points. We started the year with strong order intake, continued solid execution, and cost-efficient improvements. These are supporting margins amid increasing signs of a market recovery. We are well-positioned in major markets globally and actively pursuing new opportunities as we build on our capabilities in delivering sustainable energy solutions. Thank you for listening. Svein will go through the numbers in more detail now. Svein?
Thank you Luis and good morning. I will now take you through the key financial highlights of the first quarter, our divisional performance, and run through our financial guidance before we move on to 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 first quarter was NOK 5.5 billion, up 6% year-on-year. In our projects reporting segment, higher activity in field design was partly offset by lower subsea revenue as newly awarded work was in the early phase of execution. Our services segment was up 8% year-on-year, primarily driven by PAS or Production Asset Services.
As a reminder, PAS is comprised of the services component of the old MMO or Maintenance, Modifications and Operations business segment, with the addition of CSE, the Brazilian company we acquired at the end of 2016. Our reported first quarter EBITDA was NOK 425 million. This included some special items, primarily a gain of NOK 50 million from a real estate transaction. This is part of the process to optimize our setup and improve efficiency and was booked outside our two operating segments in other. Special items also included a small gain related to non-qualifying hedges, a cost of NOK 7 million related to restructuring, and a few other minor items. For your reference, we have, as usual, set out a table in the appendix that further specifies the special items in the quarter.
Excluding special items, EBITDA was NOK 384 million, an increase from NOK 363 million a year earlier. This was equal to an underlying margin of 7.1%, up from 7% in the same period last year. We continue to deliver sequential stable underlying margins as a result of continued strong execution and good momentum in our continuous efficiency improvement program. First quarter depreciation was mostly unchanged year-on-year at NOK 200 million. Underlying depreciation was NOK 185 million, in line with our guidance. Looking ahead, we continue to expect underlying depreciation to be around NOK 750 million-NOK 800 million per year. Our reported first quarter EBIT or operating profit increased year-on-year to NOK 226 million from NOK 150 million.
Excluding special items, EBIT was NOK 199 million, and the margin was 3.7% versus 3% last year. Excluding a small unrealized hedging gain, net financial items were NOK -70 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 34% in the quarter. Looking ahead, 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 105 million, or earnings per share of NOK 0.38.
Excluding special items, the earnings per share were NOK 0.31. Now moving to our balance sheet and cash flow performance. Our net current operating assets or working capital ended the first quarter very strong at minus NOK 1.4 billion. This was an improvement from minus NOK 844 million at the end of last quarter. 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 now expect the level to gradually trend toward 2%-4% of group revenue over the next nine to 12 months from previously indicated 5%-7%. Again, as a result of the strong momentum on our initiatives to minimize our working capital needs.
We had net interest bearing items or net debt of NOK 475 million at the end of the quarter down from NOK 970 million at the year-end, reflecting good capital discipline and strong cash collection. Our net debt to EBITDA under the quarter at a solid 0.4 x, we now expect to be in line with our targeted level of net debt to EBITDA through 2018 as compared to our previous guidance to exceed our conservative target level of 1 times. As previously announced, we successfully issued a NOK 1.5 billion senior NOK denominated bond in the quarter. We have also concluded with a syndicate of 12 banks to replace the old revolving credit facility with a new five-year, NOK 5 billion multi-currency revolving credit facility, still at very competitive terms.
It has the same amount, tenor, and leverage covenants as the previous revolver at 3.5 x net debt to EBITDA. We had a very solid financial position at the end of the quarter with the total liquidity buffer at a healthy NOK 7.6 billion. This includes our new revolving credit facility. Our group capital employed was NOK 7.3 billion at the end of the quarter. Our solid financial position continues to give us flexibility and good financial headroom going forward. Our cash flow from operations in the first quarter was NOK 533 million, reflecting good progress on our backlog and strong cash collection. Our investing cash flows total a net positive NOK 25 million in the quarter due to the previously mentioned real estate transaction.
We continue to see overall CapEx and R&D at roughly 2% of revenue going forward with flexibility. Cash flow from financing was positive NOK 205 million in the quarter, reflecting the change in our external borrowings where proceeds from the bond issuance was used to settle utilization of the revolving credit facility. Now on to projects where first quarter revenue was up 4% year-on-year. Increased activity in field design more than offset lower year-on-year subsea revenue. This resulted in an underlying project's EBITDA margin of 7.6% in the quarter versus 6.6% last year. The EBIT margin, excluding special items was 4.7%, an increase from 3.2% a year earlier. We continue to realize significant benefits from our improvement programs in our projects portfolio.
Coupled with our solid operational performance and high field design activity, this helped offset the impact of lower subsea volumes during the quarter. Order intake in projects was very strong in the first quarter in both subsegments, and the first quarter book-to-bill ended at 1.5x versus one times a year earlier. The backlog in projects increased to a healthy NOK 27 billion at the end of the quarter. 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 was down 10% year-on-year, but in line with last year's average quarterly volume. This reflected startup and early phase work on some of the newly awarded contracts and some projects nearing completion.
Revenue from field design projects was up 21% year-on-year, mainly driven by North Sea modification and hookup jobs as well as the effect of the acquisition of Reinertsen in Norway in the second quarter of last year. In terms of order intake, both subsea projects and field design delivered a very strong 1.5x book-to-bill in the first quarter. 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 8% year-on-year. This was driven by solid growth in our Production Asset Services subsegment in Canada, Brazil, and Asia Pacific. As of the first quarter, Subsea Lifecycle Services accounted for about 50% of services revenues, down from about 60% in the same period last year.
Underlying EBITDA was NOK 135 million with a margin of 11.7%, down from an unusually high 14.2% in the same quarter last year. EBIT was NOK 93 million with a margin of 8%, down from 10.6% a year ago. The margins are lower year-over-year, primarily reflecting the change in revenue mix as well as seasonal effects in Subsea Lifecycle Services. In addition, the installation and commissioning activity in SLS was unusually high in the same period last year. First quarter order intake increased year-over-year and totaled a solid NOK 2.2 billion for services overall, resulting in a first quarter book-to-bill of 1.9 x.
This was mainly related to the award of an NOK 800 million four-year Maintenance, Modifications and Operations contract for Petrobras in Brazil, as well as some new orders and growth on existing contracts in Canada and Brunei. I would like to remind you that a part of services order intake is a 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 globally. Over to the order intake and backlog performance for the group as a whole. Overall, first quarter order intake was strong at NOK 8.6 billion with a good combination of greenfield, brownfield, services and growth on existing contracts and frame agreements.
This is equivalent to a book-to-bill of 1.6 x and the second consecutive quarter of increased backlog which is up almost NOK 7 billion from the same quarter last year. Our backlog totaled NOK 37.6 billion at the end of the first quarter. This is equivalent to around 1.7 x our 2017 revenue. With the recent strong order intake, visibility has improved. As mentioned earlier, tendering activity is still good, with several key projects likely to be sanctioned over the next six to 12 months. We're 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 updated guidance. As Luis mentioned, there are some signs of a pickup in activity levels.
On the back of our strong recent order intake and continued good momentum securing new work, we 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 subsegments. While some regions will benefit from improved order intake, we also see signs of an uptick in activity levels in these regions. We will continue to leverage our front-end capabilities to capture opportunities and engage with our customers at an early stage. At this point, we expect our underlying EBITDA margin for the group overall to remain around current levels, even as new orders enter our backlog. This will be supported by continued solid execution and a relentless focus on continuous improvements.
As we see activity levels picking up, it will be important now to harvest scale effects from a very fit and streamlined organization and asset base. We have a healthy backlog, improved visibility, and a solid financial position. This gives us increased flexibility and financial headroom to position Aker Solutions to fully take advantage of the recovery. To sum up, we ended the first quarter of 2018 by continuing to deliver strong project execution with good underlying financial performance and by securing a strong order intake that has considerably improved our visibility moving forward. Thank you. That was the end of our presentation here today, and we will now move on to questions.
As Stein said, we have time for some questions now. We have a webcast audience here today but we'll start with questions in this room. For the sake of the webcast audience, I would ask that you please introduce yourself by name and where you work before we then move on to take questions elsewhere.
Frederik Lunde, Carnegie. First of all, congratulations on having coming out of the downturn in very good shape. My question would be, in terms of margin expansion, could that have been a case for 2019? Would it be due to operating leverage or price increases?
I can start just saying that thank you Frederik, for the words and that's a credit to the Aker Solutions team. Fantastic performance and solid execution through the downturn. That's, and continue working hard going forward. Yeah, I think in terms of margin expansion, of course, we have a huge leverage in the company because we have invested like some of our other contractors before the downturn. Also, during the downturn, we protected the execution capacity because we knew that eventually we're going to need these good people. We, as I said, we could have been, I guess, cutting our force further. We didn't do it because we want to protect these people that we invest so much in them.
I think we have some positive opportunities in space. Even though the market's picked up in Norway which is our local market, and that's what most of the orders are coming from in the 4Q and 1Q, first quarter this year. There's some signs that there are opportunities outside and that's moving a bit slow in some markets, so it's very mixed message. Yes, we have capacity, and we hope that by getting more volume, then we're going to improve our results. Any specifics, Svein, on numbers?
We don't plan on any improved, you know, pricing power. But of course, we hope to be able to convert more of our, price and improvements onto our own bottom line. But as Luis alluded to. We see a company that is extremely, you know, fit and streamlined that should be capable of lifting a considerably higher top line than we're doing today based on the same, you know, assets, manufacturing base, and a much more matured engineering workforce that we have matured and developed and been able to retain very well through this downturn. bodes well for for scale effects harvesting going forward.
One more question. I understand you're working with Aker on the Cape Coast project in Ghana. Do you envision any sort of local content lessons there going forward? Also, when will this translate to backlog for you? Would that be upon FID?
Okay. Yeah. It's very limited what we can say about the project 'cause it's very early days. Of course, our not only for Aker Energy but for any other client, our front-end capabilities are critical to start to make that project curve, you know, as efficient and profitable as possible. We're on that phase right now and probably likely to work with existing partners from here. I think it's too early to say. They just got the field, and it's still finalizing the acquisition of from Hess. I would expect this project to move very quickly because that's one of the strategy of the Aker Group is to be efficient and bring oil fast. I don't expect any backlog for this year. Probably next year.
Thank you.
Håkon Hjelmstad.
Thank you. Håkon Hjelmstad from ABG. Two questions from me. First of all, another question on 2019. I mean, your 2018 is of course boosted by your Norwegian exposure. I'm wondering if on a kind of on a general basis, is there enough momentum in the international market, and do you have good enough positions in the international market to grow in 2019, or is it too early to say?
Okay, I think it's too early to say, just putting that to a side. It's absolutely early to say, we know that the clients are really, they're focused on capital still. It's not like people are rushing to spend. They want to spend their money wisely. As I said, been three years of underinvestment. If you don't do something about it, the producer will decline, has declined in several areas and we might have a supply problem, which now actually reflected the prices. I think it's a mixed message, I think the good assets will be developed. That's what I'm saying since the beginning. I think that we are competing against shale and all other source of energy. What we have done in offshore, and particularly Aker Solutions, has been extremely good.
I think clients, and you can see that reflected in the front end, you know, and one third of those are actually outside. If you recap our front-end efforts or capabilities were pretty much in Norway. Now we start to expand, and we're doing a lot of studies for clients outside of Norway. I think, quite clearly, I think Norway has been a benchmark for a lot of industry. Just, you know, last month in the same week, I think there was sessions in the Norwegian sector in the North Sea to see how we have managed to cut those costs so quickly. Of course, as we said, usually the low-hanging fruit is easy to cut, but we have to continue that trend. It's a mix. Back to your question, a mixed message.
I see that in terms of our position, I think we're very well positioned some of the critical areas. You can mention Brazil as an example where we have today in Brazil over 3,000 people. A larger Brazilian workforce, very few expats, and we acquired a company there. We're bringing capabilities that we have from here to that company. We can see that bringing a lot of interest and the acreage is moving. Every market is particularity and it's probably early days for some of the areas in Brazil particularly. We're all positioned in Asia. We see our position in some of the countries in Africa quite good as well. I think we are confident that we can take our share and continue international expansion.
Thank you. Then a second one on the small. You had a good contract intake this quarter of unannounced or smaller contracts. Is there a step change in the kind of, in these type of orders services book and turn, or was this an exceptionally strong quarter?
I hope that not to be the exception, that we want more orders. I think it varies. That's not linear. What we see actually is what we see in the whole market that there's a lot of smaller projects that doesn't make the threshold for announcement. Tiebacks, brownfield, so that's, I think I would expect that to be a trend to have, but we always had unannounced. There's also growth on projects. There's variation orders, but there's a lot of one-offs, one, two-offs, in subsea that they don't make the threshold for announcement. That's what's expected. People trying to produce more from existing assets, so brownfields definitely back compared to the greenfields.
When I talk about outside of Norway being a bit slower, it's on the greenfields because people are, I think they are still concerned about the long term, because if you start a greenfield now, it's going to take still, even though we have cut the, the lead times on projects a lot by doing front end, all the stuff I said before, it still take a couple of years to get the oil, and people are still uncertain about what the stability of the oil price. Yeah. I think that will be probably, back to your question, probably more normal to have, to have that, especially the service side.
There's also an element in addition to that, related to improved visibility on our existing frame agreements. You know, we see and are able to discuss, you know, what the activity levels are gonna be over the next 12- 24 months, and backlog is reflecting that.
Yeah, I think one important point as well that we keep trying to educate people, sometimes when, especially in the brownfield, usually you award the front-end study with an option for an EPC. What happens that, when we announce, we announce the front end and the offer EPC. Of course, you don't announce again when you get the EPC. That's becoming more and more common as you can, as we show in the presentation.
All right. Thank you.
Any further questions in here? Right behind you, welcome.
Hi, Teodor Sveen-Nilsen, SpareBank 1 Markets. Just on the backlog, can you say anything about how large share of the backlog comprises orders awarded before the downturn started and carries high margins into over the next quarters?
I think you can easily do that math yourself. We have now consistently quarter- by- quarter provided a phasing of our existing backlog. I think, yeah, just by doing some simple math there, you can do that phasing, yeah.
Yeah, go back to the presentations and see that. For the top of mind, I don't think I can answer that.
We have provided a pretty detailed overview in our presentation of the phasing of our backlog, both as it relates to, you know, project side, and services side, subsea wise, field design wise, and it goes back now some quarters. You can find the information there.
Thank you. On Brazil, you have been mentioned as a front runner for the Mero FPS contract for some time. Can you say anything about the progress on that project? Also if you can, other contract opportunities you see specifically in Brazil?
We never comment on specific projects and that has been rumors in the industry. I would say that we, of course, very well positioned in Brazil. We just mentioned today, we probably half of the trees in Brazil, even more than half, came from our plant in Brazil. We're very well positioned for the Pre-salt. We see now in the new opportunities, we see Mero 2 just about to come out. What affected, I think, the first phase of Mero, formerly called Libra, was the fact that there was a lot of discussion about lower content. Not on the subsea side, because we provide a quite large lower content, actually, over 70%, around 70% actually in Brazil. That's not an issue. It's more an issue on FPSO.
All that discussion, lower content and the waiver, pushed the project to the right a little bit. Now we know that FPSO is placed, so we expect to see a decision quite quickly. I just cannot comment we're gonna win or not, but that's, we don't do that. Hopefully.
Thank you.
Any further questions? Gentleman at the back there.
Here it comes. [inaudible] . I have a question and perhaps a broader question about the sector and what your peers are doing now in terms of consolidation. We've just seen an aggressive bid from Subsea 7 to buy McDermott. If I remember correctly, Mr. Røkke, your top owner, was talking about potential for changing the ownership of his companies, perhaps divesting something or combining with something. Where are you on this now? What are your plans? How do you see the moves of your peers?
First of all, I think the question has to be addressed for Mr. Røkke , if that's the case, 'cause I don't comment on his. All I can say is that myself and the project, the management team of this company, we are focused on making this company better every day and win on a standalone. I think we have done a pretty good job so far, even though the rumors have been around for quite some time. I think any downturn brings consolidation, and that's not different now. I like to say that I see our strengths being a company who can be more flexible and can be more close to the clients compared to some of those giants. As I keep repeating, it's very difficult to be good at everything.
We believe that the client has a choice to select the best. Our strategy has so far been to work through alliances and to work with partners which are the best on the areas. We're not as I said, not focused on that. We're focused on delivering execution. Of course, I was watching the market and see if that's gonna affect us if the supply rules change. As I said, not much to say apart from just continue executing.
If I may, just a follow-up question. 68% of your backlog comes from Norway now, you've won some great contracts from Statoil, Johan Sverdrup and Castberg and so on. After Johan Castberg, there are no large projects coming, or we don't see them as yet. It's clearly points to your problem. You are so much exposed to Norwegian continental shelf. Perhaps my thinking and the question about consolidation was that perhaps you need to partner with somebody to expand your business internationally. What are your thoughts on that? Where do you see the orders coming, your business coming in, you know, after 2022? Thank you.
Okay. Just, first of all, be very clear that our strong position on sea is not a problem, as you referred to. It's a solution in some cases. If you look back to what happened for the last couple years, actually we came from, we always had 50/50 backlog when you start the cycle. Actually, through the internationalization, one point in time, because this market stopped before the others in a way, we actually had 70% outside of Norway, almost. Of course, now, the Norwegian market came back faster and stronger than the other markets also stopped earlier. Basically, for us, it's good to have that balance. I'm convinced, we are convinced that we have capabilities in this company and that can bring us outside Norway.
We're actually proving that in working places like even brownfield, which would be a completely Norwegian business until five years ago. We have operations now 50/50 in a way. We have large operations in Brunei, we have operations in Canada and now we have a new company in Brazil. We're moving forward and I think we have with our technology and our capability being this, what you call the field integrator, going to, I don't think there's any company has as much knowledge as Aker Solutions when it comes to the, from front end to brownfield. I think I mentioned it, all comments about digitalization as well. I think we're a unique company, and the world needs unique companies. We're gonna continue that.
We have more international clients now, key clients than we had when I started CEO in 2014. I'm very proud, myself, as saying what the team has achieved and, very confident as well.
Keep in mind also that we're in the midst of today still to execute and deliver on the world's largest subsea project in West of Africa. We just finished delivering another major project in the Congo for Total. As Luis mentioned earlier, we have that fantastic position in the Brazilian market, which we expect to be a market that picking up activity-wise very soon. We're executing on the largest project ongoing on the U.K. side of the North Sea as we speak. I mean, I think there is nothing wrong with our competitive position outside of the North Sea.
Thank you. Are there any further questions here? If not, we'll move on to the webcast. Thank you. The first question is from Lillian Starke at Morgan Stanley. Good morning, gentlemen. I have two questions. My first is, to what extent do you think the benefits of your digital strategy will be an enabler to win work versus a strategy to reduce costs? My second question is, if you could provide any color on when could we expect dividend payments, or what could be the catalyst for this to take place?
Okay, I start with the first part, which is about digitalization. I think that it's a combination. Again, I like to qualify that digitalization is such a large, you know, spectrum, and there's people investing on platforms, going to, w e decided to invest in two fronts. One is our ability to reduce our own costs, to have the connected employee, to make sure that we are reducing the time and the cost for us and for our clients. The other part is to make our offer more digitalized. I mentioned one example today, which will cut the cost for the clients a lot. Basically, I think that will make us more competitive. I think that is both.
I think we can leverage our revenues by being unique. I think we have the possibility to be the digital contractors, because the amount of data we have in this company, we have not started digitalization now. We've been working actually under a different name, even before Push, called the Knowledge Base Systems. We've been working on that for probably four years already. Now the process coming up. I think it's a combination, and it's very hard to split because you don't know how it's gonna look like. I see that for, of course, the potential for more revenues is bigger because you can, so much you can cut. The inefficiency in this industry, and we are low, slow starter, is quite, it was actually astonishing. Now we are part.
When I talk about partnerships, I mentioned about partnerships, on the oil and gas sector. We have partnerships also in the digitalization arena. We have to do that. This industry is famous for not partnering not learning from other industries and now we are doing that, actually intensively. On the second part, in dividends, Svein, you wanna try to answer that?
we have now over the last two years used the opportunity to strengthen our balance sheet and the board, and the annual general meeting has approved or decided not to pay a dividend. The plan would be to, you know, return to paying dividends as of next year. As I said, you know, our guidance remains 30%-50% of net profit either through cash or through share buybacks.
It's certainly a board decision, as I said, but that's, I think we could have even paid dividends this year, but we thought it was more prudent not to. The board will think about that, shortly.
Right. The next question is from Haakon Amundsen at Global Assets. Unlike other firms in your industry, you are experiencing increased margins on your projects. Is this an underlying trend or a one-off this quarter?
Well, yeah, I don't think we show. I would say that we're showing stability and like quite a lot of companies in our industry, we are fighting very hard for the margins 'cause the market is very competitive and prices are long way from they were in 2014. Having said that, also, the whole industry understood that, I think as I said before, I think we're the only industry that cost went up. Every other industry cost come down, so we're completely against the trend. Now I think we are in the trend. Of course, we had to do that very quickly. There was probably a very hard diet. We had to, everybody had to stop eating very quickly.
But I think now, we expect to increase our margins, as I said but not to go back to the price inflation. I don't think the industry can afford that. If you do that, we're gonna fail again like we failed in the past. I think we have to look for the efficiencies. It's not about cutting. As I said since the beginning, our margins are not where they are, of course, we're gonna make projects viable. We have to look into the efficiency, how we select, how we stop reinventing the wheel, and how we actually use, as I said, use standard solutions, and how we cut out the inefficiencies that we had before and collaborate more. I give an example.
We've been selected by IOGP, I used that example a couple of quarters ago, to design the new standards for the oil industry. Very proud to be selected. It shows our knowledge because there's a lot of companies who want to do that. The IOGP which has 80% of global production of the world, select us. They believe we can drive the standardization efforts, and they are moving now into next phases from digitalization, and we hope to be involved. That's what we need to do. That's gonna increase the margin not only for ourselves, but for the whole industry.
The gradual improvements we've seen in our project portfolio has been a result of a, you know, a consistent approach to driving through efficiency improvements in our execution. That's been at the top of our agenda since we de-merged the company back in 2014. It's absolutely not a one-off. It's been a consistent trend, and that's been the only way we've been able to maintain margins stable underlying despite our top line coming down by 30%. We see still considerable opportunities to continue on this moving forward. We're still guiding that we will see stable margins around current levels despite phasing in new work.
The next question is from David Farrell at Macquarie. Are you seeing any signs that the higher oil price is causing your clients to try and accelerate activity or projects?
Yeah, I think, historically, the oil price is always a catalyst for people doing more projects. In the front end shows that the clients start to get, I would say, more bullish and they get more comfortable. Yes, I would say that the more stable the oil prices are, the more people are likely to invest. I go back to the fact that not much has happened for almost three years. You can see that there's a large backlog of projects to be executed there. It's likely people are gonna start looking to the portfolio and start to execute the most profitable ones. Yes, the oil price actually has an effect.
All right. Question from Amy Wong at UBS. Congratulations on a strong start to new orders. On the projects you are currently tendering on, how intensive is the pricing pressure? Are you building in any cost inflation?
Okay, that's well, thanks, Amy, for the kind words. Well, the market's competitive, especially when you look, we still, like in the subsea arena, for example, we still, expectation this year is to have over 200 fees, used to have 400. It's quite a lot of capacity. A lot of plants have been closed, capacity was taken from the market but we still have cap overcapacity in some areas. I think we see a very competitive market and that's gonna remain with us. That's why we don't worry so much about building up or boosting our prices, 'cause I think we have to make sure that we are competitive.
Yeah, I respect, as Svein said before, I think we expect more to gain margins through competitiveness and also volume and operational leverage than by price competition by price increase. Everybody likes a better price. That's, I guess not only for us, but for the every other industry, it doesn't come always. You can wait for that either.
All right. Amy has another question, this time on working capital. Good job on the improvement in the working capital. Can you describe some of the processes you have implemented to deliver what looks like a step reduction to your working capital investment?
It's, it has remained, you know, unusually low. The NOK 1.4 billion triggered somewhat, as I also said, by some milestone payments at the end of the quarter. Underlying it's remain, it has remained stable, and it's due to a series of improvement initiatives, for example, on the services side, where we have more of a, you know, book and turn type activity and where we, by nature of the services business, carry a lot of working capital through, you know, inventory and just the nature of running a services business. The most important insurance premium to keep the working capital low, level at as low as they are today is flawless execution.
You know, as long as we keep on delivering, there's no excuse for the clients not to pay on time. Should we just keep it at that?
Okay. It's the final question. This is, in essence, a follow-up from Global Asset's first question. You achieved good margins in 1Q versus some of your competitors. Do you see a margin increase going forward or margin pressure?
I think we said, we don't see any, we don't plan for any improved, you know, pricing power moving forward. You know, there are two factors that will drive our margins in the right direction moving forward, and it's the continuous focus on our operational improvement and efficiency programs, and to an increasing degree, start converting that to our own bottom line. Then it's through scale effects. As activity is picking up, as I said, we don't see that we need any further, you know, assets, and we have a very scalable and highly skilled, mature workforce at the moment that should be able to lift the higher activity levels moving forward.
Okay. Thank you very much for joining us here today. We are ready to wrap up.